Deveron Annual Report 2018

FY2018 Annual Report · Deveron

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AN N UAL R E P O RT

Fellow Stockholders,

On behalf of our employees and Board of Directors, I am pleased to present the Farmer Brothers Annual Report for fiscal
2018. As we look back at the year, we believe that we have strengthened our platform for long-term growth. We continued
to make significant progress in sustainable cultivation, manufacturing and distribution practices, while maintaining our
commitment to serving some of the finest products available – all of which help make us a more attractive partner for
customers and potential customers. Our team directed a substantial degree of effort through the year toward integrating
the Boyd Coffee Company (“Boyd’s”) business after we completed this acquisition, and we achieved another major
milestone for our business with the start-up and SQF certification of our Northlake facility in March 2018. At the same
time, we remained focused on continuing to win, and onboard, new Direct-Store-Delivery (“DSD”) and direct ship
customers.

In fiscal 2018, we processed over 107 million pounds of green coffee, up 12.5% from fiscal 2017. With the Boyd’s business,
we added over 13 million pounds of green coffee, or about 12% of our total volume for the year, and we grew sales 12%
to over $600 million.

I am very proud of how the organization delivered in the past year as we continued to take significant strides forward
in our efforts to build sustainable, profitable growth and create long-term value for our shareholders.

Ramping Up Production at Our SQF-Certified
Northlake Facility

We were very pleased to receive Safe Quality Food (SQF) Certification
for our Northlake, Texas coffee processing facility in March 2018,
building on our strong record of SQF scores at our coffee processing
facilities in Houston, Texas and Portland, Oregon. SQF is a Global
Food Safety Initiative-based system that strengthens our
commitment to supplying safe, quality coffee products and
compliance with food safety legislation. The initial term of the
certification is for a 12-month period after which the Company
expects to apply for recertification on an ongoing basis.

We take the safety and quality of our products very seriously and
the SQF Certification is another way in which we are more
strongly positioning ourselves in the industry and an example of
why our customers put their trust in Farmers Brothers and the
products we sell.

Successful Integration of Boyd Coffee Company

Early in the fiscal year, we successfully completed the acquisition of
substantially all the assets of Boyd’s and our team worked in the
subsequent months to integrate the business into Farmer Brothers. We
developed a detailed plan to bring Boyd’s direct ship and DSD customers
into the Farmer Brothers fold, to transfer coffee production to our
plant, and to transition other production-related functions.

After completing the production qualification process with Boyd’s large,
national accounts, and taking leadership of all Boyd’s direct ship
customers, we began production in Farmer Brothers facilities toward
the end of the fiscal year. Notably, we retained 100% of Boyd’s large,
national accounts and retained DSD customers in line with our
expectations for typical customer turnover. We are thrilled to have
transitioned national accounts that bring to Farmer Brothers what we
believe are quality restaurant, convenience store, and grocery store
customers. We are now producing a large portion of the Boyd’s total
SKUs in our Farmer Brothers facilities, and we intend to produce 100%
in our facilities by the third quarter of fiscal 2019.

Continuing to Build Our Customer Pipeline

During the fiscal year, we continued to take steps to restructure and modernize our DSD organization, making further
progress with new hires, training, implementing key growth planning processes and building a pipeline of new customer
opportunities. While we did not add new business at the same pace as we have historically while the restructuring
initiative is taking hold, we believe that a channel-based selling organization will best position our Company for the
future and will allow us to generate more consistent growth over the long term as we convert the customers in our
robust pipeline.

SQF Certification of our Northlake facility positioned us to win and grow volume with new direct ship accounts, and
late in the year, we completed the implementation stage with a very significant customer. We expect to ramp up
production with this customer through fiscal 2019 and believe this can become one of our top 3 customers over time.
We grew our two largest customers from a little more than one million pounds to well over ten million pounds in the
span of five years – and we are working to cultivate similarly steady ramp-up with our incoming direct ship customers.

Commitment to Sustainable Business Practices

We believe that our leadership in, and commitment to, sustainable business practices enhances our ability to deepen
existing customer relationships and is a competitive advantage for us in attracting and winning new customers. Over
the course of the year, Farmer Brothers achieved many sustainability milestones including:

• Making the Carbon Disclosure Project’s Climate A-List for

leadership in reducing direct and indirect emissions;

• Reducing greenhouse gas emissions across our roasting and

administrative operations to make significant progress
towards achieving our approved Science Based Targets;

• Reaching our goal of 90% waste diversion for our primary
production and distribution facilities by implementing
ambitious recycling and composting guidelines across these
facilities;

• Meeting the Zero Waste International Alliance requirements
for diverting waste sent to landfills in these locations; and

• Earning LEED Silver Certification for our Northlake

headquarters.

In addition, we remain committed to including more sustainably-sourced coffees in our supply chain, and we continue
to track traceability levels from all green coffee suppliers on a per-contract basis.

Focused on the Future

Looking ahead, our strategic priorities remain unchanged: we are focused on completing the smooth integration of Boyd’s
and achieving the expected synergies, leveraging the investments we have made in our roasting facilities, expanding
our distribution network, as well as winning new customers and increasing business with existing customers. Our
long-term view of the industry and the prospects for Farmer Brothers remains positive. Coffee is a growing category,
and we believe that we are well positioned to capitalize on that growth, unlock Farmer Brothers’ full potential, and
deliver value to our stockholders.

I look forward to sharing more about our progress and continued growth at our upcoming Annual Meeting of Stockholders
on December 6, 2018 in Westlake, Texas.

All the best,

Michael H. Keown
President and Chief Executive Officer
Farmer Bros. Co.

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Dear Fellow Stockholder:

You are cordially invited to attend the 2018 Annual Meeting of Stockholders (the “Annual Meeting”) of
Farmer Bros. Co. (the “Company”), which will be held at the Dallas/Fort Worth Marriott Solana, 1301 Solana
Boulevard, Building 3, Westlake, Texas 76262, on Thursday, December 6, 2018, at 10:00 a.m., Central Standard
Time. The formal Notice of Annual Meeting of Stockholders and Proxy Statement, which are contained in the
following pages, outline the actions that will, or may, if properly presented, be taken by the stockholders at the
meeting. You should also have received a proxy card or voting instruction form and postage-paid return
envelope, which are being solicited on behalf of the Farmer Bros. Co. Board of Directors (the “Board”).
Participants in the Farmer Bros. Co. Employee Stock Ownership Plan should follow the instructions provided by
the plan trustee, GreatBanc Trust Company.

Among the items for which we are asking for your vote this year is the election of the Board’s director nominees.
The Board is pleased to nominate Randy E. Clark and Stacy Loretz-Congdon for election as directors. We believe our
two director nominees have the breadth of relevant and diverse experiences, integrity and commitment necessary to
continue to grow the Company for the benefit of all of the Company’s stockholders. If elected, Stacy would be a new
addition to the Board. As such, we invite you to learn more about her experience and why the Board has nominated her
for election by reviewing information in Proposal No. 1 in the attached Proxy Statement.

It is important that your shares be represented at the Annual Meeting whether or not you are personally able

to attend. Accordingly, after reading the attached Notice of Annual Meeting of Stockholders and Proxy
Statement, please promptly submit your proxy as described on your proxy card or voting instruction form. If you
choose to submit your proxy to vote your shares by the proxy card or voting instruction form, please sign, date
and mail the proxy card or voting instruction form in the enclosed postage-paid return envelope. You may also
submit a proxy to vote by telephone or Internet. Instructions for submitting a proxy over the Internet or by
telephone are provided on the enclosed proxy card. Your cooperation is greatly appreciated.

Sincerely yours,

Michael H. Keown

Randy E. Clark

President and Chief Executive Officer

Chairman of the Board of Directors

********************

If you have any questions or require any assistance with respect to voting your shares, please contact the
Company’s proxy solicitor at the contact listed below:

470 West Avenue
Stamford, Connecticut 06902
Stockholders Call Toll Free: (800) 662-5200 (within the U.S.)
Banks and Brokers Call Collect: (203) 658-9400
FARM@morrowsodali.com

Farmer Bros. Co.

1912 Farmer Brothers Drive, Northlake, Texas 76262 (682) 549-6600 www.FarmerBros.com

FARMER BROS. CO.
1912 Farmer Brothers Drive
Northlake, Texas 76262

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 6, 2018

TO THE STOCKHOLDERS OF FARMER BROS. CO.:

NOTICE IS HEREBY GIVEN that the 2018 Annual Meeting of Stockholders (the “Annual Meeting”)

of Farmer Bros. Co., a Delaware corporation (the “Company” or “Farmer Bros.”), will be held at the
Dallas/Fort Worth Marriott Solana, 1301 Solana Boulevard, Building 3, Westlake, Texas 76262, on
Thursday, December 6, 2018, at 10:00 a.m., Central Standard Time, for the following purposes:

To elect two Class III directors to the Board of Directors (the “Board”) of the Company for a three-year
term of office expiring at the Company’s 2021 Annual Meeting of Stockholders and until their
successors are elected and duly qualified;

To ratify the selection of Deloitte & Touche LLP as the Company’s independent registered public
accounting firm for the fiscal year ending June 30, 2019;

To hold an advisory (non-binding) vote to approve the compensation paid to the Company’s named
executive officers;

To approve the Company’s forum selection by-law to provide that the courts located within the State of
Delaware will serve as the exclusive forum for the adjudication of certain legal disputes; and

To transact such other business as may properly come before the Annual Meeting or any continuation,
postponement or adjournment thereof.

The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice

of Annual Meeting of Stockholders. The Board recommends: a vote “FOR” each of the two nominees for
director named in the accompanying Proxy Statement, and a vote “FOR” proposals 2, 3 and 4 on the enclosed
proxy card.

The Board has fixed the close of business on October 23, 2018 as the record date for the determination of
stockholders entitled to notice of, and to vote at, the Annual Meeting and at any continuation, postponement or
adjournment thereof.

*********************

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE 2018 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 6, 2018

This Notice of Annual Meeting of Stockholders, the accompanying Proxy Statement, the Company’s 2018

Annual Report, which includes its Annual Report on Form 10-K for the fiscal year ended June 30, 2018, and
form proxy card are available at: http://proxy.farmerbros.com.

Please submit a proxy as soon as possible so that your shares can be represented and voted at the
Annual Meeting in accordance with your instructions. By submitting your proxy promptly, you will save
the Company the expense of further proxy solicitation. For specific instructions on submitting a proxy to
have your shares voted, please refer to the instructions on the proxy card or the information forwarded by
your bank, broker or other nominee. Even if you have submitted a proxy, you may still vote in person if
you attend the Annual Meeting. Please note, however, that if your shares are held of record by a bank,
broker or other nominee and you wish to vote in person at the Annual Meeting, you must obtain a legal
proxy issued in your name from such bank, broker or other nominee. If you are a beneficial holder of
shares held in “street name,” you should follow the voting instructions provided by your bank, broker or
other nominee to ensure that your shares are represented and voted at the Annual Meeting.

If you are a participant in the Farmer Bros. Co. Employee Stock Ownership Plan (the “ESOP”), you

should follow the instructions provided by the ESOP trustee, GreatBanc Trust Company (the “ESOP
Trustee”), with respect to having the shares allocated to you in the ESOP voted at the Annual Meeting. If
you are an ESOP participant, although you may attend the Annual Meeting, you will not be able to cast a
vote at the Annual Meeting with respect to any shares you hold through the ESOP.

Your vote is very important. Please submit your proxy even if you plan to attend the Annual Meeting.

To submit a proxy to vote your shares over the Internet or by telephone, please follow the instructions on
the enclosed proxy card.

By Order of the Board of Directors

Thomas J. Mattei, Jr.
Chief Legal Officer and Secretary

Northlake, Texas
October 25, 2018

********************

The accompanying Proxy Statement provides a detailed description of the business to be conducted at the

Annual Meeting. We urge you to read the accompanying Proxy Statement carefully and in its entirety.

If you have any questions concerning the business to be conducted at the Annual Meeting, would like

additional copies of the Proxy Statement or need help submitting a proxy for your shares, please contact
the Company’s proxy solicitor:

470 West Avenue
Stamford, Connecticut 06902
Stockholders Call Toll Free: (800) 662-5200 (within the U.S.)
Banks and Brokers Call Collect: (203) 658-9400
FARM@morrowsodali.com

TABLE OF CONTENTS

INFORMATION CONCERNING VOTING AND SOLICITATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 1 ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 2 RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . .
CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Meetings and Attendance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charters; Code of Conduct and Ethics; Corporate Governance Guidelines . . . . . . . . . . . . . . . . . . . . . . . .
Board Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Qualifications and Board Diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forum Selection By-Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Leadership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board’s Role in Risk Oversight
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation-Related Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communication with the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPENSATION DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPENSATION COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NAMED EXECUTIVE OFFICER COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employment Agreements and Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grants of Plan-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding Equity Awards at Fiscal Year-End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Option Exercises and Stock Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in Control and Termination Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potential Payments Upon Termination or Change in Control
CEO to Median Employee Pay Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 3 ADVISORY VOTE TO APPROVE THE COMPENSATION PAID TO OUR NAMED
EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 4 APPROVAL OF THE COMPANY’S FORUM SELECTION BY-LAW . . . . . . . . . . . . .
DIRECTOR COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . .
AUDIT MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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APPENDIX A: Forum Selection By-Law

THIS PAGE INTENTIONALLY LEFT BLANK

FARMER BROS. CO.

1912 Farmer Brothers Drive
Northlake, Texas 76262

PROXY STATEMENT

INFORMATION CONCERNING VOTING AND SOLICITATION

What are the date, time and place of the Annual Meeting?

The enclosed proxy card is being delivered with this Proxy Statement on behalf of the Board of Directors
(the “Board of Directors” or the “Board”) of Farmer Bros. Co., a Delaware corporation (the “Company,” “we,”
“our” or “Farmer Bros.”), in connection with the 2018 Annual Meeting of Stockholders (the “Annual Meeting”)
to be held on Thursday, December 6, 2018, at 10:00 a.m., Central Standard Time, or at any continuation,
postponement or adjournment thereof, for the purposes described in this Proxy Statement and in the
accompanying Notice of Annual Meeting of Stockholders, and to transact such other business as may properly
come before the Annual Meeting. Proxies are solicited to give all stockholders of record an opportunity to vote
on matters properly presented at the Annual Meeting. The Company intends to mail this Proxy Statement, the
accompanying proxy card and the Company’s 2018 Annual Report, which includes its Annual Report on Form
10-K for the fiscal year ended June 30, 2018 (“2018 Form 10-K”), on or about October 29, 2018 to all
stockholders entitled to notice of and to vote at the Annual Meeting. The Annual Meeting will be held at the
Dallas/Fort Worth Marriott Solana, 1301 Solana Boulevard, Building 3, Westlake, Texas 76262. If you plan to
attend the Annual Meeting in person, you should review the details below under the section captioned “Who can
attend the Annual Meeting?”

What am I voting on?

You will be entitled to vote on the following proposals at the Annual Meeting:

• The election of two Class III directors to serve on our Board for a three-year term of office expiring at
the Company’s 2021 Annual Meeting of Stockholders and until their successors are elected and duly
qualified;

• The ratification of the selection of Deloitte & Touche LLP (“Deloitte”) as our independent registered

public accounting firm for the fiscal year ending June 30, 2019;

• The approval, on an advisory (non-binding) basis, of the compensation paid to the Company’s named

executive officers; and

• The approval of the Company’s forum selection by-law to provide that the courts located within the
State of Delaware will serve as the exclusive forum for the adjudication of certain legal disputes.

How does the Board recommend that I vote?

The Board recommends that you vote using the enclosed proxy card:

•

“FOR” the election of each of the two nominees named herein to serve on our Board as Class III
directors for a three-year term of office expiring at the Company’s 2021 Annual Meeting of
Stockholders and until their successors are elected and duly qualified;

“FOR” the ratification of the selection of Deloitte as our independent registered public accounting firm
for the fiscal year ending June 30, 2019;

“FOR” the approval of, in an advisory (non-binding) vote, the compensation paid to our named
executive officers; and

•

“FOR” the approval of the Company’s forum selection by-law to provide that the courts located within
the State of Delaware will serve as the exclusive forum for the adjudication of certain legal disputes.

Who can vote?

The Board has set October 23, 2018 as the record date (the “Record Date”) for the Annual Meeting. You are
entitled to notice of and to vote at the Annual Meeting any shares of common stock, par value $1.00 per share, of
the Company (“Common Stock”), and any shares of Series A Convertible Participating Cumulative Perpetual
Preferred Stock, par value $1.00 per share, of the Company (“Series A Preferred Stock”), on an as-converted
basis, in each case, of which you are the holder of record as of the close of business on the Record Date. Each
share of Series A Preferred Stock entitles the holder(s) thereof to vote on an as-converted basis together with the
holders of Common Stock as a single class. Your shares may be voted at the Annual Meeting only if you are
present in person or your shares are represented by a valid proxy. A list of stockholders entitled to vote at the
Annual Meeting will be available for examination by any stockholder for any purpose germane to the Annual
Meeting during ordinary business hours at the principal executive offices of the Company located at 1912 Farmer
Brothers Drive, Northlake, Texas 76262 for the ten days prior to the Annual Meeting and also at the Annual
Meeting.

How many shares are outstanding and how many shares are needed for a quorum?

At the close of business on the Record Date, 16,977,701 shares of Common Stock entitled to 16,977,701
votes, and 14,700 shares of Series A Preferred Stock entitled to 397,215 votes, for a total of 17,374,916 votes,
were outstanding and entitled to vote at the Annual Meeting. Each share of Series A Preferred Stock entitles the
holder(s) thereof to vote on an as-converted basis together with the holders of the Common Stock as a single
class. The Company has no other class of securities outstanding.

A majority of the issued and outstanding shares of Common Stock and Series A Preferred Stock (on an
as-converted basis voting together with the Common Stock as a single class) present in person or represented by
proxy and entitled to vote at the Annual Meeting will constitute a quorum at the Annual Meeting, which quorum
is required to hold the Annual Meeting and conduct business. If you are a record holder of shares of Common
Stock or Series A Preferred Stock as of the Record Date and you submit your proxy, regardless of whether you
abstain from voting on one or more matters, your shares will be counted as present at the Annual Meeting for the
purpose of determining a quorum. If your shares are held in “street name,” your shares are counted as present for
purposes of determining a quorum if your bank, broker or other nominee submits a proxy covering your shares.
Your broker, bank or other nominee is entitled to submit a proxy covering your shares as to certain “routine”
matters, even if you have not instructed your broker, bank or other nominee on how to vote on such matters. In
the absence of a quorum, the Annual Meeting may be adjourned, from time to time, by vote of the holders of a
majority of the total number of shares of Common Stock and Series A Preferred Stock (on an as-converted basis
voting together with the Common Stock as a single class) represented and entitled to vote at the Annual Meeting.

What is the difference between a record holder and a beneficial owner?

If at the close of business on the Record Date your shares were registered directly in your name, you are

considered the “record holder” of your shares. If, on the other hand, at the close of business on the Record Date
your shares were held in an account at a brokerage firm, bank, dealer, or other similar organization or other
nominee, then you are the beneficial owner of shares held in “street name” and the proxy materials, as applicable,
are being forwarded to you by that organization. The organization holding your account is considered the
stockholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to
direct that organization on how to vote the shares in your account. If you hold your shares in “street name,”
please instruct your bank, broker or other nominee how to vote your shares using the voting instruction
form provided by your bank, broker or other nominee so that your vote can be counted. The voting
instruction form provided by your bank, broker or other nominee may also include information about how to
submit your voting instructions over the Internet or telephonically, if such options are available.

How can I vote my shares?

You may vote your shares at the Annual Meeting using one of the following methods (please also see the
information provided above concerning the difference between holding shares as a record holder and holding
shares beneficially through a bank, broker or other nominee—beneficial holders should follow the voting
instructions provided by such bank, broker or other nominee):

• By mail. You may vote your shares by completing, signing and mailing the enclosed proxy card (or
voting instruction form in the case of beneficial holders). Please refer to your proxy card or voting
instruction form for instructions on either submitting your proxy or voting by mail.

• Over the Internet. If you have access to the Internet, you may submit your proxy over the Internet by

following the instructions included on the enclosed proxy card (or voting instruction form in the case of
beneficial holders for whom Internet voting is available). Please refer to your proxy card or voting
instruction form for instructions on either submitting a proxy or voting over the Internet.

• By telephone. You may submit a proxy to have your shares voted by calling a toll-free telephone

number listed on the enclosed proxy card (or voting instruction form in the case of beneficial holders
for whom telephone voting is available). Please refer to your proxy card or voting instruction form for
instructions on submitting a proxy by phone.

•

In person at the Annual Meeting. Stockholders are invited to attend the Annual Meeting and vote in
person at the Annual Meeting. If you are a beneficial owner of shares you must obtain a legal proxy
from the bank, broker or other nominee of your shares to be entitled to vote those shares in person at
the Annual Meeting. If you are a record holder, you are encouraged to complete, sign and date the
enclosed proxy card and mail it in the enclosed postage-paid envelope regardless of whether or not you
plan to attend the Annual Meeting. If you hold your shares in “street name,” you are encouraged to
follow the voting instructions provided by your bank, broker or other nominee to ensure that your
shares are represented and voted at the Annual Meeting.

A control number, located on the instructions included with the proxy card, is designated to verify your
identity and allow you to vote your shares and confirm that your voting instructions have been recorded properly.
If you submit your proxy over the Internet or by telephone, there is no need to return a signed proxy card.
However, you may change your voting instructions by subsequently completing, signing and delivering the proxy
card.

As noted above, if you hold shares beneficially in street name through a bank, broker or other nominee, you

may vote your shares by following the voting instructions provided by your bank, broker or other nominee.
Telephone and Internet voting may be also available—please refer to the voting instruction form provided by
your bank, broker or other nominee for more information.

If you have any questions or require assistance in submitting a proxy for your shares, please call the

Company’s proxy solicitor, Morrow Sodali, toll free at (800) 662-5200 (within the U.S.).

How do I vote if I am an ESOP participant?

The ESOP owns approximately 9.1% of the Company’s outstanding voting securities, based on 16,977,701

shares of Common Stock and 14,700 shares of Series A Preferred Stock, representing 397,215 shares of Common
Stock on an as-converted basis, outstanding as of October 10, 2018. Each ESOP participant has the right to direct
the ESOP Trustee on how to vote the shares of Common Stock allocated to his or her account under the ESOP.
The ESOP Trustee will vote all of the unallocated ESOP shares (i.e., shares of Common Stock held in the ESOP,
but not allocated to any participant’s account) and allocated shares for which no voting directions are timely
received by the ESOP Trustee, in its independent fiduciary discretion. If you are an ESOP participant and want to
revoke any prior voting instructions you provided to the ESOP Trustee in respect of the Annual Meeting, you
must contact the ESOP Trustee.

If you are a participant in the ESOP, although you may attend the Annual Meeting in person, you will not be

able to cast a vote at the meeting with respect to any shares you hold through the ESOP.

Who can attend the Annual Meeting?

Admission to the Annual Meeting is limited to stockholders and their duly-appointed proxy holders as of the

close of business on the Record Date with proof of ownership of the Company’s Common Stock or Series A
Preferred Stock, as well as valid government-issued photo identification, such as a valid driver’s license or
passport. If your shares are held in the name of a bank, broker or other nominee and you plan to attend the
Annual Meeting, you must present proof of your ownership of Common Stock or Series A Preferred Stock, such
as a bank or brokerage account statement, to be admitted to the Annual Meeting. If you are a participant in the
ESOP, although you may attend the Annual Meeting in person if you can provide proof that you are an ESOP
participant, you will not be able to cast a vote at the meeting with respect to any shares you hold through the
ESOP. Any holder of a proxy from a stockholder must present the proxy card, properly executed, and a copy of
proof of ownership.

We will be unable to admit anyone who does not present identification or refuses to comply with our
security procedures. No cameras, recording equipment, electronic devices, large bags or packages will be
permitted at the Annual Meeting. You are encouraged to submit a proxy to have your shares voted regardless of
whether or not you plan to attend the Annual Meeting.

Your vote is very important. Please submit your proxy card even if you plan to attend the Annual

Meeting.

How will votes be tabulated?

All votes will be tabulated by the inspector of election appointed by the Company for the Annual Meeting,

who will separately tabulate affirmative and negative votes and abstentions in accordance with Delaware law.

What is a “broker non-vote”?

A “broker non-vote” occurs when a nominee holding shares for a beneficial owner has not received voting
instructions from the beneficial owner and does not have discretionary authority to vote the shares. If you hold
your shares in street name and do not provide voting instructions to your bank, broker or other nominee, your
shares will be considered to be broker non-votes and will not be voted on any proposal on which your bank,
broker or other nominee does not have discretionary authority to vote. Brokers generally do not have
discretionary voting power (i.e., they cannot vote) on non-routine matters without specific instructions from their
customers. Proposals are determined to be routine or non-routine matters based on the rules of the various
regional and national exchanges of which the brokerage firm is a member. Shares that constitute broker
non-votes will be counted as present at the Annual Meeting for the purpose of determining a quorum, but will not
be considered entitled to vote on the proposal in question. Brokers generally have discretionary authority to vote
on the ratification of the selection of Deloitte as our independent registered public accounting firm. Brokers,
however, do not have discretionary authority to vote on the election of directors to serve on our Board, the
advisory vote to approve the compensation paid to our named executive officers, and the approval of the
Company’s forum selection by-law, because they are considered non-routine matters. Consequently, without
your voting instructions, the bank, broker or other nominee that holds your shares cannot vote your share on
these proposals.

What vote is required to approve each proposal?

Election of Directors. Directors are elected by a plurality of the votes of the shares of Common Stock and

Series A Preferred Stock (on an as-converted basis voting together with the Common Stock as a single class)
present in person or represented by proxy at the Annual Meeting and entitled to vote on the election of directors.

This means that the two individuals nominated for election to the Board at the Annual Meeting who receive the
highest number of properly cast “FOR” votes (among votes properly cast in person or by proxy) will be elected
as directors. In director elections, stockholders may either vote “FOR” or withhold voting authority with respect
to director nominees. Shares voting “withhold” are counted for purposes of determining a quorum. However, if
you withhold authority to vote with respect to the election of either or both of the nominees, your shares will not
be voted with respect to those nominees indicated. Therefore, “withhold” votes will not affect the outcome of the
election of directors. Broker non-votes will also not affect the outcome of the election of directors.

Ratification of Accountants. The ratification of the selection of Deloitte as our independent registered public

accounting firm for the fiscal year ending June 30, 2019 requires the affirmative vote of a majority of the shares
of Common Stock and Series A Preferred Stock (on an as-converted basis voting together with the Common
Stock as a single class) present or represented by proxy at the Annual Meeting and entitled to vote thereat.
Abstentions will have the same effect as votes “against” the ratification. Because brokers have discretionary
authority to vote on the ratification, we do not expect any broker non-votes in connection with the ratification.

Advisory (Non-Binding) Vote to Approve the Compensation Paid to our Named Executive Officers. The

advisory (non-binding) vote to approve the compensation paid to the Company’s named executive officers
requires the affirmative vote of a majority of the shares of Common Stock and Series A Preferred Stock (on an
as-converted basis voting together with the Common Stock as a single class) present or represented by proxy at
the Annual Meeting and entitled to vote thereat. Abstentions will have the same effect as votes “against” the
proposal. Broker non-votes will not affect the outcome of the vote to approve the compensation paid to the
Company’s named executive officers because shares held by a bank, broker or other nominee who has not
received instructions from the beneficial owner of the shares as to how the shares are to be voted on the proposal
are not entitled to vote on such proposal at the Annual Meeting.

Approval of Forum Selection By-Law. Although stockholder approval is not required to amend the Company’s

Amended and Restated By-Laws (“By-Laws”), the Board of Directors believes this is an important issue and that it is
in the best interests of the Company and its stockholders to seek a stockholder vote to approve the amendment to our
By-Laws approved by the Board to provide that the courts located within the State of Delaware will serve as the
exclusive forum for the adjudication of certain legal disputes. The approval of the Company’s forum selection by-law
requires the affirmative vote of a majority of the shares of Common Stock and Series A Preferred Stock (on an
as-converted basis voting together with the Common Stock as a single class) present or represented by proxy at the
Annual Meeting and entitled to vote thereat. Abstentions will have the same effect as votes “against” the proposal.
Broker non-votes will not affect the outcome of this proposal because shares held by a bank, broker or other nominee
who has not received instructions from the beneficial owner of the shares as to how the shares are to be voted on the
proposal are not entitled to vote on such proposal at the Annual Meeting.

What do I do if I receive more than one proxy card or voting instruction form?

If you receive more than one proxy card or voting instruction form from your bank, broker or other
nominee, it means you hold shares that are registered in more than one name or account. To ensure that all of
your shares are voted, sign, date and return each proxy card or voting instruction form. To vote by telephone or
over the Internet, follow the instructions for voting over the Internet or by telephone provided on the enclosed
proxy card or provided on the voting instruction form provided by your bank, broker or other nominee.

How will my shares be voted if I sign, date and return the proxy card but do not specify how I want my
shares to be voted?

As a stockholder of record, if you sign, date and return the proxy card but do not specify how you want your

shares to be voted, your shares will be voted by the proxy holders named in the enclosed proxy as follows:

•

“FOR” the election of each of the two Board nominees named herein to serve on our Board as Class III
directors for a three-year term of office expiring at the Company’s 2021 Annual Meeting of
Stockholders and until their successors are elected and duly qualified;

•

“FOR” the ratification of the selection of Deloitte as our independent registered public accounting firm
for the fiscal year ending June 30, 2019;

“FOR” the approval of, in an advisory (non-binding) vote, the compensation paid to our named
executive officers; and

In their discretion, the proxy holders named in the enclosed proxy are authorized to vote on any other

matters that may properly come before the Annual Meeting and at any continuation, postponement or
adjournment thereof.

On September 7, 2018, the Company received a stockholder notice from Jeanne Farmer Grossman
informing the Company that she intended to nominate herself to stand for election to the Board at the Annual
Meeting, however this notice was subsequently withdrawn on October 14, 2018. On October 8, 2018, the
Company’s counsel began discussions with Dr. Richard F. Farmer, Ms. Grossman’s brother, and agreed to work
constructively with Dr. Farmer to identify a mutually acceptable individual who could be appointed to the Board.
Such individual would need to be independent and would be subject to the Nominating and Corporate
Governance Committee’s vetting processes. If an individual is identified and agreed upon, the Board would
expand the size of the Board to accommodate the individual’s appointment. Other than the notice from
Ms. Grossman, no other stockholder proposal or nomination was received on a timely basis, so no such matters
may be brought to a vote at the Annual Meeting.

The Board of Directors knows of no other items of business that will be presented for consideration at the

Annual Meeting other than those described in this Proxy Statement.

How can I revoke a proxy?

If you vote by proxy, you may revoke that proxy or change your vote at any time before it is voted at the
Annual Meeting. Stockholders of record may revoke a proxy or change their vote prior to the Annual Meeting by
sending to the Company’s Secretary, at the Company’s principal executive offices at 1912 Farmer Brothers
Drive, Northlake, Texas 76262, a written notice of revocation or a duly executed proxy bearing a later date, by
attending the Annual Meeting in person and voting in person, or by submitting a proxy over the Internet or by
telephone by following the instructions on the proxy card. Please note that attendance at the Annual Meeting will
not, by itself, revoke a proxy.

If your shares are held in the name of a bank, broker or other nominee, you may change your vote by
submitting a new voting instruction form to your bank, broker or other nominee. Please note that if your shares
are held of record by a bank, broker or other nominee, and you decide to attend and vote at the Annual Meeting,
your vote in person at the Annual Meeting will not be effective unless you present a legal proxy, issued in your
name from the record holder (your bank, broker or other nominee). ESOP participants must contact the ESOP
Trustee directly to revoke any prior voting instructions.

When will the voting results be announced?

The final voting results will be reported in a Current Report on Form 8-K, which will be filed with the

Securities and Exchange Commission (the “SEC”) within four business days after the Annual Meeting. If our
final voting results are not available within four business days after the Annual Meeting, we will file a Current
Report on Form 8-K reporting the preliminary voting results and subsequently file the final voting results in an
amendment to the Current Report on Form 8-K within four business days after the final voting results are known
to us.

Are there interests of certain persons in matters to be acted upon?

No director or executive officer of the Company who has served at any time since the beginning of the 2018

fiscal year, and no nominee for election as a director of the Company, or any of their respective associates, has

any substantial interest, direct or indirect, in any matter to be acted upon at the Annual Meeting other than
Proposal No. 1—Election of Directors.

Who will solicit proxies on behalf of the Board?

The Company has retained Morrow Sodali, a proxy solicitation firm, who may solicit proxies on the Board’s
behalf. Proxies may also be solicited on behalf of the Board, without additional compensation, by the Company’s
directors, certain executive officers and other employees of the Company.

The original solicitation of proxies by mail may be supplemented by telephone, telegram, facsimile,

electronic mail, Internet and personal solicitation by our directors, director nominees and certain of our executive
officers and other employees (who will receive no additional compensation for such solicitation activities), or by
Morrow Sodali. You may also be solicited by advertisements in periodicals, press releases issued by us and
postings on our corporate website or other websites. Unless expressly indicated otherwise, information contained
on our corporate website is not part of this Proxy Statement. In addition, none of the information on the other
websites listed in this Proxy Statement is part of this Proxy Statement. These website addresses are intended to
be inactive textual references only.

Who is paying for the cost of this proxy solicitation?

The entire cost of soliciting proxies on behalf of the Board, including the costs of preparing, assembling,
printing and mailing this Proxy Statement, the proxy card and any additional soliciting materials furnished to
stockholders by, or on behalf of, the Company, will be borne by the Company. Copies of the Company’s
solicitation material will be furnished to banks, brokerage houses, dealers, the ESOP Trustee, voting trustees,
their respective nominees and other agents holding shares in their names, which are beneficially owned by others,
so that they may forward such solicitation material, together with our 2018 Annual Report, which includes our
2018 Form 10-K, to beneficial owners. In addition, if asked, the Company will reimburse these persons for their
reasonable expenses in forwarding these materials to the beneficial owners.

Who can answer my questions?

Your vote at this year’s Annual Meeting is important, no matter how many or how few shares you

own. Please sign and date the enclosed proxy card or voting instruction form and return it in the enclosed
postage-paid envelope promptly or vote by Internet or telephone. If you have any questions or require assistance
in submitting a proxy for your shares, please call Morrow Sodali, the firm assisting us in the solicitation of
proxies:

470 West Avenue
Stamford, Connecticut 06902
Stockholders Call Toll Free: (800) 662-5200 (within the U.S.)
Banks and Brokers Call Collect: (203) 658-9400
FARM@morrowsodali.com

How can I obtain additional copies of these materials or copies of other documents?

Complete copies of this Proxy Statement and the 2018 Annual Report, which includes our 2018 Form 10-K,

and directions to the Annual Meeting are also available at http://proxy.farmerbros.com. You may also contact
Morrow Soldali for additional copies. You are encouraged to access and review all of the important information
contained in the proxy materials before voting.

PROPOSAL NO. 1

ELECTION OF DIRECTORS

General

Under the Company’s Certificate of Incorporation, as amended (the “Certificate of Incorporation”), and
By-Laws, the Board of Directors is divided into three classes, each class consisting, as nearly as possible, of
one-third of the total number of directors, with members of each class serving for a three-year term. Each year
only one class of directors is subject to a stockholder vote. Class III consists of two directors whose term of
office expires at the Annual Meeting and whose successors will be elected at the Annual Meeting to serve until
the 2021 Annual Meeting of Stockholders. Class I consists of three directors, continuing in office until the 2019
Annual Meeting of Stockholders. Class II consists of two directors, continuing in office until the 2020 Annual
Meeting of Stockholders.

The authorized number of directors is set forth in the Company’s Certificate of Incorporation and shall
consist of not less than five nor more than nine members, the exact number of which shall be fixed from time to
time by resolution of the Board. The authorized number of directors is currently seven. If the number of directors
is changed, any increase or decrease will be apportioned among the classes so as to maintain the number of
directors in each class as nearly equal as possible. Any vacancy on the Board of Directors that results from an
increase in the number of directors may be filled by a majority of the directors then in office, provided that a
quorum is present, and any other vacancy occurring on the Board of Directors may be filled by a majority of the
directors then in office, even if less than a quorum, or by the sole remaining director. Any director of any class
elected to fill a vacancy resulting from an increase in the number of directors of such class will hold office for a
term that will coincide with the remaining term of that class. Any director elected to fill a vacancy not resulting
from an increase in the number of directors will have the same remaining term as that of his or her predecessor.

Based on the recommendation of the Nominating and Corporate Governance Committee, the Board has
nominated Randy E. Clark and Stacy Loretz-Congdon for election to the Board as Class III directors. If elected at
the Annual Meeting, each would serve until the 2021 Annual Meeting of Stockholders and until his or her
successor is elected and duly qualified, subject, however, to prior death, resignation, retirement, disqualification
or removal from office.

As part of the Company’s ongoing consideration of the appropriate mix of skills and expertise on the Board
as well as Board refreshment, the Nominating and Corporate Governance Committee retained Spencer Stuart, a
national search firm, to assist with identifying potential director nominees. The functions performed by Spencer
Stuart included identifying qualified candidates, conducting interviews and background checks, and presenting
qualified candidates to the Nominating and Corporate Governance Committee for consideration.

In connection with its engagement, Spencer Stuart identified Stacy Loretz-Congdon as a possible director

nominee and brought Ms. Loretz-Congdon to the Nominating and Corporate Governance Committee’s attention
in August 2017 and then again in June 2018. The Nominating and Corporate Governance Committee viewed
Ms. Loretz-Congdon as an exceptional candidate. Ms. Loretz-Congdon recently retired after a 26-year career at
Core-Mark Holding Company, Inc. (“Core-Mark”), one of the largest marketers of fresh and broad-line supply
solutions to the convenience retail industry in North America. Prior to her retirement, Ms. Loretz-Congdon spent
nearly a decade as Core Mark’s Senior Vice President, Chief Financial Officer and Assistant Secretary. The
Nominating and Corporate Governance Committee was particularly impressed with Ms. Loretz-Congdon’s
significant public company and industry experience, her critical understanding of capital markets, corporate
financing, accounting, mergers and acquisitions, and strategy formation and execution. In addition, if elected,
Ms. Loretz-Congdon would be an independent director under the NASDAQ standards and qualified to serve on
the Company’s standing committees.

Mr. Clark currently serves as a director of the Company and Chairman of the Board. Ms. Loretz-Congdon
has been nominated for election to the seat currently held by Jeanne Farmer Grossman. Each of Mr. Clark and

Ms. Loretz-Congdon has agreed to be named in this Proxy Statement and to serve on our Board of Directors if
elected. We have no reason to believe that either such nominee will be unable to serve on our Board of Directors
if elected.

All of the present directors were elected to their current terms by the stockholders. There are no family

relationships among any directors, nominees for director or executive officers of the Company. Except as
disclosed below, none of the continuing directors or nominees is a director of any other publicly held company.

Vote Required

Each share of Common Stock is entitled to one vote for each of the two director seats to be filled at the
Annual Meeting. Each share of Series A Preferred Stock is entitled to vote on an as-converted basis together with
the Common Stock as a single class for each of the two director seats to be filled at the Annual Meeting. Each
stockholder will be given the option of voting “FOR” or withholding authority to vote for each nominee.
Cumulative voting is not permitted. It is the intention of the proxy holders named in the enclosed proxy to vote
the proxies received by them “FOR” the election of the two director nominees named herein unless the proxies
direct otherwise. If either of the director nominees should be unable to serve or for good cause will not serve,
your proxy will be voted for such substitute nominee(s) as the holders of your proxy, acting in their discretion,
may determine.

Directors are elected by a plurality of the votes of the shares of Common Stock and Series A Preferred Stock

(on an as-converted basis voting together with the Common Stock as a single class) present in person or
represented by proxy at the Annual Meeting and entitled to vote on the election of directors. This means that the
two individuals nominated for election to the Board at the Annual Meeting who receive the largest number of
properly cast “FOR” votes (among votes properly cast in person or by proxy) will be elected as directors. In
director elections, stockholders may either vote “FOR” or withhold voting authority with respect to director
nominees. Shares voting “withhold” are counted for purposes of determining a quorum. However, if you
withhold authority to vote with respect to the election of either or both of the two nominees, your shares will not
be voted with respect to those nominees indicated. Therefore, “withhold” votes will not affect the outcome of the
election of directors. Brokers do not have discretionary authority to vote on the election of directors. Broker
non-votes and abstentions will have no effect on the election of directors.

Nominees for Election as Directors

Set forth below is biographical information for each of the Board’s nominees for election as a Class III

director at the Annual Meeting, including a summary of the specific experience, qualifications, attributes and
skills which led our Board to conclude that the individual should serve on the Board at this time, in light of the
Company’s business and structure.

Randy E. Clark, age 66, has served as a director of the Company since 2012. Mr. Clark has served as

Chairman of the Board since December 2015, and currently serves as a member of the Audit Committee and
Executive Committee, and as a member and Chair of the Compensation Committee. Mr. Clark is a retired
foodservice executive. He has consulted for equity groups in the food industry since 2009 and has served on the
Board of Trustees for Whitworth University since 2012. He served as President and Chief Executive Officer of
Border Foods, Inc., the largest producer of green chile in the world and one of the largest producers of jalapeños
in the United States, from 2008 to 2011. Mr. Clark’s earlier experience includes serving as Chief Executive
Officer of Fruit Patch, Inc., one of the largest distributors of stone fruits in the United States; President and Chief
Executive Officer of Mike Yurosek & Son, LLC, a produce grower and processor; and Vice President, Sales,
Marketing and Production with William Bolthouse Farms, a produce grower and processor. Mr. Clark was a
Professor of Accounting and Marketing at the Master’s College in Santa Clarita, California, from 1999 to 2003.
Mr. Clark received his undergraduate degree from Cedarville College, an M.S. in Accounting from Kent State
University, and a Doctorate in Organizational Leadership from Pepperdine University.

We believe Mr. Clark’s qualifications to serve on our Board include his leadership as a former CEO,

extensive background and experience in the foodservice business, IT, manufacturing and supply chain
experience, involvement in sustainability and corporate responsibility, executive compensation experience, and
his accounting and financial expertise.

Stacy Loretz-Congdon, age 59, retired at the end of 2016 after 26 years of service at Core-Mark, one of the

largest marketers of fresh and broad-line supply solutions to the convenience retail industry in North America,
where she served in various capacities, including as Senior Vice President, Chief Financial Officer and Assistant
Secretary from December 2006 to May 2016 and Executive Advisor from May 2016 through December 2016.
From January 2003 to December 2006, Ms. Loretz-Congdon served as Core-Mark’s Vice President of Finance
and Treasurer and from November 1999 to January 2003 served as Core-Mark’s Corporate Treasurer.
Ms. Loretz-Congdon joined Core-Mark in 1990. Ms. Loretz-Congdon’s experience at Core-Mark included
oversight of all finance functions, including all corporate finance disciplines, strategy execution, risk mitigation,
investor relations, as well as involvement with benefits, executive compensation and technology initiatives.
During her tenure as Senior Vice President and Chief Financial Officer, Ms. Loretz-Congdon served on the
Information Technology Steering Committee and the Investment Committee at Core-Mark, as well as a board
member of all Core-Mark subsidiaries. Core-Mark is a Fortune 500, publicly traded company listed on the
NASDAQ Global Market. In 2015, Ms. Loretz-Congdon was named as one of the Top 50 female CFOs in the
Fortune 500 by Business Insider and Woman of the Year by Convenience Store News. Prior to joining Core-
Mark, Ms. Loretz-Congdon was an auditor for Coopers & Lybrand. Ms. Loretz-Congdon received her Bachelor
of Science degree in Accounting from California State University, San Francisco. She is a certified public
accountant (inactive) in the State of California. Ms. Loretz-Congdon is an NACD Governance Fellow and NACD
Board Leadership Fellow demonstrating her commitment to boardroom excellence by completing NACD’s
comprehensive corporate governance programs for directors.

We believe Ms. Loretz-Congdon’s qualifications to serve on our Board include her leadership as a former

public company CFO, including accounting and financial expertise and regulatory compliance, as well as her
financial planning and analysis, capital markets, corporate finance, M&A, IT, distribution and foodservice
logistics, risk assessment, strategy formation and execution, compensation, and corporate governance experience,
including her qualifications for service on the Company’s Audit Committee and Compensation Committee.

THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR”
EACH OF THE NOMINEES NAMED ABOVE.

Directors Continuing in Office

Set forth below is biographical information for each director continuing in office and a summary of the
specific experience, qualifications, attributes and skills which led our Board to conclude that the individual
should serve on the Board at this time, in light of the Company’s business and structure.

Name

Director

Age

Since Class

Term
Expiration

Executive
Committee

Audit
Committee

Compensation
Committee

Allison M. Boersma . . . . . . . . . . . . 53
Michael H. Keown . . . . . . . . . . . . . 56
Charles F. Marcy . . . . . . . . . . . . . . 68
Christopher P. Mottern . . . . . . . . . . 74
David W. Ritterbush . . . . . . . . . . . . 52

2017
2012
2013
2013
2007

II
I
I
I
II

2020
2019
2019
2019
2020

Chair

X
X

Nominating
and
Corporate
Governance
Committee

Chair
X
X

Allison M. Boersma is currently the Chief Financial Officer and Chief Operating Officer of BRG Sports

Inc., a corporate holding company of leading brands that design, develop and market innovative sports
equipment, protective products, apparel and related accessories. The company’s core football brand, Riddell, is
the industry leader in football helmet technology and innovation. Ms. Boersma has served as the finance and
operations leader for BRG Sports since April 2016, responsible for financial oversight, including planning,
treasury and risk management; leadership of global sourcing, manufacturing and distribution; human resources;
strategic planning and acquisitions; and manufacturing strategy. Ms. Boersma has also served as Chief Financial
Officer and Chief Operating Officer of Riddell Inc., since May 2014, and Senior Vice President Finance and
Chief Financial Officer of Riddell, from February 2009 to May 2014. Previously, Ms. Boersma was a finance
executive with Kraft Foods, a multinational confectionery, food and beverage conglomerate, for over 17 years,
with various positions of increasing responsibility, including serving as Senior Director Finance, Global
Procurement, from May 2007 to February 2009, with leadership and oversight of commodity hedging and risk
management, including for coffee; execution of global strategies to improve supplier performance; commodity
tracking and derivative accounting. Other positions with Kraft included Controller, Grocery Sector; Controller,
Meals Division; Director, Sales Finance, Kraft Food Services Division; and Senior Manager, Corporate Financial
Business Analysis. Ms. Boersma began her career as a Senior Auditor with Coopers & Lybrand. Ms. Boersma
received her undergraduate degree in Accountancy from the University of Illinois Champaign-Urbana, and her
Masters of Management, Marketing and Finance, from JL Kellogg Graduate School of Management.

We believe Ms. Boersma’s qualifications to serve on our Board include her CFO and COO leadership,
coffee industry knowledge and foodservice experience, supply chain and manufacturing experience, accounting
and financial expertise, as well as her experience in IT, risk assessment, strategy formation and execution,
mergers and acquisitions, and global sourcing.

Michael H. Keown has served as the Company’s President and Chief Executive Officer since March 2012.

Prior to joining the Company, Mr. Keown served in various executive capacities at Dean Foods Company, a food
and beverage company, from 2003 to March 2012. He was at WhiteWave Foods Company, a subsidiary of Dean
Foods, from 2004 to March 2012, including as President, Indulgent Brands from 2006 to March 2012. He was
also responsible for WhiteWave’s alternative channel business comprised largely of foodservice. Mr. Keown
served as President of the Dean Branded Products Group of Dean Foods from 2003 to 2004. Mr. Keown joined
Dean Foods from The Coca-Cola Company, where he served as Vice President and General Manager of the Shelf
Stable Division of The Minute Maid Company. Mr. Keown has over 25 years of experience in the Consumer
Goods business, having held various positions with E.&J. Gallo Winery and The Procter & Gamble Company.
Mr. Keown has served as Vice Chairman of the Board of Directors of World Coffee Research, a collaborative,
not-for-profit 501(c)(5) research organization created by the global coffee industry, since October 2016. In
October 2018, Mr. Keown was nominated to stand for election as a director of Lancaster Colony Corporation, a
manufacturer and marketer of specialty food products for the retail and foodservice channels and a publicly

traded company listed on the NASDAQ Global Select Market, at Lancaster Colony’s annual meeting of
shareholders to be held on November 14, 2018. Mr. Keown received his undergraduate degree in Economics
from Northwestern University.

We believe Mr. Keown’s qualifications to serve on our Board include his in-depth knowledge of food

manufacturing, food processing and the foodservice business, marketing and consumer branding experience,
expertise in global sourcing, sustainability and corporate responsibility, and his ability to provide a critical link
between management and the Board of Directors thereby enabling the Board to provide its oversight function
with the benefit of management’s perspective of the business.

Charles F. Marcy is a food industry consultant. He served as Chief Executive Officer of Turtle Mountain, LLC, a

privately held natural foods company, and the maker of the So Delicious brand of dairy free products from May 2013
until April 2015. Prior to this, he was a principal with Marcy & Partners, Inc., providing strategic planning and
acquisition consulting to consumer products companies. Mr. Marcy served as President and Chief Executive Officer
and a member of the Board of Directors of Healthy Food Holdings, a holding company for branded “better-for-you”
foods and the maker of YoCrunch Yogurt and Van’s Frozen Waffles from 2005 through April 2010. Previously,
Mr. Marcy served as President, Chief Executive Officer and a Director of Horizon Organic Holdings, then a publicly
traded company listed on NASDAQ with a leading market position in the organic food business in the United States
and the United Kingdom, from 1999 to 2005. Mr. Marcy also previously served as President and Chief Executive
Officer and a member of the Board of Directors of the Sealright Corporation, a manufacturer of food and beverage
packaging and packaging systems, from 1995 to 1998. From 1993 to 1995, Mr. Marcy was President of the Golden
Grain Company, a subsidiary of Quaker Oats Company and maker of the Near East brand of all-natural grain-based
food products. From 1991 to 1993, Mr. Marcy was President of National Dairy Products Corp., the dairy division of
Kraft General Foods. From 1974 to 1991, Mr. Marcy held various senior marketing and strategic planning roles with
Sara Lee Corporation and Kraft General Foods. Mr. Marcy currently serves as First Vice Chair on the Board of
Trustees of Washington and Jefferson College and has served on the Board of Directors of B&G, Foods, Inc.
(“B&G”), a manufacturer and distributor of shelf-stable food and household products across the United States, Canada
and Puerto Rico and a publicly traded company listed on the New York Stock Exchange, since 2010. Mr. Marcy
served on the Strategy Committee and currently serves as a member and Chairman of the Audit Committee and a
member of the Compensation Committee of the Board of Directors of B&G. Mr. Marcy received his undergraduate
degree in Mathematics and Economics from Washington and Jefferson College, and his MBA from Harvard Business
School. Mr. Marcy is an NACD Board Leadership Fellow and has demonstrated his commitment to boardroom
excellence by completing NACD’s advanced corporate governance program for directors.

We believe Mr. Marcy’s qualifications to serve on our Board include his leadership as a former CEO, extensive

experience in the food industry, including foodservice, manufacturing, supply chain, marketing and regulatory
experience, as well as his corporate governance and public company board and executive compensation experience.

Christopher P. Mottern is an independent business consultant. He served as President and Chief Executive

Officer of Peet’s Coffee & Tea, Inc., a specialty coffee and tea company, from 1997 to 2002 and a director of
Peet’s Coffee & Tea, Inc., from 1997 through 2004. From 1992 to 1996, Mr. Mottern served as President of The
Heublein Wines Group, a manufacturer and marketer of wines, now part of Diageo plc, a multinational alcoholic
beverage company. From 1986 through 1991, he served as President and Chief Executive Officer of Capri Sun,
Inc., one of the largest single-service juice drink manufacturers in the United States. He has served as a director,
including lead director, and member of the finance committee, of a number of private companies. Mr. Mottern
received his undergraduate degree in Accounting from the University of Connecticut.

We believe Mr. Mottern’s qualifications to serve on our Board include his leadership as a former CEO,
coffee industry, foodservice, manufacturing, supply chain and consumer branding experience, risk oversight
experience, and financial and accounting expertise.

David W. Ritterbush is currently the Chief Executive Officer of Quest Nutrition, LLC, a manufacturer and

retailer of protein and nutrition food products. He has served in this position since March 2017, with oversight of

the organization, including organizational structure, supply chain strategy, and product innovation. Prior to
joining Quest Nutrition, Mr. Ritterbush served as Chief Executive Officer of Popchips (Sonora Mills, Inc.), a
manufacturer of popped rice, corn, soy, and other grain-based snack food products, from August 2015 to
February 2017. While at Popchips, Mr. Ritterbush’s responsibilities included organization leadership,
restructuring, sales turnaround, refreshed branding and new product innovation, supply chain restructuring,
co-manufacturing and global procurement. Previously, from April 2009 to March 2015, Mr. Ritterbush held
leadership positions with Premier Nutrition Corporation, a manufacturer and retailer of beverage products, bars
and shakes, including Chief Executive Officer, Post Active Nutrition from April 2014 to March 2015; Chief
Executive Officer, Premier Nutrition from August 2010 to March 2014; and Chief Operating Officer from April
2009 to August 2010. While at Premier Nutrition, Mr. Ritterbush reorganized the organization, led a significant
turnaround of the supply chain across facilities and co-manufacturers, restructured the sales organization, and
actively participated in strategy formation and acquisitions. Prior to this, Mr. Ritterbush was Vice President/
General Manager—West Business Unit, for Red Bull North America, from October 2007 to March 2009, with
leadership for the West Business Unit including sales, marketing, supply chain, finance and accounting.
Previously, Mr. Ritterbush was a sales and marketing executive with Dreyer’s Grand Ice Cream, Inc., for over 16
years, with various positions of increasing responsibility, including serving as Senior Vice President of
Marketing—Packaged Products from October 2006 to October 2007, where he was responsible for product
design, pricing, and consumer positioning. During this period, Mr. Ritterbush served as a member of Dreyer’s
Operating Committee, Dreyer’s Graphics Development team, and a board member of the Starbuck’s Ice Cream
partnership. Mr. Ritterbush received his undergraduate degree in Business Administration, Marketing from San
Diego State University.

We believe Mr. Ritterbush’s qualifications to serve on our Board include his CEO leadership, as well as his
experience in retail and national account foodservice, supply chain and manufacturing, marketing and consumer
branding, millennial engagement, e-commerce, strategy formation and execution, turnaround experience,
sustainability and corporate responsibility.

PROPOSAL NO. 2

RATIFICATION OF SELECTION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

General

The Audit Committee of the Board of Directors has selected Deloitte & Touche LLP (“Deloitte”) as the
independent registered public accounting firm for the Company and its subsidiaries for the fiscal year ending
June 30, 2019, and has further directed that management submit this selection for ratification by the stockholders
at the Annual Meeting. Deloitte has served as the Company’s independent registered public accounting firm
since fiscal 2014. A representative of Deloitte is expected to be present at the Annual Meeting, will have the
opportunity to make a statement if they so desire, and will be available to respond to appropriate questions.

Stockholder ratification of the selection of Deloitte as the Company’s independent registered public
accounting firm is not required by the By-Laws or otherwise. However, the Board is submitting the selection of
Deloitte to stockholders for ratification because the Company believes it is a matter of good corporate
governance practice. If the Company’s stockholders fail to ratify the selection, the Audit Committee will
reconsider whether or not to retain Deloitte but still may retain them. Even if the selection is ratified, the Audit
Committee, in its discretion, may direct the appointment of a different independent registered public accounting
firm at any time during the year if the Audit Committee determines that such a change would be in our best
interest and that of our stockholders.

Vote Required

The affirmative vote of a majority of the shares of Common Stock and Series A Preferred Stock (on an
as-converted basis voting together with the Common Stock as a single class) present in person or represented by
proxy at the Annual Meeting and entitled to vote thereat is required to ratify the selection of Deloitte.
Abstentions will have the same effect as votes “against” the ratification. Because brokers have discretionary
authority to vote on the ratification, we do not expect any broker non-votes in connection with the ratification.

THE BOARD RECOMMENDS A VOTE “FOR” RATIFICATION OF
THE SELECTION OF DELOITTE & TOUCHE LLP AS THE COMPANY’S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners

The following table sets forth certain information regarding the beneficial ownership of the Company’s

voting securities as of October 10, 2018, by all persons (including any “group” as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) known by the
Company to be the beneficial owner of more than 5% of any class of the Company’s voting securities as of such
date, based on 16,977,701 shares of Common Stock and 14,700 shares of Series A Preferred Stock, representing
397,215 shares of Common Stock on an as-converted basis, outstanding as of October 10, 2018. Each share of
Series A Preferred Stock entitles the holder(s) thereof to vote on an as-converted basis together with the holders
of Common Stock as a single class. As of October 10, 2018, 100% of the shares of Series A Preferred Stock were
owned by Boyd Coffee Company. For purposes of this table we have treated the Series A Preferred Stock as
converted into Common Stock.

The amounts and percentages of shares beneficially owned are reported on the basis of SEC regulations
governing the determination of beneficial ownership of securities. Under SEC rules, a person is deemed to be a
“beneficial” owner of a security if that person has or shares voting power or investment power, which includes
the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial
owner of any securities of which that person has a right to acquire beneficial ownership within 60 days.
Securities that can be so acquired are not deemed to be outstanding for purposes of computing any other person’s
percentage. Under these rules, more than one person may be deemed to be a beneficial owner of securities as to
which such person has no economic interest.

Name and Address of Beneficial Owner

Amount and Nature of
Beneficial Ownership

Percent of
Class(1)

Carol Farmer Waite(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard F. Farmer(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jeanne Farmer Grossman(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Farmer Bros. Co. Employee Stock Ownership Plan(5) . . . . . . . . . . . . . . . . . . . . .
Levin Capital Strategies, L.P. and affiliated entities(6) . . . . . . . . . . . . . . . . . . . . .
Trigran Investments, Inc., Douglas Granat, Lawrence A. Oberman, Steven

1,678,972
1,357,184
1,564,049
1,574,438
1,236,801

G. Simon, Bradley F. Simon, Steven R. Monieson(7) . . . . . . . . . . . . . . . . . . . .

1,027,681

9.7%
7.8%
9.0%
9.1%
7.1%

5.9%

(1) Percent of class is calculated based on total outstanding voting securities of 17,374,916, including

16,977,701 shares of Common Stock and 14,700 shares of Series A Preferred Stock, representing 397,215
shares of Common Stock on an as-converted basis, outstanding as of October 10, 2018, and may differ from
the percent of class reported in statements of beneficial ownership filed with the SEC.

(2) This information is based on a Schedule 13D/A filed with the SEC on January 23, 2018 (the “Waite
Schedule 13D/A”) by Carol Farmer Waite and certain trusts for which she is the trustee or co-trustee
(collectively, the “Waite Filing Group”), a Form 4 filed with the SEC on July 23, 2018 by Carol Farmer
Waite to report the disposition of 22,437 shares of Common Stock, and a Form 4 filed with the SEC on
July 27, 2018 by Carol Farmer Waite to report the disposition of 19,196 shares of Common Stock (the
“Waite Form 4”). The Waite Schedule 13D/A reported that the Waite Filing Group beneficially owned an
aggregate of 1,720,605 shares of Common Stock, with sole voting and dispositive power over 1,411,417
shares of Common Stock and shared voting and dispositive power over 309,188 shares of Common Stock.
As reported in the Waite Form 4, following the transactions reported therein, Carol Farmer Waite is the
beneficial owner of 1,678,972 shares of Common Stock. As stated in the Waite Schedule 13D/A, the
address for the person authorized to receive notices and communications for the Waite Filing Group is Carol
Lynn Farmer Waite, Ryan C. Wilkins, Esq., Stradling Yocca Carlson & Rauth, P.C., 660 Newport Center
Drive, Suite 1600, Newport Beach, California 92660.

(3) This information is based on a Schedule 13D/A filed with the SEC on January 16, 2018 (the “Farmer

Schedule 13D/A”) and a Form 4 filed with the SEC on February 1, 2018 (the “Farmer Form 4”) by Richard

F. Farmer. The Farmer Schedule 13D/A and Farmer Form 4 reported that Richard F. Farmer is the
beneficial owner, with sole voting and dispositive power, of 1,357,184 shares of Common Stock through
certain trusts. As stated in the Farmer Schedule 13D/A, the address for Richard F. Farmer is P.O. Box
50725, Eugene, Oregon 97405.

(4) This information is based on a Schedule 13D filed with the SEC on April 9, 2018 (the “Grossman Schedule
13D”) by Jeanne Farmer Grossman and certain trusts for which she is sole trustee (the “Grossman Trusts”).
The Grossman Schedule 13D reported that the Grossman Trusts beneficially own, with sole voting and
dispositive power, an aggregate of 1,545,175 shares of Common Stock and Jeanne Farmer Grossman is the
direct beneficial owner of 18,874 shares of Common Stock held in brokerage accounts. Based on the
Company’s records, the 18,874 shares of Common Stock held in brokerage accounts include 2,230 shares of
unvested restricted stock. As stated in the Grossman Schedule 13D, the address for the Grossman Trusts and
Jeanne Farmer Grossman is c/o Carrington, Coleman, Sloman & Blumenthal, LLP, 901 Main Street, Suite
5500, Dallas, Texas 75202, Attn: Brett A. Madole.

(5) This information is based on the Company’s records and includes 1,502,324 shares of Common Stock that
are held in the ESOP and allocated to a participant’s account (“allocated shares”), and 72,114 shares of
Common Stock held in the ESOP but not allocated to any participant’s account (“unallocated shares”), as of
October 10, 2018, after giving effect to the allocation of shares to participant accounts for calendar year
2017. The ESOP Trustee votes allocated shares as directed by such participant or beneficiary of the ESOP.
Under the terms of the ESOP, the ESOP Trustee will vote all of the unallocated shares and all of the
allocated shares for which no voting directions are timely received by the ESOP Trustee, in its independent
fiduciary discretion with respect to each item subject to a vote. The present members of the Administrative
Committee of the Farmer Bros. Co. Qualified Employee Retirement Plans (the “Management
Administrative Committee”), which administers the ESOP, are David G. Robson, Thomas J. Mattei, Jr.,
Ronald J. Friedman, and Rene E. Peth. Each member of the Management Administrative Committee
disclaims beneficial ownership of the securities held by the ESOP except for those, if any, that have been
allocated to the member as a participant in the ESOP. The address of the ESOP is c/o Farmer Bros. Co.,
1912 Farmer Brothers Drive, Northlake, Texas 76262.

(6) This information is based on a Schedule 13D/A filed with the SEC on August 22, 2018 (the “LCS Schedule 13D/
A”) by Levin Capital Strategies, L.P. (“LCS”), filing jointly with Levin Capital Strategies GP, LLC (“LCS GP”),
Bi-Directional Disequilibrium Fund, L.P. (“BiDD Fund”), LCS, LLC (“LCSL”), Levcap Alternative Fund, L.P.
(“Levcap”), LCS Event Partners, LLC (“LCSEP”), Safinia Partners, L.P. (“Safinia”), LCS L/S, LLC (“LCSLS”),
and John A. Levin (“Mr. Levin”) (collectively, the “LCS Filing Group”). The LCS Schedule 13D/A reported that
the LCS Filing Group is the beneficial owner of an aggregate of 1,236,801 shares of Common Stock as follows:
1,223,864 shares of Common Stock are beneficially owned by LCS, LCS GP and Mr. Levin; 4,018 shares of
Common Stock are beneficially owned, with shared voting and dispositive power, by BiDD Fund and LCSL;
4,417 shares of Common Stock are beneficially owned, with shared voting and dispositive power, by Levcap and
LCSEP; and 4,502 shares of Common Stock are beneficially owned, with shared voting and dispositive power, by
Safinia and LCSLS. As disclosed in the LCS Schedule 13D/A, various separately managed accounts for whom
LCS acts as investment manager have the right to receive dividends from, and the proceeds from the sale of the
1,223,864 shares of Common Stock reported as beneficially owned by LCS, LCS GP and Mr. Levin. Dispositive
power over such shares is shared. Voting power over such shares is deemed shared between such managed
accounts and LCS with respect to 897,046 shares of Common Stock. As stated in the LCS Schedule 13D/A, the
address of the LCS Filing Group is 595 Madison Avenue, 17th Floor, New York, New York 10022.
(7) This information is based on a Schedule 13G/A filed with the SEC on February 14, 2018 (the “Trigran

Schedule 13G/A”) by Trigran Investments, Inc., Douglas Granat, Lawrence A. Oberman, Steven G. Simon,
Bradley F. Simon and Steven R. Monieson (collectively, the “Trigran Filing Group”). The Trigran Schedule
13G/A reports that the Trigran Filing Group shares voting and dispositive power over 1,027,681 shares of
Common Stock. Pursuant to the Trigran Schedule 13G/A, Douglas Granat, Lawrence A. Oberman, Steven
G. Simon, Bradley F. Simon and Steven R. Monieson are the controlling shareholders and/or sole directors
of Trigran Investments, Inc. and may be considered the beneficial owners of the shares of Common Stock
beneficially owned by Trigran Investments, Inc. As indicated in the Trigran Schedule 13G/A, the address of
the Trigran Filing Group is 630 Dundee Road, Suite 230, Northbrook, Illinois 60062.

Security Ownership of Directors and Executive Officers

The following table sets forth certain information regarding the beneficial ownership of the Company’s
voting securities as of October 10, 2018, by each of our current directors and director nominees, each of our
executive officers required to be listed pursuant to Item 402 of Regulation S-K, and all of our current directors
and executive officers as a group, based on 16,977,701 shares of Common Stock and 14,700 shares of Series A
Preferred Stock, convertible into 397,215 shares of Common Stock, outstanding as of October 10, 2018. Each
share of Series A Preferred Stock entitles the holder(s) thereof to vote on an as-converted basis together with the
holders of Common Stock as a single class. For purposes of this table we have treated the Series A Preferred
Stock as converted into Common Stock.

Except as otherwise indicated in these footnotes, each of the directors, director nominees and executive

officers listed has, to our knowledge, sole voting and investment power with respect to the shares of Common
Stock.

Name of Beneficial Owner

Non-Employee Directors and Nominees:

Amount and
Nature of Beneficial
Ownership

Percent of
Class(1)

Allison M. Boersma(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Randy E. Clark(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jeanne Farmer Grossman(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stacy Loretz-Congdon(Nominee) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charles F. Marcy(5)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Christopher P. Mottern(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David W. Ritterbush(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Named Executive Officers:

Michael H. Keown(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David G. Robson(8)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ellen D. Iobst(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott A. Siers(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas J. Mattei, Jr.(11)
. . . . . . . . . . .
All directors and executive officers as a group (11 individuals)

1,901
16,217
1,564,049
—
13,478
19,978
1,901

222,765
7,357
5,803
34,189
30,510
1,918,148

*
*
9.0%
—

*
*
*

1.3%
*
*
*
*
10.9%

Less than 1%

*
(1) Percent of class is calculated based on total outstanding voting securities of 17,374,916, including

16,977,701 shares of Common Stock and 14,700 shares of Series A Preferred Stock, representing 397,215
shares of Common Stock on an as-converted basis, plus securities deemed outstanding pursuant to Rule
13d-3(d)(1) under the Exchange Act, as of October 10, 2018, and may differ from the percent of class
reported in statements of beneficial ownership filed with the SEC.

(2) Unvested shares of restricted stock.
(3)
(4) This information is based on the Grossman Schedule 13D. The Grossman Schedule 13D reported that the

Includes 2,230 unvested shares of restricted stock.

Grossman Trusts beneficially own, with sole voting and dispositive power, an aggregate of 1,545,175 shares
of Common Stock and Jeanne Farmer Grossman is the direct beneficial owner of 18,874 shares of Common

(5)
(6)
(7)

(8)

(9)

Stock held in brokerage accounts. Based on the Company’s records, the 18,874 shares of Common Stock
held in brokerage accounts include 2,230 shares of unvested restricted stock.
Includes 2,230 unvested shares of restricted stock.
Includes 2,230 unvested shares of restricted stock.
Includes 174,983 shares of Common Stock issuable upon exercise of options which are currently exercisable
or which will become exercisable within 60 days and 2,710 shares of Common Stock beneficially owned by
Mr. Keown through the ESOP, rounded to the nearest whole share.
Includes 6,154 shares of Common Stock issuable upon exercise of options which will become exercisable
within 60 days, 947 unvested shares of restricted stock and 256 shares of Common Stock beneficially owned
by Mr. Robson through the ESOP, rounded to the nearest whole share.
Includes 4,790 shares of Common Stock issuable upon exercise of options which will become exercisable
within 60 days, 757 unvested shares of restricted stock and 256 shares of Common Stock beneficially owned
by Ms. Iobst through the ESOP, rounded to the nearest whole share.

(10) Includes 31,589 shares of Common Stock issuable upon exercise of options which are currently exercisable
or which will become exercisable within 60 days and 2,172 shares of Common Stock beneficially owned by
Mr. Siers through the ESOP, rounded to the nearest whole share.

(11) Includes 27,689 shares of Common Stock issuable upon exercise of options which are currently exercisable
or which will become exercisable within 60 days and 2,093 shares of Common Stock beneficially owned by
Mr. Mattei through the ESOP, rounded to the nearest whole share.

CORPORATE GOVERNANCE

Director Independence

At least annually and in connection with any individuals being nominated to serve on the Board, the Board

reviews the independence of each director or nominee and affirmatively determines whether each director or
nominee qualifies as independent. The Board believes that stockholder interests are best served by having a
number of objective, independent representatives on the Board. For this purpose, a director or nominee will be
considered to be “independent” only if the Board affirmatively determines that the director or nominee has no
relationship with respect to the Company that would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director.

In making its independence determinations, the Board reviewed transactions, relationships, behavior and

arrangements between each director and nominee, or any member of his or her immediate family, and us or our
subsidiaries based on information provided by the director or nominee, our records and publicly available
information. The Board made the following independence determinations (the transactions, relationships and
arrangements reviewed by the Board in making such determinations are set forth in the footnotes below):

Director

Hamideh Assadi . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allison M. Boersma . . . . . . . . . . . . . . . . . . . . . . . .
Guenter W. Berger . . . . . . . . . . . . . . . . . . . . . . . . .
Randy E. Clark . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jeanne Farmer Grossman . . . . . . . . . . . . . . . . . . . .
Michael H. Keown . . . . . . . . . . . . . . . . . . . . . . . . .
Charles F. Marcy . . . . . . . . . . . . . . . . . . . . . . . . . .
Stacy Loretz-Congdon (Nominee) . . . . . . . . . . . . .
Christopher P. Mottern . . . . . . . . . . . . . . . . . . . . .
David W. Ritterbush . . . . . . . . . . . . . . . . . . . . . . .

Status

Independent(1)
Independent
Independent(2)
Independent(3)
Not Independent(4)
Not Independent(5)
Independent
Independent(6)
Independent
Independent

(1) Ms. Assadi stepped down as a Class II director at the end of her term on December 7, 2017. Ms. Assadi was
an employee of Farmer Bros. from 1983 to 2006, including serving as Tax Manager from 1995 to 2006,
Cost Accounting Manager from 1990 to 1995, Assistant to Corporate Secretary from 1985 to 1990, and in
Production and Inventory Control from 1983 to 1985. Ms. Assadi is entitled to certain retiree benefits
generally available to Company retirees and is entitled to a death benefit provided by the Company to
certain of its retirees and employees.

(2) Mr. Berger served as Chairman Emeritus through the end of his term as a Class II director on December 7,

2017. Mr. Berger is the former Chairman of the Board and former Chief Executive Officer of the Company.
Mr. Berger is entitled to certain retiree benefits generally available to Company retirees and is entitled to a
death benefit provided by the Company to certain of its retirees and employees.

(3) Mr. Clark is the current Chairman of the Board.
(4) Ms. Grossman is the sister of Carol Farmer Waite, a former director, and the sister of the late Roy E. Farmer
and the daughter of the late Roy F. Farmer, both of whom were executive officers of the Company more
than three years ago. Since January 2016, the Board has determined that, as a result of various
considerations, Ms. Grossman is not independent under the NASDAQ listing standards.

(5) Mr. Keown is the Company’s President and Chief Executive Officer.
(6) Core-Mark was a customer of the Company in fiscal 2018 and is expected to be a customer of the Company

in fiscal 2019. As described above under the heading “Proposal No. 1—Election of Directors—Nominees
for Election as Directors,” Ms. Loretz-Congdon retired at the end of 2016 after 26 years of service at Core-
Mark, including as Senior Vice President, Chief Financial Officer and Assistant Secretary from December
2006 to May 2016 and Executive Advisor from May 2016 to December 2016. Ms. Loretz-Congdon also
serves as a Board Director and Treasurer of the Core-Mark Families Foundation, an independent non-profit
foundation that provides scholarships to children of Core-Mark employees, since 2015. Ms. Loretz-Congdon

owns less than 1% of the outstanding publicly traded stock of Core-Mark. The Board has determined that
these relationships do not create a conflict of interest under the Company’s Code of Conduct and Ethics, do
not require disclosure under Item 404(a) of Regulation S-K, and do not interfere with Ms. Loretz-Congdon’s
exercise of independent judgment in carrying out the responsibilities of a director of the Company.

Board Meetings and Attendance

The Board held seven meetings during fiscal 2018, including four regular meetings and three special

meetings. During fiscal 2018, each director attended at least 75% of the total number of meetings of the Board of
Directors (held during the period for which he or she served as a director) and committees of the Board on which
he or she served (during the periods that he or she served). The independent directors generally meet in executive
session in connection with each regularly scheduled Board meeting. Under the Company’s Corporate
Governance Guidelines, continuing directors are expected to attend the Company’s annual meeting of
stockholders absent a valid reason. All directors who were then serving were present at the 2017 Annual Meeting
of Stockholders held on December 7, 2017 (the “2017 Annual Meeting”) with the exception of Hamideh Assadi
and Guenter W. Berger who stepped down as Class II directors at the 2017 Annual Meeting at the end of their
terms.

Charters; Code of Conduct and Ethics; Corporate Governance Guidelines

The Board maintains charters for its committees, including the Audit Committee, Compensation Committee,

and Nominating and Corporate Governance Committee. In addition, the Board has adopted a written Code of
Conduct and Ethics for all employees, officers and directors. The Board maintains Corporate Governance
Guidelines as a framework to promote the functioning of the Board and its committees and to set forth a common
set of expectations as to how the Board should perform its functions. Current standing committee charters, the
Code of Conduct and Ethics and the Corporate Governance Guidelines are available on the Company’s website
at www.farmerbros.com. Information contained on the website is not incorporated by reference in, or considered
part of, this Proxy Statement.

Board Committees

The Board of Directors has three standing committees: the Audit Committee, Compensation Committee, and
Nominating and Corporate Governance Committee. In addition, the Board maintains an Executive Committee to
assist the Board in discharging its oversight responsibilities between regular Board meetings. Summary
information about each of these committees is set forth below.

Additionally, from time to time, the Board has established ad hoc or other committees, on an interim basis,

to assist the Board with its consideration of specific matters, and it expects to continue to do so as it may
determine to be prudent and advisable in the future. There were no such ad hoc committees in fiscal 2018.

Audit Committee

The Audit Committee is a standing committee of the Board established in accordance with

Section 3(a)(58)(A) of the Exchange Act. The Audit Committee’s principal purposes are to oversee, on behalf of
the Board, the accounting and financial reporting processes of the Company and the audit of the Company’s
financial statements. As described in its charter, the Audit Committee’s responsibilities include assisting the
Board in overseeing: (i) the integrity of the Company’s financial statements; (ii) the independent auditor’s
qualifications and independence; (iii) the performance of the Company’s independent auditor and internal audit
function; (iv) the Company’s compliance with legal and regulatory requirements relating to accounting and
financial reporting matters; (v) the Company’s system of disclosure controls and procedures, internal control
over financial reporting that management has established, and compliance with ethical standards adopted by the
Company; and (vi) the Company’s framework and guidelines with respect to risk assessment and risk

management, including the Company’s cyber security risk. The Audit Committee is directly and solely
responsible for the appointment, dismissal, compensation, retention and oversight of the work of any independent
auditor engaged by the Company for the purpose of preparing or issuing an audit report or performing other
audit, review or attest services for the Company. The independent auditor reports directly to the Audit
Committee.

During fiscal 2018, the Audit Committee held four meetings. Christopher P. Mottern currently serves as
Chair, and Allison M. Boersma and Randy E. Clark currently serve as members of the Audit Committee. All
directors who currently serve on the Audit Committee meet the NASDAQ composition requirements, including
the requirements regarding financial literacy and financial sophistication, and the Board has determined that all
such directors are independent under the NASDAQ listing standards and the rules of the SEC regarding audit
committee membership. The Board has determined that at least one member of the Audit Committee is an “audit
committee financial expert” as defined in Item 407(d) of Regulation S-K under the Exchange Act. That person is
Christopher P. Mottern, the Audit Committee Chair. Ms. Assadi served as a member of the Audit Committee
through the end of her term as a director at the 2017 Annual Meeting. Allison M. Boersma was appointed to the
Audit Committee following her election as a director at the 2017 Annual Meeting.

Compensation Committee

The Compensation Committee is a standing committee of the Board. As described in its charter, the

Compensation Committee’s principal purposes are to discharge the Board’s responsibilities related to
compensation of the Company’s executive officers and administer the Company’s incentive and equity
compensation plans. The Compensation Committee’s objectives and philosophy with respect to the fiscal 2018
executive compensation program, and the actions taken by the Compensation Committee in fiscal 2018 with
respect to the compensation of our Named Executive Officers, are described below under the heading
“Compensation Discussion and Analysis.”

The Compensation Committee also is responsible for evaluating and making recommendations to the Board

regarding director compensation. In addition, the Compensation Committee is responsible for conducting an
annual risk evaluation of the Company’s compensation practices, policies and programs.

During fiscal 2018, the Compensation Committee held five meetings. Randy E. Clark currently serves as
Chair, and Allison M. Boersma, Charles F. Marcy and David W. Ritterbush currently serve as members of the
Compensation Committee. The Board has determined that all current Compensation Committee members are
independent under the NASDAQ listing standards. Ms. Assadi served as a member and Chair of the
Compensation Committee through the end of her term as a director at the 2017 Annual Meeting, upon which
Randy E. Clark was appointed Chair of the Compensation Committee. Allison M. Boersma and David W.
Ritterbush were appointed to the Compensation Committee following their election as directors at the 2017
Annual Meeting.

Compensation Consultant

The Compensation Committee has the authority to retain the services of outside consultants to assist it in
performing its responsibilities. In fiscal 2018, the Compensation Committee engaged Meridian Compensation
Partners, LLC (“Meridian”) for, (i) with respect to the Compensation Committee, advisory and consulting
services relating to the Company’s executive officer and director compensation programs, consultation regarding
short-term and long-term incentive plan design, consultation regarding CEO pay ratio disclosure, and
consultation regarding corporate governance practices and general Compensation Committee matters and
processes, and (ii) with respect to the Nominating and Corporate Governance Committee, consultation regarding
performance assessment with respect to our President and Chief Executive Officer.

Meridian provided no other services to the Company or its affiliates during fiscal 2018 other than as
described above. The Compensation Committee has determined that Meridian is “independent” according to the
criteria required by the SEC in Rule 10C-1 of the Exchange Act.

Management’s Role in Establishing Compensation

The compensation of the executive officers is determined by the Compensation Committee, taking into
account the input and recommendations of our President and Chief Executive Officer regarding compensation for
those executive officers reporting to him, and taking into account the input of the Nominating and Corporate
Governance Committee regarding performance of our President and Chief Executive Officer. The Compensation
Committee has sole authority for all final compensation determinations regarding our President and Chief
Executive Officer. Our President and Chief Executive Officer, Chief Financial Officer, Chief Legal Officer, and
SVP, Human Resources routinely attend the meetings of the Compensation Committee to provide input, as
requested by the Compensation Committee and, in the case of the Chief Legal Officer, to act as secretary for the
meeting; however, no executive officer has any role in approving his or her own compensation, and neither our
President and Chief Executive Officer nor any other executive officer is present during the portion of the meeting
at which the Compensation Committee considers the executive officer’s own compensation. The Compensation
Committee regularly meets in executive session, without members of the management team present, when
discussing and approving executive compensation.

Compensation Committee Interlocks and Insider Participation

Ms. Assadi, Ms. Boersma, Mr. Clark, Mr. Marcy and Mr. Ritterbush were members of the Compensation
Committee during fiscal 2018. None of the members of the Compensation Committee is or has been an executive
officer of the Company, nor did any of them have any relationships requiring disclosure by the Company under
Item 404 of Regulation S-K. None of the Company’s executive officers served as a director or a member of a
compensation committee (or other committee serving an equivalent function) of any other entity, an executive
officer of which served as a director of the Company or member of the Compensation Committee during fiscal
2018.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee is a standing committee of the Board. The
Nominating and Corporate Governance Committee’s principal purposes are (i) monitoring the Company’s
corporate governance structure; (ii) assisting the Board in fulfilling its oversight responsibilities with respect to
the management of risks associated with corporate governance; (iii) ensuring that the Board is appropriately
constituted in order to meet its fiduciary obligations, including by identifying individuals qualified to become
Board members and members of Board committees, recommending to the Board director nominees for the next
annual meeting of stockholders or for appointment to vacancies on the Board, and recommending to the Board
membership on Board committees (including committee chairs); (iv) leading the Board in its annual review of
the Board’s performance; (v) conducting the annual performance review of the Chief Executive Officer and
communicating the results to the Board; and (vi) overseeing succession planning for senior management.

During fiscal 2018, the Nominating and Corporate Governance Committee met nine times. Charles F.

Marcy currently serves as Chair, and Christopher P. Mottern and David W. Ritterbush currently serve as
members of the Nominating and Corporate Governance Committee. The Board has determined that all current
Nominating and Corporate Governance Committee members are independent under the NASDAQ listing
standards. Guenter W. Berger served as a member of the Nominating and Corporate Governance Committee
through the end of his term as a director at the 2017 Annual Meeting. David W. Ritterbush was appointed to the
Nominating and Corporate Governance Committee following his election as a director at the 2017 Annual
Meeting.

Executive Committee

The Board maintains an Executive Committee in order to assist the Board in effectively handling

responsibilities between regular Board meetings. As described in its charter, the Executive Committee is
authorized to exercise all powers and authority of the Board in the management of the business and affairs of the

Company, subject to certain enumerated exceptions as set forth in its charter consistent with Delaware law.
During fiscal 2018, the Executive Committee met four times. The current members of the Executive Committee
are Randy E. Clark, Charles F. Marcy and Christopher P. Mottern.

Director Qualifications and Board Diversity

The Nominating and Corporate Governance Committee is responsible for recommending to the Board

criteria for membership on the Board (including criteria for consideration of candidates recommended by the
Company’s stockholders); identifying qualified individuals for Board membership; recommending to the Board
nominees to stand for election at the annual meeting of stockholders, including consideration of
recommendations from stockholders; recommending to the Board director nominees to fill vacancies on the
Board as they arise; and recommending to the Board membership on Board committees (including committee
chairs). The Corporate Governance Guidelines maintained by the Board include guidelines for selecting
nominees to serve on the Board and considering stockholder recommendations for nominees. The Board seeks to
be composed of individuals who have the highest personal and professional integrity, who have demonstrated
exceptional ability and judgment and who are effective, in connection with the other members of the Board, in
providing the diversity of skills, expertise and perspectives appropriate for the business and operations of the
Company and serving the long-term interests of the Company’s stockholders. All nominees should contribute
substantially to the Board’s oversight responsibilities and reflect the needs of the Company’s business. The
Nominating and Corporate Governance Committee believes that diversity has a place when choosing among
candidates who otherwise meet the selection criteria, but the Company has not established a formal policy
concerning diversity in Board composition.

In evaluating director candidates, the Nominating and Corporate Governance Committee and the Board may

also consider the following criteria as well as any other factor that they deem to be relevant:

• The candidate’s experience in corporate management, such as serving as an officer or former officer of

a publicly held company;

• The candidate’s experience as a board member of another publicly held company;

• The candidate’s professional and academic experience relevant to the Company’s industry;

• The strength of the candidate’s leadership skills;

• The candidate’s senior level experience in food manufacturing and distribution, with an emphasis on

direct-store-delivery experience and expertise;

• The candidate’s experience in finance and accounting and/or executive compensation practices; and

• Whether the candidate has the time required for preparation, participation and attendance at Board

meetings and committee meetings, if applicable.

In addition, the Board will consider whether there are potential conflicts of interest with the candidate’s

other personal and professional pursuits and relationships.

The Board monitors the mix of specific experience, qualifications, and skills of its directors in order to
ensure that the Board, as a whole, has the necessary tools to perform its oversight function effectively in light of
the Company’s business and structure.

The Nominating and Corporate Governance Committee evaluates each individual in the context of the

Board as a whole, with the objective of recommending a group that can best perpetuate the success of the
Company’s business and represent stockholder interests through the exercise of sound judgment, using its
diversity of experience. Prior to nominating a sitting director for reelection, the Nominating and Corporate
Governance Committee will consider, among other things, the director’s past attendance at, and participation in,
meetings of the Board and its committees, the director’s formal and informal contributions to the Board and its
committees, and the director’s adherence to the Corporate Governance Guidelines and other Board approved
policies.

The Nominating and Corporate Governance Committee is responsible for evaluating and recommending to
the Board any changes regarding the composition, size, structure, and practices of the Board and its committees.
In connection with the annual nomination of directors, the Nominating and Corporate Governance Committee
reviews with the Board the composition of the Board as a whole and recommends, if necessary, measures to be
taken so that the Board reflects the appropriate balance of knowledge, experience, skills, background, and
diversity advisable for the Board as a whole. The Nominating and Corporate Governance Committee periodically
undertakes a skills and experience evaluation to assist the committee in planning director education programs and
to identify desired skills and experience for future director nominees. The background of each continuing director
and nominee is described above under “Proposal No. 1—Election of Directors.”

For purposes of identifying nominees for the Board of Directors, the Nominating and Corporate Governance
Committee may rely on professional and personal contacts of the Board and senior management. If necessary, the
Nominating and Corporate Governance Committee may explore alternative sources for identifying nominees,
including engaging, as appropriate, one or more third-party search firms to assist in identifying qualified
candidates. The process may also include interviews and additional background and reference checks for
non-incumbent nominees, at the discretion of the Nominating and Corporate Governance Committee. In 2018,
the Nominating and Corporate Governance Committee retained national search firm Spencer Stuart to assist with
identifying potential director nominees. The functions performed by Spencer Stuart included identifying
qualified candidates, conducting interviews and background checks, and presenting qualified candidates to the
Nominating and Corporate Governance Committee for consideration.

The Nominating and Corporate Governance Committee will consider recommendations for director

nominees from Company stockholders. Biographical information and contact information for proposed nominees
should be sent to Farmer Bros. Co., 1912 Farmer Brothers Drive, Northlake, Texas 76262, Attention: Secretary.
The Nominating and Corporate Governance Committee will evaluate candidates proposed by stockholders in
light of the criteria described above.

Forum Selection By-Law

On October 14, 2018, the Board of Directors adopted an amendment to the Company’s By-Laws to add a
forum selection by-law to provide that the courts located within the State of Delaware will serve as the exclusive
forum for the adjudication of certain legal disputes. This by-law is intended to benefit the Company and its
stockholders in significant part by directing litigation to a single Delaware court, which will apply its own state
law with a well-established body of precedent, thereby reducing the risk and expense of concurrent, multi-
jurisdictional litigation, saving Company resources (money and management attention) and leading to a single,
more predictable outcome in litigation involving corporate governance and internal affairs. Adopting such an
exclusive forum provision covering specified claims does not materially change the substantive legal claims
available to stockholders. Additionally, the Company retains the ability to consent to an alternative forum in
appropriate circumstances where the Company determines that its interests and those of its stockholders are best
served by permitting a particular dispute to proceed in a forum other than Delaware.

Although stockholder approval is not required to amend the By-Laws, the Board of Directors believes this is

an important issue and that it is in the best interests of the Company and its stockholders to seek a stockholder
vote to approve the Amendment as described in “Proposal No. 4—Approval of the Company’s Forum Selection
By-Law.” If stockholder approval is not obtained, the Amendment will be made void and of no further force or
effect.

Board Leadership Structure

Under our By-Laws, the Board of Directors, in its discretion, may choose a Chairman of the Board of
Directors. If there is a Chairman of the Board of Directors, such person may exercise such powers as provided in
the By-Laws or assigned by the Board of Directors. Randy E. Clark was appointed Chairman of the Board of
Directors in December 2015. As described above under “Proposal No. 1—Election of Directors,” Mr. Clark has
served on our Board of Directors since 2012.

Notwithstanding the current separation of Chairman of the Board and Chief Executive Officer, our

Chairman of the Board is generally responsible for soliciting and collecting agenda items from other members of
the Board and the Chief Executive Officer, and the Chief Executive Officer is generally responsible for leading
discussions during Board meetings. This structure allows for effective and efficient Board meetings and
information flow on important matters affecting the Company. Other than Mr. Keown and Ms. Grossman, all
members of the Board are independent and each of the Audit, Compensation, and Nominating and Corporate
Governance Committees of the Board are composed solely of independent directors. Due principally to the
limited size of the Board, the Board has not formally designated a lead independent director and believes that as a
result thereof, non-employee director and executive sessions of the Board, which are attended solely by
non-employee directors or independent directors, as applicable, result in an open and free flow of discussion of
any and all matters that any director may believe relevant to the Company and/or its management.

Although the roles of Chairman and Chief Executive Officer are currently filled by different individuals, no
single leadership model is right for all companies at all times, and the Company has no bylaw or policy in place
that mandates this leadership structure. The Nominating and Corporate Governance Committee will evaluate and
recommend to the Board any changes in the Board’s leadership structure.

Board’s Role in Risk Oversight

The Board of Directors recognizes that although management is responsible for identifying risk and risk

controls related to business activities and developing programs and recommendations to determine the
sufficiency of risk identification and the appropriate manner in which to control risk, the Board plays a critical
role in the oversight of risk. The Board implements its risk oversight responsibilities by having management
provide periodic briefing and informational sessions on the significant risks that the Company faces and how the
Company is seeking to control risk if and when appropriate. In some cases, a Board committee is responsible for
oversight of specific risk topics. For example, the Audit Committee has oversight responsibility of risks
associated with financial accounting and audits, internal control over financial reporting, cyber security, and the
Company’s major financial risk exposures, including commodity risk and risks relating to hedging programs. The
Compensation Committee has oversight responsibility of risks relating to the Company’s compensation policies
and practices. At each regular meeting, or more frequently as needed, the Board of Directors considers reports
from the Audit Committee and Compensation Committee which provide detail on risk management issues and
management’s response. The Board of Directors, as a whole, examines specific business risks in its periodic
reviews of the individual business units, and also of the Company as a whole as part of its regular reviews,
including as part of the strategic planning process and annual budget review and approval. Beyond formal
meetings, the Board and its committees have regular access to senior executives, including the Company’s Chief
Executive Officer and Chief Financial Officer. The Company believes that its leadership structure promotes
effective Board oversight of risk management because the Board directly, and through its various committees, is
regularly provided by management with the information necessary to appropriately monitor, evaluate and assess
the Company’s overall risk management, and all directors are involved in the risk oversight function.

Compensation-Related Risk

As part of its risk oversight role, our Compensation Committee annually considers whether our

compensation policies and practices for all employees, including our executive officers, create risks that are
reasonably likely to have a material adverse effect on our Company. In fiscal 2018, the Compensation Committee
noted several design features of our compensation programs that reduce the likelihood of excessive risk-taking,
including, but not limited to, the following:

• A good balance of fixed and at-risk compensation, as well as an appropriate balance of cash and

equity-based compensation.

• Management incentive programs are based on multiple metrics, including strategic, individual and

operational measures.

• The Compensation Committee is directly involved in setting short- and long-term incentive

performance targets and payout intervals, assessing performance against targets, and reviewing/
approving the performance goals for the CEO and other executives.

• Executive annual short-term incentive awards are capped at 200% of the target opportunity and the

performance-based restricted stock units in the long-term incentive plan are capped at 150% of target
opportunity.

• Long-term equity awards are generally made on an annual basis which creates overlapping vesting

periods and ensures that management remains exposed to the risks of their decision-making through
their unvested equity-based awards for the period during which the business risks are likely to
materialize.

• Long-term compensation for senior executives is comprised of stock options that vest ratably over

three years and performance-based restricted stock units that are earned based on three-year
performance goals. Company shares are inherently subject to the risks of the business, and the
combination of options and performance-based restricted stock units ensure that management
participates in these risks.

•

Performance-based restricted stock units are earned based on cumulative coffee pound sales and
cumulative adjusted EBITDA performance goals over a full three-year performance period. Using a
sales metric coupled with an earnings metric helps minimize the potential for increasing sales in an
unprofitable or value-destructive manner.

• The Company has significant share ownership requirements for executives and non-employee

directors. Executive officers are required to hold share-based compensation awards until meeting their
ownership requirements. Company shares held by management are inherently subject to the risks of the
business.

• Executive compensation is benchmarked annually relative to pay levels and practices at peer

companies.

• The Company has a clawback policy in place that allows for recovery of incentive compensation if

there is a material restatement of financial results caused by the fraud or misconduct of an individual
which resulted in an over payment of incentives.

• The Company prohibits employees and directors from hedging or pledging its securities.

• The Compensation Committee is composed solely of independent directors and retains an independent
compensation consultant to provide a balanced perspective on compensation programs and practices.
The Compensation Committee approves all pay decisions for executive officers.

Communication with the Board

The Company’s annual meeting of stockholders provides an opportunity each year for stockholders to ask

questions of, or otherwise communicate directly with, members of the Board on appropriate matters.
Stockholders may communicate in writing with any particular director, any committee of the Board or the
directors as a group, by sending such written communication to the Secretary of the Company at the Company’s
principal executive offices, 1912 Farmer Brothers Drive, Northlake, Texas 76262. The envelope must contain a
clear notation indicating that the enclosed letter is a “Stockholder-Board Communication” or “Stockholder-
Director Communication.” All such letters must identify the author as a stockholder of the Company and clearly
state whether the intended recipient is a particular director, a committee of the Board, or the directors as a group.

Copies of written communications received at such address will be collected, organized and reviewed

regularly by the Secretary and provided to the Board or the relevant director unless such communications are
considered, in the reasonable judgment of the Secretary, to be inappropriate for submission to the intended
recipient(s). Examples of stockholder communications that would be considered inappropriate for submission to

the Board include, without limitation, customer complaints, solicitations, communications that do not relate
directly or indirectly to the Company’s business, or communications that relate to improper or irrelevant topics.

The Secretary or his designee may analyze and prepare a response to the information contained in

communications received and may deliver a copy of the communication to other Company employees or agents
who are responsible for analyzing or responding to complaints or requests. Communications concerning possible
director nominees submitted by any of the Company’s stockholders will be forwarded to the members of the
Nominating and Corporate Governance Committee.

EXECUTIVE OFFICERS

The following table sets forth the executive officers of the Company as of the date hereof. At each annual
meeting of the Board, the Board formally re-appoints the executive officers, and all executive officers serve at
the pleasure of the Board. No executive officer has any family relationship with any director or nominee, or any
other executive officer.

Name

Age Title

Executive Officer Since

Michael H. Keown . . . . . .
David G. Robson . . . . . . . .
Ellen D. Iobst
. . . . . . . . . .
Scott A. Siers . . . . . . . . . .
Thomas J. Mattei, Jr. . . . . .

President and Chief Executive Officer
56
52 Treasurer and Chief Financial Officer
59 Chief Operations Officer
55
48 Chief Legal Officer and Secretary

Senior Vice President and General Manager—Sales

2012
2017
2017
2017
2015

Michael H. Keown has served as the Company’s President and Chief Executive Officer since March 2012.

David G. Robson joined the Company as Treasurer and Chief Financial Officer in February 2017. As

Treasurer and Chief Financial Officer, Mr. Robson’s current responsibilities include overseeing Finance,
Information Technology and M&A. Prior to joining the Company, Mr. Robson served as the Chief Financial
Officer of PIRCH, a curator and retailer of kitchen, bath and outdoor home brands, from September 2014 to
September 2016. While at PIRCH, Mr. Robson oversaw all aspects of accounting, financial planning and
analysis, treasury, merchandise planning and legal, with responsibility for developing strategies, processes and
operating priorities to upscale a high growth retailer while building strong finance and merchandising teams.
From January 2012 to September 2014, Mr. Robson was the Chief Financial Officer of U.S. AutoParts, an online
provider of auto parts and accessories, where he was responsible for managing accounting, financial planning and
analysis, treasury and investment decisions, acquisition activities, public reporting, investor relations, and
merchandise planning and procurement. Prior to that, Mr. Robson served as the Executive Vice President and
Chief Financial Officer of Mervyns LLC, a former discount department store chain, from 2007 to 2011. From
2001 to 2007, Mr. Robson served as the Senior Vice President of Finance and Principal Accounting Officer for
Guitar Center, Inc. Mr. Robson began his career in public accounting with the accounting firm Deloitte &
Touche LLP. Mr. Robson graduated with a B.S. degree in Business Administration: Accounting and Finance
from the University of Southern California and is a certified public accountant (inactive) in the State of
California.

Ellen D. Iobst joined the Company as Chief Operations Officer in February 2017. As Chief Operations
Officer, Ms. Iobst’s current responsibilities include Green Coffee (procurement and R&D), Manufacturing,
Quality & Regulatory, Engineering, Continuous Improvement, and Supply Chain (transportation, fleet, logistics,

planning, procurement and commercial beverage equipment). Prior to becoming an employee of the Company,
Ms. Iobst served as an independent consultant to the Company, reporting directly to the CEO, from April 2016
until her hire in February 2017. During this consulting period, Ms. Iobst focused on strategic initiatives relating
to coffee manufacturing and sourcing, coffee equipment, supply chain improvement, acquisitions, and project
implementation. Ms. Iobst’s supply chain expertise includes state-of-the art manufacturing, lean manufacturing,
supply chain and logistics optimization, purchasing, engineering and technical services, with executive
experience in acquisitions and divestitures, site start up and closures, sustainability, and risk management. Prior
to becoming a consultant to the Company, Ms. Iobst was the SVP, Supply Chain and Chief Sustainability Officer
at Sunny Delight Beverages Co., a producer, distributor, and marketer of juices, juice drinks, and flavored waters,
from August 2004 to October 2015. As one of the founding managers of Sunny Delight, she created and led a
team of 600 people including manufacturing (5 plants), contract manufacturing, supply chain/logistics,
purchasing/risk management, engineering/capital management and technical services, and provided leadership
for the company’s sustainability program. Ms. Iobst’s other experience includes over 20 years with Procter &
Gamble, a multinational consumer goods company, serving in a variety of roles relating to supply chain
operations, plant management and human resources. Ms. Iobst graduated with a B.S. in Chemical Engineering
from Lehigh University.

Scott A. Siers has served as a member of the Company’s executive management team since February 2017

after having served as the Company’s Senior Vice President, National Account Sales from February 2013 to
February 2017. As Senior Vice President and General Manager—Sales, Mr. Siers’ current responsibilities
include general management and leadership of the Company’s sales organization, including strategy, planning,
organizational design and process improvement. Mr. Siers manages sales across all channels of trade and leads
the Company’s corporate sustainability programs. Prior to joining the Company, Mr. Siers was Vice President,
Business Development at McLane Company, a supply chain services company, from 2009 to September 2012,
with responsibility for change management, new business sales and marketing. Mr. Siers’ other experience
includes various roles with PepsiCo, including as Vice President, Industry Relations & Business Development,
where he led strategy and execution of industry relations and business development for all PepsiCo brands within
the foodservice industry, and Vice President, National Accounts & Chief Customer Officer, where he led the
national sales organization, as well as experience with Tropicana Products, Inc., where he served as Vice
President, General Manager—US Sales. Mr. Siers graduated with a B.S. in Marketing from Western Kentucky
University.

Thomas J. Mattei, Jr. was promoted to Chief Legal Officer and Secretary in September 2018 after having
served as General Counsel from December 2014 to September 2018, Assistant Secretary from August 2015 to
September 2018, and Vice President and Corporate Counsel from January 2013 to December 2014. As Chief
Legal Officer, Mr. Mattei’s current responsibilities include oversight of corporate, strategic, and tactical legal and
risk-related initiatives, as well as matters of corporate governance. Prior to joining the Company, Mr. Mattei was
in private practice with Weintraub Tobin Chediak Coleman Grodin Law Corporation and Weissmann Wolff
Bergman Coleman Grodin & Evall LLP in Beverly Hills, CA, from July 2004 to December 2012, with primary
responsibilities in corporate, finance and real estate transactional matters. From October 1999 to July 2004,
Mr. Mattei was a Corporate Associate at Latham & Watkins LLP in Los Angeles, CA, with primary
responsibilities in securities, mergers and acquisitions, and general corporate matters. Mr. Mattei received his
undergraduate degree in Public Policy from Duke University and his Juris Doctor from the University of Virginia
School of Law.

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis describes our executive compensation philosophy, objectives,
and programs, the decisions made under those programs and factors considered by our Compensation Committee
in fiscal 2018 with respect to the compensation of our Named Executive Officers.

Fiscal 2018 Named Executive Officers

Name

Title

Michael H. Keown . . . . . . .
David G. Robson . . . . . . . .
Ellen D. Iobst . . . . . . . . . . .
Scott A. Siers . . . . . . . . . . .
. . . . .
Thomas J. Mattei, Jr.

President and Chief Executive Officer
Treasurer and Chief Financial Officer
Chief Operations Officer
Senior Vice President and General Manager—Sales
Chief Legal Officer and Secretary

Executive Summary

Our executive compensation programs are designed to attract, retain, and motivate talented executives, to
reward positive results for the Company and our stockholders, and to motivate executives to achieve our short-
term and long-term goals by emphasizing “at risk” performance-based compensation in balance with fixed
compensation. We believe that this structure appropriately focuses our executive officers on the creation of long-
term value without creating undue risk-taking behavior.

In fiscal 2018, the Company continued to refine its executive compensation program by making changes to

the short- and long-term incentive programs. Fiscal 2018 short-term cash incentives were based on the
Company’s achievement of adjusted EBITDA and free cash flow targets along with the relative achievement of
individual executive officer objectives, as well as a one-time cash incentive program for our Named Executive
Officers with a separate set of performance goals aimed at the successful and rapid integration of the acquired
business of Boyd Coffee Company (the “Boyd Business”). For fiscal 2018 long-term incentives, the Company
adopted a new performance share vehicle to more directly align long-term incentive awards with the Company’s
strategy of incentivizing profitable growth. On a value basis, fiscal 2018 long-term incentive awards were
awarded as 50% in performance-based restricted stock units (“PBRSUs”), based on cumulative coffee pound
sales and cumulative adjusted EBITDA over a full three-year performance period, and 50% in non-qualified
stock options.

In fiscal 2018, the Company’s 3-year cumulative TSR performance was aligned with lower realized
compensation amounts relative to target, reflecting strong alignment between pay and performance. While our
Named Executive Officers received a cash payout for achievement of the integration-based performance goals
relating to the Boyd Business, the Company’s Named Executive Officers did not receive any cash payout based
on achievement of Company-wide performance.

3 Year Cumulative TSR as of June 30, 2018

39%

37%

30%

13%

45%

40%

35%

30%

25%

20%

15%

10%

Peer Group Median* Russell 2000 Index

Russell 2000
Constituent Median

Farmer Bros. Co.

* Peer group TSR data in the chart above excludes Boulder Brands, Inc. and Diamond Foods, Inc., which were

each acquired. The Russell 2000 index median TSR is based on the 2018 constituent companies.

Compensation Policies and Practices—Good Governance

Consistent with our commitment to strong corporate governance, in fiscal 2018 our Board followed the
compensation policies and practices described below to drive performance and serve our stockholders’ long-term
interests:

What We Do

✓ Our Compensation Committee is composed solely of independent directors, and regularly meets in

executive session without members of management present.

✓ Our Compensation Committee retains an independent compensation consultant to provide it with advice on

matters related to executive compensation.

✓ Our Compensation Committee periodically reviews and assesses the potential risks of our compensation

policies and practices.

✓ The structure of our executive compensation program includes a mix of cash and equity-based

compensation, with an emphasis on performance-based compensation.

✓ The competitiveness of our executive compensation program is assessed by comparison to the compensation
programs of peer group companies that are similar to us in terms of industry, annual revenue, significant
founding family share ownership, and/or other business characteristics.

✓ Our claw-back policy requires the Board to recoup certain incentive compensation in the event of a material

restatement of the Company’s financial results due to fraud or misconduct.

✓ We maintain meaningful stock ownership guidelines for directors and executive officers that promote a

long-term stockholder perspective.

What We Do Not Do

✘ We do not provide for excise tax gross-ups in connection with severance or other payments or benefits

arising in connection with a change in control.

✘ We do not provide for “single trigger” change-in-control payments or benefits.
✘ We do not provide guaranteed base salary increases or guaranteed bonuses.
✘ We do not provide supplemental pension benefits to our Named Executive Officers.
✘ We do not provide excessive perquisites.
✘ We do not permit (absent stockholder approval in the case of repricing/exchanging), and have not engaged

in, the practice of backdating or re-pricing/exchanging stock options.

✘ We do not allow directors or executive officers to hedge or short-sell Company stock.
✘ We do not allow directors or executive officers to pledge shares of Company stock as collateral for a loan or

in a margin account.

Stockholder Advisory Vote on Executive Compensation and Key Compensation Program Enhancements

In December 2017, we held a stockholder advisory vote to approve the compensation of our named
executive officers (the “say-on-pay proposal”). Our stockholders approved the compensation of our named
executive officers, with approximately 78% of the shares present or represented by proxy at the 2017 Annual
Meeting and entitled to vote thereat, casting votes in favor of the say-on-pay proposal, an increase from an
approval rate of approximately 67% in fiscal 2016.

The Compensation Committee reviews the results of the annual vote on the say-on-pay proposal, and

determines whether to make any adjustments to the Company’s executive compensation policies and practices. In
light of the increase in stockholder support in fiscal 2017 compared to the prior year’s advisory vote results, the
Compensation Committee determined that the enhancements to the Company’s executive compensation
programs and practices in fiscal 2017 were viewed by stockholders as effective in further aligning the Company
with stockholders in its executive compensation practices. In fiscal 2018, the Compensation Committee
continued those enhancements and made the following additional enhancements to our compensation programs
and practices:

•

limited base salary increases to a modest 2% or less for all Named Executive Officers with the
exception of the CEO, who received a larger increase to address a market shortfall;

adopted a new performance share vehicle to more directly align long-term incentive awards with our
strategy of incentivizing profitable growth, with fiscal 2018 long-term incentive awards awarded, on a
value basis, as 50% in PBRSUs, based on cumulative coffee pound sales and cumulative adjusted
EBITDA over a full three-year performance period, and 50% in non-qualified stock options;

established a performance funding structure for short-term cash incentive awards that established a
maximum cash incentive opportunity for the program, generally, and for each of our executive officers
that participated in the program;

approved short-term cash incentive awards including annual performance awards based on the
Company’s achievement of adjusted EBITDA and free cash flow targets along with the relative
achievement of individual executive officer objectives, as well as a one-time cash incentive program
with a separate set of performance goals aimed at the successful and rapid integration of the Boyd
Business; and

continued review of potential modifications to our short- and long-term incentive plans and programs
to further align our incentive programs with market-competitive practices and the Company’s strategic
goals.

The Compensation Committee will continue to consider the outcome of our say-on-pay votes when making
future compensation decisions for the named executive officers. In addition, when determining how often to hold
future say-on-pay votes to approve the compensation of our named executive officers, the Board took into
account the strong preference for an annual vote expressed by our stockholders at our 2017 Annual Meeting.
Accordingly, the Board determined that we will continue to hold say-on-pay votes to approve the compensation
of our named executive officers every year.

Stockholder Engagement and Feedback

In fiscal 2018, following the outcome of the Stockholder Advisory Vote on Executive Compensation, the

Compensation Committee reached out to stockholders representing in excess of 50% of common shares
outstanding, offering to engage in a dialogue about the Company’s executive pay programs in order to gain
feedback and insights from the Company’s stockholders. Conversations were held with any of the stockholders in
that group that were interested in having a discussion regarding executive compensation. Key themes of feedback
provided by stockholders include:

• Overall, the Company’s executive pay programs appear to be working effectively, and stockholders

were pleased with the strong alignment of pay with performance.

•

It is important that pay programs, generally, function correctly to attract and retain talent, and that
incentive pay remains a motivating force.

• The addition of the PBRSUs was a positive change for the long-term incentive program.

•

Stockholders discussed certain of the metrics that they use in their own analysis of the Company’s
performance and discussed the appropriateness of these or other measures in the design of short- and
long-term incentive compensation programs for executives.

The Compensation Committee is committed to continuing stockholder engagement efforts, and to

discussing and considering feedback and learnings from these conversations.

Executive Compensation Philosophy and Objectives

Our Compensation Committee recognizes that effective compensation strategies are critical to retaining and
incentivizing key employees who contribute to the Company’s long-term success and, as such, create long-term
value for our stockholders. To that end, our executive compensation program is designed to achieve the
following primary objectives:

•

attract, retain, and motivate talented executives;

• motivate executive officers to achieve our short-term and long-term goals by providing “at risk”

compensation, the value of which is ultimately based on our future performance, without creating
undue risk-taking behavior nor unduly emphasizing short-term performance over long-term value
creation;

•

reward positive results for the Company and our stockholders; and

• maintain total compensation and relative amounts of base salary, annual, and long-term incentive

compensation competitive with those amounts paid by peer companies selected by the Compensation
Committee.

Oversight of the Executive Compensation Program

Compensation Committee

Under its charter, the Compensation Committee has the duty, among other things, to assess the overall
executive compensation structure of the Company, including the compensation for our President and Chief

Executive Officer and each of our other executive officers. In exercising this authority, the Compensation
Committee determines the forms and amount of executive compensation appropriate to achieve the
Compensation Committee’s strategic objectives, including base salary, bonus, incentive or performance-based
compensation, equity awards and other benefits.

Compensation Consultant

The Compensation Committee has the authority to retain the services of outside consultants to assist it in

performing its responsibilities. In fiscal 2018, the Compensation Committee engaged Meridian for, (i) with
respect to the Compensation Committee, advisory and consulting services relating to the Company’s executive
officer and director compensation programs, consultation regarding short-term and long-term incentive plan
design, consultation regarding CEO pay ratio disclosure, and consultation regarding corporate governance
practices and general Compensation Committee matters and processes, and (ii) with respect to the Nominating
and Corporate Governance Committee, consultation regarding performance assessment with respect to our
President and Chief Executive Officer.

Management’s Role in Establishing Compensation

Benchmarking and Peer Group Companies

The Compensation Committee compares the pay levels and programs for the Company’s executive officers

to compensation information from a relevant peer group as well as information from published survey sources.
The Compensation Committee uses this comparative data as a reference point in its review and determination of
executive compensation but also considers competitive compensation practices and other relevant factors based
on the members’ collective experience in setting pay. Accordingly, the Compensation Committee does not
generally establish compensation at specific benchmark percentiles.

When setting compensation, the Compensation Committee considers other factors in addition to market

data, including:

•

individual performance;

impact on long-term stockholder value creation;

impact on development and execution of Company strategy;

•

experience and tenure in role; and

scope of responsibility.

The Compensation Committee, with the assistance of Meridian, developed and approved the following peer

group for purposes of benchmarking the compensation levels of our Named Executive Officers relative to our
peers and informing fiscal 2018 pay levels for our Named Executive Officers:

• Amplify Snack Brands, Inc.
• B&G Foods, Inc.
• Boston Beer Company, Inc.
• Calavo Growers, Inc.
• Cal-Maine Foods, Inc.
• Chef’s Warehouse Inc.
• Craft Brew Alliance Inc.
•
J & J Snack Foods Corp.
• Lancaster Colony Corporation

• MGP Ingredients Inc.
• National Beverage Corp.
• Omega Protein Corp.
•
•
•
•
• Tootsie Roll Industries, LLC

John B. Sanfilippo & Son, Inc.
Seneca Foods Corp.
Snyder’s-Lance, Inc.
Sunopta Inc.

The Compensation Committee found this peer group to be appropriate because it represented a meaningful

sample of comparable companies in terms of, as applicable, industry, annual revenue, significant founding family
share ownership and other business characteristics.

Fiscal 2018 Named Executive Officer Compensation Mix

In fiscal 2018, the Compensation Committee’s compensation decisions with respect to our Named
Executive Officers once again reflected strong alignment between pay and performance. We believe that our
fiscal 2018 compensation programs were therefore also strongly aligned with the long-term interests of our
stockholders.

The following charts illustrate, with respect to our Chief Executive Officer and with respect to our other
Named Executive Officers as a group, the base salary, target short-term cash incentive compensation, including
annual performance awards and one-time integration achievement awards in fiscal 2018, and target long-term
equity incentive compensation as a percentage of target total direct compensation for fiscal 2018. As shown
below, a significant portion of Named Executive Officer target direct compensation is “at risk” variable
compensation rather than fixed compensation, reflecting our philosophy of aligning Named Executive Officer
compensation with performance generally and stockholder value creation specifically. Target annual incentives
represented a larger percentage of target total direct compensation due to the opportunity provided by the
one-time cash incentive program to motivate executives to expediently and successfully integrate the Boyd
Business into Farmer Bros. given the magnitude of the Boyd Coffee acquisition and potential impact on Farmer
Bros.’ growth and financial performance.

CEO

AVERAGE OF OTHER
NAMED EXECUTIVE
OFFICERS

Long-Term
Incentives
30%

Base Salary
28%

Long-Term
Incentives
27%

Base Salary
39%

At Risk Pay Elements

Target Annual
Incentive
42%

Target Annual
Incentive
34%

Key Elements of Fiscal 2018 Executive Compensation Program

Below are the key elements of the Company’s fiscal 2018 executive compensation program. While we
believe that the components of our compensation program function together to support our recruitment, retention,
performance and stockholder alignment goals, the principal purposes of each component of the program are as
follows:

What We Pay

Base Salary . . . . . . . . . . . . . . . . . .

Why and How We Pay It

• Base salary comprises fixed cash compensation that is designed to
provide a reasonable level of fixed income and corresponding
day-to-day financial stability, based on role, individual performance,
scope of responsibility, leadership skills and experience.

• Base salaries are reviewed annually and adjusted when appropriate

(increases are neither fixed nor guaranteed).

• Competitive base salaries are a key component of attracting and

retaining executive talent.

Short-Term Cash Incentives . . . . .

• Annual cash incentives constitute variable “at risk” compensation,

payable in cash based on Company-wide and individual performance.
These awards are designed to reward achievement of annual financial
objectives as well as near-term strategic objectives that create
momentum that is expected to foster the long-term success of the
Company’s business.

• Company-wide metrics and targets are derived from, and intended to

promote, our near-term business strategy.

What We Pay

Why and How We Pay It

Long-Term Incentives . . . . . . . . . .

Severance Benefits . . . . . . . . . . . .

•

Individual targets are consistent with our focus on both quantitative
and qualitative priorities and thereby reward both attainment of
objective metrics and individual contributions.

• One-time cash incentive program to motivate executives to

expediently and successfully integrate the Boyd Business into Farmer
Bros. given the magnitude of the Boyd Coffee acquisition and
potential impact on Farmer Bros.’ growth and financial performance.

•

Stock options subject to time-based vesting conditions are designed to
create direct alignment with stockholder objectives and retain critical
talent over extended timeframes.

Stock options and PBRSUs subject to both performance- and time-
based vesting conditions are designed to create direct alignment with
stockholder objectives, provide a focus on long-term value creation,
retain critical talent over extended timeframes and enable key
employees to share in value creation.

Performance-based award metrics and targets align with long-term
business strategy as well as stock price appreciation.

Severance benefits provide income and health insurance protection to
our Named Executive Officers in connection with certain involuntary
terminations of employment. These severance benefits are designed to
enable the Named Executive Officers to focus on the best interests of
the Company and its stockholders, including in circumstances that
may jeopardize the individual’s job security.

• Enhanced severance benefits are available if the termination of

employment occurs in connection with a change in control to ensure
continued focus on the best alternatives for the Company and its
stockholders, free from distractions caused by personal uncertainties
associated with the heightened risk to job security that arises for
senior executives in the transactional context.

•

Severance benefits are also key to attracting and retaining key talent.

Retirement and Welfare

• A standard complement of retirement, health, welfare and insurance

Benefits . . . . . . . . . . . . . . . . . . .

Perquisites . . . . . . . . . . . . . . . . . . .

benefits, offered to our Named Executive Officers on terms generally
similar to those available to other employees, provides important
protections and stability for our Named Executive Officers and their
families that help enable our Named Executive Officers to remain
focused on their work responsibilities.

• These are generally low-cost benefits with a higher perceived value
that are intended to help keep our overall compensation package
competitive.

• We provide limited perquisites such as an automobile allowance or
use of a Company car and fuel card, as well as relocation assistance,
each intended to facilitate the operation of the Company’s business
and to assist the Company in recruiting and retaining key executives.

• These are also low-cost benefits with a higher perceived value that are
intended to help keep our overall compensation package competitive.

Base Salary

Consistent with the established executive compensation philosophy and objectives described above, and
informed by the peer comparisons provided by Meridian, the Compensation Committee set fiscal 2018 annual
base salaries for the Named Executive Officers as shown in the following table. The Compensation Committee
approved a 10% increase in Mr. Keown’s annual base salary in order to address a market shortfall and move his
annual base salary closer towards the median of the peer group.

Name

Michael H. Keown . . . . . .
David G. Robson . . . . . . .
. . . . . . . . . .
Ellen D. Iobst
Scott A. Siers . . . . . . . . . .
. . . .
Thomas J. Mattei, Jr.

Fiscal 2018
Annual Base Salary(1)

Fiscal 2017
Annual Base Salary(1)

Annual Base
Salary Percentage
Change

$570,000
$352,520
$338,618
$293,132
$312,120

$517,140
$350,000
$335,000
$290,000
$306,000

10%
1%
1%
1%
2%

(1) Annual base salary as of the end of the applicable fiscal year. Increase in fiscal 2018 base salaries reflected

adjustments approved by the Compensation Committee and were effective September 1, 2018.

Short-Term Cash Incentives

For fiscal 2018 short-term cash incentive awards under the 2017 Farmer Bros. Co. Long-Term Incentive
Plan (the “2017 Plan”), we established a maximum annual cash incentive opportunity for the program, generally,
and for each of our executive officers that participated in this program, based on a 1.9% of our fiscal 2018 gross
profit as reported in our audited consolidated financial statements for the fiscal year ended June 30, 2018
included in our 2018 Form 10-K. The Compensation Committee specified an allocation percentage for each of
our Named Executive Officers, subject to a maximum of 250% of the Named Executive Officer’s fiscal 2018
target bonus award, under the 2017 Plan. The 2017 Plan is an umbrella plan intended to satisfy the performance-
based requirements of Section 162(m) of the Internal Revenue Code as in effect in 2017.

Fiscal 2018 awards were designed to place a significant portion of each Named Executive Officer’s annual

cash compensation “at risk” and were designed to align the near-term focus of our Named Executive Officers
with our business goals for the relevant period. Short-term cash incentive awards included annual performance
awards based on the Company’s achievement of adjusted EBITDA, free cash flow, and individual objectives (the
“Performance Achievement Program”), as well as a one-time cash incentive program for our Named Executive
Officers with a separate set of performance goals aimed at the successful and rapid integration of the Boyd
Business (the “Integration Achievement Program”). The 250% maximum described above applied to and limited
the aggregate total of the Performance Achievement Program and the Integration Achievement Program in fiscal
2018 for each Named Executive Officer (and all Named Executive Officers as a group).

The Compensation Committee believes that the fiscal 2018 performance metrics represented challenging,

yet achievable, goals that effectively incentivized the Named Executive Officers. Payouts were ultimately
determined based on the performance goals described below, and any payouts earned based on achievement
against these performance goals could not exceed the amount funded by the gross profit pool.

Performance Achievement Program for Fiscal 2018

Company-Wide Performance Goals
(weighted 90% of the Performance Achievement Program at target)

For the fiscal 2018 Performance Achievement Program, the Compensation Committee used adjusted
EBITDA and free cash flow as the relevant performance metrics and set goals relating to such metrics (described
below) which, if achieved, the Compensation Committee believed would reflect a meaningful improvement in
Company profitability and value accretion to our stockholders.

For this purpose:

•

“adjusted EBITDA” was defined as net (loss) income excluding the impact of: (i) income taxes;
(ii) interest expense; (iii) income from short-term investments; (iv) depreciation and amortization
expense; (v) ESOP and share-based compensation expense; (vi) non-cash impairment losses;
(vii) non-cash pension withdrawal expense; (viii) other similar non-cash expenses; (ix) restructuring
and other transition expenses; (x) non-recurring stockholder-related expenses; (xi) acquisition costs
(and related revenues only during the same fiscal year); (xii) capital issuance expenses; (xiii) out of
period external legal expenses; (xiv) business segment disposition expenses (and exclusion of related
gain on sales); (xv) net gain or loss on sale of assets other than M&A or business segment disposition;
and (xvi) non-recurring and/or extraordinary expenses; and

•

“free cash flow” was defined as adjusted EBITDA less maintenance capital expenditures;

in each case, excluding the impact of the acquired Boyd Business during the fiscal year.

In fiscal 2018, our Named Executive Officers were eligible to earn annual cash incentive awards under the

Performance Achievement Program ranging from 50% of the applicable Named Executive Officer’s target
annual bonus for threshold performance (defined as performance at 80% of target performance) and increasing to
200% of the applicable Named Executive Officer’s target annual bonus for maximum performance achievement
(defined as performance at 140% of target performance), with payouts for performance between threshold and
target, and between target and maximum determined by linear interpolation. Performance below threshold for the
adjusted EBITDA goal would result in no payout.

In determining the achievement of Company-wide performance goals for fiscal 2018, the Compensation

Committee exercised negative discretion to reduce actual achievement of adjusted EBITDA and free cash flow
by the amount of the net benefit resulting from certain changes in accounting principles and the reclassification
and capitalization of allied freight and certain overhead and purchase price variances that occurred during fiscal
2018, as described in the 2018 Form 10-K. The following table shows such achievement compared to Company-
wide performance goals for fiscal 2018, after the exercise of negative discretion by the Compensation
Committee.

Metric

Weighting

Threshold Goal
(80% of target
performance)

Target Goal

Maximum
Goal (140% of
target
performance)

Actual
Achievement

Adjusted EBITDA . . .
Free Cash Flow . . . . .
Weighted . . . . . . . . . .
Company-wide

Performance Goals

75% $41,748,000 $52,185,000 $73,059,000 $41,537,000
25% $24,000,000 $30,000,000 $42,000,000 $21,302,000

Actual
Achievement
Compared to
Target
Performance

Earned
Payout for
Fiscal 2018
Company-
wide
Performance

79.6%
71.0%
77.4%

—
—
0

Individual Performance Goals
(weighted 10% of the Performance Achievement Program at target)

As compared to recent years, in fiscal 2018, achievement of individual goals was not limited to 100% in the

aggregate, and no Company target multiplier was applied to individual achievement. The significant
accomplishments considered by our Compensation Committee in determining the individual performance
component of our Named Executive Officers’ fiscal 2018 annual cash incentive awards under the 2017 Plan are
summarized below:

Officer

Individual Performance Accomplishments for Fiscal 2018

Michael H. Keown . . . . . . . . . . . .

• Completed strategic initiatives relating to Boyd Coffee acquisition,

integration, DSD restructuring, and capacity expansion at Northlake,
Texas facility.

• Directed organization development, senior leadership team succession

planning and talent mapping.

• Directed execution of initiatives to build organization engagement and

productivity.

David G. Robson . . . . . . . . . . . . . .

• Drove key initiatives relating to DSD restructuring, revenue growth,

production optimization, and M&A integration.

• Enhanced finance organization, streamlined financial operations and

strengthened IT capabilities.

Ellen D. Iobst . . . . . . . . . . . . . . . . .

• Executed key initiatives to improve operating efficiency.

•

Supported DSD restructuring and Company-wide growth initiatives.

Integrated recent acquisitions to achieve synergies and cost savings.

Scott A. Siers . . . . . . . . . . . . . . . . .

• Achieved acquisition synergies and customer retention.

•

Secured new business and executed new customer start-up.

Thomas J. Mattei, Jr. . . . . . . . . . . .

• Closed Boyd Coffee acquisition and provided integration support.

• Contributed to strategy development and corporate finance initiatives.

•

Supported business development and DSD restructuring.

Implemented organizational initiatives to enhance compliance efforts
and reduce costs.

As a result of our failure to achieve a threshold level of adjusted EBITDA, as determined by the

Compensation Committee, our Named Executive Officers did not receive any cash payout under the Performance
Achievement Program in fiscal 2018.

Name

Fiscal 2018
Target Award

Fiscal 2018
Target Award as
Percentage of Fiscal
2018 Base Salary

Payout as
Percentage of
Target
Company-
wide
Performance
(90% Weight)

Payout as
Percentage of
Target-
Individual
Performance
(10% Weight)

Fiscal 2018
Payout

Michael H. Keown . . . . . . . . . . . . . .
David G. Robson . . . . . . . . . . . . . . .
Ellen D. Iobst . . . . . . . . . . . . . . . . . .
Scott A. Siers . . . . . . . . . . . . . . . . . .
Thomas J. Mattei, Jr. . . . . . . . . . . . .

$570,000
$246,764
$203,171
$161,223
$171,666

100%
70%
60%
55%
55%

0%
0%
0%
0%
0%

—(1)
56%
74%
50%
87%

$0
$0
$0
$0
$0

(1) Mr. Keown informed the Compensation Committee that based on fiscal 2018 Company performance, he elected
to decline to receive any bonus compensation related to his individual performance during the fiscal year.

Integration Achievement Program for Fiscal 2018

In addition to the Performance Achievement Program described above, in fiscal 2018 the Compensation
Committee approved the Integration Achievement Program with a separate set of integration-based performance
goals required to be achieved within 90 days following the closing of the Boyd Coffee acquisition, relating to the
integration of the Boyd Business. The Compensation Committee believed that, given the magnitude of the Boyd
Coffee acquisition and potential impact on Farmer Bros.’ growth and financial performance, it was important to
establish a one-time cash incentive program to motivate the Named Executive Officers to expediently and
successfully integrate the Boyd Business into Farmer Bros. This special Integration Achievement Program only
applies for fiscal 2018 and will not recur in fiscal 2019.

The performance goals for the Integration Achievement Program required the following within 90 days

following the closing date:

•

retention and transition of top five key customers (50% weight);

assumption of certain accounting functions (25% weight); and

successful qualification/test run of Boyd Coffee retail product at Company production facility (25%
weight).

Each of these goals were indicative of the essential aspects of successful integration of the Boyd Business:
revenue retention, swift assumption of business processes, and transfer of production.

Subject to continuing employment by the Company through the end of fiscal 2018, each Named Executive

Officer was eligible to earn a cash incentive award under the Integration Achievement Program of up to an
additional 50% of the Named Executive Officer’s target annual bonus under the Performance Achievement
Program. Achievement or failure of the performance goals for the Integration Achievement Program was
independent of any achievement under the Performance Achievement Program, with any cash incentive award
earned under the Integration Achievement Program to be supplemental to any cash incentive award earned under
the Performance Achievement Program.

In fiscal 2018, the Named Executive Officers earned the following awards under the Integration

Achievement Program:

Name

Michael H. Keown . . . . . . . . . . . .
David G. Robson . . . . . . . . . . . . .
Ellen D. Iobst . . . . . . . . . . . . . . . .
Scott A. Siers . . . . . . . . . . . . . . . .
Thomas J. Mattei, Jr. . . . . . . . . . .

Fiscal 2018
Target Award

$570,000
$246,764
$203,171
$161,223
$171,666

Key Fiscal 2019 Compensation Decisions

Integration Achievement
Target Award as
Percentage of Fiscal
2018 Target Award

Integration
Achievement
Target Award

50%
50%
50%
50%
50%

$285,000
$123,382
$101,586
$ 80,612
$ 85,833

Fiscal 2018
Payout

$285,000
$123,382
$101,586
$ 80,612
$ 85,833

For fiscal 2019, annual short-term incentive compensation awards will be based on the Company’s
achievement of targets for adjusted EBITDA and free cash flow (collectively weighted at 90%) along with the
relative achievement by each executive officer of individual goals and objectives approved by the Compensation
Committee (weighted at 10%). The Integration Achievement Program will not continue for fiscal 2019, and there
are no other specifically-targeted or supplemental incentive opportunities for fiscal 2019. More details about our
fiscal 2019 annual short-term incentive program will be provided in our fiscal 2019 proxy filing.

Long-Term Incentives

Awards

Fiscal 2018 long-term incentive awards were made under the 2017 Plan, which was approved by

stockholders on June 20, 2017 (the “Effective Date”). The 2017 Plan succeeded the Company’s prior long-term
incentive compensation plans, the Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan (the
“Amended Equity Plan”) and the Farmer Bros. Co. 2007 Omnibus Plan (collectively, the “Prior Plans”). On the
Effective Date, the Company ceased granting awards under the Prior Plans; however, awards outstanding under
the Prior Plans will remain subject to the terms of the applicable Prior Plan.

Prior to fiscal 2018, the Compensation Committee granted stock option, performance stock option, and

restricted stock awards under the Prior Plans. Beginning in fiscal 2018, the Company granted stock option,
restricted stock and PBRSU awards under the 2017 Plan.

Vehicle

Stock Options . . . . . . . . . . . . . . .

Purpose

Stock options are designed to incentivize our Named Executive Officers by
providing them with an opportunity to share, along with stockholders, in the
long-term performance of the Company’s Common Stock. Stock options
only confer realizable value to the extent that our stock price increases
subsequent to the grant of the stock option, thus incentivizing our Named
Executive Officers to work toward increased share price goals and aligning
their interests with those of our stockholders. Annual normal-cycle long-
term incentive awards to executive officers consisted exclusively of
performance-based stock options in fiscal 2014 through fiscal 2017.
Beginning in fiscal 2018, annual normal-cycle long-term incentive awards
to executive officers consisted of a combination of non-qualified stock
options with time-based vesting and PBRSUs.

Restricted Stock . . . . . . . . . . . . . . Restricted stock awards confer both the existing share value and future stock
price appreciation on our Named Executive Officers and therefore also align
their interests with those of the Company’s stockholders, while further
enabling us to grant incentives providing existing value and future
appreciation opportunity if the awards vest. Awards of time-based restricted
stock to executive officers have been limited to sign-on equity awards since
fiscal 2014.

PBRSUs . . . . . . . . . . . . . . . . . . . .

PBRSUs that have performance-based vesting conditions in addition to
time-based vesting, are designed to reward our Named Executive Officers
for the achievement of financial objectives over the long-term and to retain
critical talent over extended timeframes. PBRSUs are denominated in full
shares of the Company’s Common Stock and thus the amount earned is also
dependent on the Company’s stock price over the performance period.
Beginning in fiscal 2018, annual normal-cycle long-term incentive awards
to executive officers consisted of a combination of non-qualified stock
options with time-based vesting and PBRSUs.

On a value basis, fiscal 2018 long-term incentive awards were awarded as 50% in PBRSUs based on
aggregate coffee sales in pounds and aggregate adjusted EBITDA over a full three-year performance period, and
50% in non-qualified stock options. The changes in fiscal 2018 long-term incentives were designed to be
competitive with market and more directly align our incentives with our long-term business priorities and
compensation outcomes to Company performance. The Compensation Committee believes that this equity award
mix balances the emphasis on stock price and stockholder alignment with alignment on internal company
performance and business strategy. On the whole, the fiscal 2018 long-term incentive program facilities strong

pay for performance alignment in that the stock options only realize value to the extent that the stock price
appreciates above the exercise price, and the PBRSUs only vest to the extent that the performance goals are
achieved.

Our practice is to grant annual normal-cycle long-term incentive awards generally in the first quarter of the

fiscal year, with interim grants for new hires and promotions after the annual grant date, in each case, granted
outside the applicable blackout period under our insider trading policy.

Fiscal 2018 Awards

Stock Options
(weighted approximately 50% of targeted grant date long-term incentive value)

In fiscal 2018, the stock options granted to our Named Executive Officers under the 2017 Plan as part of the
Named Executive Officers’ annual long-term incentive awards vest ratably over three years, with one-third of the
total number of shares subject to each such stock option vesting on each of the first three anniversaries of the
grant date, contingent on continued employment, and subject to accelerated vesting in certain circumstances. The
stock options granted in fiscal 2018 have an exercise price of $31.70 per share, which was the closing price of
our Common Stock as reported on the NASDAQ Global Select Market on the date of grant and expire seven
years from the grant date.

The following table sets forth the annual stock option awards granted to each of our Named Executive

Officers under the 2017 Plan on November 10, 2017:

Name

Michael H. Keown . . . . . . . . . . . . . . . . .
David G. Robson . . . . . . . . . . . . . . . . . .
Ellen D. Iobst . . . . . . . . . . . . . . . . . . . . .
Scott A. Siers . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Thomas J. Mattei, Jr.

Fiscal 2018
Annual Stock
Option Grant
(# of Shares of Common
Stock Issuable
Upon Exercise)

28,819
12,699
9,759
7,040
8,995

Grant Date Fair
Value of
Stock Option
Awards ($)

300,093
132,235
101,621
73,308
93,665

Performance-Based Restricted Stock Units
(weighted approximately 50% of targeted grant date long-term incentive value)

In fiscal 2018, the PBRSUs granted to our Named Executive Officers under the 2017 Plan as part of the
Named Executive Officers’ annual long-term incentive awards cliff vest following the expiration of the three-
year performance period upon the certification by the Compensation Committee of the Company’s achievement
of cumulative coffee pound sales and cumulative adjusted EBITDA (as defined above for purposes of fiscal 2018
cash incentives under the Performance Achievement Program) performance goals for the performance period
July 1, 2017 through June 30, 2020, subject to certain continued employment conditions and subject to the
acceleration provisions of the 2017 Plan and restricted stock unit award agreement. At the end of the three-year
performance period, the number of PBRSUs that actually vest will be 0% to 150% of the target amount,
depending on the extent to which the Company meets or exceeds the achievement of those financial performance
goals measured over the full three-year performance period, with payouts for performance between threshold and
target, and between target and maximum determined by reference to a matrix established by the Compensation
Committee (with cumulative coffee pound sales on one axis and cumulative adjusted EBITDA on the other axis).

Our three-year performance goals for cumulative coffee pound sales and cumulative adjusted EBITDA are
based on business forecasts and relevant expectations reflecting our strategic plans and aspirations to grow our

business. The Compensation Committee has historically established aggressive, yet achievable performance
goals intended to motivate the Company’s executive officers to achieve internal goals and results that will benefit
the Company’s stockholders, while maintaining strong alignment between pay and performance. For example, in
fiscal 2018 and 2017, the Company failed to achieve threshold levels of performance, resulting in the absence of
any payout for short-term incentives based on Company performance, and, in fiscal 2017, the Company’s failure
to achieve performance targets resulted in the forfeiture of 20% of the shares subject to fiscal 2017 stock option
awards. Actual achievement of the three-year performance goals for the fiscal 2018 PBRSU awards will be
reflected in our proxy statement that reports the payouts at the end of the three-year performance period.

The following table sets forth the target PBRSU awards granted to each of our Named Executive Officers

under the 2017 Plan on November 10, 2017:

Name

Michael H. Keown . . . . . . . . . . . . . . .
David G. Robson . . . . . . . . . . . . . . . . .
Ellen D. Iobst
. . . . . . . . . . . . . . . . . . .
Scott A. Siers . . . . . . . . . . . . . . . . . . . .
Thomas J. Mattei, Jr. . . . . . . . . . . . . . .

Fiscal 2018
Target PBRSU
Grant
(# of Shares of
Common Stock Issuable
Upon Vesting)

Grant Date
Fair Value of
Target PBRSUs ($)

9,464
4,171
3,205
2,312
2,954

300,009
132,221
101,599
73,290
93,642

New Hire Restricted Stock Awards and Stock Option Awards

In connection with commencement of their employment, pursuant to the terms of their respective
employment agreements with the Company, in fiscal 2018 the Company granted the following non-qualified
stock option awards and restricted stock awards to Mr. Robson and Ms. Iobst. The stock options have an exercise
price of $31.70 per share, which was the closing price of our Common Stock as reported on the NASDAQ Global
Select Market on the date of grant. One-third of the total number of shares subject to each such stock option vest
ratably on each of the first three anniversaries of the grant date, contingent on continued employment, and
subject to accelerated vesting in certain circumstances. The restricted stock has a grant date fair value of $31.70
and cliff vests on the third anniversary of the grant date, subject to continued service to the Company through the
vesting date and the acceleration provisions of the 2017 Plan and restricted stock award agreement.

Name

Fiscal 2018
New Hire Stock
Option Grant
(# of Shares of
Common Stock
Issuable
Upon Exercise)

Fiscal 2018
New Hire Restricted
Stock Grant (#)

David G. Robson . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Ellen D. Iobst

5,764
4,611

947
757

Grant Date
Fair Value
of New Hire Stock
and Option
Awards ($)

90,041
72,012

Key Fiscal 2019 Compensation Decisions

For fiscal 2019, the long-term incentive program will be substantially the same as fiscal 2018, with long-
term incentives awarded 50% in PBRSUs and 50% in stock options, on a value basis. PBRSUs will be earned
based on the achievement of cumulative coffee pound sales and cumulative adjusted EBITDA, both measured
over a full three-year performance period. The stock options will vest over a three-year period based on
continued employment over the period. The Compensation Committee believes this program design incentivizes
value creation through profitable growth, directly aligning long-term incentive awards with the Company’s
business strategy and stockholder interests. More details about our fiscal 2019 long-term incentive awards will be
provided in our fiscal 2019 proxy filing.

Change in Control Severance Agreements; Employment Agreements

The Company has entered into change in control severance agreements with each of the Named Executive

Officers, pursuant to which they are entitled to receive severance benefits upon the occurrence of certain
qualifying terminations of employment in connection with a change in control or threatened change in control.
The events that trigger payment are generally those related to (i) termination of employment by the Company
other than for cause, disability or death, or (ii) resignation for good reason. These agreements were entered into,
and continue in effect, to achieve the following objectives: (a) assure the Named Executive Officers’ full
attention and dedication to the Company, free from distractions caused by personal uncertainties and risks related
to a pending or threatened change in control; (b) assure the Named Executive Officers’ objectivity with respect to
stockholders’ interests in a change in control scenario; (c) assure the fair treatment of the Named Executive
Officers in case of involuntary termination following a change in control or in connection with a threatened
change in control; and (d) attract and retain key talent during uncertain times. The agreements are structured so
that payments and benefits are provided only if there is both a change in control or threatened change in control
and a qualifying termination of employment (“double trigger”), either by us (other than for “Cause,” “Disability”
or death), or by the Named Executive Officer for “Good Reason” (as each is defined in the change in control
severance agreements). A more detailed description of the severance benefits to which our Named Executive
Officers are entitled in connection with a change in control or threatened change in control is set forth below
under the heading “Named Executive Officer Compensation—Change in Control and Termination
Arrangements.”

The Company has also entered into employment agreements with each of the Named Executive Officers.

Pursuant to the terms of their employment agreements, the Named Executive Officers are entitled to receive
certain benefits upon their termination of employment without cause or resignation for good reason in the
absence of a change in control or threatened change in control. The Company believes such benefits were
necessary to attract and retain the Named Executive Officers and to secure their services at agreed-upon terms.
The termination-related payments and benefits under the Named Executive Officers’ change in control severance
agreements would be in lieu of, and not in addition to, the termination-related payments and benefits under their
employment agreements. A more detailed description of the benefits to which the Named Executive Officers are
entitled under the terms of their employment agreements in connection with a termination of employment is set
forth below under the heading “Named Executive Officer Compensation—Change in Control and Termination
Arrangements.”

ESOP Allocation

Our Named Executive Officers participate in the Company’s ESOP in the same manner as all other eligible
employees. ESOP Company contributions (which may be in the form of Common Stock or cash) are allocated in
accordance with a formula based on participant compensation. A participant’s interest in the ESOP becomes
100% vested after five years of service to the Company, subject to accelerated vesting in certain limited
circumstances.

During fiscal 2018, the Named Executive Officers received the following ESOP allocations in shares of

Common Stock based on compensation earned during calendar year 2017:

Name

ESOP Allocation
(# of Shares)

Michael H. Keown . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David G. Robson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ellen D. Iobst . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott A. Siers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas J. Mattei, Jr.

256
256
256
256
256

Retirement and Welfare Benefits

The Named Executive Officers receive the same welfare benefits as those received by our employees

generally, including medical, dental, life, disability and accident insurance. The Company also offers a
supplemental disability plan to higher income staff members, including our Named Executive Officers, which
allows them to buy an additional amount of disability coverage at their own expense.

The Named Executive Officers are eligible on the same basis as our employees generally to participate in

the Company’s 401(k) plan. The value of the Named Executive officers’ 401(k) plan balances depends solely on
the performance of investment alternatives selected by the applicable Named Executive Officer from among the
alternatives offered to all participants. All investment options in the 401(k) plan are market-based, meaning there
are no “above-market” or guaranteed rates of return. In fiscal 2018, the Company offered a discretionary match
of the employees’ annual contributions under the 401(k) plan equal to 50% of an employee’s annual contribution,
up to 6% of the employee’s eligible income. 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
limited circumstances.

Subject to applicable plan provisions, upon certain events of retirement, Named Executive Officers are

eligible to receive retiree medical insurance benefits on the same terms as other retiring Company employees.

Perquisites

We limit the perquisites available to our Named Executive Officers; however we believe that offering
certain perquisites facilitates the operation of our business, allows our Named Executive Officers to better focus
their time, attention and capabilities on our business, and assists the Company in recruiting and retaining key
executives. We also believe that the perquisites offered to our Named Executive Officers are generally consistent
with practices among companies in our peer group.

The perquisites and other benefits available to Named Executive Officers consist of an automobile

allowance or use of a Company car and fuel card, and relocation assistance payments and benefits and temporary
living expenses.

It is the Company’s and the Compensation Committee’s intention to continually assess business needs and

evolving practices to ensure that perquisite offerings are competitive and reasonable.

Compensation Policies and Practices

Stock Ownership Guidelines

The Board has adopted Stock Ownership Guidelines to further align the interests of the Company’s
executive officers with the interests of the Company’s stockholders. Under the stock ownership guidelines, an
executive officer is not permitted to sell any shares of Common Stock received as a result of grants under the
Company’s long-term incentive plans unless the executive officer achieves and maintains the applicable
threshold share ownership level set forth in the table below. Further, under the stock ownership guidelines, a
non-employee director is expected to own and hold during his or her service as a Board member a number of
shares of Common Stock with a value of at least $150,000, and is not permitted to sell any shares of Common
Stock received as grants under the Company’s long-term incentive plans unless and until the non-employee
director achieves and maintains this threshold share ownership level.

Shares of Common Stock that count toward satisfaction of these guidelines include: (i) shares of Common

Stock owned outright by the executive officer or non-employee director and his or her immediate family
members who share the same household, whether held individually or jointly; (ii) restricted stock or restricted

stock units (whether or not the restrictions have lapsed); (iii) ESOP shares (with respect to executive officers
only); (iv) shares of Common Stock held in trust for the benefit of the executive officer or non-employee director
or his or her family; and (v) shares of Common Stock issuable under vested options held by the executive officer
or non-employee director.

Position

Value of Shares Owned

Chief Executive Officer
. . . . . . . . . . . . . . . . . . . .
Other Executive Officers . . . . . . . . . . . . . . . . . . . .
Non-Employee Directors . . . . . . . . . . . . . . . . . . .

3x base salary
1x base salary
$150,000

Insider Trading Policy (Including Anti-Hedging and Anti-Pledging Policies)

Our insider trading policy prohibits all employees, officers, directors, consultants and other associates of the

Company and certain of their family members from, among other things, purchasing or selling any type of
security, whether the issuer of that security is the Company or any other company, while aware of material,
non-public information relating to the issuer of the security or from providing such material, non-public
information to any person who may trade while aware of such information. The insider trading policy also
prohibits employees from engaging in short sales with respect to our securities, purchasing or pledging Company
stock on margin and entering into derivative or similar transactions (i.e., puts, calls, options, forward contracts,
collars, swaps or exchange agreements) with respect to our securities. We also have procedures that require
trades by certain insiders, including our directors and executive officers, to be pre-cleared by appropriate
Company personnel. Additionally, such insiders are generally prohibited from conducting transactions involving
the purchase or sale of the Company’s securities from 12:01 a.m. New York City time on the fifteenth calendar
day before the end of each of the Company’s four fiscal quarters (including fiscal year end) through 11:59 p.m.
New York City time on the second business day following the date of the public release containing the
Company’s quarterly (including annual) results of operations.

Clawback Policy on Executive Compensation in Restatement Situations

In the event of a material restatement of the financial results of the Company, the Board, or the appropriate

committee thereof, will review all bonuses and other incentive and equity compensation awarded to the
Company’s executive officers on the basis of having met or exceeded performance targets for performance
periods that occurred during the restatement period. If such bonuses and other incentive and equity compensation
would have been lower had they been calculated based on such restated results, the Board, or the appropriate
committee thereof, will, to the extent permitted by governing law and as appropriate under the circumstances,
seek to recover for the benefit of the Company all or a portion of such bonuses and incentive and equity
compensation awarded to executive officers whose fraud or misconduct caused or partially caused such
restatement, as determined by the Board, or the appropriate committee thereof.

Taxes and Accounting Standards

Tax Deductibility Under Section 162(m) of the Internal Revenue Code

Certain of our incentive compensation programs are intended to provide for compensation that is tax
deductible to us, however, the Compensation Committee believes that achieving the desired flexibility in the
design and delivery of compensation, due to competitive or other factors, may result in compensation that in
certain cases is not deductible for federal income tax purposes. At the time the Compensation Committee made
its fiscal 2018 compensation decisions, Section 162(m) of the Internal Revenue Code disallowed a federal tax
deduction to public companies for compensation greater than $1 million paid in any tax year to specified
executive officers unless the compensation is “qualified performance-based compensation” under that section.
Our fiscal 2018 executive compensation program was designed with the intent to provide cash and equity-based
incentive compensation under the 2017 Plan as “qualified performance-based compensation” under
Section 162(m).

The Section 162(m) exception was repealed as part of the Tax Cuts and Jobs Act enacted on December 22,

2017 for taxable years beginning after December 31, 2017. It is uncertain whether compensation that the
Compensation Committee originally intended to structure as qualified performance-based compensation under
Section 162(m) that is paid in calendar 2018 or subsequent years will be deductible under transition rules. The
Compensation Committee will continue to focus on performance-based compensation, although certain of the
requirements of Section 162(m) will no longer be relevant and will not be taken into account when making future
compensation decisions.

Accounting Standards

Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718
requires us to recognize an expense for the fair value of share-based compensation awards. Grants of stock
options, restricted stock and PBRSUs under the Company’s long-term incentive plans are accounted for under
FASB ASC Topic 718. The Compensation Committee considers the accounting implications of significant
compensation decisions, especially in connection with decisions that relate to our long-term incentive program.
As accounting standards change, the Company may revise certain programs to appropriately align accounting
expenses of our share-based compensation awards with our overall executive compensation philosophy and
objectives.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with

management and, based on the review and discussions, recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in the
Company’s 2018 Form 10-K.

Compensation Committee
of the Board of Directors

Randy E. Clark, Chair
Allison M. Boersma
Charles F. Marcy
David W. Ritterbush

NAMED EXECUTIVE OFFICER COMPENSATION

Summary Compensation Table

The following table sets forth summary information concerning compensation awarded to, earned by, or

paid to each of our Named Executive Officers for all services rendered in all capacities to the Company and its
subsidiaries in the last three fiscal years. For a complete understanding of the table, please read the footnotes and
narrative disclosures that follow the table.

Name and
Principal Position

Fiscal
Year Salary ($)

Bonus
($)

Stock Awards
($)

Option
Awards ($)

G
Non-Equity
Incentive
Plan
Compensation ($)

Michael H. Keown . . . . . . . 2018 565,758
2017 534,690
2016 507,000 659,100

President and CEO

— 300,009
—

—
—

David G. Robson(2) . . . . . . 2018 351,938
2017 121,154

Treasurer and CFO

— 162,241
—

—

300,093
472,000
799,503

192,256

—

285,000

—
677,109

123,382

—

Ellen D. Iobst(3)

Chief Operations Officer

. . . . . . . . 2018 337,783
2017 115,962

— 125,596
—

—

149,636

101,586

—

All Other
Compensation
($)(1)

15,922
16,541
25,391

69,266
74,184

104,551
372,891

Total ($)

1,466,782
1,023,231
2,668,103

899,083
195,338

819,152
488,853

Scott A. Siers . . . . . . . . . . . 2018 292,409

—

73,290

73,308

80,612

7,822

527,441

SVP, GM Sales

Thomas J. Mattei, Jr.

Chief Legal Officer and
Secretary

—
. . . . 2018 310,708
2017 316,383
—
2016 287,893 325,000

93,642
—
—

93,665
111,551
99,931

85,833
—
220,660

15,922
16,541
115,075

599,770
444,475
1,048,559

(1) For a detailed summary of the amounts shown in this column see discussion under the heading “All Other Compensation

(Column H),” below.

(2) Mr. Robson joined the Company as Treasurer and Chief Financial Officer in February 2017.
(3) Ms. Iobst joined the Company as Chief Operations Officer in February 2017, after having served as an independent

consultant to the Company from April 2016 to February 2017. The amounts shown in the table for fiscal 2017 reflect
Ms. Iobst’s compensation for all services rendered in all capacities to the Company for the full fiscal year.

Salary (Column C)

The amounts reported in column C represent base salaries earned by each of the Named Executive Officers
for the fiscal year indicated, prorated based on applicable start dates during the fiscal year. The amounts shown
include amounts contributed by the employee to the Company’s 401(k) plan. Fiscal 2017 base salary included
one extra pay period.

Bonus (Column D)

All non-equity incentive plan compensation for services performed during the fiscal year by the Named

Executive Officers under the 2017 Plan in fiscal 2018 and under the Farmer Bros. Co. 2005 Incentive
Compensation Plan, as amended (the “STIP”) in fiscal 2017 and 2016 is shown in column G. The amounts
reported in column D for fiscal 2016 represent discretionary bonuses awarded to the indicated Named Executive
Officer during fiscal 2016, which were awarded by the Board in order to promote continued engagement and
orderly transition of processes and duties in connection with the Company’s relocation of its headquarters from
Torrance, California to Northlake, Texas.

Stock Awards (Column E)

The amounts reported in column E for fiscal 2018 represent the aggregate grant date fair value of annual

PBRSU awards received by each of the Named Executive Officers, and restricted stock awards received by
Mr. Robson and Ms. Iobst in connection with commencement of their employment under the terms of their

respective employment agreements, in each case, computed in accordance with FASB ASC Topic 718. A
discussion of the assumptions used in calculating the amounts in this column may be found in Note 18 to our
audited consolidated financial statements for the fiscal year ended June 30, 2018 included in our 2018 Form
10-K, except that, as required by applicable SEC rules, we did not reduce the amounts in this column for any
forfeitures relating to service-based (time-based) vesting conditions.

For annual PBRSU awards in fiscal 2018, we have reported the fair value of the award based upon the
probable satisfaction of the performance conditions as of the grant date. The maximum aggregate grant date fair
value that would have been received if the highest level of performance was achieved would have been $450,013
for Mr. Keown, $198,315 for Mr. Robson, $152,382 for Ms. Iobst, $109,936 for Mr. Siers, and $140,463 for
Mr. Mattei. These amounts do not reflect the Company’s expense for accounting purposes for these awards, and
do not represent the actual value that may be realized by the Named Executive Officers. No stock awards were
issued to the Named Executive Officers in fiscal 2017 and 2016. For further information on these awards, see the
Grants of Plan-Based Awards Table and Outstanding Equity Awards at Fiscal Year-End Table in this Proxy
Statement.

Option Awards (Column F)

The amounts reported in column F represent the aggregate grant date fair value of stock option awards
computed in accordance with FASB ASC Topic 718, which, in the case of stock options subject to performance-
based vesting conditions granted in fiscal 2017 and 2016, is based on the probable outcome of the performance
conditions to which such awards are subject. Stock option awards granted in fiscal 2018 include annual stock
option awards received by each of the Named Executive Officers, and stock option awards received by
Mr. Robson and Ms. Iobst in connection with commencement of their employment under the terms of their
respective employment agreements. A discussion of the assumptions used in calculating the amounts in this
column may be found in Note 18 to our audited consolidated financial statements for the fiscal year ended
June 30, 2018 included in our 2018 Form 10-K, except that, as required by applicable SEC rules, we did not
reduce the amounts in this column for any risk of forfeiture relating to service-based (time-based) vesting
conditions. In fiscal 2017, the Company failed to achieve the modified net income target associated with the
stock options granted in fiscal 2017 which resulted in the forfeiture of 20% of the shares subject to each such
stock option shown in the table above. For further information on these awards, see the Grants of Plan-Based
Awards Table and Outstanding Equity Awards at Fiscal Year-End Table in this Proxy Statement.

The amount reported in column F for fiscal 2016 for Mr. Keown includes the aggregate grant date fair value

of stock option awards granted to Mr. Keown under the Amended Equity Plan on December 3, 2015 and the
aggregate grant date fair value of stock option awards granted to Mr. Keown under the Amended Equity Plan on
June 3, 2016. However, as discussed in Note 18 to our audited consolidated financial statements for the fiscal
year ended June 30, 2018 included in our 2018 Form 10-K, a portion of the December 3, 2015 stock option
award was found to be invalid and was voided on June 3, 2016. The aggregate grant date fair value of the option
awards granted to Mr. Keown in fiscal 2016, net of the portion of the option award that was voided, was
$537,505.

Non-Equity Incentive Plan Compensation (Column G)

The amounts reported in column G represent the aggregate dollar value of the annual incentives earned by
the Named Executive Officers under the 2017 Plan for fiscal 2018 and under the STIP for fiscal 2017 and 2016.
In accordance with SEC rules, the actual annual incentive amounts earned by the Named Executive Officers are
reflected in the Summary Compensation Table in the fiscal year earned, even though these annual incentive
amounts are paid in the subsequent fiscal year.

As a result of the Company’s failure to achieve a threshold level of modified net income in fiscal 2017, none

of our Named Executive Officers received a payout under the STIP for fiscal 2017 performance.

In fiscal 2018, the amount of each Named Executive Officer’s award shown in the table above includes

earned awards under the Performance Achievement Program and the Integration Achievement Program as

discussed in this Proxy Statement under the heading “Compensation Discussion and Analysis—Short-Term Cash
Incentives.” As a result of our failure to achieve a threshold level of adjusted EBITDA, as determined by the
Compensation Committee, our Named Executive Officers did not receive any cash payout under the Performance
Achievement Program in fiscal 2018.

All Other Compensation (Column H)

The amounts reported in column H for fiscal 2018 include the following:

Name

All Other Compensation

Perquisites and
Other
Personal
Benefits ($)

Tax
Gross-Up
Payments
($)(1)

ESOP
Allocation(2)($)

Company
Contributions to
401(k)
Plan(3)($)

Michael H. Keown . . . . . . . . . . . . . . . . . . .
David G. Robson . . . . . . . . . . . . . . . . . . . .
Ellen D. Iobst . . . . . . . . . . . . . . . . . . . . . . .
Scott A. Siers . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Thomas J. Mattei, Jr.

— (4)
49,178(5)
77,588(6)
— (7)
— (8)

—
4,166
11,041
—
—

7,822
7,822
7,822
7,822
7,822

8,100
8,100
8,100
—
8,100

Total ($)

15,922
69,266
104,551
7,822
15,922

(1) Represents tax gross-up payments associated with certain relocation assistance payments and benefits and

temporary living expenses disclosed in the column “Perquisites and Other Personal Benefits.”
(2) Represents the dollar value of ESOP shares allocated to each Named Executive Officer based on

compensation earned during calendar 2017 calculated on the basis of the closing price of our Common
Stock on June 29, 2018 ($30.55). A participant’s interest in the ESOP becomes 100% vested after five years
of service to the Company, subject to accelerated vesting in certain limited circumstances.
(3) Represents the Company’s discretionary matching contribution under the 401(k) plan. 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 limited circumstances. Mr. Siers does not
participate in the Company’s 401(k) plan.

(4) The total value of all perquisites and other personal benefits received by Mr. Keown did not exceed $10,000

in fiscal 2018 and has been excluded from the table.

(5) Consists of relocation assistance payments and benefits and temporary living expenses ($44,378), and an

auto allowance ($4,800) received by Mr. Robson in fiscal 2018.

(6) Consists of relocation assistance payments and benefits and temporary living expenses ($72,788), and an

auto allowance ($4,800) received by Ms. Iobst in fiscal 2018.

(7) The total value of all perquisites and other personal benefits received by Mr. Siers did not exceed $10,000 in

fiscal 2018 and has been excluded from the table.

(8) The total value of all perquisites and other personal benefits received by Mr. Mattei did not exceed $10,000

in fiscal 2018 and has been excluded from the table.

Total Compensation (Column I)

The amounts reported in column I are the sum of columns C through H for each of the Named Executive

Officers.

Employment Agreements and Arrangements

Severance Agreements

The Company has entered into change in control severance agreements with each of the Named Executive

Officers (the “Severance Agreements”), pursuant to which such Named Executive Officers are entitled to receive

severance benefits upon termination of employment other than for “Cause,” “Disability” or death, or termination
due to resignation from employment for “Good Reason,” in each case, in connection with a “Change in Control”
or “Threatened Change in Control” (as each such term is defined in the Severance Agreement). The Severance
Agreements are structured so that payments and benefits are provided only if there is both a change in control or
threatened change in control and a qualifying termination of employment (“double trigger”). A more detailed
description of the severance benefits to which our Named Executive Officers are entitled in connection with a
change in control or threatened change in control is set forth below under the heading “Change in Control and
Termination Arrangements.”

Employment Agreements

The Company has also entered into employment agreements with each of the Named Executive Officers

(the “Employment Agreements”). The Employment Agreements provide for an initial annual base salary which
may be adjusted upward or downward by the Company from time to time, subject to a minimum annual base
salary as specified in the employment agreement. The Employment Agreements further provide that the Named
Executive Officer is entitled to participate in the Company’s short-term incentive plan, with a specified target
award equal to a percentage of such Named Executive Officer’s annual base salary. Additionally, the
Employment Agreements provide for grants under the Company’s long-term incentive plan as determined by the
Compensation Committee, in some cases, upon the commencement of employment as an inducement to joining
the Company. In certain cases, the Named Executive Officers have been entitled to specified relocation benefits.
Each Named Executive Officer is entitled to all benefits and perquisites provided by the Company to its senior
executives, including paid days off, group health insurance, life insurance, 401(k) plan, ESOP, cell phone,
Company credit card, Company gas card, expense reimbursement and an automobile allowance. The
Employment Agreements contain no specified term of employment, but rather the Named Executive Officer’s
employment may be terminated by the Company at any time with or without “Cause” or upon the Named
Executive Officer’s resignation with or without “Good Reason,” or due to death or “Permanent Incapacity” (as
each such term is defined in the applicable Employment Agreement). Each of the Employment Agreements
contains customary provisions protecting our confidential information and intellectual property. They also
contain restrictions, for a period of two years following any termination of employment, on the Named Executive
Officer’s ability to solicit any customer or prospective customer of the Company or any person employed by the
Company to leave the Company. The Employment Agreements require that all disputes between the applicable
Named Executive Officer and the Company arising under or in connection with their Employment Agreement
will be subject to resolution through arbitration. Upon certain qualifying terminations of employment, the Named
Executive Officers may be entitled to certain termination-related payments and benefits. A more detailed
description of the termination-related payments and benefits to which our Named Executive Officers are entitled
under their Employment Agreements is set forth below under the heading “Change in Control and Termination
Arrangements.”

Grants of Plan-Based Awards

The following table sets forth summary information regarding all grants of plan-based awards made to our

Named Executive Officers in fiscal 2018.

Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards

Estimated Future Payouts Under
Equity Incentive Plan
Awards(1)

Grant
Date

Date of
Action

Threshold
($)

Target
($)

Maximum
($)

Threshold
(#)

Target
(#)

Maximum
(#)

All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#)

All
Other
Option
Awards:
Number
of
Securities
Underlying
Options (#)

Grant
Date
Fair
Value
of
Stock
and
Option
Awards
($)(3)

Exercise
or Base
Price of
Option
Awards
($/
Sh)(2)

Name

Michael H. Keown . .

David G. Robson . . . .

Ellen D. Iobst

. . . . . .

—
—

— 285,000(4)570,000(4)1,140,000(4) —
285,000(5) 285,000(5) —
—
11/10/17 09/29/17
11/10/17 09/29/17

0
—
—

—
—

—

—
—

— 123,382(4)246,764(4) 493,528(4) —
123,382(5) 123,382(5) —
—
11/10/17 09/29/17
11/10/17 09/29/17
11/10/17 09/29/17
11/10/17 09/29/17

0
—
—
—
—

—
—
—
—

—
—
—

—
—

— 101,586(4)203,171(4) 406,342(4) —
101,586(5) 101,586(5) —
—
11/10/17 09/29/17
11/10/17 09/29/17
11/10/17 09/29/17
11/10/17 09/29/17

0
—
—
—
—

—
—
—
—

—
—
—

Scott A. Siers . . . . . .

Thomas J. Mattei,

Jr. . . . . . . . . . . . . . .

—
—

—
—
11/10/17 09/29/17
11/10/17 09/29/17

—
—

—
—
11/10/17 09/29/17
11/10/17 09/29/17

80,612(4)161,223(4) 322,446(4) —
80,612(5) —

0
—
—

80,612(5)
—
—

85,833(5)
—
—

—
—

—

—
—

—

85,833(4)171,666(4) 343,332(4) —
85,833(5) —

—
—
9,464
—

—
—
4,171
—
—
—

—
—
3,205
—
—
—

—
—
2,312
—

—
—
2,954
—

—
—
14,196
—

—
—
6,256
—
—
—

—
—
4,807
—
—
—

—
—
3,468
—

—
—
4,431
—

—
—
—
—

—
—
—
—
947(6)
—

—
—
—
—
757(6)
—

—
—
—
—

—
—
—

—
—
—
—
— 300,009
28,819(7) 31.70 300,093

—
—
—

—
—
—
—
— 132,221
12,699(7) 31.70 132,235
— 30,020
60,021

5,764(8) 31.70

—

—
—
—

—
—
—
—
— 101,599
9,759(7) 31.70 101,621
— 23,997
48,015

4,611(8) 31.70

—

—
—
—

—
—
—
—
— 73,290
73,308

—
—
—
—
— 93,642
93,665

7,040(7) 31.70

8,995(7) 31.70

(1) Represents PBRSU awards granted to our Named Executive Officers in fiscal 2018 under the 2017 Plan as
part of the Named Executive Officers’ annual long-term incentive awards which cliff vest following the
expiration of the three-year performance period upon the certification by the Compensation Committee of
the Company’s achievement of cumulative coffee pound sales and cumulative adjusted EBITDA
performance goals for the performance period July 1, 2017 through June 30, 2020, subject to certain
continued employment conditions and subject to the acceleration provisions of the 2017 Plan and restricted
stock unit award agreement. At the end of the three-year performance period, the number of PBRSUs that
actually vest will be 0% to 150% of the target amount, depending on the extent to which the Company
meets or exceeds the achievement of those financial performance goals measured over the full three-year
performance period, with payouts for performance between threshold and target, and between target and
maximum determined by reference to a matrix established by the Compensation Committee as discussed in
this Proxy Statement under the heading “Compensation Discussion and Analysis—Long-Term Incentives—
Fiscal 2018 Awards—Performance-Based Restricted Stock Units.”

(2) Exercise price of stock option awards is equal to the closing price of the Company’s Common Stock as

reported on the NASDAQ Global Select Market on the date of grant.

(3) Reflects the grant date fair value of stock options, restricted stock and PBRSU awards computed in

accordance with FASB ASC Topic 718. A discussion of the assumptions used in calculating the amounts in
this column may be found in Note 18 to our audited consolidated financial statements for the fiscal year
ended June 30, 2018, included in our 2018 Form 10-K, except that, as required by applicable SEC rules, we
did not reduce the amounts in this column for any risk of forfeiture relating to service-based (time-based)
vesting conditions. The amount reported for PBRSU awards is based upon the probable satisfaction of the
performance conditions as of the grant date.

(4) Represents annual cash incentive opportunities under the Performance Achievement Program based on the
Company’s achievement of adjusted EBITDA and free cash flow targets (collectively weighted at 90%)
along with the relative achievement of individual executive officer objectives approved by the
Compensation Committee (weighted at 10%) as discussed in this Proxy Statement under the heading
“Compensation Discussion and Analysis—Short-Term Cash Incentives.” As a result of our failure to
achieve a threshold level of adjusted EBITDA, as determined by the Compensation Committee, our Named
Executive Officers did not receive any cash payout under the Performance Achievement Program in fiscal
2018. Annual cash incentive awards earned by our Named Executive Officers for performance in respect of
a fiscal year are paid during the subsequent fiscal year. Such earned awards are included in the “Non-Equity
Incentive Plan Compensation” column of the Summary Compensation Table.

(5) Represents one-time cash incentive opportunities under the Integration Achievement Program based on
achievement of a separate set of performance goals required to be achieved within 90 days following the
closing of the Boyd Coffee acquisition relating to the integration of the Boyd Business as discussed in this
Proxy Statement under the heading “Compensation Discussion and Analysis—Short-Term Cash
Incentives—Integration Achievement Program for Fiscal 2018.” This Integration Achievement Program
only applies for fiscal 2018 and will not recur in fiscal 2019. Actual awards under the Integration
Achievement Program for fiscal 2018 performance were paid during the subsequent fiscal year. Such earned
awards are included in the “Non-Equity Incentive Plan Compensation” column of the Summary
Compensation Table.

(6) Represents restricted stock granted to Mr. Robson and Ms. Iobst in fiscal 2018 under the 2017 Plan in
connection with commencement of their employment under the terms of their respective employment
agreements. The restricted stock cliff vests on the third anniversary of the grant date, subject to continued
service to the Company through the vesting date and the acceleration provisions of the 2017 Plan and
restricted stock award agreement.

(7) Represents non-qualified stock option awards granted to our Named Executive Officers in fiscal 2018 under
the 2017 Plan as part of the Named Executive Officers’ annual long-term incentive awards. One-third of the
total number of shares subject to each such stock option vest ratably on each of the first three anniversaries
of the grant date, contingent on continued employment, and subject to accelerated vesting in certain
circumstances.

(8) Represents non-qualified stock options granted to Mr. Robson and Ms. Iobst in fiscal 2018 under the 2017

Plan in connection with commencement of their employment under the terms of their respective
employment agreements. One-third of the total number of shares subject to each such stock option vest
ratably on each of the first three anniversaries of the grant date, contingent on continued employment, and
subject to accelerated vesting in certain circumstances.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth summary information regarding the outstanding equity awards at June 30,

2018 granted to each of our Named Executive Officers.

Option Awards

Stock Awards

Number of
Securities
Underlying
Unexercised
Options
Exercisable (#)

Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)

Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)

Number
of
Shares
or
Units of
Stock That
Have Not
Vested (#)

Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)

Option
Exercise
Price
($)

Option
Expiration
Date

Equity
Incentive
Plan
Awards:
Market or
Payout
Value
of
Unearned
Shares,
Units
or Other
Rights
That
Have Not
Vested
($)

Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units
or Other
Rights
That
Have
Not
Vested
(#)

23,334(1)
45,470(2)
49,902(3)
16,732(4)
15,241(5)
11,022(6)
—
—
—
—
—
2,720(1)
4,700(2)
9,095(3)
5,813(4)
2,004(6)
—
2,720(1)
3,760(2)
4,281(3)
5,813(4)
2,605(6)
—

—
—
—
—
—
—
28,819(1)
12,699(1)
5,764(1)
9,759(1)
4,611(1)
—
—
—
—
—
7,040(1)
—
—
—
—
—
8,995(1)

—
—
—
8,366(4)
7,621(5)
22,044(6)
—
—
—
—
—
—
—
—
2,907(4)
4,008(6)
—
—
—
—
2,907(4)
5,210(6)
—

11.81
21.33
23.44
29.48
29.48
32.85
31.70
31.70
31.70
31.70
31.70
13.09
21.33
23.44
29.48
32.85
31.70
13.09
21.33
23.44
29.48
32.85
31.70

12/07/19
12/12/20
02/09/22
12/03/22
12/03/22
11/10/23
11/10/24
11/10/24
11/10/24
11/10/24
11/10/24
02/27/20
12/12/20
02/09/22
12/03/22
11/10/23
11/10/24
02/27/20
12/12/20
02/09/22
12/03/22
11/10/23
11/10/24

—
—
—
—
—
—
—
—
—
947(7)
—
757(7)
—
—
—
—
—
—
—
—
—
—
—
—

—
—
—
—
—
—
—
—
—
28,931(8)
—
23,126(8)
—
—
—
—
—
—
—
—
—
—
—
—

—
—
—
—
—
—
—

9,464(9) 289,125(10)
4,171(9) 127,424(10)

—
3,205(9)
—
—
—
—
—
—
2,312(9)
—
—
—
—
—
2,954(9)

—
97,913(10)
—
—
—
—
—
—
70,623(10)
—
—
—
—
—
90,245(10)

Name

Michael H. Keown . . . .

David G. Robson . . . . . .

Ellen D. Iobst

. . . . . . . .

Scott A. Siers . . . . . . . . .

Thomas J. Mattei, Jr. . . .

(1) Stock options vest in equal ratable installments on each of the first three anniversaries of the date of grant,

contingent on continued employment through the applicable vesting date, and subject to accelerated vesting
in certain circumstances.

(2) Stock options vest over a three-year period with one-third of the total number of shares of Common Stock
subject to each such stock option 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 of Common
Stock subject to each such stock option 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, contingent on continued
employment through the applicable vesting date, and subject to accelerated vesting in certain circumstances.

(3) Stock options vest over a three-year period with one-third of the total number of shares of Common Stock

subject to each such stock option vesting on each anniversary of the grant date based on the Company’s
achievement of a modified net income target for each fiscal year of the performance period as approved by
the Compensation Committee, as well as an ability for each such tranche of each grant to vest in the
subsequent fiscal years of the performance period (if applicable) based upon achievement of cumulative
modified net income equal to the sum of the individual targets for the fiscal years being accumulated, in

each case, contingent on continued employment on the applicable vesting date, and subject to accelerated
vesting in certain circumstances.

(4) Stock options vest in equal ratable installments on each of the first three anniversaries of the date of grant,

contingent on continued employment through the applicable vesting date, and subject to accelerated vesting
in certain circumstances. Further 20% of the shares of Common Stock subject to each such stock option are
subject to forfeiture if the Company fails to achieve modified net income of at least $15,232,000 in the fiscal
year during which the award is granted. The Company met the first-year modified net income goal during
fiscal 2016 with respect to these stock options, such that all of the shares of Common Stock subject to these
stock options will continue to vest subject to and in accordance with the three-year vesting schedule
described above.

(5) Stock options vest as follows: 7,620 shares of Common Stock subject to the stock option vest on the first

anniversary of the date of grant, and 7,621 shares of Common Stock subject to the stock option vest on each
of December 3, 2017 and December 3, 2018, in each case, contingent on continued employment through the
applicable vesting date, and subject to accelerated vesting in certain circumstances. Further, 20% of the
shares of Common Stock subject to the stock option are subject to forfeiture if the Company fails to achieve
modified net income of at least $15,232,000 in the fiscal year during which the award is granted. The
Company met the first-year modified net income goal with respect to this stock option, such that all of the
shares of Common Stock subject to this stock option will continue to vest subject to and in accordance with
the service-based vesting schedule described above.

(6) Stock options vest in equal ratable installments on each of the first three anniversaries of the date of grant,

contingent on continued employment through the applicable vesting date, and subject to accelerated vesting
in certain circumstances. In fiscal 2017, the Company failed to achieve the modified net income target of at
least $23,900,000 which resulted in the forfeiture of 20% of the shares subject to the original stock option
award. The number of shares underling the stock option award shown in the table is net of such forfeiture.

(7) Restricted stock cliff vests on the third anniversary of the date of grant, contingent on continued

employment through the vesting date, and subject to accelerated vesting in certain circumstances.

(8) The market value was calculated by multiplying the closing price of our Common Stock on June 29, 2018

($30.55) by the number of shares of unvested restricted stock.

(9) PBRSU awards cliff vest following the expiration of the three-year performance period upon the

certification by the Compensation Committee of the Company’s achievement of cumulative coffee pound
sales and cumulative adjusted EBITDA performance goals for the performance period July 1, 2017 through
June 30, 2020, subject to certain continued employment conditions and subject to the acceleration
provisions of the 2017 Plan and restricted stock unit award agreement. At the end of the three-year
performance period, the number of PBRSUs that actually vest will be 0% to 150% of the target amount,
depending on the extent to which the Company meets or exceeds the achievement of those financial
performance goals measured over the full three-year performance period, with payouts for performance
between threshold and target, and between target and maximum determined by reference to a matrix
established by the Compensation Committee. The target number of PBRSUs is presented in the table.
(10) The market value was calculated by multiplying the closing price of our Common Stock on June 29, 2018

($30.55) by the number of shares of Common Stock underlying the unvested PBRSUs.

Option Exercises and Stock Vested

The following table summarizes the option exercises and vesting of stock awards for each of our Named

Executive Officers for the fiscal year ended June 30, 2018.

Name

Option Awards(1)

Stock Awards

Number of Securities
Acquired
on Exercise(#)

Value Realized on
Exercise($)

Number of Shares
Acquired on Vesting(#)

Value Realized on
Vesting($)

68,666
—
—
—
—

1,432,801

—
—
—
—

—
—
—
—
—

(1)

If a Named Executive Officer used share withholding to pay the exercise price of stock options or to satisfy
the tax obligations with respect to the vesting of restricted stock, the number of shares actually acquired was
less than the amounts shown.

Change in Control and Termination Arrangements

Change in Control Agreements

The Company has entered into a Severance Agreement with each of the Named Executive Officers. The

Severance Agreements provide certain severance benefits in the event of a termination of employment in
connection with a Change in Control (as defined below).

Under each of the Severance Agreements, a “Change in Control” generally will be deemed to have occurred

at any of the following times: (i) upon the acquisition by any person, entity or group of beneficial ownership of
50% or more of either the then outstanding Common Stock or the combined voting power of the Company’s then
outstanding securities entitled to vote generally in the election of directors; (ii) at the time individuals who were
members of the Board at the effective time of the Severance Agreement (or whose election, or nomination for
election, was approved by a vote of at least a majority of the members of the Board at the effective time of the
Severance Agreement, but excluding any such individual whose initial election or assumption of office occurs as
a result of either an actual or threatened election contest) (the “Incumbent Board”) cease for any reason to
constitute at least a majority of the Board; or (iii) the approval of the stockholders of the Company of a
reorganization, merger, consolidation, complete liquidation, or dissolution of the Company, the sale or
disposition of all or substantially all of the assets of the Company or any similar corporate transaction (other than
any transaction with respect to which persons who were the stockholders of the Company immediately prior to
such transaction continue to hold shares of Common Stock representing at least 50% of the outstanding Common
Stock of the Company or such surviving entity or parent or affiliate thereof immediately after such transaction).
Further, a “Threatened Change in Control” generally will be deemed to have occurred upon the first day that any
bona fide pending tender offer for any class of the Company’s outstanding shares of Common Stock, any
pending bona fide offer to acquire the Company by merger or consolidation, or any other pending action or plan
to effect, or which would lead to, a Change in Control, as determined by the Incumbent Board, becomes
manifest, and will continue in effect when such action is abandoned or a Change in Control occurs.

In the event of a Named Executive Officer’s termination of employment other than for “Cause” or due to
death or “Disability”, or in the event of a Named Executive Officer’s resignation for “Good Reason” (each, as
defined in the Severance Agreements), in each case, in connection with a Change in Control or Threatened
Change in Control, each of the Named Executive Officers will be entitled to the payments and benefits shown in
the tables below.

Each Severance Agreement provides that while the relevant Named Executive Officer is receiving

compensation and benefits thereunder, that Named Executive Officer will not in any manner attempt to induce or
assist others to attempt to induce any officer, employee, customer or client of the Company to terminate its
association with the Company, nor do anything directly or indirectly to interfere with the relationship between
the Company and any such persons or concerns. In the event such Named Executive Officer breaches this
provision, all compensation and benefits under the Severance Agreement will immediately cease.

Employment Agreements

The Company has entered into an Employment Agreement with each of the Named Executive Officers.
Under the Employment Agreements, upon a Named Executive Officer’s termination of employment without
“Cause” or upon the Named Executive Officer’s resignation with “Good Reason” (each, as defined in the
applicable Employment Agreement), the Named Executive Officer will be entitled to the payments and benefits
shown in the tables below. In the case of Ms. Iobst, “Good Reason” includes Ms. Iobst’s retirement after being
employed by the Company at least 30 months and only after giving at least 180 days advance written notice of
her election to retire. Receipt of any severance amounts under any Employment Agreement is conditioned upon
execution of a general release of claims in favor of the Company. Notwithstanding the foregoing, if the Named
Executive Officer becomes eligible for severance benefits under the Severance Agreement described above, the
benefits provided under that agreement will be in lieu of, and not in addition to, the severance benefits under the
Named Executive Officer’s Employment Agreement.

Potential Payments Upon Termination or Change in Control

The following tables describe potential payments and benefits upon termination (including resignation, severance,

retirement or a constructive termination) or a change in control to which the Named Executive Officers would be
entitled. The actual amount of payments and benefits can only be determined at the time of such a termination or
change in control and therefore the actual amounts may vary from the estimated amounts in the tables below.
Descriptions of how such payments and benefits are determined under the circumstances, material conditions and
obligations applicable to the receipt of payments or benefits and other material factors regarding such agreements, as
well as other material assumptions that we have made in calculating the estimated compensation, follow these tables.

The estimated amount of compensation payable to each Named Executive Officer in each situation is listed

in the tables below and, with respect to each Named Executive Officer, assumes that the termination and/or
change in control of the Company occurred at June 29, 2018.

Michael H. Keown

Death

Disability Retirement

Change in
Control and
Involuntarily
Terminated or
Resignation
for
Good Reason
within
24 Months
of Change
in Control

Threatened
Change in
Control and
Involuntarily
Terminated or
Resignation
for
Good Reason

Termination
Without
Cause or
Resignation
With Good
Reason

Base Salary Continuation . . . . . . . . . . . . $ — $ — $ — $1,140,000
Annual Incentive Payments . . . . . . . . . . $570,000 $570,000 $ — $ 570,000
Value of Accelerated Stock Options . . . $ 13,294 $ 13,294 $ — $
Value of Accelerated Restricted

Stock . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — $ — $

Value of Accelerated PBRSUs . . . . . . . . $ 61,192 $ 61,192 $ — $ 289,125
Vested ESOP Shares/Value of

— $

— $
$

$1,140,000 $ 570,000
$ 570,000 $ 570,000
—
— $

— $
— $

—
—

Continued ESOP Participation . . . . . . $ 82,791 $ 82,791 $82,791
$
Health and Dental Insurance . . . . . . . . . $ — $ — $ — $
Outplacement Services . . . . . . . . . . . . . . $ — $ — $ — $

98,432
23,672
25,000

$
$
$

98,432 $
23,672 $
25,000 $

82,791
11,836
—

Total Pre-Tax Benefit . . . . . . . . . . . . . . . $727,276 $727,276 $82,791

$2,146,229

$1,857,104 $1,234,627

David G. Robson

Death

Disability Retirement

Base Salary Continuation . . . . . . . . . . . . $ — $ — $—
Annual Incentive Payments . . . . . . . . . . $246,764 $246,764
$—
Value of Accelerated Stock Options . . . . $ — $ — $—
Value of Accelerated Restricted

Change in
Control and
Involuntarily
Terminated or
Resignation
for
Good Reason
within
24 Months
of Change
in Control

Threatened
Change in
Control and
Involuntarily
Terminated or
Resignation
for
Good Reason

Termination
Without
Cause or
Resignation
With Good
Reason

$ 705,040
$ 246,764
$

— $

$ 705,040
$ 246,764

$352,520
$246,764
— $ —

Stock . . . . . . . . . . . . . . . . . . . . . . . . . . $

6,110
Value of Accelerated PBRSUs . . . . . . . . $ 26,976 $ 26,976
Vested ESOP Shares/Value of

6,110 $

$—
$—

$
28,931
$ 127,424

$
$

— $ —
— $ —

Continued ESOP Participation . . . . . . $

$—
Health and Dental Insurance . . . . . . . . . . $ — $ — $—
Outplacement Services . . . . . . . . . . . . . . $ — $ — $—

7,821 $

7,821

$
$
$

— $
$
$

23,210
25,000

— $ —
$ 11,605
$ —

23,210
25,000

Total Pre-Tax Benefit . . . . . . . . . . . . . . . $287,671 $287,671

$—

$1,156,369

$1,000,014

$610,889

Ellen D. Iobst

Death

Disability Retirement

Base Salary Continuation . . . . . . . . . . . . $ — $ — $—
Annual Incentive Payments . . . . . . . . . . $203,171 $203,171
$—
Value of Accelerated Stock Options . . . . $ — $ — $—
Value of Accelerated Restricted

Stock . . . . . . . . . . . . . . . . . . . . . . . . . . $

4,888
Value of Accelerated PBRSUs . . . . . . . . $ 20,713 $ 20,713
Vested ESOP Shares/Value of

4,888 $

$—
$—

Continued ESOP Participation . . . . . . $

$—
Health and Dental Insurance . . . . . . . . . . $ — $ — $—
Outplacement Services . . . . . . . . . . . . . . $ — $ — $—

7,821 $

7,821

Change in
Control and
Involuntarily
Terminated or
Resignation
for
Good Reason
within
24 Months
of Change
in Control

$ 677,236
$ 203,171
$

—

Threatened
Change in
Control and
Involuntarily
Terminated or
Resignation
for
Good Reason

$677,236
$203,171
$ —

Termination
Without
Cause or
Resignation
With Good
Reason

$338,618
$203,171
$ —

$
$

$
$
$

23,126
97,913

$ —
$ —

—
23,210
25,000

$ —
$ 23,210
$ 25,000

$ —
$ 11,605
$ —

Total Pre-Tax Benefit . . . . . . . . . . . . . . . $236,593 $236,593

$—

$1,049,656

$928,617

$553,394

Scott A. Siers

Death

Disability Retirement

Base Salary Continuation . . . . . . . . . . . . $ — $ — $ —
Annual Incentive Payments . . . . . . . . . . $161,223 $161,223 $ —
Value of Accelerated Stock Options . . . . $
2,665 $ —
Value of Accelerated Restricted

2,665 $

Stock . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — $ —
Value of Accelerated PBRSUs . . . . . . . . $ 14,939 $ 14,939 $ —
Vested ESOP Shares/Value of

Change in
Control and
Involuntarily
Terminated or
Resignation
for
Good Reason
within
24 Months
of Change
in Control

Threatened
Change in
Control and
Involuntarily
Terminated or
Resignation
for
Good Reason

$586,264
$161,223
$ —

Termination
Without
Cause or
Resignation
With Good
Reason

$293,132
$161,223
$ —

$ —
$ 70,632

$ —
$ —

Continued ESOP Participation . . . . . . $ 66,355 $ 66,355 $66,355
Health and Dental Insurance . . . . . . . . . . $ — $ — $ —
Outplacement Services . . . . . . . . . . . . . . $ — $ — $ —

$ 81,996
$ 15,242
$ 25,000

$ 66,355
$
7,621
$ —

Total Pre-Tax Benefit . . . . . . . . . . . . . . . $245,182 $245,182 $66,355

$940,357

$869,725

$528,331

Thomas J. Mattei, Jr.

Death

Disability Retirement

Base Salary Continuation . . . . . . . . . . . . $ — $ — $ —
Annual Incentive Payments . . . . . . . . . . $171,666 $171,666 $ —
Value of Accelerated Stock Options . . . . $
2,665 $ —
Value of Accelerated Restricted

2,665 $

Stock . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — $ —
Value of Accelerated PBRSUs . . . . . . . . $ 19,094 $ 19,094 $ —
Vested ESOP Shares/Value of

Change in
Control and
Involuntarily
Terminated or
Resignation
for
Good Reason
within
24 Months
of Change
in Control

Threatened
Change in
Control and
Involuntarily
Terminated or
Resignation
for
Good Reason

$624,240
$171,666
$ —

Termination
Without
Cause or
Resignation
With Good
Reason

$312,120
$171,666
$ —

$ —
$ 90,245

$ —
$ —

Continued ESOP Participation . . . . . . $ 63,941 $ 63,941 $63,941
Dental Insurance . . . . . . . . . . . . . . . . . . . $ — $ — $ —
Outplacement Services . . . . . . . . . . . . . . $ — $ — $ —

$ 79,583
1,088
$
$ 25,000

$ 63,941
544
$
$ —

Total Pre-Tax Benefit . . . . . . . . . . . . . . . $257,366 $257,366 $63,941

$991,822

$901,577

$548,271

Base Salary Continuation

Severance Agreements

Under each Severance Agreement, if (i) a Change in Control occurs and a Named Executive Officer’s

employment is terminated within the two years following the occurrence of the Change in Control by the
Company other than for Cause, Disability or death, or is terminated due to the Named Executive Officer’s
resignation for Good Reason, or (ii) a Threatened Change in Control occurs and the executive officer’s
employment is terminated during the “Threatened Change in Control Period” (as defined in the Severance
Agreement) by the Company other than for Cause, Disability or death, or is terminated due to the Named
Executive Officer’s Resignation for Good Reason (each, a “Change in Control Qualifying Termination”), such
Named Executive Officer will be entitled to base salary continuation for a period of 24 months, such payment to
be made in installments in accordance with the Company’s standard payroll practices over such period.

Employment Agreements

Under the Employment Agreements, upon a termination of employment by the Company without Cause or

resignation by the Named Executive Officer for Good Reason (a “Non-Change in Control Qualifying
Termination”), the Named Executive Officer will continue to receive his or her base salary for a period of one
year from the effective termination date, such payment to be made in installments in accordance with the
Company’s standard payroll practices over such period.

Bonus and Annual Incentive Payments

Severance Agreements

Under each Severance Agreement, if a Change in Control Qualifying Termination occurs, the Named
Executive Officer will receive a lump sum payment equal to 100% of the executive officer’s target annual cash
bonus for the fiscal year in which the date of termination occurs (or, if no target annual cash bonus has been
assigned as of the date of termination, the average annual cash bonus paid to such Named Executive Officer for
the last three completed fiscal years or for the number of completed fiscal years such person has been in the
employ of the Company if fewer than three).

Employment Agreements

Under the Employment Agreements, if a Named Executive Officer’s employment is terminated due to death

or Permanent Incapacity, the Named Executive Officer, or his or her estate in the event of his or her death, will
receive an amount equal to his or her target annual cash bonus for the fiscal year in which the termination is
effective, prorated for the partial fiscal year ending on the effective termination date. Payment of such amount
will be made in a lump sum within 30 days after any such death or termination.

Additionally, under the Employment Agreements, if a Non-Change in Control Qualifying Termination
Occurs, the Named Executive Officer will receive a bonus for the fiscal year in which the date of termination is
effected based on the amount of his or her target annual cash bonus award for such fiscal year and, in the case of
all of the Named Executive Officers other than Mr. Keown, the degree of achievement of performance criteria
under the plan, with individual performance criteria deemed to be achieved at 100%, prorated for the partial
fiscal year ending on the effective termination date. Payment of such amount will be made in a lump sum at the
same time as annual bonuses are paid to the Company’s senior executives under the plan for the fiscal year but in
no event later than two and one-half (2-1/2) months following the end of the Company’s fiscal year in which the
separation from service occurs.

Amounts shown in the tables above reflect fiscal 2018 target annual cash incentive awards under the 2017
Plan based on the Company’s achievement of adjusted EBITDA and free cash flow, and exclude the one-time
Boyd Coffee Integration Incentive award under the 2017 Plan in fiscal 2018.

Value of Accelerated Vesting of Equity Awards

Under the terms of the Named Executive Officers’ outstanding awards, in the event of death or “Disability”

(as defined in the applicable plan):

•

a pro rata portion of any unvested stock options granted under the Prior Plans will vest;

100% of any unvested stock options granted under the 2017 Plan will vest;

a pro rata portion of any unvested restricted stock granted under the 2017 Plan will vest; and

outstanding PBRSUs will remain outstanding and the participant will be eligible to earn a pro-rata
portion of the number of PBRSUs that would have been earned based on actual performance through
the end of the performance period (amounts shown in the tables above assume 100% of the target
PBRSUs were earned at the end of the performance period).

Under the applicable award agreement, if a Change in Control (as defined in the applicable plan) occurs and

a participant’s awards are not continued, converted, assumed or replaced by the Company or a parent or
subsidiary of the Company, or a Successor Entity (as defined in the applicable plan), such awards will become
fully exercisable and/or payable, and all forfeiture, repurchase and other restrictions on such awards will lapse
immediately prior to such Change in Control. In the case of PBRSUs, the vested shares will be a prorated number
of the target PBRSUs. The amounts in the tables above assume all awards were continued, converted, assumed,
or replaced in connection with a Change in Control.

Under the 2017 Plan award agreements, if there is a Change in Control and the Named Executive Officer’s
employment is terminated by the Company without Cause or by the participant for Good Reason (as such terms
are defined in the 2017 Plan or award agreement), in either case, within twenty-four months following the
Change in Control:

•

100% of any unvested stock options granted under the 2017 Plan will vest;

100% of any unvested restricted stock granted under the 2017 Plan will vest; and

the target number of PBRSUs will be deemed to have immediately vested as of the date of termination
of service.

The value of accelerated awards shown in the tables above was calculated using the closing price of our
Common Stock on June 29, 2018 ($30.55). The value of accelerated stock options is based on the difference
between the exercise price and such closing price for all accelerated stock options that were in-the-money as of
such date.

Under the applicable plan, the plan administrator also has discretionary authority regarding accelerated
vesting of awards in certain circumstances. The amounts in the tables above assume such discretionary authority
was not exercised.

Vested ESOP Shares/Value of Continued ESOP Participation

Under each Severance Agreement, if a Change in Control Qualifying Termination occurs, subject to
eligibility provisions of the ESOP, the Named Executive Officer will continue to participate in the ESOP during
the 24-month period following the date of termination unless the Named Executive Officer commences other
employment prior to the end of the 24-month period, in which case, such participation will end on the date the
Named Executive Officer commences new employment. In addition, upon termination of employment for any
reason, including death, disability, retirement or other termination, the Named Executive Officer will be entitled
to his or her vested benefits under the ESOP. Estimated ESOP benefits shown in the tables above reflect the
value of vested allocated shares in the ESOP plus, in the case of a Change in Control Event, annual allocations of
ESOP shares to qualified employees based on the 2017 allocation, assuming sufficient shares are available for
allocation under the ESOP. The estimated value of the ESOP shares is based on $30.55 per share, the closing
price of our Common Stock on June 29, 2018.

Participants become 100% vested under the ESOP upon death, disability and, subject to certain eligibility

requirements, retirement.

Health and Dental Insurance

Severance Agreements

Under each Severance Agreement, if a Change in Control Qualifying Termination occurs, the health, dental,

and life insurance benefits coverage provided to the Named Executive Officer at his or her date of termination
will be continued by the Company during the 24-month period following the Named Executive Officer’s date of
termination unless he or she commences employment prior to the end of the 24-month period and qualifies for
substantially equivalent insurance benefits with his or her new employer, in which case such insurance coverage
will end on the date of qualification. The Company will generally provide for such insurance coverage at its
expense at the same level and in the same manner as in effect at the applicable date of termination. Any
additional coverage the Named Executive Officer had at the time of termination, including dependent coverage,
will also be continued for such period on the same terms, to the extent permitted by the applicable policies or
contracts. If the terms of any benefit plan do not permit such continued coverage, the Company will arrange for
other coverage at its expense providing substantially similar benefits. Estimated payments shown in the tables
above represent the current net annual cost to the Company of the Named Executive Officer’s participation in the
Company’s health and/or dental insurance program offered to all non-union employees.

Employment Agreements

Under the Employment Agreements, if a Non-Change in Control Qualifying Termination occurs, the Named

Executive Officer will continue to receive partially Company-paid COBRA coverage under the Company’s
health care plan for a period of one year after the effective termination date.

Company Benefit Plans

The tables and discussion above do not reflect the value of accrued and unused paid days off, disability

benefits under the Company’s group health plan, the value of retiree medical, vision and dental insurance

benefits, and group life insurance, if any, that would be paid and/or provided to each Named Executive Officer
following termination of employment, because, in each case, these benefits are generally available to all regular
Company employees similarly situated in age, years of service and date of hire and do not discriminate in favor
of the Named Executive Officers.

Outplacement Services

Under each Severance Agreement, if a Change in Control Qualifying Termination occurs, the Company will

provide the Named Executive Officer with outplacement services at the expense of the Company, in an amount
up to $25,000.

CEO to Median Employee Pay Ratio

In accordance with applicable SEC rules, we are providing the ratio of the annual total compensation of our

CEO to the median of the annual total compensation of our other employees, excluding our CEO. For fiscal
2018, as calculated in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, the annual total
compensation of our CEO was $1,466,782 as disclosed in the “Summary Compensation Table” appearing on
page 50, the median of the annual total compensation of our other employees was $58,348, and the ratio of our
CEO’s annual total compensation to the median of the annual total compensation of our other employees was 25
to 1.

We believe the ratio presented above is a reasonable estimate calculated in a manner consistent with Item
402(u) of Regulation S-K. We determined our median employee based on total direct compensation paid to all of
our employees (consisting of approximately 1,562 individuals as of June 30, 2018) for the fiscal year ended
June 30, 2018. As is permitted by the applicable SEC rules, the number of employees used omits 19 individuals
that we hired during the fiscal year in connection with the acquisition of the Boyd Business. Total direct
compensation was calculated using internal human resources records and included base salary (wages earned
based on our payroll records), annual cash incentive awards earned for the period (and target sales incentive
awards for our sales force), and the annual grant date fair value of long-term incentive awards during fiscal 2018.

Because the SEC rules for identifying the median employee and calculating the pay ratio based on that
employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain
exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices, the pay
ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies
may have different employment and compensation practices and may utilize different methodologies, exclusions,
estimates and assumptions in calculating their own pay ratios.

Additionally, due to our emphasis on pay-for-performance and the structure of our performance-based
compensation for our CEO, his total direct compensation can be highly variable. Consequently, in years during
which we exceed target objectives for our performance-based compensation programs and experience an
increased stock price, the ratio of our CEO’s pay to our median employee is likely to be higher than in other
periods.

PROPOSAL NO. 3

ADVISORY VOTE TO APPROVE THE COMPENSATION
PAID TO OUR NAMED EXECUTIVE OFFICERS

As required by Section 14A(a)(1) of the Exchange Act, which was added under the Dodd-Frank Wall Street

Reform and Consumer Protection Act, we are seeking your vote, on an advisory (non-binding) basis, on the
compensation paid to our Named Executive Officers as described in the Compensation Discussion and Analysis
and the compensation tables and accompanying narrative disclosure, as provided on pages 30 through 64 of this
Proxy Statement. Under its charter, pursuant to the powers delegated by the Board, the Compensation Committee
has the sole authority to determine and approve compensation for our Named Executive Officers. Consistent with
our compensation philosophy and objectives, our executive compensation program for our Named Executive
Officers has been designed to align the interest of our Named Executive Officers with those of our stockholders,
and to reward our leadership for, and incentivize them towards, increasing stockholder value.

We urge our stockholders to review the Compensation Discussion and Analysis section of this Proxy
Statement and the related executive compensation tables for more information.

Vote Required

The approval of the advisory (non-binding) vote to approve the compensation paid to our Named Executive
Officers requires the affirmative vote of a majority of the shares of Common Stock and Series A Preferred Stock
(on an as-converted basis voting together with the Common Stock as a single class) present or represented by
proxy at the Annual Meeting and entitled to vote thereat. Abstentions will have the same effect as votes “against”
the proposal. Broker non-votes will not affect the outcome of the vote to approve the compensation paid to the
Company’s named executive officers because shares held by a bank, broker or other nominee who has not
received instructions from the beneficial owner of the shares as to how the shares are to be voted on the proposal
are not entitled to vote on such proposal at the Annual Meeting.

The say-on-pay vote is advisory, and therefore, not binding on the Board or the Compensation Committee.
While the vote is non-binding, the Board and the Compensation Committee value the opinions that stockholders
express in their votes and in any additional dialogue and will consider the outcome of the vote and those opinions
when making future compensation decisions.

We currently conduct annual advisory votes on executive compensation. Unless the Board modifies this

policy, the next advisory vote on executive compensation will be held at our 2019 Annual Meeting of
Stockholders.

Recommendation

The Board believes that the information provided above and within the Compensation Discussion and
Analysis section of this Proxy Statement demonstrates that our executive compensation program was designed
appropriately, has taken into account the opinions expressed by our stockholders, and aligns our executives’
interests with our stockholders’ interests to support long-term value creation.

The following resolution will be submitted for a stockholder vote at the Annual Meeting:

“Resolved, that the Company’s stockholders approve, on an advisory basis, the compensation paid to the
Company’s Named Executive Officers, as disclosed pursuant to Securities and Exchange Commission rules
in the Compensation Discussion and Analysis, the compensation tables and the accompanying narrative
disclosure, in this Proxy Statement.”

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL
OF THE ADVISORY (NON-BINDING) RESOLUTION TO APPROVE
THE COMPENSATION PAID TO THE COMPANY’S NAMED EXECUTIVE OFFICERS.

PROPOSAL NO. 4

APPROVAL OF THE COMPANY’S FORUM SELECTION BY-LAW

On October 14, 2018, the Board of Directors adopted an amendment (the “Amendment”) to the Company’s
By-Laws to add a forum selection by-law in Section 7.5 of Article VII of the By-Laws. Stockholder approval was
not required, but the Board has nevertheless decided to request that stockholders approve the Amendment.

The Amendment provides that, unless the Company consents in writing to the selection of an alternative

forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the
Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or
stockholder of the Company to the Company or to the Company’s stockholders, (iii) any action arising pursuant
to any provision of the Delaware General Corporation Law (“DGCL”) or the Company’s Certificate of
Incorporation or By-Laws (as either may be amended from time to time), (iv) any action asserting a claim against
the Company governed by the internal affairs doctrine, or (v) any action asserting an “internal corporate claim”
as the term is defined in Section 115 of the DGCL shall be the Court of Chancery (the “Chancery Court”) of the
State of Delaware (or, in the event that the Chancery Court does not have jurisdiction, the federal district court
for the District of Delaware or other state courts of the State of Delaware). Under the Amendment, stockholders
are deemed to have given consent to personal jurisdiction for such actions in such forum. The full text of the
Amendment is attached as Appendix A to this Proxy Statement.

Although stockholder approval is not required to amend the By-Laws, the Board of Directors believes this is

an important issue and that it is in the best interests of the Company and its stockholders to seek a stockholder
vote to approve the Amendment. When approving the Amendment, the Board of Directors made such approval
subject to approval by the Company’s stockholders. If stockholder approval is not obtained, the Amendment will
be made void and of no further force or effect.

Background and Reasons for Forum Selection By-Law

The Board believes that the Company and its stockholders will benefit from having intra-corporate disputes
litigated in the State of Delaware, where the Company is incorporated and whose laws govern such disputes. This
by-law is intended to benefit the Company and its stockholders in significant part by directing litigation to a
single Delaware court, which will apply its own state law with a well-established body of precedent, thereby
reducing the risk and expense of concurrent, multi-jurisdictional litigation, saving Company resources (money
and management attention) and leading to a single, more predictable outcome in litigation involving corporate
governance and internal affairs. The Board approved the Amendment as a good governance measure in light of
the incidence of such suits and multi-forum litigation.

In adopting the Amendment and determining that doing so is in the best interests of the Company and its

stockholders, the Board considered various factors, including, among others:

•

prevailing market practice and perspectives on such provisions;

the importance to the Company and its stockholders of reducing litigation costs and preventing
corporate resources from being unnecessarily diverted to address duplicative, costly and wasteful
multi-forum litigation;

the value of facilitating consistency and predictability in litigation outcomes for the benefit of the
Company and its stockholders;

that the Company is incorporated under the laws of the State of Delaware;

that the Delaware courts have developed considerable expertise in dealing with corporate law issues, as
well as a substantial and influential body of case law construing Delaware’s corporate law and long-
standing precedent regarding corporate governance;

•

that the Amendment limits forum shopping by plaintiffs’ lawyers and may discourage illegitimate
claims;

that adopting such an exclusive forum provision covering specified claims does not materially change
the substantive legal claims available to stockholders;

that the Company will retain the ability to consent to an alternative forum in appropriate circumstances
where the Company determines that its interests and those of its stockholders are best served by
permitting a particular dispute to proceed in a forum other than Delaware;

new Section 115 of the Delaware General Corporation Law and case law developments upholding the
authority of the board of directors to adopt such a provision and confirming its validity and
enforceability;

case law developments outside of Delaware enforcing such provisions; and

the benefit of having the Board deliberate on whether to adopt such a provision when it is not being
proposed in response to actual or threatened litigation.

The Board believes that it is in the best interest of stockholders to take preventive measures before the
Company and its stockholders are harmed by such litigation. The Amendment was not adopted by the Board in
reaction to any specific litigation confronting the Company, though the Company has had to deal with such
claims and threatened claims in the past. Rather, this action was taken to prevent potential future harm to the
Company and its stockholders.

This type of litigation has become more prevalent over time, and the cost of litigating and/or settling these
cases is an unwelcome draw against Company resources. Similarly, these matters require the attention of senior
management. Having to defend against these cases in varied jurisdictions can increase the challenge of managing
and obtaining results that benefit the Company and its stockholders and, so, increase costs. Moreover, the
complexity of these types of matters can make them ill-suited for resolution in state courts that are not familiar
with the issues and case law and that have to handle a docket that is much more diverse and less specialized in
this area of the law. Recent trends and holdings exacerbate the situation. So called “event-driven” shareholder
derivative suits have been on the rise. It is expected that the U. S. Supreme Court’s recent holding in the Cyan,
Inc. v. Beaver County Employees Retirement Fund matter will lead to more class actions under the Securities Act
of 1933 in state courts because that holding made removal to federal courts more difficult. When there are ways
to make it more efficient for the Company to address successfully these type of matters, in ways that reduce
distraction and reduce the use of Company resources that could otherwise be devoted to endeavors that drive
long-term growth, the Company believes that it is its duty to implement these measures in the interest of its
stockholders and the long-term value of their investment in the Company.

The Board is committed to strong corporate governance practices, as evidenced by this proposal. A

description of our key corporate governance practices appears under “Corporate Governance” above.

Vote Required

The affirmative vote of a majority of the shares of Common Stock and Series A Preferred Stock (on an
as-converted basis voting together with the Common Stock as a single class) present in person or represented by
proxy at the Annual Meeting and entitled to vote thereat is required to approve the Amendment. Abstentions will
have the same effect as votes “against” the proposal. Broker non-votes will not affect the outcome of this
proposal because shares held by a bank, broker or other nominee who has not received instructions from the
beneficial owner of the shares as to how the shares are to be voted on the proposal are not entitled to vote on such
proposal at the Annual Meeting.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”
APPROVAL OF THE COMPANY’S FORUM SELECTION BY-LAW.

DIRECTOR COMPENSATION

Non-Employee Director Compensation

The compensation program for our non-employee directors is intended to fairly compensate our
non-employee directors for the time and effort required of a director given the size and complexity of the
Company’s operations. Portions of the compensation program utilize our stock in order to further align the
interests of the directors with all other stockholders of the Company and to motivate the directors to focus on the
long-term financial interest of the Company. Directors who are Company employees are not paid any additional
fees for serving on the Board or for attending Board meetings.

In fiscal 2018, Meridian assisted the Compensation Committee with matters related to non-employee
director compensation. Meridian provided a competitive market analysis using the same peer group as was used
to benchmark executive compensation levels as listed in the Compensation Discussion and Analysis section of
this Proxy Statement. As a result of the market analysis and Meridian recommendations, effective December 8,
2017, the Committee made changes to the Company’s fiscal 2018 non-employee director compensation program
to better align with market and assist in recruitment of Board members, and, in light of the increasing Board and
committee meeting frequency over the past few years, in an effort to stabilize the compensation amounts that
were increasing as a result of the meeting frequency.

The changes in the new fiscal 2018 non-employee director compensation program are as follows:

Form of Non-Employee Director
Compensation

Previous Non-Employee
Director Compensation Program

New Fiscal 2018
Director Compensation Program

Annual Board Cash Retainer . . . . . . .

$37,000

$60,000

Committee Chair Cash Retainer . . . .

$7,500 for Compensation
Committee and Nominating and
Corporate Governance Committee
$15,000 for Audit Committee

$10,000 for Compensation
Committee and Nominating and
Corporate Governance Committee
$15,000 for Audit Committee

Non-Chair Committee Cash

Retainer . . . . . . . . . . . . . . . . . . . . .

—

$7,500 for Compensation
Committee and Nominating and
Corporate Governance Committee
$10,000 for Audit Committee

Chairman of the Board Cash

Retainer . . . . . . . . . . . . . . . . . . . . .

Chairman Emeritus Cash Retainer

. .

Meeting Fees . . . . . . . . . . . . . . . . . . .

$20,000, with additional fees paid
for committee service

$50,000, with no additional fees
for committee service

—

$2,000 only paid for Board or
committee meetings in excess of
seven in the fiscal year

$10,000, with additional fees paid
for committee service

$2,000 for each Board or
Executive Committee meeting, and
$2,500 for each Compensation
Committee, Audit Committee or
Nominating and Corporate
Governance Committee meeting,
subject to maximum daily meeting
fees of $4,500

Annual Equity Award Value . . . . . . .

$30,000

$65,000

Form of Non-Employee Director
Compensation

Previous Non-Employee
Director Compensation Program

New Fiscal 2018
Director Compensation Program

Expense Reimbursement . . . . . . . . . . Payment or reimbursement of

reasonable travel expenses from
outside the greater Dallas-Fort
Worth area, in accordance with
Company policy, incurred in
connection with attendance at
Board and committee meetings, as
well as payment or reimbursement
of amounts incurred in connection
with director continuing education

Payment or reimbursement of
reasonable travel expenses from
outside the greater Dallas-Fort
Worth area, in accordance with
Company policy, incurred in
connection with attendance at
Board and committee meetings, as
well as payment or reimbursement
of amounts incurred in connection
with director continuing education

Other

. . . . . . . . . . . . . . . . . . . . . . . . . Per diem fees associated with

—

Board or committee service
beyond the service which was
intended to be covered by the
annual retainer and per meeting
fees

The annual grant of restricted stock is generally made on the date on which the Company holds its annual

meeting of stockholders or such other date as the Board may determine, in each case, subject to any blackout
period under the Company’s insider trading policy. In fiscal 2018, the annual grant of restricted stock was made
on December 8, 2017. Each non-employee director received a grant of 1,901 shares of restricted stock based on
the closing price per share of our Common Stock on December 8, 2017 ($34.20). Such grants cliff vest on the
earlier of the one-year anniversary of the grant date, or the date of the first annual meeting of the Company’s
stockholders immediately following the grant date, subject to continued service to the Company through the
vesting date and the acceleration provisions of the 2017 Plan and the restricted stock award agreement.

Stock Ownership Guidelines

Under the Company’s stock ownership guidelines, a non-employee director is expected to own and hold

during his or her service as a Board member a number of shares of Common Stock with a value of at least
$150,000, and is not permitted to sell any shares of Common Stock received as grants under the Company’s
long-term incentive plans unless and until the non-employee director achieves and maintains this threshold share
ownership level.

Shares of Common Stock that count toward satisfaction of these guidelines include (to the extent

applicable): (i) shares of Common Stock owned outright by the non-employee director and his or her immediate
family members who share the same household, whether held individually or jointly; (ii) restricted stock or
restricted stock units (whether or not the restrictions have lapsed); (iii) shares of Common Stock held in trust for
the benefit of the non-employee director or his or her family; and (iv) shares of Common Stock issuable under
vested options held by the non-employee director.

Director Compensation Table

The following table shows fiscal 2018 non-employee director compensation:

Director(1)

Fees Earned or
Paid in
Cash($)

Stock
Awards($)(2)

Change in
Pension Value
($)(3)

All Other
Compensation
($)(4)

Hamideh Assadi . . . . . . . . . . . . . . . . . . . . .
Guenter W. Berger . . . . . . . . . . . . . . . . . . .
Allison M. Boersma . . . . . . . . . . . . . . . . . .
Randy E. Clark . . . . . . . . . . . . . . . . . . . . . .
Jeanne Farmer Grossman . . . . . . . . . . . . . .
Charles F. Marcy . . . . . . . . . . . . . . . . . . . .
Christopher P. Mottern . . . . . . . . . . . . . . .
David W. Ritterbush . . . . . . . . . . . . . . . . .

48,750
44,500
38,750
122,000
58,500
96,250
108,000
37,500

—
—
65,014
65,014
65,014
65,014
65,014
65,014

—
—
—
—
—
—
—
—

2,471
17,777
—
—
—
—
—
—

Total( $)

51,221
62,277
103,764
187,014
123,514
161,264
173,014
102,514

(1) Mr. Keown, the Company’s President and Chief Executive Officer, is not included in this table since he

received no additional compensation for his service as a director in fiscal 2018.

(2) Represents the full grant date fair value of restricted stock granted to each non-employee director in fiscal
2018, computed in accordance with FASB ASC Topic 718. A discussion of the assumptions used in
calculating the amounts in this column may be found in Note 18 to our audited consolidated financial
statements for the fiscal year ended June 30, 2018, included in our 2018 Form 10-K, except that, as required
by applicable SEC rules, we did not reduce the amounts in this column for any risk of forfeiture relating to
service-based (time-based) vesting conditions. The aggregate number of shares of restricted stock
outstanding at June 30, 2018 for each non-employee director were as follows: Ms. Boersma, 1,901 shares;
Mr. Clark, 2,230 shares; Ms. Grossman, 2,230 shares; Mr. Marcy, 2,230 shares; Mr. Mottern, 2,230 shares;
and Mr. Ritterbush, 1,901 shares. Hamideh Assadi and Guenter W. Berger stepped down as Class II
directors at the 2017 Annual Meeting at the end of their terms and did not own any shares of restricted stock
as of June 30, 2018.

(3) Represents the aggregate change in the actuarial present value of the accumulated benefit under all defined
benefit and actuarial pension plans from the pension plan measurement date used for financial statement
reporting purposes with respect to the Company’s audited consolidated financial statements for the fiscal
year ended June 30, 2017 to the pension plan measurement date used for financial statement reporting
purposes with respect to the Company’s audited consolidated financial statements for the fiscal year ended
June 30, 2018. The aggregate change in the actuarial present value of the accumulated benefit under the
Company’s defined benefit pension plan for Ms. Assadi and Mr. Berger was ($18,803) and ($61,607),
respectively, due to a higher discount rate and payment of benefits to Ms. Assadi and Mr. Berger under the
plan in fiscal 2018.

(4) All Other Compensation for Ms. Assadi includes life insurance premiums paid by the Company under the
Company’s postretirement death benefit plan ($2,030) and the economic benefit of the associated life
insurance policy ($441). All Other Compensation for Mr. Berger includes life insurance premiums paid by
the Company under the Company’s postretirement death benefit plan ($14,357) and the economic benefit of
the associated life insurance policy ($3,420).

Director Indemnification

Under Farmer Bros.’ Certificate of Incorporation and By-Laws, the current and former directors are entitled
to indemnification and advancement of expenses from the Company to the fullest extent permitted by Delaware
corporate law. The Board of Directors has approved a form of Indemnification Agreement (“Indemnification
Agreement”) to be entered into between the Company and its directors and officers. The Company’s Board of
Directors may from time to time authorize the Company to enter into additional indemnification agreements with
future directors and officers of the Company.

The Indemnification Agreements provide, among other things, that the Company will, to the extent
permitted by applicable law, indemnify and hold harmless each indemnitee if, by reason of his or her corporate
status as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of the
Company or of any other enterprise which such person is or was serving at the request of the Company, such
indemnitee was, is or is threatened to be made, a party to or a participant (as a witness or otherwise) in any
threatened, pending or completed proceeding, whether formal or informal, whether brought in the right of the
Company or otherwise and whether of a civil, criminal, administrative or investigative nature, against all
expenses, judgments, fines, penalties and amounts paid in settlement actually and reasonably incurred by him or
her or on his or her behalf in connection with such proceeding. In addition, the Indemnification Agreements
provide for the payment, advancement or reimbursement of expenses incurred by the indemnitee in connection
with any such proceeding to the fullest extent permitted by applicable law. The Indemnification Agreements also
provide that, in the event of a Potential Change in Control (as defined in the Indemnification Agreements), the
Company will, upon request by the indemnitee, create a trust for the benefit of the indemnitee and fund such trust
in an amount sufficient to satisfy expenses reasonably anticipated to be incurred in connection with investigating,
preparing for, participating in or defending any proceedings, and any judgments, fines, penalties and amounts
paid in settlement in connection with any proceedings. The Indemnification Agreements do not exclude any other
rights to indemnification or advancement of expenses to which the indemnitee may be entitled, including any
rights arising under the Certificate of Incorporation or By-Laws of the Company, or the Delaware General
Corporation Law. The Company is also obligated to maintain directors’ and officers’ liability insurance
coverage, including tail coverage under certain circumstances.

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

Review and Approval of Related Person Transactions

Under the Company’s written Policies and Procedures for the Review, Approval or Ratification of Related

Person Transactions, a related person transaction may be consummated or may continue only if the Audit
Committee approves or ratifies the transaction in accordance with the guidelines set forth in the policy. The
policy applies to: (i) any person who is, or at any time since the beginning of the Company’s last fiscal year was,
a director, nominee for director or executive officer of the Company; (ii) any person who is known to be the
beneficial owner of more than 5% of any class of the Company’s voting securities; and (iii) any immediate
family member, as defined in the policy, of, or sharing a household with, any of the foregoing persons. For
purposes of the policy, a related person transaction includes, but is not limited to, any financial transaction,
arrangement or relationship or any series of similar transactions, arrangements or relationships, specifically
including indebtedness and guarantees of indebtedness and transactions involving employment, consulting or
similar arrangements, between the Company and any of the foregoing persons since the beginning of the
Company’s last fiscal year, or any currently proposed transaction in which the Company was or is to be a
participant or a party, in which the amount involved exceeds $120,000, and in which any of the foregoing
persons had or will have a direct or indirect material interest.

The Company maintains a related person master list to assist in identifying related person transactions,
which is distributed by the Company’s Chief Legal Officer to the Company’s executive officers; the function or
department managers responsible for purchasing goods or services for the Company and its subsidiaries; the
director of accounts payable and the director of accounts receivable for the Company and its subsidiaries; and
any other persons whom the Audit Committee, the Chief Compliance Officer or the Chief Legal Officer may
designate.

Upon referral by the Chief Compliance Officer, Chief Legal Officer or Secretary of the Company, any
proposed related person transaction will be reviewed by the Audit Committee for approval or disapproval based
on the following:

• The materiality of the related person’s interest, including the relationship of the related person to the
Company, the nature and importance of the interest to the related person, the amount involved in the
transaction, whether the transaction has the potential to present a conflict of interest, whether there are
business reasons for the Company to enter the transaction, and whether the transaction would impair
the independence of any independent director;

• Whether the terms of the transaction, in the aggregate, are comparable to those that would have been

reached by unrelated parties in an arm’s length transaction;

• The availability of alternative transactions, including whether there is another person or entity that
could accomplish the same purposes as the transaction and, if alternative transactions are available,
there must be a clear and articulable reason for the transaction with the related person;

• Whether the transaction is proposed to be undertaken in the ordinary course of the Company’s

business, on the same terms that the Company offers generally in transactions with persons who are not
related persons; and

•

Such additional factors as the Audit Committee determines relevant.

Following review, the Audit Committee will approve or ratify in writing any related person transaction
determined by the Audit Committee to be in, or not inconsistent with, the best interests of the Company and its
stockholders.

The Audit Committee may impose conditions or guidelines on any related person transaction, including, but

not limited to: (i) conditions relating to on-going reporting to the Audit Committee and other internal reporting;

(ii) limitations on the amount involved in the transaction; (iii) limitations on the duration of the transaction or the
Audit Committee’s approval of the transaction; and (iv) other conditions for the protection of the Company and
to avoid conferring an improper benefit, or creating the appearance of a conflict of interest. Any member of the
Audit Committee who has or whose immediate family member has an interest in the transaction under discussion
will abstain from voting on the approval of the related person transaction, but may, if so requested by the Chair
of the Audit Committee, participate in some or all of the Audit Committee’s discussions of the related person
transaction.

The Audit Committee will direct the Company’s executive officers to disclose all related person transactions

approved by the Audit Committee to the extent required under applicable accounting rules, Federal securities
laws, SEC rules and regulations, and NASDAQ rules.

Related Person Transactions

Scott W. Bixby, former Company Senior Vice President, General Manager—Direct Store Delivery, retired

as an executive officer of the Company effective July 31, 2017 and as an employee of the Company effective
September 30, 2017. In fiscal 2018, the Company paid Mr. Bixby $253,768, consisting of: (i) base salary of
$70,615; (ii) PDO of $30,153; (iii) an auto allowance of $1,108; and (iv) lump sum severance of $153,000, less
required taxes and withholdings, under a Settlement Agreement and Mutual General Release entered into on
February 6, 2018, between the Company and Mr. Bixby. Under the Settlement Agreement, Mr. Bixby and the
Company entered into a general release of claims and covenant not to sue. Additionally, Mr. Bixby agreed to
certain covenants regarding cooperation with the Company in connection with any litigation then pending or
thereafter brought against the Company or other released parties. Since Mr. Bixby was not a Named Executive
Officer in fiscal 2018, the foregoing transactions are not included in the Summary Compensation Table above.

Jonathan Michael Waite, the son of Carol Farmer Waite who is the beneficial owner of more than 5% of the

Company’s voting securities, served as a non-executive employee of the Company in the position of Vice
President, Construction Management through January 31, 2017, when his position was eliminated. Pursuant to a
confidential general release and separation agreement entered into in fiscal 2017 between the Company and
Mr. Waite, in fiscal 2018 the Company paid Mr. Waite an aggregate of $214,802, less required taxes and
withholdings, consisting of: (i) severance benefits of $181,784; (ii) a prorated bonus award under the Company’s
short-term incentive plan for non-executive employees of $32,403 (paid in fiscal 2018 for fiscal 2017
performance); and (iii) $615 representing the Company’s 401(k) match for fiscal 2017 service. Receipt of
severance and the foregoing benefits was conditioned upon, among other things, Mr. Waite having executed a
general release of claims in favor of the Company.

AUDIT MATTERS

Audit Committee Report

The Audit Committee has reviewed and discussed with management the Company’s audited consolidated

financial statements as of and for the fiscal year ended June 30, 2018.

The Audit Committee has discussed with Deloitte the matters required to be discussed by the Statement on

Auditing Standards No. 16, “Communications with Audit Committees,” as adopted by the Public Company
Accounting Oversight Board.

The Audit Committee has received the written disclosures and the letter from Deloitte required by

applicable requirements of the Public Company Accounting Oversight Board regarding Deloitte’s
communications with the Audit Committee concerning independence, and has discussed with Deloitte that firm’s
independence.

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of
Directors that the audited consolidated financial statements referred to above be included in the Company’s 2018
Form 10-K for filing with the SEC.

Audit Committee of the Board of Directors

Christopher P. Mottern, Chair
Allison M. Boersma
Randy E. Clark

Independent Registered Public Accounting Firm Fees

The following table sets forth the aggregate fees billed by Deloitte for fiscal 2018 and 2017 for audit and

non-audit services (as well as all “out-of-pocket” costs incurred in connection with these services) and are
categorized as Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees. The nature of the services provided
in each such category is described following the table. The Audit Committee approved all audit and permissible
non-audit services provided by Deloitte in accordance with the pre-approval policies and procedures described
below.

Type of Fees

Fiscal 2018

Fiscal 2017

Audit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit-Related Fees . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,203,000
—
68,757
2,020

$ 964,000

—
111,274
2,020

Total Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,273,777

$1,077,294

Audit Fees

“Audit Fees” are fees paid for the audit of the Company’s annual consolidated financial statements included
in its Form 10-K and review of financial statements included in the Form 10-Q’s, for the audit of the Company’s
internal control over financial reporting, and for services that are normally provided by the auditor in connection
with statutory and regulatory filings or engagements. Audit fees for fiscal 2018 consisted of fees associated with
the audit of the Company’s fiscal 2018 annual financial statements, the audit of internal control over financial
reporting in fiscal 2018, the review of the Company’s quarterly reports on Form 10-Q, services associated with
an SEC registration statement, issuance of a preferability letter in connection with the Company’s changes in
accounting principles, and accounting advisory services in connection with the impact of new accounting

standards. Audit fees for fiscal 2017 consisted of fees associated with the audit of the Company’s fiscal 2017
annual financial statements, the audit of internal control over financial reporting in fiscal 2017, the review of the
Company’s quarterly reports on Form 10-Q, and services associated with an SEC registration statement.

Audit-Related Fees

“Audit-Related Fees” are fees for assurance and related services that are reasonably related to the
performance of the audit or review of the Company’s financial statements and are not reported under “Audit
Fees.” In fiscal 2018 and 2017, the Company paid no fees to Deloitte in this category.

Tax Fees

“Tax Fees” are fees for tax compliance, planning, advice and consultation services, including state tax
representation and miscellaneous consulting on federal and state taxation matters. Tax fees for fiscal 2018
consisted of fees associated with tax due diligence services, tax compliance and advisory services, certain tax
services in connection with the Company’s 2017 federal and state tax returns, and tax compliance services
related to the change in tax method of accounting. Tax fees for fiscal 2017 consisted of fees for tax due diligence
services, tax compliance and advisory services, and certain tax services in connection with the Company’s 2016
federal and state income tax returns.

All Other Fees

“All Other Fees” are fees for any services not included in the first three categories. All other fees in fiscal

2018 and 2017 consisted of subscription fees paid to Deloitte for an online accounting research tool, in the
amount of $2,020.

Pre-Approval of Audit and Non-Audit Services

Under the Farmer Bros. Co. Audit and Non-Audit Services Pre-Approval Policy, the Audit Committee must
pre-approve all audit and non-audit services provided by the independent auditor. The policy, as described below,
sets forth the procedures and conditions for such pre-approval of services to be performed by the independent
auditor. The policy utilizes both a framework of general pre-approval for certain specified services and specific
pre-approval for all other services. Unless a type of service has received general pre-approval, it will require
specific pre-approval by the Audit Committee if it is to be provided by the independent auditor. Any proposed
services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the
Audit Committee.

In the first quarter of each year, the Audit Committee is asked to pre-approve the engagement of the
independent auditor and the projected fees for audit services for the current fiscal year. The Audit Committee is
also asked to provide general pre-approval for certain audit-related services (assurance and related services that
are reasonably related to the performance of the auditor’s review of the financial statements or that are
traditionally performed by the independent auditor) and tax services (such as tax compliance, tax planning and
tax advice) for the current fiscal year consistent with the SEC’s rules on auditor independence. If the Company
wishes to engage the independent auditor for additional services that have not been generally pre-approved as
described above, then such engagement will be presented to the Audit Committee for pre-approval at its next
regularly scheduled meeting. Pre-approval of any engagement by the Audit Committee is required before the
independent auditor may commence any engagement.

In fiscal 2018, there were no fees paid to Deloitte under a de minimis exception to the rules that waive

pre-approval for certain non-audit services.

OTHER MATTERS

Annual Report and Form 10-K

The 2018 Annual Report to Stockholders (which includes the Company’s 2018 Form 10-K) accompanies
this Proxy Statement. The 2018 Annual Report is neither incorporated by reference in this Proxy Statement nor
part of the proxy soliciting material. Stockholders may obtain, without charge, a copy of the Company’s 2018
Form 10-K, filed with the SEC, including the financial statements included therein, without the
accompanying exhibits, by writing to: Farmer Bros. Co., 1912 Farmer Brothers Drive, Northlake, Texas
76262, Attention: Chief Financial Officer. The Company’s 2018 Form 10-K is also available online at the
Company’s website, www.farmerbros.com. A list of exhibits is included in the Company’s 2018 Form 10-K
and exhibits are available from the Company upon the payment of the Company’s reasonable expenses in
furnishing them.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company’s executive officers and directors, and persons

who own more than 10% of a registered class of the Company’s equity securities (collectively, “Reporting
Persons”), to file reports of ownership and changes in ownership with the SEC. Reporting Persons are required
by SEC regulations to furnish the Company with copies of all forms they file pursuant to Section 16(a). To the
Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and
written representations from certain reporting persons that no other reports were required during the fiscal year
ended June 30, 2018, its officers, directors and ten percent stockholders complied with all applicable
Section 16(a) filing requirements, with the exception of Jeanne Farmer Grossman who filed one late Form 4 on
March 16, 2018 to report the sale of 10,000 and 2,080 shares on March 12 and March 13, 2018, respectively.

Stockholder Proposals and Nominations

Proposals Pursuant to Rule 14a-8

Pursuant to Rule 14a-8 under the Exchange Act, stockholders may present proper proposals for inclusion in
the Company’s Proxy Statement and form of proxy for consideration at the Company’s 2019 Annual Meeting of
Stockholders. To be eligible for inclusion in the Company’s 2019 Proxy Statement, stockholder proposals must
be received by the Company at its principal executive offices no later than July 1, 2019 and must otherwise
comply with Rule 14a-8. While the Board will consider stockholder proposals, the Company reserves the right to
omit from the Company’s proxy statement stockholder proposals that it is not required to include under the
Exchange Act, including Rule 14a-8.

Proposals and Nominations Pursuant to the Company’s By-Laws

The Company’s By-Laws contain an advance notice provision with respect to matters to be brought at an

annual meeting of stockholders, including nominations, and not included in the Company’s Proxy Statement. A
stockholder who desires to nominate a director or bring any other business before the stockholders at the 2019
Annual Meeting must notify the Company in writing, must cause such notice to be delivered to or received by the
Secretary of the Company no earlier than August 8, 2019, and no later than September 7, 2019, and must comply
with the other provisions of the Company’s By-Laws summarized below; provided, however, that in the event
that the 2019 Annual Meeting is called for a date that is not within 30 days before or after the anniversary date of
the 2018 Annual Meeting of Stockholders, notice by the stockholder in order to be timely must be so received not
later than the close of business on the 10th day following the day on which notice of the date of the 2019 Annual
Meeting was mailed or public disclosure of the date of the 2019 Annual Meeting was made, whichever first
occurs.

The By-Laws provide that nominations may be made by the Board, by a committee appointed by the Board
or any stockholder entitled to vote in the election of directors generally. Stockholders must provide actual written

notice of their intent to make nomination(s) to the Secretary of the Company within the timeframes described
above. Each such notice must set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the
Company which are owned beneficially or of record by the person, and (iv) any other information relating to the
person that would be required to be disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and
the rules and regulations promulgated thereunder; and (b) as to the stockholder giving notice (i) the name and
record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Company
which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or
understandings between such stockholder and each proposed nominee and any other person or persons (including
their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that
such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its
notice, and (v) any other information relating to such stockholder that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with the solicitation of proxies for election of
directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such
notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to
serve as a director if elected.

The notice given by a stockholder regarding other business to be brought before an annual meeting of
stockholders must be provided within the time frames described above and set forth (a) a brief description of the
business desired to be brought before the annual meeting and the reason for conducting such business at the
annual meeting, (b) the name and record address of such stockholder, (c) the class and number of shares of stock
of the Company which are owned beneficially or of record by such stockholder, (d) a description of all
arrangements or understandings between such stockholder and any other persons (including their names) in
connection with the proposal and any material interest of such stockholder in such business, and (e) a
representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.

You may write to the Secretary of the Company at the Company’s principal executive offices, 1912 Farmer

Brothers Drive, Northlake, Texas 76262, to deliver the notices discussed above and for a copy of the relevant
provisions of the Company’s By-Laws regarding the requirements for making stockholder proposals and
nominating director candidates.

Householding of Proxy Materials

The SEC has adopted rules that permit companies and intermediaries (such as banks and brokers) to satisfy

the delivery requirements for proxy statements and annual reports with respect to two or more stockholders
sharing the same address by delivering a single proxy statement addressed to those stockholders. This process,
which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost
savings for companies.

This year, a number of banks and brokers with account holders who are Company stockholders will be
“householding” the Company’s proxy materials and annual report. A single proxy statement and annual report
will be delivered to multiple stockholders sharing an address unless contrary instructions have been received
from the affected stockholders. Once you have received notice from your bank or broker that it will be
“householding” communications to your address, “householding” will continue until you are notified otherwise
or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would
prefer to receive a separate proxy statement and annual report, please notify your bank or broker, or direct your
written request to Farmer Bros. Co., 1912 Farmer Brothers Drive, Northlake, Texas 76262, Attention: Chief
Financial Officer, or contact the Company’s Chief Financial Officer by telephone at (888) 998-2468, and the
Company will deliver a separate copy of the annual report or proxy statement upon request. Stockholders who

currently receive multiple copies of the proxy statement and annual report at their address and would like to
request “householding” of their communications should contact their bank or broker.

Forward-Looking Statements

Certain statements contained in this Proxy Statement 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 2018 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. Owing to the uncertainties inherent in forward-
looking statements, actual results could differ materially from those set forth in forward-looking statements. We
intend these forward-looking statements to speak only at the time of this Proxy Statement and do 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. Factors that could cause actual results to differ
materially from those in forward-looking statements include, but are not limited to, the success of our corporate
relocation plan, the timing and success of implementation of our direct-store-delivery restructuring plan, our
success in consummating acquisitions and integrating acquired businesses, the impact of capital improvement
projects, the adequacy and availability of capital resources to fund our existing and planned business operations
and our capital expenditure requirements, the relative effectiveness of compensation-based employee incentives
in causing improvements in Company performance, 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, the effect of the capital markets as well as other external factors on stockholder value,
fluctuations in availability and cost of green coffee, competition, organizational changes, the effectiveness of our
hedging strategies in reducing price risk, changes in consumer preferences, our ability to provide sustainability in
ways that do not materially impair profitability, changes in the strength of the economy, business conditions in
the coffee industry and food industry in general, the Company’s continued success in attracting new customers,
variances from budgeted sales mix and growth rates, weather and special or unusual events, as well as other risks
described in Part I, Item 1A of our 2018 Form 10-K, and other factors described from time to time in our filings
with the SEC.

October 25, 2018

By Order of the Board of Directors

THOMAS J. MATTEI, JR.
Chief Legal Officer and Secretary

APPENDIX A

FORUM SELECTION BYLAW

ARTICLE VII
GENERAL PROVISIONS

Section 7.5. Forum for Certain Actions. Unless the Corporation consents in writing to the selection of an
alternative forum, the Court of Chancery (the “Chancery Court”) of the State of Delaware (or, in the event that
the Chancery Court does not have jurisdiction, the federal district court for the District of Delaware or other state
courts of the State of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for
(i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of
breach of a fiduciary duty owed by any director, officer or stockholder of the Corporation to the Corporation or
to the Corporation’s stockholders, (iii) any action arising pursuant to any provision of the DGCL or the
Certificate of Incorporation or these By-Laws (as either may be amended from time to time), (iv) any action
asserting a claim against the Corporation governed by the internal affairs doctrine, or (v) any action asserting an
“internal corporate claim” as the term is defined in Section 115 of the DGCL. If any action the subject matter of
which is within the scope of the preceding sentence is filed in a court other than a court located within the State
of Delaware (a “Foreign Action”) in the name of any stockholder, such stockholder shall be deemed to have
consented to (a) the personal jurisdiction of the state and federal courts located within the State of Delaware in
connection with any action brought in any such court to enforce the preceding sentence and (b) having service of
process made upon such stockholder in any such action by service upon such stockholder’s counsel in the
Foreign Action as agent for such stockholder.

Appendix A

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

FORM 10-K

(Mark One)

(cid:59) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2018

(cid:133) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from

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

1912 Farmer Brothers Drive, Northlake, Texas 76262
(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 (cid:133) NO (cid:59)

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 (cid:133) NO (cid:59)

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 (cid:59) NO (cid:133)

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 (cid:59) NO (cid:133)

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. (cid:133)

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

Large accelerated filer (cid:133)(cid:3)
Non-accelerated filer (cid:133)(cid:3)

Accelerated filer

Smaller reporting company

Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act.

(cid:133)(cid:3)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES (cid:133)(cid:3)NO (cid:59)

(cid:59)(cid:3)
(cid:133)(cid:3)
(cid:133)(cid:3)

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 29, 2017 was $337.6 million.

As of September 12, 2018, the registrant had 16,954,368 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 2018 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, 2018.

11
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26
27
27

28
30
32

58
60
126

126
130

130
131

131
132
132

133
138
139

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 ............................................................................................................................

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.

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 ..........................................................................................

ITEM 13.
ITEM 14.
PART IV
Exhibits and Financial Statement Schedules ...................................................................................
ITEM 15.
ITEM 16.
Form 10-K Summary .......................................................................................................................
SIGNATURES ........................................................................................................................................................

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 1.A., 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 the success of our corporate relocation, the timing and
success of our direct-store-delivery restructuring plan, our success in consummating acquisitions and integrating acquired
businesses, the adequacy and availability of capital resources to fund our existing and planned business operations and our
capital expenditure requirements, 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.

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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, department and convenience store chains, hotels, casinos, healthcare
facilities, and gourmet coffee houses, as well as grocery chains with private brand and consumer-branded coffee and tea
products, and foodservice distributors. With a robust product line, including organic, Direct Trade, Project D.I.R.E.C.T.® 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 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 in Northlake,
Texas (the “New Facility”) (the “Corporate Relocation Plan”). In order to focus on our core product offerings, in the second
quarter of fiscal 2016, we sold 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”). In fiscal 2017, we completed the construction of, and exercised the purchase option to acquire, the New Facility,
relocated our Torrance operations to the New Facility, and sold our facility in Torrance, California (the “Torrance Facility”).
We commenced distribution activities at the New Facility during the second quarter of fiscal 2017 and initial production
activities late in the third quarter of fiscal 2017. We completed the Corporate Relocation Plan and began roasting coffee in
the New Facility in the fourth quarter of fiscal 2017. The New Facility received Safe Quality Food (SQF) certification in the
third quarter of fiscal 2018.

Recent Developments

Acquisitions

On October 2, 2017, we acquired substantially all of the assets and certain specified liabilities of Boyd Coffee

Company (“Boyd Coffee”), a coffee roaster and distributor with a focus on restaurants, hotels, and convenience stores on the
West Coast of the United States, in consideration of cash and preferred stock. The acquired business of Boyd Coffee (the
“Boyd Business”) is expected to add to our product portfolio, improve our growth potential, deepen our distribution
footprint and increase our capacity utilization at our production facilities.

In fiscal 2017, we completed two acquisitions. On October 11, 2016, we acquired substantially all of the assets and

certain specified liabilities of China Mist Brands, Inc. dba China Mist Tea Company (“China Mist”), a provider of flavored
and unflavored iced and hot teas, and on February 7, 2017, we acquired substantially all of the assets and certain specified
liabilities of West Coast Coffee Company, Inc. (“West Coast Coffee”), a coffee roaster and distributor with a focus on the
convenience store, grocery and foodservice channels. The China Mist acquisition extended our tea product offerings and
gave us a greater presence in the premium tea industry, while the West Coast Coffee acquisition broadened our reach in the
Northwestern United States.

DSD Restructuring Plan

As a result of an ongoing operational review of various initiatives within our direct-store-delivery or DSD selling
organization, in the third quarter of fiscal 2017, we commenced a restructuring plan to reorganize our DSD operations in an
effort to realign functions into a channel-based selling organization, streamline operations, acquire certain channel specific
expertise, and improve selling effectiveness and financial results (the “DSD Restructuring Plan”). The DSD Restructuring
Plan continued in fiscal 2018, and we expect to complete the DSD Restructuring Plan by the end of fiscal 2019.

New Facility Expansion

In the third quarter of fiscal 2018, we commenced a project to expand our production lines (the “Expansion Project”)

in the New Facility including expanding capacity to support the transition of acquired business volumes. Construction,
equipment procurement and installation associated with the Expansion Project are expected to be completed in fiscal 2019.

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, Project D.I.R.E.C.T.® 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 concentrated and ready-to-drink cold brew and 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® , Metropolitan™, China Mist® and Boyds®. Our Artisan
coffee products include Direct Trade, Project D.I.R.E.C.T.®, 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™, McGarvey® and Boyds® brands and iced and hot teas under the China
Mist® brand through foodservice distributors at retail. Our roast and ground coffee products are primarily sold in traditional
packaging, including bags and fractional packages, as well as single-serve packaging. Our tea products are sold in traditional
tea bags and sachets, as well as single-serve tea pods and capsules. For a description of the amount of net sales attributed to
each of our product categories in fiscal 2018, 2017 and 2016, see Management's Discussion and Analysis of Financial
Condition and Results of Operations—Results of Operations included in Part II, Item 7 of this report.

Business Strategy

Overview

We are a coffee company designed to deliver the coffee people want, the way they want it. We are focused on being a

growing and profitable forward-thinking industry leader, championing coffee culture through understanding, leading,
building and winning in the business of coffee. 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

coffees and teas;

•

expand production line capacity at the New Facility to integrate acquired product volumes and to support top-line
growth;

• grow through acquisitions to broaden our geographic reach and to increase our presence in the premium tea

industry;

•

implement a channel-based selling strategy to better address the unique needs of each customer channel, more
quickly respond to industry trends, and improve sales growth;

rethink aspects of our Company culture to improve productivity and employee engagement and to attract and
retain 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 high-quality products at a competitive cost, protection against cyber
threats, 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,

with quality and sustainability as the underpinning, which includes:

•

a wide variety of coffee product offerings and packaging options across numerous brands and three quality tiers-
value, premium and specialty;

consumer-branded coffee and tea products;

channel-based expertise;

• beverage equipment placement and service;

• hassle-free inventory and product procurement management;

• DSD service;

• merchandising support;

• product and menu insights; and

•

a robust approach to social, environmental and economic sustainability throughout our business.

Our services provided to DSD customers 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. Through China
Mist Tea-Loving Care®, we offer our customers an iced tea service that includes a diverse offering of on-trend products,
brewing equipment calibrated to extract optimal flavor from our tea blends, specialized distribution, training and incentives,
professional service, quality assurance, and strategic marketing support.

Strategic Initiatives

We are focused on the following strategies to capitalize on our state-of-the-art New Facility, reduce costs, streamline
our supply chain, expand the breadth of products and services we provide to our customers, broaden our geographic reach,
increase our presence in high growth industries and product categories, and better position the Company for growth:

Capitalize on State-of-the-Art Facility

• New Facility Investment. In fiscal 2017, we completed construction of and relocation to our state-of-the-art
facility in Northlake, Texas. In fiscal 2018, we began a project to expand our production lines at the New
Facility. We are focused on leveraging our investment in the New Facility to produce the highest quality coffee in
response to the market shift to premium and specialty coffee, support the transition of acquired product volumes,
and create opportunities for customer acquisition and sustainable long-term growth.

• SQF Certification. We are committed to the highest standards in food quality and safety. In fiscal 2018, the New
Facility received SQF certification, joining our Portland and Houston SQF-certified facilities. SQF is a Global
Food Safety Initiative-based system that strengthens our commitment to supply safe quality coffee products and
comply with food safety legislation. Required by many of our national account customers, SQF certification at
the New Facility marks an important step that will allow us the production platform to increase volume for
national account customers as needed.

Reduce Costs to Compete More Effectively

• Acquisition Integration. Through our recent acquisitions we have worked to reduce costs by integrating the
acquired businesses into our existing corporate and operational structure. Eliminating redundant functions,
merging delivery networks and combining production processing and facilities are expected to result in added
synergies and efficiencies compared to their pre-acquisition cost structures.

• New Facility. 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 believe the ongoing
improvements in production efficiency will allow us to operate at a lower cost, generally over the long term.

• DSD Restructuring Plan. As a result of an ongoing operational review of various initiatives within our DSD

selling organization, in the third quarter of fiscal 2017, we commenced the DSD Restructuring Plan to reorganize
our DSD operations in an effort to realign functions into a channel-based selling organization, streamline
operations, acquire certain channel specific expertise, and improve selling effectiveness and financial results. We
began recognizing cost benefits associated with the restructuring in the fourth quarter of fiscal 2017 and we
anticipate annualized savings from the restructuring plan beginning in the second quarter of fiscal 2019. We
expect to complete the DSD Restructuring Plan by the end of fiscal 2019. We continue to analyze our sales
organization and evaluate other potential restructuring opportunities in light of our strategic priorities.

• Supply Chain. In recent years, we have undertaken efforts to streamline our supply chain, including replacing our
long-haul fleet operations with third-party logistics (“3PL“), resulting in a reduction in our fuel consumption and
empty trailer miles, while improving our intermodal and trailer cube utilization; using vendor managed inventory
arrangements to reconfigure our packaging methodology and reduce waste; and engaging third-party warehouse
management services at the New Facility 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.

• Telematics. In an effort to make our DSD fleet more fuel-efficient, during fiscal 2018 we installed telematics
monitoring devices in our delivery trucks, allowing us to see contributing factors to our transportation-related
carbon footprint. Installation of telematics monitoring devices has resulted in reduced idling time, a cut in rapid
acceleration, and a reduction in fuel expenditures.

Optimize Sales and Portfolio of Products

• Channel-Based Selling Organization. Changing from a geographic to a channel-based selling strategy is

expected to allow us to better serve our customers and improve sales growth. We believe this channel-based
selling strategy will empower our sales organization to better address the unique needs of each customer channel
thereby deepening our customer relationships, allow us to create a more comprehensive customer support
structure, enhance our marketing efforts, and allow us to respond more quickly to industry trends. To this end, in
the fourth quarter of fiscal 2018, we realigned our DSD and direct ship regional and national sales teams around
sales channels to further our channel-based selling strategy.

• Optimize Product Portfolio. In fiscal 2018, we undertook efforts to optimize our SKU count reducing our total

SKU count by 11% excluding Boyd Coffee.

Strategic Investment in Assets and Evaluation of Cost Structure

• Market Opportunities. We believe we are well-positioned to continue to pursue growth through additional,

opportunistic M&A activity to deliver aligned brands, customers and innovation. For example, in fiscal 2018, we
completed the Boyd Coffee acquisition to add to our product portfolio, improve our growth potential, deepen our
distribution footprint and increase our capacity utilization at our production facilities. Additionally, in fiscal
2017, we completed the China Mist acquisition to extend our tea product offerings and give us a greater presence
in the premium tea industry, and the West Coast Coffee acquisition to broaden our reach in the Northwestern
United States. See Note 4, Acquisitions, of the Notes to Consolidated Financial Statements included in Part II,
Item 8 of this report.

• 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.

•

Investment in Technology. We have invested in technology and process improvements to improve our efficiency
and the effectiveness of our sales and distribution network. Two initiatives that were completed in fiscal 2018
were advanced routing software for our last mile delivery and the next version of our hand-held sales and
inventory management device for our delivery drivers.

• Branch Consolidation and Property Sales. We evaluate our branch operation structure on an ongoing basis to
identify opportunities to streamline the supply chain and reduce costs. In an effort to streamline our branch
operations, in fiscal 2018, we sold a Texas branch property and in fiscal 2017 and 2016, we sold one and two
Northern California branch properties, respectively.

Corporate Capabilities and Alignment to Create Stockholder Value

•

Investment in Human Resources. Our senior leadership team brings a proven track record of strategic and
operational leadership capabilities. We have also added experienced and vibrant talent to our team and continue
to benefit from our in-house expertise in sustainability, acquisition and integration, and operations.

• Commitment to Employee Wellness. We are committed to creating a healthier and happier workforce which we
believe contributes to our success. We have received certifications as a Fit-Friendly Worksite and a Blue Zone
Workplace based on the activities and environment created in our workplace to support healthy living and
promote wellness of our associates.

• Employee Development. We have invested in a Learning Management System to enable training facilitation and
tracking of training modules to support the development of employees at all levels and functions within the
organization. During fiscal 2018, we deployed courses to our Quality, Manufacturing and Maintenance functions
and we intend to expand our focus to include critical training modules that impact our entire workforce. We
recently completed a Talent Planning Process of all exempt level employees across the organization. We
calibrated the assessment of talent and created and began to execute on succession charts for all critical roles to
ensure we have the right talent and capabilities to support the business today and in the future.

• Performance Driven Culture. In fiscal 2018, we continued to pursue 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.

• Product Development Lab. The New Facility includes a product development lab where we are focused on

developing innovative products in response to industry trends and customer needs. In fiscal 2018, we developed
new products including Artisan and Metro Single Origin coffees, cold brew coffees, Artisan hot teas and on trend
seasonal coffees and cappuccinos.

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 and tea programs that can include sustainable

supply chains, direct trade purchasing, training and technical assistance, recycling and composting networks, and
packaging material reductions. During fiscal 2018, we made the Carbon Disclosure Project's Climate A-List for
our leadership in reducing Scope 1, 2 and 3 emissions (direct emissions, indirect emissions from consumption of
purchased electricity, heat or steam and other indirect emissions). Further, in fiscal 2018, we published our
annual sustainability report based on the Global Reporting Initiative’s comprehensive compliance standard. In
addition, China Mist is a member of the Ethical Tea Partnership (the “ETP”), a non-profit organization that
works to improve the sustainability of the tea sector, the lives of tea workers and farmers, and the environment in
which tea is produced. As a member of the ETP, China Mist sources all of its tea from tea plantations that are
certified, monitored, and regularly audited by the ETP.

• Science-Based Carbon Reduction Targets. We believe combating climate change is critical to the future of our
company, the coffee industry, coffee growers and the world. In fiscal 2018 we began progress to reduce
greenhouse gas (GHG) emissions across our roasting and administrative operations to achieve our Science Based
Targets. Setting approved targets places us among those responsible businesses that are making measurable
contributions to incorporate sustainability within their business strategy.

• Zero Waste to Landfill. Achieving zero waste in our production and distribution facilities is a significant step in
reaching our overall sustainability goals. In fiscal 2018 we achieved our goal of 90% waste diversion for our
primary production and distribution facilities. To accomplish this goal, we implemented ambitious recycling and
composting guidelines across these facilities. The enhanced efforts resulted in an approximate 80% reduction
from previous years, meeting the Zero Waste International Alliance requirements for diverting waste sent to
landfills in these locations.

• LEED® Certified Facilities. Our Portland production and distribution facility was one of the first in the
Northwest to achieve LEED® Silver Certification. We also achieved LEED® Silver Certification for our
corporate offices at the New Facility.

• Expansion of Project D.I.R.E.C.T.® Program. In fiscal 2018, we completed the baseline analysis of a third origin,

Brazil, for our Project D.I.R.E.C.T.® program for sourcing green coffee. This information will be used to
characterize farm level investments and technical assistance improvements within the communities from which
we source these coffees. Project D.I.R.E.C.T.® 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 Project D.I.R.E.C.T.®, we follow an outcome-based
evaluation framework. The result of this evaluation impacts where we invest our resources within our supply
chain and has led to an increased level of transparency for us. Project D.I.R.E.C.T.® represents a growing part 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, we track traceability levels from all green coffee suppliers on a per-contract basis.

•

Supplier Sustainability. We are committed to working with suppliers who share our social, environmental and
economic sustainability goals. Regulatory and reputational risks can increase when suppliers are not held to the
same strict standards to which we hold ourselves. To address this concern, in fiscal 2017, we surveyed all green
coffee suppliers to assess their social, environmental, and economic sustainability practices and alignment with
the United Nations Global Compact, a United Nations initiative to encourage businesses worldwide to adopt
sustainable and socially responsible policies, documenting 99% compliance with United Nations Global
Compact practices from all respondents. In fiscal 2018, we expanded this survey to include all green coffee
suppliers along with our top suppliers of processed coffee and non-coffee products. We are awaiting the fiscal
2018 survey results.

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, 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 (“SCA”) 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
support of Team Ronald McDonald House, riding in the Ride Against Hunger supported by Tarrant Area Food
Bank, hosting local food drives and donation of Farmer Brothers products nearing the end of their shelf life to
organizations related to Feeding America.

• All of our usable and near expiring products or products with damaged packaging that can be donated are

donated to Feeding America affiliated food banks nationwide, in an effort to keep all edible food waste from
going to landfills.

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 SCA, 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 SCA
certification of a state-of-the-art coffee lab and operate Public Domain®, a specialty coffeehouse in Portland,
Oregon. We also received SCA certification for our product development lab at the New Facility.

• 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 and tea industries. We provide trend
insights that help our customers create winning products and integrated marketing strategies. 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 exchange-traded agricultural commodity that is subject to price
fluctuations. Over the past five years, the coffee “C” market near month price per pound ranged from approximately $1.02
to $2.22. The coffee “C” market near month price as of June 30, 2018 and 2017 was $1.15 and $1.26 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. Coffee “C” market prices in fiscal
2018 traded in a 29 cent range during the year, and averaged 11% below the historical average for the past five years. 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 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

products provide similar assurance except that the arrangements are provided directly to individual coffee growers instead of
to cooperatives, providing these farmers with price premiums and dedicated technical assistance to improve farm conditions
and increase both quality and productivity of sustainable coffee crops, at the individual farm level. 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 8, 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, and other
proprietary rights that are not registered.

Seasonality

We experience some seasonal influences. The winter months historically have generally been our 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 Northlake, Texas; Houston, Texas; Portland, Oregon; and Hillsboro, Oregon.
Distribution takes place out of the New Facility, the Portland and Hillsboro facilities, as well as separate distribution centers
in Northlake, Illinois; Moonachie, New Jersey; and Scottsdale, Arizona. Our products reach our customers primarily in the
following ways: through our nationwide DSD network of 447 delivery routes and 111 branch warehouses as of June 30,
2018, or direct-shipped via common carriers or third-party distributors. DSD sales are primarily made “off-truck” to our
customers at their places of business. Our DSD business includes office coffee services whereby we provide office coffee
and tea 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
through our DSD network, 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 coffee and tea products directly to
consumers through our websites and sell certain products at retail and through foodservice distributors.

Customers

We serve a wide variety of customers, from small independent restaurants and foodservice operators to large

institutional buyers like restaurant, department and convenience store chains, hotels, casinos, healthcare facilities, and
gourmet coffee houses, as well as grocery chains with private brand and consumer-branded coffee and tea products, and
foodservice distributors. Although no single customer accounted for 10% or more of our net sales in any of the last three
fiscal years, we have a number of 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. During fiscal 2018, our top five customers accounted
for approximately 18% 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. Historically, our product returns have not been significant.

Competition

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

technology 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) and The Kraft Heinz Company (Maxwell House Coffee), wholesale foodservice
distributors such as Sysco Corporation and US Foods, regional and national coffee roasters such as S&D Coffee & Tea (Cott
Corporation), Massimo Zanetti Beverage USA, Trilliant Food and Nutrition LLC, Gaviña & Sons, Inc., Royal Cup, Inc.,
Ronnoco Coffee, LLC, and Community Coffee Company, L.L.C., specialty coffee suppliers such as Rogers Family
Company, Distant Lands Coffee, Mother Parkers Tea & Coffee Inc., Starbucks Corporation and Peet’s Coffee & Tea (JAB
Holding Company), and retail brand beverage manufacturers such as Keurig Dr. Pepper Inc.. 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 state-of-the-art production facility, longevity, product quality and offerings, national distribution

network, 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 19, 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 24,
Commitments and Contingencies, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this
report.

Employees

On June 30, 2018, we employed approximately 1,600 employees, 432 of whom are subject to collective bargaining

agreements expiring on or before June 30, 2022.

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, financial condition and results of operations
could be harmed. In that case, the trading price of our common stock could decline.

We may be unsuccessful in expanding our capacity at the New Facility, or fail to achieve our planned volumes and
efficiencies associated with the Expansion Project, which could harm our business, prospects, financial condition and
operating results.

Our success depends in part on our ability to be an efficient producer in a highly competitive industry. We have
invested a significant amount of capital in the New Facility. We are in the process of expanding our production lines in the
New Facility under a guaranteed maximum price contract of up to $19.3 million. The Expansion Project is subject to various
regulatory, development and operational risks, including:

• our ability to access sufficient capital at reasonable rates to fund the Expansion Project, especially in periods of

prolonged economic decline when we may be unable to access capital markets;

• our ability to complete the Expansion Project within anticipated costs, including the risk that we may incur cost

overruns, resulting from inflation or increased costs of equipment, materials, labor, contractor productivity, delays
in construction or other factors beyond our control;

•

adverse weather conditions;

• our ability in scaling our supply chain infrastructure as our product offerings and capacity increase;

•

the availability of skilled labor, equipment, and materials to complete the Expansion Project;

• potential changes in federal, state and local statutes, regulations, and orders, including environmental requirements
that delay or prevent the Expansion Project from proceeding or increase the anticipated cost of the Expansion
Project;

•

inadequate customer demand for, or interest in, our products; and

failure to achieve our planned volumes and efficiencies at the New Facility.

Any of these risks could prevent the Expansion Project from proceeding, delay its completion or increase its
anticipated costs which could adversely affect our business and results of operations. If we are unsuccessful in increasing
production capacity at the New Facility, our ability to grow may be constrained. Additionally, if we are not successful in
increasing product volumes we may not achieve the return on investment we anticipate from the investment required to
increase manufacturing capacity.

Our restructuring activities may be unsuccessful or less successful than we anticipate, which may adversely affect our
business, operating results and financial condition.

We have implemented, and may in the future implement, restructuring activities, such as the DSD Restructuring Plan,

in an effort to achieve strategic objectives and improve financial results. We cannot guarantee that we will be successful in
implementing these activities in a timely manner or at all, or that such efforts will advance our business strategy as expected
or result in realizing the anticipated benefits. Costs associated with restructuring activities may be greater than anticipated
which could cause us to incur indebtedness in amounts in excess of expectations. Execution of restructuring activities has
required, and will continue to require a substantial amount of management time and operational resources, including
implementation of administrative and operational changes necessary to achieve the anticipated benefits. These activities may
have adverse effects on existing business relationships with suppliers and customers, and impact employee morale.
Management continues to analyze the Company’s sales organization and evaluate other potential restructuring opportunities
in light of the Company’s strategic priorities which could result in additional restructuring charges the amount of which
could be material. If we are unable to realize the anticipated benefits from our restructuring activities, we could be cost
disadvantaged in the marketplace, and our competitiveness and our profitability could decrease.

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

Our primary raw material is green coffee, an exchange-traded agricultural commodity that is subject to price
fluctuations. Although coffee “C” market prices in fiscal 2018 averaged 11% below the historical average for the past five
years, 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 or uncertainty, 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 and other raw materials 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. We rely upon our ongoing relationships with our key suppliers to support our operations.
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 or we are unable to renegotiate contracts with suppliers (with similar or more favorable terms) or find alternative
sources for supply, we may be unable to procure a sufficient quantity of high-quality coffee beans and other raw materials at
prices acceptable to us or at all which could negatively affect our results of operations. Further, non-performance by
suppliers could expose us to 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 disruptions in
our ability to deliver products to our customers, 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-related 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 and may adversely affect our liquidity. 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 63%, 63% and 61% of our net sales in the fiscal years

ended June 30, 2018, 2017 and 2016, respectively. Demand for our products is affected by, among other things, consumer

tastes and preferences, global economic conditions and uncertainty, demographic trends and competing products. Any
decrease in demand for our roast and ground coffee products would cause our sales and profitability to decline.

If we are unable to respond successfully to changing consumer preferences and trends related to our products, we may
not be able to maintain or increase our revenues and profits.

Consumer preferences may change due to a variety of factors, including changes in consumer demographics,
increasing awareness of the environmental and social effects of product production, social trends, negative publicity,
economic downturn or other factors. Demand for our products depends on our ability to identify and offer products that
appeal to these shifting preferences. If we fail to anticipate accurately and respond to trends and shifts in consumer
preferences by adjusting the mix of existing product offerings and developing new products and categories, our business and
results of operations could be negatively affected. We may not be successful in responding to changing consumer
preferences and market trends, and some of our competitors may be better able to respond to these changes, either of which
could negatively affect our business and financial performance.

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 and other input 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, including the failure by our co-packers to comply with food safety, environmental, or
other laws and regulations, or the termination or renegotiation of any such co-pack agreement could result in disruptions to
our supply of finished goods, cause damage to our reputation and brands, 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, or 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,

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. If our retail customers do not allocate adequate shelf space for the beverages we supply, we could
experience a decline in our product volumes. 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 raw materials, tea, spices, and packaging materials such as cartonboard, corrugated and plastic. We purchase
certain ingredients, finished goods and packaging materials under cost-plus supply arrangements whereby our cost may
increase based on an increase in the underlying commodity price or changes in production costs. The cost of these
commodities depends on various factors beyond our control, including economic and political conditions, foreign currency
fluctuations, and global weather patterns. The changes in the prices we pay may take place on a monthly, quarterly or annual
basis depending on the product and supplier. 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 through our DSD network,
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. Any
significant increase in shipping costs could lower our margins and force us to raise prices, which could have an adverse
impact on our sales volumes.

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 a number of 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. During fiscal 2018, our top five customers accounted for
approximately 18% of our net sales. 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 mix or
quantities or on the same terms as they have in the past. In addition, because of the competitive environment facing many of
our customers and industry consolidation which has produced large customers with increased buying power and negotiating
strength, our customers 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, software and networks. 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, due to, among other things, natural disasters, terrorist
attacks, malicious or disruptive software, equipment or telecommunications failures, issues with performance by third-party
providers, processing errors, unintentional or malicious actions of employees, contractors or third-party providers, computer
viruses, hackers, cyberattack or other security issues, supplier defects, power outages, network outages, inadequate or
ineffective redundancy, or problems with transitioning to upgraded or replacement 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, an increase in operating expenses, reduced operational
efficiency, loss of customers or other business disruptions, all of which could negatively affect our business and results of
operations. To date, we have not experienced a material breach of cyber security, however our computer systems have been,
and will likely continue to be, subjected to unauthorized access or phishing attempts, computer viruses, malware,
ransomware or other malicious codes. These threats are constantly evolving and this increases the difficulty of timely
detection and successful defense. As a result, security, backup, disaster recovery, administrative and technical controls, and
incident response measures may not be adequate or implemented properly to prevent cyber-attacks or other security
breaches to our systems. Failure to effectively allocate and manage our resources to build, sustain, protect and upgrade our
information technology infrastructure could result in transaction errors, processing inefficiencies, the loss of customers,
reputational damage, litigation, 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 our customers or suppliers experience a
security breach or system failure, their businesses could be disrupted or negatively affected, which may result in a reduction
in customer orders or disruption in our supply chain, which would adversely affect our results of operations.

Failure to prevent the unauthorized access, use, theft or destruction of personal, financial and other confidential
information relating to our customers, suppliers, employees or our Company, could damage our business reputation,
negatively affect our results of operations, and expose us to potential liability.

The protection of our customer, supplier, employee, and Company data and confidential information is critical. We

are subject to new and changing privacy and information security laws and standards that may require significant
investments in technology and new operational processes. The use of electronic payment methods and collection of other
personal information exposes us to increased risk of privacy and/or security breaches. We rely on commercially available
systems, software, tools, and monitoring to provide security for processing, transmitting, and storing personal information
from individuals, including our customers, suppliers and employees, and our security measures may not effectively prohibit
others from obtaining improper access to such information. We rely on third party, cloud based technologies which results in
third party access and storage of Company data and confidential information. Employees or third parties with whom we do
business or to whom we outsource certain information technology or administrative services may attempt to circumvent
security measures in order to misappropriate such information, and may purposefully or inadvertently cause a breach
involving such information. If we experience a data security breach of any kind or fail to respond appropriately to such
incidents, we may experience a loss of or damage to critical data, suffer financial or reputational damage or penalties, or
face exposure to negative publicity, government investigations and proceedings, private consumer or securities litigation,
liability or costly response measures. In addition, our reputation within the business community and with our customers and
suppliers may be affected, which could result in our customers and suppliers ceasing to do business with us which could
adversely affect our business and results of operations. 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,
common carriers or distributors, supply of raw materials and finished goods under co-pack or vendor-managed inventory
arrangements, or otherwise, whether as a result of casualty, natural disaster, power loss, telecommunications failure,
terrorism, labor shortages, trade restrictions, contractual disputes, weather, environmental incident, pandemic, strikes, the
financial or operational instability of key suppliers, distributors and transportation providers, 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, distributors or service
providers, which would adversely affect our profitability. Alternative facilities with sufficient capacity or capabilities may
not be available, may cost substantially more or may take a significant time to start production, each of which could
negatively impact our business and results of operations. 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 or otherwise, 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, motivate
and develop management and other employees sufficiently to maintain our current business and support our projected
growth and strategic initiatives. This may require significant investments in training, coaching and other career development
and retention activities. Activities related to identifying, recruiting, hiring and integrating qualified individuals require
significant time and attention. We may also need to invest significant amounts of cash and equity to attract talented new
employees, and we may never realize returns on these investments. Competition for talent is intense, and we might not be
able to identify and hire the personnel we need to continue to evolve and grow our business. If we are not able to effectively
retain and grow our talent, our ability to achieve our strategic objectives will be adversely affected, which may impact our
financial condition and results of operations. Further, any unplanned turnover or failure to develop or implement an
adequate succession plan for our CEO, CFO, senior management and other key employees, could deplete our institutional
knowledge base, erode our competitive advantage, and negatively affect our business, financial condition and results of
operations. We do not maintain key person life insurance policies on any of our executive officers.

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 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. CERT’s action claims damages, statutory penalties and
costs of enforcement, which could be significant, as well as a requirement to provide warnings and other notices to
customers or remove acrylamide from finished products (which may be impossible). The court that is hearing the action has
issued a final statement of decision in favor of CERT on issues of liability, but a later trial phase will resolve remedies, if
any, including whether a warning must be included with respect to sales of coffee in California. If we are 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 and product 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

24, 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 and liquidity.

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, distribution channels or geographic regions, contingent risks
associated with the past operations of or other unanticipated problems arising in any acquired business, limited warranties
and indemnities from the sellers of acquired businesses, the challenges of achieving strategic objectives and other benefits
expected from acquisitions, failure to implement our business plan for the combined business, adverse impacts of margin
and product cost structures different from those of our current mix of business, 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, inconsistencies in standards, controls, procedures, policies and
compensation structures of the acquired businesses and our business, the potential loss of key personnel, customers and
suppliers of the acquired businesses, and other unanticipated issues, expenses and liabilities. The success of any such
acquisitions will depend, in part, on our ability to realize all or some of the anticipated benefits from integrating the acquired
businesses with our existing businesses, and to achieve revenue and cost synergies. The integration process may be
complex, time consuming, costly, and subject to uncertainties and contingencies many of which may be beyond our control
and difficult to predict, including effective management of integration and administrative overhead costs, maintaining an
effective system of internal controls for a larger and geographically dispersed enterprise, and issues in integrating financial,
manufacturing, logistics, information technology, communications and other systems. Additionally, any such acquisitions
may result in potentially dilutive issuances of our equity securities, the incurrence of additional debt, restructuring charges,
impairment charges, contingent liabilities, amortization expenses related to intangible assets, and increased operating
expenses, which could adversely affect our results of operations and financial condition.

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, or that we will be able to maintain the levels of revenue, earnings or
operating efficiencies expected. Furthermore, there can be no assurance that the synergies from any such acquisitions will be
achieved within the anticipated time frame or at all, or that such synergies will not be offset by costs incurred in
consummating such acquisitions or in integrating the acquired businesses, increases in expenses, operating losses or adverse
business results. In addition, actual results may differ from pro forma financial information of the combined companies due
to changes in the fair value of assets acquired and liabilities assumed, changes in assumptions used to form estimates,
differences in accounting policies between the companies, and completion of purchase accounting. If any such acquisitions
are not successful, our business and results of operations could be adversely affected.

We may devote a significant amount of our management’s attention and resources to our ongoing review of strategic
opportunities, and we may not be able to fully realize the potential benefit of any such opportunities that we pursue.

We may from time to time be engaged in evaluating strategic opportunities to complement our growth strategy, and
we may engage in discussions that may result in one or more transactions. Although there would be uncertainty that any of
these discussions would result in definitive agreements or the completion of any transaction, we may devote a significant
amount of our management’s attention and resources to evaluating and pursuing a transaction or opportunity, which could
negatively affect our operations. In addition, we may incur significant costs in connection with evaluating and pursuing
strategic opportunities, regardless of whether any transaction is completed. We may not fully realize the potential benefits of
any transactions that we may pursue.

Future impairment charges could adversely affect our operating results.

At June 30, 2018, we had $31.5 million in long-lived intangible assets, including recipes, non-compete agreements,

customer relationships, trade names, trademarks and a brand name, and goodwill of $36.2 million, associated with
completed acquisitions. Acquisitions are based on certain target analysis and due diligence procedures designed to achieve a
desired return or strategic objective. These procedures often involve certain assumptions and judgment in determining the
acquisition price. After consummation of an acquisition, unforeseen issues could arise that adversely affect anticipated
returns or that are otherwise not recoverable as an adjustment to the purchase price. Even after careful integration efforts,
actual operating results may vary significantly from initial estimates. We perform an asset impairment analysis on an annual
basis or whenever events occur that may indicate possible existence of impairment. Failure to achieve forecasted operating
results, due to weakness in the economic environment or other factors, changes in market conditions, loss of or significant
decline in sales to customers included in valuation of the intangible asset, changes in our imputed cost of capital, 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 performed our annual test of impairment as of January 31, 2018, to determine the recoverability of the carrying

values of goodwill and indefinite-lived intangible assets. We also assessed the recoverability of certain finite-lived intangible
assets. As a result of these impairment tests, we determined that the trade name/trademark and customer relationships
intangible assets acquired in connection with the China Mist acquisition were impaired as the carrying value exceeded the
estimated fair value. Accordingly, we recorded total impairment charges of $3.8 million in fiscal 2018. Further changes to
the assumptions regarding the future performance of China Mist or other assumptions, or the failure to achieve anticipated
synergies related to acquisitions could result in additional impairment charges in the future, which could be significant.

An increase in our debt leverage could adversely affect our liquidity and results of operations.

As of June 30, 2018 and 2017, we had outstanding borrowings under our credit facility of $89.8 million and $27.6
million, respectively, with excess availability of $25.3 million and $27.9 million, respectively. We may incur significant
indebtedness in the future, including through additional borrowings under the credit facility, exercise of the accordion
feature under the credit facility to increase the revolving commitment by up to an additional $50.0 million, through the
issuance of debt securities, or otherwise. Our present indebtedness and any future borrowings could have adverse
consequences, including:

•

requiring a substantial portion of our cash flow from operations to make payments on our indebtedness;

reducing the cash flow available or limiting our ability to borrow additional funds, to pay dividends, to fund capital
expenditures and other corporate purposes and to pursue our business strategies;

limiting our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we
operate;

•

increasing our vulnerability to general adverse economic and industry conditions; and

• placing us at a competitive disadvantage compared to our competitors that have less debt.

To the extent we become more leveraged, we face an increased likelihood that one or more of the risks described

above would materialize. In addition, if we are unable to make payments as they come due or comply with the restrictions

and covenants under the credit facility or any other agreements governing our indebtedness, there could be a default under
the terms of such agreements. In such event, or if we are otherwise in default under the credit facility or any such other
agreements, the lenders could terminate their commitments to lend and/or accelerate the loans and declare all amounts
borrowed due and payable. Furthermore, our lenders under the credit facility could foreclose on their security interests in
our assets. If any of those events occur, our assets might not be sufficient to repay in full all of our outstanding indebtedness
and we may be unable to find alternative financing on acceptable terms or at all. Failure to maintain existing or secure new
financing could have a material adverse effect on our liquidity and financial position.

Borrowings under our credit facility bear interest at a variable rate exposing us to interest rate risk.

Our credit facility subjects us to interest rate risk. The rate at which we pay interest on outstanding amounts under the

credit facility fluctuates with changes in interest rates and availability levels. As a result, we are exposed to changes in
interest rates with respect to any amounts from time to time outstanding under our credit facility. If we are unable to
adequately manage our debt structure in response to changes in the market, our interest expense could increase, which
would negatively affect our financial condition and results of operations.

We may need additional financing in the future, and we may be unable to obtain that financing.

Our cash requirements in the future may be greater than expected. Should we experience a deterioration in operating
performance, we will have less cash inflows from operations available to meet our financial obligations or to fund our other
liquidity needs. 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 assets; or
reduce or delay planned capital or operating expenditures, strategic acquisitions or investments.

Such measures might not be sufficient to enable us to satisfy our financial obligations or to fund our other liquidity

needs, and could impede the implementation of our business strategy, prevent us from entering into transactions that would
otherwise benefit our business and/or have a material adverse effect on our financial condition and results of operations. In
addition, any such financing, refinancing or sale of assets might not be available on economically favorable terms or at all.
Our ability to obtain additional financing or refinance our indebtedness would depend upon, among other things, our
financial condition at the time, and the liquidity of the overall capital markets and the state of the economy. Furthermore,
any refinancing of our existing debt could be at higher interest rates and may require compliance with more onerous
covenants, which could further restrict our business operations. In addition, if our lenders experience difficulties that render
them unable to fund future draws on the credit facility, we may not be able to access all or a portion of these funds, which
could adversely affect our ability to operate our business and pursue our business strategies.

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, 2018, 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. In addition, facility closings may trigger cash payments or previously unrecognized obligations under our
defined benefit pension plans, and the cost of such liabilities may be significant or may compromise our ability to close
facilities or otherwise conduct cost reduction initiatives on time and within budget. A significant increase in future funding
requirements could have a negative impact on our financial condition and results of operations.

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 3PL service providers, 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. A successful claim
against us that is not covered by insurance or is in excess of our reserves or available insurance limits could require us to
make significant payments and could negatively affect our business, financial condition and results of operations.

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.

Failure to protect our intellectual property may adversely affect our competitive position.

We possess intellectual property that is important to our business. This intellectual property includes brand names,
trademarks, trade names, service marks, copyrights, recipes, product formulas, business processes and other trade secrets.
Our success depends, in part, on our ability to protect our intellectual property. We cannot be certain that the steps we take to
protect our rights will be sufficient or that others will not infringe or misappropriate our rights. If we come into conflict with
third parties over intellectual property rights it may disrupt our business, divert management attention from business
operations and consume significant resources. If we are found to infringe on the intellectual property rights of others, we
could incur significant damages, be enjoined from continuing to manufacture, market or use the affected product, or be
required to obtain a license to continue manufacturing or using the affected product. Changing products or processes to
avoid infringing the rights of others may be costly or impracticable, and a license may be unavailable on reasonable terms, if
at all.

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. Our required contributions to these plans could increase due to a number of factors,
including the funded status of the plans and the level of our ongoing participation in these plans. Our risk of such increased
payments may be greater if any of the participating employers in these underfunded plans withdraws from the plan due to
insolvency and is not able to contribute an amount sufficient to fund the unfunded liabilities associated with its participants
in the plan. 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. The amount of any potential withdrawal liability 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; incur capital expenditures, 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.

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 the
market price of our common stock.

Our operating results may fluctuate from period to period as a result of a number of factors, including variations in

our operating performance or the performance of our competitors, changes in accounting principles, fluctuations in the price
and supply of green coffee, fluctuations in the selling prices of our products, the success of our hedging strategy, research
reports and changes in financial estimates by analysts about us, or competitors or our industry, our inability or the inability
of our competitors to meet analysts’ projections or guidance, strategic decisions by us or our competitors, such as
acquisitions, capital investments or changes in business strategy, the depth and liquidity of the market for our common
stock, adverse outcomes of litigation, changes in or uncertainty about economic conditions, conditions or trends in our
industry, geographies, or customers, activism by any large stockholder or group of stockholders, speculation by the
investment community regarding our business, actual or anticipated growth rates relative to our competitors, terrorist acts,
natural disasters, perceptions of the investment opportunity associated with our common stock relative to other investment
alternatives, competition, changes in consumer preferences and market trends, seasonality, our ability to retain and attract
customers, our ability to manage inventory and fulfillment operations and maintain gross margin, and other factors
described elsewhere in this risk factors section. Fluctuations in our operating results due to these factors or for any other
reason could cause the market price of our common stock to decline. In addition, the stock markets have experienced price
and volume fluctuations that have affected and continue to affect the market price of equity securities issued by many
companies. In the past, some companies that have had volatile market prices for their securities have been subject to class
action or derivative lawsuits. The filing of a lawsuit against us, regardless of the outcome, could have a negative effect on
our business, financial condition and results of operations, as it could result in substantial legal costs, a diversion of
management’s attention and resources, and require us to make substantial payments to satisfy judgments or to settle
litigation. 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.

Stockholders may experience future dilution as a result of future equity offerings.

In order to raise additional capital, we may in the future offer additional equity, equity-linked or debt securities. If we
raise additional funds through the issuance of securities, those securities may have rights, preferences or privileges senior to
the rights of our common stock, and our stockholders may experience dilution. The price per share at which we sell
additional shares of our common stock, or securities convertible or exchangeable into common stock, in future transactions
may be higher or lower than the price per share paid by existing stockholders for their shares.

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, tea and other
beverages. We have no ability to ensure that our customers use a clean water supply to prepare these 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. The growing use of social and digital media
increases the speed and extent that information or misinformation and opinions can be shared. Negative posts or comments
about the Company or our products on social or digital medial could damage our brands and reputation, regardless of the
information’s accuracy, causing immediate harm without affording us an opportunity for redress or correction.

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 or beverage-borne illnesses, tampering,
contamination, mislabeling, or other food or beverage safety issues, including due to the failure of our third-party co-packers
to maintain the quality of our products and to comply with our product specifications, could damage the value of our brands,
negatively impact sales of our products, and potentially lead to product recalls, production interruptions, 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 including those relating to food safety,
ingredients, manufacturing, processing, packaging, storage, marketing, advertising, labeling, quality and distribution of our
products, import of raw materials, as well as environmental laws and those relating to privacy, worker health and workplace
safety. 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 FDA Food Safety Modernization Act
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; accounting standards and taxation requirements; competition laws; environmental laws; laws regarding
ingredients used in our products; laws and regulations affecting healthcare costs, immigration and other labor issues; privacy
laws and regulations; 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. In addition, our product advertising could
make us the target of claims relating to false or deceptive advertising under U.S. federal and state laws, including the
consumer protection statutes of some states. Any new laws and regulations or changes in government policy, 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, which could adversely affect our results of
operations. In addition, modifications to international trade policy, or the imposition of increased or new tariffs, quotas or
trade barriers on key commodities, could adversely impact our business and results of operations. In some cases, increased
regulatory scrutiny could interrupt distribution of our products or force changes in our production processes or procedures
(or force us to implement new processes or procedures). 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 and adversely affect our reputation and brand image. In
addition, claims or liabilities of this sort may not be covered by insurance or by any rights of indemnity or contribution that
we may have against others.

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 common stock than if ownership of our common stock was less concentrated.

Based on statements and reports filed with the SEC pursuant to Sections 13(d) and 16(a) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), certain members of the Farmer family or entities controlled by the Farmer
family (including trusts) beneficially own in the aggregate approximately 27.1% of our outstanding common stock. 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. Sales of common stock by the Farmer family could have a material adverse effect on the market

price of our common stock. In addition, the transfer of ownership of a significant portion of our outstanding shares of
common stock within a three-year period could adversely affect our ability to use our net operating loss (“NOL”) carry
forwards to offset future taxable net income.

Actions by activist investors could be disruptive, costly, and negatively affect our business and cause the trading price of
our common stock to decline.

Activist campaigns that contest or conflict with our strategic direction could have an adverse effect on our results of

operations and financial condition. Responding to proxy contests and other actions by activist investors can disrupt our
operations, be costly and time-consuming, and divert the attention of the Company’s board and senior management from the
pursuit of business strategies. In addition, perceived uncertainties as to our future direction may lead to the perception of a
change in the direction of the business, instability or lack of continuity which may be exploited by our competitors, may
cause customer and employee concerns, may result in the loss of potential business opportunities, and may make it more
difficult to attract and retain qualified personnel. As a result of these types of actions, the trading price of our common stock
could decline.

Our ability to use our NOL carry forwards to offset future taxable net income may be subject to certain limitations.

At June 30, 2018, we had approximately $124.9 million in federal and $103.1 million in state NOL carryforwards that
will begin to expire in the years ending June 30, 2030 and June 30, 2018, respectively. If an ownership change as defined in
Section 382 of the Internal Revenue Code (the "Code") occurs with respect to our capital stock, our ability to use NOLs to
offset taxable income would be subject to certain limitations. Generally, an ownership change occurs under Section 382 of
the Code if certain persons or groups increase their aggregate ownership by more than 50 percentage points of our total
capital stock over a rolling three-year period. If an ownership change occurs, our ability to use NOLs to reduce taxable net
income is generally limited to an annual amount based on the fair market value of our stock immediately prior to the
ownership change multiplied by the long-term tax-exempt interest rate. If an ownership change were to occur, use of our
NOLs to reduce payments of federal taxable net income may be deferred to later years within the 20-year carryover period;
however, if the carryover period for any loss year expires, the use of the remaining NOLs for the loss year will be
prohibited. Future changes in our stock ownership, some of which may be outside of our control, could result in an
ownership change under Section 382 of the Code. There is also a risk that due to regulatory changes, such as suspensions on
the use of NOLs, or other unforeseen reasons, our existing NOLs could expire, decrease in value or otherwise be unavailable
to offset future income tax liabilities. As a result, we may be unable to realize a tax benefit from the use of our NOLs, even
if we generate a sufficient level of taxable net income prior to the expiration of the NOL carry forward periods.

The impact of the Tax Cuts and Jobs Act (the "Tax Act") on our current and future financial results, including the impact
on our deferred tax assets, is uncertain.

The Tax Act significantly affected U.S. tax law, including by reducing the corporate tax rate from 35% to 21%,
limiting the deductibility of certain executive compensation, and modifying or repealing many deductions and credits. The
impact of many provisions of the Tax Act lack clarity and are subject to interpretation until additional guidance is released.
As of June 30, 2018, we have not completed our accounting for the tax effects of the Tax Act. The provisional amount
recorded in fiscal 2018 relating to the re-measurement of our deferred tax balances as a result of the reduction in the
corporate tax rate was $18.0 million. While we are able to make a reasonable estimate of the impact of the reduction in
corporate rate, it may be affected by other analyses related to the Tax Act, including, but not limited to, changes to Section
162(m) of the Code, which we are not yet able to reasonably estimate the effect of this provision of the Tax Act. As we
complete our analysis of the Tax Act, collect and prepare necessary data, and interpret any additional guidance, we may
make adjustments to provisional amounts that we have recorded that could materially impact our provision for income taxes,
affect the measurement of deferred tax balances or potentially give rise to new deferred tax amounts in the period in which
the adjustments are made.

Future sales of shares by existing stockholders could cause the market price of our common stock 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.

Our outstanding Series A Preferred Stock could adversely affect the holders of our common stock in some circumstances.

As of June 30, 2018, we had 14,700 shares of Series A Convertible Participating Cumulative Perpetual Preferred

Stock, par value $1.00 per share (“Series A Preferred Stock”), outstanding. The Series A Preferred Stock could adversely
affect the holders of our common stock in certain circumstances. On an as converted basis, holders of Series A Preferred
Stock are entitled to vote together with the holders of our common stock and are entitled to share in the dividends on
common stock, when declared. The Series A Preferred Stock pays a dividend, when, as and if declared by our Board of
Directors, of 3.5% APR of the stated value per share payable in four quarterly installments in arrears, and has an initial
stated value of $1,000 per share, adjustable up or down by the amount of undeclared and unpaid dividends or subsequent
payment of accumulated dividends thereon, respectively, and a conversion premium of 22.5%. We may mandatorily convert
all of the Series A Preferred Stock one year from the date of issue. The holder may convert 20%, 30% and 50% of the Series
A Preferred Stock at the end of the first, second and third year, respectively, from the date of issue. Any of the foregoing
could have a material adverse effect on the holders of our common stock.

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

Our Board of Directors has the authority to issue 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. We currently have 479,000 authorized shares of preferred stock undesignated as to series, and we could cause
shares currently designated as to series but not outstanding to become undesignated and available for issuance as a series of
preferred stock to be designated in the future. 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 common 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.

Our results of operation, financial condition and cash flows may be adversely affected by changes in GAAP.

Generally accepted accounting principles are subject to interpretation by the Financial Accounting Standards Board
("FASB"), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in
these principles or interpretations could have a significant effect on our results of operations, financial position and cash
flows. In particular, in February 2016, the FASB issued Accounting Standards Update ("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.
Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to
make future minimum lease payments and a related right-of-use asset. ASU 2016-02 is effective for the Company beginning

July 1, 2019. We expect the adoption of ASU 2016-02 will have a material effect on our financial condition resulting from
the increase in assets and liabilities.

Item 1.B.

Unresolved Staff Comments

None.

Item 2.

Properties

Our current production and distribution facilities are as follows:

Location
Northlake, TX

Houston, TX
Portland, OR
Northlake, IL
Moonachie, NJ
Hillsboro, OR

Scottsdale, AZ

Approximate Area
(Square Feet)

Purpose

535,585 Corporate headquarters,

manufacturing, distribution,
warehouse, product development lab

330,877 Manufacturing and warehouse
114,000 Manufacturing and distribution
89,837 Distribution and warehouse
41,404 Distribution and warehouse
20,400 Manufacturing, distribution and

warehouse

17,400 Distribution and warehouse

Status
Owned

Owned
Leased
Leased
Leased
Leased

Leased

As part of the China Mist transaction, we assumed the lease on China Mist’s existing 17,400 square foot facility in

Scottsdale, Arizona which is terminable upon twelve months’ notice. As part of the West Coast Coffee transaction, we
entered into a three-year lease on West Coast Coffee’s existing 20,400 square foot facility in Hillsboro, Oregon, which
expires January 31, 2020, and assumed leases on six branch warehouses consisting of an aggregate of 24,150 square feet in
Oregon, California and Nevada, expiring on various dates through November 2020. We did not acquire any additional
facilities or assume any additional leases in connection with the Boyd Coffee acquisition. Our owned facility in Oklahoma
City, Oklahoma, consisting of approximately 142,100 square feet, served as a distribution facility through the third quarter
of fiscal 2017, when distribution operations were transitioned to the New Facility and continues to serve as a branch
warehouse and service center.

As of June 30, 2018, we stage our products in 111 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 stand-alone branch warehouses vary in size from
approximately 1,000 to 34,000 square feet.

Approximately 55% of our facilities are leased with a variety of expiration dates through 2021. The lease on the
Portland facility was renewed in fiscal 2018 and expires in 2028, subject to an option to renew up to an additional 10 years.

We calculate our utilization for all of our coffee roasting 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, five days per week), in each case, based on our current product
mix. Utilization rates for our coffee roasting facilities were approximately 75%, 93% and 90% during the fiscal years ended
June 30, 2018, 2017 and 2016, respectively. The utilization rate in fiscal 2018 includes the New Facility and does not reflect
the anticipated increase in capacity resulting from the Expansion Project. The utilization rate in fiscal 2017 excludes the
New Facility where we began roasting coffee in the fourth quarter of fiscal 2017. The utilization rate in fiscal 2016 excludes
the Torrance Facility due to the transition of coffee processing and packaging to our Houston and Portland production
facilities in the fourth quarter of fiscal 2015.

Subject to completion of the Expansion Project, we believe that our existing facilities provide adequate capacity for

our current operations, including integration of product volumes from recent acquisitions.

.
Item 3.

Legal Proceedings

For information regarding legal proceedings in which we are involved, see Note 24, 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 ............................................................................................ $

High

Low

High

34.25 $
34.70 $
33.90 $
30.95 $

28.95 $
30.90 $
29.60 $
23.95 $

36.96 $
37.55 $
37.15 $
37.35 $

Low
29.16
30.05
31.25
29.30

Year Ended June 30, 2018

Year Ended June 30, 2017

On September 12, 2018, the last sale price reported on NASDAQ for our common stock was $27.90 per share.

Holders

As of September 12, 2018, there were approximately 2,100 holders of record of common stock. Determination of holders
of record of common stock is based upon the number of record holders and individual participants in security position listings.
This does not include persons whose common 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 on our common stock since the third

quarter of fiscal 2011. The amount, if any, of dividends on our common stock 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 on our common stock, see Liquidity, Capital Resources and Financial Condition included in Part II,
Item 7 of this report, and Note 16, 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. Companies in the Russell 2000, Value Line Food Processing Index and peer group index are weighted by market
capitalization. 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., Coffee Holding Co. Inc., Lancaster Colony Corporation,
National Beverage Corp., SpartanNash Company, Seneca Foods Corp. and TreeHouse Foods, Inc. We revised the peer group in
fiscal 2018 to include public companies in the same industry as Farmer Bros. Co. (Consumer Non-Durables), and either in the
same subsector (Packaged Foods) or with product offerings that overlap with the Company's product offerings. As a result, we
added Lancaster Colony Corporation and Seneca Foods Corp. to the peer group, and removed Dunkin’ Brands Group, Inc. and
Inventure Foods, Inc. from the peer group in fiscal 2018. Inventure Foods, Inc. has also been excluded from the old peer group
index in fiscal 2018 since it is no longer a public company.

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.

The material in this performance graph is not soliciting material, is not deemed filed with the SEC, and is not

incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made on, before
or after the date of this filing and irrespective of any general incorporation language in such filing.

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, 2018)

2 5 0

5 0

2013

2014

2015

2016

2017

2018

Farmer Bros. Co.

Russell 2000 Index

Food Processing Index

Peer Group Index (old)

Peer Group Index (new)

Farmer Bros. Co. .............................. $
Russell 2000 Index ........................... $
Value Line Food Processing Index ... $
Peer Group Index (old) ..................... $
Peer Group Index (new) ................... $

2013
100.00 $
100.00 $
100.00 $
100.00 $
100.00 $

2014
153.70 $
122.04 $
122.38 $
111.12 $
115.03 $

2015
167.14 $
128.28 $
130.85 $
126.35 $
120.44 $

2016
228.02 $
117.85 $
155.03 $
154.73 $
182.25 $

2017
215.15 $
144.80 $
165.20 $
159.25 $
174.72 $

2018
217.28
168.09
164.17
160.70
165.52

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.

Year Ended June 30,

2018(1)

2015(2)

2014(2)

2016(2)

2017(1)(2)

(In thousands, except per share data)
Consolidated Statement of Operations Data:
Net sales ...............................................................................$ 606,544 $ 541,500 $ 544,382 $ 545,882 $ 528,380
Cost of goods sold ................................................................$ 399,502 $ 354,622 $ 373,214 $ 386,253 $ 351,565
—
Restructuring and other transition expenses(3) ....................$
—
Net gain from sale of Torrance Facility(4) ...........................$
—
Net gains from sale of Spice Assets(5) ................................$
Net (gains) losses from sales of other assets ........................$
(3,814 )
—
Impairment losses on intangible assets(6) ............................$
(7,076 ) $ 16,584
Income (loss) from operations .............................................$
Income (loss) from operations per common share—

662 $ 11,016 $ 16,533 $ 10,432 $
— $
— $ (37,449 ) $
— $
(919 ) $
394 $
— $

(1,210 ) $
(196 ) $
— $
3,820 $
1,124 $ 39,178 $

(2,802) $
— $
(2,190) $

— $
(5,603) $

(770 ) $

diluted ...............................................................................$

(0.13) $
Income tax expense (benefit)(7) ...........................................$ 17,312 $ 14,815 $ (72,239) $
Net (loss) income available to common stockholders(8) .....$ (18,669 ) $ 22,551 $ 71,791 $
Net (loss) income available to common stockholders per

0.07

2.33

(0.43 ) $
402 $

1.04
705
(9,708 ) $ 19,800

common share—basic(8) ..................................................$

Net (loss) income available to common stockholders per

common share—diluted(8) ...............................................$
Cash dividends declared per common share ........................$

(1.11 ) $

1.35

4.35

(0.60 ) $

1.24

(1.11 ) $
— $

1.34

$
— $

4.32

$
— $

(0.60 ) $
— $

1.24
—

June 30,

2018

2017(2)

2014(2)

2016(2)

2015(2)

(In thousands)
Consolidated Balance Sheet Data:
Total current assets(9) ..........................................................$ 173,514 $ 140,703 $ 177,366 $ 166,140 $ 209,952
Property, plant and equipment, net(10) ................................$ 186,589 $ 176,066 $ 118,416 $ 90,201 $ 95,641
—
Goodwill(11) ........................................................................$ 36,224 $ 10,996 $
Intangible assets, net(11) .....................................................$ 31,515 $ 18,618 $
5,628
Deferred income taxes .........................................................$ 39,308 $ 53,933 $ 71,508 $ 11,770 $ 15,403
Total assets ...........................................................................$ 475,531 $ 407,153 $ 383,714 $ 282,417 $ 333,658
78
Short-term borrowings under revolving credit facility(12) ..$ 89,787 $ 27,621 $
9,703
1,195 $
Capital lease obligations(13) ................................................$
—
1,100 $
Earnout payable(14) .............................................................$
—
380 $
Long-term derivative liabilities ............................................$
Total liabilities .....................................................................$ 246,476 $ 177,601 $ 186,397 $ 161,951 $ 166,302
_____________
(1) The results of operations of businesses acquired are included in the Company's consolidated financial statements from
their dates of acquisition. See Note 4, Acquisitions, of the Notes to Consolidated Financial Statements included in Part
II, Item 8 of this report.

78 $
5,848 $
200 $
25 $

109 $
2,359 $
100 $
— $

248 $
600 $
386 $

272 $
6,419 $

272 $
6,219 $

(2) Prior year periods have been retrospectively adjusted to reflect the impact of certain changes in accounting principles

and corrections to previously issued financial statements. See Note 3, Changes in Accounting Principles and

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

(3) See Note 5, Restructuring Plans, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this

report.

(4) See Note 7, Sales of Assets—Sale of Torrance Facility, of the Notes to Consolidated Financial Statements included in

Part II, Item 8 of this report.

(5) See Note 7, Sales of Assets—Sale of Spice Assets, of the Notes to Consolidated Financial Statements included in Part II,

Item 8 of this report.

(6) The Company performed its annual test of impairment as of January 31, 2018, to determine the recoverability of the
carrying values of goodwill and indefinite-lived intangible assets. The Company also assessed the recoverability of
certain finite-lived intangible assets. As a result of these impairment tests, the Company determined that the trade
name/trademark and customer relationships intangible assets acquired in connection with the China Mist acquisition
were impaired as the carrying value exceeded the estimated fair value. Accordingly, the Company recorded total
impairment charges of $3.8 million in fiscal 2018. See Note 14, Goodwill and Intangible Assets, of the Notes to
Consolidated Financial Statements included in Part II, Item 8 of this report.

(7) Includes non-cash income tax expense of $18.0 million in fiscal 2018 related to adjusting the Company's deferred tax
balances to reflect the new corporate tax rate under the Tax Act and non-cash income tax benefit of $(72.2) million in
fiscal 2016 from the release of valuation allowance on deferred tax assets. See Note 21, Income Taxes, of the Notes to
Consolidated Financial Statements included in Part II, Item 8 of this report.

(8) Dividends on the Company's outstanding Series A Preferred Stock are deducted from net (loss) income in computing net
(loss) income available to common stockholders, net (loss) income available to common stockholders per common
share—basic, and net (loss) income available to common stockholders per common share—diluted. See Note 22, Net
(Loss) Income Per Common Share, included in Part II, Item 8 of this report.

(9) See Liquidity, Capital Resources and Financial Condition—Liquidity included in Part II, Item 7 of this report.

(10) See Note 6, New Facility, and Note 13, Property, Plant and Equipment, of the Notes to Consolidated Financial

Statements included in Part II, Item 8 of this report.

(11) In fiscal 2018, reflects the final purchase price allocation for the acquisition of the Boyd Business. See Note 4,

Acquisitions, and Note 14, Goodwill and Intangible Assets, of the Notes to Consolidated Financial Statements included
in Part II, Item 8 of this report.

(12) See Liquidity, Capital Resources and Financial Condition—Liquidity included in Part II, Item 7 of this report.

(13) Excludes imputed interest.

(14) During fiscal 2018, the Company recorded a change in the estimated fair value of contingent earnout consideration of

$(0.5) million in connection with the China Mist acquisition as the Company does not expect the contingent sales levels
to be reached. See Note 19, Other Current Liabilities, and Note 20, 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, 2018, 2017 and 2016 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, department and convenience store chains, hotels, casinos, healthcare facilities, and
gourmet coffee houses, as well as grocery chains with private brand and consumer-branded coffee and tea products, and
foodservice distributors. We are a coffee company designed to deliver the coffee people want, the way they want it. We are
focused on being a growing and profitable forward-thinking industry leader, championing coffee culture through
understanding, leading, building and winning in the business of coffee. 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, Project

D.I.R.E.C.T. 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 concentrated and ready-to-drink cold brew and 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.

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 the New Facility. Approximately 350 positions were impacted as a result
of the Torrance Facility closure. In order to focus on our core product offerings, in the second quarter of fiscal 2016, we sold
certain assets associated with our manufacture, processing and distribution of raw, processed and blended spices and certain
other culinary products to Harris. In fiscal 2017, we completed the construction of, and exercised the purchase option to
acquire, the New Facility, relocated our Torrance operations to the New Facility, and sold our Torrance Facility. We
commenced distribution activities at the New Facility during the second quarter of fiscal 2017 and initial production
activities late in the third quarter of fiscal 2017. We completed the Corporate Relocation Plan and began roasting coffee in
the New Facility in the fourth quarter of fiscal 2017. The New Facility received SQF certification in the third quarter of
fiscal 2018. See Liquidity, Capital Resources and Financial Condition, below, Note 5, Restructuring Plans—Corporate
Relocation Plan, and Note 6, New Facility, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of
this report.

Recent Developments

Acquisitions

On October 2, 2017, we acquired substantially all of the assets and certain specified liabilities of Boyd Coffee, a

coffee roaster and distributor with a focus on restaurants, hotels, and convenience stores on the West Coast of the United
States, in consideration of cash and preferred stock. The Boyd Business is expected to add to our product portfolio, improve
our growth potential, deepen our distribution footprint and increase our capacity utilization at our production facilities.

In fiscal 2017, we completed two acquisitions. On October 11, 2016, we acquired substantially all of the assets and

certain specified liabilities of China Mist, a provider of flavored and unflavored iced and hot teas, and on February 7, 2017,
we acquired substantially all of the assets and certain specified liabilities of West Coast Coffee, a coffee roaster and
distributor with a focus on the convenience store, grocery and foodservice channels. The China Mist acquisition extended
our tea product offerings and gave us a greater presence in the premium tea industry, while the West Coast Coffee
acquisition broadened our reach in the Northwestern United States.

See Liquidity, Capital Resources and Financial Condition—Liquidity—Acquisitions below, and Note 4, Acquisitions,

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

DSD Restructuring Plan

As a result of an ongoing operational review of various initiatives within our DSD selling organization, in the third

quarter of fiscal 2017, we commenced the DSD Restructuring Plan to reorganize our DSD operations in an effort to realign
functions into a channel-based selling organization, streamline operations, acquire certain channel specific expertise, and
improve selling effectiveness and financial results. See Liquidity, Capital Resources and Financial Condition—Liquidity—
DSD Restructuring Plan below, and Note 5, Restructuring Plans—DSD Restructuring Plan, of the Notes to Consolidated
Financial Statements included in Part II, Item 8 of this report.

New Facility Expansion

In the third quarter of fiscal 2018, we commenced the Expansion Project. We entered into a guaranteed maximum
price contract of up to $19.3 million covering the expansion of our production lines in the New Facility including expanding
capacity to support the transition of acquired business volumes. See Liquidity, Capital Resources and Financial Condition—
Liquidity—New Facility Expansion, below, and Note 6, New Facility, 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:

•

Investment in State-of-the-Art Facility and Capacity Expansion. We are focused on leveraging our investment
in the New Facility to produce the highest quality coffee in response to the market shift to premium and specialty
coffee, support the transition of acquired product volumes, and create opportunities for customer acquisition and
sustainable long-term growth.

• 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 and
different formats.

•

Fluctuations in Green Coffee Prices. Our primary raw material is green coffee, an exchange-traded agricultural
commodity that is subject to price fluctuations. Over the past five years, coffee “C” market near month price per
pound ranged from approximately $1.02 to $2.22. The coffee “C” market near month price as of June 30, 2018
and 2017 was $1.15 and $1.26 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 8, Derivative Instruments, of the Notes to Consolidated Financial Statements included
in Part II, Item 8 of this report.

•

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 and tea 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 believe we are well-positioned to continue to pursue growth through additional

opportunistic M&A activity to deliver aligned brands, customers and innovation. For example, in fiscal 2018, we
completed the Boyd Coffee acquisition to add to our product portfolio, improve our growth potential, deepen our
distribution footprint and increase our capacity utilization at our production facilities. Additionally, in fiscal 2017,
we completed the China Mist acquisition to extend our tea product offerings and give us a greater presence in the
premium tea industry and the West Coast Coffee acquisition to broaden our reach in the Northwestern United
States. For additional information on these acquisitions, see Note 4, Acquisitions, of the Notes to Consolidated
Financial Statements included in Part II, Item 8 of this report.

Results of Operations

Changes in Accounting Principles and Corrections to Previously Issued Financial Statements

As discussed in Note 3, Change in Accounting Principles and Corrections to Previously Issued Financial Statements,
of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report, prior period amounts recorded in
our consolidated financial statements have been retrospectively adjusted to reflect the impact of the following changes:

•

Change in Method of Accounting from LIFO to FIFO. Effective June 30, 2018, we changed our method of
accounting for our coffee, tea and culinary products from the last in, first out ("LIFO") basis to the first in, first
out ("FIFO") basis. We believe that this change is preferable as it better matches revenues with associated
expenses, aligns the accounting with the physical flow of inventory, and improves comparability with our peers.

Change in Accounting Principle for Freight and Warehousing Costs. Effective June 30, 2018, we implemented a
change in accounting principle for freight costs incurred to transfer goods from a distribution center to a branch
warehouse and warehousing overhead costs incurred to store and ready goods prior to their sale, from expensing
such costs as incurred within selling expenses to capitalizing such costs as inventory and expensing through cost
of goods sold. We determined that it is preferable to capitalize such costs into inventory and expense through cost
of goods sold because it better represents the costs incurred in bringing the inventory to its existing, condition
and location for sale to customers and it is consistent with our accounting treatment of similar costs.

•

Reclassification and Capitalization of Allied Freight, Overhead Variances and Purchase Price Variances. In
connection with these changes in accounting principles, subsequent to the issuance of our consolidated financial
statements for the year ended June 30, 2017, we made certain corrections to our consolidated financial statements

to reclassify and capitalize to inventory freight associated with certain non-coffee product lines previously
expensed as incurred in selling expenses, and to capitalize to inventory overhead variances and purchase price
variances associated with these product lines previously expensed as incurred in cost of goods sold.

The impact of these changes and corrections to the applicable line items in our consolidated financial statements is set
forth in Note 3 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. The discussion of
our results of operations for the fiscal years ended June 30, 2018, 2017 and 2016 set forth below reflects these retrospective
adjustments.

Fiscal Years Ended June 30, 2018 and 2017

Financial Highlights

• Volume of green coffee pounds processed and sold increased 12.5% in fiscal 2018 as compared to fiscal 2017.

• Gross profit increased 10.8% to $207.0 million in fiscal 2018 from $186.9 million in fiscal 2017.

• Gross margin decreased to 34.1% in fiscal 2018 from 34.5% in fiscal 2017.

•

Income from operations was $1.1 million in fiscal 2018 as compared to $39.2 million in fiscal 2017. Income
from operations included $3.8 million in impairment losses on intangible assets in fiscal 2018 and a $37.4 million
net gain from the sale of the Torrance Facility in fiscal 2017.

• Net loss available to common stockholders was $(18.7) million, or $(1.11) per common share available to

common stockholders—diluted, in fiscal 2018, compared to net income available to common stockholders of
$22.6 million, or $1.34 per common share available to common stockholders—diluted, in fiscal 2017.

•

EBITDA decreased (47.7)% to $32.7 million and EBITDA Margin was 5.4% in fiscal 2018, as compared to
EBITDA of $62.5 million and EBITDA Margin of 11.5% in fiscal 2017.*

• Adjusted EBITDA increased 10.6% to $47.6 million and Adjusted EBITDA Margin was 7.8% in fiscal 2018, as
compared to Adjusted EBITDA of $43.0 million and Adjusted EBITDA Margin of 7.9% in fiscal 2017.*

(* EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial
measures. See Non-GAAP Financial Measures below for a reconciliation of these non-GAAP measures to their
corresponding GAAP measures.)

Fiscal 2018 Strategic Initiatives

In fiscal 2018, we undertook initiatives to improve sales productivity and enhance profitability through mergers and

acquisitions, increase production capacity at the New Facility, reduce costs, and better position the Company to attract new
customers. These initiatives included the following:

•

Acquisition of Boyd's Coffee. In fiscal 2018, we acquired substantially all of the assets and certain specified
liabilities of Boyd Coffee. The Boyd Business is expected to add to our product portfolio, improve our growth
potential, deepen our distribution footprint and increase our capacity utilization at our production facilities.

• DSD Restructuring Plan. The DSD Restructuring Plan continued in fiscal 2018, and we expect to complete the
DSD Restructuring Plan by the end of fiscal 2019. We began recognizing cost benefits associated with the DSD
Restructuring Plan in the fourth quarter of fiscal 2017.

•

SQF Certification. We are committed to the highest standards in food quality and safety. In fiscal 2018, the New
Facility received SQF certification, joining our Portland and Houston SQF-certified facilities. SQF is a Global
Food Safety Initiative-based system that strengthens our commitment to supply safe quality coffee products and
comply with food safety legislation. Required by many of our national account customers, SQF certification at
the New Facility marks an important step that will allow us the production platform to increase volume for
national account customers as needed.

•

Telematics. In an effort to make our DSD fleet more fuel-efficient, during fiscal 2018 we installed telematics
monitoring devices in our delivery trucks, allowing us to see contributing factors to our transportation-related
carbon footprint. Installation of telematics monitoring devices has resulted in reduced idling time, a cut in rapid
acceleration, and a reduction in our fuel expenditures.

Channel-Based Selling Organization. Changing from a geographic to a channel-based selling strategy is
expected to allow us to better serve our customers and improve sales growth. We believe this channel-based
selling strategy will empower our sales organization to better address the unique needs of each customer channel
thereby deepening our customer relationships, allow us to create a more comprehensive customer support
structure, enhance our marketing efforts, and allow us to respond more quickly to industry trends. To this end, in
the fourth quarter of fiscal 2018, we realigned our DSD and direct ship regional and national sales teams around
sales channels to further our channel-based selling strategy.

• Science-Based Carbon Reduction Targets. We believe combating climate change is critical to the future of our
company, the coffee industry, coffee growers and the world. In fiscal 2018 we began progress to reduce
greenhouse gas (GHG) emissions across our roasting and administration operations to achieve our Science Based
Targets. Setting approved targets places us among those responsible businesses that are making measurable
contributions to incorporate sustainability within their business strategy.

Net Sales

Net sales in fiscal 2018 increased $65.0 million, or 12.0%, to $606.5 million from $541.5 million in fiscal 2017 due to

a $40.6 million increase in net sales from roast and ground coffee products, a $10.0 million increase in net sales of other
beverages, an $8.8 million increase in net sales from culinary products, a $3.2 million increase in net sales from tea
products, a $2.0 million increase in net sales of frozen liquid coffee products, and a $0.3 million increase in net sales of
spice products. These increases were primarily due to the addition of the Boyd Business, which added a total of $67.4
million to net sales from October 2, 2017, the date of acquisition, and the addition of a full year of net sales from the China
Mist and West Coast Coffee acquisitions, offset by a $(2.5) million decline in our base business primarily due to a shortfall
in DSD sales, the impact of pricing to our cost plus customers, and softness in a few large direct ship accounts. Net sales in
fiscal 2018 included $(3.0) 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 $(3.2) million in price
decreases to customers utilizing such arrangements in fiscal 2017.

The change in net sales in fiscal 2018 compared to fiscal 2017 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,
2018 vs. 2017

67.5
(2.5 )
65.0

Unit sales increased 12.5% in fiscal 2018 as compared to fiscal 2017, but average unit price decreased by (0.5)%
resulting in an increase in net sales of 12.0%. The increase in unit sales was primarily due to a 48.8% increase in unit sales
of other beverages, which accounted for approximately 11% of total net sales, a 12.5% increase in unit sales of roast and
ground coffee products, which accounted for approximately 63% of total net sales, and a 9.0% increase in unit sales of tea,
which accounted for approximately 5% of total net sales, offset by a (15.3)% decrease in unit sales of spice products, which
accounted for approximately 4% of total net sales; these increases were primarily due to the addition of the Boyd Business
which increased net sales by $67.4 million. Average unit price decreased 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 hedged costs to our

customers. In fiscal 2018, we processed and sold approximately 107.4 million pounds of green coffee as compared to
approximately 95.5 million pounds of green coffee processed and sold in fiscal 2017. There were no new product category
introductions in fiscal 2018 or 2017 which had a material impact on our net sales.

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

Year Ended June 30,

2018

2017

(In thousands)

% of total

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 ....................................................................... $

379,951
34,794
32,477
64,432
25,150
66,699
603,503
3,041
606,544

63% $
6%
5%
11%
4%
11%

99%
1%

100% $

339,358
32,827
29,256
55,592
24,895
56,653
538,581
2,919
541,500

63%
6%
5%
10%
5%
10%

99%
1%

100%

____________

(1) Includes all beverages other than roast and ground coffee, frozen liquid coffee, and iced and hot tea, including
cappuccino, cocoa, granitas, and concentrated and ready-to drink cold brew and iced coffee.

Cost of Goods Sold

Cost of goods sold in fiscal 2018 increased $44.9 million, or 12.7%, to $399.5 million, or 65.9% of net sales, from
$354.6 million, or 65.5% of net sales, in fiscal 2017. The increase in cost of goods sold was primarily due to the addition of
the Boyd Business making up $41.4 million of the increase. Cost of goods sold as a percentage of net sales in fiscal 2018
increased primarily due to higher manufacturing costs associated with the production operations in the New Facility and
higher depreciation expense for the New Facility. The average Arabica “C” market price of green coffee decreased (15.5)%
in fiscal 2018.

Gross Profit

Gross profit in fiscal 2018 increased $20.2 million, or 10.8%, to $207.0 million from $186.9 million in fiscal 2017 and

gross margin decreased to 34.1% in fiscal 2018 from 34.5% in fiscal 2017. This increase in gross profit was primarily due
the addition of the Boyd Business, while the decrease in gross margin was primarily due to higher manufacturing costs
associated with the production operations in the New Facility, the addition of the Boyd Business, which carries a lower
gross margin rate compared to our base business, and higher depreciation expense for the New Facility.

Operating Expenses

In fiscal 2018, operating expenses increased $58.2 million, or 39.4%, to $205.9 million, or 33.9% of net sales from

$147.7 million, or 27.3%, of net sales in fiscal 2017, primarily due the effect of the recognition of $37.4 million in net gain
from the sale of the Torrance Facility in fiscal 2017, a $21.2 million increase in selling expenses, a $4.9 million increase in
general and administrative expenses and $3.8 million in impairment losses on intangible assets in fiscal 2018. The increase
in operating expenses was partially offset by a $(10.4) million decrease in restructuring and other transition expenses
associated with the Corporate Relocation Plan and the DSD Restructuring Plan.

In fiscal 2018, selling expenses and general and administrative expenses increased $21.2 million and $4.9 million,
respectively. The increases in selling expenses and general and administrative expenses during fiscal 2018 were primarily
driven by the addition of the Boyd Business which added $18.9 million and $4.4 million, respectively, to selling expenses
and general and administrative expenses exclusive of their related depreciation and amortization expense, acquisition and

integration costs of $7.6 million, and an increase of $7.5 million in depreciation and amortization expense, partially offset
by the absence of $5.2 million in non-recurring 2016 proxy contest expenses incurred in fiscal 2017.

Restructuring and other transition expenses decreased $(10.4) million in fiscal 2018, as compared to fiscal 2017

due to the absence of expenses related to our Corporate Relocation Plan, partially offset by $0.7 million in costs incurred
in connection with the DSD Restructuring Plan in fiscal 2018.

In fiscal 2018 and 2017 net gains from sale of spice assets included $0.8 million and $0.9 million, respectively, in
earnout.

In our annual test of impairment as of January 31, 2018 and assessment of the recoverability of certain finite-lived
intangible assets, we determined that the trade name/trademark and customer relationships intangible assets acquired in
connection with the China Mist acquisition were impaired as the carrying value exceeded the estimated fair value.
Accordingly, we recorded total impairment charges of $3.8 million in fiscal 2018.

Income from Operations

Income from operations in fiscal 2018 was $1.1 million as compared to $39.2 million in fiscal 2017. The decrease in
income from operations in fiscal 2018 was primarily driven by lower net gains from sales of assets, including $37.4 million
in net gains from the sale of the Torrance Facility recognized in fiscal 2017, higher selling expenses and higher general and
administrative expenses primarily due to the addition of the Boyd Business, acquisition and integration costs, impairment
losses on intangible assets, and higher depreciation and amortization expense, partially offset by higher gross profit and
lower restructuring and other transition expenses associated with the Corporate Relocation Plan.

Total Other (Expense) Income

Total other expense in fiscal 2018 was $(2.1) million as compared to total other expense of $(1.8) million in fiscal

2017. The change in total other (expense) income in fiscal 2018 was primarily a result of liquidating substantially all of our
investment in preferred securities in the fourth quarter of fiscal 2017 to fund expenditures associated with our New Facility
and higher interest expense as compared to fiscal 2017, partially offset by the change in estimated fair value of the China
Mist contingent earnout consideration.

Net gains on investments in fiscal 2018 and 2017 were $7,000 and $286,000, respectively. Net losses on coffee-related

derivative instruments in fiscal 2018 and 2017 were $(0.5) million and $(1.8) million, respectively, due to mark-to-market
net losses on coffee-related derivative instruments not designated as accounting hedges.

Interest expense in fiscal 2018 was $3.2 million as compared to $2.2 million in fiscal 2017. The higher interest

expense in fiscal 2018 was primarily due to higher outstanding borrowings on our revolving credit facility.

Income Taxes

In fiscal 2018, we recorded income tax expense of $17.3 million compared to income tax expense of $14.8 million in

fiscal 2017. As of June 30, 2018, our net deferred tax assets totaled $39.3 million, a decrease of $14.6 million from net
deferred tax assets of $53.9 million at June 30, 2017. These changes are primarily the result of the Tax Act. See Note 21,
Income Taxes, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.

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 $1.9 million at June 30, 2018 to offset this deferred tax
asset. We will continue to monitor all available evidence, both positive and negative, in determining whether it is more
likely than not that we will realize our remaining deferred tax assets.

Net (Loss) Income Available to Common Stockholders

As a result of the foregoing factors, net loss was $(18.3) million in fiscal 2018 as compared to net income of $22.6

million in fiscal 2017. Net loss available to common stockholders was $(18.7) million, or $(1.11) per common share
available to common stockholders—diluted, in fiscal 2018, as compared to net income available to common stockholders of
$22.6 million, or $1.34 per common share available to common stockholders—diluted, in fiscal 2017.

Fiscal Years Ended June 30, 2017 and 2016

Financial Highlights

• Volume of green coffee pounds processed and sold increased 5.3% in fiscal 2017 as compared to fiscal 2016.

• Gross profit increased 9.2% to $186.9 million in fiscal 2017 from $171.2 million in fiscal 2016.

• Gross margin increased to 34.5% in fiscal 2017 from 31.4% in fiscal 2016.

•

Income from operations increased to $39.2 million in fiscal 2017 from a loss from operations of $(2.2) million in
fiscal 2016. Income from operations included a $37.4 million net gain from the sale of the Torrance Facility in
fiscal 2017 and net gains of $5.6 million from the sale of Spice Assets in fiscal 2016.

• Net income available to common stockholders was $22.6 million, or $1.34 per common share available to

common stockholders—diluted, in fiscal 2017, primarily due to $37.4 million in net gain from the sale of the
Torrance Facility and non-cash income tax expense of $14.8 million, compared to net income available to
common stockholders of $71.8 million, or $4.32 per common share available to common stockholders—diluted,
in fiscal 2016, primarily due to non-cash income tax benefit of $72.2 million from the release of valuation
allowance on deferred tax assets.

•

EBITDA increased 201.3% to $62.5 million and EBITDA Margin was 11.5% in fiscal 2017, as compared to
EBITDA of $20.8 million and EBITDA Margin of 3.8% in fiscal 2016.*

• Adjusted EBITDA increased 38.6% to $43.0 million and Adjusted EBITDA Margin was 7.9% in fiscal 2017, as
compared to Adjusted EBITDA of $31.0 million and Adjusted EBITDA Margin of 5.7% in fiscal 2016.*

Fiscal 2017 Strategic Initiatives

In fiscal 2017, 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 completed the Corporate Relocation Plan that was initiated in the third quarter of
fiscal 2015. We commenced distribution activities at the New Facility during the second quarter of fiscal 2017
and initial production activities late in the third quarter of fiscal 2017. We began roasting coffee in the New
Facility in the fourth quarter of fiscal 2017. The roasting facility in the New Facility has increased our capacity to
support existing and future customers and accommodate volume growth.

Acquisition of China Mist and West Coast Coffee. In fiscal 2017, we completed the China Mist acquisition to
extend our tea product offerings and give us a greater presence in the premium tea industry, and the West Coast
Coffee acquisition to broaden our reach in the Northwestern United States.

• DSD Restructuring Plan. In the third quarter of fiscal 2017, we commenced the DSD Restructuring Plan. The

strategic decision to undertake the DSD Restructuring Plan resulted from an ongoing operational review of
various initiatives within the DSD selling organization. We began recognizing cost benefits associated with the
restructuring in the fourth quarter of fiscal 2017.

•

Third-Party Logistics. During the second half of fiscal 2016, we replaced our long-haul fleet operations with
3PL. In fiscal 2017, we experienced a reduction in our fuel consumption and empty trailer miles, while
improving our intermodal and trailer cube utilization as compared to the prior fiscal year. Aligning with our 3PL
partner has allowed us to more efficiently manage routing thereby reducing diesel pollution in support of our
sustainability efforts.

•

Vendor Managed Inventory. During the second half of fiscal 2016, we entered into a third-party vendor managed
inventory arrangement. The use of vendor managed inventory arrangements has begun to yield benefits in fiscal
2017 by enabling us to reconfigure our packaging methodology, eliminating duplication but resulting in the same
strength packaging with less material, thereby reducing waste and contributing to our sustainability efforts.

• Warehouse Management. In the first quarter of fiscal 2017, 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.

•

Product Development and Expansion. In fiscal 2017, we opened our product development lab at the New Facility
where we are focused on developing innovative products in response to industry trends and customer needs. In
fiscal 2017, we introduced a new retail line of China Mist naturally flavored iced teas, a new line of Artisan hot
teas, an Artisan Cold Brew Coffee and an Artisan Direct Trade Coffee.

Net Sales

Net sales in fiscal 2017 decreased $(2.9) million, or (0.5)%, to $541.5 million from $544.4 million in fiscal 2016. A

$6.8 million increase in net sales from roast and ground coffee, a $4.2 million increase in net sales from tea products
primarily from the addition of China Mist net sales from the date of its acquisition and a $1.6 million increase in net sales
from culinary products were offset by a $(10.9) million decrease in net sales of spice products resulting from the sale of our
institutional spice assets, a $(3.1) million decrease in net sales of coffee (frozen liquid) products, primarily from the loss of a
large casino customer, and a $(1.0) million decrease in net sales of other beverages. Net sales in fiscal 2017 included
$(3.2) 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 decreases to customers
utilizing such arrangements in fiscal 2016. In each of fiscal 2017 and 2016, 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 2015.

The change in net sales in fiscal 2017 compared to fiscal 2016 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,
2017 vs. 2016

(7.4 )
4.5
(2.9 )

Unit sales decreased (1.3)% in fiscal 2017 as compared to fiscal 2016, but average unit price increased by 0.9%
resulting in a decrease in net sales of (0.5)%. The decrease in unit sales was primarily due to a (81.3)% decrease in unit sales
of spice products which accounted for approximately 5% of our total net sales, due to the sale of our institutional spice
assets, partially offset by a 5.3% increase in unit sales of roast and ground coffee products, which accounted for
approximately 63% of our total net sales. Average unit price decreased 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 hedged costs to our
customers. In fiscal 2017, we processed and sold approximately 95.5 million pounds of green coffee as compared to
approximately 90.7 million pounds of green coffee processed and sold in fiscal 2016. There were no new product category
introductions in fiscal 2017 or 2016 which had a material impact on our net sales.

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

Year Ended June 30,

2017

2016

(In thousands)

% of total

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 ....................................................................... $

339,358
32,827
29,256
55,592
24,895
56,653
538,581
2,919
541,500

63% $
6%
5%
10%
5%
10%

99%
1%

100% $

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%

____________
(1) Spice product net sales in fiscal 2016 included $3.2 million in sale of inventory to Harris at cost upon conclusion of the
transition services provided by the Company in connection with the sale of Spice Assets.
(2) Includes all beverages other than roast and ground coffee, frozen liquid coffee, and iced and hot tea, including
cappuccino, cocoa, granitas, and concentrated and ready-to drink cold brew and iced coffee.

Cost of Goods Sold

Cost of goods sold in fiscal 2017 decreased $(18.6) million, or (5.0)%, to $354.6 million, or 65.5% of net sales, from
$373.2 million, or 68.6% of net sales, in fiscal 2016. The decrease in cost of goods sold as a percentage of net sales in fiscal
2017 was primarily due to lower conversion costs from supply chain improvements and lower hedged cost of green coffee
as compared to the same period in the prior fiscal year, partially offset by startup costs associated with the production
operations in the New Facility and higher depreciation expense for the New Facility. The average Arabica “C” market price
of green coffee increased 16.3% in fiscal 2017.

Gross Profit

Gross profit in fiscal 2017 increased $15.7 million, or 9.2%, to $186.9 million from $171.2 million in fiscal 2016 and

gross margin increased to 34.5% in fiscal 2017 from 31.4% in fiscal 2016. This increase in gross profit was primarily due
to lower conversion costs and lower hedged cost of green coffee partially offset by the decrease in net sales, startup costs
associated with the production operations in the New Facility and higher depreciation expense for the New Facility.

Operating Expenses

In fiscal 2017, operating expenses decreased $(25.7) million, or (14.8)%, to $147.7 million, or 27.3% of net sales from

$173.4 million, or 31.8% of net sales in fiscal 2016, primarily due to the recognition of $37.4 million in net gain from the
sale of the Torrance Facility and lower restructuring and other transition expenses associated with the Corporate Relocation
Plan, partially offset by lower net gains from the sale of Spice Assets and other assets, the addition of restructuring and other
transition expenses associated with the DSD Restructuring Plan and an increase in selling expenses and general and
administrative expenses.

Restructuring and other transition expenses decreased $(5.5) million in fiscal 2017, as compared to fiscal 2016
because most of the planned expenses related to our Corporate Relocation Plan had already been recognized in prior
periods. Restructuring and other transition expenses in fiscal 2017 included $2.4 million in costs associated with the DSD
Restructuring Plan.

In fiscal 2017, selling expenses and general and administrative expenses increased $10.1 million and $1.0 million,
respectively. The increase in selling expenses in fiscal 2017 as compared to fiscal 2016 was primarily due to operations-
related consulting expenses, sales training expenses and the addition of China Mist and West Coast Coffee, partially offset

by lower workers' compensation expense, savings from utilizing 3PL for our long-haul distribution and the absence of
expenses related to the institutional spice assets.

The increase in general and administrative expenses in fiscal 2017 was primarily due to non-recurring 2016 proxy

contest expenses, acquisition-related expenses and higher depreciation expense, partially offset by lower workers'
compensation expense, lower accruals for incentive compensation to eligible employees and lower retiree and employee
medical expenses. In fiscal 2017, we incurred $5.2 million, or $0.31 per share, in expenses successfully defending against
the 2016 proxy contest including non-recurring legal fees, financial advisory fees, proxy solicitor fees, mailing and printing
costs of proxy solicitation materials and other costs and $1.7 million in acquisition-related expenses, including, legal fees
and consulting costs. General and administrative expenses in fiscal 2017 also included $0.5 million in expenses related to
the special stockholders' meeting held in June 2017.

The increase in selling expenses and general and administrative expenses was fully offset by the $37.4 million in net

gain from the sale of the Torrance Facility, $(5.5) million decrease in restructuring and other transition expenses,
$1.2 million in net gains from sales of other assets, primarily our Northern California branch property, and $0.9 million in
earnout from the sale of Spice Assets, as compared to $5.6 million in net gains from the sale of Spice Assets and $2.8
million in net gains from sales of other assets, primarily real estate and equipment, in fiscal 2016.

Income from Operations

Income from operations in fiscal 2017 was $39.2 million as compared to loss from operations of $(2.2) million in

fiscal 2016 primarily due to net gains from the sales of the Torrance Facility and other real estate, lower restructuring and
other transition expenses associated with the Corporate Relocation Plan and higher gross profit, partially offset by higher
selling expenses, higher general and administrative expenses and lower net gains from the sale of Spice Assets.

Total Other (Expense) Income

Total other expense in fiscal 2017 was $(1.8) million as compared to total other income of $1.7 million in fiscal 2016.

Total other expense in fiscal 2017 was primarily due to higher interest expense of $(2.2) million and higher net losses on
derivative instruments and investments of $(1.5) million, as compared to interest expense of $(0.4) million and net gains on
derivative instruments and investments of $0.3 million in fiscal 2016. The net losses on derivative instruments and
investments in fiscal 2017 and fiscal 2016, were primarily due to mark-to-market net gains and net losses on coffee-related
derivative instruments not designated as accounting hedges. In fiscal 2017 and 2016, we recognized $(0.5) million and
$(0.6) million in net losses on coffee-related derivative instruments designated as cash flow hedges due to ineffectiveness.

Interest expense in fiscal 2017 was $2.2 million as compared to $0.4 million in fiscal 2016. The higher interest
expense in fiscal 2017 was primarily due to higher loan balance and non-recurring and non-cash interest expense related to
the sale-leaseback of the Torrance Facility in the amount of $0.7 million.

Income Taxes

In fiscal 2017, we recorded income tax expense of $14.8 million compared to income tax benefit of $(72.2) million in

fiscal 2016. In fiscal 2017, total deferred tax assets decreased by $7.2 million primarily due to a reduction in accrued
liabilities and gains related to our defined benefit pension plans which were recorded in OCI. Total deferred tax liabilities
increased by $10.4 million primarily due to the deferral of gain from the sale of our Torrance Facility. In fiscal 2016, we
released $71.7 million of the valuation allowance on deferred tax assets, resulting in unreserved deferred tax assets of $90.7
million at June 30, 2016 and a non-cash reduction in income tax expense, or a tax benefit of $(72.2) million in fiscal 2016.
In fiscal 2016, total deferred tax assets were largely unchanged because 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.

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 at June 30, 2017 to offset this deferred tax
asset. We will continue to monitor all available evidence, both positive and negative, in determining whether it is more
likely than not that we will realize our remaining deferred tax assets.

The Internal Revenue Service completed its examination of our tax years ended June 30, 2013 and 2014 and accepted

the returns as filed for those years.

Net Income Available to Common Stockholders

As a result of the foregoing factors, net income and net income available to common stockholders was $22.6 million,

or $1.34 per common share available to common stockholders—diluted, in fiscal 2017, as compared to $71.8 million, or
$4.32 per common share available to common stockholders—diluted, in fiscal 2016.
Non-GAAP Financial Measures

In addition to net (loss) 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:

“EBITDA” is defined as net (loss) income excluding the impact of:

income taxes;

•
•
• depreciation and amortization expense.

interest expense; and

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

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

income taxes;

interest expense;

(loss) income from short-term investments;

•
•
•
• depreciation and amortization expense;
• ESOP and share-based compensation expense;
• non-cash impairment losses;
• non-cash pension withdrawal expense;
• other similar non-cash expenses;
•
• net gains and losses from sales of assets;
• non-recurring 2016 proxy contest-related expenses; and
•

restructuring and other transition expenses;

acquisition and integration costs.

“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 (i) 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; and (ii) beginning in the third quarter of fiscal 2017, the DSD
Restructuring Plan, consisting primarily of severance, prorated bonuses for bonus eligible employees, contractual
termination payments and outplacement services, and other related costs, including legal, recruiting, consulting, other
professional services and travel.

In the first quarter of fiscal 2017, we modified the calculation of Adjusted EBITDA and Adjusted EBITDA Margin to
exclude non-recurring expenses for legal and other professional services incurred in connection with the 2016 proxy contest
that were in excess of the level of expenses normally incurred for an annual meeting of stockholders ("2016 proxy contest-
related expenses"). This modification to our non-GAAP financial measures was made because such expenses are not
reflective of our ongoing operating results and adjusting for them will help investors with comparability of our results.

Beginning in the third quarter of fiscal 2017 and for all periods presented, we include EBITDA in our non-GAAP

financial measures. We believe that EBITDA facilitates operating performance comparisons from period to period by
isolating the effects of certain items that vary from period to period without any correlation to core operating performance or
that vary widely among similar companies. These potential differences may be caused by variations in capital structures

(affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net
operating losses) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). We
also present EBITDA and EBITDA Margin because (i) we believe that these measures are frequently used by securities
analysts, investors and other interested parties to evaluate companies in our industry, (ii) we believe that investors will find
these measures useful in assessing our ability to service or incur indebtedness, and (iii) we use these measures internally as
benchmarks to compare our performance to that of our competitors.

Beginning in the third quarter of fiscal 2017, we modified the calculation of Adjusted EBITDA and Adjusted EBITDA

Margin to exclude (loss) income from our short-term investments because we believe excluding (loss) income generated
from our investment portfolio is a measure more reflective of our operating results. The historical presentation of Adjusted
EBITDA and Adjusted EBITDA Margin was recast to be comparable to the current period presentation.

Beginning in the fourth quarter of fiscal 2017, we modified the calculation of Adjusted EBITDA and Adjusted

EBITDA Margin to exclude acquisition and integration costs. Acquisition and integration costs include legal expenses,
consulting expenses and internal costs associated with acquisitions and integration of those acquisitions. Beginning in the
fourth quarter of fiscal 2017 acquisition and integration costs were significant and, we believe, excluding them will help
investors to better understand our operating results and more accurately compare them across periods. We have not adjusted
the historical presentation of Adjusted EBITDA and Adjusted EBITDA Margin because acquisition and integration costs in
prior periods were not material to the Company’s results of operations.

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.

EBITDA, EBITDA Margin, 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.

Prior year periods set forth in the tables below have been retrospectively adjusted to reflect the impact of certain

changes in accounting principles and corrections to previously issued financial statements. See Note 3, Changes in
Accounting Principles and Corrections to Previously Issued Financial Statements, of the Notes to Consolidated Financial
Statements included in Part II, Item 8 of this report.

Set forth below is a reconciliation of reported net (loss) income to EBITDA (unaudited):

(In thousands)
Net (loss) income, as reported ...................................................................... $

Income tax expense (benefit) .......................................................................

Interest expense ............................................................................................
Depreciation and amortization expense .......................................................

EBITDA ....................................................................................................... $
EBITDA Margin ..........................................................................................

Year Ended June 30,

2018
(18,280 )
17,312
3,177
30,464
32,673

2017
22,551
14,815
2,185
22,970
62,521

2016
71,791
(72,239 )
425
20,774
20,751

5.4 %

11.5%

3.8 %

Set forth below is a reconciliation of reported net (loss) income to Adjusted EBITDA (unaudited):

(In thousands)
Net (loss) income, as reported ...................................................................... $

Income tax expense (benefit) .......................................................................

Interest expense ............................................................................................
Income from short-term investments ...........................................................
Depreciation and amortization expense .......................................................

ESOP and share-based compensation expense.............................................

Restructuring and other transition expenses .................................................

Net gain from sale of Torrance Facility ........................................................

Net gains from sale of Spice Assets .............................................................

Net gains from sales of other assets .............................................................

Impairment losses on intangible assets ........................................................

Non-recurring 2016 proxy contest-related expenses ....................................
Acquisition and integration costs(1) ............................................................

Adjusted EBITDA(1) ................................................................................... $
Adjusted EBITDA Margin(1) ......................................................................
________

Year Ended June 30,

2018
(18,280 )
17,312
3,177
(19 )
30,464
3,822
662
—
(770 )

(196 )
3,820
—
7,570
47,562

2017
22,551
14,815
2,185
(1,853)
22,970
3,959
11,016
(37,449)

(919)

(1,210)
—
5,186
1,734
42,985

2016
71,791
(72,239 )
425
(2,204 )
20,774
4,342
16,533
—
(5,603 )

(2,802 )
—
—
—
31,017

7.8 %

7.9%

5.7 %

(1) Includes acquisition and integration costs related to Boyd Coffee transaction only. For fiscal 2017 includes $244 and
$1,490 incurred in the third and fourth quarters of fiscal 2017, respectively. While the Boyd Coffee transaction
remained confidential, expenses incurred in the third quarter of fiscal 2017 were included in operating expenses and
described as consulting expenses. Acquisition and integration costs incurred in prior periods were not material to the
Company’s results of operations.

Liquidity, Capital Resources and Financial Condition

Credit Facility

We maintain a $125.0 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 is a flat fee of 0.25% per annum irrespective of average revolver usage. Outstanding
obligations are collateralized by all of our assets, excluding certain real property not included in the borrowing base and
machinery and equipment (other than inventory). 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 on our capital stock, 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 matures on August 25, 2022.

At June 30, 2018, we were eligible to borrow up to a total of $117.1 million under the Revolving Facility and had

outstanding borrowings of $89.8 million, utilized $2.0 million of the letters of credit sublimit, and had excess availability
under the Revolving Facility of $25.3 million. At June 30, 2018, the weighted average interest rate on our outstanding
borrowings under the Revolving Facility was 4.10%.

At August 31, 2018, we were eligible to borrow up to a total of $114.4 million under the Revolving Facility and had
outstanding borrowings of $101.5 million, utilized $2.0 million of the letters of credit sublimit, and had excess availability

under the Revolving Facility of $10.9 million. At August 31, 2018, the weighted average interest rate on our outstanding
borrowings under the Revolving Facility was 3.78%.

On September 10, 2018 (the “Second Amendment Effective Date”), we entered into a second amendment to the
Revolving Facility to amend certain definitions that affect the fixed charge coverage ratio covenant test and add a covenant
limiting our incurrence of capital expenditures during the fiscal year ending June 30, 2019. The effect of the foregoing
amendments is that we were in compliance with the fixed charge coverage ratio covenant and no event of default has
occurred or existed through the Second Amendment Effective Date. See Item 9.B., Other Information, below.

Liquidity

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

described above. In fiscal 2018, we filed a shelf registration statement with the SEC which allows us to issue unspecified
amounts of common stock; preferred stock; depository shares, warrants for the purchase of shares of common stock or
preferred stock, purchase contracts for the purchase of equity securities, currencies or commodities, and units consisting of
any combination of any of the foregoing securities, in one or more series, from time to time and in one or more offerings up
to a total dollar amount of $250.0 million.

At June 30, 2018, we had $2.4 million in cash and cash equivalents. In the fourth quarter of fiscal 2017, we liquidated
substantially all of our preferred stock portfolio, net of purchases, to fund expenditures associated with our New Facility in
Northlake, Texas. In the second quarter of fiscal 2018, we liquidated the remaining security and closed our preferred stock
portfolio.

We believe our Revolving Facility, to the extent available, in addition to our cash flows from operations, collectively,

will be sufficient to fund our working capital and capital expenditure requirements for the next 12 to 18 months.

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 $8.9 million in fiscal 2018 compared to $42.1 million in fiscal 2017 and $27.6 million
in fiscal 2016. Net cash provided by operating activities in fiscal 2018 was primarily due to the increase in depreciation and
amortization and deferred tax liabilities, offset by net loss and cash outflows from increases in inventory and derivative
liabilities. Inventories were higher at the end of fiscal 2018 as compared to fiscal 2017 due to the addition of Boyd Coffee.

In fiscal 2017, the higher level of net cash provided by operating activities compared to fiscal 2016 was primarily due

to the increase in deferred tax liabilities from non-cash income tax expense recorded in fiscal 2017 and cash inflows from
the sale of substantially all of our preferred stock portfolio, net of purchases, to fund expenditures associated with our New
Facility in Northlake, Texas. Decreases in derivative assets, increases in derivative liabilities, and increases in accounts
payable balances also contributed to the cash inflows in fiscal 2017. Cash inflows from operating activities were partially
offset by cash outflows from increases in inventories, reduction in other long-term liabilities, payments of accrued payroll
expenses and reduction in postretirement benefit liability. Inventories were higher at the end of fiscal 2017 due to the
commencement of the New Facility's manufacturing operations and incremental inventory from China Mist and West Coast
Coffee as compared to lower levels of inventory at the Torrance Facility at the end of fiscal 2016 due to its anticipated
closing.

In fiscal 2016, the higher level of net cash provided by operating activities compared to fiscal 2015 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.

Net cash used in investing activities was $74.6 million in fiscal 2018 as compared to $106.7 million in fiscal 2017 and
$39.5 million in fiscal 2016. In fiscal 2018, net cash used in investing activities included $39.6 million, net of cash acquired,
primarily used to acquire the Boyd Business, $35.4 million used for purchases of property, plant and equipment, including
$10.7 million for machinery and equipment relating to the Expansion Project and $2.9 million for the New Facility, and $1.6
million for purchases of assets for construction of the New Facility, partially offset by proceeds from sales of property, plant
and equipment of $2.0 million, primarily real estate. In fiscal 2017, net cash used in investing activities included $25.9
million for the acquisitions of China Mist and West Coast Coffee, $45.2 million for purchases of property, plant and
equipment, including $25.9 million for the New Facility, and $39.8 million for purchases of assets for construction of the
New Facility, partially offset by proceeds from the sale of property, plant and equipment of $4.1 million, primarily real
estate. 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.

Net cash provided by financing activities in fiscal 2018 was $62.0 million as compared to $49.8 million in fiscal 2017

and $17.8 million in fiscal 2016. Net cash provided by financing activities in fiscal 2018 included $62.2 million in net
borrowings under our Revolving Facility, including $39.5 million to fund the cash paid at closing for the purchase of the
Boyd Business and the initial Company obligations under the post-closing transition services agreement, and $1.3 million in
proceeds from stock option exercises, partially offset by $0.9 million used to pay capital lease obligations and $0.6 million
in financing costs associated with the amendment of the Revolving Facility.

Net cash provided by financing activities in fiscal 2017 included proceeds from sale-leaseback financing of $42.5
million, net borrowings of $27.5 million, $16.3 million in proceeds from lease financing in connection with the construction
of the New Facility as the deemed owner under the lease arrangement and $0.7 million in proceeds from stock option
exercises, partially offset by repayments of sale-leaseback financing of $35.8 million, $1.4 million used to pay capital lease
obligations and $38,000 in tax withholding payments related to net share settlement of equity awards.

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.

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 for $6.0 million in cash paid at closing plus an earnout of up to $5.0 million over a three year
period. We recognized $0.8 million, $1.0 million and $0.5 million in earnout during the fiscal years ended June 30, 2018,
2017 and 2016. See Note 7, Sales of Assets—Sale of Spice Assets, of the Notes to Consolidated Financial Statements
included in Part II, Item 8 of this report.

Sale of Torrance Facility

On July 15, 2016, we completed the sale of the Torrance Facility 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, which sale price
was subject to customary adjustments for closing costs and documentary transfer taxes. Cash proceeds from the sale of the
Torrance Facility were $42.5 million. In December 2016, upon conclusion of a leaseback period, we vacated the Torrance
Facility and recognized a net gain from the sale of the Torrance Facility in the amount of $37.4 million. See Note 7, Sale of
Assets—Sale of Torrance Facility, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this
report.

Acquisitions

On October 2, 2017, we acquired substantially all of the assets and certain specified liabilities of Boyd Coffee. At
closing, for consideration of the purchase, we paid Boyd Coffee $38.9 million in cash from borrowings under our Revolving
Facility and issued to Boyd Coffee 14,700 shares of Series A Preferred Stock, with a fair value of $11.8 million as of the

closing date. Additionally, we held back $3.2 million in cash and 6,300 shares of Series A Preferred Stock, with a fair value
of $4.8 million as of the closing date, for the satisfaction of any post-closing net working capital adjustment and to secure
Boyd Coffee’s (and the other seller parties’) indemnification obligations under the purchase agreement.

In addition to the $3.2 million cash holdback, as part of the consideration for the purchase, at closing we held back
$1.1 million in cash to pay, on behalf of Boyd Coffee, any assessment of withdrawal liability made against Boyd Coffee
following the closing date in respect of Boyd Coffee’s multiemployer pension plan, which amount is recorded in other long-
term liabilities on our consolidated balance sheet at June 30, 2018. Although the purchase price allocation is final, the parties
are in the process of determining the final net working capital under the purchase agreement. At June 30, 2018, our best
estimate of the post-closing net working capital adjustment is $(8.1) million, which is reflected in the final purchase price
allocation.

At closing, the parties entered into a transition services agreement where Boyd Coffee agreed to provide certain
accounting, marketing, human resources, information technology, sales and distribution and other administrative support
during a transition period of up to 12 months. We also entered into a co-manufacturing agreement with Boyd Coffee for a
transition period of up to 12 months as we transition manufacturing into our production facilities. Amounts paid by the
Company to Boyd Coffee for these services totaled $25.4 million in fiscal 2018.

On October 11, 2016, we acquired substantially all of the assets and certain specified liabilities of China Mist for

aggregate purchase consideration of $12.2 million consisting of $11.2 million in cash paid at closing including estimated
working capital adjustments of $0.4 million, post-closing final working capital adjustments of $0.6 million and up to
$0.5 million in contingent consideration to be paid as earnout if certain sales levels are achieved in in the calendar years of
2017 or 2018. During fiscal 2018, we recorded a change in the estimated fair value of contingent earnout consideration of
$(0.5) million, resulting in a balance of zero as we do not expect the contingent sales levels to be reached. On February 7,
2017, we acquired substantially all of the assets and certain specified liabilities of West Coast Coffee for aggregate purchase
consideration of $15.5 million, which included $14.7 million in cash paid at closing including working capital adjustments
of $1.2 million, post-closing working capital adjustment of $(0.2) million and up to $1.0 million in contingent consideration
to be paid as earnout if certain sales levels are achieved in the twenty-four months following the closing. We funded the
purchase price for the China Mist and West Coast Coffee acquisitions with proceeds under our Revolving Facility and cash
flows from operations.

In fiscal 2017, we incurred $0.2 million and $0.3 million in transaction costs related to the China Mist and West Coast

Coffee acquisitions, respectively. We incurred acquisition and integration costs related to the Boyd Business acquisition,
consisting primarily of legal and consulting expenses and one-time payroll and benefit expenses, of $7.6 million and $1.7
million during the fiscal years ended June 30, 2018 and 2017, respectively, which are included in operating expenses in our
consolidated statements of operations.

See Note 4, Acquisitions, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.

DSD Restructuring Plan

On February 21, 2017, we announced the DSD Restructuring Plan. We have revised our estimated time of completion
of the DSD Restructuring Plan from the end of calendar 2018 to the end of fiscal 2019. We estimate that we will recognize
approximately $3.7 million to $4.9 million of pre-tax restructuring charges in connection with the DSD Restructuring Plan
by the end of fiscal 2019 consisting of approximately $1.9 million to $2.7 million in employee-related costs, including
severance, prorated bonuses for bonus eligible employees, contractual termination payments and outplacement services, and
$1.8 million to $2.2 million in other related costs, including legal, recruiting, consulting, other professional services, and
travel.

Expenses related to the DSD Restructuring Plan in fiscal 2018 consisted of $0.2 million in employee-related costs and

$0.5 million in other related costs. Since the adoption of the DSD Restructuring Plan through June 30, 2018, we have
recognized a total of $3.1 million in aggregate cash costs including $1.3 million in employee-related costs and $1.8 million
in other related costs. As of June 30, 2018 we had paid a total of $2.8 million of these costs and had a balance of $0.3
million in DSD Restructuring Plan-related liabilities on our consolidated balance sheet at June 30, 2018. We may also incur
other charges due to events that may occur as a result of, or associated with, the DSD Restructuring Plan. See Note

5, Restructuring Plans—DSD Restructuring Plan, of the Notes to Consolidated Financial Statements included in Part II,
Item 8 of this report.

Corporate Relocation Plan

We estimated that we would incur approximately $31 million in cash costs in connection with the Corporate

Relocation Plan consisting of $18 million in employee retention and separation benefits, $5 million in facility-related costs
and $8 million in other related costs. Since the adoption of the Corporate Relocation Plan through June 30, 2018, we have
recognized a total of $31.8 million in aggregate cash costs including $17.4 million in employee retention and separation
benefits, $7.0 million in facility-related costs related to the temporary office space, costs associated with the move of the
Company's headquarters, relocation of our Torrance operations and certain distribution operations and $7.4 million in other
related costs recorded in “Restructuring and other transition expenses” in our consolidated statements of operations. We
completed the Corporate Relocation Plan in the fourth quarter of fiscal 2017 and have no outstanding balances as of June
30, 2018. Additionally, from inception through June 30, 2018, we recognized non-cash depreciation expense of $2.3 million
associated with the Torrance production facility resulting from the consolidation of coffee production operations with the
Houston and Portland production facilities and $1.4 million in non-cash rent expense recognized in the sale-leaseback of the
Torrance Facility. We may incur certain pension-related costs in connection with the Corporate Relocation Plan. See Note
5, Restructuring Plans—Corporate Relocation Plan and Note 15, Employee Benefit Plans—Multiemployer Pension Plans,
of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.

New Facility Costs

In fiscal 2017, we completed the construction of, and exercised the purchase option to acquire, the New Facility. We

commenced distribution activities at the New Facility during the second quarter of fiscal 2017 and initial production
activities late in the third quarter of fiscal 2017. We began roasting coffee in the New Facility in the fourth quarter of fiscal
2017. The New Facility received Safe Quality Food (SQF) certification in the third quarter of fiscal 2018.

We estimated that the total construction costs including the cost of the land for the New Facility would be

approximately $60 million. As of June 30, 2018, we have incurred and paid an aggregate of $60.8 million in construction
costs, including $42.5 million to exercise the purchase option under the lease agreement to acquire the land and partially
constructed New Facility located thereon in fiscal 2017. In addition to the costs to complete the construction of the New
Facility, we estimated that we would incur approximately $35 million to $39 million for machinery and equipment, furniture
and fixtures, and related expenditures of which we have incurred and paid an aggregate of $33.2 million as of June 30, 2018,
including $4.0 million for development management services provided by Stream Realty Partners and $22.5 million in
connection with the construction and installation of certain production equipment in the New Facility under an amended
building contract with The Haskell Company (“Haskell”).

The following table summarizes the expenditures incurred for the New Facility as of June 30, 2018 as compared to the

final budget:

Expenditures Incurred

Budget

(In thousands)
Building and facilities, including land ........ $

Fiscal Year
Ended June 30,
2018

Through Fiscal
Year Ended
June 30, 2017

Total

Lower bound

— $

60,770 $

55,000 $

Upper bound
60,000

Machinery and equipment; furniture and

fixtures .....................................................
Total .......................................................... $

New Facility Expansion

—
— $

$
33,241
94,011 $

33,241
94,011 $

35,000
90,000 $

39,000
99,000

In the third quarter of fiscal 2018, we commenced the Expansion Project. We entered into a guaranteed maximum

price contract with Haskell of up to $19.3 million covering the expansion of our production lines in the New Facility
including expanding capacity to support the transition of acquired business volumes. Construction, equipment procurement
and installation associated with the Expansion Project are expected to be completed in fiscal 2019. In fiscal 2018, the

Company paid $10.7 million in capital expenditures associated with the Expansion Project, with the balance of up to the
guaranteed maximum price of $19.3 million expected to be paid in fiscal 2019. See Note 6, New Facility—New Facility
Expansion, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.

Capital Expenditures

For the fiscal years ended June 30, 2018, 2017 and 2016, our capital expenditures paid were as follows:

(In thousands)

Maintenance: ...........................................................................................

Coffee brewing equipment ...................................................................... $

Building and facilities .............................................................................

Vehicles, machinery and equipment ........................................................

Software, office furniture and equipment ................................................
Land .........................................................................................................

Capital expenditures, maintenance ...................................................... $

2018

June 30,

2017

2016

12,067 $
542
5,513
3,660
—
21,782 $

10,758 $
345
7,445
698
—
19,246 $

8,375
3,354
10,254
3,165
1,458
26,606

Expansion Project: ...................................................................................
Machinery and equipment ....................................................................... $
Capital expenditures, Expansion Project ............................................. $

10,746 $
10,746 $

— $
— $

—
—

New Facility Costs: .................................................................................
Building and facilities, including land(1) ................................................ $
Machinery and equipment .......................................................................
Software, office furniture and equipment ................................................

Capital expenditures, New Facility ...................................................... $
Total capital expenditures(1) ............................................................ $

1,577 $
2,489
426
4,492 $
37,020 $

39,754 $
20,089
5,860
65,703 $
84,949 $

19,426
4,443
—
23,869
50,475

________
(1) Includes $19.4 million in purchase of construction-in-progress assets for New Facility in fiscal 2016.

In fiscal 2019, we anticipate paying the balance of the guaranteed maximum price contract for the Expansion Project

of up to $19.3 million, less $10.7 million paid in fiscal 2018, and between $20 million to $22 million in maintenance capital
expenditures to replace normal wear and tear of coffee brewing equipment, building and facilities, vehicles, machinery and
equipment and software, office furniture and equipment. We expect to finance these expenditures through cash flows from
operations and borrowings under our Revolving Facility described above.

Depreciation and amortization expense was $30.5 million, $23.0 million and $20.8 million in fiscal 2018, 2017 and

2016, respectively. We anticipate our depreciation and amortization expense will be approximately $8.0 million to $8.5
million per quarter in fiscal 2019 based on our existing fixed asset commitments and the useful lives of our intangible assets.

Working Capital

At June 30, 2018 and 2017, our working capital was composed of the following:

(In thousands)
Current assets ............................................................................................. $
Current liabilities(1) ...................................................................................

Working capital .......................................................................................... $

June 30,

2018

2017

173,514 $
178,457

(4,943 ) $

140,703
97,267
43,436

______________

(1) Current liabilities includes short-term borrowings under revolving credit facility of $89.8 million and $27.6 million as of

June 30, 2018 and 2017, respectively

Contractual Obligations

The following table contains information regarding total contractual obligations as of June 30, 2018, including capital

leases:

(In thousands)
Contractual obligations:
Operating lease obligations ........................... $
Expansion Project contract(1) .......................

Capital lease obligations(2) ...........................
Pension plan obligations(3) ...........................
Postretirement benefits other than
pension plans(4) ........................................
Revolving credit facility................................
Purchase commitments(5) .............................
Derivative liabilities—noncurrent .................

Cumulative Preferred dividends,
undeclared and unpaid-non-current ...............

Multiemployer Plan Holdback—Boyd
Coffee(6) .......................................................

Total contractual obligations ...................... $

______________

Payment due by period

Total

Less Than
One Year

1-3
Years

3-5
Years

More Than
5 Years

17,276 $
8,520
262
92,132

16,292
89,787
78,690
386

4,803 $
8,520
202
13,652

5,915
89,787
78,690
—

312

—

4,892 $
—
60
16,640

2,334 $
—
—
17,430

1,865

2,138

—
—
386

312

—
—
—

—

5,247
—
—
44,410

6,374
—
—
—

—

1,056
304,713 $

—
201,569 $

1,056
25,211 $

—
21,902 $

—
56,031

(1) Includes maximum balance due under guaranteed maximum price contract of up to $19.3 million in connection with the

Expansion Project. See Note 6, New Facility—New Facility Expansion, of the Notes to Consolidated Financial
Statements included in Part II, Item 8 of this report.

(2) Includes imputed interest of $14,000.

(3) Includes $86.7 million in estimated future benefit payments on single employer pension plan obligations, $3.8 million in
estimated payments in fiscal 2019 towards settlement of withdrawal liability associated with the Company's withdrawal
from the Local 807 Labor Management Pension Plan and $1.7 million in estimated fiscal 2019 contributions to
multiemployer pension plans. See Note 15, Employee Benefit Plans, of the Notes to Consolidated Financial Statements
included in Part II, Item 8 of this report.

(4) Includes $11.2 million in estimated future benefit payments on postretirement benefit plan obligations and $5.1 million
in estimated fiscal 2019 contributions to multiemployer plans other than pension plans. See Note 15, Employee Benefit
Plans, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.

(5) 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, 2018. 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.

(6) In connection with the Boyd Coffee acquisition, as part of the consideration for the purchase, at closing we held

back $1.1 million in cash to pay, on behalf of Boyd Coffee, any assessment of withdrawal liability made against Boyd
Coffee following the closing date in respect of Boyd Coffee’s multiemployer pension plan. As we have not made this
payment as of June 30, 2018 and we expect settling the pension liability will take greater than twelve months, the
multiemployer plan holdback is recorded in other long-term liabilities on our consolidated balance sheet at June 30,
2018.

As of June 30, 2018, we had committed to purchase green coffee inventory totaling $66.0 million under fixed-price
contracts, $9.0 million in other inventory under non-cancelable purchase orders and $3.7 million in other purchases under
non-cancelable purchase orders.

See Note 24, Commitments and Contingencies, of the Notes to Consolidated Financial Statements included in Part II,

Item 8 of this report.

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 2, 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, valuation of goodwill and 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.

Customers generally pay for our products based either on an announced price schedule or under commodity-based

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, 2018
and 2017, we had 43.5 million and 35.2 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 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, 2018,
approximately 94% of our outstanding coffee-related derivative instruments, representing 40.9 million pounds of forecasted
green coffee purchases, were designated as cash flow hedges. At June 30, 2017, approximately 94% of our outstanding
coffee-related derivative instruments, representing 33.0 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, 2018 and
2017 none of the cash in our coffee-related derivative margin accounts was restricted due to the net loss position not
exceeding the credit limit in such accounts at June 30, 2018, and the net gain position in such accounts at June 30, 2017.
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 net realizable value. Effective June 30, 2018, we changed our method of

accounting for coffee, tea and culinary products from the LIFO basis to the FIFO basis. All prior periods have been
retrospectively adjusted for this change. Coffee brewing equipment parts continue to be accounted for on the FIFO basis. We
regularly evaluate these inventories to determine the provision for obsolete and slow-moving inventory. Inventory reserves
are based on inventory obsolescence trends, historical experience and application of specific identification.

Impairment of Goodwill and Indefinite-lived Intangible Assets

We account for our goodwill and indefinite-lived intangible assets in accordance with Accounting Standards

Codification (“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 January 31. 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 units to the carrying value of the reporting units, 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 consist of certain acquired trademarks, trade names and a brand name. 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 recipes, non-compete agreements,
customer relationships, a trade name/brand name and certain trademarks. These assets 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 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, 2018 is adequate to cover all known
workers' compensation claims at June 30, 2018. 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. The cost of general liability, product liability and commercial auto liability 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 full-time employees who work 30 hours or more per week, including 401(k), health and
other welfare benefit plans and, in certain circumstances, pension benefits. Generally the plans provide health benefits after
30 days and other retirement 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 nine 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 sheets. 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”). Effective October 1, 2016, we froze benefit accruals
and participation in the Hourly Employees' Plan. After the plan freeze, participants do not accrue any benefits under the
plan, and new hires are not eligible to participate in the plan. After the freeze the participants in the plan are eligible to
receive the Company's matching contributions to their 401(k).

We obtain actuarial valuations for our single employer defined benefit pension plans. In fiscal 2018 we discounted the

pension obligations using a 3.80% discount rate and 6.75% 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, 2018, the projected benefit obligation under our single employer defined benefit pension plans was
$144.9 million and the fair value of plan assets was $104.6 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, 2018, we
made $3.8 million in contributions to our single employer defined benefit pension plans and recorded pension expense of
$1.6 million. We expect to contribute $2.5 million to our single employer defined benefit pension plans in fiscal 2019 and
accrue pension expense of approximately $1.2 million per year beginning in fiscal 2019. 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 2019:

($ in thousands)

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

3.6%

Actual 4.05%

4.6%

1,235 $
145,582 $

1,318 $
137,175 $

1,379
129,556

Farmer Bros. Plan Rate of Return
Net periodic benefit cost .......................................................... $

6.3%

Actual 6.75%

7.3%

1,791 $

1,318 $

844

Brewmatic Plan Discount Rate
Net periodic benefit cost .......................................................... $
Projected benefit obligation ..................................................... $

3.6%

Actual 4.05%

4.6%

(15 ) $
3,929 $

(13 ) $
3,724 $

(13 )
3,540

Brewmatic Plan Rate of Return
Net periodic benefit cost .......................................................... $

6.3%

Actual 6.75%

7.3%

4 $

(13 ) $

(31 )

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

3.6%

Actual 4.05%

4.6%

(67 ) $
4,360 $

(61 ) $
4,040 $

(54 )
3,754

Hourly Employees' Plan Rate of Return
Net periodic benefit cost .......................................................... $

6.3%

Actual 6.75%

7.3%

(43 ) $

(61 ) $

(79 )

Multiemployer Pension Plans

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 4.3% at June 30, 2018. We
project an initial medical trend rate of 8.1% in fiscal 2019, 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 4.3%. 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 and performance-based restricted stock units 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 2018 and 2017, we used an estimated annual forfeiture rate of 4.8% to calculate
share-based compensation expense based on actual forfeiture experience.

Our outstanding share-based awards include performance-based non-qualified stock options (“PNQs”) and

performance-based restricted stock units (“PBRSUs”) 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 for the cancelled PNQs or PBRSUs, and, to the extent share-based compensation expense was previously
recognized for those cancelled PNQs or PBRSUs, such share-based compensation expense is reversed. If performance goals
are exceeded and the payout is more than 100% of the target shares in the case of PBRSUs, additional compensation
expense is recorded in the period when that determination is certified by the Compensation Committee of the Board of
Directors.

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.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We historically have been exposed to market value risk arising from changes in interest rates on our securities
portfolio for which we entered, from time to time, futures and options contracts, or invested in derivative instruments, to
manage our interest rate risk. In the fourth quarter of fiscal 2017, we liquidated substantially all of our preferred stock
portfolio, net of purchases, to fund expenditures associated with our New Facility in Northlake, Texas. In the second quarter
of fiscal 2018, we liquidated the remaining security and closed our preferred stock portfolio.

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, 2018, we were eligible to borrow up to a total of $117.1 million under the Revolving Facility and had

outstanding borrowings of $89.8 million, utilized $2.0 million of the letters of credit sublimit, and had excess availability
under the Revolving Facility of $25.3 million. The weighted average interest rate on our outstanding borrowings under the
Revolving Facility at June 30, 2018 was 4.10%.

The following table demonstrates the impact of interest rate changes on our annual interest expense on outstanding
borrowings under the Revolving Facility based on the weighted average interest rate on the outstanding borrowings as of
June 30, 2018:

($ in thousands)
–150 basis points .........................................................................................
–100 basis points .........................................................................................
Unchanged ..................................................................................................
+100 basis points.........................................................................................

+150 basis points.........................................................................................

Principal
$89,787

$89,787

Interest Rate

Annual
Interest
Expense

2.60 % $

3.10 % $

4.10 % $

5.10 % $

5.60 % $

2,334
2,783
3,681
4,579
5,028

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 FIFO 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 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 years ended June 30, 2018, 2017 and 2016, we reclassified
$(1.2) million, $(0.8) million and $(16.8) million in net losses, respectively, into cost of goods sold from AOCI. 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, 2018,
2017 and 2016, we recognized in “Other, net” $48,000 in net gains, and $(0.5) million and $(0.6) million in net losses,
respectively, 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, 2018, 2017 and 2016, we recorded in “Other, net” net losses of $(0.5) million, $(1.8) million and $(0.3) million,
respectively, on coffee-related derivative instruments not designated as accounting hedges.

The following table summarizes the potential impact as of June 30, 2018 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:

Increase (Decrease) to Net Income

Increase (Decrease) to AOCI

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

10% Increase in
Underlying Rate

10% Decrease in
Underlying Rate

10% Increase in
Underlying Rate

10% Decrease in
Underlying Rate

305 $

(305) $

5,050 $

(5,050 )

__________
(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, 2018. 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 stockholders and the Board of Directors of Farmer Bros. Co.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Farmer Bros. Co. and subsidiaries (the "Company") as of
June 30, 2018 and 2017, 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, 2018, and the related notes (collectively
referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of June 30, 2018 and 2017, and the results of its operations and its cash flows for each
of the three years in the period ended June 30, 2018, 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)
(PCAOB), the Company's internal control over financial reporting as of June 30, 2018, based on 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, 2018, expressed an unqualified opinion on the Company's internal control
over financial reporting.

Change in Accounting Principle

As discussed in Note 3 to the consolidated financial statements, the Company elected to change its method of accounting for
certain inventories from the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method and implemented a
change in accounting principle for costs included in inventory, both of which have been retrospectively applied to the
consolidated financial statements as of June 30, 2017 and the years ended June 30, 2017 and 2016.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ DELOITTE & TOUCHE LLP

Dallas, Texas
September 13, 2018

We have served as the Company’s auditor since fiscal 2014.

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

ASSETS
Current assets:

Cash and cash equivalents ...........................................................................................................$
Short-term investments ...............................................................................................................
Accounts receivable, net of allowance for doubtful accounts of $495 and $721, respectively ...

Inventories ...................................................................................................................................
Income tax receivable .................................................................................................................
Prepaid expenses .........................................................................................................................

Total current assets ...............................................................................................................
Property, plant and equipment, net .....................................................................................................
Goodwill .............................................................................................................................................
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 ...................................................................................................
Other current liabilities ...............................................................................................................

Total current liabilities .........................................................................................................
Accrued pension liabilities .................................................................................................................
Accrued postretirement benefits .........................................................................................................
Accrued workers’ compensation liabilities .........................................................................................
Other long-term liabilities ..................................................................................................................

Total liabilities......................................................................................................................$

Commitments and contingencies (Note 24)
Stockholders’ equity:

June 30,

2018

2017

2,438 $
—
58,498
104,431
305
7,842
173,514
186,589
36,224
31,515
8,381
39,308
475,531 $

56,603
17,918
89,787
190
3,300
10,659
178,457
40,380
20,473
5,354
1,812
246,476 $

—

6,241
368
46,446
79,790
318
7,540
140,703
176,066
10,996
18,618
6,837
53,933
407,153

39,784
17,345
27,621
958
1,857
9,702
97,267
51,281
19,788
7,548
1,717
177,601
—

Preferred stock, $1.00 par value, 500,000 shares authorized; Series A Convertible
Participating Cumulative Perpetual Preferred Stock, 21,000 shares authorized; 14,700 and
zero shares issued and outstanding as of June 30, 2018 and 2017, respectively; liquidation
preference of $15,089 and $0 as of June 30, 2018 and 2017, respectively .................................

Common stock, $1.00 par value, 25,000,000 shares authorized; 16,951,659 and 16,846,002
shares issued and outstanding at June 30, 2018 and 2017, respectively ......................................
Additional paid-in capital ............................................................................................................
Retained earnings ........................................................................................................................
Unearned ESOP shares ................................................................................................................
Accumulated other comprehensive loss ......................................................................................

Total stockholders’ equity ....................................................................................................$
Total liabilities and stockholders’ equity ..............................................................................$

—

16,952
55,965
220,307
(2,145)
(62,039)
229,055 $
475,531 $

16,846
41,495
236,993
(4,289)
(61,493)
229,552
407,153

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

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

Year Ended June 30,

Net sales .................................................................................................................$
Cost of goods sold ..................................................................................................

Gross profit ............................................................................................................
Selling expenses .....................................................................................................
General and administrative expenses .....................................................................
Restructuring and other transition expenses ...........................................................
Net gain from sale of Torrance Facility ..................................................................
Net gains from sale of Spice Assets .......................................................................
Net gains from sales of other assets .......................................................................
Impairment losses on intangible assets ..................................................................

Operating expenses ................................................................................................
Income (loss) from operations ...............................................................................
Other (expense) income:

Dividend income .............................................................................................
Interest income ................................................................................................
Interest expense ...............................................................................................
Other, net .........................................................................................................

Total other (expense) income ...................................................................

(Loss) income before taxes ....................................................................................

Income tax expense (benefit) .................................................................................

Net (loss) income ...................................................................................................$
Less: Cumulative preferred dividends, undeclared and unpaid ..............................

Net (loss) income available to common stockholders ............................................$

2018
606,544 $
399,502
207,042
154,539
47,863
662
—
(770)
(196)
3,820
205,918
1,124

12
2
(3,177)
1,071

(2,092)

(968)
17,312
(18,280) $
389
(18,669) $

Net (loss) income available to common stockholders per common share—basic .$

(1.11) $

2017
541,500 $
354,622
186,878
133,329
42,933
11,016
(37,449)
(919)
(1,210)
—
147,700
39,178

1,007
567
(2,185)
(1,201)

(1,812)
37,366
14,815
22,551 $
—
22,551 $
1.35 $

2016
544,382
373,214
171,168
123,260
41,970
16,533
—
(5,603)
(2,802)
—
173,358
(2,190)

1,115
496
(425)
556
1,742
(448)

(72,239)
71,791
—
71,791
4.35

Net (loss) income available to common stockholders per common share—
4.32
diluted ....................................................................................................................$
Weighted average common shares outstanding—basic .......................................... 16,815,020 16,668,745 16,502,523
Weighted average common shares outstanding—diluted ....................................... 16,815,020 16,785,752 16,627,402

(1.11) $

1.34

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

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

Net (loss) income ...................................................................................................$

Other comprehensive income (loss), net of tax:

Year Ended June 30,

2018
(18,280) $

2017
22,551 $

2016
71,791

Unrealized (losses) gains on derivative instruments designated as cash flow

hedges, net of tax ................................................................................................

Losses (gains) on derivative instruments designated as cash flow hedges

reclassified to cost of goods sold, net of tax .......................................................

Change in the funded status of retiree benefit obligations, net of tax ....................

Total comprehensive (loss) income, net of tax .......................................................$

(5,922)

(2,900)

362

800
4,576
(18,826) $

510
7,466
27,627 $

10,282

(11,461)
70,974

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

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

Year Ended June 30,

2018

2017

2016

Cash flows from operating activities:

Net (loss) income ............................................................................................$

(18,280 ) $

22,551 $

71,791

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization ........................................................................

Provision for doubtful accounts ......................................................................

Impairment losses on intangible assets ...........................................................

Change in estimated fair value of contingent earnout consideration ..............

Restructuring and other transition expenses, net of payments ........................

Interest on sale-leaseback financing obligation ..............................................

Deferred income taxes ....................................................................................

Net gain from sale of Torrance Facility ..........................................................

Net gains from sales of Spice Assets and other 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 ........................................................................

Proceeds from sales of trading securities ........................................................

Accounts 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:

30,464
137
3,820
(500 )

(1,185 )
—
17,154
—
(995 )
3,822
1,982

—
—
375
(4,628 )

(15,513 )
13
(7,782 )
685
3,864
1,766
(1,924 )

22,970
325
—
—
1,034
681
14,343
(37,449 )

(2,129 )
3,959
2,361

—
(5,136 )
30,645
(14 )

(8,041 )

(71 )
2,264
(2,506 )
8,885
(2,983 )

(1,020 )

(4,420 )
8,855 $

(8,557 )
42,112 $

Acquisitions of businesses, net of cash acquired ............................................$

(39,608 ) $

(25,853 ) $

Purchases of property, plant and equipment ...................................................

(35,443 )

(45,195 )

Purchases of assets for construction of New Facility ......................................

Proceeds from sales of property, plant and equipment ....................................

Net cash used in investing activities ...............................................................$

(1,577 )
1,988
(74,640 ) $

(39,754 )
4,078
(106,724 ) $

Cash flows from financing activities:

20,774
71
—
—
(2,697 )
—
(72,556 )
—
(8,405 )
4,342
16,536

1,002
(7,255 )
5,901
(3,476 )
10,063
288
(10,295 )

(111 )

(3,343 )
5,829
(358 )

(473 )
27,628

—
(31,050 )

(19,426 )
10,946
(39,530)

Repayments on revolving credit facility .........................................................

Proceeds from revolving credit facility ...........................................................$

405
(374 )
—
(continued on next page) .......................................................................................................................................................

Proceeds from sale-leaseback financing obligation ........................................

77,985 $
(50,473 )
42,455

85,315 $
(23,149 )
—

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

Year Ended June 30,

2018

2017

2016

Proceeds from New Facility lease financing obligation ..................................

Repayments of 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 financing activities ..............................................................$

—
—
(947 )

(579 )
1,342
—
61,982 $

16,346
(35,772 )

(1,433 )
—
688
(38 )
49,758 $

Net (decrease) increase in cash and cash equivalents ............................................$

Cash and cash equivalents at beginning of year .....................................................

Cash and cash equivalents at end of year ...............................................................$

(3,803 ) $
6,241
2,438 $

(14,854 ) $
21,095
6,241 $

Supplemental disclosure of cash flow information:

Cash paid for interest ......................................................................................$
Cash paid for income taxes .............................................................................$

3,177 $
144 $

1,504 $
567 $

Supplemental disclosure of non-cash investing and financing activities:

Equipment acquired under capital leases ........................................................$

— $

417 $

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

New Facility lease obligation ..........................................................................$

Non-cash additions to property, plant and equipment .....................................$

Assets held for sale .........................................................................................$

Non-cash portion of earnout receivable recognized—Spice Assets sale.........$
Non-cash portion of earnout payable recognized—China Mist acquisition....$

Non-cash portion of earnout payable recognized—West Coast Coffee
acquisition .......................................................................................................$
Non-cash working capital adjustment payable recognized—China Mist
acquisition .......................................................................................................$

Non-cash receivable from West Coast Coffee—post-closing final working
capital adjustment ...........................................................................................$
Non-cash consideration given-Issuance of Series A Preferred Stock ..............$

Non-cash Multiemployer Plan Holdback payable recognized—Boyd
Coffee acquisition ...........................................................................................$
Option costs paid with exercised shares .........................................................$
Cumulative preferred dividends, undeclared and unpaid ................................$

(5,122 ) $
— $
— $
2,814 $
— $
298 $
— $

(2,390 ) $
— $
— $
5,517 $
— $
419 $
500 $

—

600

—

553

218
$
11,756 $

1,056

$
— $
389 $

—
$
— $

—
$
550 $
— $

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

19,426
—
(3,147 )

(8 )
1,694
(159 )
17,837

5,935
15,160
21,095

425
324

—

10,644
8,684
8,684
441
7,179
496
—

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7
6

FARMER BROS. CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Introduction and Basis of Presentation

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, department and convenience store chains, hotels, casinos, healthcare
facilities, and gourmet coffee houses, as well as grocery chains with private brand and consumer-branded coffee and tea
products, and foodservice distributors. 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 concentrated and ready-to-drink cold brew and 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.

In fiscal 2015 the Company began the process of relocating its corporate headquarters, product development lab, and

manufacturing and distribution operations from Torrance, California to a new facility housing these operations in Northlake,
Texas (the “New Facility”) (the “Corporate Relocation Plan”). In order to focus on the Company’s core product offerings, in
the second quarter of fiscal 2016, the Company sold certain assets associated with its 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”). In fiscal 2017, the Company completed the construction of and exercised the
purchase option to acquire the New Facility, relocated its Torrance operations to the New Facility, and sold its facility in
Torrance, California (the “Torrance Facility“). The Company commenced distribution activities at the New Facility during
the second quarter of fiscal 2017 and initial production activities late in the third quarter of fiscal 2017. The Company
completed the Corporate Relocation Plan and began roasting coffee in the New Facility in the fourth quarter of fiscal 2017.

In fiscal 2018, on October 2, 2017, the Company acquired substantially all of the assets and certain specified liabilities

of Boyd Coffee Company (“Boyd Coffee” or “Seller”), a coffee roaster and distributor with a focus on restaurants, hotels,
and convenience stores on the West Coast of the United States, in consideration of cash and preferred stock. In fiscal 2017,
the Company completed two acquisitions. On October 11, 2016, the Company acquired substantially all of the assets and
certain specified liabilities of China Mist Brands, Inc. dba China Mist Tea Company (“China Mist”), a provider of flavored
and unflavored iced and hot teas, and on February 7, 2017, the Company acquired substantially all of the assets and certain
specified liabilities of West Coast Coffee Company, Inc. (“West Coast Coffee”), a coffee roaster and distributor with a focus
on the convenience store, grocery and foodservice channels.

In the third quarter of fiscal 2017, the Company commenced a restructuring plan to reorganize its direct-store-delivery,
or DSD, operations in an effort to realign functions into a channel-based selling organization, streamline operations, acquire
certain channel specific expertise, and improve selling effectiveness and financial results (the “DSD Restructuring Plan”).
The Company expects to complete the DSD Restructuring Plan by the end of fiscal 2019.

In the third quarter of fiscal 2018, the Company commenced a project to expand its production lines (the “Expansion

Project”) in the New Facility, including expanding capacity to support the transition of acquired business volumes.
Construction, equipment procurement and installation associated with the Expansion Project are expected to be completed in
fiscal 2019.

The Company operates production facilities in Northlake, Texas; Houston, Texas; Portland, Oregon; and Hillsboro,

Oregon. Distribution takes place out of the New Facility, the Portland and Hillsboro facilities, as well as separate
distribution centers in Northlake, Illinois; Moonachie, New Jersey; and Scottsdale, Arizona.

The Company’s products reach its customers primarily in the following ways: through the Company’s nationwide
DSD network of 447 delivery routes and 111 branch warehouses as of June 30, 2018, 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

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

products through its DSD network, and relies on third-party logistic (“3PL”) service providers for its long-haul distribution.
DSD sales are primarily 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. 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.

Note 2. Summary of Significant Accounting Policies

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, from time to time, 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 9.

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 10.

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

Derivative Instruments

The Company executes various derivative instruments to hedge 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 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.”

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 instruments and to improve
comparability between reporting periods. For a derivative to qualify for designation in a hedging relationship, it must meet
specific criteria 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 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. 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.” See Note 8.

Concentration of Credit Risk

At June 30, 2018, 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), derivative instruments and trade receivables.

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

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, 2018 and 2017, none of the cash in the Company’s
coffee-related derivative margin accounts was restricted due to the net loss position not exceeding the credit limit in such
accounts at June 30, 2018, and the net gain position in such accounts at June 30, 2017. 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 2018, the Company decreased the allowance for doubtful accounts by $226,000.
In fiscal 2017 and 2016, the Company increased the allowance for doubtful accounts by $7,000 and $71,000, respectively.

Inventories

Inventories are valued at the lower of cost or net realizable value. Effective June 30, 2018, the Company changed its
method of accounting for coffee, tea and culinary products from the last in, first out (“LIFO”) basis to the first in, first out
("FIFO") basis. See Note 3. The Company continues to account for coffee brewing equipment parts on a FIFO basis. The
Company regularly evaluates these inventories to determine the provision for obsolete and slow-moving inventory.
Inventory reserves are based on inventory obsolescence trends, historical experience and application of specific
identification. See Note 12.

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...............................................................................................................

10 to 30 years

Machinery and equipment ..........................................................................................................
Equipment under capital leases .................................................................................................. Shorter of term of lease or

3 to 10 years

estimated useful life
5 to 7 years

Office furniture and equipment ..................................................................................................

Capitalized software ...................................................................................................................

3 to 5 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 enhancements are capitalized. See Note 13.

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. Accordingly, such costs included in cost of goods sold in the accompanying
consolidated financial statements for the years ended June 30, 2018, 2017 and 2016 were $30.2 million, $26.3 million and
$27.0 million, respectively.

The Company capitalizes coffee brewing equipment and depreciates it over five years and reports the depreciation

expense in cost of goods sold. See Note 13.

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 a capital lease. Capital lease obligations are amortized over the life of the lease.

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

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 21.

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, 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 21.

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 (Loss) Income Per Common Share

Net (loss) income per share (“EPS”) represents net (loss) income available 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 17. Dividends on the Company's outstanding Series A
Convertible Participating Cumulative Perpetual Preferred Stock, par value $1.00 per share ("Series A Preferred Stock"), that
the Company has paid or intends to pay are deducted from net (loss) income in computing net (loss) income available to
common stockholders.

Under the two-class method, net (loss) income available to nonvested restricted stockholders and holders of Series A
Preferred Stock is excluded from net (loss) income available to common stockholders for purposes of calculating basic and
diluted EPS.

Diluted EPS represents net income available to holders of common stock divided by the weighted-average number of

common shares outstanding, inclusive of the dilutive impact of common equivalent shares outstanding during the period.
Common equivalent shares include potentially dilutive shares from share-based compensation including stock options,
unvested restricted stock, performance-based restricted stock units, and shares of Series A Preferred Stock, as converted,
because they are deemed participating securities. In the absence of contrary information, the Company assumes 100% of the
target shares are issuable under performance-based restricted stock units.

The dilutive effect of Series A Preferred Stock is reflected in diluted EPS by application of the if-converted method. In
applying the if-converted method, conversion will not be assumed for purposes of computing diluted EPS if the effect would
be anti-dilutive. The Series A Preferred Stock is antidilutive whenever the amount of the dividend declared or accumulated
in the current period per common share obtainable upon conversion exceeds basic EPS. See Note 22.

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

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. 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 17. 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 EPS
calculations.

Share-based Compensation

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 and performance-based restricted stock units 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.

In addition, the Company estimates the expected impact of forfeited awards and recognizes share-based compensation

cost only for those awards ultimately expected to vest. If actual forfeiture rates differ materially from the Company’s
estimates, share-based compensation expense could differ significantly from the amounts the Company has recorded in the
current period. The Company periodically reviews actual forfeiture experience and will revise its estimates, as necessary.
The Company 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 the Company revises its assumptions and
estimates, the Company’s share-based compensation expense could change materially in the future.

The Company's outstanding share-based awards include performance-based non-qualified stock options ("PNQs") and

performance-based restricted stock units ("PBRSUs") 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. The Company recognizes the estimated fair value of performance-based
awards, net of estimated forfeitures, as share-based compensation expense over the service period based upon the
Company’s determination of whether it is probable that the performance targets will be achieved. At each reporting period,
the Company reassesses 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 for the cancelled PNQs or PBRSUs, and, to the extent share-based compensation
expense was previously recognized for those cancelled PNQs or PBRSUs, such share-based compensation expense is
reversed. If performance goals are exceeded and the payout is more than 100% of the target shares in the case of PBRSUs,
additional compensation expense is recorded in the period when that determination is certified by the Compensation
Committee of the Board of Directors. See Note 18.

Impairment of Goodwill and Indefinite-lived Intangible Assets

The Company accounts for its goodwill and indefinite-lived intangible assets in accordance with Accounting
Standards Codification ("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 January

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

31. 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 units to the carrying value of the reporting units, 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 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 consist of certain acquired trademarks, trade names and a brand name. Indefinite-

Other Intangible Assets

Other intangible assets consist of finite-lived intangible assets including acquired recipes, non-compete agreements,
customer relationships, a trade name/brand name and certain trademarks. These assets 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 finite-lived intangible assets whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. See Note 14.

Shipping and Handling Costs

The Company’s shipping and handling costs are included in both cost of goods sold and selling expenses, depending

on the nature of such costs. Shipping and handling costs included in cost of goods sold reflect inbound freight of raw
materials and finished goods, and product loading and handling costs at the Company’s production facilities to the
distribution centers and branches. Shipping and handling costs included in selling expenses consist primarily of those costs
associated with moving finished goods to customers. Shipping and handling costs that were recorded as a component of the
Company's selling expenses were $11.9 million, $10.7 million and $11.1 million, respectively, in the fiscal years ended June
30, 2018, 2017 and 2016. The Company moved to 3PL for its long-haul distribution in the third quarter of fiscal 2016. As a
result, payroll, benefits, vehicle costs and other costs associated with the Company’s internal operation of its long-haul
distribution included elsewhere in selling expenses in the fiscal year ended June 30, 2016, are included in shipping and
handling costs beginning in the third quarter of fiscal 2016.

Effective June 30, 2018, the Company implemented a change in accounting principle for freight costs incurred to
transfer goods from a distribution center to a branch warehouse and warehousing overhead costs incurred to store and ready
goods prior to their sale, and made certain corrections relating to the classification of allied freight, overhead variances and
purchase price variances (“PPVs”). See Note 3.

Collective Bargaining Agreements

Certain Company employees are subject to collective bargaining agreements which expire on or before June 30, 2022.

At June 30, 2018, approximately 27% of the Company's workforce was covered by such agreements.

Self-Insurance

The Company uses a combination of insurance and self-insurance mechanisms 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.

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

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 $7.1 million and $9.4

million, respectively, and the estimated recovery from reinsurance was $0.9 million and $1.5 million, respectively, as of
June 30, 2018 and 2017. 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, 2018 the Company had posted $2.3 million in cash and a $2.0 million letter of credit, and at June 30, 2017
the Company had posted $3.4 million in cash, as a security deposit for self-insuring workers’ compensation, general liability
and auto insurance coverages.

The estimated liability related to the Company's self-insured group medical insurance at June 30, 2018 and 2017 was

$1.6 million and $2.5 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.

The Company is self-insured for general liability, product liability and commercial auto liability and accrues the cost

of the insurance based on estimates of the aggregate liability claims incurred using certain actuarial assumptions and
historical claims experience. The Company's liability reserve for such claims was $1.7 million and $0.9 million at June 30,
2018 and 2017, 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 defined benefit 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. The
Company’s defined benefit pension 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 as an asset or liability on
its consolidated balance sheets. Changes in the funded status are recognized through AOCI, in the year in which the changes
occur. See Note 15.

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

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. If such an adjustment is
required, the Company 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. Transaction costs, including legal, accounting and integration
expenses, are expensed as incurred and are included in operating expenses in the Company's consolidated statements of
operations. Contingent consideration, such as earnout, is deferred as a short-term or long-term liability based on an estimate
of the timing of the future payment. These contingent consideration liabilities are recorded at fair value on the acquisition
date and are re-measured quarterly based on the then assessed fair value and adjusted if necessary. The results of operations
of businesses acquired are included in the Company's consolidated financial statements from their dates of acquisition. See
Note 4.

Restructuring Plans

The Company accounts for exit or disposal of activities in accordance with ASC 420, “Exit or Disposal Cost

Obligations.“ The Company defines a business restructuring as an exit or disposal activity that includes but is not limited to
a program which is planned and controlled by management and materially changes either the scope of a business or the
manner in which that business is conducted. Business restructuring charges may include (i) one-time termination benefits
related to employee separations, (ii) contract termination costs and (iii) other related costs associated with exit or disposal
activities.

A liability is recognized and measured at its fair value for one-time termination benefits once the plan of termination is

communicated to affected employees and it meets all of the following criteria: (i) management commits to a plan of
termination, (ii) the plan identifies the number of employees to be terminated and their job classifications or functions,
locations and the expected completion date, (iii) the plan establishes the terms of the benefit arrangement and (iv) it is
unlikely that significant changes to the plan will be made or the plan will be withdrawn. Contract termination costs include
costs to terminate a contract or costs that will continue to be incurred under the contract without benefit to the Company. A
liability is recognized and measured at its fair value when the Company either terminates the contract or ceases using the
rights conveyed by the contract.

Recently Adopted Accounting Standards

In August 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-12. ASU 2017-12 amends the
hedge accounting model in ASC 815 to enable entities to better portray the economics of their risk management activities in
the financial statements and enhance the transparency and understandability of hedge results. ASU 2017-12 expands an
entity’s ability to hedge non-financial and financial risk components and reduce complexity in fair value hedges of interest
rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally
requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the
hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for
components excluded from the assessment of hedge effectiveness. The guidance in ASU 2017-12 is effective for annual
periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted
in any interim period or fiscal year before the effective date. For cash flow and net investment hedges existing at the date of
adoption, entities will apply the new guidance using a modified retrospective approach (i.e., with a cumulative effect
adjustment recorded to the opening balance of retained earnings as of the initial application date). The guidance provides
transition relief to make it easier for entities to apply certain amendments to existing hedges (including fair value hedges)

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

where the hedge documentation needs to be modified. The Company early adopted ASU 2017-12 as of September 30, 2017
for its coffee-related derivative instruments designated as cash flow hedges. Adoption of ASU 2017-12 resulted in a
cumulative adjustment of $0.3 million to the opening balance of retained earnings as of October 1, 2017. Adoption of ASU
2017-12 did not have any other material effect on the results of operations, financial position or cash flows of the Company.

In March 2016, the FASB issued ASU 2016-09. ASU 2016-09 was 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. ASU 2016-09 requires that the tax impact related to the difference between share-based
compensation for book and tax purposes be recognized as income tax benefit or expense in the reporting period in which
such awards vest. ASU 2016-09 also required a modified retrospective adoption for previously unrecognized excess tax
benefits. The guidance in ASU 2016-09 is effective for public business entities for annual periods beginning after December
15, 2016, including interim periods within those annual reporting periods. The Company adopted ASU 2016-09 beginning
July 1, 2017 on a modified retrospective basis, recognizing all excess tax benefits previously unrecognized, as a cumulative-
effect adjustment increasing deferred tax assets by $1.6 million and increasing retained earnings by the same amount as of
July 1, 2017. Adoption of ASU 2016-09 did not have any other material effect on the results of operations, financial position
or cash flows of the Company.

In July 2015, the FASB issued 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. 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.
The Company adopted ASU 2015-11 beginning July 1, 2017. Adoption of ASU 2015-11 did not have a material effect on
the results of operations, financial position or cash flows of the Company.

New Accounting Pronouncements

In March 2018, the FASB issued ASU No. 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs

Pursuant to SEC Staff Accounting Bulletin No. 118” (“ASU 2018-05”). ASU 2018-05 amends ASC 740 (Income Taxes) to
provide guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the “Tax Act”) pursuant to Staff Accounting
Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (“SAB 118”), which provides
guidance on accounting for the tax effects of the Tax Act. Under SAB 118, companies are able to record a reasonable
estimate of the impact of the Tax Act if one is able to be determined and report it as a provisional amount during the
measurement period. The measurement period is not to extend beyond one year from the enactment date. If the Company is
not able to make a reasonable estimate for the impact of the Tax Act, it should not be recorded until a reasonable estimate
can be made during the measurement period. The Company has recorded the provisional adjustments as of June 30, 2018
and expects to finalize the provisional amounts within one year from the enactment date. See Note 21.

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic

220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”). ASU
2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax
effects resulting from the Tax Act and requires certain disclosures about stranded tax effects. The guidance in ASU 2018-02
is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years, and is
effective for the Company beginning July 1, 2019 and should be applied either in the period of adoption or retrospectively.
Early adoption is permitted. The Company is currently evaluating the impact ASU 2018-02 will have on its consolidated
financial statements.

In March 2017, the FASB issued ASU No. 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the

Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”). ASU 2017-07
amends the requirements in GAAP related to the income statement presentation of the components of net periodic benefit
cost for an entity’s sponsored defined benefit pension and other postretirement plans. ASU 2017-07 changes the income
statement presentation of defined benefit plan expense by requiring separation between operating expense (service cost
component) and non-operating expense (all other components, including interest cost, amortization of prior service cost,
curtailments and settlements, etc.). The operating expense component is reported with similar compensation costs while the
non-operating expense components are reported in other income and expense. In addition, only the service cost component

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

is eligible for capitalization as part of an asset such as inventory or property, plant and equipment. The guidance in ASU
2017-07 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal
years, and is effective for the Company beginning July 1, 2018. Because the expected operating expense component and
non-operating expense components of net periodic benefit cost are not material to the consolidated financial statements of
the Company, adoption of ASU 2017-07 is not expected to have a material effect on the results of operations, financial
position or cash flows of the Company.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the

Test for Goodwill Impairment“ (“ASU 2017-04“). The amendments in ASU 2017-04 address concerns regarding the cost
and complexity of the two-step goodwill impairment test, and remove the second step of the test. An entity will apply a one-
step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over
its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 does not amend the
optional qualitative assessment of goodwill impairment. The guidance in ASU 2017-04 is effective for annual and interim
goodwill impairment tests in fiscal years beginning after December 15, 2019, and is effective for the Company beginning
July 1, 2020. Adoption of ASU 2017-04 is not expected to have a material effect on the results of operations, financial
position or cash flows of the Company.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition

of a Business“ (“ASU 2017-01“). The amendments in ASU 2017-01 clarify the definition of a business with the objective of
adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals)
of businesses and provide a screen to determine when an integrated set of assets and activities (collectively referred to as a
“set”) is not a business. If the screen is not met, the amendments (1) require that to be considered a business, a set must
include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output
and (2) remove the evaluation of whether a market participant could replace the missing elements. The guidance in ASU
2017-01 is effective for public business entities for annual periods beginning after December 15, 2017, including interim
periods within those fiscal years. Early application is permitted in certain circumstances. ASU 2017-01 is effective for the
Company beginning July 1, 2018. Adoption of ASU 2017-01 is not expected to have a material effect on the results of
operations, financial position or cash flows of the Company.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”
(“ASU 2016-18”). The amendments require that a statement of cash flows explain the change during the period in the total
of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result,
amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash
flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents. The guidance in ASU
2016-18 is effective for public business entities for annual periods beginning after December 15, 2017, including interim
periods within those fiscal years. Early application is permitted in certain circumstances. ASU 2016-18 is effective for the
Company beginning July 1, 2018. Adoption of ASU 2016-18 is not expected to have a material effect on the results of
operations, financial position or cash flows of the Company.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230):Classification of Certain

Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)” (“ASU 2016-15”). ASU 2016-15
addresses certain issues where diversity in practice was identified in classifying certain cash receipts and cash payments
based on the guidance in ASC 230. ASC 230 is principles based and often requires judgment to determine the appropriate
classification of cash flows as operating, investing or financing activities. The application of judgment has resulted in
diversity in how certain cash receipts and cash payments are classified. Certain cash receipts and cash payments may have
aspects of more than one class of cash flows. ASU 2016-15 clarifies that an entity will first apply any relevant guidance in
ASC 230 and in other applicable topics. If there is no guidance that addresses those cash receipts and cash payments, an
entity will determine each separately identifiable source or use and classify the receipt or payment based on the nature of the
cash flow. If a receipt or payment has aspects of more than one class of cash flows and cannot be separated, classification
will depend on the predominant source or use. The guidance in ASU 2016-15 is effective for public business entities for
annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early application is
permitted in certain circumstances. ASU 2016-15 is effective for the Company beginning July 1, 2018. Adoption of ASU
2016-15 is not expected to 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 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. Under the new guidance, lessees are required to
recognize a lease liability, which represents the discounted obligation to make future minimum lease payments and a related
right-of-use asset. 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 and is required to be adopted using the
modified retrospective method. Early application is permitted. ASU 2016-02 is effective for the Company beginning July 1,
2019. The Company is evaluating the impact this guidance will have on its consolidated financial statements and expects the
adoption will have a significant impact on the Company's financial position resulting from the increase in assets and
liabilities.

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” (“ASU 2014-09“). ASU 2014-09 will replace most existing revenue recognition
guidance in GAAP when it becomes effective. On August 12, 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 for public business entities for annual reporting periods beginning after December 31,
2017, including interim periods within those fiscal years. ASU 2014-09 is effective for the Company beginning July 1, 2018.
The Company has evaluated the provisions of ASU 2014-09 and assessed its impact on the Company’s financial statements,
information systems, business processes, and financial statement disclosures. The Company has analyzed its revenue
streams, performed detailed contract reviews for each stream, and evaluated the impact ASU 2014-09 will have on revenue
recognition. The Company primarily recognizes revenue at point of sale or delivery and has determined that this will not
change under the new standard. There are certain arrangements related to the contracts from recent acquisitions in which
revenue recognition will be impacted, however, the adoption of ASU 2014-09 will not have a material effect on the results
of operations, financial position or cash flows of the Company. In addition, the Company will include expanded disclosures
related to revenue in order to comply with ASU 2014-09 and will adopt ASU 2014-09 using the modified retrospective
method.

Note 3. Changes in Accounting Principles and Corrections to Previously Issued Financial Statements

Effective June 30, 2018, the Company changed its method of accounting for its coffee, tea and culinary products from
the LIFO basis to the FIFO basis. Total inventories accounted for utilizing the LIFO cost flow assumption represented 91%
of the Company’s total inventories as of June 30, 2018 prior to this change in method. The Company believes that this
change is preferable as it better matches revenues with associated expenses, aligns the accounting with the physical flow of
inventory, and improves comparability with the Company’s peers.

Additionally, effective June 30, 2018, the Company implemented a change in accounting principle for freight costs
incurred to transfer goods from a distribution center to a branch warehouse and warehousing overhead costs incurred to
store and ready goods prior to their sale, from expensing such costs as incurred within selling expenses to capitalizing such
costs as inventory and expensing through cost of goods sold. The Company has determined that it is preferable to capitalize
such costs into inventory and expense through cost of goods sold because it better represents the costs incurred in bringing
the inventory to its existing condition and location for sale to customers and it is consistent with the Company’s accounting
treatment of similar costs.

In connection with these changes in accounting principles, subsequent to the issuance of the Company's consolidated

financial statements for the fiscal year ended June 30, 2017, the Company determined that freight associated with certain
non-coffee product lines ("allied") was incorrectly expensed as incurred in selling expenses, and the overhead variances and
PPVs associated with these product lines were incorrectly expensed as incurred in cost of goods sold for the fiscal years
ended June 30, 2017 and 2016 and for the first three quarters in the fiscal year ended June 30, 2018. These costs should have
been capitalized as inventory costs in accordance with ASC 330, "Inventory." Accordingly, the Company has corrected the
accompanying consolidated financial statements for the fiscal years ended June 30, 2017 and 2016 and the corresponding
footnote disclosure of unaudited quarterly financial data for each of the quarters in the fiscal year ended June 30, 2017 and
for the first three quarters in the fiscal year ended June 30, 2018, to capitalize the appropriate portion of these costs in
ending inventory of each period and to reclassify remaining allied freight to cost of goods sold. Management has evaluated
the materiality of these misstatements from quantitative and qualitative perspectives, including the impact on gross profit

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

and income from operations, and has concluded that the misstatements are immaterial to the Company’s consolidated
financial statements.

In accordance with SFAS No. 154, “Accounting Changes and Error Corrections,” the change in method of accounting
for coffee, tea and culinary products and the change in accounting principle for freight and warehousing overhead costs have
been retrospectively applied, and the corrections relating to the reclassification and capitalization of allied freight and the
capitalization of allied overhead variances and PPVs have been made, to all prior periods presented herein.

The cumulative effect on retained earnings for these changes as of July 1, 2016 is $17.7 million.

The following table presents the impact of these changes on the Company’s consolidated balance sheet at June 30,

2017:

(In thousands)
Inventories ......................................... $
Total current assets ............................ $
Deferred income taxes ....................... $
Total assets ........................................ $
Retained earnings .............................. $
Accumulated other comprehensive
loss ....................................................
$
Total stockholders’ equity ................. $
Total liabilities and stockholders’
equity .................................................

June 30, 2017

Preferable
Freight and
Warehousing
Adjustments

Corrections of
Freight,
Overhead
Variances and
PPVs

Retrospectively
Adjusted

LIFO to FIFO
Adjustment

As Previously
Reported

56,251 $
117,164 $
63,055 $
392,736 $
221,182 $

19,675 $
19,675 $
(7,625) $
12,050 $
13,444 $

3,821 $
3,821 $
(1,480 ) $
2,341 $
2,341 $

43 $
43 $
(17 ) $
26 $
26 $

79,790
140,703
53,933
407,153
236,993

(60,099) $
215,135 $

(1,394) $
12,050 $

$
—
2,341 $

—
$
26 $

(61,493)
229,552

392,736

12,050

2,341

407,153

The following tables present the impact of these changes on the Company's consolidated statements of operations for

the fiscal years ended June 30, 2017 and 2016:

Year Ended June 30, 2017

Preferable
Freight and
Warehousing
Adjustments

Corrections of
Freight,
Overhead
Variances and
PPVs

Retrospectively
Adjusted

LIFO to FIFO
Adjustment

As Previously
Reported

327,765 $
213,735 $
157,198 $
171,569 $
42,166 $
40,354 $
15,954 $
24,400 $

1,739 $
(1,739) $
— $
— $
(1,739) $
(1,739) $
(663) $
(1,076) $

19,835 $
(19,835 ) $
(19,241 ) $
(19,241 ) $
(594 ) $
(594 ) $
(226 ) $
(368 ) $

5,283 $
(5,283 ) $
(4,628 ) $
(4,628 ) $
(655 ) $
(655 ) $
(250 ) $
(405 ) $

354,622
186,878
133,329
147,700
39,178
37,366
14,815
22,551

Net income available to common
stockholders per common share—
basic ..................................................

Net income available to common
stockholders per common share—
diluted ................................................

1.46

(0.07) $

(0.02 ) $

1.35

1.45

(0.07) $

(0.02 ) $

1.34

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

(In thousands, except per share data)
Cost of goods sold ............................. $
Gross profit........................................ $
Selling expenses ................................ $
Operating expenses ........................... $
Income (loss) from operations ........... $
Income (loss) before taxes ................. $
Income tax benefit ............................. $
Net income ........................................ $
Net income available to common
stockholders per common share—
basic ..................................................
Net income available to common
stockholders per common share—
diluted ................................................

Year Ended June 30, 2016

Preferable
Freight and
Warehousing
Adjustments

Corrections of
Freight,
Overhead
Variances and
PPVs

Retrospectively
Adjusted

LIFO to FIFO
Adjustment

As Previously
Reported

335,907 $
208,475 $
150,198 $
200,296 $
8,179 $
9,921 $
(79,997) $
89,918 $

8,593 $
(8,593) $
— $
— $
(8,593) $
(8,593) $
6,430 $
(15,023) $

21,104 $
(21,104) $
(20,502) $
(20,502) $
(602) $
(602) $
450 $
(1,052) $

7,610 $
(7,610) $
(6,436) $
(6,436) $
(1,174) $
(1,174) $
878 $
(2,052) $

373,214
171,168
123,260
173,358
(2,190)
(448)
(72,239)
71,791

5.45 $

(0.91) $

(0.07) $

(0.12) $

4.35

5.41 $

(0.90) $

(0.07) $

(0.12) $

4.32

The following tables present the impact of these changes on the Company's consolidated statements of cash flows as of

June 30, 2017 and 2016:

(In thousands)
Net income ........................................ $
Adjustments to reconcile net income
to net cash provided by operating
activities

Deferred income taxes................ $
Net losses (gains) on derivative
instruments and investments ......

Change in operating assets and
liabilities:

Inventories .................................. $
Derivative assets (liabilities),
net ...............................................

June 30, 2017

Preferable
Freight and
Warehousing
Adjustments

Corrections of
Freight,
Overhead
Variances and
PPVs

LIFO to FIFO
Adjustment

Retrospectively
Adjusted

As Previously
Reported

24,400 $

(1,076) $

(368) $

(405) $

22,551

15,482 $

(663) $

(226) $

(250) $

14,343

(205) $

2,566 $

— $

—

2,361

(8,504) $

(786) $

594 $

655 $

(8,041)

— $

—

2,264

42,112

2,305 $

(41) $

Net cash provided by operating
activities ............................................

42,112 $

— $

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

June 30, 2016

Preferable
Freight and
Warehousing
Adjustments

Corrections of
Freight,
Overhead
Variances and
PPVs

LIFO to FIFO
Adjustment

Retrospectively
Adjusted

As Previously
Reported

89,918 $

(15,023) $

(1,052) $

(2,052) $

71,791

(80,314) $

6,430 $

450 $

878 $

(72,556)

12,910 $

3,626 $

— $

—

16,536

3,608 $

4,677 $

604 $

1,174 $

10,063

(In thousands)
Net income ........................................ $
Adjustments to reconcile net income
to net cash provided by operating
activities

Deferred income taxes................ $
Net losses (gains) on derivative
instruments and investments ......

Change in operating assets and
liabilities:

Inventories .................................. $
Derivative assets (liabilities),
net ...............................................

Net cash provided by operating
activities ............................................

27,628 $

(2) $

2 $

(10,583) $

288 $

— $

—

(10,295)

27,628

The respective impacts to net income, retained earnings, accumulated other comprehensive income (loss) and total

stockholders’ equity shown above have also been reflected in the consolidated statements of comprehensive income (loss)
and stockholders’ equity for the fiscal years ended June 30, 2017 and 2016. The resulting impacts adjusted previously
reported unrealized (losses) gains on derivative instruments designated as cash flow hedges, net of tax for the fiscal years
ended June 30, 2017 and 2016 of $(2.9) million and $0.2 million, respectively, to $(2.9) million and $0.4 million,
respectively. Losses (gains) on derivative instruments designated as cash flow hedges reclassified to cost of goods sold, net
of tax increased from $(1.1) million and $8.1 million for the fiscal years ended June 30, 2017 and 2016, to $0.5 million and
$10.3 million, respectively. Total comprehensive income, net of tax, for the fiscal years ended June 30, 2017 and 2016
decreased from $27.9 million and $86.7 million, respectively, to $27.6 million and $71.0 million, respectively.

If the Company had continued to account for coffee, tea and culinary product inventories under LIFO, the impact to
the Company's balance sheet at June 30, 2018 would have been a decrease of $18.1 million in inventories, an increase of
$4.2 million in deferred income taxes, a decrease of $17.5 million in retained earnings and an increase of $3.6 million in
accumulated other comprehensive loss. The impact to the Company's consolidated statement of operations for the fiscal year
ended June 30, 2018 would have been an decrease in cost of goods sold and an increase in gross profit, income from
operations and income before taxes of $1.7 million, an additional income tax benefit of $0.9 million, an impact to net
income of $2.6 million, and an increase of $0.15 in both basic and diluted earnings per common share available to common
stockholders.

If the Company had continued to expense freight costs incurred to transfer goods from a distribution center to a branch
warehouse and warehousing overhead costs, the impact to the Company's balance sheet at June 30, 2018 would have been a
decrease of $5.9 million in inventories, an increase of $1.4 million in deferred income taxes and a decrease of $4.5 million
in retained earnings. The impact to the Company's consolidated statement of operations for the fiscal year ended June 30,
2018 would have been a decrease in cost of goods sold and an increase in gross profit of $21.6 million, an increase in selling
expenses of $23.7 million, a decrease in income from operations and income before taxes of $2.1 million, an additional
income tax benefit of $1.0 million, an impact to net income of $3.1 million, and an increase of $0.19 in both basic and
diluted earnings per common share available to common stockholders.

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

Note 4. Acquisitions

China Mist Brands, Inc.

On October 11, 2016, the Company acquired substantially all of the assets and certain specified liabilities of China

Mist, a provider of flavored and unflavored iced and hot teas. As part of the transaction, the Company assumed the lease on
China Mist’s existing 17,400 square foot facility in Scottsdale, Arizona which is terminable upon twelve months’ notice.

The Company acquired China Mist for aggregate purchase consideration of $12.2 million, consisting of $11.2 million

in cash paid at closing including estimated working capital adjustments of $0.4 million, post-closing final working capital
adjustments of $0.6 million, and up to $0.5 million in contingent consideration to be paid as earnout if certain sales levels
are achieved in the calendar years of 2017 or 2018. This contingent earnout liability was estimated to have a fair value of
$0.5 million as of the closing date and was recorded in other long-term liabilities on the Company’s consolidated balance
sheet at June 30, 2017. During fiscal 2018, the Company recorded a change in the estimated fair value of contingent earnout
consideration of $(0.5) million, resulting in a balance of zero as the Company does not expect the contingent sales levels to
be reached.

In fiscal 2017, the Company incurred $0.2 million in transaction costs related to the China Mist acquisition, consisting

primarily of legal and accounting expenses, which are included in general and administrative expenses in the Company's
consolidated statements of operations for the fiscal year ended June 30, 2017. No transaction costs were incurred in fiscal
2018 relating to the China Mist acquisition.

The financial effect of this acquisition was not material to the Company’s consolidated financial statements. The

Company has not presented pro forma results of operations for the acquisition because it is not significant to the
Company's consolidated results of operations.

The acquisition was accounted for as a business combination. The fair value of consideration transferred was allocated

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

The following table summarizes the final allocation of consideration transferred as of the acquisition date:

(In thousands)

Fair Value

Estimated
Useful Life
(years)

Cash paid, net of cash acquired ..................................................................................................$ 11,183
553
Post-closing final working capital adjustments ..........................................................................
500
Contingent consideration ...........................................................................................................
Total consideration .....................................................................................................................$ 12,236

Accounts receivable ...................................................................................................................$

Inventory ....................................................................................................................................

Prepaid assets .............................................................................................................................

Property, plant and equipment....................................................................................................

Goodwill ....................................................................................................................................

811
544
48
189
2,927

Intangible assets:

Non-compete agreement ..........................................................................................................

Customer relationships .............................................................................................................

Recipes .....................................................................................................................................

930
100
2,000
5,070
Accounts payable .......................................................................................................................
(383 )
Total consideration, net of cash acquired .................................................................................$ 12,236

Trade name/Trademark—indefinite-lived ................................................................................

In connection with this acquisition, the Company recorded goodwill of $2.9 million, which is deductible for tax

purposes. The Company also recorded $3.0 million in finite-lived intangible assets that included recipes, a non-compete
agreement and customer relationships and $5.1 million in indefinite-lived trade name/trademark. The weighted average
amortization period for the finite-lived intangible assets is 8.9 years. See Note 14.

The determination of the fair value of intangible assets acquired was primarily based on significant inputs not

observable in an active market and thus represent Level 3 fair value measurements as defined under GAAP.

The fair value assigned to the recipes was determined utilizing the replacement cost method, which captures the direct

cost of the development effort plus lost profits over the time to re-create the recipes.

The fair value assigned to the non-compete agreement was determined utilizing the with and without method. Under

the with and without method, the fair value of the intangible asset is estimated based on the difference in projected earnings
with the agreement in place versus projected earnings based on starting with no agreement in place. Revenue and earnings
projections were significant inputs into estimating the value of China Mist's non-compete agreement.

The fair value assigned to the customer relationships was determined based on management's estimate of the retention

rate and utilizing certain benchmarks. Revenue and earnings projections were also significant inputs into estimating the
value of customer relationships.

The fair value assigned to the trade name/trademark was determined utilizing a multi-period excess earnings approach.
Under the multi-period excess earnings approach, the fair value of the intangible asset is estimated to be the present value of
future earnings attributable to the asset and this method utilizes revenue and cost projections including an assumed
contributory asset charge.

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

During the Company's annual intangible asset impairment test as of January 31, 2018 and assessment of the
recoverability of certain finite-lived intangible assets, the Company determined that the fair value of certain China Mist
intangible assets was lower than the carrying value. As a result, the Company recorded an impairment charge in fiscal 2018.
See Note 14.

West Coast Coffee Company, Inc.

On February 7, 2017, the Company acquired substantially all of the assets and certain specified liabilities of West

Coast Coffee, a coffee roaster and distributor with a focus on the convenience store, grocery and foodservice channels. As
part of the transaction, the Company entered into a three-year lease on West Coast Coffee’s existing 20,400 square foot
facility in Hillsboro, Oregon, which expires January 31, 2020, and assumed leases on six branch warehouses consisting of
an aggregate of 24,150 square feet in Oregon, California and Nevada, expiring on various dates through November 2020.
The Company acquired West Coast Coffee for aggregate purchase consideration of $15.5 million, which included
$14.7 million in cash paid at closing including working capital adjustments of $1.2 million, post-closing final working
capital adjustments of $(0.2) million, and up to $1.0 million in contingent consideration to be paid as earnout if certain sales
levels are achieved in the twenty-four months following the closing. This contingent earnout liability was estimated to have
a fair value of $0.6 million and is recorded in other current liabilities on the Company’s consolidated balance sheet at June
30, 2018 and in other long-term liabilities on the Company's consolidated balance sheet at June 30, 2017. The earnout is
estimated to be paid within twenty-four months following the closing.

In fiscal 2017, the Company incurred $0.3 million in transaction costs related to the West Coast Coffee acquisition,
consisting primarily of legal and accounting expenses, which are included in general and administrative expenses in the
Company's consolidated statements of operations for the fiscal year ended June 30, 2017. No transaction costs were incurred
in fiscal 2018 relating to the West Coast Coffee acquisition.

The financial effect of this acquisition was not material to the Company’s consolidated financial statements. The
Company has not presented pro forma results of operations for the acquisition because it is not significant to the Company's
consolidated results of operations.

The acquisition was accounted for as a business combination. The fair value of consideration transferred was allocated

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

The following table summarizes the final allocation of consideration transferred as of the acquisition date:

(In thousands)

Fair Value

Estimated
Useful Life
(years)

Cash paid, net of cash acquired ..................................................................................................$ 14,671
(218 )
Post-closing final working capital adjustments ..........................................................................
600
Fair value of contingent consideration .......................................................................................
Total consideration .....................................................................................................................$ 15,053

Accounts receivable ...................................................................................................................$

Inventory ....................................................................................................................................

Prepaid assets .............................................................................................................................

Property, plant and equipment....................................................................................................

Goodwill ....................................................................................................................................

Intangible assets:

Non-compete agreements .........................................................................................................

Customer relationships .............................................................................................................

Trade name—finite-lived .........................................................................................................

Brand name—finite-lived ........................................................................................................

Accounts payable .......................................................................................................................

956
910
16
1,546
7,630

100
4,400
260
250
(833 )

1.7

Other liabilities...........................................................................................................................
(182 )
Total consideration, net of cash acquired .................................................................................$ 15,053

In connection with this acquisition, the Company recorded goodwill of $7.6 million, which is deductible for tax
purposes. The Company also recorded $5.0 million in finite-lived intangible assets that included non-compete agreements,
customer relationships, a trade name and a brand name. The weighted average amortization period for the finite-lived
intangible assets is 9.3 years. See Note 14.

The determination of the fair value of intangible assets acquired was primarily based on significant inputs not

observable in an active market and thus represent Level 3 fair value measurements as defined under GAAP.

The fair value assigned to the non-compete agreements was determined utilizing the with and without method. Under
the with and without method, the fair value of the intangible asset is estimated based on the difference in projected earnings
with the agreements in place versus projected earnings based on starting with no agreements in place. Revenue and earnings
projections were significant inputs into estimating the value of West Coast Coffee's non-compete agreements.

The fair value assigned to the customer relationships was determined utilizing a multi-period excess earnings
approach. Under the multi-period excess earnings approach, the fair value of the intangible asset is estimated to be the
present value of future earnings attributable to the asset and this method utilizes revenue and cost projections including an
assumed contributory asset charge.

The fair values assigned to the trade name and the brand name were determined utilizing the relief from royalty
method. The relief from royalty method is based on the premise that the intangible asset owner would be willing to pay a
royalty rate to license the subject asset. The analysis involves forecasting revenue over the life of the asset, applying a
royalty rate and a tax rate, and then discounting the savings back to present value at an appropriate discount rate.

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

Boyd Coffee Company

On October 2, 2017 (“Closing Date”), the Company acquired substantially all of the assets and certain specified
liabilities of Boyd Coffee, a coffee roaster and distributor with a focus on restaurants, hotels, and convenience stores on the
West Coast of the United States. The acquired business of Boyd Coffee (the “Boyd Business”) is expected to add to the
Company’s product portfolio, improve the Company's growth potential, deepen the Company’s distribution footprint and
increase the Company's capacity utilization at its production facilities.

At closing, as consideration for the purchase, the Company paid the Seller $38.9 million in cash from borrowings
under its senior secured revolving credit facility (see Note 16), and issued to Boyd Coffee 14,700 shares of the Company’s
Series A Preferred Stock, with a fair value of $11.8 million as of the Closing Date. Additionally, the Company held back
$3.2 million in cash (“Holdback Cash Amount”) and 6,300 shares of Series A Preferred Stock (“Holdback Stock”) with a
fair value of $4.8 million as of the Closing Date, for the satisfaction of any post-closing net working capital adjustment and
to secure the Seller’s (and the other seller parties’) indemnification obligations under the purchase agreement. Any Holdback
Cash Amount and Holdback Stock not used to satisfy any post-closing net working capital adjustment or any
indemnification claims (including pending claims) will be released to the Seller on the 18-month anniversary of the Closing
Date.

In addition to the Holdback Cash, as part of the consideration for the purchase, at closing the Company held back $1.1
million in cash (the “Multiemployer Plan Holdback”) to pay, on behalf of the Seller, any assessment of withdrawal liability
made against the Seller following the Closing Date in respect of the Seller’s multiemployer pension plan. As the Company
has not made this payment as of June 30, 2018 and expects settling the pension liability will take greater than twelve
months, the Multiemployer Plan Holdback is recorded in other long-term liabilities on the Company’s consolidated balance
sheet at June 30, 2018. See Note 20.

The acquisition was accounted for as a business combination. The fair value of consideration transferred was allocated

to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition
date, with the remaining unallocated amount recorded as goodwill. Although the purchase price allocation is final, the
parties are in the process of determining the final net working capital under the purchase agreement. At June 30, 2018, the
Company's best estimate of the post-closing net working capital adjustment is $(8.1) million, which is reflected in the final
purchase price allocation set forth below.

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

The following table summarizes the final allocation of consideration transferred as of the acquisition date:

(In thousands)

Fair Value

Estimated
Useful Life
(years)

Cash paid ...........................................................................................................$

Holdback Cash Amount .....................................................................................

Multiemployer Plan Holdback ...........................................................................

Fair value of Series A Preferred Stock (14,700 shares)(1) .................................

Fair value of Holdback Stock (6,300 shares)(1) ................................................

Estimated post-closing net working capital adjustment .....................................

Total consideration ............................................................................................$

Accounts receivable ...........................................................................................$

Inventory ...........................................................................................................

Prepaid expense and other assets .......................................................................

Property, plant and equipment ...........................................................................

Goodwill ............................................................................................................

Intangible assets:

Customer relationships ....................................................................................

Trade name/trademark—indefinite-lived .........................................................

Accounts payable...............................................................................................

Other liabilities ..................................................................................................

Total consideration ..........................................................................................$

38,871
3,150
1,056
11,756
4,825
(8,059 )
51,599

7,503
9,415
1,951
4,936
25,395

16,000
3,100
(15,080 )

(1,621 )
51,599

______________
(1) Fair value of Series A Preferred Stock and Holdback Stock as of the Closing Date, estimated as the sum of (a) the
present value of the dividends payable thereon and (b) the stated value of the Series A Preferred Stock or Holdback
Stock, as the case may be, adjusted for both the conversion premium and the discount for lack of marketability arising
from conversion restrictions.

In connection with this acquisition, the Company recorded goodwill of $25.4 million, which is deductible for tax
purposes. The Company also recorded $16.0 million in finite-lived intangible assets that included customer relationships and
$3.1 million in indefinite-lived intangible assets that included a trade name/trademark. The amortization period for the
finite-lived intangible assets is 10.0 years. See Note 14.

The determination of the fair value of intangible assets acquired was primarily based on significant inputs not

observable in an active market and thus represent Level 3 fair value measurements as defined under GAAP.

The fair value assigned to the customer relationships was determined based on management's estimate of the retention
rate utilizing certain benchmarks. Revenue and earnings projections were also significant inputs into estimating the value of
customer relationships.

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

The following table presents the net sales and income before taxes from the Boyd Business operations that are

included in the Company’s consolidated statements of operations for the fiscal year ended June 30, 2018:

(In thousands)
Net sales .......................................................................................................................... $

Income before taxes ........................................................................................................ $

June 30, 2018

67,385
1,572

The Company considers the acquisition to be material to the Company’s consolidated financial statements and has

provided certain pro forma disclosures pursuant to ASC 805, “Business Combinations.”

The following table sets forth certain unaudited pro forma financial results for the Company for the fiscal years ended
June 30, 2018 and 2017, as if the acquisition of the Boyd Business was consummated on the same terms as of the first day
of the applicable fiscal year.

(In thousands)
Net sales .......................................................................................................... $

(Loss) income before taxes ............................................................................. $

June 30,

2018

2017

628,526 $
(642 ) $

636,969
36,969

At closing, the parties entered into a transition services agreement where the Seller agreed to provide certain
accounting, marketing, human resources, information technology, sales and distribution and other administrative support
during a transition period of up to 12 months. The Company also entered into a co-manufacturing agreement with the Seller
for a transition period of up to 12 months as the Company transitions manufacturing into its production facilities. Amounts
paid by the Company to the Seller for these services totaled $25.4 million in the fiscal year ended June 30, 2018.

The Company has incurred acquisition and integration costs related to the Boyd Business acquisition, consisting
primarily of legal and consulting expenses and one-time payroll and benefit expenses of $7.6 million and $1.7 million
during the fiscal years ended June 30, 2018 and 2017, respectively, which are included in operating expenses in the
Company's consolidated statements of operations.

Note 5. Restructuring Plans

Corporate Relocation Plan

On February 5, 2015, the Company announced 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 the New Facility in Northlake, Texas. 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.

Expenses related to the Corporate Relocation Plan in fiscal 2017 consisted of $1.1 million in employee retention and

separation benefits, $6.2 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 $1.3 million in other related
costs including travel, legal, consulting and other professional services. Facility-related costs in fiscal 2017 also included
$2.5 million in non-cash charges, including $1.1 million in depreciation expense associated with the Torrance production
facility resulting from the consolidation of coffee production operations with the Houston and Portland production facilities
and $1.4 million in non-cash rent expense recognized in the sale-leaseback of the Torrance Facility. The Company
completed the Corporate Relocation Plan in the fourth quarter of fiscal 2017 and has no outstanding balances as of June 30,
2018.

The Company estimated that it would incur approximately $31 million in cash costs in connection with the Corporate
Relocation Plan consisting of $18 million in employee retention and separation benefits, $5 million in facility-related costs
and $8 million in other related costs. Since the adoption of the Corporate Relocation Plan through June 30, 2018, the
Company has recognized a total of $31.8 million in aggregate cash costs including $17.4 million in employee retention and
separation benefits, $7.0 million in facility-related costs related to the temporary office space, costs associated with the
move of the Company's headquarters, relocation of the Company’s Torrance operations and certain distribution operations

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

and $7.4 million in other related costs. The Company also recognized from inception through June 30, 2018 non-cash
depreciation expense of $2.3 million associated with the Torrance production facility resulting from the consolidation of
coffee production operations with the Houston and Portland production facilities and $1.4 million in non-cash rent expense
recognized in the sale-leaseback of the Torrance Facility. The Company may incur certain pension-related costs in
connection with the Corporate Relocation Plan. See Note 15.

The following table sets forth the activity in liabilities associated with the Corporate Relocation Plan from the time of

adoption of the Corporate Relocation Plan through the fiscal year ended June 30, 2018:

(In thousands)
Employee-related costs ................$

Facility-related costs(1) ................

Other.............................................

Total(1) ......................................$

Balances,

June 30, 2014 Additions
— $
—
—
— $

17,352 $
10,779
7,424
35,555 $

17,352 $
7,048
7,424
31,824 $

— $
3,731
—
3,731 $

Payments

Non-Cash
Settled

Adjustments

Balances,
June 30, 2018
—
—
—
—

— $
—
—
— $

_______________
(1) Non-cash settled facility-related costs represent (a) 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 and (b) non-cash rent
expense recognized in the sale-leaseback of the Torrance Facility.

DSD Restructuring Plan

On February 21, 2017, the Company announced the DSD Restructuring Plan to reorganize its DSD operations in an

effort to realign functions into a channel-based selling organization, streamline operations, acquire certain channel specific
expertise, and improve selling effectiveness and financial results. The strategic decision to undertake the DSD Restructuring
Plan resulted from an ongoing operational review of various initiatives within the DSD selling organization. The Company
has revised its estimated time of completion of the DSD Restructuring Plan from the end of calendar 2018 to the end of
fiscal 2019.

The Company estimates that it will recognize approximately $3.7 million to $4.9 million of pre-tax restructuring
charges in connection with the DSD Restructuring Plan by the end of fiscal 2019 consisting of approximately $1.9 million to
$2.7 million in employee-related costs, including severance, prorated bonuses for bonus eligible employees, contractual
termination payments and outplacement services, and $1.8 million to $2.2 million in other related costs, including legal,
recruiting, consulting, other professional services, and travel. The Company may also incur other charges due to events that
may occur as a result of, or associated with, the DSD Restructuring Plan.

Expenses related to the DSD Restructuring Plan in fiscal 2018 consisted of $0.2 million in employee-related costs and

$0.5 million in other related costs. Since the adoption of the DSD Restructuring Plan through June 30, 2018, the Company
has recognized a total of $3.1 million in aggregate cash costs including $1.3 million in employee-related costs and $1.8
million in other related costs. As of June 30, 2018, the Company had paid a total of $2.8 million of these costs, and had a
balance of $0.3 million in DSD Restructuring Plan-related liabilities on the Company's consolidated balance sheet at June
30, 2018.

Note 6. New Facility

New Facility Costs

In fiscal 2017, the Company completed the construction of, and exercised the purchase option to acquire, the New

Facility. The Company commenced distribution activities at the New Facility during the second quarter of fiscal 2017 and
initial production activities late in the third quarter of fiscal 2017. The Company began roasting coffee in the New Facility in
the fourth quarter of fiscal 2017. The New Facility received Safe Quality Food (SQF) certification in the third quarter of
fiscal 2018.

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

The Company estimated that the total construction costs including the cost of land for the New Facility would be

approximately $60 million. As of June 30, 2018, the Company has incurred and paid an aggregate of $60.8 million in
construction costs, including $42.5 million to exercise the purchase option under the lease agreement to acquire the land and
partially constructed New Facility located thereon in fiscal 2017. In addition to the costs to complete the construction of the
New Facility, the Company estimated that it would incur approximately $35 million to $39 million for machinery and
equipment, furniture and fixtures and related expenditures of which the Company has incurred and paid an aggregate of
$33.2 million as of June 30, 2018, including $4.0 million for development management services provided by Stream Realty
Partners and $22.5 million in connection with the construction and installation of certain production equipment in the New
Facility under an amended building contract with The Haskell Company (“Haskell”). See Note 13.

New Facility Expansion

On February 9, 2018, the Company and Haskell entered into Task Order No. 6 pursuant to the Standard Form of
Agreement between Owner and Design-Builder (AIA Document A141-2014 Edition) dated October 23, 2017. The Standard
Form of Agreement serves as a master service agreement (“MSA”) between the Company and Haskell and does not contain
any actual work scope or compensation amounts, but instead contemplates a number of project specific task orders (the
“Task Orders”) to be executed between the parties, which will define the scope and price for particular projects to be
performed under the pre-negotiated terms and conditions contained in the MSA. The MSA expires on December 31, 2021
(provided that any Task Order that is not finally complete at such time will remain in effect until completion).

Task Order 6 covers the expansion of the Company’s production lines in the New Facility including expanding
capacity to support the transition of acquired business volumes. Task Order 6 includes (i) pre-construction services to define
the Company’s criteria for the industrial capacity Expansion Project, (ii) specialized industrial design services for the
Expansion Project, (iii) specialty industrial equipment procurement and installation, and (iv) all construction services
necessary to complete any modifications to the New Facility in order to accommodate the production line expansion, and to
provide power to that expanded production capability. While the Company and Haskell have previously executed Task
Orders 1-5, Task Order 6 includes the work and services to be performed under Task Orders 1-5 and, accordingly, Task
Orders 1-5 have been superseded and voided by Task Order 6.

Task Order 6 is a guaranteed maximum price contract. Specifically, the maximum price payable by the Company to

Haskell under Task Order 6 for all of Haskell’s services, equipment procurement and installation, and construction work in
connection with the Expansion Project is $19.3 million. In fiscal 2018, the Company paid $10.7 million for machinery and
equipment expenditures associated with the Expansion Project, with the balance of up to the guaranteed maximum price of
$19.3 million expected to be paid in fiscal 2019. See Note 13 and Note 24.

Note 7. Sales of Assets

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
manufacture, processing and distribution of raw, processed and blended spices and certain other culinary products
(collectively, the “Spice Assets”), including certain equipment; trademarks, trade names 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. Gain from the earnout on the
sale is recognized when earned and when realization is assured beyond a reasonable doubt. The Company recognized $0.8
million, $1.0 million and $0.5 million in earnout during the fiscal years ended June 30, 2018, 2017 and 2016, respectively, a
portion of which is included in “Net gains from sale of Spice Assets” in the Company's consolidated statements of
operations. 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 a supply agreement to its DSD customers.

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

Sale of Torrance Facility

On July 15, 2016, the Company completed the sale of the Torrance Facility, consisting of approximately 665,000
square feet of buildings located on approximately 20.3 acres of land, 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. Cash proceeds from the
sale of the Torrance Facility were $42.5 million.

Following the closing of the sale, the Company leased back the Torrance Facility on a triple net basis through October

31, 2016 at zero base rent, and exercised two one-month extensions at a base rent of $100,000 per month. In accordance
with ASC 840, “Leases,” due to the Company’s continuing involvement with the property, the Company accounted for the
transaction as a financing transaction, deferred the gain on sale of the Torrance Facility and recorded the net sale proceeds of
$42.5 million and accrued non-cash interest expense on the financing transaction in “Sale-leaseback financing obligation”
on the Company's consolidated balance sheet at September 30, 2016. The Company vacated the Torrance Facility in
December 2016 and concluded the leaseback transaction. As a result, at December 31, 2016, the financing transaction
qualified for sales recognition under ASC 840. Accordingly, in the fiscal year ended June 30, 2017, the Company recognized
the net gain from sale of the Torrance Facility in the amount of $37.4 million, including non-cash interest expense of $0.7
million and non-cash rent expense of $1.4 million, representing the rent for the zero base rent period previously recorded in
“Other current liabilities” and removed the amounts recorded in “Assets held for sale” and the “Sale-leaseback financing
obligation” on its consolidated balance sheet.

Sale of Northern California Branch Property

On September 30, 2016, the Company completed the sale of its branch property in Northern California for a sale price
of $2.2 million and leased it back through March 31, 2017, at a base rent of $10,000 per month. The Company recognized a
net gain on sale of the Northern California property in fiscal 2017 in the amount of $2.0 million.

Note 8. 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 2. 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.

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

at June 30, 2018 and 2017:

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

Total ............................................................................................................................

June 30,

2018

2017

40,913

33,038

2,546
43,459

2,121
35,159

Coffee-related derivative instruments designated as cash flow hedges outstanding as of June 30, 2018 will expire within

18 months.

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

Effect of Derivative Instruments on the Financial Statements

Balance Sheets

Fair values of derivative instruments on the Company's consolidated balance sheets:

(In thousands)

Financial Statement Location:
Short-term derivative assets(1):

Coffee-related derivative instruments ....................... $

Long-term derivative assets(2):

Coffee-related derivative instruments ....................... $

Short-term derivative liabilities(1):

Derivative Instruments
Designated as Cash Flow Hedges

Derivative Instruments Not
Designated as Accounting Hedges

June 30,

2018

2017

2018

2017

— $

66 $

— $

Coffee-related derivative instruments ....................... $

3,081 $

1,733 $

219 $

Long-term derivative liabilities(2):

Coffee-related derivative instruments ....................... $

386 $

446 $

— $

________________
(1) Included in “Short-term derivative liabilities” on the Company's consolidated balance sheets.
(2) Included in “Other long-term liabilities” on the Company's consolidated balance sheets.

Statements of Operations

—

190

—

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” (prior period amounts have
been retrospectively adjusted to reflect the impact of certain changes in accounting principles and corrections to previously
issued financial statements as described in Note 3).

Year Ended June 30,

(In thousands)
Net (losses) gains recognized in AOCI ................................... $
Net losses recognized in earnings............................................ $

2018
(8,420 ) $
(1,179 ) $

2017
(4,746 ) $

2016

592

Financial Statement
Classification
AOCI

(835 ) $ (16,810) Costs of goods sold

Net gains (losses) recognized in earnings (ineffective

portion)(1) ............................................................................

(456 ) $

(575)

Other, net

________________
(1) Amount included in fiscal year ended June 30, 2018 relates to trades terminated prior to the adoption of ASU 2017-12. See
Note 2.

For the fiscal years ended June 30, 2018, 2017 and 2016, 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.

Net losses (gains) on derivative instruments in the Company's consolidated statements of cash flows also includes net
losses (gains) on coffee-related derivative instruments designated as cash flow hedges reclassified to cost of goods sold from
AOCI in the fiscal years ended June 30, 2018, 2017 and 2016. 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.

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

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

(In thousands)
Net losses on coffee-related derivative instruments ............................. $
Net gains on investments .....................................................................
Net (losses) gains on derivative instruments and investments(1)....
Other gains, net(2)...........................................................................
Other, net ................................................................................. $

Year Ended June 30,

2018

2017

2016

(469 ) $
7

(462 )
1,533
1,071 $

(1,812 ) $
286

(1,526 )
325

(1,201 ) $

(298 )
611
313
243
556

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

of goods sold in the fiscal years ended June 30, 2018, 2017 and 2016.

(2) Includes $(0.5) million change in estimated fair value of the China Mist contingent earnout consideration in the fiscal year

ended June 30, 2018.

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:

Gross Amount
Reported on
Balance Sheet

Netting
Adjustments

Cash Collateral
Posted

Derivative Assets ........... $

Derivative Liabilities ..... $

Derivative Assets ........... $

Derivative Liabilities ..... $

— $
3,686 $
132 $
2,369 $

— $
— $
(132 ) $

(132 ) $

Net Exposure
—
3,686
—
2,237

— $
— $
— $
— $

(In thousands)
June 30, 2018

June 30, 2017

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, 2018, $(7.2) million of net losses 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, 2018. At June 30, 2018 and
2017 approximately 94% of the Company's outstanding coffee-related derivative instruments were designated as cash flow
hedges.

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

Note 9. Investments

In fiscal 2017, the Company liquidated substantially all of its trading securities to fund expenditures associated with its

New Facility in Northlake, Texas. In fiscal 2018, the Company liquidated the remaining security and closed its preferred stock
portfolio. The Company had no short-term investments at June 30, 2018 and $0.4 million in short-term investments at June 30,
2017.

The following table shows gains and losses on trading securities:

(In thousands)
Total gains recognized from trading securities ....................................... $

Less: Realized gains from sales of trading securities ............................

Unrealized (losses) gains from trading securities ............................ $

Year Ended June 30,

2018

2017

2016

7 $
7
— $

286 $

1,909
(1,623 ) $

611
29
582

Note 10. 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, 2018
Derivative instruments designated as cash flow hedges: ..........
Coffee-related derivative liabilities(1) .................................. $
Derivative instruments not designated as accounting hedges: ..
Coffee-related derivative liabilities(1) .................................. $

3,467 $

— $

3,467 $

219 $

— $

219 $

(In thousands)

Total

Level 1

Level 2

Level 3

June 30, 2017
Preferred stock(2) ..................................................................... $
Derivative instruments designated as cash flow hedges: ..........
Coffee-related derivative assets(1) ....................................... $
Coffee-related derivative liabilities(1) .................................. $
Derivative instruments not designated as accounting hedges: ..
Coffee-related derivative liabilities(1) .................................. $

368 $

132 $
2,179 $

190 $

— $

— $
— $

— $

368 $

132 $
2,179 $

190 $

—

—
—

—

____________________
(1) The Company's coffee-related derivative instruments are traded over-the-counter and, therefore, classified as Level 2.
(2) Included in “Short-term investments” on the Company's consolidated balance sheet at June 30, 2017.

During the fiscal years ended June 30, 2018 and 2017, there were no transfers between the levels.

Note 11. Accounts Receivable, Net

(In thousands)
Trade receivables ..................................................................................................... $
Other receivables(1) ................................................................................................
Allowance for doubtful accounts .............................................................................

Accounts receivable, net ...................................................................................... $

June 30,

2018

2017

54,547 $
4,446
(495 )
58,498 $

44,531
2,636
(721)
46,446

__________
(1) At June 30, 2018 and 2017, respectively, the Company had recorded $0.3 million and $0.4 million in “Other receivables“
included in “Accounts receivable, net“ on its consolidated balance sheets representing earnout receivable from Harris.

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

Allowance for doubtful accounts:

(In thousands)
Balance at June 30, 2015 .....................................................................................................................$

Provision .......................................................................................................................................

Write-off .......................................................................................................................................

Balance at June 30, 2016 .....................................................................................................................$

Provision .......................................................................................................................................

Write-off .......................................................................................................................................

Balance at June 30, 2017 .....................................................................................................................$

Provision .......................................................................................................................................

Write-off .......................................................................................................................................

Recoveries ....................................................................................................................................

Balance at June 30, 2018 .....................................................................................................................$

(643 )

(71 )
—
(714 )

(325 )
318
(721 )

(909 )
1,530
(395 )

(495 )

Note 12. Inventories

(In thousands)
Coffee

Processed ................................................................................................................ $

Unprocessed ...........................................................................................................

Total .................................................................................................................. $

Tea and culinary products

Processed ................................................................................................................ $

Unprocessed ...........................................................................................................

Total .................................................................................................................. $

Coffee brewing equipment parts ............................................................................... $

Total inventories .......................................................................................... $

June 30,

2018

2017(1)

26,882 $
37,097
63,979 $

32,406 $
1,161
33,567 $
6,885 $
104,431 $

23,562
25,605
49,167

26,260
94
26,354
4,269
79,790

_______
(1) Prior period amounts have been retrospectively adjusted to reflect the impact of certain changes in accounting principles and
corrections to previously issued financial statements as described in Note 3.

In addition to product cost, inventory costs include expenditures such as direct labor and certain supply, freight,
warehousing, overhead variances, PPVs and other 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. See Note 3.

Inventories were higher at the end of fiscal 2018 as compared to fiscal 2017 due to the addition of Boyd Coffee.
Inventories were higher at the end of fiscal 2017 as compared to fiscal 2016 due to the commencement of the New Facility's
manufacturing operations and incremental inventory from China Mist and West Coast Coffee as compared to lower levels of
inventory at the Torrance Facility at the end of fiscal 2016 due to its anticipated closing. Notwithstanding this increase in total
inventories at the end of fiscal 2017 compared to fiscal 2016 levels, inventories of manufactured spice products decreased at the
end of fiscal 2017 compared to fiscal 2016 levels, primarily due to the liquidation of spice inventories in connection with the
sale of the Spice Assets.

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

Note 13. Property, Plant and Equipment

(In thousands)
Buildings and facilities ............................................................................................. $
Machinery and equipment ........................................................................................

Equipment under capital leases .................................................................................

Capitalized software .................................................................................................

Office furniture and equipment .................................................................................

Accumulated depreciation ........................................................................................

Land ..........................................................................................................................

Property, plant and equipment, net .................................................................... $

June 30,

2018

2017

108,590 $
231,581
1,408
24,569
13,721
379,869 $
(209,498 )
16,218
186,589 $

108,682
201,236
7,540
21,794
12,758
352,010
(192,280 )
16,336
176,066

Capital leases consisted mainly of vehicle leases at June 30, 2018 and 2017. 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
$12.1 million and $10.8 million in fiscal 2018 and 2017, respectively. Depreciation expense related to the capitalized coffee
brewing equipment reported as cost of goods sold was $8.6 million, $9.1 million and $9.8 million in fiscal 2018, 2017 and
2016, respectively.

Maintenance and repairs to property, plant and equipment charged to expense for the years ended June 30, 2018, 2017,

and 2016 were $9.6 million, $8.0 million and $7.7 million, respectively.

Note 14. Goodwill and Intangible Assets

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

(In thousands)
Balance at June 30, 2016 ........................................................................................................................... $

Additions (China Mist) ............................................................................................................................

Additions (West Coast Coffee) ................................................................................................................

Balance at June 30, 2017 ........................................................................................................................... $

Final Purchase Price Allocation Adjustment (West Coast Coffee) ..........................................................

Additions (Boyd Coffee) ..........................................................................................................................

Balance at June 30, 2018 ........................................................................................................................... $

272
2,927
7,797
10,996
(167 )
25,395
36,224

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

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

(In thousands)
Amortized intangible assets:

June 30, 2018

June 30, 2017

Gross
Carrying
Amount

Accumulated
Amortization

Gross
Carrying
Amount

Accumulated
Amortization

Customer relationships ........................................... $
Non-compete agreements .......................................

Recipes ...................................................................

Trade name/brand name .........................................

Total amortized intangible assets .................... $

33,003 $
220
930
510
34,663 $

(12,903 ) $

(81 )

(221 )

(271 )

(13,476 ) $

17,353 $
220
930
510
19,013 $

(10,883 )

(38 )

(88 )

(84 )

(11,093 )

Unamortized intangible assets:

Trademarks, trade names and brand name with
indefinite lives ........................................................

Total unamortized intangible assets ................ $

Total intangible assets ................................ $

10,328
$
10,328 $
44,991 $

—
$
— $
(13,476 ) $

10,698
$
10,698 $
29,711 $

—
—
(11,093 )

In fiscal 2018, the Company recorded an impairment charge related to indefinite-lived intangible assets of $3.5 million.
There were no indefinite-lived intangible asset impairment charges recorded in the fiscal years ended June 30, 2017 and 2016.
In fiscal 2018, the Company recorded an impairment charge related to other intangible assets of $0.3 million. There were no
other intangible asset impairment charges recorded in the fiscal years ended June 30, 2017 and 2016.

Aggregate amortization expense for the past three fiscal years:

(In thousands)

For the fiscal year ended:
June 30, 2018 ........................................................................................................................................ $
June 30, 2017 ........................................................................................................................................ $
June 30, 2016 ........................................................................................................................................ $

Estimated amortization expense for the next five fiscal years:

(In thousands)

For the fiscal year ending:
June 30, 2019 ........................................................................................................................................ $
June 30, 2020 ........................................................................................................................................ $
June 30, 2021 ........................................................................................................................................ $
June 30, 2022 ........................................................................................................................................ $
June 30, 2023 ........................................................................................................................................ $

2,383
710
200

2,646
2,431
2,415
2,393
2,375

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

(In years)
Customer relationships ..............................................................................................................................
Non-compete agreements ..........................................................................................................................
Recipes ......................................................................................................................................................
Trade name/brand name ............................................................................................................................

9.0

3.5

5.3

4.8

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

Note 15. Employee Benefit Plans

The Company provides benefit plans for full-time employees who work 30 hours or more per week, including 401(k),

health and other welfare benefit plans and, in certain circumstances, pension benefits. Generally, the plans provide health
benefits after 30 days and other retirement benefits based on years of service and/or a 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 nine 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”). Effective October 1, 2016, the Company
froze benefit accruals and participation in the Hourly Employees' Plan. After the plan freeze, participants do not accrue any
benefits under the plan, and new hires are not eligible to participate in the plan. After the freeze the participants in the plan are
eligible to receive the Company's matching contributions to their 401(k).

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

($ in thousands)

2018

2017

2018

2017

2018

2017

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 ... $ 146,291
—
5,417
(5,956 )

Service cost ..................................................
Interest cost ..................................................
Actuarial (gain) loss .....................................
Benefits paid ................................................

(8,577 )

$ 152,325
—
5,277
(4,556 )
(6,755 )

$ 4,079
—
149
(227 )

(277 )

$ 4,574
—
157
(370 )
(282 )

$ 4,329
—
163
(370 )

$ 4,329
124
152
(233)

(82 )

(43)

$ 137,175

$ 146,291

$ 3,724

$ 4,079

$ 4,040

$ 4,329

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 ................................................

$ 97,304
5,874
2,610
(8,577 )

$ 91,201
10,874
1,984
(6,755 )

$ 3,115
201
680
(277 )

$ 2,989
337
71
(282 )

$ 2,999
198
514
(82 )

$ 2,447
256
339
(43)
$ 2,999

Fair value of plan assets at the end of the year .... $ 97,211

$ 97,304

$ 3,719

$ 3,115

$ 3,629

Funded status at end of year (underfunded) overfunded

$ (39,964 )

$ (48,987 )

(5)

(964 )

(411 )

$ (1,330 )

Amounts recognized in consolidated balance sheets

Non-current liabilities ..................................

(48,987 )
Total ..................................................................... $ (39,964 ) $ (48,987 )

(39,964 )

(5 )

(5) $

(964 )
(964 )

(411 )

(1,330)

(411 ) $ (1,330 )

Amounts recognized in AOCI

Net loss .........................................................

51,079
Total AOCI (not adjusted for applicable tax) ...... $ 51,079
Weighted average assumptions used to determine

benefit obligations

59,007
$ 59,007

1,788
$ 1,788

2,135
$ 2,135

218
218

618
618

Discount rate ................................................
Rate of compensation increase .....................

4.05 %

N/A

3.80 %
N/A

4.05 %

N/A

3.80 %
N/A

4.05 %

N/A

3.80%

N/A

100

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)
Components of net periodic benefit cost

Service cost ..................................... $
Interest cost .....................................
Expected return on plan assets ........
Amortization of net loss ..................
Net periodic benefit cost ................. $

Other changes recognized in OCI

Farmer Bros. Plan
June 30,

Brewmatic Plan
June 30,

Hourly Employees’ Plan
June 30,

2018

2017

2018

2017

2018

2017

—
5,417
(5,490)
1,588
1,515

—
5,277
(6,067 )
1,875
1,085

—
149
(161)
80
68

—
157
(188)
102
71

—
163
(173 )
6
(4 ) $

124
152
(172)
53
157

Net loss ............................................ $
Amortization of net loss ..................
Total recognized in OCI .................. $

(6,340 ) $

(1,588)

(9,363 ) $
(1,875 )

(267)

(519 ) $

(394 ) $

(317)

(80)

(102)

(6 )

(53)

(7,928 ) $ (11,238 ) $

(347) $

(621 ) $

(400 ) $

(370)

Total recognized in net periodic

benefit cost and OCI ....................

Weighted-average assumptions used to
determine net periodic benefit cost
Discount rate ...................................
Expected long-term return on plan
assets ............................................
Rate of compensation increase ........

(6,413 ) $ (10,153 )

(279) $

(550 ) $

(404 ) $

(213)

3.80%

3.55 %

3.80%

3.55%

3.80 %

3.55%

6.75%

N/A

7.75 %
N/A

6.75%

N/A

7.75%

N/A

6.75 %

N/A

7.75%

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) 2016. 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 2016 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.

101

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

Additional Disclosures

Farmer Bros. Plan
June 30,

Brewmatic Plan
June 30,

Hourly Employees’ Plan
June 30,

($ in thousands)

2018

2017

2018

2017

2018

2017

Comparison of obligations to plan assets

Projected benefit obligation .............. $ 137,175
Accumulated benefit obligation ........ $ 137,175
Fair value of plan assets at

measurement date ..........................

Plan assets by category

$ 97,211

$ 146,291
$ 146,291

$ 3,724
$ 3,724

$ 4,079
$ 4,079

$ 4,040
$ 4,040

$ 4,329
$ 4,329

$ 97,304

$ 3,719

$ 3,115

$ 3,629

$ 2,999

Equity securities ............................... $ 63,547
27,608
Debt securities ..................................
6,056
Real estate .........................................
$ 97,211

Total

$ 65,270
26,241
5,793
$ 97,304

$ 2,431
1,056
232
$ 3,719

$ 2,133
793
189
$ 3,115

$ 2,341
1,065
223
$ 3,629

$ 1,973
851
175
$ 2,999

Plan assets by category ..................................
Equity securities ...............................
Debt securities ..................................
Real estate .........................................
Total ...........................................

Fair values of plan assets were as follows:

66 %

28 %

6 %

67%

27%

66 %

28 %

6 %

69 %

25 %

6 %

65 %

29 %

6 %

66 %

28 %

6 %

100 %

100%

100 %

June 30, 2018

Level 1

Level 2

Level 3

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

Total
97,211 $
3,719 $
3,629 $

Total
97,304 $
3,115 $
2,999 $

— $
— $
— $

June 30, 2017

— $
— $
— $

Level 1

Level 2

Level 3

Investments
measured at
NAV
97,211
3,719
3,629

— $
— $
— $

Investments
measured at
NAV
97,304
3,115
2,999

— $
— $
— $

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 2019:

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

Total ..................................................................................................................................................

Fiscal 2019

37.0%
4.6%
22.4%
30.0%
6.0%

100.0%

102

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

Estimated Amounts in OCI Expected To Be Recognized

In fiscal 2019, the Company expects to recognize net periodic benefit cost of $1.3 million for the Farmer Bros. Plan and

net period benefit credit of $(13,000) for the Brewmatic Plan and $(61,000) for the Hourly Employees’ Plan.

Estimated Future Contributions and Refunds

In fiscal 2019, the Company expects to contribute $2.5 million to the Farmer Bros. Plan and does not expect to contribute

to the Brewmatic Plan or 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:

Farmer Bros. Plan

Brewmatic Plan

Hourly Employees’
Plan

June 30, 2019 ................................................................................... $
June 30, 2020 ................................................................................... $
June 30, 2021 ................................................................................... $
June 30, 2022 ................................................................................... $
June 30, 2023 ................................................................................... $
June 30, 2024 to June 30, 2028 ........................................................ $

7,740 $
7,790 $
8,010 $
8,210 $
8,360 $
42,210 $

330 $
280 $
280 $
270 $
260 $
1,160 $

110
130
150
160
170
1,040

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 2018 and fiscal year 2017 is for the plan's year ended December 31, 2017 and
December 31, 2016, 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 2017 Annual
Funding Notice, WCTPP was 91.2% and 91.7% funded for its plan year beginning January 1, 2017 and 2016, respectively, and
is expected to be 92.0% funded for its plan year beginning January 1, 2018. 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.

PPA Zone Status

Employer
Identification
Number

Pension
Plan
Number

July 1,
2017

July 1,
2016

FIP/RP
Status
Pending/
Implemented

Surcharge
Imposed

Expiration Date
of Collective
Bargaining
Agreements

Pension Plan
Western Conference

of Teamsters
Pension Plan ............ 91-6145047

001

Green

June 30, 2022

103

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

Based upon the most recent information available from the trustees managing the WCTPP, the Company’s share of the

unfunded vested benefit liability for the plan was estimated to be approximately $3.3 million if the withdrawal had occurred in
the plan year ending December 31, 2017. 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 2017 estimate, the actual
withdrawal liability 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 a bankruptcy, and continued participation by the
Company and other employers in the plan, each of which could impact the ultimate withdrawal liability.

On October 30, 2017, counsel to the Company received written confirmation that the Western Conference of Teamsters

Pension Trust (the “WCT Pension Trust”) will be retracting its claim, stated in its letter to the Company dated July 10, 2017
(the “2017 WCT Pension Trust Letter”), that certain of the Company’s employment actions in 2015 resulting from the
Corporate Relocation Plan constituted a partial withdrawal from the WCTPP. The written confirmation stated that the WCT
Pension Trust has determined that a partial withdrawal did not occur in 2015 and further stated that the withdrawal liability
assessment has been rescinded. This rescinding of withdrawal liability assessment applies to Company employment actions in
2015 with respect to the bargaining units that were specified in the WCT Pension Trust Letter.

The Company received a letter dated July 10, 2018 from the WCT Pension Trust assessing withdrawal liability against the
Company for a share of the WCTPP unfunded vested benefits, on the basis claimed by the WCT Pension Trust that employment
actions by the Company in 2016 in connection with the Corporate Relocation Plan caused a partial withdrawal under the
WCTPP. The Company is reviewing the asserted assessment and calculation of claimed liability and determining whether to
request a review by the WCT Pension Trust of the determination of withdrawal liability. As of June 30, 2018, the Company is
not able to predict whether the WCT Pension Trust may make a claim, or estimate the extent of potential withdrawal liability,
related to the Corporate Relocation Plan for actions or bargaining units other than those specified in the 2017 WCT Pension
Trust Letter. The amount of any potential withdrawal liability could be material to the Company's results of operations and cash
flows.

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 is $3.8 million and its present value is reflected in the Company's consolidated
balance sheets at June 30, 2018, as short-term with the expectation of paying off the liability in fiscal 2019. See Note 19.

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)

WCTPP(1)(2)(3)

All Other
Plans(4)

Year Ended:
June 30, 2018.............................................................................................................................
June 30, 2017............................................................................................................................. $
June 30, 2016............................................................................................................................. $

1,605
2,114 $
2,587 $

35
39
39

104

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

____________
(1) Individually significant plan.
(2) Less than 5% of total contribution to WCTPP based on WCTPP's FASB Disclosure Statement for the calendar year ended

December 31, 2017.

(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 2018 as compared to fiscal 2017 and 2016, as a
result of the reduction in employees due to the Corporate Relocation Plan. The Company expects to contribute an aggregate of
$1.7 million towards multiemployer pension plans in fiscal 2019.

Multiemployer Plans Other Than Pension Plans

The Company participates in nine 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 June 30, 2022. The Company's aggregate contributions to multiemployer plans other than
pension plans in the fiscal years ended June 30, 2018, 2017 and 2016 were $4.8 million, $5.3 million and $6.3 million,
respectively. The Company expects to contribute an aggregate of $5.1 million towards multiemployer plans other than pension
plans in fiscal 2019.

401(k) Plan

The Company's 401(k) Plan is available to all eligible employees. The Company's 401(k) match portion 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 2018, 2017 and 2016, 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, a reduction-in-force at another Company facility
designated by the Administrative Committee of the Farmer Bros. Co. Qualified Employee Retirement Plans, or in connection
with certain reductions-in-force that occurred during 2017. 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 $2.0 million, $1.6 million and $1.6 million in operating expenses for

the fiscal years ended June 30, 2018, 2017 and 2016, 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 4.3% at June 30, 2018. The Company projects an initial medical trend rate of 8.1% in fiscal 2019,
ultimately reducing to 4.5% in 10 years.

105

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

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.

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, 2018, 2017 and 2016. Net periodic postretirement benefit cost for fiscal 2018
was based on employee census information as of June 30, 2018.

(In thousands)
Components of Net Periodic Postretirement Benefit Cost (Credit):
Service cost ................................................................................... $
Interest cost ...................................................................................
Amortization of net gain ...............................................................
Amortization of prior service credit ..............................................
Net periodic postretirement benefit (credit) cost ........................... $

Year Ended June 30,

2018

2017

2016

609 $
835
(841)

760 $
829
(630)

(1,757)

(1,154 ) $

(798 ) $

1,388
1,194
(196)

(1,757)
629

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)-Medical only ($ in thousands):

Date Established
January 1, 2008 ................ $
July 1, 2012 ......................

Balance at
July 1, 2017

Annual
Amortization

Years Remaining

Curtailment

Balance at
June 30, 2018

(502 ) $

(9,949 )

(10,451 ) $

231
1,527
1,758

1.2
5.5

— $
—
$

(271)
(8,422)

(8,693)

($ in thousands)

Retiree Medical Plan

Death Benefit

Year Ended June 30,

2018

2017

2018

2017

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 .............................................................................

(9,206 ) $
(9,206 )
1,280
(7,926 ) $
8.9

(10,298) $
(10,298 )
1,214
(9,084) $
9.7

1,201 $
1,201
(848 )
353 $
6.4

1,523
1,523
(854 )
669
7.0

106

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:
Current liabilities .......................................................................................................... $
Non-current liabilities...................................................................................................

Total .............................................................................................................................. $

(In thousands)

Amounts Recognized in AOCI Consist of:
Net gain ........................................................................................................................ $
Prior service credit .......................................................................................................

Total AOCI ................................................................................................................... $

(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 cost...............................................................................................

Total recognized in net periodic benefit credit (cost) and OCI ..................................... $

Year Ended June 30,

2018

2017

20,680 $
609
835
699
(70 )
(1,470 )
21,283 $

21,867
760
829
741
(2,377 )
(1,140 )
20,680

Year Ended June 30,

2018

2017

— $
771
699
(1,470 )

— $

21,283
(21,283 ) $

—
399
741
(1,140 )
—
20,680
(20,680 )

June 30,

2018

2017

(810 ) $

(20,473 )

(21,283 ) $

(893 )
(19,787 )

(20,680 )

Year Ended June 30,

2018

2017

(8,005 ) $
(8,693 )
(16,698 ) $

(8,775 )

(10,450 )

(19,225 )

Year Ended June 30,

2018

2017

(70 ) $
840
1,757
2,527
(1,154 )
1,373 $

(2,377 )
630
1,757
10
(798 )

(788 )

The estimated net gain and prior service credit that will be amortized from AOCI into net periodic benefit cost in fiscal

2019 are $0.9 million and $1.8 million, respectively.

107

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

(In thousands)
Estimated Future Benefit Payments:
Year Ending:

June 30, 2019 ..........................................................................................................................................$
June 30, 2020 ..........................................................................................................................................$
June 30, 2021 ..........................................................................................................................................$
June 30, 2022 ..........................................................................................................................................$
June 30, 2023 ..........................................................................................................................................$
June 30, 2024 to June 30, 2028 ...............................................................................................................$

Expected Contributions:

June 30, 2019 ..........................................................................................................................................$

Sensitivity in Fiscal 2019 Results

827
892
973
1,045
1,093
6,374

827

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 2019:

(In thousands)
Effect on total of service and interest cost components ................................................... $
Effect on accumulated postretirement benefit obligation ................................................. $

1-Percentage Point

Increase

Decrease

65 $
761 $

(57 )
(719 )

Note 16. Bank Loan

The Company maintains a $125.0 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 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 is a flat fee of 0.25% per annum irrespective of average revolver
usage. Outstanding obligations are collateralized by all of the Company’s assets, excluding certain real property not included in
the borrowing base and machinery and equipment (other than inventory). 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 on its capital stock, 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.

At June 30, 2018, the Company was eligible to borrow up to a total of $117.1 million under the Revolving Facility and
had outstanding borrowings of $89.8 million, utilized $2.0 million of the letters of credit sublimit, and had excess availability
under the Revolving Facility of $25.3 million. Fair value of the loan approximates carrying value. At June 30, 2018, the
weighted average interest rate on the Company's outstanding borrowings under the Revolving Facility was 4.10%.

On September 10, 2018 (the “Second Amendment Effective Date”), the Company entered into a second amendment to the

Revolving Facility to amend certain definitions that affect the fixed charge coverage ratio covenant test and add a covenant
limiting the Company’s incurrence of capital expenditures during the fiscal year ending June 30, 2019. The effect of the
foregoing amendments is that the Company was in compliance with the fixed charge coverage ratio covenant and no event of
default has occurred or existed through the Second Amendment Effective Date.

108

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

Note 17. 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. One of

the two loans established to fund the ESOP matured in fiscal 2016 and the remaining loan is scheduled to mature in December
2018. The loan is 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 3.80% at June 30, 2018, which is updated on a quarterly basis.

Loan amount (in thousands) ..........................................................

As of and for the Years Ended June 30,

2018
$2,145

2017
$4,289

2016
$6,434

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 2018, 2017 or 2016.

During the fiscal years ended June 30, 2018, 2017 and 2016, the Company charged $2.3 million, $2.5 million and $3.4

million, respectively, to compensation expense related to the ESOP. The decrease in ESOP expense in fiscal 2018 and 2017 was
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 difference between cost and fair market value of committed to be released shares, which was $0.1 million,
$0.5 million and $36,000 for the fiscal years ended June 30, 2018, 2017 and 2016, respectively, is recorded as additional paid-in
capital.

Allocated shares .......................................................................................................
Committed to be released shares ..............................................................................
Unallocated shares ...................................................................................................

Total ESOP shares .............................................................................................

June 30,

2018
1,502,323
73,826
72,114
1,648,263

2017
1,717,608
74,983
145,941
1,938,532

(In thousands)
Fair value of ESOP shares ........................................................................................ $

50,354 $

58,641

Note 18. Share-based Compensation

Farmer Bros. Co. 2017 Long-Term Incentive Plan

On June 20, 2017 (the “Effective Date“), the Company’s stockholders approved the Farmer Bros. Co. 2017 Long-Term
Incentive Plan (the “2017 Plan”). The 2017 Plan succeeded the Company's prior long-term incentive plans, the Farmer Bros.
Co. Amended and Restated 2007 Long-Term Incentive Plan (the “Amended Equity Plan“) and the Farmer Bros. Co. 2007
Omnibus Plan (collectively, the “Prior Plans“). On the Effective Date, the Company ceased granting awards under the Prior
Plans; however, awards outstanding under the Prior Plans will remain subject to the terms of the applicable Prior Plan.

The 2017 Plan provides for the grant of stock options (including incentive stock options and non-qualified stock options),

stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, performance shares and other stock- or
cash-based awards to eligible participants. Non-employee directors of the Company and employees of the Company or any of
its subsidiaries are eligible to receive awards under the 2017 Plan. The 2017 Plan authorizes the issuance of (i) 900,000 shares
of common stock plus (ii) the number of shares of common stock subject to awards under the Company’s Prior Plans that are
outstanding as of the Effective Date and that expire or are forfeited, cancelled or similarly lapse following the Effective Date.
Subject to certain limitations, shares of common stock covered by awards granted under the 2017 Plan that are forfeited, expire
or lapse, or are repurchased for or paid in cash, may be used again for new grants under the 2017 Plan. As of June 30, 2018,
there were 956,830 shares available under the 2017 Plan including shares that were forfeited under the Prior Plans. Shares of
common stock granted under the 2017 Plan may be authorized but unissued shares, shares purchased on the open market or

109

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

treasury shares. In no event will more than 900,000 shares of common stock be issuable pursuant to the exercise of incentive
stock options under the 2017 Plan.

The 2017 Plan includes annual limits on certain awards that may be granted to any individual participant. The maximum
aggregate number of shares of common stock with respect to all stock options and stock appreciation rights that may be granted
to any one person during any calendar year is 250,000 shares. The 2017 Plan also includes limits on the maximum aggregate
amount that may become payable pursuant to all performance bonus awards that may be granted to any one person during any
calendar year and the maximum amount that may become payable pursuant to all cash-based awards granted under the 2017
Plan and the aggregate grant date fair value of all equity-based awards granted under the 2017 Plan to any non-employee
director during any calendar year for services as a member of the Board.

The 2017 Plan contains a minimum vesting requirement, subject to limited exceptions, that awards made under the 2017

Plan may not vest earlier than the date that is one year following the grant date of the award. The 2017 Plan also contains
provisions with respect to payment of exercise or purchase prices, vesting and expiration of awards, adjustments and treatment
of awards upon certain corporate transactions, including stock splits, recapitalizations and mergers, transferability of awards
and tax withholding requirements.

The 2017 Plan may be amended or terminated by the Board at any time, subject to certain limitations requiring

stockholder consent or the consent of the applicable participant. In addition, the administrator may not, without the approval of
the Company’s stockholders, authorize certain re-pricings of any outstanding stock options or stock appreciation rights granted
under the 2017 Plan. The 2017 Plan will expire on June 20, 2027.

As of June 30, 2018, awards covering 174,802 shares of common stock have been granted under the 2017 Plan.

Non-qualified stock options with time-based vesting (“NQOs”)

In fiscal 2018, the Company granted 124,278 shares issuable upon the exercise of NQOs to eligible employees under the

2017 Plan. These NQOs have an exercise price of $31.70 per share, which was the closing price of the Company’s common
stock as reported on the NASDAQ Global Select Market on the date of grant. One-third of the total number of shares subject to
each such stock option vest ratably on each of the first three anniversaries of the grant date, contingent on continued
employment, and subject to accelerated vesting in certain circumstances.

In fiscal 2017, the Company granted no shares issuable upon the exercise of 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 3-year period.

Following are the assumptions used in the Black-Scholes valuation model for NQOs granted during the fiscal years ended

June 30, 2018 and 2016:

Weighted average fair value of NQOs .......................................................... $
Risk-free interest rate ...................................................................................
Dividend yield ..............................................................................................
Average expected term .................................................................................
Expected stock price volatility .....................................................................

Year Ended June 30,

2018

2016

10.41

2.0 %
— %
4.6 years
35.4 %

12.63

1.6 %
— %
5.1 years
47.1 %

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
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.

110

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

The following table summarizes NQO activity for the three most recent fiscal years:

Weighted
Average
Exercise
Price ($)
12.30

Weighted
Average
Grant Date
Fair Value ($)
5.54

Weighted
Average
Remaining
Life
(Years)
3.9

Outstanding NQOs:
Outstanding at June 30, 2015 .........................
Granted ...................................................
Exercised.................................................
Cancelled/Forfeited .................................
Outstanding at June 30, 2016 .........................
Granted ...................................................
Exercised(1) ............................................
Cancelled/Forfeited .................................
Outstanding at June 30, 2017 .........................
Granted ...................................................
Exercised.................................................
Cancelled/Forfeited .................................
Outstanding at June 30, 2018 .........................

Vested and exercisable at June 30, 2018 ........
Vested and expected to vest at June 30,

2018 ........................................................

Number
of NQOs

329,300
21,595
(112,895 )

(18,371 )
219,629
—
(67,482 )

(18,683 )
133,464
124,278
(86,160 )

(10,258 )
161,324
41,163

29.48

12.35

13.45

13.87

—

12.38

25.13

13.05

31.70

12.32

28.52

26.82

12.59

12.63

5.37

6.17

6.28

—

5.57

10.90

5.99

10.41

5.71

10.72

9.24

5.79

Aggregate
Intrinsic
Value
($
in thousands)
3,700
—
1,853
—
3,995
—
1,407
—
2,299
—
1,654
—
741
741

741

6.4

—

3.7

—

2.6

6.1

—

5.1

1.5

5.1

153,562

26.58

9.18

___________
(1) Includes 11,147 shares that were withheld to cover option cost and meet the employees' minimum statutory tax withholding

and retired.

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 $30.55 at June 29, 2018, $30.25 at June 30, 2017 and $32.06 at
June 30, 2016, 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 NQO
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 2018, 2017, and 2016 was $24,000, $0.2 million and $0.3 million,

respectively. The Company received $1.1 million, $0.5 million and $1.4 million in proceeds from exercises of vested NQOs in
fiscal 2018, 2017 and 2016, respectively.

111

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, 2015 .............................................
Granted .......................................................................
Vested ..........................................................................
Forfeited ......................................................................

Outstanding at June 30, 2016 .............................................
Vested ..........................................................................
Forfeited ......................................................................

Outstanding at June 30, 2017 .............................................
Granted .......................................................................
Vested ..........................................................................
Forfeited ......................................................................

Outstanding at June 30, 2018 .............................................

Number
of
NQOs

80,195
21,595
(47,418)
(15,641)
38,731
(15,765)
(14,878)
8,088
124,278
(1,947)
(10,258)
120,161

Weighted
Average
Exercise
Price ($)
15.94
29.48
14.05
12.95

27.02
26.45
27.44

27.33
31.70
31.70
30.47

31.70

Weighted
Average
Grant Date
Fair Value ($)
7.21
12.63
6.44
6.09

Weighted
Average
Remaining
Life (Years)
5.2
6.4
—
—

11.63
11.41
11.96

11.47
10.41
10.41
12.40

10.43

6.1
—
—

5.3
6.1
—
—

6.4

As of June 30, 2018 and 2017, respectively, there was $1.0 million and $80,000 of unrecognized compensation cost
related to NQOs. The unrecognized compensation cost related to NQOs at June 30, 2018 is expected to be recognized over the
weighted average period of 2.4 years. Total compensation expense for NQOs was $0.3 million, $0.1 million and $0.2 million in
fiscal 2018, 2017 and 2016, respectively.

Non-qualified stock options with performance-based and time-based vesting (“PNQs”)

In fiscal 2018, the Company granted no shares issuable upon the exercise of PNQs.

In fiscal 2017, the Company granted 149,223 shares issuable upon the exercise of PNQs to eligible employees under the

Amended Equity Plan, with 20% of each such grant subject to forfeiture if a target modified net income goal for fiscal 2017
(“Fiscal 2017 Target”) is not attained. For this purpose, “Modified Net Income” is defined as net income (GAAP) before taxes
and excluding any gains or losses from sales of assets, and excluding the effect of restructuring and other transition expenses
related to the relocation of the Company’s corporate headquarters to Northlake, Texas. These PNQs have an exercise price of
$32.85 per share which was the closing price of the Company’s common stock as reported on the NASDAQ Global Select
Market on the date of grant. One-third of the total number of shares subject to each such stock option vest ratably on each of the
first three anniversaries of the grant date, contingent on continued employment, and subject to accelerated vesting in certain
circumstances.

In fiscal 2016, the Company granted 143,466 shares issuable upon the exercise of PNQs 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 only
80% of the total shares issuable under such grant will vest subject to continued employment with the Company on the relevant
vesting dates.

On June 3, 2016, the Compensation Committee of the Board of Directors of the Company determined that a portion of the

performance 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

112

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

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 performance 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 Select 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, 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.

Following are the assumptions used in the Black-Scholes valuation model for PNQs granted during the fiscal years ended

June 30, 2017 and 2016:

Weighted average fair value of PNQs ......................................................... $
Risk-free interest rate ..................................................................................
Dividend yield .............................................................................................
Average expected term ................................................................................
Expected stock price volatility ....................................................................

Year Ended June 30,

2017

2016

11.42

1.5 %
— %
4.9 years
37.7 %

11.38

1.6%
—%
4.9 years
42.5%

The following table summarizes PNQ activity for the three most recent fiscal years:

Outstanding PNQs:
Outstanding at June 30, 2015 ...........................

Granted ......................................................

Exercised ...................................................

Cancelled/Forfeited ...................................

Outstanding at June 30, 2016 ...........................

Granted ......................................................

Exercised(1) ..............................................

Cancelled/Forfeited ...................................

Outstanding at June 30, 2017 ...........................

Exercised ...................................................

Cancelled/Forfeited ...................................

Outstanding at June 30, 2018 ...........................

Vested and exercisable at June 30, 2018 ..........
Vested and expected to vest at June 30, 2018 ...

Number
of
PNQs
224,067
143,466
(14,144 )

(64,790 )
288,599
149,223
(15,321 )

(63,715 )
358,786

(10,342 )

(47,736 )
300,708
223,318
298,120

Weighted
Average
Exercise
Price ($)
22.44

Weighted
Average
Grant Date
Fair Value ($)
10.31

Weighted
Average
Remaining
Life
(Years)
6.0

29.48

21.20

23.20

25.83

32.85

26.26

31.39

27.75

27.13

32.06

27.08

25.54
27.04

11.38

10.45

10.37

10.82

11.42

10.98

11.39

10.96

11.02

11.43

10.89

10.72
10.88

6.2

—

5.7

4.6

—

5.2

—

4.0

3.7
4.0

Aggregate
Intrinsic
Value
($ in
thousands)

237
—
107
—
1,798
—
109
—
1,181
61
—
1,207
1,174
1,206

___________
(1) Includes 6,326 shares that were withheld to cover option cost and meet the employees' minimum statutory tax withholding

and retired.

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 $30.55 at June 29, 2018, $30.25 at June 30, 2017 and $32.06 at
June 30, 2016, representing the last trading day of the respective fiscal years, which would have been received by PNQ holders

113

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

had all award holders exercised their PNQs that were in-the-money as of those dates. The aggregate intrinsic value of PNQ
exercises in each fiscal period 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, 2018, 2017 and 2016 was $0.9 million, $1.3

million and $0.3 million, respectively. The Company received $0.3 million, $0.2 million and $0.3 million in proceeds from
exercises of vested PNQs in fiscal 2018, 2017 and 2016, respectively.

As of June 30, 2018, the Company met the performance targets for the fiscal 2016 PNQ awards and the fiscal 2015 PNQ
awards. In fiscal 2018, based on the Company's failure to achieve certain financial objectives over the applicable performance
period, a total of 18,708 shares subject to fiscal 2017 PNQ awards were forfeited, representing 20% of the shares subject to
each such award. Subject to certain continued employment conditions and subject to accelerated vesting in certain
circumstances, one half of the remaining PNQs subject to the fiscal 2017 PNQ awards are scheduled to vest on each of the
second and third anniversaries of the grant date. The Company expects to meet the performance targets for the remainder of the
fiscal 2017 PNQ awards.

The following table summarizes nonvested PNQ activity for the three most recent fiscal years:

Nonvested PNQs:
Outstanding at June 30, 2015 .............................................
Granted .......................................................................
Vested ..........................................................................
Forfeited ......................................................................

Outstanding at June 30, 2016 .............................................
Granted .......................................................................
Vested ..........................................................................
Forfeited ......................................................................

Outstanding at June 30, 2017 .............................................
Vested ..........................................................................
Forfeited ......................................................................

Outstanding at June 30, 2018 .............................................

Number
of
PNQs
189,108
143,466
(27,317)
(64,790)
240,467
149,223
(119,403)
(62,262)
208,025
(82,899)
(47,736)
77,390

Weighted
Average
Exercise
Price ($)
22.66
29.48
10.16
23.20

26.49
32.85
24.91
31.39

30.48
29
32

31.53

Weighted
Average
Grant Date
Fair Value ($)
10.28
11.38
23.44
10.37

Weighted
Average
Remaining
Life (Years)
6.2
6.2
—
—

10.92
11.42
10.75
11.39

11.24
10.99
11.43

11.39

5.9
4.6
—
—

5.8
—
—

5.0

As of June 30, 2018 and 2017, there was $0.5 million and $1.8 million, respectively, of unrecognized compensation cost
related to PNQs. The unrecognized compensation cost related to PNQs at June 30, 2018 is expected to be recognized over the
weighted average period of 0.9 years. Total compensation expense related to PNQs in fiscal 2018, 2017 and 2016 was $0.8
million, $1.1 million and $0.5 million, respectively.

Restricted Stock

During fiscal 2018, the Company granted 13,110 shares of restricted stock under the 2017 Plan with a weighted average
grant date fair value of $33.88 per share, to eligible employees and directors. The fiscal 2018 restricted stock awards cliff vest
on the earlier of the one year anniversary of the grant date or the date of the first annual meeting of the Company’s stockholders
immediately following the grant date, in the case of non-employee directors, and the third anniversary of the grant date, in the
case of eligible employees, in each case subject to continued service to the Company through the vesting date and the
acceleration provisions of the 2017 Plan and restricted stock agreement.

During fiscal 2017 and 2016, the Company granted 5,106 shares and 10,170 shares of restricted stock under the Amended
Equity Plan, respectively, with a weighted average grant date fair value of $35.25 and $29.99 per share, respectively, to eligible
employees and directors. Shares of restricted stock generally vest at the end of three years for eligible employees. Unlike prior-
year awards to non-employee directors, which vest ratably over a period of three years, the fiscal 2017 restricted stock awards
to non-employee directors cliff vest on the first anniversary of the date of grant subject to continued service to the Company
through the vesting date and the acceleration provisions of the Amended Equity Plan and restricted stock agreement.

During fiscal 2018, 9,642 shares of restricted stock vested.

114

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

The following table summarizes restricted stock activity for the three most recent fiscal years:

Outstanding and Nonvested Restricted Stock Awards:
Outstanding at June 30, 2015 .....................................
Granted ...............................................................
Exercised/Released(1) ........................................
Cancelled/Forfeited .............................................

Outstanding at June 30, 2016 .....................................
Granted ...............................................................
Exercised/Released .............................................
Cancelled/Forfeited .............................................

Outstanding at June 30, 2017 .....................................
Granted ...............................................................

Exercised/Released .............................................

Cancelled/Forfeited .............................................

Outstanding at June 30, 2018 .....................................

Expected to vest at June 30, 2018 ..............................

Shares
Awarded

47,082
10,170
(24,841 )
(8,619 )
23,792
5,106
(7,458 )
(5,995 )
15,445
13,110
(9.642 )

(3.955 )
14,958
14,493

Weighted
Average
Grant Date
Fair Value
($)
16.48
29.99
14.08
13.06

Weighted
Average
Remaining
Life
(Years)
1.2
—
—
—

26.00
35.25
24.16
26.41

29.79
33.88

31.12

26.13

33.48

33.50

1.8
—
—
—

0.9
—

—

1.7

Aggregate
Intrinsic
Value
($ in thousands)
1,106
305
747
—
763
180
253
—
467
444
323
—
457
443

__________
(1) 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 $30.55 at June 29, 2018, $30.25 at June 30, 2017 and
$32.06 at June 30, 2016, representing the last trading day of the respective fiscal years. Restricted stock that is expected to vest
is net of estimated forfeitures.

As of each of June 30, 2018 and 2017, there was $0.3 million of unrecognized compensation cost related to restricted
stock. The unrecognized compensation cost related to restricted stock at June 30, 2018 is expected to be recognized over the
weighted average period of 0.8 years. Total compensation expense for restricted stock was $0.3 million, $0.2 million and $0.2
million, for the fiscal years ended June 30, 2018, 2017 and 2016, respectively.

Performance-Based Restricted Stock Units (“PBRSUs”)

During fiscal 2018, the Company granted 37,414 PBRSUs under the 2017 Plan to eligible employees with a grant date

fair value of $31.70 per unit. The fiscal 2018 PBRSU awards cliff vest on the third anniversary of the date of grant based on the
Company’s achievement of certain financial performance goals for the performance period July 1, 2017 through June 30, 2020,
subject to certain continued employment conditions and subject to acceleration provisions of the 2017 Plan and restricted stock
unit agreement. At the end of the three-year performance period, the number of PBRSUs that actually vest will be 0% to 150%
of the target amount, depending on the extent to which the Company meets or exceeds the achievement of those financial
performance goals measured over the full three-year performance period. No PBRSUs were granted during fiscal 2017 and
fiscal 2016.

115

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

The following table summarizes PBRSU activity for the most recent fiscal year:

Outstanding and Nonvested PBRSUs:
Outstanding and nonvested at June 30, 2017 ........................

Granted(1) ......................................................................
Vested/Released .............................................................
Cancelled/Forfeited ........................................................

Outstanding and nonvested at June 30, 2018 ........................
Expected to vest at June 30, 2018 .........................................

Weighted
Average
Grant Date
Fair Value
($)
—

Weighted
Average
Remaining
Life
(Years)
—

31.70
—
31.70

31.70
31.70

—
—
—

3.4
3.4

Aggregate
Intrinsic
Value
($
in thousands)
—
1,186
—
—
1,092
971

PBRSUs
Awarded

—
37,414
—
(1,682 )
35,732
31,800

_____________
(1) The target number of PBRSUs is presented in the table. Under the terms of the awards, the recipient may earn

between 0% and 150% of the target number of PBRSUs depending on the extent to which the Company meets or exceeds the
achievement of the applicable financial performance goals.

The aggregate intrinsic value of PBRSUs outstanding at June 30, 2018 represents the total pretax intrinsic value, based on
the Company’s closing stock price of $30.55 at June 29, 2018, representing the last trading day of the fiscal year. PBRSUs that
are expected to vest are net of estimated forfeitures.

As of June 30, 2018 and 2017, there was $0.9 million and $0, respectively, of unrecognized compensation cost related to

PBRSUs. The unrecognized compensation cost related to PBRSUs at June 30, 2018 is expected to be recognized over the
weighted average period of 2.4 years. Total compensation expense for PBRSUs was $0.2 million, $0 and $0 for the fiscal years
ended June 30, 2018, 2017 and 2016, respectively.

Note 19. 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(1) .................................................................................................
Other (including net taxes payable)(2) ...................................................................

Other current liabilities ......................................................................................... $

June 30,

2018

2017

810 $

1,698
3,761
600
3,790
10,659 $

893
1,885
3,956
100
2,868
9,702

___________
(1) Includes in fiscal 2018, $0.6 million in estimated fair value of earnout payable in connection with the Company’s

acquisition of substantially all of the assets of West Coast Coffee completed on February 7, 2017 (see Note 4). Includes in
fiscal 2017, $0.1 million in earnout payable in connection with the Company’s acquisition of substantially all of the assets
of Rae' Launo Corporation.

(2) Includes in fiscal 2018 $0.1 million in cumulative preferred dividends, undeclared and unpaid.

116

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

Note 20. Other Long-Term Liabilities

Other long-term liabilities include the following:

(In thousands)
Earnout payable(1) ..................................................................................... $

Long-term obligations under capital leases ................................................

Derivative liabilities—noncurrent ..............................................................

Multiemployer Plan Holdback—Boyd Coffee ...........................................

Cumulative preferred dividends, undeclared and unpaid—noncurrent ......

Other long-term liabilities ....................................................................... $

June 30,

2018

2017

— $
58
386
1,056
312
1,812 $

1,100
237
380
—
—
1,717

___________
(1) At June 30, 2017, includes $0.5 million and $0.6 million in earnout payable in connection with the Company’s
acquisition of substantially all of the assets of China Mist completed on October 11, 2016 and the Company’s
acquisition of substantially all of the assets of West Coast Coffee completed on February 7, 2017, respectively. In fiscal
2018, the Company recorded a change in the estimated fair value of the China Mist contingent earnout consideration of
$(0.5) million as the Company does not expect the contingent sales levels to be reached. The West Coast Coffee earnout
is estimated to be paid within twelve months and is included in other current liabilities on the Company’s consolidated
balance sheet at June 30, 2018. See Note 4 and Note 19.

Note 21. Income Taxes

The current and deferred components of the provision for income taxes consist of the following (prior period amounts

have been retrospectively adjusted to reflect the impact of certain changes in accounting principles and corrections to
previously issued financial statements as described in Note 3):

(In thousands)
Current:

2018

June 30,

2017

2016

Federal .................................................................................... $
State ........................................................................................

Total current income tax expense ....................................

Deferred:

Federal ....................................................................................
State ........................................................................................

Total deferred income tax expense (benefit) ....................

Income tax expense (benefit) ................................. $

101 $
56
157

17,090
65
17,155
17,312 $

132 $
340
472

12,120
2,223
14,343
14,815 $

214
103
317

(60,069 )
(12,487 )

(72,556 )

(72,239 )

A reconciliation of income tax expense (benefit) to the federal statutory tax rate is as follows (prior period amounts

have been retrospectively adjusted to reflect the impact of certain changes in accounting principles and corrections to
previously issued financial statements as described in Note 3):

117

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

(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 .....................................................................
Other (net) ......................................................................................

Income tax expense (benefit) .................................................. $

2018

28%
(272 ) $
12
—
283
18,022
19
(752)

17,312

June 30,

2017

2016

35%

13,078
1,707
(134)
(14)
(54)
1
231
14,815

(157 )
160
(140)
(71,670)
(836)
135
269
(72,239 )

The primary components of the temporary differences which give rise to the Company’s net deferred tax assets

(liabilities) are as follows:

(In thousands)
Deferred tax assets:

Postretirement benefits ..................................................... $
Accrued liabilities .............................................................
Net operating loss carryforwards ......................................
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) ........................................... $

2018

June 30,

2017

2016

18,862 $
4,754
32,552
6,728
62,896

—
(16,156 )

(5,536 )

(21,692 )

(1,896 )
39,308 $

29,813 $
7,885
38,981
6,824
83,503

—
(17,096 )

(10,861 )

(27,957 )

(1,613 )
53,933 $

33,815
11,760
38,196
6,952
90,723

(609 )
(5,370 )

(11,609 )

(17,588 )

(1,627 )
71,508

At June 30, 2018, the Company had approximately $124.9 million in federal and $103.1 million in state net operating
loss carryforwards that will begin to expire in the years ending June 30, 2030 and June 30, 2018, respectively. Additionally,
at June 30, 2018, the Company had $0.8 million of federal business tax credits that begin to expire in June 30, 2025 and
approximately $1.8 million of federal alternative minimum tax credits that do not expire.

Under previous accounting rules related to share-based compensation, the Company recognized windfall tax benefits

associated with the exercise of share-based compensation directly to stockholders' equity when realized. Accordingly
deferred tax assets were not recognized for net operating loss carryforwards resulting from windfall tax benefits prior to
June 30, 2017. As discussed in Note 2, the Company adopted ASU 2016-09 beginning on July 1, 2017. Upon adoption, the
Company recorded a $1.6 million increase to deferred tax assets and a corresponding increase to retained earnings.

At June 30, 2018, the Company had total deferred tax assets of $62.9 million and net deferred tax assets before
valuation allowance of $41.2 million. 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 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

118

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

Company’s deferred tax assets as of June 30, 2018. As of June 30, 2018, 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 $1.9 million to offset this deferred tax asset. The valuation allowance increased $0.3
million and decreased $71.7 million, in fiscal 2018 and 2016, respectively. There was no change to the valuation allowance
in fiscal 2017.

Total unrecognized tax benefits attributable to uncertain tax positions taken in tax returns in each of fiscal 2018, 2017

and 2016 were zero and at June 30, 2018 and 2017, the Company had no unrecognized tax benefits.

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, 2014. The Internal
Revenue Service completed its examination of the Company's tax years ended June 30, 2013 and 2014 and accepted the
returns as filed.

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, 2018 and 2017, 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, 2018, 2017 and 2016, respectively.

On December 22, 2017, the President of the United States signed into law the Tax Act. The SEC subsequently issued
SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. Under SAB 118, companies are able to
record a reasonable estimate of the impacts of the Tax Act if one is able to be determined and report it as a provisional
amount during the measurement period. The measurement period is not to extend beyond one year from the enactment date.
Impacts of the Tax Act that a company is not able to make a reasonable estimate for should not be recorded until a
reasonable estimate can be made during the measurement period.

Pursuant to the Tax Act, the federal corporate tax rate was reduced to 21.0%, effective January 1, 2018. Accordingly,
the Company adjusted its federal statutory rate to 28.1% for the fiscal year ended June 30, 2018. Deferred tax amounts are
calculated based on the rates at which they are expected to reverse in the future. The Company is still analyzing certain
aspects of the Tax Act and refining its calculations which could potentially affect the measurement of these balances or
potentially give rise to new deferred tax amounts. In connection with the initial analysis of the impact of the Tax Act, the
Company has recorded a provisional net tax adjustment of $18.0 million, related to the reduction in the corporate tax rate.
While the Company is able to make a reasonable estimate of the impact of the reduction in corporate rate, it may be affected
by other analyses related to the Tax Act, including, but not limited to, changes to IRC section 162(m), which the Company is
not yet able to reasonably estimate the effect of this provision of the Tax Act. Therefore, the Company has not made any
adjustments related to IRC section 162(m) in its consolidated financial statements. Adjustments will be made to the initial
assessment as the Company completes the analysis of the Tax Act, collects and prepares necessary data, and interprets any
additional guidance.

Note 22. Net (Loss) Income Per Common Share

Computation of EPS for the year ended June 30, 2018 excludes the dilutive effect of 462,032 shares issuable under

stock options, 35,732 PBRSUs and 393,769 shares issuable upon the assumed conversion of the outstanding Series A
Preferred Stock because the Company incurred a net loss in fiscal 2018 so their inclusion would be anti-dilutive.

Computation of EPS for the years ended June 30, 2017 and 2016 includes the dilutive effect of 117,007 and 124,879
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 24,671 and 30,931 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.

119

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

(In thousands, except share and per share amounts)
Undistributed net (loss) income available to common stockholders .... $

2018
(18,652) $

2017(1)

2016(1)

22,524 $

71,706

Undistributed net (loss) income available to nonvested restricted

stockholders and holders of convertible preferred stock ..................
Net (loss) income available to common stockholders—basic .............. $

(17)

(18,669) $

27
22,551 $

85
71,791

Year Ended June 30,

Weighted average common shares outstanding—basic .......................
Effect of dilutive securities: .................................................................
Shares issuable under stock options .....................................................

Shares issuable under PBRSUs ............................................................

Shares issuable under convertible preferred stock ...............................

Weighted average common shares outstanding—diluted .....................

Net (loss) income per common share available to common

stockholders—basic .......................................................................... $

Net (loss) income per common share available to common

stockholders—diluted ....................................................................... $

16,815,020

16,668,745

16,502,523

—
—
—
16,815,020

117,007
—
—
16,785,752

124,879
—
—
16,627,402

(1.11) $

1.35

(1.11) $

1.34

4.35

4.32

________________

(1) Prior period amounts have been retrospectively adjusted to reflect the impact of certain changes in accounting principles
and corrections to previously issued financial statements as described in Note 3.

Note 23. Preferred Stock

The Company is authorized to issue 500,000 shares of preferred stock at a par value of $1.00, including 21,000

authorized shares of Series A Preferred Stock.

Series A Convertible Participating Cumulative Perpetual Preferred Stock

On October 2, 2017, the Company issued 14,700 shares of Series A Preferred Stock in connection with the Boyd
Coffee acquisition. The Series A Preferred Stock (a) pays a dividend, when, as and if declared by the Company’s Board of
Directors, of 3.5% APR of the stated value per share, payable quarterly in arrears, (b) has an initial stated value of $1,000
per share, adjustable up or down by the amount of undeclared and unpaid dividends or subsequent payment of accumulated
dividends thereon, respectively, and (c) has a conversion price of $38.32. Dividends may be paid in cash. The Company
accrues for undeclared and unpaid dividends as they are payable in accordance with the terms of the Certificate of
Designations filed with the Secretary of State of the State of Delaware. At June 30, 2018, the Company had undeclared and
unpaid preferred dividends of $389,261 on 14,700 issued and outstanding shares of Series A Preferred Stock. Series A
Preferred Stock is a participating security and has rights to earnings that otherwise would have been available to holders of
the Company's common stock. On an as converted basis, holders of Series A Preferred Stock are entitled to vote together
with the holders of the Company’s common stock and are entitled to share in the dividends on the Company's common
stock, when declared. Each share of Series A Preferred Stock is convertible into the number of shares of the Company’s
common stock (rounded down to the nearest whole share and subject to adjustment in accordance with the terms of the
Certificate of Designations) equal to the stated value per share of Series A Preferred Stock divided by the conversion price
of $38.32. Series A Preferred Stock is a perpetual stock and is not redeemable at the election of the Company or any holder.
Based on its characteristics, the Company classified Series A Preferred Stock as permanent equity.

Series A Preferred Stock is carried on the Company’s consolidated balance sheets at the amount recorded at inception

until converted. The Company has the right, exercisable at its election any time on or after October 2, 2018, to convert all
but not less than all of the outstanding Series A Preferred Stock if the last reported sale price per share of the Company’s
common stock exceeds the conversion price of $38.32 on each of at least 20 trading days during the 30 consecutive trading
days ending on, and including, the trading day immediately prior to the date the Company sends the mandatory conversion
notice. The holder may convert 4,200 shares of the Series A Preferred Stock beginning October 2, 2018, an additional 6,300
shares of the Series A Preferred Stock beginning October 2, 2019, and the remaining 10,500 shares of the Series A Preferred

120

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

Stock beginning October 2, 2020. The Series A Preferred Stock (and any underlying shares of the Company’s common
stock) are subject to transfer restrictions beginning on October 2, 2017, and ending on, and including, the earlier of (x) the
conversion date for a mandatory conversion, (y) the conversion date for an elective conversion in accordance with the
Certificate of Designations, and (z) October 2, 2020; provided, that, the holder may transfer to a shareholder of the holder so
long as such transfer is not a transfer of value and such shareholder agrees in writing to be bound by the transfer restrictions.
Notwithstanding the foregoing, additional transfer restrictions exist until the holder, Boyd Coffee, has terminated its defined
benefit plan and all plan assets thereunder have been timely distributed in accordance with all applicable Internal Revenue
Service and Pension Benefit Guaranty Corporation requirements.

At June 30, 2018, Series A Preferred Stock consisted of the following:

(In thousands, except share and per share amounts)

Shares Issued and
Outstanding

Stated Value per
Share

Carrying Value

Cumulative
Preferred
Dividends,
Undeclared and
Unpaid

Liquidation
Preference

14,700 $

1,026 $

15,089 $

389 $

15,089

Shares Authorized
21,000

Note 24. Commitments and Contingencies

Leases

As part of the China Mist transaction, the Company assumed the lease on China Mist’s existing facility in Scottsdale,

Arizona which is terminable upon twelve months’ notice. As part of the West Coast Coffee transaction, the Company
entered into a three-year lease on West Coast Coffee’s existing facility in Hillsboro, Oregon, which expires January 31,
2020, and assumed leases on six branch warehouses in Oregon, California and Nevada, expiring on various dates through
November 2020. The Company did not assume any leases in connection with the Boyd Coffee acquisition. See Note 4.

The Company is also obligated under operating leases for certain 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. Approximately 55% of the Company’s facilities are leased with a variety of expiration dates through 2021.
The lease on the Portland facility was renewed in fiscal 2018 and expires in 2028, subject to an option to renew up to an
additional 10 years. Rent expenses paid for the fiscal years ended June 30, 2018, 2017 and 2016 were $5.5 million,
$5.1 million and $4.5 million, respectively.

121

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

Contractual obligations for future fiscal years are as follows:

Contractual Obligations

Capital
Lease
Obligations

Operating
Lease
Obligations

Expansion
Project
Contract(1)

Pension Pla
n
Obligations
(2)

(In thousands)

Year Ended June 30,

Postretirem
ent
Benefits
Other
Than
Pension
Plans(3)

Revolving
Credit
Facility

Purchase
Commitme
nts (4)

Other
Obligations
(5)

2019 $
2020 $
2021 $
2022 $
2023 $
$

202 $
52 $
8 $
— $
— $
— $

4,803 $
3,069 $
1,823 $
1,264 $
1,070 $
5,247 $
$ 17,276 $

8,520 $ 13,652 $
8,200 $
— $
8,440 $
— $
8,640 $
— $
8,790 $
— $
— $ 44,410 $
8,520 $ 92,132 $

5,915 $
892 $
973 $
1,045 $
1,093 $
6,374 $
16,292 $

89,787 $ 78,690 $
— $
— $
— $
— $
— $
89,787 $ 78,690 $

— $
— $
— $
— $
— $

—
1,754
—
—
—
—
1,754

Thereafter

Total minimum

lease payments ..

262

Less: imputed
interest
(0.82% to
10.66%) ................

Present value of

future
minimum lease
payments ...........

Less: current
portion ..................

Long-term capital

lease
obligations ........

___________

(14 )

248

190

(1) Includes maximum balance due under guaranteed maximum price contract of up to $19.3 million in connection with the

Expansion Project. See Note 6.

(2) Includes $86.7 million in estimated future benefit payments on single employer pension plan obligations, $3.8 million in
estimated payments in fiscal 2019 towards settlement of withdrawal liability associated with the Company’s withdrawal
from the Local 807 Labor Management Pension Plan and $1.7 million in estimated fiscal 2019 contributions to
multiemployer pension plans. See Note 15.

(3) Includes $11.2 million in estimated future benefit payments on postretirement benefit plan obligations and $5.1 million

in estimated fiscal 2019 contributions to multiemployer plans other than pension plans. See Note 15.

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

(5) Includes $1.1 million for Multiemployer Plan Holdback—Boyd Coffee, $0.4 million for Derivative liabilities—

noncurrent and $0.3 million for Cumulative preferred dividends, undeclared and unpaid—noncurrent.

122

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

Expansion Project Contract

On February 9, 2018, the Company and Haskell entered into Task Order 6 for the expansion of the Company’s
production lines in the New Facility. The maximum price payable by the Company to Haskell under Task Order 6 for all of
Haskell’s services, equipment procurement and installation, and construction work in connection with the Expansion Project
is $19.3 million. In fiscal 2018, the Company paid $10.7 million in capital expenditures associated with the Expansion
Project, with the balance of up to the guaranteed maximum price of $19.3 million expected to be paid in fiscal 2019.

Borrowings Under Revolving Credit Facility

At June 30, 2018, the Company had outstanding borrowings of $89.8 million under its Revolving Facility, as compared
to outstanding borrowings of $27.6 million at June 30, 2017. The increase in outstanding borrowings in fiscal 2018 included
$39.5 million to fund the cash paid at closing for the purchase of the Boyd Business and the initial Company obligations
under the post-closing transition services agreement.

Self-Insurance

At June 30, 2018 the Company had posted $2.3 million of cash and a $2.0 million letter of credit, and at June 30, 2017
the Company had posted $3.4 million in cash, as a security deposit for self-insuring workers’ compensation, general liability
and auto insurance coverages.

Non-cancelable Purchase Orders

As of June 30, 2018, the Company had committed to purchase green coffee inventory totaling $66.0 million under

fixed-price contracts, $9.0 million in other inventory under non-cancelable purchase orders and $3.7 million in other
purchases 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, the Company’s subsidiary, Coffee Bean International, Inc., which sell coffee in California under the State of
California's Safe Drinking Water and Toxic Enforcement Act of 1986, also known as Proposition 65. 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, or JDG, 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.

The JDG filed a pleading responding to claims and asserting affirmative defenses on January 22, 2013. The Court

initially limited discovery to the four largest defendants, so the Company was not initially required to participate in
discovery. The Court decided to handle the trial in two “phases,” and the “no significant risk level” defense, the First

123

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

Amendment defense, and the federal preemption defense were tried in the first phase. Trial commenced on September 8,
2014, and testimony completed on November 4, 2014, for the three “Phase 1” defenses.

Following final trial briefing, the Court heard, on April 9, 2015, final arguments on the Phase 1 issues. On September

1, 2015, the Court ruled against the JDG on the Phase 1 affirmative defenses. The JDG received permission to file an
interlocutory appeal, which was filed by writ petition on October 14, 2015. On January 14, 2016, the Court of Appeals
denied the JDG’s writ petition thereby denying the interlocutory appeal so that the case stays with the trial court.

On February 16, 2016, the Plaintiff filed a motion for summary adjudication arguing that based upon facts that had

been stipulated by the JDG, the Plaintiff 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
parties except for the four largest defendants. Following a hearing on April 20, 2016, the Court granted Plaintiff’s motion for
summary adjudication on its prima facie case. Plaintiff filed its motion for summary adjudication of affirmatives defenses on
May 16, 2016. At the August 19, 2016 hearing on Plaintiff’s motion for summary adjudication (and the JDG’s opposition),
the Court denied Plaintiff’s motion, thus maintaining the ability of the JDG to defend the issues at trial. On October 7,
2016, the Court continued the Plaintiff’s motion for preliminary injunction until the trial for Phase 2.

In November 2016, the parties pursued mediation, but were not able to resolve the dispute.

In December 2016, discovery resumed for all defendants. Depositions of “person most knowledgeable” witnesses for

each defendant in the JDG commenced in late December and proceeded through early 2017, followed by new
interrogatories served upon the defendants. The Court set a fact and discovery cutoff of May 31, 2017 and an expert
discovery cutoff of August 4, 2017. Depositions of expert witnesses were completed by the end of July. On July 6, 2017, the
Court held hearings on a number of discovery motions and denied Plaintiff’s motion for sanctions as to all the defendants.

At a final case management conference on August 21, 2017 the Court set August 31, 2017 as the new trial date for
Phase 2, though later changed the starting date for trial to September 5, 2017. The Court elected to break up trial for Phase 2
into two segments, the first focused on liability and the second on remedies. After 14 days at trial, both sides rested on the
liability segment, and the Court set a date of November 21, 2017 for the hearing for all evidentiary issues related to this
liability segment. The Court also set deadlines for evidentiary motions, issues for oral argument, and oppositions to motions.
This hearing date was subsequently moved to January 19, 2018.

On March 28, 2018, the Court issued a proposed statement of decision in favor of Plaintiff. Following evaluation of

the parties' objections to the proposed statement of decision, the Court issued its final statement of decision on May 7, 2018
which was substantively similar to the proposed statement from March 2018. The issuance of a final statement of decision
does not itself cause or order any remedy, such as any requirement to use a warning notice. Any such remedy, including any
monetary damages or fee awards, would be resolved in Phase 3 of the trial.

On June 15, 2018, California’s Office of Environmental Health Hazard Assessment (OEHHA) announced its proposal

of a regulation that would establish, for the purposes of Proposition 65, that chemicals present in coffee as a result of
roasting or brewing pose no significant risk of cancer. If adopted, the regulation would, among other things, mean that
Proposition 65 warnings would generally not be required for coffee. Plaintiff had earlier filed a motion for permanent
injunction, prior to OEHHA’s announcement, asking that the Court issue an order requiring defendants to provide cancer
warnings for coffee or remove the coffee products from store shelves in California. The JDG petitioned the Court to (1)
renew and reconsider the JDG’s First Amendment defense from Phase 1 based on a recent U.S. Supreme Court decision in a
First Amendment case that was decided in the context of Proposition 65; (2) vacate the July 31, 2018 hearing date and
briefing schedule for Plaintiff’s permanent injunction motion; and (3) stay all further proceedings pending the conclusion of
the rulemaking process for OEHHA’s proposed regulation. On June 25, 2018, the Court denied the JDG’s motion to vacate
the hearing on Plaintiff’s motion for permanent injunction and added the motion to stay to the July 31, 2018 docket to be
heard. At the July 31st hearing, the Court granted the JDG’s application and agreed to continue the hearing on all motions to
September 6, 2018.

At the September 6, 2018 hearing, the Court denied the JDG’s First Amendment motion, and denied the motion to stay

pending conclusion of OEHHA’s rulemaking process. The Plaintiff agreed to have the permanent injunction motion
continued until after the remedies phase of the trial. The Court set this “Phase 3” remedies trial phase to begin on October

124

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

15, 2018. The Court further required the submission of a joint trial plan by October 3, 2018 and set the date for the final
pretrial conference as October 9, 2018.

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.

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 25. Unusual and Infrequent Expenses

The Company incurred expenses of $5.2 million, or $0.31 per diluted common share, during the fiscal year ended June

30, 2017 which were unusual in nature and infrequent in occurrence. These expenses incurred for successfully defending
against the 2016 proxy contest included non-recurring legal fees, financial advisory fees, proxy solicitor fees, mailing and
printing costs of proxy solicitation materials and other costs.

Note 26. 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, 2018. 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. All prior period amounts have been retrospectively adjusted to
reflect the impact of the certain changes in accounting principles and corrections to previously issued financial statements as
described in Note 3.

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.

September 30,
2017

December 31,
2017

March 31,
2018

As
Previously
Reported

Retrospectively

Adjusted

As
Previously
Reported

Retrospectively
Adjusted

As
Previously
Reported

Retrospectively
Adjusted

June 30,
2018

(In thousands, except per share
data)
Net sales .................................. $ 131,713 $ 131,713 $ 167,366 $ 167,366 $ 157,927 $ 157,927 $ 149,538
96,939
Cost of goods sold ................... $
52,599
Gross profit .............................. $
41,256
Selling expenses ...................... $
(Loss) income from
operations ................................
$
Net (loss) income .................... $
Net (loss) income available to
common stockholders per
common share—basic ..........

85,672 $ 101,847 $ 111,175 $
56,191 $
65,519 $
46,041 $
42,414 $
49,328 $
32,828 $

99,117 $ 105,716 $
52,211 $
58,810 $
38,041 $
44,736 $

82,706 $
49,007 $
38,915 $

$
840 $

2,001
133

(18,768 ) $

(17,060 ) $

(2,767) $

(2,864 ) $

(3,908 ) $

(2,193) $

(1,258 ) $

(978 ) $

2,442

1,862

(1.13 ) $

(0.24 ) $

(0.14) $

(0.06 ) $

(1.03 ) $

0.05

—

Net (loss) income available to
common stockholders per
common share—diluted .......

(0.06 ) $

0.05

(1.13 ) $

(1.03 ) $

(0.24 ) $

(0.14) $

—

125

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

September 30,
2016

December 31,
2016

March 31,
2017

June 30,
2017

As
Previously
Reported

Retrospectively

Adjusted

As
Previously
Reported

Retrospectively
Adjusted

As
Previously
Reported

Retrospectively

Adjusted

As
Previously
Reported

Retrospectively

Adjusted

(In thousands, except per share
data)
Net sales ................................... $ 130,488 $ 130,488 $ 139,025 $ 139,025 $ 138,187 $ 138,187 $ 133,800 $ 133,800
Cost of goods sold .................... $ 79,290 $ 85,761 $ 83,929 $ 89,531 $ 84,367 $ 88,305 $ 80,182 $ 91,025
Gross profit ............................... $ 51,198 $ 44,727 $ 55,096 $ 49,494 $ 53,820 $ 49,882 $ 53,618 $ 42,775
Selling expenses ....................... $ 38,438 $ 33,303 $ 39,097 $ 32,408 $ 40,377 $ 34,388 $ 39,286 $ 33,230
Income from operations............ $
(3,096 )
Net income (loss) ..................... $
Net income (loss) available to
common stockholders per
common share—basic ...........

1,168 $ 35,910 $ 36,997 $
814 $ 20,076 $ 20,728 $

2,505 $
1,618 $

2,058 $
1,594 $

4,109 $
2,846 $

1,693 $
1,112 $

(1,837 )

0.10

0.05

1.21

0.10

0.17

1.25

0.07

(0.11 )

Net income (loss) available to
common stockholders per
common share—diluted ........

0.10

0.05

1.20

1.24

0.10

0.17

0.07

(0.11 )

In the second quarter of fiscal 2017, the Company completed the sale of the Torrance Facility, and recognized a net

gain from sale in the amount of $37.4 million, including non-cash interest expense of $0.7 million and non-cash rent expense of
$1.4 million. See Note 7.

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, 2018, 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, 2018, 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.

126

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, 2018.

Under guidelines established by the SEC, companies are allowed to exclude an acquired business from management's
report on internal control over financial reporting for the first year subsequent to the acquisition. Accordingly, in making its
assessment of internal control over financial reporting as of June 30, 2018, management has excluded Boyd Assets Co.,
which acquired the business of Boyd Coffee Company on October 2, 2017 in a business combination. The Company is
currently assessing the control environment of the acquired business. The acquired business represents approximately 14%
of the Company's consolidated total assets (including goodwill and intangible assets) and approximately 11% of the
Company's consolidated net sales as of and for the year ended June 30, 2018.

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, 2018, that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.

127

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Farmer Bros. Co.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Farmer Bros. Co. and subsidiaries (the “Company”) as of
June 30, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of June 30, 2018, based on criteria established in Internal
Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended June 30, 2018, of the Company and our report
dated September 13, 2018, expressed an unqualified opinion on those financial statements.

As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its
assessment the internal control over financial reporting at Boyd Assets Co., which acquired the business of Boyd Coffee
Company on October 2, 2017, and whose financial statements constitute approximately 14% of total assets (including
goodwill and intangible assets) and approximately 11% of revenues of the consolidated financial statement amounts as of
and for the year ended June 30, 2018. Accordingly, our audit did not include the internal control over financial reporting at
Boyd Assets Co.

Basis for Opinion

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 are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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.

128

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

Dallas, Texas
September 13, 2018

129

Item 9B.

Other Information

On September 10, 2018 (the “Second Amendment Effective Date”), the Company, China Mist Brands, Inc., a
Delaware corporation (“CMB”), and Boyd Assets Co., a Delaware corporation (together with the Company and CMB, the
“Borrowers”), together with the Company’s wholly owned subsidiaries, Coffee Bean International, Inc., an Oregon
corporation, FBC Finance Company, a California corporation, and Coffee Bean Holding Co., Inc., a Delaware corporation,
as additional Loan Parties, entered into that certain Second Amendment to Credit Agreement (the “Second Amendment”)
with JPMorgan Chase Bank, N.A. (“Chase”), as Administrative Agent, and the financial institutions party thereto as lenders.

The Second Amendment amends the Company’s original Credit Agreement, dated as of March 2, 2015 (the “Original
Credit Agreement”), as amended by that certain First Amendment to Credit Agreement and First Amendment to Pledge and
Security Agreement, dated as of August 25, 2017 (the “First Amendment” and, together with the Original Credit Agreement,
as so amended by the Second Amendment, the “Amended Credit Agreement”), entered into by the Borrowers, the guarantor
subsidiaries party thereto, the Administrative Agent and the financial institutions party thereto as lenders. The following
description of the Second Amendment does not purport to be complete and is subject to, and qualified in its entirety by
reference to (i) the Second Amendment, a copy of which is filed herewith as Exhibit 10.6, and incorporated herein by
reference, (ii) the Original Credit Agreement, a copy of which was filed as Exhibit 10.1 to the Company’s Current Report on
Form 8-K, filed with the SEC on March 6, 2015 and incorporated herein by reference, and (iii) the First Amendment, a copy
of which was filed as Exhibit 101 to the Company’s Current Report on Form 8-K, filed with the SEC on August 30, 2017
and incorporated herein by reference. Capitalized terms used without definition are defined in the Amended Credit
Agreement.

Effective as of August 14, 2018, the Second Amendment amends the definition of “EBITDA” to, among other things,

add certain integration and transaction costs associated with the Boyd Coffee acquisition to the extent incurred during the
period of April 1, 2017 through September 30, 2018, in amounts previously identified to the Administrative Agent in
writing.

In addition, effective as of August 14, 2018, the Second Amendment amends the definition of “Fixed Charge
Coverage Ratio” to exclude from Unfinanced Capital Expenditures in the calculation thereof, such Capital Expenditures
made prior to the Second Amendment Effective Date in an aggregate amount not to exceed, for each of the fiscal quarters
ending December 31, 2017, March 31, 2018, June 30, 2018, and September 30, 2018, the amount previously identified to
the Administrative Agent in writing.

Effective as of August 14, 2018, the Second Amendment also amends the definition of “Reporting Trigger Period” to
provide that, solely during the period commencing with the Second Amendment Effective Date through October 31, 2018,
such period commences on any day that Availability is less than $7,500,000 and continues until Availability has been greater
than or equal to an amount equal to $7,500,000 at all times for 30 consecutive calendar days.

The Second Amendment adds an additional covenant limiting the Borrower’s incurrence of Capital Expenditures to

$35.0 million, in the aggregate, during the fiscal year ending June 30, 2019.

The effect of the foregoing amendments is that Borrowers were in compliance with the fixed charge coverage ratio

covenant and no Event of Default has occurred or existed through the Second Amendment Effective Date.

Chase and its affiliates, have performed, and may in the future perform for the Company and its subsidiaries, various

commercial banking services, for which they have received, and will receive, customary fees and expenses.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by

reference.

130

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 from certain reporting persons that no other reports were required during the fiscal year ended
June 30, 2018, its officers, directors and ten percent stockholders complied with all applicable Section 16(a) filing
requirements, with the exception of Jeanne Farmer Grossman who filed one late Form 4 on March 16, 2018 to report the
sale of 10,000 and 2,080 shares on March 12 and March 13, 2018, respectively. The foregoing is in addition to any filings
that may be 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, 2018.
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, 2018 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.......

Number of
Shares to be
Issued Upon
Exercise / Vesting of
Outstanding
Options or
Rights(2)
462,032
—

Total ..................................................................................

462,032

Weighted
Average
Exercise
Price of
Outstanding
Options(3)
$25.50
—

$25.50

Number of
Shares
Remaining
Available
for Future
Issuance(4)
874,750
—

874,750

131

________________

(1) Includes shares issued under the Prior Plans and the 2017 Plan. The 2017 Plan succeeded the Prior Plans. On the
Effective Date of the 2017 Plan, the Company ceased granting awards under the Prior Plans; however, awards
outstanding under the Prior Plans will remain subject to the terms of the applicable Prior Plan.

(2) Includes shares that may be issued upon the achievement of certain financial and other performance criteria as a

condition to vesting in addition to time-based vesting pursuant to PBRSUs granted under the 2017 Plan. The PBRSUs
included in the table include the maximum number of shares that may be issued under the awards. Under the terms of
the awards, the recipient may earn between 0% and 150% of the target number of PBRSUs depending on the extent to
which the Company meets or exceeds the achievement of the applicable financial performance goals.

(3) Does not include outstanding PBRSUs.
(4) The 2017 Plan authorizes the issuance of (i) 900,000 shares of common stock plus (ii) the number of shares of common
stock subject to awards under the Company’s Prior Plans that are outstanding as of the Effective Date and that expire or
are forfeited, cancelled or similarly lapse following the Effective Date. Subject to certain limitations, shares of common
stock covered by awards granted under the 2017 Plan that are forfeited, expire or lapse, or are repurchased for or paid in
cash, may be used again for new grants under the 2017 Plan. Shares of common stock granted under the 2017 Plan may
be authorized but unissued shares, shares purchased on the open market or treasury shares. In no event will more than
900,000 shares of common stock be issuable pursuant to the exercise of incentive stock options under the 2017 Plan.
The 2017 Plan provides for the grant of stock options (including incentive stock options and non-qualified stock
options), stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, performance shares and
other stock- or cash-based awards to eligible participants. Non-employee directors of the Company and employees of
the Company or any of its subsidiaries are eligible to receive awards under the 2017 Plan.

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.

132

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, 2018 and 2017

Consolidated Statements of Operations for the Years Ended June 30, 2018, 2017 and 2016

Consolidated Statements of Comprehensive (Loss) Income for the Years Ended June 30, 2018, 2017 and 2016

Consolidated Statements of Cash Flows for the Years Ended June 30, 2018, 2017 and 2016

Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2018, 2017 and 2016

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:

Exhibit
No.

Description

2.1

2.2

2.3

3.1

3.2

3.3

Asset Purchase Agreement, dated as of November 16, 2015, by and between Farmer Bros. Co. and Harris
Spice Company Inc. (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the
SEC on November 20, 2015 and incorporated herein by reference).*

Purchase Agreement, dated as of September 9, 2016, among Tea Leaf Acquisition Corp., China Mist
Brands, Inc., certain stockholders of China Mist Brands, Inc., for certain limited purposes, Daniel W.
Schweiker and John S. Martinson, and Daniel W. Schweiker, in his capacity as the sellers’ representative
(filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 14,
2016 and incorporated herein by reference).*

Asset Purchase Agreement, dated as of August 18, 2017, by and among Farmer Bros. Co., Boyd Assets
Co., Boyd Coffee Company, and each of the parties set forth on Exhibit A thereto (filed as Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed with the SEC on August 21, 2017 and incorporated
herein by reference).*

Certificate of Incorporation of Farmer Bros. Co. (filed as Exhibit 3.1 to the Company’s Current Report on
Form 8-K filed with the SEC on June 26, 2017 and incorporated herein by reference).

Certificate of Amendment to the Certificate of Incorporation of Farmer Bros. Co. (filed as Exhibit 3.2 to
the Company's Current Report on Form 8-K filed with the SEC on June 26, 2017 and incorporated herein
by reference).

Amended and Restated Bylaws (filed as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2016 filed with the SEC on May 6, 2016 and incorporated herein by
reference).

133

Exhibit
No.

Description

3.4

3.5

4.1

4.2

4.3

10.1

10.2

10.3

10.4

10.5

10.6

10.7

Certificate of Elimination (filed as Exhibit 3.3 to the Company's Registration Statement on Form 8-
A12B/A filed with the SEC on September 24, 2015 and incorporated herein by reference).

Certificate of Designations of Series A Convertible Participating Cumulative Perpetual Preferred Stock of
Farmer Bros. Co. (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the SEC
on October 3, 2017 and incorporated herein by reference).

Specimen Stock Certificate for Common Stock (filed as Exhibit 4.1 to the Company's Registration
Statement on Form 8-A12B/A filed with the SEC on September 24, 2015 and incorporated herein by
reference).

Specimen Stock Certificate for Series A Convertible Participating Cumulative Perpetual Preferred Stock
(filed as Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November
7, 2017 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 filed with the SEC on 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 filed
with the SEC on March 6, 2015 and incorporated herein by reference).

Joinder Agreement, dated as of October 11, 2016, by and among China Mist Brands, Inc., Farmer Bros.
Co., as the Borrower Representative, and JPMorgan Chase Bank, N.A., as Administrative Agent, under
that certain Credit Agreement dated as of March 2, 2015 (filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 2016 filed with the SEC on February 9, 2017
and incorporated herein by reference).

Joinder to Pledge and Security Agreement, dated as of October 11, 2016, by and among Farmer Bros. Co.,
Coffee Bean International, Inc., FBC Finance Company, Coffee Bean Holding Co., Inc., China Mist
Brands, Inc. and JPMorgan Chase Bank, N.A., as Administrative Agent (filed as Exhibit 10.4 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2016 filed with the SEC
on February 9, 2017 and incorporated herein by reference).

First Amendment to Credit Agreement and First Amendment to Pledge and Security Agreement, dated as
of August 25, 2017, by and among Farmer Bros. Co., China Mist Brands, Inc., Coffee Bean International,
Inc., FBC Finance Company, Coffee Bean Holding Company, 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 filed with the SEC on August 30, 2017 and incorporated herein by reference).

Second Amendment to Credit Agreement, dated as of September 10, 2018, by and among Farmer Bros.
Co., China Mist Brands, Inc., Boyd Assets Co., Coffee Bean International, Inc., FBC Finance Company,
Coffee Bean Holding Company, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as
Administrative Agent (filed herewith).

Joinder Agreement, dated as of November 29, 2017, by and among Boyd Assets Co., Farmer Bros. Co., as
the Borrower’s Representative, and JPMorgan Chase Bank, N.A., as Administrative Agent, under that
certain Credit Agreement dated as of March 2, 2015, as amended by that certain First Amendment to
Credit Agreement, dated as of August 25, 2017 (filed as Exhibit 10.6 to the Company’s Quarterly Report
on Form 10-Q for the quarter ended December 31, 2017 filed with the SEC on February 7, 2018 and
incorporated herein by reference).

134

Exhibit
No.
10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

Description

Joinder to Pledge and Security Agreement, dated as of November 29, 2017, by and among Farmer Bros.
Co., Coffee Bean International, Inc., FBC Finance Company, Coffee Bean Holding Co., Inc., China Mist
Brands, Inc., Boyd Assets Co. and JPMorgan Chase Bank, N.A., as Administrative Agent (filed as Exhibit
10.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2017 filed
with the SEC on February 7, 2018 and incorporated herein by reference).

Farmer Bros. Co. Pension Plan for Salaried Employees (filed as Exhibit 10.6 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2017 filed with the SEC on November 7, 2017
and incorporated herein by reference).**

Amendment No. 1 to Farmer Bros. Co. Retirement Plan effective June 30, 2011 (filed as Exhibit 10.4 to
the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016 filed with the SEC
on September 14, 2016 and incorporated herein by reference).**

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 10.10
to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 filed with the
SEC on May 9, 2018 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 for the quarter ended March 31, 2016 filed with the SEC on
May 6, 2016 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, 2012 (filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 2017 filed with the SEC on September 28, 2017 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).**

Amendment dated October 6, 2016 to Farmer Bros. Co. Amended and Restated Employee Stock
Ownership Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC
on October 7, 2016 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, 2017 (filed as Exhibit 10.18 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended December 31, 2017 filed with the SEC on February 7, 2018 and incorporated herein by
reference).**

135

Exhibit
No.
10.20

10.21

10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32

Description

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 for the quarter
ended March 31, 2016 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 for the quarter ended March 31, 2016 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 for the
quarter ended March 31, 2016 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 10.18 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2017 filed with the SEC on May 10, 2017 and incorporated herein by reference).**

Separation Agreement, dated as of February 6, 2018, by and between Farmer Bros. Co., and Scott Bixby
(filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 8,
2018 and incorporated herein by reference).**

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 for the fiscal year ended
June 30, 2015 filed with the SEC on September 14, 2015 and incorporated herein by reference).**

Employment Agreement, dated as of February 17, 2017, by and between Farmer Bros. Co. and David G.
Robson (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on
February 23, 2017 and incorporated herein by reference).**

Employment Agreement, dated as of February 17, 2017, by and between Farmer Bros. Co. and Ellen D.
Iobst (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on February
23, 2017 and incorporated herein by reference).**

Employment Agreement, dated as of February 17, 2017, by and between Farmer Bros. Co. and Scott A.
Siers (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on February
23, 2017 and incorporated herein by reference).**

Form of First Amendment to Employment Agreement entered into between Farmer Bros. Co. and each of
Michael H. Keown, David G. Robson, Ellen D. Iobst, Scott W. Bixby, Scott A. Siers and Thomas J.
Mattei, Jr. (filed as Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2017 filed with the SEC on May 10, 2017 and incorporated herein by reference).**

Confidential General Release and Separation Agreement by and between Barry C. Fischetto and Farmer
Bros. Co. dated February 17, 2017 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed with the SEC on February 17, 2017 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 10.27 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2017 filed with the SEC on November 7, 2017
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).**

136

Exhibit
No.
10.33

10.34

10.35

10.36

10.37

10.38

10.39

10.40

10.41

10.42

10.43

10.44

10.45

Description

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 for the quarter ended December 31, 2014 filed
with the SEC on February 9, 2015 and incorporated herein by reference).**

Farmer Bros. Co. 2017 Long-Term Incentive Plan (as approved by the stockholders at the Special
Meeting of Stockholders on June 20, 2017) (filed as Exhibit 10.1 to the Company's Current Report on
Form 8-K filed with the SEC on June 26, 2017 and incorporated herein by reference).**

Form of Farmer Bros. Co. 2017 Long-Term Incentive Plan Stock Option Award Agreement (filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 4, 2017 and
incorporated herein by reference).**

Form of Farmer Bros. Co. 2017 Long-Term Incentive Plan Stock Restricted Stock Unit Award Agreement
(filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on December 4,
2017 and incorporated herein by reference).**

Form of Farmer Bros. Co. 2017 Long-Term Incentive Plan Stock Restricted Stock Grant Agreement
(Directors) (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on
December 4, 2017 and incorporated herein by reference).**

Form of Farmer Bros. Co. 2017 Long-Term Incentive Plan Stock Restricted Stock Grant Agreement
(Employees) (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on
December 4, 2017 and incorporated herein by reference).**

Form of Farmer Bros. Co. 2007 Omnibus Plan Stock Option Grant Notice and Stock Option Agreement
(filed as Exhibit 10.39 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2018 filed with the SEC on May 9, 2018 and incorporated herein by reference).**

Form of Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive 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 December 18, 2013 and incorporated herein by reference).**

Form of Farmer Bros. Co. 2007 Omnibus Plan Restricted Stock Award Grant Notice and Restricted Stock
Award Agreement (filed as Exhibit 10.41 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2018 filed with the SEC on May 9, 2018 and incorporated herein by
reference).**

Form of Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan Restricted Stock
Award Grant Notice and Restricted Stock Award Agreement (filed as Exhibit 10.3 to the Company's
Current Report on Form 8-K filed with the SEC on December 18, 2013 and incorporated herein by
reference).**

Stock Ownership Guidelines for Directors and Executive Officers (filed as Exhibit 10.27 to the
Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016 filed with the SEC on
September 14, 2016 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 10.35 to the Company’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2017 filed with the SEC on May 10, 2017 and incorporated herein by
reference).**

Form of First Amendment to Change in Control Severance Agreement entered into between Farmer Bros.
Co. and each of Michael H. Keown, David G. Robson, Ellen D. Iobst, Scott W. Bixby, Scott A. Siers and
Thomas J. Mattei, Jr. (filed as Exhibit 10.36 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2017 filed with the SEC on May 10, 2017 and incorporated herein by
reference).**

137

Exhibit
No.
10.46

10.47

10.48

14.1

18.1

21.1

23.1

31.1

31.2

32.1

32.2

101

Description

Form of Indemnification Agreement for Directors and Officers of the Company, as adopted on December
8, 2017 (with schedule of indemnitees attached) (filed as Exhibit 10.41 to the Company’s Current Report
on Form 8-K filed with the SEC on December 13, 2017 and incorporated herein by reference).**

Standard Form of Agreement between Owner and Design-Builder (AIA Document A141-2014 Edition),
dated as of October 23, 2017, by and between Farmer Bros. Co. and The Haskell Company (filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 15, 2018 and
incorporated herein by reference).

Project Specific Task Order Release Form No. 006, dated as of February 9, 2018, between Farmer Bros.
Co. and The Haskell Company (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed
with the SEC on February 15, 2018 and incorporated herein by reference).

Farmer Bros. Co. Code of Conduct and Ethics adopted on August 26, 2010 and updated February 2013
and September 7, 2017 (filed as Exhibit 14.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 2017 filed with the SEC on September 29, 2017 and incorporated herein by
reference).

Letter from Deloitte & Touche LLP, Independent Registered Public Accounting Firm re change in
accounting principle (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, 2018, formatted in eXtensible Business Reporting Language: (i) Consolidated Balance
Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive
(Loss) Income, (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.

Item 16.

Form 10-K Summary

None.

138

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, 2018

By:

/s/ David G. Robson

David G. Robson
Treasurer and Chief Financial Officer
(principal financial and accounting officer)
September 13, 2018

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/ Allison M. Boersma

Allison M. Boersma

Jeanne Farmer Grossman

/s/ Michael H. Keown

Michael H. Keown

/s/ Charles F. Marcy

Charles F. Marcy

/s/ Christopher P. Mottern

Christopher P. Mottern

/s/ David W. Ritterbush

David W. Ritterbush

Chairman of the Board and Director

September 13, 2018

Director

September 13, 2018

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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 2018 Form 10-K. These forward-looking statements can
be identified by the use of words like “anticipates,” “estimates,” “projects,” “expects,” “plans,” “believes,”
“intends,” “will,” “could,” “assumes” and other words of similar meaning. These risks and uncertainties include,
but are not limited to, the success of the Company’s Corporate Relocation Plan, the timing and success of the
Company’s DSD Restructuring Plan, the Company’s success in consummating acquisitions and integrating
acquired businesses, the adequacy and availability of capital resources to fund the Company’s existing and
planned business operations and capital expenditure requirements, the ability of the Company to achieve strategic
initiatives, the success of the Company’s selling strategies to improve customer acquisition results, increase
coffee volume growth, and expand gross margin, whether Company changes executed in the past year will
produce Company benefits in the future, the relative effectiveness of compensation-based employee incentives in
causing improvements in Company performance, 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 as of the date they are made 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.

1912 Farmer Brothers Drive
Northlake, Texas 76262
888.998.2468

DIRECTORS

EXECUTIVE OFFICERS

Michael H. Keown
President, Chief Executive Officer

David G. Robson
Treasurer, Chief Financial Officer

Ellen D. Iobst
Chief Operations Officer

Scott A. Siers
Senior Vice President and General Manager – Sales

Thomas J. Mattei, Jr.
Chief Legal Officer and Secretary

Randy E. Clark
Chairman of the Board
Chair, Compensation Committee
Food Industry Consultant

Allison M. Boersma
Chief Financial Officer and Chief Operating Officer
BRG Sports Inc.

Jeanne Farmer Grossman
Retired Teacher

Michael H. Keown
President, Chief Executive Officer
Farmer Bros. Co.

Charles F. Marcy
Chair, Nominating and Corporate
Governance Committee
Food Industry Consultant

Christopher P. Mottern
Chair, Audit Committee
Independent Business Consultant

David W. Ritterbush
Chief Executive Officer
Quest Nutrition, LLC

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Deloitte & Touche LLP
2200 Ross Avenue, Suite 1600
Dallas, Texas 75201

TRANSFER AGENT AND REGISTRAR

EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, Minnesota 55120-4100
800.401.1957

FINANCIAL HIGHLIGHTS(1)
(In thousands, except per share data)

Fiscal year ended June 30,

2018(2)

2017(2)(3)

2016(3)

2015(3)

2014(3)

Net sales

Cost of goods sold

$ 606,544

$ 541,500

$ 544,382

$ 545,882

$ 528,380

$ 399,502

$ 354,622

$ 373,214

$ 386,253

$ 351,565

Restructuring and other transition expenses

$ 662

$ 11,016

$ 16,533

$ 10,432

$ —

Net gain from sale of Torrance Facility

$ — $ (37,449)

$ — $ — $ —

Net gains from sale of Spice Assets

Net (gains) losses from sales of other assets

$ (770)

$ (196)

$ (919)

$ (5,603)

$ — $ —

$ (1,210)

$ (2,802)

$ 394

$ (3,814)

Impairment losses on intangible assets

$ 3,820

$ — $ — $ — $ —

Income (loss) from operations

$ 1,124 $ 39,178

$ (2,190)

$ (7,076)

$ 16,584

Income (loss) from operations per common share—diluted

$ 0.07

$ 2.33

$ (0.13)

$ (0.43)

$ 1.04

Income tax expense (benefit)

$ 17,312

$ 14,815

$ (72,239) $ 402

$ 705

Net (loss) income available to common stockholders

$ (18,669)

$ 22,551

$ 71,791

$ (9,708)

$ 19,800

Net (loss) income available to common stockholders per
common share—basic

Net (loss) income available to common stockholders per
common share—diluted

$ (1.11)

$ 1.35

$ 4.35

$ (0.60)

$ 1.24

$ (1.11)

$ 1.34

$ 4.32

$ (0.60)

$ 1.24

Total capital expenditures(4)

$ 37,020

$ 84,949

$ 50,475

$ 19,216

$ 25,267

June 30,

Total assets

2018

2017(3)

2016(3)

2015(3)

2014(3)

$ 475,531

$ 407,153

$ 383,714

$ 282,417

$ 333,658

Deferred income taxes

$ 39,308

$ 53,933

$ 71,508

$ 11,770

$ 15,403

Short-term borrowings under revolving credit facility

Capital lease obligations

Earnout payable

$ 89,787

$ 248

$ 600

$ 27,621

$ 109

$ 78

$ 1,195

$ 2,359

$ 5,848

$ 9,703

$ 1,100

$ 100

$ 200

$ —

Long-term derivative liabilities

$ 386

$ 380

$ — $ 25

$ —

Total liabilities

$ 246,476

$ 177,601

$ 186,397

$ 161,951

$ 166,302

(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, 2018 (the “2018 Form 10-K”).

(2) The results of operations of businesses acquired are included in the Company’s consolidated ﬁnancial statements from their dates of acquisition. See Note 4, Acquisitions, of the

Notes to Consolidated Financial Statements included in Part II, Item 8 of the 2018 Form 10-K.

(3) Prior year periods have been retrospectively adjusted to reﬂect the impact of certain changes in accounting principles and corrections to previously issued ﬁnancial statements.
See Note 3, Changes in Accounting Principles and Corrections to Previously Issued Financial Statements, of the Notes to Consolidated Financial Statements included in Part II,
Item 8 of the 2018 Form 10-K.

(4) Includes $10.7 million in expenditures for machinery and equipment for the Expansion Project in ﬁscal 2018, $39.8 million in expenditures for building and facilities, including

land, for the New Facility in ﬁscal 2017, and $19.4 million in purchases of construction-in-progress assets for the New Facility in ﬁscal 2016.

1912 Farmer Brothers Drive
Northlake, TX 76262
888.998.2468
FarmerBros.com