Deveron
Annual Report 2019

Plain-text annual report

A N N U A L R E P O R T 2019 Dear Fellow Stockholder: You are cordially invited to attend the 2019 Annual Meeting of Stockholders (the “Annual Meeting”) of Farmer Bros. Co. (the “Company”), which will be held at the Hilton Dallas/Southlake Town Square, 1400 Plaza Place, Southlake, Texas 76092, on Tuesday, December 10, 2019, 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 WHITE proxy card or WHITE 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 Charles F. Marcy, D. Deverl Maserang II and Christopher P. Mottern for election as directors. We believe our three 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. Your vote will be especially important at the meeting. As you may know, Jeanne Farmer Grossman (“Ms. Grossman”), individually and as trustee of certain trusts (the "Grossman Group"), has notified the Company that the Grossman Group intends to nominate a slate of two nominees for election as directors in opposition to the nominees recommended by our Board. The Board recommends that you vote “FOR” each of the director nominees named in the Company’s Proxy Statement on the enclosed WHITE proxy card. The Board does NOT endorse the election of any of the Grossman Group nominees and strongly urges you NOT to sign or return any proxy card sent to you by Ms. Grossman, the Grossman Group or any of their affiliates. If you have previously submitted a proxy card sent to you by Ms. Grossman, the Grossman Group or any of their affiliates, you can revoke that proxy and have your shares voted for our Board’s nominees and on the other matters to be voted on at the meeting by signing, dating and returning the enclosed WHITE proxy card or by following the instructions provided in the WHITE proxy card to submit a proxy over the Internet or by telephone or by appearing at the Annual Meeting and voting your shares in person. 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 WHITE proxy card or WHITE voting instruction form. If you choose to submit your proxy to vote your shares by the WHITE proxy card or WHITE voting instruction form, please sign, date and mail the WHITE proxy card or WHITE 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 WHITE proxy card. Your cooperation is greatly appreciated. Sincerely yours, D. Deverl Maserang II President and Chief Executive Officer Randy E. Clark Chairman of the Board of Directors ********************* ____________________________________________________________________________________________________________ Farmer Bros. Co. • 1912 Farmer Brothers Drive, Northlake, Texas 76262 • (682) 549-6600 • www.FarmerBrosCo.com 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 The attached Proxy Statement is dated October 25, 2019 and is first being mailed on or about October 28, 2019. ____________________________________________________________________________________________________________ Farmer Bros. Co. • 1912 Farmer Brothers Drive, Northlake, Texas 76262 • (682) 549-6600 • www.FarmerBrosCo.com FARMER BROS. CO. 1912 Farmer Brothers Drive Northlake, Texas 76262 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 10, 2019 TO THE STOCKHOLDERS OF FARMER BROS. CO.: NOTICE IS HEREBY GIVEN that the 2019 Annual Meeting of Stockholders (the “Annual Meeting”) of Farmer Bros. Co., a Delaware corporation (the “Company” or “Farmer Bros.”), will be held at the Hilton Dallas/Southlake Town Square, 1400 Plaza Place, Southlake, Texas 76092, on Tuesday, December 10, 2019, at 10:00 a.m., Central Standard Time, for the following purposes: 1. 2. 3. 4. 5. 6. To elect three Class I directors to the Board of Directors (the “Board”) of the Company for a three-year term of office expiring at the Company’s 2022 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, 2020; To hold an advisory (non-binding) vote to approve the compensation paid to the Company’s Named Executive Officers; To approve a management proposal to amend the Company’s Amended and Restated Certificate of Incorporation to provide for the phased-in declassification of the Board of Directors, beginning at the 2020 annual meeting; To consider a non-binding stockholder proposal urging the Board of Directors to provide for the phased-in declassification of the Board of Directors, beginning at the 2020 annual meeting, if properly presented at the Annual Meeting; 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 three nominees for director named in the accompanying Proxy Statement, a vote “FOR” proposals 2, 3 and 4, and that stockholders disregard proposal 5 by choosing to ABSTAIN on the enclosed WHITE proxy card. The Board has fixed the close of business on October 18, 2019 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 2019 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 10, 2019 This Notice of Annual Meeting of Stockholders, the accompanying Proxy Statement, the Company’s 2019 Annual Report, which includes its Annual Report on Form 10-K for the fiscal year ended June 30, 2019, and form WHITE proxy card are available at: http:// proxy.farmerbros.com. Your vote will be particularly important at the Annual Meeting. As you may know, the Company has received a notice from Jeanne Farmer Grossman (“Ms. Grossman”), individually and as trustee of certain trusts (the "Grossman Group"), regarding their intent to nominate a competing slate of candidates (the “Grossman Group Nominees”) at the Annual Meeting. The Board recommends a vote “FOR” the election of each of the director nominees named in the accompanying Proxy Statement and on the enclosed WHITE proxy card, and strongly urges you NOT to sign or return any proxy card(s) or instruction form(s) that you may receive from Ms. Grossman, the Grossman Group or any of their affiliates. The Company is not responsible for the accuracy of any information provided by, or relating to, Ms. Grossman, the Grossman Group, any Grossman Group Nominee or proposal 5 contained in any proxy solicitation materials filed or disseminated by, or on behalf of, Ms. Grossman, the Grossman Group or any of their affiliates, or any other statements that Ms. Grossman, the Grossman Group or any of their affiliates or representatives may otherwise make. 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 WHITE 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. If you have previously signed a proxy card sent to you by Ms. Grossman, the Grossman Group or any of their affiliates in respect of the Annual Meeting, you can revoke that proxy and submit a proxy to vote for the Board’s nominees by signing, dating and returning the enclosed WHITE proxy card or by following the instructions provided in the WHITE proxy card to submit a proxy to vote your shares over the Internet or by telephone or by voting in person at the Annual Meeting. Signing, dating and returning any proxy card that Ms. Grossman, the Grossman Group, or any of their affiliates may send to you, even with instructions to vote “withhold” with respect to the Grossman Group Nominees, will cancel any proxy you may have previously submitted to have your shares voted for the Board’s nominees on a WHITE proxy card as only your latest proxy card or voting instruction form will be counted. 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 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, or to revoke prior voting instructions. The Board urges you to sign, date and return only the enclosed WHITE proxy card. 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 WHITE proxy card. Northlake, Texas October 25, 2019 By Order of the Board of Directors Jennifer H. Brown General Counsel and Secretary ******************** 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, including the appendices and any documents incorporated by reference, 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 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 DECLASSIFICATION OF THE COMPANY'S BOARD OF DIRECTORS PROPOSAL NO. 5 NON-BINDING STOCKHOLDER PROPOSAL REGARDING THE DECLASSIFICATION OF THE COMPANY'S BOARD OF DIRECTORS DIRECTOR COMPENSATION CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS AUDIT MATTERS OTHER MATTERS 1 11 15 16 19 19 20 20 20 22 23 23 23 24 25 27 40 41 41 43 45 47 48 49 50 55 56 57 59 60 63 64 66 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 WHITE 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 2019 Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Tuesday, December 10, 2019, 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 WHITE proxy card and the Company’s 2019 Annual Report, which includes its Annual Report on Form 10-K for the fiscal year ended June 30, 2019 (“2019 Form 10-K”), on or about October 28, 2019 to all stockholders entitled to notice of and to vote at the Annual Meeting. The Annual Meeting will be held at the Hilton Dallas/Southlake Town Square, 1400 Plaza Place, Southlake, Texas 76092. 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?” Is my vote important? Your vote will be particularly important at the Annual Meeting. As you may know, the Company has received a notice from Jeanne Farmer Grossman (“Ms. Grossman”), together with those stockholders who have filed a Schedule 13D with Ms. Grossman (the “Grossman Group”), regarding their intent to nominate a competing slate of directors (the “Grossman Group Nominees”) and to present a non-binding proposal at the Annual Meeting. The Board recommends a vote “FOR” the election of each of the director nominees named in this Proxy Statement on the enclosed WHITE proxy card, and strongly urges you NOT to sign or return any proxy card(s) or voting instruction form(s) that you may receive from Ms. Grossman, the Grossman Group or any of their affiliates. To vote for all of the Board’s nominees, you must sign, date and return the enclosed WHITE proxy card or follow the instructions provided in the WHITE proxy card for submitting a proxy over the Internet or by telephone or vote in person 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 have previously signed any proxy card sent to you by Ms. Grossman, the Grossman Group or any of their affiliates in respect of the Annual Meeting, you can revoke it by signing, dating and returning the enclosed WHITE proxy card or by following the instructions provided in the WHITE proxy card for submitting a proxy to vote your shares over the Internet or by telephone or voting in person at the Annual Meeting. Signing, dating and returning any proxy card that Ms. Grossman, the Grossman Group or any of their affiliates may send to you, even with instructions to vote “withhold” with respect to the Grossman Group Nominees, will cancel any proxy you may have previously submitted to have your shares voted for the Board’s nominees as only your latest proxy card or voting instruction form will be counted. 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. Beneficial holders who hold their shares in “street name” should follow the voting instructions provided by their bank, broker or other nominee to ensure that their shares are represented and voted at the Annual Meeting, or to revoke prior voting instructions. The Board urges you to sign, date and return only the enclosed WHITE proxy card. 1 What am I voting on? You will be entitled to vote on the following proposals at the Annual Meeting: Proposal No. 1: The election of three Class I directors to serve on our Board for a three-year term of office expiring at the Company’s 2022 Annual Meeting of Stockholders and until their successors are elected and duly qualified; Proposal No. 2: The ratification of the selection of Deloitte & Touche LLP (“Deloitte”) as our independent registered public accounting firm for the fiscal year ending June 30, 2020; Proposal No. 3: The approval, on an advisory (non-binding) basis, of the compensation paid to the Company’s Named Executive Officers; and Proposal No. 4: The approval of a management proposal to amend the Company’s Amended and Restated Certificate of Incorporation to provide for the phased-in declassification of the Board of Directors, beginning at the 2020 annual meeting. Proposal No. 5: A non-binding stockholder proposal urging the Board of Directors to provide for the phased-in declassification of the Board of Directors, beginning at the 2020 annual meeting, if properly presented at the Annual Meeting. Will there be a proxy contest at the Annual Meeting? Ms. Grossman has provided notice to the Company that the Grossman Group intends to nominate a competing slate of directors in opposition to the Board’s highly qualified director nominees and proposal 5 to urge the Board to declassify. Our Board does NOT endorse or recommend the election of the Grossman Group Nominees as directors and recommends that stockholders disregard proposal 5 by abstaining because it is unnecessary in light of proposal 4. You may receive proxy solicitation materials from Ms. Grossman, the Grossman Group or any of their affiliates, including an opposition proxy statement or proxy card. The Board strongly urges you NOT to sign or return any proxy card(s) or voting instruction form(s) that you may receive from Ms. Grossman, the Grossman Group or any of their affiliates. Please be advised that the Company is not responsible for the accuracy of any information provided by, or relating to, Ms. Grossman, the Grossman Group, any Grossman Group Nominee or proposal 5 contained in any proxy solicitation materials filed or disseminated by, or on behalf of, Ms. Grossman, the Grossman Group, or any of their affiliates or any other statements that Ms. Grossman, the Grossman Group, any of their affiliates or representatives may otherwise make. Our Board is pleased to nominate for election as director the three persons— Charles F. Marcy, D. Deverl Maserang II and Christopher P. Mottern—named in this Proxy Statement and on the enclosed WHITE proxy card. We believe our three director nominees have the breadth of relevant and diverse experiences, integrity and commitment necessary to grow the Company for the benefit of all of the Company’s stockholders. What do I do if I receive a proxy card or voting instruction form from Ms. Grossman or the Grossman Group? *The Board strongly urges you NOT to sign or return any proxy card(s) or voting instruction form(s) that you may receive from Ms. Grossman, the Grossman Group or any of their affiliates, even with instructions to vote “withhold” with respect to the Grossman Group Nominees.* Instructions to withhold votes with respect to the Grossman Group Nominees on a proxy card provided by, or on behalf of, Ms. Grossman, the Grossman Group or their affiliates will cancel any proxy previously submitted by you to vote for the Board’s nominees on a WHITE proxy card or WHITE voting instruction form as only your latest proxy card or voting instruction form will be counted. If you previously signed a proxy card or submitted a voting instruction form sent to you by, or on behalf of, Ms. Grossman, the Grossman Group or their affiliates, you can change or revoke that proxy and have your shares voted for the Board’s nominees by (i) signing, dating and returning only the enclosed WHITE proxy card in the enclosed postage-paid return envelope to submit your proxy by mail, (ii) following the instructions provided in the WHITE proxy card for submitting a proxy over the Internet or by telephone, or (iii) attending the Annual Meeting to vote in person. Only your latest dated proxy will be counted at the Annual Meeting. If you need assistance changing or revoking your proxy, please call the Company’s proxy solicitor, Morrow Sodali, toll free at (800) 662-5200 (within the U.S.). If you are a participant in the ESOP, you should follow the instructions provided by the ESOP Trustee with respect to voting the shares allocated to you in the ESOP. 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. 2 How does the Board recommend that I vote? The Board recommends that you vote using the enclosed WHITE proxy card: “FOR” the election of each of the three nominees named herein to serve on our Board as Class I directors for a three-year term of office expiring at the Company’s 2022 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, 2020; “FOR” the approval of, in an advisory (non-binding) vote, the compensation paid to our Named Executive Officers; and “FOR” the approval of a management proposal to amend the Company’s Amended and Restated Certificate of Incorporation to provide for the phased-in declassification of the Board of Directors, beginning at the 2020 annual meeting. The Board recommends that you disregard the non-binding stockholder proposal urging the Board of Directors to provide for the phased-in declassification of the Board of Directors, beginning at the 2020 annual meeting by abstaining, as the proposal is unnecessary in light of management’s proposal described immediately above. Please note that the best way to support the Board’s nominees is to vote “FOR” the Board’s nominees by signing, dating and returning the enclosed WHITE proxy card or by submitting a proxy over the Internet or by telephone by following the instructions on the WHITE proxy card. The Board strongly urges you NOT to sign or return any proxy card(s) or voting instruction form(s) that you may receive from Ms. Grossman, the Grossman Group or any of their affiliates. Signing and returning any proxy card that Ms. Grossman, the Grossman Group or any of their affiliates may send to you, even to vote “withhold” with respect to the Grossman Group Nominees, will cancel any proxy you may have previously submitted to have your shares voted for the Board’s nominees on a WHITE proxy card, as only your latest dated proxy card will be counted. Therefore, the Board urges you to sign, date and return only the enclosed WHITE proxy card. If you are a participant in the ESOP, you should follow the instructions provided by the ESOP Trustee with respect to having the shares allocated to you in the ESOP voted at the Annual Meeting. Beneficial holders who hold their shares in “street name” should follow the voting instructions provided by their bank, broker or other nominee to ensure that their shares are represented and voted at the Annual Meeting or to revoke prior voting instructions. Who can vote? The Board has set October 18, 2019 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, 17,148,790 shares of Common Stock entitled to 17,148,790 votes, and 14,700 shares of Series A Preferred Stock entitled to 411,271 votes, for a total of 17,560,061 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 3 determining a quorum if your bank, broker or other nominee submits a proxy covering your shares. If your bank, broker or other nominee is not given specific voting instructions, shares held in the name of the bank, broker, or other nominee will not be considered as present and entitled to vote on any matter to be considered at the Annual Meeting because we expect this to be a contested election and, accordingly, will not be counted as present for the purpose of determining a quorum. 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 do not provide that organization specific direction on how to vote, your shares held in the name of that organization may not be voted and will not be considered as present and entitled to vote on any matters to be considered at the Annual Meeting. If you hold your shares in “street name,” please instruct your bank, broker or other nominee how to vote your shares using the WHITE voting instruction form provided by your bank, broker or other nominee so that your vote can be counted. The WHITE 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 WHITE proxy card included with these proxy materials (or WHITE voting instruction form in the case of beneficial holders). Please refer to your WHITE proxy card or WHITE 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 WHITE proxy card (or WHITE voting instruction form in the case of beneficial holders for whom Internet voting is available). Please refer to your WHITE proxy card or WHITE 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 WHITE proxy card (or WHITE voting instruction form in the case of beneficial holders for whom telephone voting is available). Please refer to your WHITE proxy card or WHITE 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 WHITE 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 WHITE 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 WHITE proxy card. However, you may change your voting instructions by subsequently completing, signing and delivering the WHITE 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 WHITE voting instruction form provided by your bank, broker or other nominee for more information. 4 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 7.1% of the Company’s outstanding voting securities, based on 17,093,166 shares of Common Stock and 14,700 shares of Series A Preferred Stock, representing 411,271 shares of Common Stock on an as-converted basis, outstanding as of October 10, 2019. 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 WHITE 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. However, in contested elections, brokers do not have discretionary authority to vote on any proposals to be voted on at such meetings, whether routine or not. Because Ms. Grossman has provided notice to the Company that she and other individuals who make up the Grossman Group intend to nominate a competing slate of directors in opposition to the Board’s highly qualified director nominees, the Annual Meeting is expected to constitute a contested election. Accordingly, brokers will not be permitted to vote shares held by a beneficial holder at the Annual Meeting without instructions from the beneficial holder as to how to the shares are to be voted, and shares that are held by a broker who has not received instructions from the beneficial owner as to how such shares are to be voted will not be counted as present at the Annual Meeting for the purpose of determining a quorum. 5 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 three 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 any or all 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, 2020 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. Broker non-votes will not affect the outcome of this proposal because shares held by a broker who has not received instructions from the beneficial owner of the shares as to how such shares are to be voted will not be entitled to vote at the Annual Meeting. 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 are not entitled to vote at the Annual Meeting. Approval of Amendment to the Company's Amended and Restated Certificate of Incorporation to Declassify the Company's Board. The Board has determined that it would be in the best interests of the stockholders to declassify the Board to allow the stockholders to vote on the election of the entire Board each year, rather than on a staggered basis. The approval of the amendment to the Company’s Amended and Restated Certificate of Incorporation 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. Broker non-votes will not affect the oucome of this proposal because shares held by a broker who has not received instructions from the benefical owner of the shares as to how such shares are to be voted will not be entitled to vote at the Annual Meeting. Advisory (Non-Binding) Shareholder Proposal. The advisory (non-binding) shareholder proposal 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 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 are not entitled to vote 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 WHITE proxy card or WHITE 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 WHITE proxy card or WHITE 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 WHITE proxy card or provided on the WHITE voting instruction form provided by your bank, broker or other nominee. As previously noted, you may receive proxy cards and voting instruction forms from both the Company and Ms. Grossman (or the Grossman Group or any of their affiliates). To ensure that stockholders have the Company’s latest proxy information and materials to vote, the Board may conduct multiple mailings prior to the date of the Annual Meeting, each of which will include a WHITE proxy card. The Board encourages you to submit a proxy to vote your shares using each WHITE proxy card you receive to ensure that your vote is counted. 6 *The Board strongly urges you NOT to sign or return any proxy card(s) or voting instruction form(s) that you may receive from Ms. Grossman, the Grossman Group or any of their affiliates, even to vote “withhold” with respect to the Grossman Group Nominees.* Any proxy card or voting instruction form you sign and return from Ms. Grossman, the Grossman Group or any of their affiliates for any reason will cancel any WHITE proxy card(s) or WHITE voting instruction form(s) previously sent by you to vote “FOR” the election of the three directors nominated by the Board. How will my shares be voted if I sign, date and return the WHITE 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 WHITE 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 three Board nominees named herein to serve on our Board as Class I directors for a three-year term of office expiring at the Company’s 2022 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, 2020; “FOR” the approval of, in an advisory (non-binding) vote, the compensation paid to our Named Executive Officers; and “FOR” the approval of an amendment to the Company's Amended and Restated Certificate of Incorporation to declassify the Company's Board. The proxy holders will cast no vote with respect to the non-binding stockholder proposal urging the Board of Directors to provide for the phased-in declassification of the Board of Directors, beginning at the 2020 annual meeting, as the proposal is unnecessary in light of management’s proposal to amend the Company's Amended and Restated Certificate of Incorporation to declassify the Company's Board described immediately above. 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. 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 WHITE 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. 7 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 2019 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? Proxies may be solicited on behalf of the Board, without additional compensation, by the Company’s directors, director nominees and certain executive officers and other employees of the Company. Such persons are listed in Appendix A to this Proxy Statement. Additionally, the Company has retained Morrow Sodali, a proxy solicitation firm, who may solicit proxies on the Board’s behalf. 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 WHITE 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 2019 Annual Report, which includes our 2019 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. Due to the possibility of a proxy contest, we have engaged Morrow Sodali to solicit proxies from stockholders in connection with the Annual Meeting. Morrow Sodali expects that approximately 40 of its employees will assist in the solicitation of proxies. We will pay Morrow Sodali a fee of up to $175,000 plus costs and expenses. In addition, we have agreed to indemnify Morrow Sodali and certain related persons against certain liabilities arising out of or in connection with their engagement. The Company estimates that its additional out-of-pocket expenses beyond those normally associated with soliciting proxies for the Annual Meeting as a result of the potential proxy contest will be approximately $350,000 in the aggregate, of which approximately $127,500 has been spent to date. Such additional solicitation costs are expected to include the fees incurred to retain Morrow Sodali as the Company’s proxy solicitor, as discussed above, fees of outside counsel, financial advisors and public relations advisors to advise the Company in connection with a possible contested solicitation of proxies, increased mailing costs, such as the costs of additional mailings of solicitation materials to stockholders, including printing costs, mailing costs and the reimbursement of reasonable expenses of banks, brokerage houses and other agents incurred in forwarding solicitation materials to beneficial owners, as described above, and the costs of retaining an independent inspector of election. Who can answer my questions? Your vote at this year’s Annual Meeting is especially important, no matter how many or how few shares you own. Please sign and date the enclosed WHITE proxy card or WHITE 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 8 How can I obtain additional copies of these materials or copies of other documents? Complete copies of this Proxy Statement and the 2019 Annual Report, which includes our 2019 Form 10-K, and directions to the Annual Meeting are also available at http://proxy.farmerbros.com. You may also contact Morrow Sodali for additional copies. You are encouraged to access and review all of the important information contained in the proxy materials before voting. Background of the Solicitation The following outlines certain interactions the Company has had with Ms. Grossman and her representatives. The Nominating and Corporate Governance Committee is one of the Company’s standing committees and its principal purposes include, among others, identifying individuals qualified to become Board members and members of Board committees, and recommending to the Board director nominees for the next annual meeting of stockholders or for appointment to the Board. The Nominating and Corporate Governance Committee also leads the Board in its annual review and the Board’s performance evaluation. In connection with its director nominee evaluation process, the Nominating and Corporate Governance Committee reviews the results of the Board’s self-evaluation director qualification matrix and considers the skill sets desired of the Company’s directors and those of the director nominees. Ms. Grossman has a long history with the Company. Ms. Grossman served on the Board from December 2009 until December 2018. She is also the sister of Carol Farmer Waite, who is also a former director, and the late Roy E. Farmer, who served as Chairman of the Board from 2004 to 2005, Chief Executive Officer from 2003 to 2005, and President from 1993 to 2005, and the daughter of the late Roy F. Farmer, who served as Chairman of the Board from 1951 to 2004 and Chief Executive Officer from 1951 to 2003. In August 2018, the Board informed Ms. Grossman that she would not be nominated to stand for re-election to the Board. As a result, Ms. Grossman nominated herself as a director and threatened to bring a contested election in September 2018. In October 2018, Ms. Grossman ultimately withdrew her nomination prior to the Company’s filing of its Preliminary Proxy Statement with the SEC with respect to the 2018 annual meeting of stockholders. On May 5, 2019, the Company and Michael H. Keown, the Company’s former President and Chief Executive Officer and a member of the Board, agreed that Mr. Keown would leave his position as President and Chief Executive Officer of the Company and resign as a member of the Board. At such time, Mr. Mottern was appointed by the Board as interim President and Chief Executive Officer. In addition, the Board, and, in particular, Stacy Loretz-Congdon who was elected to the Board in 2018, provided additional oversight of the Company’s management following Mr. Keown’s separation with the Company. The Board immediately commenced a comprehensive search process with the assistance of a leading executive search firm to identify and evaluate candidates to serve as the Company’s permanent Chief Executive Officer. In the Spring of 2019, Ms. Grossman requested an opportunity to present to the Board. On June 6, 2019, Ms. Grossman met with the Board and, in connection with the meeting, she delivered a 30-page position paper that the Board reviewed and discussed. The position paper set forth Ms. Grossman’s views of the adverse “culture” changes of the Company in recent years and reiterated a variety of complaints and accusations regarding current directors, the bases on which the Board had been unable to conclude that Ms. Grossman was independent during the final three years of her Board tenure, and the process by which the Board determined not to nominate Ms. Grossman for an additional term in December 2018. Following the Board’s meeting with Ms. Grossman, Mr. Clark responded to Ms. Grossman in writing, thanking her for her continued investment in the Company and respectfully disagreeing with many of the allegations and factual characterizations that Ms. Grossman made throughout the position paper. In addition, Mr. Clark reminded Ms. Grossman that the issues identified in the position paper were issues that Ms. Grossman had raised previously with the Board, and that any issues that the Board believed were worthy of further inquiry have been investigated and resolved to the Board’s satisfaction. On August 27, 2019, the Board reopened its ongoing discussion regarding the declassification of the Board and there was consensus among the Board regarding its declassification. On September 5, 2019, the Company received a stockholder notice from Ms. Grossman informing the Company that she (i) intends to nominate Thomas William Mortensen and Johnathan Michael Waite to stand for election to the Board at the 2019 Annual Meeting and (ii) has submitted a stockholder proposal urging the Board to take all necessary steps to declassify the Board. With respect to Ms. Grossman’s nominees, Mr. Mortensen was nominated to the Board previously by Ms. Grossman’s sister, Ms. Waite, in 2016, but, the Board determined that Mr. Mortensen was not qualified and he was not elected by the Company’s stockholders at the 2016 annual meeting; and, Mr. Waite is Ms. Grossman’s nephew, the son of Ms. Waite, and was a member of the Waite Group that 9 brought a contested election in 2016. In addition, Mr. Waite is a former employee of the Company and his employment with the Company terminated in January 2017. Following the Board’s prior discussions regarding declassification, the Board determined to declassify the Board on September 9, 2019. At such time, the Board determined that it would include in the Company’s definitive proxy statement for the 2019 Annual Meeting a proposal to amend the Company’s Amended and Restated Certificate of Incorporation to declassify the Board over a three- year period. On September 9, 2019, representatives at Latham & Watkins LLP, the Company’s counsel (“Latham”), informed Rutan & Tucker, LLP, Ms. Grossman’s counsel (“Rutan”), that the Board had authorized the declassification of the Board over a three-year period, in a manner substantially identical to the proposal that Ms. Grossman has urged the Board to take. In addition, Latham sought additional information to better understand Ms. Grossman’s concerns and objectives. On September 11, 2019, the Company filed a current report on Form 8-K that acknowledged receipt of Ms. Grossman’s stockholder notice nominating two individuals to the Board and her proposal to urge the Board to take all necessary action to declassify the Board, which is substantially identical to the declassification proposal previously authorized by the Board. On September 24, 2019, representatives at Latham called Rutan and requested that Ms. Grossman provide any (i) new information regarding Mr. Mortensen that was not included in the materials that Ms. Grossman provided previously, and (ii) additional information regarding Mr. Waite’s qualifications that the Board should consider that was absent in Mr. Waite’s biography. In addition, Latham inquired as to whether Ms. Grossman wanted Messrs. Mortensen and Waite to meet with the Nominating and Corporate Governance Committee or the Board, prior to the Nominating and Corporate Governance Committee and/or the Board making its nominee recommendation to the Board and stockholders, respectively. Neither Ms. Grossman nor her counsel responded to these requests, and have provided no additional information regarding Messrs. Mortensen and Waite for the Nominating and Corporate Governance Committee or the Board to consider prior to the Nominating and Corporate Governance Committee’s or the Board’s action to nominate and recommend a slate of directors. In a series of communications between September 30, 2019 and October 4, 2019, Latham and Rutan discussed whether Ms. Grossman would be willing to withdraw of her stockholder proposal in light of the fact that the Board had already authorized declassification and publicly expressed its intentions to include such a proposal in the Company’s definitive proxy statement for the 2019 Annual Meeting. At the time of the filing of the Preliminary Proxy Statement, Ms. Grossman had not committed to withdrawing her proposal. On October 9, 2019, the Board, following the recommendation from the Nominating and Corporate Governance Committee, determined not to nominate Ms. Grossman’s nominees, and determined to nominate the three-persons -Charles F. Marcy, D. Deverl Maserang II, and Christopher P. Mottern- named in this Proxy Statement. On October 15, 2019, the Company filed a Preliminary Proxy Statement with the SEC with respect to the Annual Meeting. On October 25, 2019, the Company filed a Definitive Proxy Statement with the SEC with respect to the Annual Meeting. OUR BOARD STRONGLY URGES YOU NOT TO SIGN OR RETURN ANY PROXY CARD OR VOTING INSTRUCTION FORM THAT YOU MAY RECEIVE FROM MS. GROSSMAN, THE GROSSMAN GROUP OR ANY OF THEIR AFFILIATES, EVEN TO VOTE "WITHHOLD" WITH RESPECT TO THE GROSSMAN GROUP NOMINEES, AS DOING SO WILL CANCEL ANY PROXY YOU MAY HAVE PREVIOUSLY SUBMITTED TO HAVE YOUR SHARES VOTED FOR THE BOARD'S NOMINEES ON A WHITE PROXY CARD, AS ONLY YOUR LATEST PROXY CARD OR VOTING INSTRUCTION FORM WILL BE COUNTED. 10 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 I consists of three directors whose term of office expires at the Annual Meeting and whose successors will be elected at the Annual Meeting to serve until the 2022 Annual Meeting of Stockholders. Class II consists of three directors, continuing in office until the 2020 Annual Meeting of Stockholders. Class III consists of two directors, continuing in office until the 2021 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 eight. 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 Charles F. Marcy, D. Deverl Maserang II and Christopher P. Mottern for election to the Board as Class I directors. If elected at the Annual Meeting, each would serve until the 2022 Annual Meeting of Stockholders and until his successor is elected and duly qualified, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Messrs. Marcy, Maserang and Mottern currently serve as directors of the Company. Each of Mr. Marcy, Mr. Maserang and Mr. Mottern 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 any of the nominees 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, with the exception of Ms. Assadi, who was appointed to fill a vacancy created by an increase in the authorized number of directors in order to bring additional skills and knowledge to the Board and Mr. Maserang, who was appointed to the Board effective September 13, 2019 in connection with his appointment as President and Chief Executive Officer of the Company. 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 three 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 three 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 three 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 three 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 any or all of the three 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. 11 Nominees for Election as Directors Set forth below is biographical information for each of the Board’s nominees for election as a Class I 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. Charles F. Marcy, age 69, 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. Mr. Marcy has served on the Company's Board of Directors since 2014 and is currently Chair of the Nominating and Corporate Governance Committee and Interim Chair of the Compensation Committee. 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. D. Deverl Maserang II, age 56, is President and Chief Executive Officer of the Company, since September 2019. Prior to joining the Company, from 2017 to 2019, Mr. Maserang served as President and Chief Executive Officer of Earthbound Farm Organic, a global leader in organic food and farming. From 2016 to 2017, Mr. Maserang served as Managing Partner of TADD Holdings, a business advisory firm. From 2013 to 2016, Mr. Maserang was Executive Vice President Global Supply Chain for Starbucks Corporation, a global coffee roaster and retailer, where he was responsible for end-to-end supply chain operations globally spanning manufacturing, engineering, procurement, distribution, planning, transportation, inventory management and worldwide sourcing. Prior to that, he held leadership roles at Chiquita Brands International, Peak Management Group, FreedomPay, Installation Included, Pepsi Bottling Group and United Parcel Service. Mr. Maserang received his Bachelor of Science degree from Texas Tech University. We believe Mr. Maserang’s qualifications to serve on our Board include his leadership as CEO, coffee industry, foodservice, manufacturing, engineering, procurement, distribution, planning, transportation, inventory management, worldwide sourcing, turnaround, and supply chain expertise. Christopher P. Mottern, age 75, served as interim President and Chief Executive Officer of Farmer Bros. Co. from May through October 2019. Prior to joining Farmer Bros. Co., Mr. Mottern was 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. 12 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 Hamideh Assadi Allison M. Boersma Randy E. Clark Stacy Loretz-Congdon David W. Ritterbush Director Since Age Class Term Expiration Audit Committee Compensation Committee 74 54 67 60 53 2019 2017 2012 2018 2017 II II III III II 2020 2020 2021 2021 2020 X Chair X X X Nominating and Corporate Governance Committee X X Hamideh Assadi, age 74, is a retired tax consultant. Prior to her retirement, from March 2012 to March 2016, Ms. Assadi was an independent tax consultant and was an Associate with Chiurazzi & Associates from March 2007 to March 2012, providing tax and business consulting services for multistate and multi-national businesses in the retail, distribution, manufacturing, real estate and service sectors. Previously, Ms. Assadi served in a number of tax and accounting roles at Farmer Bros. for more than 23 years until January 2007. Ms. Assadi received her B.S. in Business Administration with an emphasis in Accounting from the College of Business in Tehran, Iran, and a Master’s degree in International Law and International Organizations from the School of Law at the University of Tehran, Iran. She also received a Certificate for Professionals in Taxation from the University of California, Los Angeles, and a Certificate of Enrollment to practice before the Internal Revenue Service. We believe Ms. Assadi’s qualifications to serve on our Board include her deep knowledge of, and extensive experience as a former employee of, the Company, executive compensation experience, and her credentials and extensive experience in the fields of taxation and accounting. Allison M. Boersma, age 54, 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; 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. Randy E. Clark, age 67, 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 13 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 60, retired at the end of 2016 after 26 years of service 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, 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. Ms. Loretz-Congdon is an NACD Board Leadership Fellow. 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. 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 Nominating and Corporate Governance Committee. David W. Ritterbush, age 53, 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. 14 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, 2020, 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. Broker non-votes will not affect the outcome of this proposal because shares held by a broker who has not received instructions from the beneficial owner of the shares as to how such shares are to be voted will not be entitled to vote at the Annual Meeting. THE BOARD RECOMMENDS A VOTE “FOR” RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. 15 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, 2019, 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 17,093,166 shares of Common Stock and 14,700 shares of Series A Preferred Stock, representing 411,271 shares of Common Stock on an as-converted basis, outstanding as of October 10, 2019. 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, 2019, 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 Richard F. Farmer(2) Farmer Bros. Co. Employee Stock Ownership Plan(3) Levin Easterly Partners LLC and affiliated entities(4) Trigran Investments, Inc., Douglas Granat, Lawrence A. Oberman, Steven G. Simon, Bradley F. Simon, Steven R. Monieson(5) Russell Investments Group, Ltd.(6) Dimensional Fund Advisors LP(7) Adage Capital Partners, L.P. and affiliated entities(8) Amount and Nature of Beneficial Ownership Percent of Class(1) 1,357,184 1,250,445 1,567,471 1,729,685 2,639,756 929,387 869,699 7.8 7.3 9.0 9.9 15.1 5.3 5.0 (1) Percent of class is calculated based on total outstanding voting securities of 17,504,437, including 17,093,166 shares of Common Stock and 14,700 shares of Series A Preferred Stock, representing 411,271 shares of Common Stock on an as- converted basis, outstanding as of October 10, 2019, 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 16, 2018 (the “Farmer Schedule 13D/A”) and a Form 4 filed with the SEC on February 1, 2018 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. (3) This information is based on the Company’s records and includes 1,250,445 shares of Common Stock that are held in the ESOP and allocated to a participant’s account (“allocated shares”) as of October 10, 2019, after giving effect to the allocation of shares to participant accounts for calendar year 2018. The ESOP Trustee votes allocated shares as directed by such participant or beneficiary of the ESOP. 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, Ronald J. Friedman, Alexander Stephanopoulos, Scott Lyon and Ronald Lynch. 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. (4) This information is based on a Schedule 13D/A filed with the SEC on October 3, 2019 (the “LCS Schedule 13D/A”) by Levin Easterly Partners LLC (“LEP”), filing jointly with LE Partners Holdings LLC (“LEPH”), LE Partners Holdings II LLC (“LEPHII”), LE Partners Holdings III LLC (“LEPHIII”), LE Partners Holdings IV LLC (“LEPHIV”), Darrell Crate, Avshalom Kalichstein, John Murphy and Levin Capital Strategies, LP (“LCS”) (collectively, the “LCS Filing Group”). The LCS Schedule 13D/A reported that the LCS Filing Group is the beneficial owner of an aggregate of 1,567,471 shares of Common Stock as follows: 1,566,356 shares of Common Stock are beneficially owned by LEP, LEPH, LEPHII, LEPH III, LEPHIV, Mr. Crate and Mr. Kalichstein; 1,567,471 shares of Common Stock are beneficially owned by Mr. Murphy; and 1,115 shares of Common Stock 16 are beneficially owned, with shared voting and dispositive power, by LCS. Each of LEP, LEPH, LEPHII, LEPHIV, Mr. Crate, and Mr. Kalichstein have shared voting power with respect to 1,316,530 shares of Common Stock and shared dispositive power with respect to 1,566,356 shares of Common Stock. As disclosed in the LCS Schedule 13D/A, Various separately managed accounts for whom Levin Easterly acts as investment manager have the right to receive dividends from, and the proceeds from the sale of 1,566,356 shares of Common Stock. Dispositive power over such Shares is shared. Voting power over such Shares is deemed shared between such managed accounts and Levin Easterly with respect to 1,316,530 shares of Common Stock. One managed account managed by Mr. Murphy for whom LCS acts as investment manager has the right to receive dividends from, and the proceeds from the sale of 1,115 shares of Common Stock. Dispositive power over such Shares is shared. Voting power over such shares of Common Stock is deemed shared between such managed account and LCS with respect to 1,115 Shares. 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. (5) This information is based on a Schedule 13G/A filed with the SEC on January 9, 2019 (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 1,729,685 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. (6) This information is based on a Schedule 13G/A filed with the SEC on October 10, 2019 (the “Russell Schedule 13G”) by Russell Investments Group, Ltd. ("Russell Investments"). The Russell Schedule 13G/A reports that Russell Investments has sole voting and shared dispositive power over 2,639,756 shares of Common Stock. As indicated in the Russell Schedule 13G, the address of Russell Investments is 1301 Second Avenue, Suite 1800, Seattle, Washington 98101. (7) This information is based on a Schedule 13G/A filed with the SEC on February 8, 2019 (the “Dimensional Schedule 13G/A”) by Dimensional Fund Advisors LP ("Dimensional Advisors"). The Dimensional Schedule 13G/A reports that Dimensional Advisors has sole voting power over 872,775 shares of Common Stock and sole dispositive power over 929,387 shares of Common Stock. Dimensional Advisors is an investment adviser registered under Section 203 of the Investment Advisors Act of 1940, and furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager or sub-adviser to certain other commingled funds, group trusts and separate accounts (such investment companies, trusts and accounts, collectively referred to as the “Funds”). In certain cases, subsidiaries of Dimensional Advisors may act as an adviser or sub-adviser to certain Funds. In its role as investment advisor, sub-adviser and/or manager, Dimensional Advisors or its subsidiaries may possess voting and/or investment power over the securities of the Issuer that are owned by the Funds, and may be deemed to be the beneficial owner of the shares of the Issuer held by the Funds. However, all securities reported in the Dimensional Schedule 13G/A are owned by the Funds. Dimensional Advisors disclaims beneficial ownership of such securities. As indicated in the Dimensional Schedule 13G/A, the address of Dimensional Advisors is Building One, 6300 Bee Cave Road, Austin, Texas 78746. (8) This information is based on a Schedule 13G filed with the SEC on September 20, 2019 (the “Adage Schedule 13”) by Adage Capital Advisors, L.P., Adage Capital Partners GP, L.L.C., Adage Capital Advisors, L.L.C., Robert Atchinson, and Phillip Gross (collectively, the “Adage Filing Group”). The Adage Schedule 13G reports that the Adage Filing Group and each of the member of the Adage Filing Group shares voting and dispositive power over 869,699 shares of Common Stock. As indicated in the Adage Schedule 13G, the address of the Adage Filing Group is 200 Clarendon Street, 52nd floor, Boston, Massachusetts 02116. 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, 2019, 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 17,093,166 shares of Common Stock and 14,700 shares of Series A Preferred Stock, representing 411,271 shares of Common Stock on an as-converted basis, outstanding as of October 10, 2019. 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. 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. 17 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: Hamideh Assadi (2) Allison M. Boersma(3) Randy E. Clark(4) Stacy Loretz-Congdon (5) Charles F. Marcy(6) David W. Ritterbush(7) Named Executive Officers: D. Deverl Maserang II Christopher P. Mottern(8) Michael H. Keown(9) David G. Robson(10) Ellen D. Iobst(11) Scott A. Siers(12) Thomas J. Mattei, Jr.(13) All directors and executive officers as a group(14)(16 individuals) Amount and Nature of Beneficial Ownership Percent of Class(1) 8,554 4,612 21,928 2,711 17,189 4,612 0 42,113 48,700 19,807 5,682 29,884 26,139 239,320 * * * * * * * * * * * * * 1.4 Less than 1% * (1) Percent of class is calculated based on total outstanding voting securities of 17,504,437, including 17,093,166 shares of Common Stock and 14,700 shares of Series A Preferred Stock, representing 411,271 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, 2019, and may differ from the percent of class reported in statements of beneficial ownership filed with the SEC. Includes 2,032 unvested shares of restricted stock. Includes 2,711 unvested shares of restricted stock. Includes 2,711 unvested shares of restricted stock. Includes 2,711 unvested shares of restricted stock. Includes 2,711 unvested shares of restricted stock. Includes 2,711 unvested shares of restricted stock. Includes 2,711 unvested shares of restricted stock. Includes 3,004 shares of Common Stock beneficially owned by Mr. Keown through the ESOP, rounded to the nearest whole share and 624 shares through the Company's 401(k) plan, rounded to the nearest whole share. (2) (3) (4) (5) (6) (7) (8) (9) (10) Includes 17,903 shares of Common Stock issuable upon exercise of options which will become exercisable within 60 days, 947 unvested shares of restricted stock, 550 shares of Common Stock beneficially owned by Mr. Robson through the ESOP, rounded to the nearest whole share and 407shares of Common Stock beneficially owned by Mr. Robson through the Company's 401(k) plan, rounded to the nearest whole share. (11) Includes 4,741 shares of Common Stock issuable upon exercise of options which will become exercisable within 60 days, 550 shares of Common Stock beneficially owned by Ms. Iobst through the ESOP, rounded to the nearest whole share and 391 shares of Common Stock beneficially owned by Ms. Iobst through the Company's 401(k) plan, rounded to the nearest whole share. (12) Includes 26,655 shares of Common Stock issuable upon exercise of options which will become exercisable within 60 days, 2,466 shares of Common Stock beneficially owned by Mr. Siers through the ESOP, rounded to the nearest whole share and 335 shares of Common Stock beneficially owned by Mr. Siers through the Company's 401(k) plan, rounded to the nearest whole share. (13) Includes 22,147 shares of Common Stock issuable upon exercise of options which will become exercisable within 60 days, 2,387 shares of Common Stock beneficially owned by Mr. Mattei through the ESOP, rounded to the nearest whole share and 390 shares of Common Stock beneficially owned by Mr. Mattei through the Company's 401(k) plan, rounded to the nearest whole share. (14) Includes 73,821 shares of Common Stock issuable upon exercise of options which will become exercisable within 60 days, 10,176 shares of Common Stock beneficially owned through the ESOP, rounded to the nearest whole share and 3,231 shares of Common Stock beneficially owned through the Company's 401(k) plan, rounded to the nearest whole share. 18 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Randy E. Clark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Charles F. Marcy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D. Deverl Maserang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stacy Loretz-Congdon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Christopher P. Mottern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . David W. Ritterbush . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Status Independent(1) Independent Independent(2) Independent(3) Not Independent Independent(4) Not Independent(5) Independent __________ (1) Ms. Assadi stepped down as a Class II director at the end of her term on December 7, 2017 and rejoined the Board on March 1, 2019. 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. Clark is the current Chairman of the Board. (3) Mr. Maserang is the Company’s President and Chief Executive Officer. (4) Core-Mark was a customer of the Company in fiscal 2019 and is expected to be a customer of the Company in fiscal 2020. 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. (5) Mr. Mottern served as interim President and Chief Executive Officer from May 5, 2019 through October 31, 2019. The Board expects to reconsider Mr. Mottern's independence once he is no longer in his interim role. For information regarding Mr. Mottern’s compensation as interim CEO see “Compensation Discussion and Analysis—Key Elements of Fiscal 2019 Compensation Program” below. 19 Board Meetings and Attendance The Board held ten meetings during fiscal 2019, including four regular meetings and six special meetings. During fiscal 2019, 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 2018 Annual Meeting of Stockholders held on December 6, 2018 (the “2018 Annual Meeting”). 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. 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. A Chief Executive Officer Search Committee ("CEO Search Committee") and a Management Transition Support Committee ("Transition Committee") were established in fiscal 2019. 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 2019, the Audit Committee held nine meetings. Allison M. Boersma currently serves as Chair, and Hamideh Assadi and Stacy Loretz-Congdon 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 all current members of the Audit Committee are “audit committee financial experts” as defined in Item 407(d) of Regulation S-K under the Exchange Act. Randy E. Clark served as a member of the Audit Committee through the 2018 Annual Meeting. Stacy Loretz-Congdon was appointed to the Audit Committee following her election as a director at the 2018 Annual Meeting. Christopher P. Mottern served as a member of the Audit Committee until his appointment as interim President and Chief Executive Officer in May 2019. 20 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 2019 executive compensation program, and the actions taken by the Compensation Committee in fiscal 2019 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 2019, the Compensation Committee held seven meetings. Charles F. Marcy currently serves as interim Chair. Mr. Marcy has temporarily assumed the role due to the departure of former Chair, Christopher P. Mottern, after he was appointed as interim President and Chief Executive Officer in May 2019. Allison M. Boersma 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. Randy E. Clark served as Chair through the 2018 Annual Meeting. Compensation Committee Interlocks and Insider Participation Ms. Boersma, Mr. Clark, Mr. Marcy, Mr. Mottern and Mr. Ritterbush were members of the Compensation Committee during fiscal 2019. None of the members of the Compensation Committee, except for Mr. Mottern, 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. Mr. Mottern resigned from the Compensation Committee when he was appointed interim President and Chief Executive Officer. 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 2019. 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 2019, the Nominating and Corporate Governance Committee met nine times. Charles F. Marcy currently serves as Chair, and Stacy Loretz-Congdon 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. Christopher P. Mottern served as a member of the Nominating and Corporate Governance Committee through the 2018 Annual Meeting. Ms. Loretz-Congdon was appointed to the Nominating and Corporate Governance Committee following her election as a director at the 2018 Annual Meeting. Executive Committee The Board used to maintain an Executive Committee in order to assist the Board in effectively handling responsibilities between regular Board meetings. The Board determined, in July 2019, that the Committee is no longer necessary and it was disbanded. Other Committees In June 2019, the Board created an ad hoc CEO Search Committee to assist the Board in identifying and evaluating potential candidates for the Chief Executive Officer position. The CEO Search Committee was composed of Charles F. Marcy (chair), Stacy Loretz-Congdon and David W. Ritterbush. The CEO Search Committee was disbanded in September 2019 upon the engagement of a new Chief Executive Officer. In June 2019, the Board also created an ad hoc Transition Committee to assist the Company during its 21 executive management transition period. Stacy Loretz-Congdon was the sole member of the Transition Committee. The Transition Committee was disbanded in September 2019 upon the engagement of a new Chief Executive Officer. 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.” 22 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. 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. 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. Maserang and Mr. Mottern, 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 23 our Company. In fiscal 2019, 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 her 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(1) D. Deverl Maserang II. . . . . . . David G. Robson . . . . . . . . . . . Ronald J. Friedman . . . . . . . . . Gabriela Villalobos . . . . . . . . . Jerry Michael Walsh . . . . . . . . Age 56 53 49 51 53 Title President and Chief Executive Officer Treasurer and Chief Financial Officer Chief Human Resources Officer Senior Vice President Strategy, M&A and Transformation Senior Vice President and General Manager - DSD Executive Officer Since 2019 2017 2019 2019 2019 D. Deverl Maserang II joined the Company as President and Chief Executive Officer in September 2019. Prior to joining the Company, from 2017 to 2019, Mr. Maserang served as President and Chief Executive Officer of Earthbound Farm Organic, a global leader in organic food and farming. From 2016 to 2017, Mr. Maserang served as Managing Partner of TADD Holdings, a business advisory firm. From 2013 to 2016, Mr. Maserang was Executive Vice President Global Supply Chain for Starbucks Corporation, a global coffee roaster and retailer, where he was responsible for end-to-end supply chain operations globally spanning manufacturing, engineering, procurement, distribution, planning, transportation, inventory management and worldwide sourcing. Prior to that, he held leadership roles at Chiquita Brands International, Peak Management Group, FreedomPay, Installation Included, Pepsi Bottling Group and United Parcel Service. Mr. Maserang received his Bachelor of Science degree from Texas Tech University. 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 Bachelor of Science 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. Ronald J. Friedman was promoted to Chief Human Resources Officer in January 2019 after having served as Senior Vice President, Human Resources from June 2018 to December 2018. As Chief Human Resources Officer, Mr. Friedman is responsible for all aspects of Human Resources including HR Management, HRIS, Payroll, Total Rewards, Labor Relations, Employee Relations, Performance Management, Learning and Development, Strategic Business and Workforce Planning. Prior to joining the Company, Mr. Friedman was Senior Vice President, Human Resources for Saputo Dairy Foods, USA, a beverage company, from January 2013 to June 2018, where he lead all aspects of HR for an operating division comprised of over 2,000 employees and 11 manufacturing facilities. Prior to that, Mr. Friedman held Human Resources leadership positions for Dean Foods, SABMiller/ MillerCoors and Coca-Cola Enterprises. Mr. Friedman received his Bachelors degree in Communications from the University of Pittsburgh. Gabriela Villalobos was promoted to Senior Vice President National Accounts, Business Strategy and M&A in August 2019. Ms. Villalobos' current responsibilities include leading the national accounts customer strategy and execution, co-leading the Company's strategic growth plan and overseeing M&A activity. Ms. Villalobos served as the Company's Senior Vice President Strategy and M&A from January 2019 to August 2019, after having served as Senior Vice President, Acquisition Integration from May 2017 to December 2018. Prior to joining the Company, from 2008 to 2016, Ms. Villalobos was Chief Operation Officer and Chief Financial Officer, Latin America for Amway, a consumer goods company, where she co-led a strategic business transformation effort to increase market share, growth revenues and improve profitability. Prior to that, Ms. Villalobos held leadership roles with CompUSA, Philip Morris International and Kraft Foods. Ms. Villalobos received her Bachelors degree in Business Administration from Universidad Autónoma de Centro América, a Masters degree in International Finance from Universidad de Costa Rica and a Masters in Business Administration from Duke University. 25 Jerry Michael Walsh was promoted to Senior Vice President and General Manager - DSD in January 2019 after serving as Vice President and General Manager (Sales) from February 2017 to January 2019. As Senior Vice President and General Manager - DSD, Mr. Walsh's current responsibilities include leading the Company's DSD sales and service teams including sales, route service & delivery, customer service, marketing, and equipment service. He brings over 25 years of experience with leading CPG and DSD companies. Prior to joining the Company, from July 2012 to October 2015, Mr. Walsh was an executive with Aramark, a food and beverage supply services company, most recently as President of its Refreshment Services division, which focused on office coffee sales and service across North America. Prior to Aramark, Mr. Walsh held progressive sales and leadership roles at Dean Foods, Pepsi Bottling Group and Nestle Food Company. Mr. Walsh received his Bachelor of Arts degree in Economics from the University of Washington and a Masters in Business Administration with an emphasis in Marketing from Seattle University. 26 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 2019 with respect to the compensation of our Named Executive Officers. Fiscal 2019 Named Executive Officers Name Christopher P. Mottern Michael H. Keown David G. Robson Ellen D. Iobst Scott A. Siers Thomas J. Mattei, Jr. Executive Summary Title (as of June 30, 2019) Interim President and Chief Executive Officer Former 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 Our executive compensation programs are designed to: • • attract, retain, and motivate talented executives with competitive pay and incentives reward positive results for the Company and our stockholders • 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; • 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. We believe that this structure appropriately focuses our executive officers on the creation of long-term value without creating undue risk-taking behavior. As shown in the following chart, our 3-year cumulative TSR has not kept pace with the general market or with our peer group. As a result, several of our Named Executive Officers have left the organization. We believe that the payouts on our incentive plans have reflected the poor performance we have achieved. 27 3-Year Cumulative TSR as of June 30, 2019 * 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. 28 Compensation Policies and Practices—Good Governance Consistent with our commitment to strong corporate governance, in fiscal 2019 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 (“SERP”) 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 as collateral for a loan or in a margin account. 29 Stockholder Advisory Vote on Executive Compensation and Key Compensation Program Enhancements In December 2018, 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 87% of the shares present or represented by proxy at the 2018 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 78% in fiscal 2017 and 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 significant increase in stockholder support from fiscal 2016 and 2017, the Compensation Committee determined that the enhancements to the Company’s executive compensation programs and practices in fiscal 2018 were viewed by stockholders as effective in further aligning the Company with stockholders in its executive compensation practices. In fiscal 2019, the Compensation Committee chose to continue those enhancements and did not make substantial changes to our policies and practices. 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. 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 2019, 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. In fiscal 2019, the Compensation Committee also engaged Meridian to help determine the compensation of our Interim President and Chief Executive Officer. Meridian provided no other services to the Company or its affiliates during fiscal 2019 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. In fiscal 2019, our President and Chief Executive Officer, Chief Financial Officer, Chief Legal Officer, and Chief Human Resources Officer routinely attended 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. 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. 30 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 2019 pay levels for our Named Executive Officers: B&G Foods, Inc. The Boston Beer Company, Inc. Calavo Growers, Inc. Cal-Maine Foods, Inc. The Chef’s Warehouse Inc. Craft Brew Alliance Inc. Hostess Brands, Inc. J & J Snack Foods Corp. John B. Sanfilippo & Son, Inc. Lancaster Colony Corporation MGP Ingredients Inc. Primo Water Corporation Seneca Foods Corp. The Simply Good Foods Company 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 2019 Named Executive Officer Compensation Mix In fiscal 2019, 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 2019 compensation programs were therefore also strongly aligned with the long-term interests of our stockholders. The following charts illustrate, with respect to each of our former President and Chief Executive Officer, our Interim President and 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 2019, and target long-term equity incentive compensation as a percentage of target total direct compensation for fiscal 2019. 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. 31 Key Elements of Fiscal 2019 Executive Compensation Program Mr. Mottern was appointed as interim President and Chief Executive Officer ("Interim CEO") effective May 7, 2019 upon Mr. Keown’s departure. In connection with his agreement to serve as the Interim CEO, the Compensation Committee entered into an agreement with Mr. Mottern which included a monthly base salary of $33,333 (or $400,000 annualized) and a bonus opportunity up to 50% of his base salary. Mr. Mottern’s base salary was paid in the form of monthly restricted stock unit grants with a grant date value equal to his monthly salary with such grants being made on the last business day of each month and pro-rated any partial months. Mr. Mottern also received an RSU grant on May 9, 2019 with a grant date value of $150,000 and is eligible for an RSU grant upon the termination of his service as Interim CEO with a grant date fair value up to $50,000, with the amount of such grant determined by the Board based upon his length of service and his time commitment as Interim CEO. All RSU grants have a one-year vesting period from the date of grant based on Mr. Mottern’s continued service either as Interim CEO or as a director of the Company, but vesting will accelerate in full (i) upon a change in control of the Company, as defined in the Company’s 2017 Long-Term Incentive Plan, or (ii) on the date of the next annual meeting, if he is not reelected to the Board at such time and he is no longer serving as the Interim CEO. Mr. Mottern’s compensation package was designed with input from Meridian to provide him with market rate compensation for the expected short-term nature of his interim position, while also providing him with an incentive to increase share value by having most of the compensation (other than the bonus) paid in some form of stock which vests over a period of 1 year. His total compensation package was designed to be within the mid-range of recent market practices in similar interim CEO situation and provide on an annualized basis compensation that was within range of other Company officers. The following describes each element of his compensation and the thinking behind the amount and structure: • Base Salary: His base salary was set at roughly 70% of Mr. Keown’s salary, based on market practices for interim positions as advised by the Committee’s compensation consultant. The payment of the base salary in the form of time-vested restricted stock units was designed to further align his interests with shareholders. • Bonus: The amount of his bonus opportunity was within the market range for this position. The bonus is earned in the discretion of the Compensation Committee only at the end of his tenure as Interim CEO, and the amount of any bonus will be determined based on his length of tenure and satisfaction of certain strategic objectives. • RSU Grant: The RSU award was intended to replicate in amount approximately one-third of a long-term incentive award for a CEO position. However, it is entirely time based since the position is intended to be only short term which does not align with a typical CEO long-term incentive award with a multi-year performance period. The one year vesting period was set to (1) align with the short-term nature of his position, and retain him as a director after his interim position was completed (2) comply with restrictions under the terms of the Company’s 2017 Long-Term Incentive Plan on equity grants having less than 1 year vesting, and (3) be consistent with the vesting period applicable to director equity grants. Below are the key elements of the Company’s fiscal 2019 executive compensation program applicable to our Named Executive Officers, other than Mr. Mottern. As discussed above, Mr. Mottern’s compensation was set in connection with his appointment as the interim President and Chief Executive Officer while the Company searched for permanent replacement. As such his compensation structure differed from our other Named Executive Officers. Accordingly, the following discussions regarding our compensation programs are not applicable to him. 32 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 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. • Individual targets are consistent with our focus on both quantitative and qualitative priorities and thereby reward both attainment of objective metrics and individual contributions. Long-Term Incentives . . . . . . . . . . . . . . . • 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 Performance-based Restricted Stock Units ("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 . . . . . . . . . . . . . . . . . • 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. • A standard complement of retirement, health, welfare and insurance 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. Retirement and Welfare Benefits . . . . . . . . . . . . . . . . . . . . . . . . Perquisites . . . . . . . . . . . . . . . . . . . . . . . . • 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 2019 annual base salaries for the Named Executive Officers were increased by 2% with the exception of Mr. Mattei who received a 10% increase in recognition of assuming the Corporate Secretary responsibilities. 33 Name Named Executive Officers: Fiscal 2019 Annual Base Salary(1) Fiscal 2018 Annual Base Salary Annual Base Salary Percentage Change Michael H. Keown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . David G. Robson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ellen D. Iobst . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Scott A. Siers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thomas J. Mattei, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ $ $ 581,400 359,570 345,390 298,995 343,332 $ $ $ $ $ 570,000 352,520 338,618 293,132 312,120 2% 2% 2% 2% 10% _________ (1) Annual base salary as of the end of the applicable fiscal year. Increase in fiscal 2019 base salaries reflected adjustments approved by the Compensation Committee and were effective September 1, 2018. Short-Term Cash Incentives Fiscal 2019 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 “Short-Term Cash Incentive Program”). Short-Term Cash Incentive Program for Fiscal 2019 Company-Wide Performance Goals (weighted 90% of the Short-Term Cash Incentive Program at target) For the fiscal 2019 Short-Term Cash Incentive 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 fiscal 2019, our Named Executive Officers were eligible to earn annual cash incentive awards under the Short-Term Cash Incentive 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. 34 In determining the achievement of Company-wide performance goals for fiscal 2019, 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 2019, as described in the 2019 Form 10-K. The following table shows such achievement compared to Company-wide performance goals for fiscal 2019. Metric Adjusted EBITDA . . . . . . Weighting 75% Threshold Goal (80% of Target Performance) $ 42,360,000 Target Goal $52,950,000 Maximum Goal (140% of Target Performance) $74,130,000 Actual Achievement $31,882,000 Actual Achievement Compared to Target Performance 60.2% Free Cash Flow. . . . . . . . . 25% $ 26,660,000 $33,325,000 $46,655,000 $10,794,000 32.4% Weighted Company-wide Performance Goals . . . . . . 53.3% Earned Payout for Fiscal 2019 Company- wide Performance 0 $ $ $ 0 0 Individual Performance Goals (weighed 10% of the Short-Term Cash Incentive Program at target) 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 Short-Term Cash Incentive Program in fiscal 2019. Long-Term Incentives Awards Fiscal 2019 long-term incentive awards were made under the 2017 Plan. In fiscal 2019, the Company granted stock option, restricted stock and PBRSU awards under the 2017 Plan. On a target grant date value basis, fiscal 2019 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 2019 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 2019 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 2019 Awards Stock Options In fiscal 2019, 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 2019 have an exercise price of $25.04 per share, which was the closing price of our Common Stock as reported on the NASDAQ Global Select Market on the date of grant and expire seven years from the grant date. 35 The following table sets forth the annual stock option awards granted to each of our Named Executive Officers under the 2017 Plan on November 12, 2018: Name(1) Michael H. Keown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . David G. Robson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ellen D. Iobst . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Scott A. Siers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thomas J. Mattei, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performance-Based Restricted Stock Units Fiscal 2019 Annual Stock Option Grant (# of Shares of Common Stock Issuable Upon Exercise) Grant Date Fair Value of Stock Option Awards ($) 39,233 17,331 13,318 9,608 13,239 305,233 134,835 103,614 74,750 102,999 In fiscal 2019, 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 2019 cash incentives under the Performance Achievement Program) performance goals for the performance period July 1, 2018 through June 30, 2021, 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 2019 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 annual performance based restricted stock unit awards granted to each of our Named Executive Officers under the 2017 Plan on November 12, 2018: Name(1) Michael H. Keown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . David G. Robson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ellen D. Iobst . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Scott A. Siers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thomas J. Mattei, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in Control Severance Agreements; Employment Agreements Fiscal 2019 Target PBRSU Grant (# of Shares of Common Stock Issuable Upon Vesting) 12,190 5,385 4,138 2,985 4,113 Grant Date Fair Value of Target PBRSUs ($) 305,238 134,840 103,616 74,744 102,990 The Company has 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 a change in control or threatened change in control. A detailed description of the severance benefits each executive officer is due to receive based on their employment agreements is set forth below under the heading “Named Executive Officer Compensation-Potential Payments Upon Termination or Change in Control.” 36 In late fiscal 2019 and early fiscal 2020, several of our Named Executive Officers, namely Messr. Keown, Mattei and Siers and Ms. Iobst, left the company (the "NEO Departures"). As a result of the NEO Departures, Mr. Robson is the only remaining Named Executive Officer with a Change in Control Severance Agreement that remains in effect. Based on this agreement, Mr. Robson is 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. This agreement was entered into, and continues in effect, to achieve the following objectives: (a) assure the Named Executive Officer’s 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 Officer 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-Employment Agreements and Arrangements.” A detailed description of the benefits payable under the terms of their employment agreements in connection with the NEO Departures is set forth below under the heading “Named Executive Officer Compensation-Potential Payments Upon Termination or Change in Control.” ESOP Allocation Our Named Executive Officers participated 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. Under the Plan, a participant’s interest in the ESOP became 100% vested after five years of service to the Company, subject to accelerated vesting in certain limited circumstances. Beginning on January 1, 2019, the ESOP plan was frozen and replaced with a company contribution in the 401(k) plan equal to 4% of an employee’s income each quarter. All of our non-union employees are eligible for this contribution. This contribution is deposited into the employees 401(k) account in the form of company stock. As a result of the ESOP plan being frozen, all participant's interest in the ESOP became 100% vested. During fiscal 2019, the Named Executive Officers received the following ESOP allocations in shares of Common Stock based on compensation earned during calendar year 2018: Name(1) Michael H. Keown. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . David G. Robson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ellen D. Iobst. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Scott A. Siers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thomas J. Mattei, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ESOP Allocation (# of Shares) 244 244 244 244 244 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. 37 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 2019, 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. On January 1, 2019 the company instituted a Qualified Non-elective Contribution for all non-union employees that replaced the ESOP plan. That contribution consists of a company contribution equal to 4% of the employee’s earnings and is contributed on a quarterly basis. All company contributions are fully vested at the time they are received by the employee. 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 four times his or her annual cash retainer for service on the Board, 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 Chief Executive Officer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-Employee Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Value of Shares Owned 3x base salary 1x base salary 4x Annual Cash Retainer 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 38 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 fourteenth 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 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, may, 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. 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. 39 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 2019 Form 10-K. Compensation Committee of the Board of Directors Charles F. Marcy, Interim Chair Allison M. Boersma David W. Ritterbush 40 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. A B C D E F G H I Name and Principal Position Fiscal Year Michael H. Keown (2). . . . . . President and CEO Christopher P. Mottern (3) . . Interim President and CEO. . . . . David G. Robson(4) . . . Treasurer and CFO 2019 2018 2017 2019 2019 2018 2017 Salary ($) 663,063 565,758 534,690 62,311 372,033 351,938 121,154 Ellen D. Iobst(5) 2019 359,123 Chief Operations 2018 337,783 Officer 2017 115,962 Scott A. Siers(6). 2019 305,928 SVP, GM Sales 2018 292,409 Bonus ($) — Stock Awards ($) 305,235 Option Awards ($) 305,235 Non-Equity Incentive Plan Compensation ($) — All Other Compensation ($)(1) 26,978 Total ($) 1,300,511 — — — — — — — — — — — 300,009 300,093 285,000 15,922 1,466,782 — 472,000 215,002 — 134,839 134,839 — — — 16,541 1,023,231 88,750 366,063 23,060 664,771 162,241 192,256 123,382 69,266 899,083 — — 103,617 103,617 — — 74,184 195,338 22,700 589,057 125,596 149,636 101,586 104,551 819,152 — — 74,749 74,749 — — 372,891 488,853 13,508 468,934 73,290 73,308 80,612 7,822 527,441 Thomas J. Mattei, Jr.(7) . Chief Legal Officer and Secretary 2019 2018 352,265 — 103,000 103,000 — 22,741 581,006 310,708 — 93,642 93,665 85,833 15,922 599,770 2017 316,383 — — 111,551 — 16,541 444,475 __________ (1) For a detailed summary of the amounts shown in this column see discussion under the heading “All Other Compensation (Column H),” below. For Mr. Mottern, this amount reflects the amount paid in cash retainers in connection with his service on the Board of Directors and its committees, prior to becoming interim President and Chief Executive Officer. (2) Mr. Keown's salary reflects the amount actually paid to him through the date of his separation of employment. (3) Mr. Mottern joined the Company as interim President and Chief Executive Officer from May 2019 to October 2019, after having served as an independent director. The amounts shown in the table for fiscal 2019 include 3,016 restricted stock units, with a grant-day value of $62,311, in lieu of salary (Salary); a restricted stock units award upon hire of 8,436 shares, with a grant-date value of $149,992 (Stock Awards); a restricted stock award of 2,711 shares with a grant-date value of $65,010 granted to Mr. Mottern in his capacity as a director prior to joining the Company as interim President and Chief Executive Officer (Stock Awards) and $88,750 in cash retainers in connection with his service on the Board of Directors and its committees, prior to becoming interim President and Chief Executive Officer (Other). (4) Mr. Robson joined the Company as Treasurer and Chief Financial Officer effective February 20, 2017. (5) 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 41 compensation for all services rendered in all capacities to the Company for the full fiscal year. Ms. Iobst has subsequently retired from the Company effective July 26, 2019. (6) Mr. Siers has subsequently resigned from the Company effective August 30, 2019. (7) Mr. Mattei has subsequently resigned from the Company effective July 19, 2019. 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 or the dates of resignation or termination. 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 2019 and 2018 and under the Farmer Bros. Co. 2005 Incentive Compensation Plan, as amended (the “STIP”) in fiscal 2017 is shown in column G. Stock Awards (Column E) The amounts reported in column E for fiscal 2019 represent the aggregate grant date fair value of annual PBRSU awards received by each of the Named Executive Officers. 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, 2019 included in our 2019 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 2019 and 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 in fiscal 2019 and fiscal 2018, respectively, would have been $457,853 and $450,013 for Mr. Keown, $202,259 and $198,315 for Mr. Robson, $155,426 and $152,382 for Ms. Iobst, $112,124 and $109,936 for Mr. Siers, and $154,500 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. 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, is based on the probable outcome of the performance conditions to which such awards are subject. Stock option awards granted in fiscal 2018 and 2019 include annual stock option awards received by each of the Named Executive Officers, and for fiscal 2018, 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 16 to our audited consolidated financial statements for the fiscal year ended June 30, 2019 included in our 2019 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. 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 2019 and 2018 and under the STIP for fiscal 2017. 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. 42 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 Short-Term Cash Incentive 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 Short-Term Cash Incentive Program in fiscal 2018 or fiscal 2019. All Other Compensation (Column H) The amounts reported in column H for fiscal 2019 include the following: All Other Compensation (1) ESOP Allocation (2) ($) 7,528 — 7,528 7,528 7,528 7,528 Michael H. Keown . . Christopher P. Mottern. . . . . . . . . David G. Robson . . . Ellen D. Iobst . . . . . . Scott A. Siers . . . . . . Thomas J. Mattei, Jr.. __________ Company Contributions to 401(k) Plan (3) ($) 19,450 — 15,532 15,242 5,980 15,213 Total ($) 26,978 — 23,060 22,770 13,508 22,741 (1) (2) (3) The total value of all perquisites and other personal benefits received by each of our Named Executive Officers did not exceed $10,000 in fiscal 2019 and has been excluded from the table. Represents the dollar value of ESOP shares allocated to each Named Executive Officer based on compensation earned during calendar year 2018 calculated on the basis of the closing price of our Common Stock on June 28, 2019 ($16.37). Due to the termination of the ESOP, a participant’s interest in the ESOP are currently 100% vested. Represents the Company’s contribution under the 401(k) plan including the company matching contribution and the Qualified Non-elective Contribution (QNEC). Company contributions (and any earnings thereon) are 100% vested upon receipt. The QNEC contributions are given in Company common stock. 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, except Mr. Mottern, (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.” 43 Employment Agreements The Company has also entered into employment agreements with each of the Named Executive Officers, other than Mr. Mottern (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.” 44 The following table sets forth summary information regarding all grants of plan-based awards made to our Named Executive Officers in fiscal 2019. Grants of Plan-Based Awards Estimated Future Payouts Under Non-Equity Incentive Plan Awards Estimated Future Payouts Under Equity Incentive Plan Awards(1) Grant Date Date of Action Threshold ($)(4) Target ($)(4) Maximum ($)(4) Threshold (#)(5) Target (#)(5) Maximum (#)(5) All Other Stock Awards: Number of Shares of Stock or Units (#) All Other Option Awards: Number of Securities Underlying Options (#) (5) Exercise or Base Price of Option Awards ($/ Sh)(2) Name Michael H. Keown Christopher P. Mottern David G. Robson - - 299,250 598,500 1,197,000 11/12/18 10/08/18 11/12/18 10/08/18 5/9/19 5/31/19 6/28/19 5/5/19 5/5/19 5/5/19 - - - - - - - - - - - - - - - - - 134,839 269,678 539,356 11/12/18 10/08/18 11/12/18 10/08/18 - - - - - - Ellen D. Iobst - - 103,617 207,234 414,468 11/12/18 10/08/18 11/12/18 10/08/18 - - - - - - Scott A. Siers - - 89,699 179,397 358,794 11/12/18 10/08/18 11/12/18 10/08/18 - - - - - - Thomas J. Mattei, Jr. __________ - - 103,000 205,999 411,998 11/12/18 10/08/18 11/12/18 10/08/18 - - - - - - - 0 - - - - - 0 - - - - - - - - - - - - 12,190 18,285 - - - - - - - - - 39,233 25.04 - - - - - - 8436(6) 1582(7) 2036(7) - - 5,385 8,078 - - - - 4,138 6,207 - - - - 2,985 4,478 - - - - 4,113 6,170 - - - - - - - - - - - - - - - - - - - 17.78 18.32 16.37 - - 17,331 25.04 - - - - 13,318 25.04 - - - - 9,608 25.04 - - - - 13,239 25.04 Grant Date Fair Value of Stock and Option Awards ($)(3) - 305,238 305,233 149.992 28.982 33.329 - 134,840 134,835 - 103,616 103,614 - 74,744 74,750 - 102,990 102,999 (1) (2) (3) Represents PBRSU awards granted to our Named Executive Officers in fiscal 2019 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, 2018 through June 30, 2021, 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 2019 Awards-Performance-Based Restricted Stock Units.” 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. 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 16 to our audited consolidated financial statements for the fiscal year ended June 30, 2019, included in our 2019 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 Short-Term Cash Incentive Program based on the Company’s achievement of adjusted EBITDA and free cash flow targets (collectively weighted at 90%) along with the relative 45 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 Short-Term Cash Incentive Program in fiscal 2019. 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. Represents non-qualified stock option awards granted to our Named Executive Officers in fiscal 2019 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. Represents restricted stock granted to Mr. Mottern in fiscal 2019 under the 2017 Plan in connection with commencement of his employment as interim President and Chief Executive Officer under the terms of his employment. The restricted stock cliff vests on the first anniversary of the grant date, subject to the acceleration provisions of the 2017 Plan and restricted stock award agreement. Represents restricted stock granted to Mr. Mottern, in lieu of cash salary, in fiscal 2019 under the 2017 Plan in connection with his employment as interim President and Chief Executive Officer under the terms of his employment. The restricted stock cliff vests on the first anniversary of the grant date, subject to the acceleration provisions of the 2017 Plan and restricted stock award agreement. (5) (6) (7) 46 Outstanding Equity Awards at Fiscal Year-End The following table sets forth summary information regarding the outstanding equity awards at June 30, 2019 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 45,470(2) 49,902(3) 16,732(4) 15241(5) 11,022(6) 9,510(1) 4,190(1) 1,902(1) - 3,220(1) 1,521(1) - 2,720(1) 4,700(2) 9,095(3) 8,720(4) 4,008(6) 2,323(1) - 2,720(1) 3,760(2) 4,281(3) 8,720(4) 2,605(6) 2,968(1) - - - - - - - 8,509(1) 3,862(1) 17,331(1) 6,539(1) 3,090(1) 13,318(1) - - - - - 4,717(1) 9,608(1) - - - - - 6,027(1) 13,239(1) - - - - - - - - - - - - - - 2,004(6) - - - - 2,907(4) 2,605(6) - 21.33 23.44 29.48 29.48 32.85 31.70 31.70 31.70 25.04 31.70 31.70 25.04 13.09 21.33 23.44 29.48 32.85 31.70 25.04 13.09 21.33 23.44 29.48 32.85 31.70 25.04 12/12/20 02/09/22 12/03/22 12/03/22 11/10/23 11/10/24 11/10/24 11/10/24 11/12/25 11/10/24 11/10/24 11/12/25 02/27/20 12/12/20 02/09/22 12/03/22 11/10/23 11/10/24 11/12/25 02/27/20 12/12/20 02/09/22 12/03/22 11/10/23 11/10/24 11/12/25 - - - - - - - 8,436(7) 1,582(7) 2,036(7) - 947(8) - - 757(8) 4,138(8) - - - - - - - - - - - - - 138,097(9) 25,897(9) 33,329(9) - - - 23,126(9) 67,739 (9) - - - - - - 28,931(9) - 2,985(8) 48,864(9) - - - - - - - - - - - - 4,113(8) 67,330(9) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) - - - - - - - Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) - - - - - - - 4,171(10) 127,424(11) 5,385(10) 3,205(10) - - - - - - - 88,152(11) 97,913(11) - - - - - - 2,312(10) 70,623(11) - - - - - - - - - - 2,954(10) 90,245(11) Name Michael H. Keown Christopher P. Mottern David G. Robson Ellen D. Iobst Scott A. Siers Thomas J. Mattei, Jr. __________ (1) (2) 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. 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. 47 (3) (4) (5) (6) (7) (8) (9) (10) 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. 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. 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. 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. Restricted stock cliff vests on the first anniversary of the date of grant, subject to accelerated vesting in certain circumstances. 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. The market value was calculated by multiplying the closing price of our Common Stock on June 28, 2019 ($16.37) by the number of shares of unvested restricted stock. 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 performance goals for the three-year performance, 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. (11) The market value was calculated by multiplying the closing price of our Common Stock on June 28, 2019 ($16.37) by the number of shares of Common Stock underlying the unvested PBRSUs. The following table summarizes the option exercises and vesting of stock awards for each of our Named Executive Officers for the fiscal year ended June 30, 2019. Option Exercises and Stock Vested 48 Name Named Executive Officers: Option Awards(1) Stock Awards Number of Securities Acquired on Exercise(#) Value Realized on Exercise($) Number of Shares Acquired on Vesting(#) Value Realized on Vesting($) Michael H. Keown. . . . . . . . . . . . . . . . . . . . . . . . 23,333 378,928 Christopher P. Mottern. . . . . . . . . . . . . . . . . . . . . David G. Robson . . . . . . . . . . . . . . . . . . . . . . . . . Ellen D. Iobst. . . . . . . . . . . . . . . . . . . . . . . . . . . . Scott A. Siers . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thomas J. Mattei, Jr. . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — — — — — — — — — — — — — __________ (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, except for Mr. Mottern. 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, except Mr. Mottern, whose employment terms are governed by the Mottern Agreement, described below. 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 49 employed by the Company at least 30 months and only after giving at least 180 days advance written notice of her election to retire, which notice Ms. Iobst provided to the Company on May 20, 2019. 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. However, Mr. Keown's compensation listed in the table below shows his actual compensation paid upon his termination from the Company on May 5, 2019. Mr. Mottern is not entitled to any severance benefits upon a termination of his employment and is entitled to accelerated vesting of his RSUs on a Change in Control or his not being re-elected to the Board following the end of his service as the Interim President and Chief Executive Officer. 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 28, 2019. Termination Without Cause or Resignation With Good Reason $581,400 $491,864 $- $- $- $11,914 $- $1,085,178 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 Base Salary Continuation Annual Incentive Payments Value of Accelerated Stock Options Value of Accelerated Restricted Stock Value of Accelerated PBRSUs Health and Dental Insurance Outplacement Services Total Pre-Tax Benefit - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 50 Change in Control and Involuntarily Terminated or Resignation for Good Reason within 24 Months of Change in Control $719,140 $251,699 $- $28,931 $156,432 $23,310 $25,000 $1,204,512 Change in Control and Involuntarily Terminated or Resignation for Good Reason within 24 Months of Change in Control $690,780 $207,234 $- $12,392 $120,205 $23,330 $25,000 $1,078,941 Change in Control and Involuntarily Terminated or Resignation for Good Reason within 24 Months of Change in Control $597,990 $164,447 $- $- $86,712 $15,138 $25,000 $889,287 Threatened Change in Control and Involuntarily Terminated or Resignation for Good Reason Termination Without Cause or Resignation With Good Reason $719,140 $251,699 $- $- $- $23,310 $25,000 $1,019,149 $359,570 $251,699 $- $- $- $11,655 $- $622,924 Threatened Change in Control and Involuntarily Terminated or Resignation for Good Reason Termination Without Cause or Resignation With Good Reason $690,780 $207,234 $- $- $- $23,330 $25,000 $946,344 $345,390 $207,234 $- $- $- $11,665 $- $564,289 Threatened Change in Control and Involuntarily Terminated or Resignation for Good Reason Termination Without Cause or Resignation With Good Reason $597,990 $164,447 $- $- $- $15,138 $25,000 $802,575 $298,995 $164,447 $- $- $- $7,569 $- $471,011 David G. Robson Death Disability Retirement Base Salary Continuation Annual Incentive Payments Value of Accelerated Stock Options Value of Accelerated Restricted Stock Value of Accelerated PBRSUs Health and Dental Insurance Outplacement Services Total Pre-Tax Benefit $- $251,699 $- $8,275 $74,904 $- $- $334,877 $- $251,699 $- $8,275 $74,904 $- $- $334,877 $- $- $- $- $- $- $- $- Ellen D. Iobst Death Disability Retirement Base Salary Continuation Annual Incentive Payments Value of Accelerated Stock Options Value of Accelerated Restricted Stock Value of Accelerated PBRSUs Health and Dental Insurance Outplacement Services Total Pre-Tax Benefit $- $207,234 $- $6,614 $57,557 $- $- $271,405 $- $207,234 $- $6,614 $57,557 $- $- $271,405 $- $- $- $- $- $- $- $- Scott A. Siers Death Disability Retirement Base Salary Continuation Annual Incentive Payments Value of Accelerated Stock Options Value of Accelerated Restricted Stock Value of Accelerated PBRSUs Health and Dental Insurance Outplacement Services Total Pre-Tax Benefit $- $164,447 $8,922 $- $41,520 $- $- $214,889 $- $164,447 $8,922 $- $41,520 $- $- $214,889 $- $- $- $- $- $- $- $- 51 Change in Control and Involuntarily Terminated or Resignation for Good Reason within 24 Months of Change in Control $686,664 $205,999 $- $- $115,687 $23,850 $25,000 $1,057,200 Threatened Change in Control and Involuntarily Terminated or Resignation for Good Reason $686,664 $205,999 $- $- $- $23,850 $25,000 $941,513 Termination Without Cause or Resignation With Good Reason $343,332 $205,999 $- $- $- $11,925 $- $561,256 Thomas J. Mattei, Jr. Death Disability Retirement Base Salary Continuation Annual Incentive Payments Value of Accelerated Stock Options Value of Accelerated Restricted Stock Value of Accelerated PBRSUs Dental Insurance Outplacement Services Total Pre-Tax Benefit $- $205,999 $8,922 $- $54,681 $- $- $269,602 $- $205,999 $8,922 $- $54,681 $- $- $269,602 $- $- $- $- $- $- $- $- 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 52 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 2019 target annual cash incentive awards under the 2017 Plan based on the Company’s achievement of adjusted EBITDA and free cash flow. However, the table for Mr. Keown does not reflect any annual cash incentive as he did not receive any following his termination. Value of Accelerated Vesting of Stock Options and Restricted Stock 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 28, 2019 ($16.37), except for Mr. Keown, which table does not show any value, since his employment was terminated prior to the end of the fiscal year at which time he forfeited all unvested awards. 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 $16.37 per share, the closing price of our Common Stock on June 28, 2019. Participants become 100% vested under the ESOP upon death, disability and, subject to certain eligibility requirements, retirement. 53 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. 54 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 2019, 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 $1,427,832 (a combination of the salary paid to our former CEO combined with the salary paid to our interim CEO) as disclosed in the “Summary Compensation Table” appearing on page 41, the median of the annual total compensation of our other employees was $62,804, and the ratio of our CEO’s annual total compensation to the median of the annual total compensation of our other employees was 23 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 1,515 individuals active as of June 30, 2019) for the fiscal year ended June 30, 2019. Total direct compensation was calculated using internal human resources records and included base salary (wages earned based on our payroll records), cash incentive awards earned for the period, and the annual grant date fair value of long-term incentive awards during fiscal 2019. 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. 55 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 27 through 55 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 2020 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. 56 PROPOSAL NO. 4 APPROVAL OF MANAGEMENT’S PROPOSAL TO AMEND THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO PROVIDE FOR THE PHASED IN DECLASSIFICATION OF THE BOARD OF DIRECTORS Proposed Amendment to the Company Charter Currently, the Company’s Amended and Restated Certificate of Incorporation (the “Charter”) divides Board members into three classes. One class is elected at each annual meeting of stockholders, to hold office for a term beginning on the date of the election and ending on the date of the third annual meeting of stockholders following the beginning of the term. After careful consideration, the Board has determined that it would be in the best interests of the stockholders to declassify the Board to allow the stockholders to vote on the election of the entire Board each year, rather than on a staggered basis. The proposed amendment to the Charter is set forth in Annex A to this Proxy Statement (the "Amendment"). In addition, the Board has also conditionally approved, subject to stockholder approval of this proposal, amendments to the Amended and Restated By-laws of the Company, set forth in Annex B to this Proxy Statement, in order to further implement the changes under this proposal. Members of our Board of Directors are currently elected for staggered terms of three years. If this declassification proposal is approved and the Amendment becomes effective, the Amendment providing for declassification of the Board of Directors will be phased-in as follows: • which expires at the 2022 annual meeting of stockholders; the directors who are elected under Proposal No. 1 of this Proxy Statement will be elected for a three-year term the directors who were elected for a three-year term at our 2017 annual meeting of stockholders will continue to • serve the remainder of the three-year term for which they were elected, which term expires at the 2020 annual meeting of stockholders; the directors who were elected for a three-year term at our 2018 annual meeting of stockholders will continue to • serve the remainder of the three-year term for which they were elected, which term expires at the 2021 annual meeting of stockholders; • stockholders will be elected to a one-year term expiring at the next succeeding annual meeting of stockholders; and commencing with the 2020 annual meeting of stockholders, the directors who are elected at each annual meeting of • at the next annual meeting of stockholders. commencing with the 2022 annual meeting of stockholders, all directors will be elected for a one-year term expiring If the stockholders do not approve this proposal, then the Board will remain classified, with each class of directors serving a term of three years, and the term of the directors standing for election at this year’s Annual Meeting, if elected, will expire on the date of the 2022 annual meeting of stockholders. Notwithstanding the foregoing, in all cases, each director will hold office until his or her successor is duly elected, or until his or her earlier resignation or removal. Considerations of the Board The Board recognizes that a classified structure may offer several advantages, such as promoting board continuity and stability, encouraging directors to take a long-term perspective, and ensuring that a majority of the Board will always have prior experience with the Company, especially in light of an increasingly complex and changing regulatory environment. Additionally, classified boards may motivate potential acquirors seeking control to initiate arms-length discussions with the Board, rather than engaging in unsolicited or coercive takeover tactics, since potential acquirors are unable to replace the entire Board in a single election, thereby better enabling the Board to maximize stockholder value and to ensure the equal and fair treatment of stockholders. The Board also recognizes that a classified structure may reduce directors’ accountability to stockholders because such a structure does not enable stockholders to express a view on each director’s performance by means of an annual vote. Moreover, many institutional investors believe that the election of directors is the primary means for stockholders to influence corporate governance policies and to hold management accountable for implementing those policies. 57 In determining whether to support declassification of the Board, the Board considered the arguments in favor of and against continuation of the classified board structure and determined that it would be in the best interests of the Company and the stockholders to declassify the Board. Effective Date and Vote Required If this proposal is approved by the requisite vote of the stockholders at the Annual Meeting, the Amendment will become effective upon the filing of a Certificate of Amendment setting forth the Amendment with the Secretary of State of the State of Delaware, which filing is expected to take place shortly after stockholder approval. As required by Delaware law, if this proposal is not approved by the requisite vote of the stockholders at the Annual Meeting, the Amendment will not become effective, the amendments to the Amended and Restated By-laws of the Company will not become effective and the Board of Directors will remain divided into three classes, with directors in each class serving staggered three-year terms and the term of office of directors of one class expiring at each annual meeting. 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 PROPOSAL TO AMEND THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO PROVIDE FOR THE PHASED IN DECLASSIFICATION OF THE BOARD OF DIRECTORS. 58 PROPOSAL NO. 5 NON-BINDING STOCKHOLDER PROPOSAL URGING THE BOARD OF DIRECTORS TO PROVIDE FOR THE PHASED-IN DECLASSIFICATION OF THE BOARD OF DIRECTORS The Grossman Group has notified the Board that it intends to present the following proposal at the Annual Meeting: “RESOLVED, that stockholders of Farmer Bros. Co. (the “Company”) urge the Board of Directors to take all necessary steps (other than any steps that must be taken by stockholders) to eliminate the classification of the Board of Directors, and to require that all directors elected at or after the annual meeting held in 2020 stand for elections on an annual basis. Implementation of this proposal should not prevent any director elected prior to the annual meeting held in 2020 from completing the term from which such director was elected.” Vote Required The advisory (non-binding) shareholder proposal 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 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 are not entitled to vote at the Annual Meeting. Recommendation As discussed above under “Background of the Solicitation,” the Board has previously determined to declassify the Board over a three-year period, in a manner substantially identical to this stockholder proposal, has publicly disclosed such intention in a current report on Form 8-K and has included in this proxy statement management’s Proposal No. 4, which seeks stockholder approval of the amendment to the Company’s Amended and Restated Certificate of Incorporation necessary to effectuate such declassification. As such, the Board considers this stockholder proposal duplicative and unnecessary. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS DISREGARD THIS NON-BINDING STOCKHOLDER PROPOSAL BY ABSTAINING. 59 Non-Employee Director Compensation 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 2019, 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. The Company's non-employee director compensation program is as follows: Form of Non-Employee Director Compensation Director Compensation Program Annual Board Cash Retainer $60,000 Committee Chair Cash Retainer Non-Chair Committee Cash Retainer $10,000 for Compensation Committee and Nominating and Corporate Governance Committee $15,000 for Audit Committee $7,500 for Compensation Committee and Nominating and Corporate Governance Committee $10,000 for Audit Committee Chairman of the Board Cash Retainer $50,000, with no additional fees for committee service Chairman Emeritus Cash Retainer The Company does not currently have a Chairman Emeritus Meeting Fees $2,000 only paid for Board or committee meetings in excess of seven in the fiscal year Annual Equity Award Value $65,000 Expense Reimbursement Other 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 Ad hoc committee fees are determined from time to time by the Board, as needed. In Fiscal 2019, a CEO Search Committee was established. The Chair of the CEO Search Committee received a one-time payment of $20,000. Non- chair CEO Search Committee members received a one-time payment of $15,000. In Fiscal 2019, a Transition Committee was established. The sole member of the Transition Committee received a monthly fee of $15,000. 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 2019, the annual grant of restricted stock was made on December 7, 2018. Each non-employee director, other than Ms. Assadi who did not join the Board until March 1, 2019, received a grant of 2,711 shares of restricted stock based on the closing price per share of our Common Stock on December 7, 2018 ($23.98). 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 60 the 2017 Plan and the restricted stock award agreement. Ms. Assadi received a pro-rated grant of 2,032 shares of restricted stock based on the closing price per share of our Common Stock on March 1, 2019 ($23.99). 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 four (4) times their annual retainer, 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 2019 non-employee director compensation: Director Hamideh Assadi . . . . . . . . . . . . . . . . . . . . . . . Allison M. Boersma . . . . . . . . . . . . . . . . . . . . Randy E. Clark . . . . . . . . . . . . . . . . . . . . . . . . Jeanne Farmer Grossman . . . . . . . . . . . . . . . . Stacy Loretz-Congdon . . . . . . . . . . . . . . . . . . Charles F. Marcy . . . . . . . . . . . . . . . . . . . . . . David W. Ritterbush . . . . . . . . . . . . . . . . . . . . Fees Earned or Paid in Cash ($) 23,333 80,000 110,000 30,000 83,750 105,385 90,000 Stock Awards ($)(1) 48,748 65,010 65,010 — 65,010 65,010 65,010 Change in Pension Value ($)(2) 1,916 — — — — — — All Other Compensation ($)(3) 2,416 — — — — — — Total ($) 76,413 145,010 175,010 30,000 148,760 170,395 155,010 (1) (2) Represents the full grant date fair value of restricted stock granted to each non-employee director in fiscal 2019, 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 16 to our audited consolidated financial statements for the fiscal year ended June 30, 2019, included in our 2019 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, 2019 for each non-employee director were as follows: Ms. Assadi, 2,032 shares; Ms. Boersma, 2,711 shares; Mr. Clark, 2,711 shares; Mr. Marcy, 2,711 shares; and Mr. Ritterbush, 2,711 shares. Ms. Farmer Grossman stepped down as a Class III director at the 2018 Annual Meeting at the end of her term and did not own any shares of restricted stock as of June 30, 2019. Ms. Assadi’s grant was pro-rated based on her March 1, 2019 start date. 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, 2018 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, 2019. The aggregate change in the actuarial present value of the accumulated benefit under the Company’s defined benefit pension plan for Ms. Assadi was $1,916 due to a lower discount rate and payment of benefits to Ms. Assadi under the plan in fiscal 2019. (3) 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 ($386). Director Indemnification Under the Company's 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 61 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. 62 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 will maintain a related person master list to assist in identifying related person transactions, which will be distributed by the Company’s General Counsel 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 General Counsel may designate. Upon referral by the Chief Compliance Officer, General Counsel 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 The Company did not have any related person transactions in fiscal year 2019. 63 Audit Committee Report AUDIT MATTERS 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, 2019. 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 2019 Form 10-K for filing with the SEC. Audit Committee of the Board of Directors Allison M. Boersma, Chair Hamideh Assadi Stacy Loretz-Congdon Independent Registered Public Accounting Firm Fees The following table sets forth the aggregate fees billed by Deloitte for fiscal 2019 and 2018 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 Audit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2019 Fiscal 2018 $ 1,154,000 $ 1,203,000 Audit-Related Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 55,093 2,051 — 68,757 2,020 Total Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,211,144 $ 1,273,777 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 2019 consisted of fees associated with the audit of the Company’s fiscal 2019 annual financial statements, the audit of internal control over financial reporting in fiscal 2019, 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 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, 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 2019 and 2018, the Company paid no fees to Deloitte in this category. 64 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 2019 consisted of fees associated with tax due diligence services, tax compliance and advisory services, certain tax services in connection with the Company’s 2018 federal and state tax returns, and tax compliance services related to the change in tax method of accounting. Tax fees for fiscal 2018 consisted of fees for tax due diligence services, tax compliance and advisory services, and certain tax services in connection with the Company’s 2017 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 2019 and 2018 consisted of subscription fees paid to Deloitte for an online accounting research tool. 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 2019, there were no fees paid to Deloitte under a de minimis exception to the rules that waive pre-approval for certain non-audit services. 65 Annual Report and Form 10-K OTHER MATTERS The 2019 Annual Report to Stockholders (which includes the Company’s 2019 Form 10-K) accompanies this Proxy Statement. The 2019 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 2019 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 2019 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 2019 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, 2019, its officers, directors and ten percent stockholders complied with all applicable Section 16(a) filing requirements. 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 2020 annual meeting of stockholders. To be eligible for inclusion in the Company’s 2020 Proxy Statement, stockholder proposals must be received by the Company at its principal executive offices no later than June 27, 2020 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 2020 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 12, 2020, and no later than September 11, 2020, and must comply with the other provisions of the Company’s By-Laws summarized below; provided, however, that in the event that the 2020 annual meeting is called for a date that is not within 30 days before or after the anniversary date of the 2019 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 2020 annual meeting was mailed or public disclosure of the date of the 2020 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 66 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. 67 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 2019 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 2019 Form 10-K, and other factors described from time to time in our filings with the SEC. October 25, 2019 By Order of the Board of Directors JENNIFER H. BROWN General Counsel and Secretary 68 APPENDIX A Supplemental Information Concerning Participants in the Company’s Solicitation of Proxies The following tables (“Directors and Nominees” and “Executive Officers”) set forth the name and business address the directors and nominees of the Company and the name, present principal occupation and business address of each of the Company’s executive officers who, under SEC rules, are considered to be participants in the Company’s solicitation of proxies from its stockholders in connection with the Annual Meeting (collectively, the “Participants”). Directors and Nominees The principal occupations of the Company’s directors and nominees are included in the biographies under the section above titled “Nominees for Election as Directors” and “Directors Continuing in Office.” The names of each director and nominee are listed below, and the business addresses for all the directors and nominees is c/o Farmer Bros. Co., 1912 Farmer Brothers Drive Northlake, Texas 76262. Hamideh Assadi Allison M. Boersma Randy E. Clark Charles F. Marcy D. Deverl Maserang II Stacy Loretz-Congdon Christopher P. Mottern David W. Ritterbush Executive Officers The executive officers who are considered Participants as well as their positions with the Company, which constitute their respective principal occupations, are listed below. The business address for each person is c/o Farmer Bros. Co., 1912 Farmer Brothers Drive, Northlake, Texas 76262. Name D. Deverl Maserang II David G. Robson Title President and Chief Executive Officer Treasurer and Chief Financial Officer Information Regarding Ownership of Company Securities by Participants The number of shares of Common Stock beneficially held as of October 10, 2019 by the Company’s directors and those executive officers who are Participants appears in the “Security Ownership of Certain Beneficial Owners and Management”section of this Proxy Statement. Except as described in this Appendix A or otherwise in this Proxy Statement, none of the persons listed above in “Directors” and “Executive Officers” owns any debt or equity security issued by the Company of record that he or she does not also own beneficially. 69 Transactions in the Company’s Securities by Participants-Last Two Years The following table sets forth information regarding purchases and sales of the Company’s securities by each Participant during the last two years. Unless otherwise indicated, all transactions were in the public market or pursuant to the Company’s equity compensation plans, and no part of the purchase price or market value of those shares is represented by funds borrowed or otherwise obtained for the purpose of acquiring or holding such securities. Participant Name Transaction Date Shares Acquired (Disposed) Hamideh Assadi 03/01/2019 Allison M. Boersma 12/07/2018 Allison M. Boersma Randy E. Clark 12/08/2018 09/16/2019 Randy E. Clark 12/07/2018 Randy E. Clark Randy E. Clark Stacy Loretz-Congdon Charles F. Marcy 12/08/2017 11/13/2017 12/07/2018 09/16/2019 Charles F. Marcy 12/07/2018 Charles F. Marcy Charles F. Marcy Charles F. Marcy 12/08/2017 11/21/2017 11/20/2017 D. Deverl Maserang II 09/13/2019 D. Deverl Maserang II 09/13/2019 Christopher P. Mottern Christopher P. Mottern Christopher P. Mottern Christopher P. Mottern Christopher P. Mottern Christopher P. Mottern 09/30/2019 08/30/2019 07/31/2019 06/29/2019 05/31/2019 05/09/2019 2,032 2,711 1,901 3,000 2,711 1,901 3,000 2,711 1,000 2,711 1,901 800 200 38,080 223,713 2,573 2,745 2,052 2,036 1,582 8,436 70 Nature of Transaction Grant of restricted stock under the Farmer Bros. Co. 2017 Long-Term Incentive Plan (the “2017 Incentive Plan”). Grant of restricted stock under the 2017 Incentive Plan. Grant of restricted stock under the 2017 Incentive Plan. Open market purchase. Grant of restricted stock under the 2017 Incentive Plan. Grant of restricted stock under the 2017 Incentive Plan. Open market purchase. Grant of restricted stock under the 2017 Incentive Plan. Open market purchase. Grant of restricted stock under the 2017 Incentive Plan. Grant of restricted stock under the 2017 Incentive Plan. Open market purchase. Open market purchase. Grant of performance-based restricted stock units under the 2017 Incentive Plan. Grant of non-qualified stock options under the 2017 Incentive Plan. Grant of restricted stock units (“RSUs”) under the 2017 Incentive Plan. Grant of RSUs under the 2017 Incentive Plan. Grant of RSUs under the 2017 Incentive Plan. Grant of RSUs under the 2017 Incentive Plan. Grant of RSUs under the. 2017 Incentive Plan. Grant of RSUs under the 2017 Incentive Plan. Christopher P. Mottern Christopher P. Mottern Christopher P. Mottern Christopher P. Mottern Christopher P. Mottern David W. Ritterbush David W. Ritterbush 12/07/2018 02/14/2018 02/13/2018 12/08/2017 11/10/2017 12/07/2018 12/08/2017 David G. Robson 12/11/2018 David G. Robson 12/11/2018 David G. Robson 11/10/2017 David G. Robson 11/10/2017 David G. Robson 11/10/2017 David G. Robson 11/10/2017 Miscellaneous Information Regarding Participants 2,711 500 1,000 6,478 16,577 2,711 1,901 17,331 5,385 12,699 947 4,171 5,764 Grant of RSUs under the 2017 Incentive Plan. Open market purchase. Open market purchase. Grant of RSUs under the 2017 Incentive Plan. Open market purchase by self as co-trustee for Mottern Family Trust. Grant of RSUs under the 2017 Incentive Plan. Grant of RSUs under the 2017 Incentive Plan. Grant of non-qualified stock options under the 2017 Incentive Plan. Grant of performance-based restricted stock units under the 2017 Incentive Plan. Grant of non-qualified stock option under the 2017 Incentive Plan. Grant of restricted stock under the 2017 Incentive Plan. Grant of performance-based restricted stock units under the 2017 Incentive Plan. Grant of non-qualified stock options under the 2017 Incentive Plan. Except as described in this Proxy Statement or this Appendix A, to the Company’s knowledge: none of the Participants (i) beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, any shares or other securities of the Company or any of the Company’s subsidiaries, (ii) has purchased or sold any of such securities within the past two years, or (iii) is, or within the past year was, a party to any contract, arrangement or understanding with any person with respect to any such securities. Except as disclosed in this Appendix A or this Proxy Statement, no associates of a “participant” beneficially owns, directly or indirectly, any of our securities. Other than as disclosed in this Appendix A or this Proxy Statement, neither we nor any of the “participants” have a substantial interest, direct or indirect, by security holdings or otherwise, in any matter to be acted upon at the Annual Meeting. In addition, neither the Company nor any of the Participants has been within the past year party to any contract, arrangement or understanding with any person with respect to any of our securities, including, but not limited to, joint ventures, loan or option arrangements, puts or calls, guarantees against loss or guarantees of profit, division of losses or profits or the giving or withholding of proxies. No participant has been convicted in a criminal proceeding (excluding traffic violations and similar misdemeanors) during the past ten years. Other than as set forth in this Proxy Statement or this Appendix A, none of the Participants or any of their associates have (i) any arrangements or understandings with any person with respect to any future employment by the Company or the Company’s affiliates or with respect to any future transactions to which the Company or any of its affiliates will or may be a party or (ii) a direct or indirect material interest in any transaction or series of similar transactions since the beginning of the Company’s last fiscal year or any currently proposed transactions, to which the Company or any of its subsidiaries was or is to be a party in which the amount involved exceeded $120,000 71 ANNEX A CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF FARMER BROS. CO. Pursuant to Section 242 of the General Corporation Law of the State of Delaware Farmer Bros. Co., a corporation duly organized and existing under the General Corporation Law of the State of Delaware (the “Corporation”), does hereby certify that: 1. The Amended and Restated Certificate of Incorporation of the Corporation is hereby amended by deleting Section (c) of Article FIFTH, and inserting the following in lieu thereof: “(c) Commencing at the annual meeting of stockholders to be held in 2020 (each annual meeting of stockholders, an “Annual Meeting”), the directors of the Corporation shall be elected annually and shall hold office until the next Annual Meeting and until his or her successor shall be elected and qualified, or his or her death, resignation, retirement, disqualification or removal from office. Notwithstanding the foregoing, any director in office at the 2020 Annual Meeting whose term expires at the 2021 Annual Meeting or the 2022 Annual Meeting (each such director, a “Continuing Classified Director”), shall continue to hold office until the end of the term for which such director was elected and until his or her successor shall be elected and qualified, or his or her death, resignation, retirement, disqualification or removal from office. In the event of any increase or decrease in the authorized number of directors, each Continuing Classified Director then serving shall nevertheless continue as a Continuing Classified Director until the expiration of his or her term or his or her death, resignation, retirement, disqualification or removal from office. In no event shall a decrease in the number of directors remove or shorten the term of any incumbent director.” 2. The Amended and Restated Certificate of Incorporation of the Corporation is hereby amended by deleting Section (d) of Article FIFTH, and inserting the following in lieu thereof: 72 “(d) A director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Notwithstanding the foregoing, any director elected to fill a vacancy caused by the death, resignation, retirement, disqualification or removal of a Continuing Classified Director shall hold office until the Annual Meeting at which the term of such Continuing Classified Director would have expired and until his or her successor shall be elected and qualified, or until his or her earlier death, resignation, retirement, disqualification or removal.” 3. The Amended and Restated Certificate of Incorporation of the Corporation is hereby amended by deleting Section (e) of Article FIFTH, and inserting the following in lieu thereof: “(e) Subject to the terms of any one or more classes or series of Preferred Stock, 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 Board of 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 Board of Directors then in office, even if less than a quorum, or by a 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 shall hold office for a term that shall 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 shall have the same remaining term as that of his predecessor. Subject to the rights, if any, of the holders of shares of Preferred Stock then outstanding, any or all of the directors of the Corporation may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least a majority of the voting power of the Corporation’s then outstanding capital stock entitled to vote generally in the election of directors. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes unless expressly provided by such terms.” 4. The foregoing amendments were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment to the Amended and Restated Certificate of Incorporation on this ___ day of ___________, 2019. 73 Name: Title: 74 ANNEX B AMENDMENT NO. 1 TO AMENDED AND RESTATED BYLAWS OF FARMER BROS. CO. The Amended and Restated Bylaws of Farmer Bros. Co. are hereby amended by deleting Sections 3.1 and 3.2, and inserting the following in lieu thereof: “3.1 Number and Election of Directors. Subject to the Certificate of Incorporation, the number of directors shall be fixed from time to time by resolution adopted by the affirmative vote of a majority of the active Board of Directors. Directors shall be elected by the stockholders at the Annual Meeting of Stockholders, and the term of each director so elected shall be as set forth in the Certificate of Incorporation. 3.2 Vacancies. 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 Board of 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 Board of Directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy or newly created directorship shall hold office for the term set forth in the Certificate of Incorporation.” 75 THIS PAGE INTENTIONALLY LEFT BLANK UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2019 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-34249 FARMER BROS. CO. (Exact Name of Registrant as Specified in Its Charter) Delaware (State or other jurisdiction of incorporation or organization) 95-0725980 (I.R.S. Employer Identification No.) 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 Trading Symbol(s) FARM Name of Each Exchange on Which Registered NASDAQ Global Select Market Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Securities registered pursuant to Section 12(g) of the Act: None YES NO 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 NO 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 NO Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). YES NO 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 Non-accelerated filer 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. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the closing price at which the Farmer Bros. Co. common stock was sold on December 31, 2018 was $247.4 million. As of September 3, 2019 the registrant had 17,092,634 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 2019 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, 2019. 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. TABLE OF CONTENTS Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 13. ITEM 14. PART IV Exhibits, Financial Statement Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 15. ITEM 16. Form 10-K Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INDEX OF CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 10 20 20 20 20 21 23 24 47 48 48 48 50 50 50 51 51 51 52 58 59 F - 1 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. Given these risks and uncertainties, you should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in this Annual Report on Form 10-K and any other public statement made by us, including by our management, may turn out to be incorrect. We are including this cautionary note to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking 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. 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 completed the relocation of our corporate headquarters, product development lab, and manufacturing and distribution operations from Torrance, California to Northlake, Texas ("Northlake facility") in the fourth quarter of fiscal 2017. We operate in one business segment. 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 2019, 2018 and 2017, 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. 1 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 Northlake facility to integrate acquired product volumes and to support top- line 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 24/7 service; hassle-free inventory and product procurement management; Direct-store-delivery ("DSD") customer 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. 2 Strategic Initiatives We are focused on the following strategies to capitalize on our state-of-the-art Northlake facility, reduce costs and better position the Company for growth: Build our Value Proposition with our Customers • • • Commercial Brewing Equipment Service. From installation, to preventative maintenance, and timely repair execution, our customers count on us to meet their equipment needs. Our trained service technicians provide reliable, consistent service coverage across a wide geographic area giving us a competitive advantage. In fiscal 2019, we repurposed a fully dedicated equipment remanufacturing center in Oklahoma City enabling us to restore used equipment to like-new condition enabling us to better manage equipment costs for us and our customers. In addition, we are investing in systems and processes to enable a more efficient go-to-market in fiscal 2020. Customer Fill Rates. Providing our customers the product they want, when they want it, is key to customer satisfaction and retention. We are investing in systems and processes to improve our fill rates, an example being the new branch replenishment tool we are rolling out in fiscal 2020 to assist our field team in ordering the right inventory. We believe our stockkeeping unit ("SKU") optimization project will support higher fill rates, while delivering on-trend products our customers demand. Customer Service. We have partnered with a leading contact/call center provider to enable us to manage our equipment service program. In fiscal 2020, we are planning expansion of this partnership to provide support to our DSD route business to enable quick resolution of issues and drive better visibility on customer inquiries. We believe this will enable better customer response and help us to improve customer retention. 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 Northlake facility. In fiscal 2018, we began a project to expand our production lines at the Northlake facility. We are focused on leveraging our investment in the Northlake 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. Safe Quality Food ("SQF") Certification. We are committed to the highest standards in food quality and safety. In fiscal 2018, the Northlake 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 Northlake 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 have resulted in added synergies and efficiencies compared to their pre-acquisition cost structures. New Facility. We undertook the relocation of our corporate headquarters, product development lab, and manufacturing and distribution operations from Torrance, California to Northlake, Texas, 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, we have reorganized our DSD operations in an effort to streamline operations and improve selling effectiveness and financial results. We continue to analyze our sales organization and evaluate other potential restructuring opportunities in light of our strategic priorities. 3 • • 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 Northlake 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, 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. Portfolio of Products • Optimize Product Portfolio. Since fiscal 2018, we have undertaken efforts to optimize our SKU count reducing our total SKU count by more than 26.7%. We continue to evaluate the productivity of our product assortment in order to optimize our portfolio. 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. Our recent acquisitions have added to our product portfolio, improved our growth potential, deepened our distribution footprint and increased our capacity utilization at our production facilities. • 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. In recent years, we have completed our advanced routing software initiatives for our last mile delivery and we continue to invest in 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 the last three fiscal years, we have sold branch properties in Texas, Southern California, Washington and other states. 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. In recent years, we have 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. 4 • Performance Driven Culture. In fiscal 2019, 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 Northlake facility includes a product development lab where we are focused on developing innovative products in response to industry trends and customer needs. Recent new products developed includes 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 2019, we made the Carbon Disclosure Project's Climate leadership level for our efforts to reduce 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 2019, 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 2019 we re-set our science based carbon reduction targets to include the acquisitions of Boyd Coffee, China Mist, and West Coast Coffee. With this new baseline, we established more ambitious goals in line with efforts to limit global warming to 1.5°C. 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 2019 we maintained 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. Our corporate offices in Northlake, Texas achieved LEED® Silver Certification. • Expansion of Project D.I.R.E.C.T.® Program. In fiscal 2019, we continued to grow our direct trade sourcing model, Project D.I.R.E.C.T. ®. 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. During fiscal 2019, we established a system for coffee suppliers to provide information on a per contract basis. This helps us to bring 5 transparency to our supply chain, rank our suppliers, and also to identify opportunities to select trusted providers, cooperatives, mills, exporters, etc., when offering sustainable coffees to our customers. • 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, we annually survey all green coffee suppliers along with our top suppliers of processed coffee and non-coffee products 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 96% compliance with United Nations Global Compact practices from all respondents. In fiscal 2019 we adopted new Supplier Standards of Engagement. These Standards of Engagement set minimum standards for Suppliers that are designed to provide Farmer Bros. visibility into all aspects of its supply chain and meets these objectives. These Standards of Engagement also serve as Supplier’s Certificate of Compliance, executed by the undersigned Supplier, representing Supplier's receipt and acknowledgment of the Standards of Engagement and agreement to comply with the same. 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, 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 Northlake 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 6 that help our customers create winning products and integrated marketing strategies. Within this, we are focused on understanding key demographic groups such as Millennials, Hispanics, and other key demographic groups, as well as 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 $0.96 to $1.90. The coffee “C” market near month price as of June 30, 2019 and 2018 was $1.10 and $1.15 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 2019 traded in a $0.35 cent range during the year, and averaged 22% 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 6, Derivative Instruments, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10 K. 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. 7 Distribution We operate production facilities in Northlake, Texas; Houston, Texas; Portland, Oregon; and Hillsboro, Oregon. Distribution takes place out of the Northlake 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 380 delivery routes and 104 branch warehouses as of June 30, 2019, 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. 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 2019, our top five customers accounted for approximately 13.3% of our net sales and no one customer exceed 10% 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 less concern for 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 and equipment service 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. 8 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 17, Other Current Liabilities, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10 K. Our working capital needs are greater in the months leading up to our peak sales period during the winter months, which we typically finance with cash flows from operations. In anticipation of our peak sales period, we typically increase inventory in the first quarter of the fiscal year. We use various techniques including demand forecasting and planning to determine appropriate inventory levels for seasonal demand. Regulatory Environment The conduct of our businesses, including, among other things, the production, storage, distribution, sale, labeling, quality and safety of our products, and occupational safety and health practices, are subject to various laws and regulations administered by federal, state and local governmental agencies in the United States. Our facilities are subject to various laws and regulations regarding the release of material into the environment and the protection of the environment in other ways. We are not a party to any material legal proceedings arising under these regulations except as described in Note 22, Commitments and Contingencies, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10 K. Employees On June 30, 2019, we employed approximately 1,521 employees, 421 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, 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. In addition, these reports and the other documents we file with the SEC are available at a website maintained by the SEC at http://www.sec.gov. 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. 9 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. Competition in the coffee industry and beverage category could impact our profitability or harm our competitive position. 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, wholesale foodservice distributors, regional and national coffee roasters, specialty coffee suppliers, and retail brand beverage manufacturers. As many of our customers are small foodservice operators, we also compete with cash and carry and club stores and on-line retailers. 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. 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. Increased competition in coffee or other beverage channels may have an adverse impact on sales of our products. If we do not succeed in differentiating ourselves through, among other things, our product and service offerings, or if we are not effective in setting proper pricing, then our competitive position may be weakened and our sales and profitability may be materially adversely affected. Increases in the cost of green coffee could reduce our gross margin and profit and may increase volatility in our results. Our primary raw material is green coffee, an exchange-traded agricultural commodity that is subject to price fluctuations. The supply of green coffee, similar to any agricultural commodity, may be impacted by, among other things, climate change, 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, an increase in green coffee purchased and sold on a negotiated basis rather than directly on commodity markets in response to higher production costs relative to “C” market prices, 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. 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 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. Depending on contractual restrictions, we may be unable to pass these cost to our customers by increasing the price of products. If we are unable to increase prices sufficiently to offset increased input costs, or if our sales volume decreases significantly as a result of price increases, our results of operations and financial condition may be adversely affected Although coffee “C” market prices in fiscal 2019 averaged 22% 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. 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. We face exposure to other commodity cost fluctuations, which could impact our margins and profitability. 10 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 are also exposed to flucutations in the cost of fuel. We purchase certain ingredients, finished goods and packaging materials under cost-plus supply arrangements whereby our costs may increase based on an increase in the underlying commodity price or changes in production costs. The cost of these commodities depend 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. 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. Interruption or increased costs of our supply chain and sales network or Labor force, 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. Our sales and distribution network requires a large investment to maintain and operate, and we rely on a limited number of production and distribution facilities. We also 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. Many of these costs are beyond our control, and many are fixed rather than variable. 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. 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. 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. In addition, we use a significant amount of electricity, gasoline, diesel and oil, 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 increased 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. 11 A disruption in operations at any of these facilities or any other disruption in our supply chain or increase in prices relating to service by our 3PL service providers, common carriers or distributors, service technicians or vendor-managed inventory arrangements, or otherwise, whether as a result of casualty, natural disaster, power loss, telecommunications failure, terrorism, labor shortages, shipping costs, trade restrictions, contractual disputes, weather, environmental incident, interruptions in port operations or highway arteries, increased downtime due to certain aging production infrastructure, pandemic, strikes, work stoppages, the financial or operational instability of key suppliers, distributors and transportation providers, or other causes, could significantly impair our ability to operate our business, adversely affect our relationship with our customers, and impact our financial condition or results of operations. We rely on co-packers to provide our supply of tea, spice, culinary and other 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. 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 and recent efficiency initiatives 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. Customer quality control problems or food safety issues may adversely affect our brands thereby negatively impacting our sales or leading to potential product recalls or product liability claims. Selling products for human consumption involves inherent legal risks. 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. 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. 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. 12 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. 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). In addition, 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, 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. 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. 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 we are 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. Litigation pending against us could expose us to significant liabilities and damage our reputation. We are currently party to various legal and other proceedings, and additional claims may arise in the future. See Note 22, Commitments and Contingencies, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10 K. 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. We are self-insured and our reserves may not be sufficient to cover future claims. We are self-insured for many risks up to varying 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 13 covered by insurance or is in excess of our reserves or available insurance limits could negatively affect our business, financial condition and results of operations. 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 2019, our top five customers accounted for approximately 13% of our net sales. We generally do not have long-term contracts with the majority of our customers. Accordingly, the majority of 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. Our accounts receivable represents a significant portion of our current assets and a substantial portion of our trade accounts receivables relate principally to a limited number of customers, increasing our exposure to bad debts and counter-party risk which could potentially have a material adverse effect on our results of operations. A significant portion of our trade accounts receivable are from five customers. The concentration of our accounts receivable across a limited number of parties subjects us to individual counter-party and credit risk as these parties may breach our agreement, claim that we have breached the agreement, become insolvent and/or declare bankruptcy, delaying or reducing our collection of receivables or rendering collection impossible altogether. Certain of the parties use third-party distributors or do business through a network of affiliate entities which can make collection efforts more challenging and, at times, collections may be economically unfeasible. Adverse changes in general economic conditions and/or contraction in global credit markets could precipitate liquidity problems among our debtors. This could increase our exposure to losses from bad debts and have a material adverse effect on our business, financial condition and results of operations. We depend on the expertise of key personnel and have experienced significant turnover in our senior management. 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. In the past several months, we have experienced significant turnover in our senior management ranks, including our former CEO. The lack of management continuity could adversely affect our ability to successfully manage our business and execute our strategy, as well as result in operational and administrative inefficiencies and added costs, and may make recruiting for future management positions more difficult. 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 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. 14 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 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. 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, 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 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. 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 significant risks and uncertainties. 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. 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 the synergies from any such acquisitions will be achieved. If any such acquisitions are not successful, our business and results of operations could be adversely affected. An increase in our debt leverage could adversely affect our liquidity and results of operations. As of June 30, 2019 and 2018, we had outstanding borrowings under our credit facility of $92.0 million and $89.8 million, respectively, with excess availability of $55.7 million and $25.3 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 $75.0 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. Our credit facility also contains financial covenants relating to the maintenance of a maximum total net leverage ratio and a minimum interest expense coverage ratio. 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. 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 15 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. Our liquidity has been adversely affected as a result of our operating performance in recent periods and may be further materially adversely affected by constraints in the capital and credit markets and limitations under our financing arrangements. We need sufficient sources of liquidity to fund our working capital requirements, service our outstanding indebtedness and finance business opportunities. Without sufficient liquidity, we could be forced to curtail our operations, or we may not be able to pursue business opportunities. The principal sources of our liquidity are funds generated from operating activities, available cash, and our credit facility. In recent periods, significant acquisition costs, large capital investments along with the underperformance of our business has resulted in a decrease in funds from operating activities, which has weakened our liquidity position. Should our operating performance continue to deteriorate, 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; and/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. In addition, covenants in our debt agreements could restrict or delay our ability to respond to business opportunities, or in the event of a failure to comply with such covenants, could result in an event of default, which if not cured or waived, could have a material adverse effect on us. 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. 16 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. Concentration of ownership among our principal stockholders may dissuade potential investors from purchasing our stock, may prevent new investors from influencing significant corporate decisions, may result in activist actions 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”), large stockholders beneficially own a significant portion of our outstanding common stock. As a result, these stockholders may be able to influence the outcome of stockholder votes, including votes concerning the election and removal of directors, activist campaigns, proxy contests, 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. If these stockholders engage in activist actions, responding to these actions can disrupt operations, be costly and time-consuming, and divert board and management attention, which could have an adverse effect on our results of operations and financial condition. 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 significant stockholders 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. Our outstanding Series A Preferred Stock or future equity offerings could adversely affect the holders of our common stock in some circumstances. As of June 30, 2019, 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. In the future, we may offer additional equity, equity-linked or debt securities, which may have rights, preferences or privileges senior to our common stock. As a result, our common stocholders may experience dilution. Any of the foregoing could have a material adverse effect on the holders of our common stock. Anti-takeover provisions or stockholder dilution 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 17 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. 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, 2019, 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. We rely on information technology and are dependent on 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 information 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 for any reason 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 18 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. Our ability to use our NOL carryforwards to offset future taxable net income may be subject to certain limitations. At June 30, 2019, we had approximately $146.8 million in federal and $113.4 million in state NOL carryforwards that will begin to expire in the years ending June 30, 2030 and June 30, 2020, 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. Future impairment charges could adversely affect our operating results. At June 30, 2019, we had $28.9 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. 19 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 of June 30, 2019, we stage our products in 104 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 53% of our facilities are leased with a variety of expiration dates within the range of 2020 through 2028. 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 71%, 75% and 93% during the fiscal years ended June 30, 2019, 2018 and 2017, respectively. The utilization rate in fiscal 2019 includes the Northlake facility. The utilization rate in fiscal 2018 includes the Northlake facility and does not reflect the anticipated increase in capacity resulting from the production line expansion. The utilization rate in fiscal 2017 excludes the Northlake facility where we began roasting coffee in the fourth quarter of fiscal 2017. We believe that our existing facilities provide adequate capacity for our current operations. . Item 3. Legal Proceedings For information regarding legal proceedings in which we are involved, see Note 22, Commitments and Contingencies, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. Item 4. Mine Safety Disclosures Not applicable. 20 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.” Holders As of September 3, 2019, there were approximately 211 shareholders of record of common stock. This does not include persons whose common stock is in nominee or “street name” accounts through brokers. 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 close of trading on June 30, 2014 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. 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. 21 Total Return Performance Table Farmer Bros. Co. Russell 2000 Index Value Line Food Processing Index Peer Group Index 2014 100.00 100.00 100.00 100.00 $ $ $ $ 2015 108.75 106.80 106.92 104.70 $ $ $ $ 2016 148.36 100.21 126.68 158.44 $ $ $ $ 2017 139.98 127.11 135.00 151.90 $ $ $ $ 2018 141.37 149.36 134.16 143.89 $ $ $ $ 2019 75.75 144.42 144.79 110.69 $ $ $ $ Issuer Purchases of Equity Securities The table below presents purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of shares of our Class A Common Stock during each of the indicated periods. Period April 1 to April 30, 2019 May 1 to May 31, 2019 June 1 to June 30, 2019 Total Number of Shares of Our Class A Common Stock Purchased Average Price Paid Per Share of Our Class A Common Stock Total Number of Shares of Our Class A Common Stock Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares of Our Class A Common Stock That May Yet Be Purchased Under the Plan or Program — — — — — — — $ — $ — $ — — — 22 Item 6. Selected Financial Data The following selected consolidated financial data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations, Risk Factors, and our consolidated financial statements and the notes thereto included elsewhere in this report. The historical results do not necessarily indicate results expected for any future period. (In thousands, except per share data) Consolidated Statement of Operations Data: Net sales Cost of goods sold Restructuring and other transition expenses Net gain from sale of Torrance Facility Net gains from sale of Spice Assets Net (gains) losses from sales of other assets Impairment losses on intangible assets (Loss) income from operations Pension settlement charge Income tax expense (benefit)(2) Net (loss) income available to common stockholders Net (loss) income available to common stockholders per common share—basic Net (loss) income available to common stockholders per common share—diluted Cash dividends declared per common share (In thousands) Consolidated Balance Sheet Data: Total current assets Property, plant and equipment, net Goodwill Intangible assets, net Deferred income taxes Total assets For the Years Ended June 30, 2019 2018(1) 2017(1) 2016(1) 2015(1) $595,942 $ 606,544 $541,500 $ 544,382 $545,882 $416,840 $ 399,155 $354,649 $ 373,165 $386,400 $ 16,533 $ 10,432 662 $ 11,016 — $ (37,449) $ $ $ $ $ 4,733 $ — $ (593) $ $ 1,058 — — — $ (770) $ (919) $ (5,603) $ (196) $ (1,210) $ (2,802) $ — — $ — $ 3,820 $ (1,736) $ (8,424) — — $ $ (72,239) $ $ 71,791 $ — $ $ (14,702) $ $ (10,948) $ $ 40,111 $ 14,815 $ 17,312 $ (74,130) $ (18,669) $ 22,551 402 $ (9,708) $ 38,934 — $ — $ 1,053 394 $ $ $ $ (4.36) $ (1.11) $ 1.35 $ 4.35 $ (0.60) (4.36) $ — $ (1.11) $ — $ 1.34 $ — $ 4.32 $ — $ (0.60) — As of June 30, 2019 2018 2017 2016 2015 $159,908 $ 173,514 $140,703 $ 177,366 $166,140 $189,458 $ 186,589 $176,066 $ 118,416 $ 90,201 $ 36,224 $ 36,224 $ 10,996 $ 28,878 $ 31,515 $ 18,618 $ $ 272 6,219 $ $ 272 6,419 $ — $ 39,308 $ 53,933 $ 71,508 $ 11,770 $424,610 $ 475,531 $407,153 $ 383,714 $282,417 Short-term borrowings under revolving credit facility $ — $ 89,787 $ 27,621 $ 109 $ Long-term borrowings under revolving credit facility(3) $ 92,000 — $ — $ — $ 78 — Capital lease obligations Earnout payable Long-term derivative liabilities Total liabilities $ $ $ 34 400 1,612 $ $ $ $ 248 600 386 $ $ $ 1,195 1,100 380 $ $ $ 2,359 100 $ $ — $ 5,848 200 25 $267,116 $ 246,476 $177,601 $ 186,397 $161,951 _____________ (1) Prior year periods have been retrospectively adjusted to reflect the impact of certain changes in accounting principles to previously issued financial statements. See Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10 K. (2) Includes valuation allowance of $50.1 million. See Note 19, Income Taxes, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10 K. (3) Classified as long-term in fiscal 2019. See Note 14, Revolving Credit Facility, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10 K. 23 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, 2019, 2018 and 2017 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. Our Business 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. In fiscal 2017, we completed the relocation of our corporate headquarters from Torrance, California to Northlake, Texas. 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. We operate production facilities in Northlake facility, Texas; Houston, Texas; Portland, Oregon; and Hillsboro, Oregon. Distribution takes place out of the Northlake 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 380 delivery routes and 104 branch warehouses as of June 30, 2019, 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. 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. 24 Summary Overview of Year Ended June 30, 2019 Results In fiscal 2019, both our DSD and direct ship sales channels experienced sales declines. The DSD sales channel was impacted by higher customer attrition in part related to our route consolidation initiative and the integration process of the Boyd Business. Our direct ship sales channel also experienced headwinds, driven by softness from two large customers throughout the year and the volume production loss of two brands that we previously serviced to its owner, who now has in-house capabilities. We had also anticipated incremental sales volume in fiscal 2019 from a significant direct ship customer that did not materialize. The production qualification requirements for this customer are still ongoing. We experienced higher cost of goods sold in fiscal 2019 principally in the back half of the year. These costs included elevated inventory scrap expense, inventory markdowns, higher coffee brewing equipment and higher labor and manufacturing costs. The higher scrap expense and inventory markdowns was a byproduct of an inventory build put in place to reduce the disruption of product supply to our customers as we integrated the Boyd Business. While this inventory build helped mitigate supply disruptions, we were unable to sell the entire inventory, which generated increased scrap expense and inventory markdowns. Coffee brewing equipment and labor costs were higher in fiscal 2019 due to the completion of numerous large channel based customer installations. In addition, we had new business wins that required extra costs to support onboarding efforts. Finally, our manufacturing costs increased in fiscal 2019 due to the large number of customer product qualifications associated with the Boyd Business acquisition, elevated downtime from an aging infrastructure at our Houston plant, and higher production costs at our Northlake facility, which we were unable to fully absorb on the lower sales volume. During the fourth quarter of fiscal 2019, under new leadership, the Company focused on six near-term operating priorities, which include: effective cash management, customer retention, efficiently managing coffee brewing equipment, enhancing processes and systems, rationalizing SKU counts, and optimizing our in-stock fill rate. These actions have enabled the Company to refocus on the fundamentals while addressing many of the challenges the business experienced in fiscal 2019. 25 Certain prior period amounts in the table below have been reclassified to conform to the current year presentation due to the adoption of new accounting standards. Financial Data Highlights (in thousands, except per share data and percentages) For The Years Ended June 30, 2019 vs 2018 2018 vs 2017 2019 2018 2017 Favorable (Unfavorable) Favorable (Unfavorable) Change % Change Change % Change $ 595,942 $ 606,544 $ 541,500 $ (10,602) (1.7)% $ 65,044 12.0 % 30.1% 32.5% (14,702) (73,595) (4.36) (4.36) 108,098 3,617 0.6% 31,882 5.3% $ $ $ $ $ $ $ $ $ $ $ $ 34.2% 34.0% 1,053 (18,280) (1.11) (1.11) 107,429 32,673 5.4% 47,562 7.8% $ $ $ $ $ $ 34.5% 27.3% (4.1)% (1.5)% NM NM (0.3)% 6.7 % 38,934 $ (15,755) (1,496.2)% $ (37,881) 22,551 $ (55,315) (302.6)% $ (40,831) 1.35 1.34 $ $ (3.25) (3.25) NM $ (2.46) NM $ (2.45) NM NM NM NM NM NM 95,499 669 0.6 % 11,930 62,521 $ (29,056) (88.9)% (29,848) 11.5% (4.8)% NM (6.1)% 42,985 $ (15,680) (33.0)% $ 4,577 12.5 % (47.7)% NM 10.6 % 7.9% (2.5)% NM (0.1)% NM 63.5% 5.8% 5.6% 10.8% 4.0% 9.8% 99.5% 0.5% 62.6% 5.7% 5.4% 10.6% 4.2% 11.0% 99.5% 0.5% 62.7% 6.1% 5.4% 10.3% 4.6% 10.4% 99.5% 0.5% 100.0% 100.0% 100.0% 0.9 % 0.1 % 0.2 % 0.2 % (0.2)% (1.2)% — % — % — % 1.4 % 1.8 % 3.7 % 1.9 % (4.8)% (10.9)% — % — % — % (0.1)% (0.4)% — % 0.3 % (0.4)% 0.6 % — % — % — % (0.2)% (6.6)% — % 2.9 % (8.7)% 5.8 % (6.8)% — % — % Income Statement Data: Net sales Gross margin Operating expenses as a % of sales (Loss) income from operations Net (loss) income Net (loss) income available to common stockholders per common share—basic Net (loss) income available to common stockholders per common share—diluted Operating Data: Coffee pounds EBITDA(1) EBITDA Margin(1) Adjusted EBITDA(1) Adjusted EBITDA Margin(1) Percentage of Total Net Sales By Product Category Coffee (Roasted) Coffee (Frozen Liquid) Tea (Iced & Hot) Culinary Spice Other beverages(2) Net sales by product category Fuel Surcharge Total Other data: Capital expenditures related to maintenance Total capital expenditures Depreciation and amortization expense $ $ $ 21,088 34,759 31,065 $ $ $ 21,782 37,020 30,464 $ $ $ 19,246 84,949 22,970 $ $ $ (694) (2,261) 601 (3.2)% $ 2,536 (6.1)% $ (47,929) 2.0 % $ 7,494 13.2 % (56.4)% 32.6 % ________________ NM - Not Meaningful (1) 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. (2) Includes all beverages other than roasted coffee, frozen liquid coffee, and iced and hot tea, including cappuccino, cocoa, granitas, and concentrated and ready-to-drink cold brew and iced coffee. 26 Recent Developments Sale of Office Coffee Assets In order to focus on our core product offerings, in July 2019, we completed the sale of certain assets associated with our office coffee customers for $9.3 million in cash paid at the time of closing plus an earnout of up to an additional $2.3 million if revenue expectations are achieved during test periods scheduled to occur at various branches at various times and concluding by early third quarter of fiscal 2020. Sale of Seattle Branch Property On August 28, 2019, we completed the sale of our branch property in Seattle, Washington state for a gross sale price of $7.9 million. Sale leaseback of Houston Facility On September 6, 2019, we signed a purchase and sale agreement (the “PSA”) for the sale of our Houston, Texas manufacturing facility and warehouse (the “Property”) for an aggregate purchase price, exclusive of closing costs, of $10.0 million. Pursuant to the PSA and upon the closing of the sale of the Property, we and the purchaser have agreed to enter into a three year leaseback agreement with respect to the Property. We may terminate the leaseback no earlier than the first day of the eighteenth full calendar month of the term providing at least nine months’ notice. There is no assurance at this time that the purchaser will in fact purchase any or all of the Property. The closing of the sale of the Property, which is subject to customary diligence and closing conditions, is expected to occur on or around November 20, 2019. The purchaser does not have any material relationship with us or our subsidiaries, other than through the PSA and Leaseback. In connection with the sale leaseback contemplated by the PSA, on September 6, 2019, we made a clarifying amendment to our amended and restated credit agreement originally dated as of November 6, 2018, to make clear that any sale and leaseback already permitted under the asset sale covenant would not be inadvertently prohibited under the sale and leaseback covenant. Factors Affecting Our Business We have identified factors that affect our industry and business which we expect will 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 Northlake, Texas, 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. However, until we complete the transition of most manufacturing to our Northlake facility, we will continue to experience higher manufacturing costs driven by downtime associated with certain aging production infrastructure. Supply Chain Efficiencies and Competition. In order to compete effectively and capitalize on growth opportunities, we must retain and continue to grow our customer base, evaluate and undertake initiatives to reduce costs and streamline our supply chain. 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. 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 $0.96 to $1.90. The coffee “C” market near month price as of June 30, 2019 and 27 • • • 2018 was $1.10 and $1.15 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. Coffee Brewing Equipment and Service. We offer our customers a comprehensive equipment program and 24/7 nationwide equipment service which we believe differentiates us in the marketplace. We offer a full spectrum of equipment needs, which includes brewing equipment installation, water filtration systems, equipment training, and maintenance services to ensure we are able to meet our customer’s demands. 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 6, Derivative Instruments, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10 K. 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. 28 Results of Operations The following table sets forth information regarding our consolidated results of operations for the years ended June 30, 2019, 2018 and 2017. Certain prior period amounts in the table below have been reclassified to conform to the current year presentation due to the adoption of new accounting standards (in thousands, except percentages):: For the Years Ended June 30, 2019 vs 2018 2018 vs 2017 2019 2018 2017 Favorable (Unfavorable) Favorable (Unfavorable) Change % Change Change % Change 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 losses (gains) from sales of other assets Impairment losses on intangible assets Operating expenses (Loss) income from operations Other (expense) income: Dividend income Interest income Interest expense Pension settlement charge Other, net Total other (expense) income (Loss) income before taxes Income tax expense Net (loss) income $ 595,942 $ 606,544 $ 541,500 $(10,602) (1.7)% $ 65,044 416,840 179,102 139,647 48,959 4,733 — (593) 1,058 — 399,155 207,389 153,391 49,429 662 — (770) (196) 3,820 354,649 (17,685) (4.4)% (44,506) 186,851 (28,287) (13.6)% 20,538 133,534 13,744 9.0 % (19,857) 470 1.0 % (6,484) (4,071) (615.0)% 10,354 42,945 11,016 (37,449) (919) — (177) (1,210) (1,254) — 3,820 12,532 NM (37,449) 100.0 % 23.0 % 639.8 % 100.0 % (149) (1,014) (3,820) 6.1 % (58,419) 193,804 206,336 147,917 (14,702) 1,053 38,934 (15,755) (1,496.2)% (37,881) — — (12,000) (10,948) 4,166 (18,782) (33,484) 12 2 1,007 567 (12) (2) (100.0)% (100.0)% (995) (565) (9,757) (8,601) (2,243) 23.0 % (1,156) — (10,948) 5,459 (3,556) (1,568) (16,761) NM (46.1)% 829.3 % — 2,263 (453) — 7,722 (2,021) (968) 40,111 17,312 37,366 14,815 (32,516) 3,359.1 % (38,334) (102.6)% 22,799 131.7 % 2,497 16.9 % $ (73,595) $ (18,280) $ 22,551 $(55,315) 302.6 % $(40,831) (181.1)% 12.0 % (12.5)% 11.0 % (14.9)% (15.1)% 94.0 % 16.2 % 83.8 % NM (39.5)% (97.3)% (98.8)% (99.6)% 13.4 % NM 41.5 % 28.9 % Less: Cumulative preferred dividends, undeclared and unpaid 535 389 — 146 37.5 % 389 NM Net (loss) income available to common stockholders $ (74,130) $ (18,669) $ 22,551 $(55,461) 297.1 % $(41,220) (182.8)% _____________ NM - Not Meaningful 29 The following table presents changes in units sold, unit price and net sales by product category for the years ended June 30, 2019, 2018 and 2017 (in thousands, except unit price and percentages): Units sold Coffee (Roasted) Coffee (Frozen Liquid) Tea (Iced & Hot) Culinary Spice Other beverages(1) Total Unit Price Coffee (Roasted) Coffee (Frozen Liquid) Tea (Iced & Hot) Culinary Spice Other beverages(1) Average unit price Total Net Sales By Product Category Coffee (Roasted) Coffee (Frozen Liquid) Tea (Iced & Hot) Culinary Spice Other beverages(1) Net sales by product category Fuel Surcharge Total For the Years Ended June 30, 2019 vs 2018 2018 vs 2017 2019 2018 2017 Favorable (Unfavorable) Favorable (Unfavorable) Change % Change Change % Change 86,478 427 2,755 7,932 792 4,631 103,015 85,943 407 2,706 9,227 933 5,932 105,148 76,399 403 2,482 9,071 1,101 3,986 93,442 $ $ $ $ $ $ $ 4.38 80.89 12.02 8.08 30.43 12.60 5.79 $ $ $ $ $ $ $ 4.42 85.49 12.00 6.98 26.96 11.24 5.77 $ $ $ $ $ $ $ 4.44 81.46 11.79 6.13 22.61 14.21 5.80 $ 378,583 34,541 33,109 64,100 24,101 58,367 $ 592,801 3,141 $ 595,942 $ 379,951 34,794 32,477 64,432 25,150 66,699 $ 603,503 3,041 $ 606,544 $ 339,358 32,827 29,256 55,592 24,895 56,653 $ 538,581 2,919 $ 541,500 535 20,000 49 (1,295) (141) (1,301) (2,133) (0.04) (4.60) 0.02 1.10 3.47 1.36 0.02 (1,368) (253) 632 (332) (1,049) (8,332) (10,702) 100 (10,602) $ $ $ $ $ $ $ $ $ $ 0.62 % 4.91 % 1.81 % (14.03)% (15.11)% (21.93)% (2.03)% (0.90)% $ (5.38)% $ 0.17 % $ 15.76 % $ 12.87 % $ 12.10 % $ 0.35 % $ 9,544 4 224 156 (168) 1,946 11,706 (0.02) 4.03 0.21 0.85 4.35 (2.97) (0.03) (0.36)% $ (0.73)% 1.95 % (0.52)% (4.17)% (12.49)% (1.77)% $ 3.29 % (1.75)% $ 40,593 1,967 3,221 8,840 255 10,046 64,922 122 65,044 12.49 % 0.99 % 9.02 % 1.72 % (15.26)% 48.82 % 12.53 % (0.45)% 4.95 % 1.78 % 13.87 % 19.24 % (20.90)% (0.52)% 11.96 % 5.99 % 11.01 % 15.90 % 1.02 % 17.73 % 12.05 % 4.18 % 12.01 % (1) Includes all beverages other than roasted coffee, frozen liquid coffee, and iced and hot tea, including cappuccino, cocoa, granitas, and concentrated and ready-to-drink cold brew and iced coffee. 30 Fiscal Years Ended June 30, 2019 and 2018 Net Sales Net sales in fiscal 2019 decreased $10.6 million, or 1.7%, to $595.9 million from $606.5 million in fiscal 2018. The decline in net sales was primarily due to a decrease in net sales from other beverages and spice products, a decline in revenues and volume of green coffee processed and sold through our DSD network, and the impact of lower coffee prices for our cost plus customers. The decrease in net sales was partially offset by an increase in sales from the addition of the Boyd Business which is fully reflected in the year ended June 30, 2019, compared to only nine months of Boyd Business operations in the year ended June 30, 2018. The impact of price decreases to customers utilizing commodity-based pricing arrangements was $6.9 million during the year ended June 30, 2019 as compared to $3.0 million in price decreases to customers utilizing such arrangements in the year ended June 30, 2018. The following table presents the effect of changes in unit sales, unit pricing and product mix for the year ended June 30, 2019 compared to the same period in the prior fiscal year (in millions): Effect of change in unit sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Effect of pricing and product mix changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total decrease in net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ For Year Ended June 30, 2019 vs. 2018 (12.4) 1.8 (10.6) % of Total Mix Change (117.0)% 17.0 % (100.0)% Unit sales decreased 2.0% and average unit price was essentially flat in the year ended June 30, 2019 as compared to the same prior year period, resulting in a decrease in net sales of 1.7%. In the latter part of the fiscal year ended June 30, 2019, we experienced higher mix of product being sold via direct ship versus DSD which will negatively impact future overall average unit price as direct ship has a lower average unit price. There were no new product category introductions in the year ended June 30, 2019 or 2018 which had a material impact on our net sales. Gross Profit Gross profit in fiscal 2019 decreased $28.3 million, or 13.6%, to $179.1 million from $207.4 million in fiscal 2018. Gross margin decreased to 30.1% in fiscal 2019 from 34.2% in fiscal 2018. The decrease in gross profit was primarily driven by lower net sales of $10.6 million and higher cost of goods sold. Cost of goods sold in the year ended June 30, 2019 increased $17.7 million, or 4.4%, to $416.8 million, or 69.9% of net sales, from $399.2 million, or 65.8% of net sales, in fiscal 2018. Margin was negatively impacted by higher coffee brewing equipment and labor costs associated with increased installation activity during the period, higher production costs associated with the production operations in the Northlake facility, including higher depreciation expense for the Northlake, Texas facility, higher manufacturing costs driven by downtime associated with certain aging production infrastructure and higher write-down of slow moving inventories. The negative margin impact was partially offset by lower green coffee prices as the average Arabica “C” market price of green coffee decreased 13.2% in fiscal 2019 as compared to the prior year period. Operating Expenses In fiscal 2019, operating expenses decreased $12.5 million, or 6.1%, to $193.8 million, or 32.5% of net sales from $206.3 million, or 34.0%, of net sales in fiscal 2018, primarily due to a $13.7 million decrease in selling expenses, the absence of $3.8 million in impairment losses on intangible assets reported in the prior year period and a $0.5 million decrease in general and administrative expenses, partially offset by a $4.1 million increase in restructuring and other transition expenses and a $1.3 million increase in net losses from sales of other assets. The decreases in selling expenses and general and administrative expenses in fiscal 2019 was primarily due to synergies achieved from the integration of the Boyd Business and conclusion of the transition services and co-manufacturing agreements 31 with Boyd Coffee in the first half of fiscal 2019. In the fiscal year ended June 30, 2019, we paid Boyd Coffee a total of $3.7 million for services under these agreements, as compared to $25.4 million paid for such services in the fiscal year ended June 30, 2018. Net losses from sales of assets in the fiscal year ended June 30, 2019 included net losses of $1.1 million from sales of other assets, primarily associated with the Boyd Coffee plant decommissioning offset by $0.6 million in earnout from the sale of spice assets, as compared to $0.8 million in earnout from the sale of spice assets and net gains of $0.2 million from sales of other assets in the prior year period. Restructuring and other transition expenses increased $4.1 million in fiscal 2019, as compared to fiscal 2018. This increase includes $3.4 million, including interest, assessed by the Western Conference of Teamsters Pension Trust (the “WC Pension Trust”) in the fiscal year ended June 30, 2019, representing the Company’s share of the Western Conference of Teamsters Pension Plan (“WCTPP”) unfunded benefits due to the Company’s partial withdrawal from the WCTPP as a result of employment actions taken by the Company in 2016 in connection with the Corporate Relocation Plan. In addition, in the fiscal year ended June 30, 2019, we incurred $1.8 million in restructuring and other transition expenses, primarily employee-related costs, associated with the DSD Restructuring Plan, as compared to $1.0 million in restructuring and other transition expenses associated with the DSD Restructuring Plan in the fiscal year ended June 30, 2018. Total Other (Expense) Income Total other expense in the fiscal year ended June 30, 2019 was $18.8 million compared to $2.0 million fiscal year ended June 30, 2018. The change in total other expense in the fiscal year ended June 30, 2019 was primarily a result of a pension settlement charge in the amount of $10.9 million, higher interest expense and higher net losses on coffee-related derivative instruments. The non-cash pension settlement charge incurred in the fiscal year ended June 30, 2019 was due to the termination of the Farmer Bros. Co. Pension Plan for Salaried Employees effective December 1, 2018. As a result of the pension plan termination, we expect to realize lower Pension Benefit Guaranty Corporation expenses in the future of approximately $0.3 million to $0.4 million per year. Interest expense in the fiscal year ended June 30, 2019 increased $2.2 million to $12.0 million from $9.8 million in the prior year period. The increase in interest expense in the fiscal year ended June 30, 2019 was principally due to higher outstanding borrowings on our revolving credit facility, including borrowings for operations and borrowings related to the Boyd Business acquisition. Other, net in the fiscal year ended June 30, 2019 decreased by $3.6 million to $4.2 million compared to in $7.7 million in the prior year period. The decrease in Other, net in the fiscal year ended June 30, 2019 was primarily due to increased mark- to-market losses on coffee-related derivative instruments not designated as accounting hedges. Income Taxes In the fiscal years ended June 30, 2019 and 2018, we recorded income tax expense of $40.1 million and $17.3 million, respectively. The $22.8 million increase in tax expense in the fiscal years ended June 30, 2019 is primarily due to a valuation allowance of $52.0 million recorded to reduce our deferred tax assets. See Note 19, Income Taxes, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10 K. 32 Fiscal Years Ended June 30, 2018 and 2017 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 primarily due to the addition of the Boyd Business, which added $67.4 million of incremental sales to the current period 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 following table presents the effect of changes in unit sales, unit pricing and product mix for the year ended June 30, 2018 compared to the same period in the prior fiscal year (in millions): (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 % of Total Mix Change 103.8 % (3.8)% 100.0 % 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%. 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. Gross Profit Gross profit in fiscal 2018 increased $20.5 million, or 11.0%, to $207.4 million from $186.9 million in fiscal 2017 and gross margin decreased to 34.2% in fiscal 2018 from 34.5% in fiscal 2017. This increase in gross profit was primarily driven by higher net sales of $65.0 million due to the addition of the Boyd Business partially offset by higher cost of goods sold. Cost of goods sold in fiscal 2018 increased $44.5 million, or 12.5%, to $399.2 million, or 65.8% 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 Northlake, Texas facility including higher depreciation expense for the facility. The average Arabica “C” market price of green coffee decreased 15.5% in fiscal 2018. Operating Expenses In fiscal 2018, operating expenses increased $58.4 million, or 39.5%, to $206.3 million, or 34.0% of net sales from $147.9 million, or 27.3%, of net sales in fiscal 2017, primarily due to the effect of the recognition of $37.4 million in net gain from the sale of the Torrance Facility in fiscal 2017, a $19.9 million increase in selling expenses, a $6.5 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 $19.9 million and $6.5 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. 33 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. Total Other (Expense) Income Total other expense in fiscal 2018 was $2.0 million as compared to $1.6 million in fiscal 2017. The change in total other expense 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 Northlake, Texas 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 $9.8 million as compared to $8.6 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 Cuts and Jobs Act enacted on December 22, 2017. See Note 19. 34 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; interest expense; and depreciation and amortization expense. “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; restructuring and other transition expenses; Severance costs net gains and losses from sales of assets; non-cash pension settlement charges; and 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, pension withdrawal expense, facility-related costs and other related costs such as travel, legal, consulting and other professional services; and (ii) 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 fiscal 2019, for purposes of calculating EBITDA and EBITDA Margin and Adjusted EBITDA and Adjusted EBITDA Margin, we have excluded the impact of interest expense resulting from the adoption of ASU 2017-07, non-cash pretax pension settlement charge resulting from the amendment and termination of the Farmer Bros. Plan effective December 1, 2018 and severance because these items are not reflective of our ongoing operating results. See Note 2, Summary of Significant Accounting Policies--Recently Adopted Accounting Standards, of the Notes to Consolidated Financial Statements included in this report on Form 10-K. 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. 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 35 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. 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 the adoption of new accounting standards. See Note 2, Summary of Significant Accounting Policies--Recently Adopted Accounting Standards, of the Notes to Consolidated Financial Statements included in this report on Form 10-K. Set forth below is a reconciliation of reported net (loss) income to EBITDA (unaudited): (In thousands) For the Year Ended June 30, 2019 2018 2017 Net (loss) income, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (73,595) $ (18,280) $ Income tax expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,111 6,036 31,065 17,312 3,177 30,464 EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,617 $ 32,673 $ EBITDA Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6% 5.4% 22,551 14,815 2,185 22,970 62,521 11.5% ____________ (1) Excludes $6.1 million, $6.6 million and $6.4 million in the fiscal years ended June 30, 2019, 2018 and 2017, respectively, resulting from the adoption of ASU 2017-07. Set forth below is a reconciliation of reported net (loss) income to Adjusted EBITDA (unaudited): (In thousands) Year Ended June 30, 2019 2018 2017 Net (loss) income, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (73,595) $ (18,280) $ Income tax expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ESOP and share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restructuring and other transition expenses(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net gain from sale of Torrance Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net gains from sale of Spice Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net losses (gains) from sales of other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment losses on intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension settlement charge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-recurring 2016 proxy contest-related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition and integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,111 6,036 — 31,065 3,723 4,733 — (593) 1,058 — 10,948 — 6,123 2,273 17,312 3,177 (19) 30,464 3,822 662 — (770) (196) 3,820 — — 7,570 — 22,551 14,815 2,185 (1,853) 22,970 3,959 11,016 (37,449) (919) (1,210) — — 5,186 1,734 — Adjusted EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,882 $ 47,562 $ 42,985 Adjusted EBITDA Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3% 7.8% 7.9% ________ (1) Excludes $6.1 million, $6.6 million and $6.4 million in the fiscal years ended June 30, 2019, 2018 and 2017, respectively, resulting from the adoption of ASU 2017-07. (2) Fiscal year ended June 30, 2019, includes $3.4 million, including interest, assessed by the WC Pension Trust representing the Company’s share of the WCTPP unfunded benefits due to the Company’s partial withdrawal from the WCTPP as a result of employment actions taken by the Company in 2016 in connection with the Corporate Relocation Plan, net of payments of $0.8 million. 36 Liquidity, Capital Resources and Financial Condition Credit Facility On November 6, 2018, the Company entered into a new $150.0 million senior secured revolving credit facility (the “New Revolving Facility”) with Bank of America, N.A, Citibank, N.A., JPMorgan Chase Bank, N.A., PNC Bank, National Association, Regions Bank, and SunTrust Bank, with a sublimit on letters of credit and swingline loans of $15.0 million each. The New Revolving Facility includes an accordion feature whereby the Company may increase the revolving commitments or enter into one or more tranches of incremental term loans, up to an additional $75.0 million in aggregate of increased commitments and incremental term loans, subject to certain conditions. The commitment fee is based on a leverage grid and ranges from 0.20% to 0.40%. Borrowings under the New Revolving Facility bear interest based on a leverage grid with a range of PRIME + 0.25% to PRIME + 0.875% or Adjusted LIBO Rate + 1.25% to Adjusted LIBO Rate + 1.875%. Effective March 27, 2019, we entered into an interest rate swap utilizing a notional amount of $80.0 million, with an effective date of April 11, 2019 and a maturity date of October 11, 2023. Under the terms of the interest rate swap, we receive 1-month LIBOR, subject to a 0% floor, and make payments based on a fixed rate of 2.1975%. The Company’s obligations under the interest rate swap agreement are secured by the collateral which secures the loans under the New Revolving Facility on a pari passu and pro rata basis with the principal of such loans. We have designated the interest rate swap derivative instruments as a cash flow hedge. Under the New Revolving Facility, we are subject to a variety of affirmative and negative covenants of types customary in a senior secured lending facility, including financial covenants relating to leverage and interest expense coverage. We are allowed to pay dividends, provided, among other things, a total net leverage ratio is met, and no default exists or has occurred and is continuing as of the date of any such payment and after giving effect thereto. The New Revolving Facility matures on November 6, 2023, subject to our ability (subject to certain conditions) to agree with lenders who so consent to extend the maturity date of the commitments of such consenting lenders for a period of one year, such option being exercisable not more than two times during the term of the facility. The New Revolving Facility replaced, by way of amendment and restatement, our senior secured revolving credit facility (the “Prior Revolving Facility”) with JPMorgan Chase Bank, N.A. and SunTrust Bank, with revolving commitments of $125.0 million as of September 30, 2018 and $135.0 million as of October 18, 2018 (the “Third Amendment Effective Date”), subject to an accordion feature. Under the Prior Revolving Facility, as amended, advances were based on our eligible accounts receivable, inventory and equipment, the value of certain real property and trademarks, and an amount based on the lesser of $10.0 million (subject to monthly reduction) and the sum of certain eligible accounts receivable and inventory, less required reserves. The commitment fee was a flat fee of 0.25% per annum. Outstanding obligations were collateralized by all of our assets, excluding, amongst other things, certain real property not included in the borrowing base. Borrowings under the Prior Revolving Facility bore 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%; provided, that, after the Third Amendment Effective Date, (i) the applicable rate was PRIME + 0.25% or Adjusted LIBO Rate + 1.75%; and (ii) loans up to certain formula amounts were subject to an additional margin ranging from 0.375% to 0.50%. The Prior Revolving Facility included a variety of affirmative and negative covenants of types customary in an asset-based lending facility, including a financial covenant relating to the maintenance of a fixed charge coverage ratio, and provided for customary events of default. At June 30, 2019, we were eligible to borrow up to a total of $150.0 million under the New Revolving Facility and had outstanding borrowings of $92.0 million and had utilized $2.3 million of the letters of credit sublimit. At June 30, 2019 and 2018, the weighted average interest rate on our outstanding borrowings subject to interest rate variability under the New Revolving Facility was 3.98% and 4.10%, respectively, and we were in compliance with all of the covenants under the New Revolving Facility. At September 3, 2019, we were eligible to borrow up to a total of $150.0 million under the New Revolving Facility and had outstanding borrowings of $100.0 million and utilized $2.3 million of the letters of credit sublimit. We classify borrowings contractually due to be settled one year or less as short-term and more than one year as long- term. Outstanding borrowings under our revolving credit facility were classified on our consolidated balance sheets as “Long- term borrowings under revolving credit facility” at June 30, 2019 and “Short-Term borrowings under revolving credit facility” at June 30, 2018. 37 Liquidity We generally finance our operations through cash flows from operations and borrowings under our revolving credit facility. 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. We believe our New 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 months. Our New Revolving Facility includes financial covenants that are tested each fiscal quarter. The ratio of consolidated total indebtedness (net of unrestricted cash up to $7.5 million) to adjusted EBITDA must not exceed 3.5 to 1.0. The ratio of adjusted EBITDA to consolidated interest expense must not be less than 3.0 to 1.0. As of June 30, 2019, we were in compliance with both financial covenants. At June 30, 2019, we had $7.0 million in cash and cash equivalents and none of the cash in our coffee-related derivative margin accounts was restricted. Changes in commodity prices and the number of coffee-related and interest swap derivative instruments held could have a significant impact on cash deposit requirements under certain of our broker and counterparty agreements and may adversely affect our liquidity. Cash Flows The significant captions and amounts from our condensed consolidated statements of cash flows are summarized below: For the Years Ended June 30, 2018 2017 2019 Condensed Consolidated Statements of cash flows data (in thousands) Net cash provided by operating activities Net cash used in investing activities Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents $ $ $ 35,450 (32,361) 1,456 4,545 $ $ 8,855 (74,640) 61,982 (3,803) $ 42,112 (106,724) 49,758 (14,854) Operating Activities Cash provided by operating activities in fiscal 2019 increased $26.6 million as compared to fiscal 2018 primarily due to, among other items, improved collections on many large national accounts and distributors, improved vendor terms, and reduced cash purchases to fund inventory levels. These were partially offset by a decline in revenues and higher manufacturing and supply chain costs, higher labor and service costs associated with increased installations of coffee brewing equipment, and higher restructuring and other transition expenses. Cash provided by operating activities in fiscal 2018 decreased $33.3 millionas compared to fiscal 2017 primarily due to a higher use of cash to fund higher inventory levels and higher payroll and benefit costs associated with the Boyd Business integration, as well as slower collections of various accounts receivables. These were partially offset by the timing of vendor payments. Investing Activities Net cash used in investing activities during the fiscal year ended June 30, 2019 decreased $42.3 million as compared to fiscal year ended June 30, 2018. Investment activities were elevated in the prior year period principally due to the acquisition of the Boyd Business for $39.6 million in cash. For the fiscal year ended June 30, 2019 we had purchases of property, plant and equipment of $34.8 million, which included $13.7 million for machinery and equipment relating to the Northlake, Texas facility, and $21.1 million in maintenance capital expenditures. Maintenance capital expenditures included higher coffee brewing 38 equipment purchases compared to the prior year period due to an increased level of installations for new customers during fiscal 2019. Net cash used in investing activities during the fiscal year ended June 30, 2018 decreased $32.1 million as compared to fiscal year ended June 30, 2017 due primarily to the elevated levels of investments in fiscal 2017. For the fiscal year ended June 30, 2018 we invested $39.6 million for the acquisition of Boyd Business and had purchases of property, plant and equipment of $37.0 million, which included $2.5 million for machinery and equipment relating to the Northlake Texas facility, and $21.8 million in maintenance capital expenditures. Maintenance capital expenditures included higher coffee brewing equipment purchases compared to the prior year period due to an increased level of installations for new customers. In fiscal 2017, we invested $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 Northlake Texas facility, and $39.8 million for purchases of assets for construction of the Northlake Texas facility. Financing Activities Net cash provided by financing activities in fiscal year ended June 30, 2019 decreased $60.5 million as compared to fiscal year ended June 30, 2018. Net cash provided by financing activities in fiscal year ended June 30, 2019 included $2.2 million in net borrowings compared to $62.2 million in net borrowings in the fiscal year ended June 30, 2018 of which $39.6 million of the net borrowings was used to fund the purchase of the Boyd Business. Net cash provided by financing activities in fiscal year ended June 30, 2018 increased $12.2 million as compared to fiscal year ended June 30, 2017. Net cash provided by financing activities in fiscal year ended June 30, 2018 included $62.2 million in net borrowings compared to $27.5 million in net borrowings in the fiscal year ended June 30, 2017. In fiscal year ended June 30, 2018, $39.6 million of the net borrowings was used to fund the purchase of the Boyd Business. 39 Contractual Obligations, Commitments and Contingencies Contractual Obligations The following table contains information regarding total contractual obligations as of June 30, 2019: (In thousands) Contractual obligations: Operating lease obligations Capital lease obligations(1) Pension plan obligations(2) Postretirement benefits other than pension plans(2) Revolving credit facility Purchase commitments(3) Derivative liabilities—noncurrent Cumulative Preferred dividends, undeclared and unpaid-non-current Total contractual obligations ______________ (1) Includes imputed interest of $2,000. Payment due by period Total Less Than One Year 1-3 Years 3-5 Years More Than 5 Years $ 18,689 37 71,400 12,982 92,000 61,244 1,612 $ $ 4,434 36 6,850 $ 5,710 1 13,630 1,087 — 61,244 — 2,311 — — 1,612 $ 4,156 — 14,370 2,468 92,000 — — 4,389 — 36,550 7,116 — — — 924 258,888 $ $ — 73,651 $ 924 24,188 $ — 112,994 $ — 48,055 (2) See Note 13, Employee Benefit Plans, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10 K. (3) Purchase commitments include commitments under coffee purchase contracts for which all delivery terms have been finalized but the related coffee has not been received as of June 30, 2019. 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. See Note 22, Commitments and Contingencies, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10 K 40 Capital Expenditures For the fiscal years ended June 30, 2019, 2018 and 2017, 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. . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures, maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . Expansion Project: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures, Expansion Project . . . . . . . . . . . . . . . . . . . . . . New Facility Costs: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Building and facilities, including land . . . . . . . . . . . . . . . . . . . . . . . . . . Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Software, office furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures, New Facility. . . . . . . . . . . . . . . . . . . . . . . . . . . Total capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 June 30, 2018 2017 $ 14,925 $ 12,067 $ 10,758 106 2,787 3,270 21,088 13,671 13,671 $ $ $ — $ — — — $ $ 34,759 542 5,513 3,660 21,782 10,746 10,746 1,577 2,489 426 4,492 37,020 $ $ $ $ $ $ 345 7,445 698 19,246 — — 39,754 20,089 5,860 65,703 84,949 $ $ $ $ $ $ In fiscal 2020, we anticipate maintenance capital expenditures will be between $17 million to $20 million. We expect to finance these expenditures through cash flows from operations and borrowings under our New Revolving Facility. Depreciation and amortization expense was $31.1 million, $30.5 million and $23.0 million in fiscal 2019, 2018 and 2017, respectively. We anticipate our depreciation and amortization expense will be approximately $7.5 million to $7.8 million per quarter in fiscal 2020 based on our existing fixed assets and the useful lives of our intangible assets. 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. On January 8, 2019, Boyd Coffee notified the Company of the assessment of $0.5 million in withdrawal liability against Boyd Coffee, which the Company timely paid from the Multiemployer Plan Holdback during the three months ended March 31, 2019. The Company has applied the remaining amount of the Multiemployer Plan Holdback of $0.5 million towards satisfaction of the Seller’s post-closing net working capital deficiency under the Asset Purchase Agreement as of March 31, 2019. The fair value of consideration transferred reflected the Company’s best estimate of the post-closing net working capital adjustment of $8.1 million due to the Company at June 30, 2018 when the purchase price allocation was finalized. In January 41 2019, the post-closing net working capital adjustment was determined by an Independent Expert to be $6.3 million due to the Company. As of March 31, 2019, we have satisfied the $6.3 million amount by applying the remaining amount of the Multiemployer Plan Holdback of $0.5 million, retaining all of the Holdback Cash Amount of $3.2 million and canceling 4,630 shares of Holdback Stock with a fair value of $2.3 million based on the stated value and deemed conversion price as defined in the asset purchase agreement. We have retained the remaining 1,670 shares of the Holdback Stock pending satisfaction of certain indemnification claims against the Seller following which the remaining Holdback Stock, if any, will be released to the Seller. See Note 3, Acquisitions, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for further details of the acquisitions. 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 recognized approximately $4.5 million of pre-tax restructuring charges in connection with the DSD Restructuring Plan by the end of fiscal 2019 consisting of approximately $2.3 million in employee-related costs and contractual termination payments, including severance, prorated bonuses for bonus eligible employees and outplacement services, and $2.2 million in other related costs, including legal, recruiting, consulting, other professional services, and travel. We have completed the DSD Restructuring Plan as of June 30, 2019. The following table sets forth the expenses associated with the DSD Restructuring Plan for the fiscal years ended June 30, 2019, 2018 and 2017: (In thousands) Employee-related costs Other Total Recent Accounting Pronouncements Year Ended June 30, 2019 2018 2017 $ $ 1,487 284 1,771 $ $ 612 429 1,041 $ $ 506 1,205 1,711 Refer to Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for a summary of recently adopted and recently issued accounting standards and their related effects or anticipated effects on our consolidated results of operations and financial condition. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. 42 Critical Accounting Policies and Estimates We prepare our consolidated financial statements in accordance with GAAP. In applying many of these accounting principles, we need to make assumptions, estimates or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates or judgments, however, are both subjective and subject to change, and actual results may differ from our assumptions and estimates. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. We believe the following critical accounting policies could potentially produce materially different results if we were to change the underlying assumptions, estimates or judgments. See Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10 K for a summary of our significant accounting estimates. 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 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, typically monthly, resulting in, at the least, a 30-day lag in our ability to correlate the changes in our prices with fluctuations in the cost of raw materials and other inputs. 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, 2019 and 2018, we had 48.2 million and 43.5 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, 2019, approximately 87% of our outstanding coffee-related derivative instruments, representing 42.1 million pounds of forecasted green coffee purchases, were designated as cash flow hedges. 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. The portion of open hedging contracts 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. 43 Additionally, we have interest swap rate derivative instruments on our debt facility. Therefore, movement in the underlying yield curves could negatively impact the amount of our interest expense, future earnings and cash flows. 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. If, after assessing qualitative and quantitative factors, we believe that it is more likely than not that the fair value of the reporting unit is less than its carrying value, we will record the amount of goodwill and indefinite-lived intangible assets impairment as the excess of the carrying amount over the fair value. Indefinite-lived intangible assets consist of certain acquired trademarks, trade names and brand name. 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, 2019 is adequate to cover all known workers' compensation claims at June 30, 2019. 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 our 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. 44 Employee Benefit Plans We account for our defined benefit pension plans in accordance with ASC No. 715-20, “Compensation—Defined Benefit Plans—General” (“ASC 715-20”). The funded status is the difference between the fair value of plan assets and the benefit obligation. The adjustment to accumulated other comprehensive Income (loss) represents the net unrecognized actuarial gains or losses and unrecognized prior service costs. Future actuarial gains or losses that are not recognized as net periodic benefits cost in the same periods will be recognized as a component of other comprehensive income. We maintain several defined benefit plans that cover certain employees. We record the expenses associated with these plans based on calculations which include various actuarial assumptions such as discount rates and expected long-term rates of return on plan assets. Material changes in pension costs may occur in the future due to changes in these assumptions. Future annual amounts could be impacted by changes in the discount rate, changes in the expected long-term rate of return, changes in the level of contributions to the plans and other factors. We utilize a yield curve analysis to determine the discount rates for our defined benefit plans’ obligations. The yield curve considers pricing and yield information for high quality bonds with maturities matched to estimated payouts of future pension benefits. The expected return on plan assets is based on our expectation of the long-term rates of return on each asset class based on the current asset mix of the funds, considering the historical returns earned on the type of assets in the funds. We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when appropriate. The effects of the modifications to the actuarial assumptions which impact the projected benefit obligation are amortized over future periods. In connection with certain collective bargaining agreements to which we are a party, we are required to make contributions on behalf of certain union employees to multiemployer pension plans. The future contributions and liabilities associated with these plans could be material to our results of operations, financial position and cash flows. See Note 13, Employee Benefit Plans, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10 K for further discussions of our various pension plans. 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). 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 fiscal 2019 and 2018, we used an estimated annual forfeiture rate of 13.0% and 4.8%, respectively 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 45 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. 46 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. Effective March 27, 2019, we entered into an interest rate swap transaction utilizing a notional amount of $80.0 million, with an effective date of April 11, 2019 and a maturity date of October 11, 2023. See Note 6, Derivative Instruments, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10 K for further discussions of our derivative instruments. Borrowings under our Revolving Facility bear interest based on a leverage grid with a range of PRIME + 0.25% to PRIME + 0.875% or Adjusted LIBO Rate + 1.25% to Adjusted LIBO Rate + 1.875%. At June 30, 2019, we were eligible to borrow up to a total of $150.0 million under the Revolving Facility and had outstanding borrowings of $92.0 million and had utilized $2.3 million of the letters of credit sublimit. As a result of the interest rate swap, only $12.0 million is now subject to interest rate variability. The weighted average interest rate on our outstanding borrowings subject to interest rate variability under the Revolving Facility at June 30, 2019 was 3.98%. The following table demonstrates the impact of interest rate changes on our annual interest expense on outstanding borrowings subject to interest rate variability under the Revolving Facility based on the weighted average interest rate on the outstanding borrowings as of June 30, 2019: ($ in thousands) –150 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –100 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unchanged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +100 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +150 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principal $12,000 $12,000 $12,000 $12,000 $12,000 Interest Rate Annual Interest Expense 2.48% $ 2.98% $ 3.98% $ 4.98% $ 5.48% $ 298 358 478 598 658 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. See Note 6, Derivative Instruments, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10 K for further discussions of our derivative instruments. The following table summarizes the potential impact as of June 30, 2019 to net income (loss) 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 674 $ (674) $ 4,904 $ (4,904) __________ (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, 2019. These contracts are not included in the sensitivity analysis above as the underlying price has been fixed. 47 Item 8. Financial Statements and Supplementary Data The information required by this item is incorporated by reference to the consolidated financial statements and accompanying notes set forth in the F pages of this Annual Report on Form 10-K. 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, 2019, 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, 2019, our disclosure controls and procedures are effective. 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, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Management's Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our consolidated financial statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our consolidated financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a material misstatement of our consolidated financial statements would be prevented or detected. Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company's internal control over financial reporting was effective as of June 30, 2019. The Company's independent registered public accounting firm, Deloitte & Touche LLP, has issued an audit report on the effectiveness of the Company's internal control over financial reporting. Their report follows. 48 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, 2019, 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, 2019, 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, 2019, of the Company and our report dated September 10, 2019, expressed an unqualified opinion on those financial statements. 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. 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 10, 2019 49 Item 9B. Other Information None Item 10. Directors, Executive Officers and Corporate Governance PART III The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by reference. Code of Conduct and Ethics We maintain a written Code of Conduct and Ethics for all employees, officers and directors, including our principal executive officer, principal financial officer, principal accounting officer or controller, and other persons performing similar functions. To view this Code of Conduct and Ethics free of charge, please visit our website at www.farmerbros.com. 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, 2019, its officers, directors and ten percent stockholders complied with all applicable Section 16(a) filing requirements. 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, 2019. 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. 50 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, 2019 that were either approved or not approved by our stockholders was as follows: Plan Category Equity compensation plans approved by stockholders(1) . . . . Equity compensation plans not approved by stockholders . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ________________ Number of Shares to be Issued Upon Exercise / Vesting of Outstanding Options or Rights(2) 491,301 — 491,301 Weighted Average Exercise Price of Outstanding Options(3) $26.22 — $26.22 Number of Shares Remaining Available for Future Issuance(4) 740,429 — 740,429 (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. 51 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, 2019 and 2018. Consolidated Statements of Operations for the Years Ended June 30, 2019, 2018 and 2017. Consolidated Statements of Comprehensive Income (Loss) for the Years Ended June 30, 2019, 2018 and 2017. Consolidated Statements of Cash Flows for the Years Ended June 30, 2019, 2018 and 2017. Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2019, 2018 and 2017. 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).* Amended and Restated Certificate of Incorporation of Farmer Bros. Co. (filed herewith). Amended and Restated Bylaws (filed as Exhibit 3.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2018 filed with the SEC on February 11, 2019 and incorporated herein by reference). 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). 52 Exhibit No. 3.4 4.1 4.2 4.3 10.1 10.2 10.3 10.4 10.5 10.6 10.7 Description 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 as Exhibit 10.6 to the Company’s Annual Report on Form 10-K filed with the SEC on September 13, 2018 and incorporated herein by reference). Third Amendment to Credit Agreement and Second Amendment to Pledge and Security Agreement, dated as of October 18, 2018, by and among Farmer Bros. Co., China Mist Brands, Inc., Boyd Assets 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 October 23, 2018 and incorporated herein by reference) 53 Exhibit No. 10.8 10.9 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 10.18 Description Amended and Restated Credit Agreement dated as of November 6, 2018, by and among Farmer Bros. Co., China Mist Brands, Inc., Boyd Assets 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 10.10 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 filed with the SEC on November 9, 2018 and incorporated herein by reference). Amended and Restated Pledge and Security Agreement, dated as of November 6, 2018, by and among Farmer Bros. Co., China Mist Brands, Inc., Coffee Bean International, Inc., FBC Finance Company, Coffee Bean Holding Company, Inc., the Grantors party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (filed as Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 filed with the SEC on November 9, 2018 and incorporated herein by reference). 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). 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, Farmer Bros. Co. Retirement Plan (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. Pension Plan for Salaried Employees, 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 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2018 filed with the SEC on February 11, 2019 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).** 54 Exhibit No. 10.19 10.20 10.21 10.22 10.23 10.24 10.25 10.26 10.27 10.28 10.29 10.30 Description 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).** 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).** 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).** 55 Exhibit No. 10.31 10.32 10.33 10.34 10.35 10.36 10.37 10.38 10.39 10.40 10.41 10.42 10.43 Description 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).** Offer Letter, dated May 6, 2019, between Farmer Bros. Co. and Christopher P. Mottern (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 8, 2019 and incorporated herein by reference).** Separation and Release Agreement, dated as of May 7, 2019, by and between Farmer Bros. Co., and Michael Keown (filed herewith).** Separation and Release Agreement, dated as of July 19, 2019, by and between Farmer Bros. Co., and Thomas J. Mattei, Jr. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 23, 2019 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 10.35 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2018 filed with the SEC on February 11, 2019 and incorporated herein by reference).** Addendum to Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan (filed as Exhibit 10.30 to the Company's Quarterly Report on Form 10-Q 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 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 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 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).** 56 Exhibit No. 10.44 10.45 10.46 10.47 10.48 10.49 10.50 10.51 10.52 10.53 10.54 10.55 Description Form of Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan Stock Option Grant Notice and Stock Option Agreement (filed as Exhibit 10.43 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2018 filed with the SEC on February 11, 2019 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 10.45 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2018 filed with the SEC on February 11, 2019 and incorporated herein by reference).** Stock Ownership Guidelines for Directors and Executive Officers, as amended February 7, 2019 (filed as Exhibit 10.46 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2018 filed with the SEC on February 11, 2019 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 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).** Form of Indemnification Agreement for Directors and Officers of the Company, as adopted on December 8, 2017 (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). Second Amendment to the Farmer Bros. Co. Amended and Restated Employee Stock Ownership Plan, dated as of December 31, 2018 (filed as Exhibit 10.52 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2018 filed with the SEC on February 11, 2019 and incorporated herein by reference).** Amendment to the Farmer Bros. Co. Retirement Plan, dated as of December 1, 2018 (filed as Exhibit 10.53 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2018 filed with the SEC on February 11, 2019 and incorporated herein by reference).** ISDA Master Agreement, dated as of March 20, 2019, by and between Farmer Bros. Co. and Citibank, N.A. (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on March 29, 2019 and incorporated herein by reference).** 57 Exhibit No. 10.56 10.57 14.1 21.1 23.1 31.1 31.2 32.1 32.2 101 Description Schedule to the ISDA Master Agreement, dated as of March 20, 2019, by and between Farmer Bros., Co. and Citibank, N.A. (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on March 29, 2019 and incorporated herein by reference).** Interest Rate Swap Confirmation, dated as of March 28, 2019, by and between Farmer Bros., Co. and Citibank, N.A. (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed with the SEC on March 29, 2019 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). 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, 2019, 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. 58 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: By: /s/ Christopher P. Mottern Christopher P. Mottern Interim President and Chief Executive Officer (chief executive officer) September 10, 2019 /s/ David G. Robson David G. Robson Treasurer and Chief Financial Officer (principal financial and accounting officer) September 10, 2019 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 /s/ Hamideh Assadi Hamideh Assadi /s/ Stacy Loretz-Congdon Stacy Loretz-Congdon /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 10, 2019 Director September 10, 2019 Director Director September 10, 2019 September 10, 2019 Director September 10, 2019 Director September 10, 2019 Director September 10, 2019 59  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F - 2 Consolidated Balance Sheets as of June 30, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F - 3 Consolidated Statements of Operations for the Years Ended June 30, 2019, 2018 and 2017 . . . . . . . . . . . . . F - 4 Consolidated Statements of Comprehensive Income (Loss) for the Years Ended June 30, 2019, 2018 and 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F - 5 Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2019, 2018 and 2017 . . . . . F - 6 Consolidated Statements of Cash Flows for the Years Ended June 30, 2019, 2018 and 2017 . . . . . . . . . . . . . F - 7 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F - 9 F - 1 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, 2019 and 2018, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2019, 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, 2019, 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 10, 2019, expressed an unqualified opinion on the Company's internal control over financial reporting. 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 10, 2019 We have served as the Company’s auditor since fiscal 2014. F - 2  FARMER BROS. CO. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) ASSETS Current assets: Cash and cash equivalents Accounts receivable, net of allowance for doubtful accounts of $1,324 and $495, respectively Inventories Income tax receivable Short-term derivative assets Prepaid expenses Total current assets Property, plant and equipment, net Goodwill Intangible assets, net Other assets Long-term derivative 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 Long-term borrowings under revolving credit facility Accrued pension liabilities Accrued postretirement benefits Accrued workers’ compensation liabilities Other long-term liabilities Total liabilities Commitments and contingencies Stockholders’ equity: Preferred stock, $1.00 par value, 500,000 shares authorized; Series A Convertible Participating Cumulative Perpetual Preferred Stock, 21,000 shares authorized; 14,700 shares issued and outstanding as of June 30, 2019 and 2018, respectively; liquidation preference of $15,624 and $15,089 as of June 30, 2019 and 2018, respectively Common stock, $1.00 par value, 25,000,000 shares authorized; 17,042,132 and 16,951,659 shares issued and outstanding at June 30, 2019 and 2018, respectively Additional paid-in capital Retained earnings Unearned ESOP shares Accumulated other comprehensive loss Total stockholders’ equity Total liabilities and stockholders’ equity As of June 30, 2019 2018 $ 6,983 $ 55,155 87,910 1,191 1,865 6,804 159,908 189,458 36,224 28,878 9,468 674 — 2,438 58,498 104,431 305 — 7,842 173,514 186,589 36,224 31,515 8,381 — 39,308 $ 424,610 $ 475,531 72,771 14,518 — 34 1,474 7,309 96,106 92,000 47,216 23,024 4,747 4,023 56,603 17,918 89,787 190 3,300 10,659 178,457 — 40,380 20,473 5,354 1,812 $ 267,116 $ 246,476 15 15 17,042 57,912 146,177 — (63,652) $ $ 157,494 424,610 $ $ 16,952 55,965 220,307 (2,145) (62,039) 229,055 475,531 The accompanying notes are an integral part of these consolidated financial statements. F - 3 FARMER BROS. CO. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restructuring and other transition expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net gain from sale of Torrance Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net gains from sale of Spice Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net losses (gains) from sales of other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment losses on intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Loss) income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (expense) income: Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension settlement charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other (expense) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Loss) income before taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Less: Cumulative preferred dividends, undeclared and unpaid . . . . . . . . . . . . . . Net (loss) income available to common stockholders . . . . . . . . . . . . . . . . . . . . . $ Net (loss) income available to common stockholders per common share— basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Net (loss) income available to common stockholders per common share— diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Weighted average common shares outstanding—basic . . . . . . . . . . . . . . . . . . . . Weighted average common shares outstanding—diluted. . . . . . . . . . . . . . . . . . . For the Years Ended June 30, $ 2019 595,942 416,840 179,102 139,647 48,959 4,733 — (593) 1,058 — 193,804 (14,702) — — (12,000) (10,948) 4,166 (18,782) (33,484) $ 2018 606,544 399,155 207,389 153,391 49,429 662 — (770) (196) 3,820 206,336 1,053 12 2 (9,757) — 7,722 (2,021) (968) 40,111 (73,595) $ 535 (74,130) $ 17,312 (18,280) $ 389 (18,669) $ (4.36) $ (1.11) $ (4.36) $ (1.11) $ 2017 541,500 354,649 186,851 133,534 42,945 11,016 (37,449) (919) (1,210) — 147,917 38,934 1,007 567 (8,601) — 5,459 (1,568) 37,366 14,815 22,551 — 22,551 1.35 1.34 16,996,354 16,996,354 16,815,020 16,815,020 16,668,745 16,785,752 The accompanying notes are an integral part of these consolidated financial statements. F - 4 FARMER BROS. CO. CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (In thousands) For the Years Ended June 30, 2019 (73,595) $ 2018 (18,280) $ 2017 22,551 (9,198) (5,922) (2,900) 9,196 (9,777) 800 4,576 510 7,466 — 27,627 Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Other comprehensive income (loss), net of tax: Unrealized losses on derivative instruments designated as cash flow hedges, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Losses 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 . . . . . . . . . Pension settlement charge, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total comprehensive (loss) income, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,165 (75,209) $ — (18,826) $ The accompanying notes are an integral part of these consolidated financial statements. F - 5 FARMER BROS. CO. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except share and per share data) Preferred Shares Preferred Stock Amount Common Shares Common Stock Amount Additional Paid-in Capital Retained Earnings Unearned ESOP Shares Accumulated Other Comprehensive Income (Loss) Total Balance at June 30, 2016 — $ — 16,781,561 $ 16,782 $ 39,096 $ 214,442 $ (6,434) $ (66,569) $ 197,317 Net income Unrealized losses on derivative instruments designated as cash flow hedges, net of reclassifications to cost of goods sold, net of tax Change in the funded status of retiree benefit obligations, net of tax ESOP compensation expense, including reclassifications Share-based compensation Stock option exercises Shares withheld to cover taxes Balance at June 30, 2017 Net loss Adjustment due to the adoption of ASU 2017-12 Adjustment due to the adoption of ASU 2016-09 Unrealized losses on derivative instruments designated as cash flow hedges, net of reclassifications to cost of goods sold, net of tax Change in the funded status of retiree benefit obligations, net of tax ESOP compensation expense, including reclassifications Share-based compensation Stock option exercises Consideration for Boyd Coffee acquisition Cumulative preferred dividends, undeclared and unpaid Balance at June 30, 2018 Net loss Net reclassification of unrealized losses on cash flow hedges, net of tax Pension settlement charge, net of tax Change in the funded status of retiree benefit obligations, net of tax ESOP compensation expense, including reclassifications Share-based compensation Stock option exercises Cumulative preferred dividends, undeclared and unpaid — — — — — — — — — — — — — — — — 14,700 — 14,700 — — — — — — — — Balance at June 30, 2019 14,700 $ — — — — — — — — — — — (889) 82,803 (17,473) — — — — (1) 83 (18) — 22,551 — — 342 1,473 604 (20) — — — — — — — — — 2,145 — — — — 22,551 (2,390) (2,390) 7,466 — — — — 7,466 2,487 1,472 687 (38) — 16,846,002 16,846 41,495 236,993 (4,289) (61,493) 229,552 — — — — — — — — 15 — 15 — — — — — — — — 15 — — — — — — 9,155 96,502 — — — — — — — — 9 97 — — — — — — — 150 1,518 1,245 11,557 (18,280) 342 1,641 — — — — — — — (389) — — — — — 2,144 — — — — — (18,280) (209) — 133 1,641 (4,913) (4,913) 4,576 — — — — — 4,576 2,294 1,527 1,342 11,572 (389) 16,951,659 16,952 55,965 220,307 (2,145) (62,039) 229,055 — — — — 37,571 18,298 34,604 — — — — — 37 18 35 — — — — — 364 1,111 472 (73,595) — — — — — — — (535) — — — — 2,145 — — — — (73,595) (1) (1) 8,165 8,165 (9,777) (9,777) — — — — 2,546 1,129 507 (535) 17,042,132 $ 17,042 $ 57,912 $ 146,177 $ — $ (63,652) $ 157,494 The accompanying notes are an integral part of these consolidated financial statements. F - 6 FARMER BROS. CO. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the Years Ended June 30, 2019 2018 2017 Cash flows from operating activities: Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (73,595) $ (18,280) $ 22,551 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension settlement cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 on derivative instruments and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in operating assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Derivative (liabilities) assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,065 1,363 — — 1,172 — 41,654 10,948 — 466 3,674 9,196 2,757 16,192 (18,901) 114 16,546 (7,201) 30,464 137 3,820 (500) (1,185) — 17,155 — — (995) 3,822 1,982 (4,628) (15,513) (7,782) 1,073 3,864 (4,579) Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,450 $ 8,855 $ Cash flows from investing activities: Acquisitions of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ (39,608) $ Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of assets for construction of New Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sales of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34,760) — 2,399 (35,443) (1,577) 1,988 22,970 325 — — 1,034 681 14,343 — (37,449) (2,129) 3,959 2,361 (14) (8,041) 2,264 22,932 8,885 (12,560) 42,112 (25,853) (45,195) (39,754) 4,078 Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (32,361) $ (74,640) $ (106,724) Cash flows from financing activities: Proceeds from revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,642 $ 85,315 $ Repayments on revolving credit facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48,429) (23,149) Proceeds from sale-leaseback financing obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — — — (215) (1,049) 507 — 1,456 4,545 2,438 6,983 $ $ $ — — — (947) (579) 1,342 — 61,982 (3,803) 6,241 2,438 $ $ $ The accompanying notes are an integral part of these consolidated financial statements. 77,985 (50,473) 42,455 16,346 (35,772) (1,433) — 688 (38) 49,758 (14,854) 21,095 6,241 F - 7 FARMER BROS. CO. CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (In thousands) Supplemental disclosure of cash flow information: Cash paid for interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,512 107 $ $ 3,177 144 $ $ 1,504 567 Supplemental disclosure of non-cash investing and financing activities: For the Years Ended June 30, 2019 2018 2017 Equipment acquired under capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Net change in derivative assets and liabilities included in other comprehensive (loss) income, net of tax . . . . . . . . . . . . . . $ Non-cash additions to property, plant and equipment. . . . . . . . . . . . . . . . . . $ 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 post-closing working capital adjustment—Boyd Coffee acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Non-cash Issuance of 401-K shares of Common Stock . . . . . . . . . . . . . . . . $ Non-cash consideration given-Issuance of Series A Preferred Stock . . . . . . $ Option costs paid with exercised shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulative preferred dividends, undeclared and unpaid . . . . . . . . . . . . . . . $ — $ — $ 417 (2) $ $ 2,619 (5,122) $ $ 2,814 (2,390) 5,517 — $ — $ 298 $ — $ 400 $ — $ — $ — $ — $ 218 $ $ 2,277 37 $ — $ $ $ 534 11,756 1,056 $ — $ $ — $ $ 389 419 500 600 553 — — — — 550 — The accompanying notes are an integral part of these consolidated financial statements. F - 8 FARMER BROS. CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Introduction and Basis of Presentation Description of Business 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. In fiscal 2017, the Company completed the construction and relocation of its corporate headquarter from Torrance, California to Northlake, Texas ("Northlake facility"), and began roasting coffee in the Northlake facility in the fourth quarter of fiscal 2017. The Company operates in one business segment. The Company operates production facilities in Northlake, Texas; Houston, Texas; Portland, Oregon; and Hillsboro, Oregon. Distribution takes place out of the Northlake 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 direct- store-delivery or DSD network of 380 delivery routes and 104 branch warehouses as of June 30, 2019, or direct-shipped via common carriers or third-party distributors. The Company operates a large fleet of trucks and other vehicles to distribute and deliver its products 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. F - 9 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements are prepared in accordance with the generally accepted accounting principles in the United States (“GAAP”). 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 the accompanying notes. The Company reviews its estimates on an ongoing basis using currently available information. Changes in facts and circumstances may result in revised estimates and actual results may differ from those estimates. Cash Equivalents The Company considers all highly liquid investments with original maturity dates of 90 days or less to be cash equivalents. Fair values of cash equivalents approximate cost due to the short period of time to maturity. Allowance for doubtful accounts A portion of our accounts receivable is not expected to be collected due to non-payment, bankruptcies and deductions. Our accounting policy for the allowance for doubtful accounts requires us to reserve an amount based on the evaluation of the aging of accounts receivable, detailed analysis of high-risk customers’ accounts, and the overall market and economic conditions of our customers. This evaluation considers the customer demographic, such as large commercial customers as compared to small businesses or individual customers. We consider our accounts receivable delinquent or past due based on payment terms established with each customer. Accounts receivable are written off when the account are determined to be uncollectible. 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. 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. F - 10 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) 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. Derivative Instruments The Company executes various derivative instruments to hedge its commodity price and interest rate risks. These derivative instruments consist primarily of forward, option and swap contracts. The Company reports the fair value of derivative instruments on its consolidated balance sheets in “Short-term derivative assets,” “Long-term derivative 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, if any, 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. F - 11 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) For interest rate swap derivative instruments designated as a cash flow hedge, the change in fair value of the derivative is reported as AOCI and subsequently reclassified into interest expense in the period or periods when the hedged transaction affects earnings. Concentration of Credit Risk At June 30, 2019, 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. 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, 2019 and 2018, none of the cash in the Company’s coffee-related derivative margin accounts was restricted. Further changes in commodity prices and the number of coffee-related derivative instruments held, could have a significant impact on cash deposit requirements under certain of the Company's broker and counterparty agreements. Approximately 28% and 20% of the Company’s trade accounts receivable balance was with five customers at June 30, 2019 and 2018, respectively. The Company estimates its maximum credit risk for accounts receivable at the amount recorded on the balance sheet. The trade accounts receivables are generally short-term and all probable bad debt losses have been appropriately considered in establishing the allowance for doubtful accounts. 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. The impact of this change in accounting principle has been reflected through retrospective application to the financial statements for each period presented. 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. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 to 10 years Shorter of term of lease or estimated useful life Office furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalized software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 to 7 years 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. Coffee Brewing Equipment and Service The Company capitalizes coffee brewing equipment and depreciates it over five years and reports the depreciation expense in cost of goods sold. See Note 11 for details of the depreciation amounts. Other non-depreciation expenses related to coffee brewing equipment provided to customers, such as the cost of servicing that equipment (including service employees’ salaries, cost of transportation and the cost of supplies and parts), are considered directly attributable to the generation of revenues from the customers. These non-depreciation expenses are also included in cost of goods sold, and were $33.9 million, $30.2 million and $26.3 million, for the years ended June 30, 2019, 2018 and 2017, respectively. F - 12 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Leases Leases are categorized as either operating or capital leases at inception. Operating lease costs are recognized on a straight- line basis over the term of the lease. An asset and a corresponding liability for the capital lease obligation are established for the cost of a capital lease. Capital lease obligations are amortized over the life of the lease. 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. 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. Revenue Recognition The Company recognizes revenue in accordance with the way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company performs the following steps to determine revenue recognition for an arrangement: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the performance obligations are satisfied. 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”). 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 F - 13 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) 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. 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. 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. On December 31, 2018, the Company froze the ESOP such that (i) no employees of the Company may commence participation in the ESOP on or after December 31, 2018; (ii) no Company contributions will be made to the ESOP with respect to services performed or compensation received after December 31, 2018; and (iii) the ESOP accounts of all individuals who are actively employed by the Company and participating in the ESOP on December 31, 2018 will be fully vested as of such date. Additionally, the Administrative Committee, with the consent of the Board of Directors, designated certain employees who were terminated in connection with certain reductions-in-force in 2018 to be fully vested in their ESOP accounts as of their severance dates. Effective January 1, 2019, the Company amended and restated its 401(k) Plan to, among other things, provide for annual contribution of shares of the Company’s common stock equal to 4% of each eligible participant’s annual plan compensation. See Note 13 for details. 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. 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. F - 14 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) 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 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-lived intangible assets are tested for impairment by comparing their fair values to their carrying values. An impairment charge is recorded if the estimated fair value of such assets has decreased below their carrying values. 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. 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 $11.4 million, $11.9 million and $10.7 million, respectively, in the fiscal years ended June 30, 2019, 2018 and 2017. Collective Bargaining Agreements Certain Company employees are subject to collective bargaining agreements which expire on or before June 30, 2022. At June 30, 2019 approximately 28% 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. F - 15 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 $6.3 million and $7.1 million, as of June 30, 2019 and 2018, respectively and the estimated recovery from reinsurance was $0.9 million for both periods. 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, 2019 the Company had posted $1.4 million in cash and a $2.3 million letter of credit, and at June 30, 2018 the Company had posted $2.3 million in cash and a $2.0 million letter of credit, 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, 2019 and 2018 was $0.9 million and $1.6 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 $1.0 million and $1.7 million at June 30, 2019 and 2018, 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 13. F - 16 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. 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. F - 17 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Recently Adopted Accounting Standards In March 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-05 which amends ASC 740, “Income Taxes,” to provide guidance on accounting for the tax effects of the Tax Cuts and Jobs Act enacted on December 22, 2017 (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. The Company finalized its assessment of the income tax effects of the Tax Act in the second quarter of fiscal 2019. In March 2017, the FASB issued ASU 2017-07 to amend 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 updated the guidance on the presentation of net periodic pension cost and net periodic post- retirement pension cost, and requires the service cost component to be presented in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable. The guidance in ASU 2017-07 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Entities are required to use a retrospective transition method to adopt the requirement for separate income statement presentation of the service cost and other components, and a prospective transition method to adopt the requirement to limit the capitalization of benefit cost to the service component. The Company adopted ASU 2017-07 beginning July 1, 2018 using a retrospective transition method. See the impact of the adoption of ASU 2017-07 in the table below. In January 2017, the FASB issued ASU 2017-01 to clarify the definition of a business. The objective of adding the guidance is 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, and should be applied prospectively. The Company adopted ASU 2017-01 beginning July 1, 2018. The Company have applied the new guidance to all applicable transactions after the adoption date. In November 2016, the FASB issued ASU 2016-18 that requires a statement of cash flows to 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. An entity with a material balance of restricted cash and restricted cash equivalents must disclose information about the nature of the restrictions. 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. The Company adopted ASU 2016-18 beginning July 1, 2018. Adoption of ASU 2016-18 did not have a material effect on the results of operations, financial position or cash flows of the Company. In August 2016, the FASB issued ASU 2016-15 to address certain issues where diversity in practice was identified in classifying certain cash receipts and cash payments based on the guidance in ASC 230, “Statement of Cash Flows” (“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. The Company adopted ASU 2016-15 beginning July 1, 2018. Adoption of ASU 2016-15 did not have a material effect on the results of operations, financial position or cash flows of the Company. F - 18 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) In May 2014, the FASB issued ASU 2014-09 to amend the 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. ASU 2014-09 replaces most existing revenue recognition guidance in GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In 2015 and 2016, the FASB issued additional ASUs related to ASU 2014-09 that delayed the effective date of the guidance and clarified various aspects of the new revenue guidance, including principal versus agent considerations, identification of performance obligations, and accounting for licenses, and included other improvements and practical expedients. ASU 2014-09 is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted ASU 2014-09 beginning July 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. Adoption of ASU 2014-09 did not have a material effect on the results of operations, financial position or cash flows of the Company. The Company has included expanded disclosures in this report related to revenue recognition in order to comply with ASU 2014-09. See Note 23. Adoption of ASU 2017-07 The Company adopted ASU 2017-07 on July 1, 2018 using the retrospective transition method. The adoption of this accounting standard resulted in a change in certain previously reported amounts, as follows: For the Year Ended June 30, 2018 (In thousands) Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Total other (expense) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ As Previously Reported ASU 2017-07 Adjustments As Adjusted 399,502 207,042 154,539 47,863 205,918 $ $ $ $ $ 1,124 $ (3,177) $ $ 1,071 (2,092) $ (347) $ $ 347 (1,148) $ $ 1,566 $ 418 (71) $ (6,580) $ $ 6,651 71 $ 399,155 207,389 153,391 49,429 206,336 1,053 (9,757) 7,722 (2,021) (In thousands) Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other (expense) income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . For the Year Ended June 30, 2017 As Previously Reported $ $ $ $ $ $ $ $ $ $ 354,622 $ 186,878 $ 133,329 $ 42,933 $ 147,700 39,178 $ (2,185) $ (1,201) $ (1,812) $ ASU 2017-07 Adjustments As Adjusted $ 354,649 27 (27) $ 186,851 $ 133,534 205 $ 12 42,945 $ 147,917 217 (244) $ 38,934 (8,601) (6,416) $ 5,459 $ 6,660 (1,568) $ 244 New Accounting Pronouncements F - 19 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) In August 2018, the FASB issued ASU No. 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance in ASU 2018-15 is effective for public business entities for annual periods beginning after December 15, 2019, and interim periods within those fiscal years, and is effective for the Company beginning July 1, 2020. Early adoption is permitted, including adoption in any interim period. The Company is currently evaluating the impact ASU 2018-15 will have on its consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans— General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans” (“ASU 2018-14”). ASU 2018-14 modifies disclosure of other accounting and reporting requirements related to single- employer defined benefit pension or other postretirement benefit plans. The guidance in ASU 2018-14 is effective for public business entities for annual periods beginning after December 15, 2020, and is effective for the Company beginning July 1, 2021. Early adoption is permitted. The Company is currently evaluating the impact ASU 2018-14 will have on its consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework— Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 improves the effectiveness of fair value measurement disclosures and modifies the disclosure requirements on fair value measurements, including the consideration of costs and benefits. The guidance in ASU 2018-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years, and is effective for the Company beginning July 1, 2020. Early adoption is permitted. The Company is currently evaluating the impact ASU 2018-13 will have on its consolidated financial statements. 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 will adopt ASU 2018-02 beginning July 1, 2019. The adoption of ASU 2018-02 will not 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 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 lease payments and a related right-of-use asset. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” and ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements,” which provide additional guidance to consider when implementing ASU 2016-02. For public business entities, ASU 2016-02 is effective for financial statements issued for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early application is permitted. The Company adopted the standard effective July 1, 2019, utilizing the modified retrospective transition method. The Company has completed its compilation of all leases and has preliminary concluded that the impact of the adoption of ASU 2016-02 is expected to be a recognition of right-of-use assets and lease liabilities of between $14 million and $19 million on its Consolidated Balance Sheets. The adoption is not expected to have a material impact on its Consolidated Statements of Operations or on other consolidated financial statements. The Company elected certain practical expedients provided in the guidance which allows it not to reassess whether F - 20 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) existing contracts are or contain leases, to not reassess the lease classification of any existing leases, to not reassess initial direct costs for any existing leases, and to not separate lease components for certain asset classes. The Company also made an accounting policy to exclude leases with a term of 12 months or less. F - 21 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 3. Acquisitions 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 $1.0 million and was recorded in other current liabilities on the Company’s consolidated balance sheet at June 30, 2019 and June 30, 2018. Total earnout amount of $1.0 million was paid in July 2019. 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 2019 and 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 Company allocated $7.9 million of consideration transferred to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the $7.6 million remaining unallocated amount recorded as goodwill. The purchase price allocation is final. 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, and issued to Boyd Coffee 14,700 shares of the Company’s Series A Preferred Stock Convertible Participating Cumulative Perpetual Preferred Stock, par value $1.00 per share (“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. 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, which amount was recorded on the Company's consolidated balance sheet in "Other long-term liabilities" at June 30, 2018. On January 8, 2019, the Seller notified the Company of the assessment of $0.5 million in withdrawal liability against the Seller, which the Company timely paid from the Multiemployer Plan Holdback during the twelve months ended June 30, 2019. The Company has applied the remaining amount of the Multiemployer Plan Holdback of $0.5 million towards satisfaction of the Seller's post-closing net working capital deficiency under the Asset Purchase Agreement as of March 31, 2019 as described below. 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 F - 22 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) date, with the remaining unallocated amount recorded as goodwill. The fair value of consideration transferred reflected the Company’s best estimate of the post-closing net working capital adjustment of $8.1 million due to the Company at June 30, 2018 when the purchase price allocation was finalized. On January 23, 2019, PricewaterhouseCoopers LLP (“PwC”), as the “Independent Expert” designated under the Asset Purchase Agreement to resolve working capital disputes, issued its determination letter with respect to adjustments to working capital. The post-closing net working capital adjustment, as determined by the Independent Expert, was $6.3 million due to the Company. During the year ended June 30, 2019 the Company satisfied the $6.3 million amount by applying the remaining amount of the Multiemployer Plan Holdback of $0.5 million, retaining all of the Holdback Cash Amount of $3.2 million and canceling 4,630 shares of Holdback Stock with a fair value of $2.3 million based on the stated value and deemed conversion price under the Asset Purchase Agreement. The Company has retained the remaining 1,670 shares of the Holdback Stock pending satisfaction of certain indemnification claims against the Seller following which the remaining Holdback Stock, if any, will be released to the Seller. 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 10 ______________ (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 F - 23 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) assets is 10.0 years. 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. 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. 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, 2019 and 2018: (In thousands) For the Year Ended June 30, 2018 Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 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, 2019, 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 For the Year Ended June 30, 2018 628,526 $ (642) $ $ $ 2017 636,969 36,969 The unaudited pro forma financial results for the Company are based on estimates and assumptions, which the Company believes are reasonable. These results are not necessarily indicative of the Company’s consolidated statements of operations in future periods or the results that actually would have been realized had the Company acquired the Boyd Business during the periods presented. 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 $3.7 million and $25.4 million in the fiscal year ended June 30, 2019 and 2018, respectively. The Company has incurred acquisition and integration costs related to the Boyd Business acquisition, consisting primarily of inventory mark downs, legal expenses, Boyd Coffee plant decommissioning and equipment relocation costs, and one-time payroll and benefit expenses, of $6.1 million and $7.6 million during the fiscal years ended June 30, 2019 and 2018, respectively, which are included in operating expenses in the Company's consolidated statements of operations. F - 24 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 4. 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 Northlake facility. Approximately 350 positions were impacted as a result of the Torrance Facility closure. The Company’s decision resulted from a comprehensive review of alternatives designed to make the Company more competitive and better positioned to capitalize on growth opportunities. During fiscal year ended June 30, 2019, the Company incurred $3.4 million in restructuring and other transition expenses associated with the assessment by the Western Conference of Teamsters Pension Trust (the “WCT Pension Trust”) of the Company’s share of the Western Conference of Teamsters Pension Plan (the “WCTPP”) unfunded benefits due to the Company’s partial withdrawal from the WCTPP as a result of employment actions taken by the Company in 2016 in connection with the Corporate Relocation Plan, of which the Company has paid $1.9 million and has outstanding contractual obligations of $1.5 million as of June 30, 2019. Since the adoption of the Corporate Relocation Plan through June 30, 2019, the Company has recognized a total of $35.2 million in aggregate costs including $17.4 million in employee retention and separation benefits, $3.4 million in pension withdrawal liability, $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 and $7.4 million in other related costs. The Company also recognized from inception through June 30, 2019 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. 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 had 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 recognized approximately $4.5 million of pre-tax restructuring charges by the end of fiscal 2019 consisting of approximately $2.3 million in employee-related costs and contractual termination payments, including severance, prorated bonuses for bonus eligible employees and outplacement services, and $2.2 million in other related costs, including legal, recruiting, consulting, other professional services, and travel. The following table sets forth the activity in liabilities associated with the DSD Restructuring Plan from the time of adoption through the fiscal year ended June 30, 2019: (In thousands) Employee-related costs Other Total Balances as of June 30, 2017 $ — $ — — $ $ Additions Payments Non-Cash Settled Adjustments Balances as of June 30, 2019 29 — 29 — $ (31) (31) $ 2,634 1,949 4,583 $ $ 2,605 1,918 4,523 $ $ — $ — — $ F - 25 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) The following table sets forth the expenses associated with the DSD Restructuring Plan for the fiscal year ended June 30, 2019, 2018 and 2017: (In thousands) Employee-related costs Other Total Note 5. Sales of Assets Sale of Spice Assets Year Ended June 30, 2019 2018 2017 $ $ 1,487 284 1,771 $ $ 612 429 1,041 $ $ 506 1,205 1,711 In order to focus on its core products, on December 8, 2015, the Company completed the sale of the Spice Assets to Harris. The sale included 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 was 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 was recognized when earned and when realization was assured beyond a reasonable doubt. The Company recognized $0.6 million, $0.8 million and $1.0 million in earnout during the fiscal years ended June 30, 2019, 2018 and 2017, respectively, 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 did not represent a strategic shift for the Company and did not have a material impact on the Company's results of operations because the Company continues to sell a complete portfolio of spice and other culinary products purchased from Harris under a supply agreement to its DSD customers. 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. F - 26 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 6. 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, 2019 and 2018: (In thousands) Derivative instruments designated as cash flow hedges: Long coffee pounds Derivative instruments not designated as cash flow hedges: Long coffee pounds Total As of June 30, 2019 2018 42,113 40,913 6,070 48,183 2,546 43,459 Coffee-related derivative instruments designated as cash flow hedges outstanding as of June 30, 2019 will expire within 18 months. At June 30, 2019 and 2018 approximately 87% and 94%, respectively, of the Company's outstanding coffee-related derivative instruments were designated as cash flow hedges. Interest Rate Swap Derivative Instruments Pursuant to an International Swap Dealers Association, Inc. Master Agreement (“ISDA”) effective March 20, 2019, the Company on March 27, 2019, entered into a swap transaction utilizing a notional amount of $80.0 million, with an effective date of April 11, 2019 and a maturity date of October 11, 2023 (the “Rate Swap”). The Rate Swap is intended to manage the Company’s interest rate risk on its floating-rate indebtedness under the Company’s revolving credit facility. Under the terms of the Rate Swap, the Company receives 1-month LIBOR, subject to a 0% floor, and makes payments based on a fixed rate of 2.1975%. The Company’s obligations under the ISDA are secured by the collateral which secures the loans under the revolving credit facility on a pari passu and pro rata basis with the principal of such loans. The Company has designated the Rate Swap derivative instruments as a cash flow hedge. F - 27 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: Coffee-related derivative instruments(1) Long-term derivative assets: Coffee-related derivative instruments(2) Short-term derivative liabilities: Coffee-related derivative instruments(3) Interest rate swap derivative instruments(3) Long-term derivative liabilities: Coffee-related derivative instruments(4) Interest rate swap derivative instruments(4) Derivative Instruments Designated as Cash Flow Hedges Derivative Instruments Not Designated as Accounting Hedges As of June 30, As of June 30, 2019 2018 2019 2018 — $ 611 $ $ $ $ $ $ 1,254 671 1,114 246 13 1,599 $ $ $ $ $ $ — $ 3,081 $ — $ 386 $ — $ $ $ $ 3 114 — $ — $ — $ — — 219 — — — ________________ (1) Included in “Short-term derivative assets” on the Company's consolidated balance sheets. (2) Included in “Long-term derivative assets” on the Company's consolidated balance sheets. (3) Included in “Short-term liabilities” on the Company's consolidated balance sheets. (4) Included in “Other long-term liabilities” on the Company's consolidated balance sheets. Statements of Operations The following table presents pretax net gains and losses for the Company's derivative instruments designated as cash flow hedges, as recognized in “AOCI,” “Cost of goods sold” and “Other, net”. (In thousands) Net losses recognized in AOCI - Interest rate swap . . . . . . . . Net gains recognized from AOCI to earnings - Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net losses recognized in AOCI - Coffee-related . . . . . . . . . . Net losses recognized in earnings - Coffee-related . . . . . . . . Net gains (losses) recognized in earnings (ineffective portion) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended June 30, 2019 2018 2017 $ (1,791) $ $ 46 $ — $ — $ — — Financial Statement Classification AOCI Interest Expense AOCI $ (7,407) $ (8,420) $ (4,746) $ (9,242) $ (1,179) $ (835) Costs of goods sold $ — $ 48 $ (456) Other, net For the fiscal years ended June 30, 2019, 2018 and 2017, 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, 2019, 2018 and 2017. 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. F - 28 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 on derivative instruments and investments(1) . . . . . . . Non-operating pension and other postretirement benefit plans cost(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended June 30, 2019 2018 2017 $ (2,252) $ — (2,252) 6,315 103 (469) $ 7 (462) 6,651 1,533 $ 4,166 $ 7,722 $ (1,812) 286 (1,526) 6,660 325 5,459 ___________ (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, 2019, 2018 and 2017. (2) Presented in accordance with implementation of ASU 2017-07. 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, under certain coffee derivative agreements, the Company maintains accounts with its counterparties to facilitate financial derivative transactions in support of its risk management activities. The following table presents the Company’s net exposure from its offsetting derivative asset and liability positions, as well as cash collateral on deposit with its counterparty as of the reporting dates indicated: (In thousands) June 30, 2019 June 30, 2018 Cash Flow Hedges Derivative Assets. . . . . Derivative Liabilities . . Derivative Assets. . . . . Derivative Liabilities . . $ $ $ Gross Amount Reported on Balance Sheet 2,539 $ $ $ Netting Adjustments Cash Collateral Posted (698) $ (698) $ — $ — $ — $ — $ — $ — $ Net Exposure 1,841 2,388 — 3,686 3,086 — $ 3,686 $ Changes in the fair value of the Company’s coffee-related derivative instruments designated as cash flow hedges are deferred in AOCI and subsequently 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, 2019, $7.4 million of net losses on coffee-related derivative instruments designated as cash flow hedge 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, 2019. Changes in the fair value of the Company's interest rate swap derivative instruments designated as a cash flow hedge are deferred in AOCI and subsequently reclassified into interest expense in the period or periods when the hedged transaction affects earnings or when it is probable that the hedged forecasted transaction will not occur by the end of the originally specified time period. As of June 30, 2019, $0.2 million of net losses on interest rate swap derivative instruments designated as a cash flow hedge are expected to be reclassified into interest expense within the next twelve months assuming no significant changes in the LIBOR rates. Due to LIBOR volatility, actual gains or losses realized within the next twelve months will likely differ from these values. F - 29 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 7. 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, 2019 and 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 $ 7 7 — $ 286 1,909 (1,623) Note 8. 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 As of June 30, 2019 Derivative instruments designated as cash flow hedges: Coffee-related derivative assets(1) Coffee-related derivative liabilities(1) Interest rate swap derivative liabilities(2) Derivative instruments not designated as accounting hedges: Coffee-related derivative assets(1) Coffee-related derivative liabilities(1) (In thousands) As of 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) $ $ $ $ $ $ $ 1,925 1,127 1,845 614 114 Total 3,467 219 $ $ $ $ $ $ $ — $ — $ — $ — $ — $ 1,925 1,127 1,845 614 114 Level 1 Level 2 — $ 3,467 — 219 $ $ $ $ $ $ $ — — — — — — — Level 3 ____________________ (1) The Company's coffee-related derivative instruments are traded over-the-counter and, therefore, classified as Level 2. (2) The Company's interest rate swap derivative instrument are model-derived valuations with directly or indirectly observable significant inputs such as interest rate and, therefore, classified as Level 2. During the fiscal years ended June 30, 2019 and 2018, there were no transfers between the levels. F - 30 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 9. Accounts Receivable, Net (In thousands) Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other receivables(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ As of June 30, 2019 2018 53,593 2,886 (1,324) 55,155 $ $ 54,547 4,446 (495) 58,498 __________ (1)Includes vendor rebates and other non-trade receivables. Allowance for doubtful accounts: (In thousands) Balance at June 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Provision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Write-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at June 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Provision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Write-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at June 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Provision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Write-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (714) (325) 318 (721) (909) 1,530 (395) (495) (1,761) 533 399 (1,324) Note 10. Inventories (In thousands) Coffee Processed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unprocessed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tea and culinary products Processed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unprocessed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Coffee brewing equipment parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ $ $ $ As of June 30, 2019 2018 25,769 33,259 59,028 21,767 74 21,841 7,041 87,910 $ $ $ $ $ $ 26,882 37,097 63,979 32,406 1,161 33,567 6,885 104,431 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. F - 31 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 11. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As of June 30, 2019 2018 $ 107,915 $ 248,539 938 27,666 14,035 $ $ 399,093 (225,826) 16,191 108,590 231,581 1,408 24,569 13,721 379,869 (209,498) 16,218 186,589 Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 189,458 $ Capital leases consisted mainly of vehicle leases at June 30, 2019 and 2018. Depreciation expense, which includes amortization expense recorded for assets under capital leases, was $31.1 million, $30.5 million, and $23.0 million, for the years ended June 30, 2019, 2018, and 2017, respectively. The Company capitalized coffee brewing equipment (included in machinery and equipment) in the amounts of $14.9 million and $12.1 million in fiscal 2019 and 2018, respectively. Depreciation expense related to the capitalized coffee brewing equipment reported as cost of goods sold was $9.1 million, $8.6 million and $9.1 million in fiscal 2019, 2018 and 2017, respectively. Maintenance and repairs to property, plant and equipment charged to expense for the years ended June 30, 2019, 2018, and 2017 were $10.3 million, $9.6 million and $8.0 million, respectively. Northlake Facility Costs In fiscal 2017, the Company completed the construction of, and exercised the purchase option to acquire, the Northlake facility. The Company commenced distribution activities at the Northlake 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 Northlake facility in the fourth quarter of fiscal 2017. The Northlake facility received Safe Quality Food (SQF) certification in the third quarter of fiscal 2018. As of completion of the Northlake facility construction, 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 construction of the Northlake facility. Northlake Facility Expansion In the third quarter of fiscal 2018, the Company commenced a project to expand its production lines (the “Expansion Project”) in the Northlake facility, including expanding capacity to support the transition of acquired business. The Expansion Project 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 facility in order to accommodate the production line expansion, and to provide power to that expanded production capability. As of the fiscal year ended June 30, 2019, the Company has paid a total of $24.9 million associated with the expansion project. F - 32 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 12. Goodwill and Intangible Assets The following is a summary of changes in the carrying value of goodwill (in thousands): Balance at June 30, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Final Purchase Price Allocation Adjustment (West Coast Coffee) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additions (Boyd Coffee) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at June 30, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at June 30, 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ 10,996 (167) 25,395 36,224 — 36,224 There was no impairment of goodwill recorded during the years ended June 30, 2019, 2018 and 2017. The following is a summary of the Company’s amortized and unamortized intangible assets other than goodwill: Weighted Average Amortization Period as of June 30, 2019 As of June 30, 2019 2018 Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net (In thousands) Amortized intangible assets: Customer relationships . . . . . . . . . Non-compete agreements . . . . . . . Recipes . . . . . . . . . . . . . . . . . . . . . Trade name/brand name . . . . . . . . Total amortized intangible assets 7.7 2.7 4.3 5.3 Unamortized intangible assets: Trademarks, trade names and brand name with indefinite lives . . Total unamortized intangible assets. . . . . . . . . . . . . . . . . . . . . . Total intangible assets . . . . . . $ 33,003 $ (15,291) $ 17,712 $ 33,003 $ (12,903) $ 20,100 220 930 510 (122) (354) (346) 98 576 164 220 930 510 (81) (221) (271) 139 709 239 34,663 $ (16,113) $ 18,550 $ 34,663 $ (13,476) $ 21,187 10,328 10,328 44,991 $ $ $ — $ 10,328 — $ (16,113) $ 10,328 28,878 $ $ $ 10,328 10,328 44,991 $ $ $ — $ 10,328 — $ (13,476) $ 10,328 31,515 $ $ $ $ In fiscal 2018, the Company recorded an impairment charge related to indefinite-lived intangible assets and other intangible assets of $3.5 million and $0.3 million, respectively. There were no indefinite-lived intangible asset and other intangible assets impairment charges recorded in the fiscal years ended June 30, 2019 or 2017. Amortization expense for the years ended June 30, 2019, 2018, and 2017 were $2.6 million, $2.4 million, and $0.7 million, respectively. At June 30, 2019, future annual amortization of finite-lived intangible assets for the years 2020 through 2024 and thereafter is estimated to be (in thousands): For the fiscal year ending: June 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 30, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 30, 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June 30, 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 2,390 2,390 2,376 2,356 2,268 6,770 18,550 F - 33 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 13. 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. As of June 30, 2019, 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). Effective December 1, 2018 the Company amended and terminated the Farmer Bros. Co. Pension Plan for Salaried Employees (the “Farmer Bros. Plan”), a defined benefit pension plan for Company employees hired prior to January 1, 2010 who were not covered under a collective bargaining agreement. The Company previously amended the Farmer Bros. Plan, freezing the benefit for all participants effective June 30, 2011. Immediately prior to the termination of the Farmer Bros. Plan, the Company spun off the benefit liability and obligations, and all allocable assets for all retirement plan benefits of certain active employees with accrued benefits in excess of $25,000, retirees and beneficiaries currently receiving benefit payments under the Farmer Bros. Plan, and former employees who have deferred vested benefits under the Farmer Bros. Plan, to the Brewmatic Plan. Upon termination of the Farmer Bros. Plan, all remaining plan participants elected to receive a distribution of his/her entire accrued benefit under the Farmer Bros. Plan in a single cash lump sum or an individual insurance company annuity contract, in either case, funded directly by Farmer Bros. Plan assets. Termination of the Farmer Bros. Plan triggered re-measurement and settlement of the Farmer Bros. Plan and re-measurement of the Brewmatic Plan. As a result of the distributions to the remaining plan participants of the Farmer Bros. Plan, the Company recognized a non-cash pension settlement charge of $10.9 million for the year ended June 30, 2019. F - 34 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Obligations and Funded Status ($ in thousands) 2019 2018 2019 2018 2019 2018 2019 2018 Farmer Bros. Plan As of June 30, Brewmatic Plan As of June 30, Hourly Employees’ Plan As of June 30, Total Change in projected benefit obligation Benefit obligation at the beginning of the year . . . . . . . . . . . . . . . . . . . . . . $ 137,175 $ 146,291 $ Interest cost . . . . . . . . . . . . . . . . Actuarial (gain) loss. . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . Pension settlement . . . . . . . . . . . 2,722 (1,571) (3,574) (3,162) Other - Plan merger . . . . . . . . . . $ (131,590) 5,417 (5,956) (8,577) — — 3,724 2,339 8,482 (3,097) (21,286) 131,590 $ 4,079 $ 4,040 $ 4,329 $ 144,939 $ 154,699 149 (227) (277) — — 161 349 (75) — — 163 (370) (82) — — 5,222 7,260 (6,746) (24,448) — 5,729 (6,553) (8,936) — — Projected benefit obligation at the end of the year . . . . . . . . . . . . . . . . . $ Change in plan assets Fair value of plan assets at the — $ 137,175 $ 121,752 $ 3,724 $ 4,475 $ 4,040 $ 126,227 $ 144,939 beginning of the year . . . . . . . . . . . $ 97,211 $ 97,304 $ Actual return on plan assets . . . . Employer contributions . . . . . . . Benefits paid . . . . . . . . . . . . . . . Pension settlement . . . . . . . . . . . (6,236) 1,525 (3,574) (3,162) Other - Plan merger . . . . . . . . . . (85,764) 5,874 2,610 (8,577) — — 3,719 9,325 1,800 (3,097) (22,100) 85,764 $ 3,115 $ 3,629 $ 2,999 $ 104,559 $ 103,418 201 680 (277) — — 224 — (75) — — 198 514 (82) — — 3,313 3,325 (6,746) (25,262) — 6,273 3,804 (8,936) — — Fair value of plan assets at the end of the year . . . . . . . . . . . . . . . . . . . . . . Funded status at end of year (underfunded) overfunded Amounts recognized in consolidated balance sheets $ $ — $ 97,211 — $ (39,964) $ $ 75,411 $ 3,719 $ 3,778 $ 3,629 (46,341) $ (5) $ (697) $ (411) $ $ 79,189 $ 104,559 (47,038) $ (40,380) Non-current liabilities . . . . . . . . — (39,964) (46,341) Total . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ (39,964) $ (46,341) $ (5) (5) (697) (411) (47,038) (40,380) $ (697) $ (411) $ (47,038) $ (40,380) Amounts recognized in AOCI Net loss. . . . . . . . . . . . . . . . . . . . — 51,079 50,080 1,788 565 218 50,645 53,085 Total AOCI (not adjusted for applicable tax) . . . . . . . . . . . . . . $ — $ 51,079 $ 50,080 $ 1,788 $ 565 $ 218 $ 50,645 $ 53,085 Weighted average assumptions used to determine benefit obligations Discount rate . . . . . . . . . . . . . . . 4.10% 4.05% 3.45% 4.05% 3.45% 4.05% 4.05% 4.05% Rate of compensation increase. . N/A N/A N/A N/A N/A N/A N/A N/A F - 35 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) 2019 2018 2019 2018 2019 2018 2019 2018 Farmer Bros. Plan June 30, Brewmatic Plan June 30, Hourly Employees’ Plan June 30, Total Components of net periodic benefit cost Interest cost . . . . . . . . . . . . . . . 2,722 5,417 2,339 Expected return on plan assets. (2,767) (5,490) (2,257) Amortization of net loss. . . . . . Pension settlement charge . . . . 710 1,356 1,588 — 796 9,586 Net periodic benefit cost . . . . . $ 2,021 $ 1,515 $10,464 $ 149 (161) 80 — 68 Other changes recognized in OCI Net loss . . . . . . . . . . . . . . . . . . $ 7,433 $ (6,340) $ 1,413 $ (267) Prior service cost (credit). . . . . Amortization of net loss. . . . . . — (710) — (1,588) Pension settlement charge . . . . (1,356) Allocation of net Loss - Plan merger . . . . . . . . . . . . . . . . . (56,446) Net loss due to annuity purchase . . . . . . . . . . . . . . . . — — — — — (796) (9,586) 56,446 814 — (80) — — — $ $ 161 (222) — — 163 (173) 6 — 5,222 (5,246) 1,506 10,942 5,729 (5,824) 1,674 — (61) $ (4) $ 12,424 $ 1,579 347 $ (394) $ 9,193 $ (7,001) — — — — — — (6) — — (1,506) (1,674) — (10,942) — — — 814 — — — Total recognized in OCI. . . . . . $(51,079) $ (7,928) $48,291 $ (347) $ 347 $ (400) $ (2,441) $ (8,675) Total recognized in net periodic benefit cost and OCI . . . . . . . . . . . . . . . . . . . Weighted-average assumptions used to determine net periodic benefit cost $(49,058) $ (6,413) $58,755 $ (279) $ 286 $ (404) $ 9,983 $ (7,096) Discount rate . . . . . . . . . . . . . . 4.05% 3.80% 4.10% 3.80% 4.05% 3.80% 4.05% 3.80% Expected long-term return on plan assets . . . . . . . . . . . . . . Rate of compensation increase —% N/A 6.75% N/A 6.75% N/A 6.75% N/A 6.75% 6.75% N/A N/A 6.75% N/A 6.75% 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) 2018. 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 2018 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. F - 36 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, Total ($ in thousands) 2019 2018 2019 2018 2019 2018 2019 2018 Comparison of obligations to plan assets Projected benefit obligation . . . . . . . . . . . Accumulated benefit obligation . . . . . . . . . . . Fair value of plan assets at measurement date . . Plan assets by category Equity securities. . . . . . . . Debt securities . . . . . . . . . Real estate . . . . . . . . . . . . $ $ $ $ — $ 137,175 $ 121,752 $ 3,724 $ 4,475 $ 4,040 $ 126,227 $ 144,939 — $ 137,175 $ 121,752 $ 3,724 $ 4,475 $ 4,040 $ 126,227 $ 144,939 — $ 97,211 $ 75,411 $ 3,719 $ 3,778 $ 3,629 $ 79,189 $ 104,559 — $ 63,547 $ 48,464 $ 2,431 $ 2,440 $ 2,341 $ 50,904 $ 68,319 — — 27,608 6,056 22,461 4,486 1,056 232 1,100 238 1,065 223 23,561 4,724 29,729 6,511 Total $ — $ 97,211 $ 75,411 $ 3,719 $ 3,778 $ 3,629 $ 79,189 $ 104,559 Plan assets by category . . . . . Equity securities. . . . . . . . Debt securities . . . . . . . . . Real estate . . . . . . . . . . . . Total . . . . . . . . . . . . . —% —% —% —% 66% 28% 6% 64% 30% 6% 66% 28% 6% 65% 29% 6% 65% 29% 6% 100% 100% 100% 100% 100% 64% 30% 6% 100% 65% 29% 6% 100% Fair values of plan assets were as follows: (In thousands) Brewmatic Plan Hourly Employees’ Plan (In thousands) Farmer Bros. Plan Brewmatic Plan Hourly Employees’ Plan As of June 30, 2019 Total Level 1 Level 2 Level 3 $ $ $ $ $ 75,411 3,778 Total 97,211 3,719 3,629 $ $ $ $ $ — $ — $ — $ — $ As of June 30, 2018 Level 1 Level 2 Level 3 — $ — $ — $ — $ — $ — $ Investments measured at NAV 75,411 — $ — $ 3,778 Investments measured at NAV 97,211 3,719 3,629 — $ — $ — $ The following is the target asset allocation for the Company's single employer pension plans— Brewmatic Plan and Hourly Employees' Plan—for fiscal 2020: U.S. large cap equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. small cap equity securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal 2020 37.0% 4.6% 22.4% 30.0% 6.0% 100.0% F - 37 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Estimated Amounts in OCI Expected To Be Recognized In fiscal 2020, the Company expects to recognize net periodic benefit costs of $1.4 million for the Brewmatic Plan and recognize net periodic benefit credit of $75,000 for the Hourly Employees’ Plan. Estimated Future Contributions and Refunds In fiscal 2020, the Company expects to contribute $4.0 million to the Brewmatic Plan and does not expect to contribute to the Hourly Employees’ Plan. The Company is not aware of any refunds expected from single employer pension plans. Estimated Future Benefit Payments The following benefit payments are expected to be paid over the next 10 fiscal years: (In thousands) Year Ending: June 30, 2020 June 30, 2021 June 30, 2022 June 30, 2023 June 30, 2024 June 30, 2025 to June 30, 2029 Brewmatic Plan Hourly Employees’ Plan $ $ $ $ $ $ 6,720 6,550 6,770 6,940 7,060 35,450 $ $ $ $ $ $ 130 150 160 180 190 1,100 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 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 constituted a partial withdrawal from the WCTPP. The Company agreed with the WCT Pension Trust’s assessment of pension withdrawal liability in the amount of $3.4 million, including interest, which is payable in 17 monthly installments of $190,507 followed by a final monthly installment of $153,822, commencing September 10, 2018. At June 30, 2019 the Company had $1.5 million on its consolidated balance sheet relating to this obligation in “Accrued payroll expenses.” 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. In December 2018, the parties agreed to settle the Company’s remaining withdrawal liability to the Local 807 Pension Fund for a lump sum cash settlement payment of $3.0 million plus two remaining installment payments of $91,000 due on or before October 1, 2034 and on or before January 1, 2035. At June 30, 2019, the Company has paid the Local 807 Pension Fund $3.0 million and has accrued $0.2 million within “Accrued pension liabilities” on the Company’s condensed consolidated balance sheet. F - 38 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) 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. Contributions made by the Company to the multiemployer pension plans are as follows: (In thousands) Year Ended: June 30, 2019 June 30, 2018 June 30, 2017 WCTPP(1)(2)(3) All Other Plans(4) $ $ $ 3,634 1,605 2,114 $ $ $ 39 35 39 ____________ (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, 2018. (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. 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 expires 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, 2019, 2018 and 2017 were $5.2 million, $4.8 million and $5.3 million, respectively. The Company expects to contribute an aggregate of $5.8 million towards multiemployer plans other than pension plans in fiscal 2020. F - 39 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) 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. The Company matching contribution for the calendar years 2019, 2018 and 2017, was 50% of an employee's annual contribution to the 401(k) Plan, up to 6% of the employee's eligible income. The Company recorded matching contributions of $2.2 million, $2.0 million and $1.6 million in operating expenses for the fiscal years ended June 30, 2019, 2018 and 2017, respectively. Effective January 1, 2019, the Company amended and restated the 401(k) Plan to, among other things, provide for: (i) an annual safe harbor non-elective contribution of shares of the Company’s common stock equal to 4% of each eligible participant’s annual plan compensation; (ii) an elective matching contribution for non-collectively bargained employees and certain union- represented employees equal to 100% of the first 3% of such eligible participant’s tax-deferred contributions to the 401(k) Plan; and (iii) profit-sharing contributions at the Company’s discretion. Participants are immediately vested in their contributions, the safe harbor non-elective contributions, the employer’s elective matching contributions, and the employer’s discretionary contributions. For the fiscal year ended June 30, 2019, the Company contributed a total of 90,105 shares of the Company’s common stock with a value of $1.6 million to eligible participants’ annual plan compensation. In July 2019, 52,534 shares of the 90,105 shares were issued. Postretirement Benefits The Company sponsors a postretirement defined benefit plan that covers qualified non-union retirees and certain qualified union retirees (“Retiree Medical Plan”). The plan provides medical, dental and vision coverage for retirees under age 65 and medical coverage only for retirees age 65 and above. Under this postretirement plan, the Company’s contributions toward premiums for retiree medical, dental and vision coverage for participants and dependents are scaled based on length of service, with greater Company contributions for retirees with greater length of service, subject to a maximum monthly Company contribution. The Company's retiree medical, dental and vision plan is unfunded, and its liability was calculated using an assumed discount rate of 3.6% at June 30, 2019. The Company projects an initial medical trend rate of 8.1% in fiscal 2020, ultimately reducing to 4.5% in 10 years. The Company also provides a postretirement death benefit (“Death Benefit”) to certain of its employees and retirees, subject, in the case of current employees, to continued employment with the Company until retirement and certain other conditions related to the manner of employment termination and manner of death. The Company records the actuarially determined liability for the present value of the postretirement death benefit. The Company has purchased life insurance policies to fund the postretirement death benefit wherein the Company owns the policy but the postretirement death benefit is paid to the employee's or retiree's beneficiary. The Company records an asset for the fair value of the life insurance policies which equates to the cash surrender value of the policies. F - 40 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Retiree Medical Plan and Death Benefit The following table shows the components of net periodic postretirement benefit cost for the Retiree Medical Plan and Death Benefit for the fiscal years ended June 30, 2019, 2018 and 2017. Net periodic postretirement benefit cost for fiscal 2019 was based on employee census information as of June 30, 2019. (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, 2019 2018 2017 530 $ 887 (834) (1,757) (1,174) $ 609 $ 835 (841) (1,757) (1,154) $ 760 829 (630) (1,757) (798) 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, 2019 Annual Amortization $ $ (41) $ (6,895) (6,936) $ 41 1,527 1,568 Years Remaining 0.2 4.5 ($ in thousands) Amortization of Net (Gain) Loss: Net (gain) loss as of July 1 Net (gain) loss subject to amortization Corridor (10% of greater of APBO or assets) Net (gain) loss in excess of corridor Amortization years Retiree Medical Plan Year Ended June 30, Death Benefit Year Ended June 30, 2019 2018 2019 2018 $ $ (7,039) $ (7,039) 1,490 (5,549) $ 8.6 (9,206) $ (9,206) 1,280 (7,926) $ 8.9 $ $ 1,878 1,878 919 2,797 6.5 1,201 1,201 (848) 353 6.4 F - 41 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 gains (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 gains (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 and OCI . . . . . . . . . . . . . . . . . . . . . . . $ As of June 30, 2019 2018 21,283 530 887 605 2,010 (1,223) 24,092 $ $ 20,680 609 835 699 (70) (1,470) 21,283 Year Ended June 30, 2019 2018 — $ 618 605 (1,223) — $ 24,092 (24,092) $ — 771 699 (1,470) — 21,283 (21,283) June 30, 2019 2018 (1,068) $ (23,024) (24,092) $ (810) (20,473) (21,283) Year Ended June 30, 2019 2018 (5,160) $ (6,936) (12,096) $ (8,005) (8,693) (16,698) Year Ended June 30, 2019 2018 2,010 835 1,757 4,602 (1,174) 3,428 $ $ (70) 840 1,757 2,527 (1,154) 1,373 The estimated net gain and prior service credit that will be amortized from AOCI into net periodic benefit cost in fiscal 2020 are $0.6 million and $1.6 million, respectively. F - 42 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) (In thousands) Estimated Future Benefit Payments: Year Ending: June 30, 2020 June 30, 2021 June 30, 2022 June 30, 2023 June 30, 2024 June 30, 2025 to June 30, 2029 Expected Contributions: June 30, 2020 Sensitivity in Fiscal 2020 Results $ $ $ $ $ $ $ 1,087 1,138 1,173 1,220 1,248 7,116 1,087 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 2020: (In thousands) Effect on total of service and interest cost components . . . . . . . . . . . . . . . . . . . . . . . . . Effect on accumulated postretirement benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . $ $ 1-Percentage Point Increase Decrease 67 814 $ $ (58) (745) F - 43 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 14. Revolving Credit Facility On November 6, 2018, the Company entered into a new $150.0 million senior secured revolving credit facility (the “New Revolving Facility”) with Bank of America, N.A, Citibank, N.A., JPMorgan Chase Bank, N.A., PNC Bank, National Association, Regions Bank, and SunTrust Bank, with a sublimit on letters of credit and swingline loans of $15.0 million each. The New Revolving Facility includes an accordion feature whereby the Company may increase the revolving commitments or enter into one or more tranches of incremental term loans, up to an additional $75.0 million in aggregate of increased commitments and incremental term loans, subject to certain conditions. The commitment fee is based on a leverage grid and ranges from 0.20% to 0.40%. Borrowings under the New Revolving Facility bear interest based on a leverage grid with a range of PRIME + 0.25% to PRIME + 0.875% or Adjusted LIBO Rate + 1.25% to Adjusted LIBO Rate + 1.875%. Effective March 27, 2019, the Company entered into a Rate Swap utilizing a notional amount of $80.0 million, with an effective date of April 11, 2019 and a maturity date of October 11, 2023. Under the terms of the Rate Swap, the Company receives 1-month LIBOR, subject to a 0% floor, and makes payments based on a fixed rate of 2.1975%. The Company’s obligations under the ISDA are secured by the collateral which secures the loans under the New Revolving Facility on a pari passu and pro rata basis with the principal of such loans. The Company has designated the Rate Swap derivative instruments as a cash flow hedge. Under the New Revolving Facility, the Company is subject to a variety of affirmative and negative covenants of types customary in a senior secured lending facility, including financial covenants relating to leverage and interest expense coverage. The Company is allowed to pay dividends, provided, among other things, a total net leverage ratio is met, and no default exists or has occurred and is continuing as of the date of any such payment and after giving effect thereto. The New Revolving Facility matures on November 6, 2023, subject to the ability for the Company (subject to certain conditions) to agree with lenders who so consent to extend the maturity date of the commitments of such consenting lenders for a period of one year, such option being exercisable not more than two times during the term of the facility. The New Revolving Facility replaced, by way of amendment and restatement, the Company’s senior secured revolving credit facility (the “Prior Revolving Facility”) with JPMorgan Chase Bank, N.A. and SunTrust Bank, with revolving commitments of $125.0 million as of September 30, 2018 and $135.0 million as of October 18, 2018 (the “Third Amendment Effective Date”), subject to an accordion feature. Under the Prior Revolving Facility, as amended, advances were based on the Company’s eligible accounts receivable, inventory and equipment, the value of certain real property and trademarks, and an amount based on the lesser of $10.0 million (subject to monthly reduction) and the sum of certain eligible accounts receivable and inventory, less required reserves. The commitment fee was a flat fee of 0.25% per annum. Outstanding obligations were collateralized by all of the Company’s assets, excluding, amongst other things, certain real property not included in the borrowing base. Borrowings under the Prior Revolving Facility bore 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%; provided, that, after the Third Amendment Effective Date, (i) the applicable rate was PRIME + 0.25% or Adjusted LIBO Rate + 1.75%; and (ii) loans up to certain formula amounts were subject to an additional margin ranging from 0.375% to 0.50%. The Prior Revolving Facility included a variety of affirmative and negative covenants of types customary in an asset-based lending facility, including a financial covenant relating to the maintenance of a fixed charge coverage ratio, and provided for customary events of default. At June 30, 2019, the Company was eligible to borrow up to a total of $150.0 million under the New Revolving Facility and had outstanding borrowings of $92.0 million and had utilized $2.3 million of the letters of credit sublimit. At June 30, 2019 and 2018, the weighted average interest rate on the Company’s outstanding borrowings subject to interest rate variability under the New Revolving Facility was 3.98% and 4.10%, respectively, and the Company was in compliance with all of the covenants under the New Revolving Facility. The Company classifies borrowings contractually due to be settled one year or less as short-term and more than one year as long-term. Outstanding borrowings under the Company’s revolving credit facility were classified on the Company’s consolidated balance sheets as “Long-term borrowings under revolving credit facility” at June 30, 2019 and “Short-Term borrowings under revolving credit facility” at June 30, 2018. F - 44 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 15. Employee Stock Ownership Plan As of December 31, 2018, the Company froze the ESOP such that (i) no employees of the Company may commence participation in the ESOP on or after December 31, 2018; (ii) no Company contributions will be made to the ESOP with respect to services performed or compensation received after December 31, 2018; and (iii) the ESOP accounts of all individuals who are actively employed by the Company and participating in the ESOP on December 31, 2018 will be fully vested as of such date. Additionally, the Administrative Committee, with the consent of the Board of Directors, designated certain employees who were terminated in connection with certain reductions-in-force in 2018 to be fully vested in their ESOP accounts as of their severance dates. The Company’s ESOP was established in 2000. The plan was a leveraged ESOP in which the Company was the lender. One of the two loans established to fund the ESOP matured in fiscal 2016 and the remaining loan was scheduled to mature in December 2018. The loan was 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 3.71% at December 31, 2018 when the plan was frozen. Loan amount (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 $— As of June 30, 2018 $2,145 2017 $4,289 Shares were held by the plan trustee for allocation among participants as the loan was repaid. The unencumbered shares were 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 participant shares equivalent to the fair market value of the dividends they would have received. No dividends were paid in fiscal 2019, 2018 or 2017. During the fiscal years ended June 30, 2019, 2018 and 2017, the Company charged $0.9 million, $2.3 million and $2.5 million, respectively, to compensation expense related to the ESOP. The difference between cost and fair market value of committed to be released shares was recorded as additional paid-in-capital. Allocated shares Committed to be released shares Unallocated shares Total ESOP shares (In thousands) Fair value of ESOP shares As of June 30, 2019 1,393,530 — — 1,393,530 2018 1,502,323 73,826 72,114 1,648,263 $ 22,812 $ 50,354 F - 45 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 16. 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, 2019, there were 1,021,771 maximum shares available under the 2017 Plan including shares that were forfeited under the Prior Plans of which 740,429 shares remain available for future issuance. 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 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. F - 46 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Non-qualified stock options with time-based vesting (“NQOs”) One-third of the total number of NQO 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. Following are the assumptions used in the Black-Scholes valuation model for NQOs granted on the date of the grant during the fiscal years ended June 30, 2019, 2018 and 2017: Weighted average fair value of NQOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average expected term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected stock price volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended June 30, 2019 2018 2017 $ 7.78 $ 10.41 $ 3.0% —% 4.6 years 29.6% 2.0% —% 4.6 years 35.4% — —% —% 0 —% 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 13.0% based on actual forfeiture experience. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The following table summarizes NQO activity for the year ended June 30, 2019: Outstanding NQOs: Outstanding at June 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding at June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . Exercisable at June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . Number of NQOs 161,324 154,263 (28,798) (87,861) (879) 198,049 50,229 Weighted Average Exercise Price ($) 26.82 25.04 11.32 27.53 31.70 27.35 27.72 Weighted Average Remaining Life (Years) 5.1 Aggregate Intrinsic Value ($ in thousands) 741 — — — — 5.25 2.93 — 466 — — 40 40 The weighted-average grant-date fair value of options granted during the year ended June 30, 2019 was $8.66. 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 $16.37 at June 28, 2019 and $30.55 at June 29, 2018, 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. The Company received $0.3 million, $1.1 million and $0.5 million in proceeds from exercises of vested NQOs in fiscal 2019, 2018 and 2017, respectively. As of June 30, 2019 and 2018, respectively, there was $1.1 million and $1.0 million of unrecognized compensation cost related to NQOs. The unrecognized compensation cost related to NQOs at June 30, 2019 is expected to be recognized over the weighted average period of 2.03 years. Total compensation expense for NQOs was $0.5 million, $0.3 million and $0.1 million in fiscal 2019, 2018 and 2017, respectively. F - 47 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Non-qualified stock options with performance-based and time-based vesting (“PNQs”) PNQ shares granted for each fiscal year are subject to forfeiture if a target modified net income goal 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. These PNQs have an exercise price equal the closing price of the Company’s common stock 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. Following are the assumptions used in the Black-Scholes valuation model for PNQs granted during the fiscal year ended, June 30, 2017, (PNQ shares were not granted during the fiscal years ended June 30, 2019 and 2018): Weighted average fair value of PNQs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend yield. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average expected term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected stock price volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11.42 1.5% —% 4.9 years 37.7% Year Ended June 30, 2017 The following table summarizes PNQ activity for the year ended June 30, 2019: Outstanding PNQs: Outstanding at June 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding at June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . Exercisable at June 30, 2019. . . . . . . . . . . . . . . . . . . . . . . . . Number of PNQs 300,708 — (5,806) (50,451) (14,490) 229,961 203,021 Weighted Average Exercise Price ($) 27.08 — 22.70 31.45 27.50 26.21 25.48 Weighted Average Remaining Life (Years) 4.0 Aggregate Intrinsic Value ($ in thousands) 1,207 — — — — 1.23 0.86 — — — — — — 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 $16.37 at June 28, 2019 and $30.55 at June 29, 2018, representing the last trading day of the respective fiscal years, which would have been received by PNQ holders had all award holders exercised their PNQs that were in-the-money as of those dates. The aggregate intrinsic value of 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. The Company received $0.1 million, $0.3 million and $0.2 million in proceeds from exercises of vested PNQs in fiscal 2019, 2018 and 2017, respectively. As of June 30, 2019 and 2018, there was $39.7 thousand and $0.5 million, respectively, of unrecognized compensation cost related to PNQs. The unrecognized compensation cost related to PNQs at June 30, 2019 is expected to be recognized over the weighted average period of 0.36 years. Total compensation expense related to PNQs in fiscal 2019, 2018 and 2017 was $0.3 million, $0.8 million and $1.1 million, respectively. F - 48 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Restricted Stock Restricted stock awards cliff vest on the earlier of the one year anniversary of the grant date or the date of the first annual meeting of the Company’s stockholders immediately following the grant date, in the case of non-employee directors, and the third anniversary of the grant date, in the case of eligible employees, in each case subject to continued service to the Company through the vesting date and the acceleration provisions of the 2017 Plan and restricted stock agreement. Restricted stock is expected to vest net of estimated forfeitures. The following table summarizes restricted stock activity for the year ended June 30, 2019: Outstanding and Nonvested Restricted Stock Awards: Outstanding at June 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised/Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cancelled/Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding and nonvested at June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted Average Grant Date Fair Value ($) 33.48 20.8 33.7 — 21.1 Shares Awarded 14,958 30,352 (13,254) — 32,056 The total grant-date fair value of restricted stock granted during the year ended June 30, 2019 was $0.7 million. As of June 30, 2019 and 2018, there was 0.4 million and $0.3 million, respectively, of unrecognized compensation cost related to restricted stock. The unrecognized compensation cost related to restricted stock at June 30, 2019 is expected to be recognized over the weighted average period of 0.74 years. Total compensation expense for restricted stock was $23.0 thousand, $0.3 million and $0.2 million, for the fiscal years ended June 30, 2019, 2018 and 2017, respectively. Performance-Based Restricted Stock Units (“PBRSUs”) The PBRSU awards cliff vest on the third anniversary of the date of grant based on the Company’s achievement of certain financial performance goals during the performance periods, subject to certain continued employment conditions and subject to acceleration provisions of the 2017 Plan and restricted stock unit agreement. At the end of the three-year performance period, the number of PBRSUs that actually vest will be 0% to 150% of the target amount, depending on the extent to which the Company meets or exceeds the achievement of those financial performance goals measured over the full three-year performance period. PBRSUs are expected to vest net of estimated forfeitures. The following table summarizes PBRSU activity for the year ended June 30, 2019: Outstanding and Nonvested PBRSUs: Outstanding and nonvested at June 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Granted(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested/Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cancelled/Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding and nonvested at June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected to vest at June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted Average Grant Date Fair Value ($) 31.70 25.04 — 28.19 27.69 — PBRSUs Awarded 35,732 47,928 — (32,423) 51,237 — The total grant-date fair value of PBRSUs granted during the year ended June 30, 2019 was $1.2 million. As of June 30, 2019 and 2018, there was $0.3 million and $0.9 million, respectively, of unrecognized compensation cost related to PBRSUs. The unrecognized compensation cost related to PBRSUs at June 30, 2019 is expected to be recognized over the weighted average period of 2.04 years. Total compensation expense for PBRSUs was $0.2 million for the year ended June 30, 2018. There was no compensation expense for PBRSUs for the fiscal years ended June 30, 2019 and 2017. F - 49 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 17. Other Current Liabilities Other current liabilities consist of the following: (In thousands) Accrued postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued workers’ compensation liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term pension liabilities(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earnout payable(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Working capital dispute payable(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ ___________ As of June 30, 2019 2018 1,068 1,495 — 1,000 354 3,392 7,309 $ $ 810 1,698 3,761 600 — 3,790 10,659 (1) Amount recorded at June 30, 2018 represents the present value of the Company’s estimated withdrawal liability under the Local 807 Pension Fund, which was settled as of December 31, 2018. (2) Represents the 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. (3) Represents accrued expenses related to working capital disputes in connection with the Company's acquisition of Boyd Coffee on October 2, 2017. (4) Includes accrued property taxes, sales and use taxes, insurance liabilities and the current portion of cumulative preferred dividends, undeclared and unpaid. Note 18. Other Long-Term Liabilities Other long-term liabilities include the following: (In thousands) Long-term obligations under capital leases . . . . . . . . . . . . . . . . . . . . . . . . Derivative liabilities—noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Multiemployer Plan Holdback—Boyd Coffee (1) . . . . . . . . . . . . . . . . . . . Cumulative preferred dividends, undeclared and unpaid—noncurrent . . . Deferred income taxes (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ ___________ As of June 30, 2019 2018 (2) $ 1,612 — 618 1,795 4,023 $ 58 386 1,056 312 — 1,812 (1) On January 8, 2019, Boyd Coffee notified the Company of the assessment of $0.5 million in withdrawal liability against the Seller, which the Company timely paid from the Multiemployer Plan Holdback during the three months ended March 31, 2019. The Company has applied the remaining amount of the Multiemployer Plan Holdback of $0.5 million towards satisfaction of the Seller’s post-closing net working capital deficiency under the Asset Purchase Agreement as of June 30, 2019. (2) Represents deferred tax liabilities that have an indefinite reversal pattern. F - 50 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 19. Income Taxes The current and deferred components of the provision for income taxes consist of the following: (In thousands) Current: For the Years Ended June 30, 2019 2018 2017 Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current income tax (benefit) expense . . . . . . . . . . Deferred: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred income tax expense . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . $ $ (1,774) $ 231 (1,543) 30,618 11,036 41,654 40,111 $ 101 56 157 17,090 65 17,155 17,312 $ $ 132 340 472 12,120 2,223 14,343 14,815 A reconciliation of income tax expense to the federal statutory tax rate is as follows: (In thousands) Statutory tax rate Income tax (benefit) expense at statutory rate State income tax (benefit) expense, net of federal tax benefit Dividend income exclusion Valuation allowance Change in tax rate Retiree life insurance Other (net) Income tax expense For the Years Ended June 30, 2019 2018 21 % 28 % (7,032) (1,295) — 50,123 124 — (1,809) 40,111 $ $ (272) 12 — 283 18,022 19 (752) 17,312 2017 $ $ 35% 13,078 1,707 (134) (14) (54) 1 231 14,815 $ $ 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. The incremental net tax impact recorded upon completion of the analysis of the income tax effects of the U.S. tax law changes was not material to our Consolidated Condensed Financial Statements. Pursuant to the Tax Act, the federal corporate tax rate was reduced to 21.0%, effective for the tax years beginning on or after January 1, 2018. Deferred tax amounts are calculated based on the rates at which they are expected to reverse in the future. The provisional amount recorded in fiscal 2018 relating to the re-measurement of the Company’s deferred tax balances as a result of the reduction in the corporate tax rate was $18.0 million. The Company finalized its assessment of the income tax effects of the Tax Act in the second quarter of fiscal years ended June 30, 2019. F - 51 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) 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: Fixed assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deferred tax assets (liabilities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ As of June 30, 2019 2018 $ 20,775 5,042 37,768 5,950 69,535 (15,562) (3,749) (19,311) (52,019) (1,795) $ 18,862 4,754 32,552 6,728 62,896 (16,156) (5,536) (21,692) (1,896) 39,308 As a result of adopting ASU 2016-09 in fiscal 2018 on a modified retrospective basis, with a cumulative effect adjustment to opening retained earnings, the table of deferred tax assets and liabilities shown above includes deferred tax assets at June 30, 2017 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. At June 30, 2019, the Company had approximately $146.8 million in federal and $113.4 million in state net operating loss carryforwards that will expire from June 30, 2020 to June 30, 2030. Additionally, at June 30, 2019, the Company had $0.8 million of federal business tax credits that will expire from June 30, 2025 to June 30, 2038 and approximately $1.7 million of federal alternative minimum tax credits that do not expire, and of which $0.8 million is currently refundable. At June 30, 2019, the Company had total deferred tax assets of $69.5 million and net deferred tax assets of $50.2 million before valuation allowance of $52.0 million. In assessing if the deferred tax assets will be realized, the Company considers whether it is probable that some or all of the deferred tax assets will not be realized. In determining whether the deferred taxes are realizable, the Company considers the period of expiration of the tax asset, historical and projected taxable income, and tax liabilities for the tax jurisdiction in which the tax asset is located. Valuation allowances are provided to reduce the amounts of deferred tax assets to an amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts. For the years ended June 30, 2019, 2018 and 2017, due to recent cumulative losses, the Company conclude that certain federal and state net operating loss carry forwards and tax credit carryovers will not be utilized before expiration. The amounts of valuation allowance recorded in the Consolidated Balance Sheets were $52.0 million, $1.9 million and $1.6 million to reduce deferred tax assets in fiscal 2019, 2018 and 2017, respectively. The Company's valuation allowance increased in fiscal 2019 and 2018 by $50.1 million and $0.3 million, respectively. As of, and for the three years ended June 30, 2019, 2018 and 2017, the Company had no significant uncertain tax positions. 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, 2016. Although the outcome of tax audits is always uncertain, the Company does not believe the outcome of any future audit will have a material adverse effect on the Company’s consolidated financial statements. The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. There were no amount of interest and penalties recognized in the Consolidated Balance Sheets in the fiscal years ended June 30, 2019 and 2018, associated with uncertain tax positions. Additionally, the Company did not record any income tax expense related to interest and penalties on uncertain tax positions in the fiscal years ended June 30, 2019, 2018 and 2017, respectively. F - 52 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 20. Net (Loss) Income Per Common Share Basic net income (loss) per common share is calculated by dividing net income (loss) attributable to the Company by the weighted average number of common shares outstanding during the periods presented. Diluted net income (loss) per common share is calculated by dividing diluted net income (loss) attributable to the Company by the weighted average number of common shares outstanding adjusted to include the effect, if dilutive, of the exercise of in-the-money stock options, unvested restricted stock, performance-based restricted stock units, and shares of Series A Preferred Stock, as converted, during the periods presented. The following table presents the computation of basic and diluted earnings per common share: (In thousands, except share and per share amounts) Undistributed net (loss) income available to common stockholders. . Undistributed net (loss) income available to nonvested restricted stockholders and holders of convertible preferred stock . . . . . . . . . Net (loss) income available to common stockholders—basic. . . . . . . Weighted average common shares outstanding—basic. . . . . . . . . . . . Effect of dilutive securities:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares issuable under stock options . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . For the Years Ended June 30, 2019 (74,054) $ 2018 (18,652) $ (76) (74,130) $ (17) (18,669) $ 2017 22,524 27 22,551 16,996,354 16,815,020 16,668,745 — 16,996,354 — 16,815,020 117,007 16,785,752 (4.36) $ (1.11) $ (4.36) $ (1.11) $ 1.35 1.34 $ $ $ $ The following table summarizes anti-dilutive securities excluded from the computation of diluted net income (loss) per common share for the periods indicated: (In thousands) Shares issuable under stock options Shares issuable under convertible preferred stock Shares issuable under PBRSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 — 407,734 — 2018 462,032 393,769 35,732 2017 24,671 — — For the Years Ended June 30, F - 53 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 21. 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 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, 2019, the Company had undeclared and unpaid preferred dividends of $924,347 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. At June 30, 2019, Series A Preferred Stock consisted of the following: (In thousands, except share and per share amounts) Shares Authorized 21,000 Shares Issued and Outstanding Stated Value per Share 14,700 $ 1,063 Carrying Value 15,624 $ Cumulative Preferred Dividends, Undeclared and Unpaid Liquidation Preference 924 $ 15,624 F - 54 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 22. Commitments and Contingencies Operating Leases The Company leases buildings, machinery and equipment, computer hardware and furniture and fixtures. All contractual increases and rent-free periods included in the lease contract are taken into account when calculating the minimum lease payment and are recognized on a straight-line basis over the lease term. Certain leases have renewal periods which are not included in the table below. The leases expire in various years ranging from 2020 to 2028. Rent expenses paid for the fiscal years ended June 30, 2019, 2018 and 2017 were $6.4 million, $5.5 million and $5.1 million, respectively. The minimum annual payments under operating leases are as follows: (In thousands) Year Ended June 30, 2020 2021 2022 2023 2024 Thereafter Total Capital Leases (In thousands) Year Ended June 30, 2020 2021 Total minimum lease payments Less: imputed interest (0.82% to 10.66%) Present value of future minimum lease payments Less: current portion Long-term capital lease obligations Purchase Commitments Operating Lease Obligations $ 4,434 3,238 2,472 2,131 2,025 4,389 $ 18,689 Capital Lease Obligations $ $ 36 1 37 (2) 35 34 1 As of June 30, 2019, the Company had committed to purchase green coffee inventory totaling $48.6 million under fixed- price contracts, $9.4 million in other inventory under non-cancelable purchase orders and $3.3 million in other purchases under non-cancelable purchase orders. F - 55 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) 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 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 2017. 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 F - 56 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) 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 the “Phase 3” remedies trial phase to begin on October 15, 2018. On September 20, 2018, the JDG filed a writ petition with the California Court of Appeals, Second Appellate District, to set aside the lower court’s order denying the JDG’s motion to renew or reopen its First Amendment defense to the imposition of a cancer warning for their coffee products, or, alternatively, to set aside its order dated September 6, 2018, denying the JDG’s motion to stay this action pending adoption by the OEHHA of the proposed regulation. On October 12, 2018, the Court of Appeals issued a Temporary Stay Order. The Temporary Stay Order ordered the Phase 3 remedies trial be stayed until further notice and did not address the JDG’s First Amendment defense petition. The Court of Appeals also required the JDG to provide a written status update by January 15, 2019. Following the issuance of the Court of Appeal’s Temporary Stay Order, on October 15, 2018, the trial court issued a Notice of Court’s Ruling staying any further proceedings, including both remedies and liability, pending a ruling by the Court of Appeals. At a December 3, 2018 status conference, the Court continued its stay on the Phase 3 remedies trial. The Court set another status conference for February 4, 2019 and asked that the JDG submit a joint status report on appellate activities by January 28, 2019. The JDG provided their written status update to the Court of Appeals timely on January 15, 2019, which update reported that OEHHA had submitted the final regulation (unchanged from its proposed rulemaking) to the California Office of Administrative Law (OAL) for review. OAL had 30 working days (until February 19, 2019) to approve, reject, or submit questions to OEHHA concerning the regulation. On January 31, 2019, the Court of Appeals continued its Temporary Stay Order and required the JDG to provide a written update by April 15, 2019. Prior to February 19, 2019, OAL raised questions to OEHHA concerning the regulation, specifically OEHHA’s authority to make a determination for chemicals in coffee whether or not presently listed under Prop 65. As a result, OEHHA decided to take back the regulation from OAL to address those issues. On March 15, 2019, OEHHA announced that it was amending the language of the regulation to make clear that the “no significant risk” determination applies only to chemicals in coffee that were listed under Prop 65 on or before March 15, 2019. OEHHA extended the public comment period until April 2, 2019. On April 23, 2019, OEHHA resubmitted the amended regulation and the supplemented version of the final statement of reasons to OAL. OAL had 30 working days - or until June 5 - to reject the regulation or approve and submit it to the Secretary of State for inclusion in the next version of the California Code of Regulations, which is updated quarterly. On June 3, 2019, OAL F - 57 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) approved the amended regulation and submitted it to the Secretary of State, which means that it will take effect on October 1, 2019. The stay orders have since been lifted by the courts and the JDG is working through the effects of the amended regulation on this matter. 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. F - 58 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 23. Revenue Recognition On July 1, 2018, the Company adopted ASU 2014-09, using the modified retrospective method for all contracts not completed as of the date of adoption. Adoption of ASU 2014-09 did not have a material effect on the results of operations, financial position or cash flows of the Company. See Note 2. The Company’s primary sources of revenue are sales of coffee, tea and culinary products. The Company recognizes revenue when control of the promised good or service is transferred to the customer and in amounts that the Company expects to collect. The timing of revenue recognition takes into consideration the various shipping terms applicable to the Company’s sales. The Company delivers products to customers primarily through two methods, DSD to the Company’s customers at their place of business and direct ship from the Company’s warehouse to the customer’s warehouse or facility. Each delivery or shipment made to a third party customer is to satisfy a performance obligation. Performance obligations generally occur at a point in time and are satisfied when control of the goods passes to the customer. The Company is entitled to collection of the sales price under normal credit terms in the regions in which it operates. ASC Topic 606, “Revenue from Contracts with Customers” (“ASC Topic 606”), provides certain practical expedients in order to ease the burden of implementation. The Company elected to apply the practical expedient related to applying the guidance to a portfolio of contracts with similar characteristics as the Company does not expect the effects on its consolidated financial statements to differ materially from applying the guidance to the individual contracts within that portfolio. For customers that have executed substantially similar contracts, including the ones utilizing our standard forms, the Company believes that evaluation of these contracts on an individual basis would not result in a material difference. Therefore, the Company has adopted the practical expedient and applied one accounting treatment to all such contracts. In accordance with ASC Topic 606, the Company disaggregates net sales from contracts with customers based on the characteristics of the products sold: (In thousands) $ % of total $ % of total $ % of total For the Years Ended June 30, 2019 2018 2017 Net Sales by Product Category: Coffee (Roasted). . . . . . . . . . . . . . Coffee (Frozen Liquid). . . . . . . . . Tea (Iced & Hot). . . . . . . . . . . . . . Culinary . . . . . . . . . . . . . . . . . . . . Spice . . . . . . . . . . . . . . . . . . . . . . . Other beverages(1) . . . . . . . . . . . . Net sales by product category . Fuel surcharge . . . . . . . . . . . . . . . Net sales . . . . . . . . . . . . . . . . . $ 378,583 34,541 33,109 64,100 24,101 58,367 592,801 3,141 $ 595,942 5.8% 5.6% 10.8% 4.0% 9.8% 63.5% $ 379,951 34,794 32,477 64,432 25,150 66,699 99.5% 603,503 3,041 100.0% $ 606,544 0.5% 62.6% $ 339,358 32,827 5.7% 29,256 5.4% 55,592 10.6% 24,895 4.2% 11.0% 56,653 99.5% 538,581 2,919 100.0% $ 541,500 0.5% 62.7% 6.1% 5.4% 10.3% 4.6% 10.4% 99.5% 0.5% 100.0% ____________ (1) Includes all beverages other than roasted coffee, frozen liquid coffee, and iced and hot tea, including cappuccino, cocoa, granitas, and concentrated and ready-to drink cold brew and iced coffee. The Company does not have any material contract assets and liabilities as of June 30, 2019. Receivables from contracts with customers are included in “Accounts receivable, net” on the Company’s condensed consolidated balance sheets. At June 30, 2019, 2018 and 2017, “Accounts receivable, net” included, $53.6 million, $54.5 million and $44.5 million, respectively, in receivables from contracts with customers. F - 59 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 24. 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, 2019. 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. 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. For The Three Months Ended September 30, 2018 December 31, 2018 March 31, 2019 June 30, 2019 (In thousands, except per share data) Net sales Cost of goods sold Gross profit Selling expenses (Loss) income from operations Net loss Net loss available to common stockholders per common share— basic Net loss available to common stockholders per common share— diluted $ $ $ $ $ $ $ $ 147,440 99,205 48,235 $ $ $ $ 37,310 (2,078) $ (2,986) $ 159,773 106,529 $ 146,679 $ 106,779 $ 142,050 $ 104,327 53,244 $ 39,900 $ 37,723 $ 39,591 $ 34,422 (6,102) $ (10,100) $ (51,749) $ 502 $ 28,324 (7,024) (8,760) (0.18) $ (0.60) $ (3.05) $ (0.52) (0.18) $ (0.60) $ (3.05) $ (0.52) September 30, 2017 December 31, 2017 March 31, 2018 June 30, 2018 For The Three Months Ended 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 Cost of goods sold Gross profit Selling expenses Income from operations Net income (loss) Net income (loss) available to common stockholders per common share—basic Net income (loss) available to common stockholders per common share— diluted $ $ $ $ $ $ $ $ 131,713 85,672 46,041 32,828 1,862 840 $ $ $ $ $ $ 131,713 85,630 46,083 32,856 1,845 841 $ $ $ $ $ $ 167,366 111,175 56,191 42,414 28 (17,060) $ $ $ $ $ $ 167,366 $ 157,927 111,089 $ 105,716 56,277 42,127 10 (17,060) $ $ $ $ 52,211 38,041 (2,767) (2,193) $ $ $ $ $ $ 157,927 105,629 52,298 37,754 (2,785) (2,193) $ $ $ $ $ $ 149,538 96,939 52,599 41,256 2,001 133 $ $ $ $ $ $ 0.05 $ 0.05 $ (1.03) $ (1.03) $ (0.14) $ (0.14) $ — $ 0.05 $ 0.05 $ (1.03) $ (1.03) $ (0.14) $ (0.14) $ — $ 149,538 96,806 52,732 40,655 1,984 133 — — F - 60 Farmer Bros. Co. Notes to Consolidated Financial Statements (continued) Note 25. Subsequent Events The Company evaluated all events or transactions that occurred after June 30, 2019 through the date the consolidated financial statements were issued. During this period the Company had the following material subsequent events that require disclosure: Sale of Office Coffee Assets In order to focus on its core product offerings, in July 2019, the Company completed the sale of certain assets associated with its office coffee customers for $9.3 million in cash paid at the time of closing plus an earnout of up to an additional $2.3 million if revenue expectations are achieved during test periods scheduled to occur at various branches at various times and concluding by early third quarter of fiscal ended 2020. Sale of Seattle Office Branch Property On August 28, 2019, the Company completed the sale of its branch property in Seattle, Washington state for a gross sale price of $7.9 million. Sale leaseback of Houston Facility On September 6, 2019, the Company signed a purchase and sale agreement (the “PSA”) for the sale of its Houston, Texas manufacturing facility and warehouse (the “Property”) for an aggregate purchase price, exclusive of closing costs, of $10.0 million. Pursuant to the PSA and upon the closing of the sale of the Property, the Company and the purchaser have agreed to enter into a three year leaseback agreement with respect to the Property. The Company may terminate the leaseback no earlier than the first day of the eighteenth full calendar month of the term providing at least nine months’ notice. There is no assurance at this time that the purchaser will in fact purchase any or all of the Property. The closing of the sale of the Property, which is subject to customary diligence and closing conditions, is expected to occur on or around November 20, 2019. The purchaser does not have any material relationship with the Company or its subsidiaries, other than through the PSA and Leaseback. In connection with the sale leaseback contemplated by the PSA, on September 6, 2019, the Company made a clarifying amendment to its amended and restated credit agreement originally dated as of November 6, 2018, to make clear that any sale and leaseback already permitted under the asset sale covenant would not be inadvertently prohibited under the sale and leaseback covenant. F - 61 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 2019 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 D. Deverl Maserang II President and Chief Executive Officer David G. Robson Chief Financial Officer and Treasurer Ronald J. Friedman Chief Human Resources Officer Gabriella Villalobos Senior Vice President, National Accounts, Business Strategy and M&A Jerry Michael Walsh Senior Vice President and General Manager - DSD Hamideh Assadi Retired Tax Consultant Randy E. Clark Chairman of the Board Chair, Compensation Committee Food Industry Consultant Allison M. Boersma Chair, Audit Committee Chief Financial Officer and Chief Operating Officer BRG Sports Inc. Stacy Loretz-Congdon Retired Chief Financial Officer D. Deverl Maserang II President and Chief Executive Officer Farmer Bros. Co. Charles F. Marcy Interim Chair, Compensation Committee Chair, Nominating and Corporate Governance Committee Food Industry Consultant Christopher P. Mottern Interim President and Chief Executive Officer Farmer Bros. Co. Independent Business Consultant TRANSFER AGENT AND REGISTRAR EQ Shareowner Services 1110 Centre Pointe Curve, Suite 101 Mendota Heights, Minnesota 55120-4100 800.401.1957 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 FINANCIAL HIGHLIGHTS(1) (In thousands, except per share data) For the Years Ended June 30, 2019 2018(1) 2017(1) 2016(1) 2015(1) Net sales Cost of goods sold Restructuring and other transition expenses Net gain from sale of Torrance Facility Net gains from sale of Spice Assets Net (gains) losses from sales of other assets Impairment losses on intangible assets (Loss) income from operations Pension settlement charge Income tax expense (benefit)(2) Net (loss) income available to common stockholders Net (loss) income available to common stockholders per common share—basic Net (loss) income available to common stockholders per common share—diluted Total capital expenditures $544,382 $373,165 $ 16,533 $541,500 $606,544 $595,942 $354,649 $399,155 $416,840 $ 11,016 662 $ 4,733 $ — $ — $ (37,449) $ $ (593) $ $ $ 1,058 $ — $ $ $ (14,702) $ $ (10,948) $ $ 40,111 $545,882 $386,400 $ 10,432 — — $ — (770) $ (919) $ (5,603) $ 394 (196) $ (1,210) $ (2,802) $ — — $ — $ 3,820 $ (1,736) $ (8,424) 1,053 — — $ 402 $ (72,239) $ $ $ 38,934 $ 17,312 $ 14,815 — $ — $ $ (74,130) $ (18,669) $ 22,551 $ 71,791 $ (9,708) $ (4.36) $ (1.11) $ 1.35 $ 4.35 $ (0.60) (4.36) $ $ $ 34,759 (1.11) $ 1.34 $ 84,949 4.32 $ $ 50,475 (0.60) $ $ 19,216 $ 37,020 June 30, 2019 2018 2017 2016 2015 Total current assets Property, plant and equipment, net Goodwill Intangible assets, net Deferred income taxes Total assets Short-term borrowings under revolving credit facility Long-term borrowings under revolving credit facility(3) Capital lease obligations Earnout payable Long-term derivative liabilities Total liabilities $159,908 $189,458 $ 36,224 $ 28,878 $ $424,610 $173,514 $186,589 $ 36,224 $ 31,515 — $ 39,308 $475,531 $140,703 $176,066 $ 10,996 $ 18,618 $ 53,933 $407,153 $177,366 $118,416 272 $ $ 6,219 $ 71,508 $383,714 $166,140 $ 90,201 272 $ $ 6,419 $ 11,770 $282,417 $ — $ 89,787 $ 27,621 $ 109 $ 78 $ 92,000 34 $ 400 $ $ 1,612 $267,116 — $ $ 1,195 $ 248 $ 1,100 $ 600 $ $ $ 380 386 $177,601 $246,476 — $ $ $ $ $186,397 2,359 100 — $ $ $ — $ — 5,848 200 25 $161,951 (1) Prior year periods have been retrospectively adjusted to reflect the impact of certain changes in accounting principles to previously issued financial statements. See Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10 K for the fiscal year ended June 30, 2019. (2) Includes valuation allowance of $50.1 million. See Note 19, Income Taxes, of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10 K for the fiscal year ended June 30, 2019. (3) Classified as long-term in fiscal 2019. See Note 14, Revolving Credit Facility, of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10 K for the fiscal year ended June 30, 2019. Farmer Bros. Co. 1912 Farmer Brothers Drive Northlake, TX 76262 888.998.2468 FarmerBros.com 

Continue reading text version or see original annual report in PDF format above