UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended March 31, ~~2018~~2019



¨	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		95-0725980
(State of Incorporation)		(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	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $1.00 par value	FARM	The NASDAQ Global Select Market

None
(Former Address, if Changed Since Last Report)

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 ý NO ¨

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). YES ý 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	¨		Accelerated filer	ý
Non-accelerated filer	¨	~~(Do not check if a smaller reporting company)~~	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 ý

As of ~~May 8, 2018,~~April 30, 2019, the registrant had ~~16,927,988~~17,040,100 shares outstanding of its common stock, par value $1.00 per share, which is the registrant’s only class of common stock.

TABLE OF CONTENTS



	Page
PART I – FINANCIAL INFORMATION (UNAUDITED)

Item 1. Financial Statements	1

Condensed Consolidated Balance Sheets at March 31, ~~2018~~2019 and June 30, ~~2017~~2018	1

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, ~~2018~~2019 and ~~2017~~2018	2

Condensed Consolidated Statements of Comprehensive ~~(Loss) Income~~Loss for the Three and Nine Months Ended March 31, ~~2018~~2019 and ~~2017~~2018	3

Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended March 31, 2019 and 2018	4

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, ~~2018~~2019 and ~~2017~~2018	46

Notes to Condensed Consolidated Financial Statements	68

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3647

Item 3. Quantitative and Qualitative Disclosures About Market Risk	5264

Item 4. Controls and Procedures	5566

PART II – OTHER INFORMATION

Item 1. Legal Proceedings	5667

Item 1A. Risk Factors	5667

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	69

Item 3. Defaults Upon Senior Securities	69

Item 4. Mine Safety Disclosures	69

Item 5. Other Information	69

Item 6. Exhibits	5770

SIGNATURES	6371

PART I - FINANCIAL INFORMATION (UNAUDITED)

Item 1. Financial Statements

FARMER BROS. CO.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)


	March 31, 2018			June 30, 2017			March 31, 2019			June 30, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	6,974		$	6,241		$	12,194		$	2,438
Short-term investments	—			368
Accounts receivable, net	61,988			46,446			65,755			58,498
Inventories	75,080			56,251			100,370			104,431
Income tax receivable	156			318			346			305
Short-term derivative assets							144			—
Prepaid expenses	8,841			7,540			7,082			7,842
Total current assets	153,039			117,164			185,891			173,514
Property, plant and equipment, net	183,501			176,066			191,250			186,589
Goodwill	36,561			10,996			36,224			36,224
Intangible assets, net	32,207			18,618			29,528			31,515
Other assets	7,127			6,837			9,962			8,381
Deferred income taxes	45,779			63,055			—			39,308
Total assets	$	458,214		$	392,736		$	452,855		$	475,531
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	59,059			39,784			62,810			56,603
Accrued payroll expenses	16,369			17,345			15,831			17,918
Short-term borrowings under revolving credit facility	85,885			27,621			—			89,787
Short-term obligations under capital leases	239			958			57			190
Short-term derivative liabilities	2,604			1,857			5,543			3,300
Other current liabilities	10,878			9,702			7,548			10,659
Total current liabilities	175,034			97,267			91,789			178,457
Long-term borrowings under revolving credit facility							123,000			—
Accrued pension liabilities	49,988			51,281			46,776			40,380
Accrued postretirement benefits	18,435			19,788			17,949			20,473
Accrued workers’ compensation liabilities	6,365			7,548			4,938			5,354
Other long-term liabilities-capital leases	77			237
Other long-term liabilities	2,008			1,480			2,619			1,812
Total liabilities	$	251,907		$	177,601		$	287,071		$	246,476
Commitments and contingencies (Note 21)
Commitments and contingencies (Note 22)
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 and zero shares issued and outstanding as of March 31, 2018 and June 30, 2017, respectively; liquidation preference of $821 and $0 as of March 31, 2018 and June 30, 2017, respectively	15			—
Common stock, $1.00 par value, 25,000,000 shares authorized; 16,927,988 and 16,846,002 shares issued and outstanding as of March 31, 2018 and June 30, 2017, respectively	16,928			16,846
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 March 31, 2019 and June 30, 2018; liquidation preference of $15,489 and $15,089 as of March 31, 2019 and June 30, 2018, respectively							15			15
Common stock, $1.00 par value, 25,000,000 shares authorized; 17,004,561 and 16,951,659 shares issued and outstanding as of March 31, 2019 and June 30, 2018, respectively							17,005			16,952
Additional paid-in capital	54,780			41,495			57,321			55,965
Retained earnings	199,252			221,182			155,072			220,307
Unearned ESOP shares	(2,145		)	(4,289		)	—			(2,145		)
Accumulated other comprehensive loss	(62,523		)	(60,099		)	(63,629		)	(62,039		)
Total stockholders’ equity	$	206,307		$	215,135		$	165,784		$	229,055
Total liabilities and stockholders’ equity	$	458,214		$	392,736		$	452,855		$	475,531

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

FARMER BROS. CO.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)


	Three Months Ended March 31,						Nine Months Ended March 31,						Three Months Ended March 31,						Nine Months Ended March 31,
	2018			2017			2018			2017			2019			2018			2019			2018
Net sales	$	157,927		$	138,187		$	457,006		$	407,700		$	146,679		$	157,927		$	453,892		$	457,006
Cost of goods sold	99,117			84,367			283,670			247,586			106,779			105,629			312,513			302,349
Gross profit	58,810			53,820			173,336			160,114			39,900			52,298			141,379			154,657
Selling expenses	44,736			40,377			132,979			117,912			34,422			37,754			111,323			112,736
General and administrative expenses	13,766			9,196			39,007			31,925			11,306			14,157			32,063			39,822
Restructuring and other transition expenses	52			2,547			311			9,542			26			52			4,700			311
Net gain from sale of Torrance Facility	—			—			—			(37,449		)
Net gains from sale of spice assets	(110		)	(272		)	(655		)	(764		)	(203		)	(110		)	(593		)	(655		)
Net gains from sales of other assets	(590		)	(86		)	(446		)	(1,525		)
Net losses (gains) from sales of other assets													451			(590		)	1,564			(446		)
Impairment losses on intangible assets	3,820			—			3,820			—			—			3,820			—			3,820
Operating expenses	61,674			51,762			175,016			119,641			46,002			55,083			149,057			155,588
(Loss) income from operations	(2,864		)	2,058			(1,680		)	40,473
Loss from operations													(6,102		)	(2,785		)	(7,678		)	(931		)
Other (expense) income:
Dividend income	1			273			12			808			—			1			—			12
Interest income	—			147			2			435			—			—			—			2
Interest expense	(902		)	(517		)	(2,286		)	(1,430		)	(2,981		)	(2,547		)	(9,165		)	(7,221		)
Pension settlement charge													—			—			(10,948		)	—
Other, net	154			1,044			794			(1,088		)	495			1,817			2,105			5,782
Total other (expense) income	(747		)	947			(1,478		)	(1,275		)
(Loss) income before taxes	(3,611		)	3,005			(3,158		)	39,198
Income tax expense	297			1,411			20,497			15,910
Net (loss) income	$	(3,908	)	$	1,594		$	(23,655	)	$	23,288
Total other expense													(2,486		)	(729		)	(18,008		)	(1,425		)
Loss before taxes													(8,588		)	(3,514		)	(25,686		)	(2,356		)
Income tax expense (benefit)													43,161			(1,321		)	39,149			16,058
Net loss													$	(51,749	)	$	(2,193	)	$	(64,835	)	$	(18,414	)
Less: Cumulative preferred dividends, undeclared and unpaid	128			—			257			—			134			128			400			257
Net (loss) income available to common stockholders	$	(4,036	)	$	1,594		$	(23,912	)	$	23,288
Net (loss) income per common share available to common stockholders—basic	$	(0.24	)	$	0.10		$	(1.43	)	$	1.40
Net (loss) income per common share available to common stockholders—diluted	$	(0.24	)	$	0.10		$	(1.43	)	$	1.39
Net loss available to common stockholders													$	(51,883	)	$	(2,321	)	$	(65,235	)	$	(18,671	)
Net loss available to common stockholders per common share—basic													$	(3.05	)	$	(0.14	)	$	(3.84	)	$	(1.12	)
Net loss available to common stockholders per common share—diluted													$	(3.05	)	$	(0.14	)	$	(3.84	)	$	(1.12	)
Weighted average common shares outstanding—basic	16,760,145			16,605,754			16,727,624			16,584,125			17,003,206			16,760,145			16,982,247			16,727,624
Weighted average common shares outstanding—diluted	16,760,145			16,721,774			16,727,624			16,704,200			17,003,206			16,760,145			16,982,247			16,727,624

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

FARMER BROS. CO.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~(LOSS) INCOME~~LOSS (UNAUDITED)

(In thousands)

Three Months Ended
March 31,

Nine Months Ended
March 31,
2018 2017 2018 2017
Net (loss) income $ (3,908 ) $ 1,594
$ (23,655 ) $ 23,288
Other comprehensive (loss) income, net of tax:
Unrealized (losses) gains on derivative instruments designated as cash flow hedges, net of tax (2,437 ) 104
(4,148 ) (1,249 )
Losses (gains) on derivative instruments designated as cash flow hedges reclassified to cost of goods sold, net of tax 1,355
(516 ) 1,724
(366 )
Total comprehensive (loss) income, net of tax $ (4,990 ) $ 1,182
$ (26,079 ) $ 21,673



	Three Months Ended March 31,						Nine Months Ended March 31,
	2019			2018			2019			2018
Net loss	$	(51,749	)	$	(2,193	)	$	(64,835	)	$	(18,414	)
Other comprehensive (loss) income, net of tax:
Unrealized losses on derivative instruments designated as cash flow hedges, net of tax	(5,905		)	(2,430		)	(11,254		)	(4,255		)
Gains (losses) on derivative instruments designated as cash flow hedges reclassified to cost of goods sold, net of tax	3,201			438			6,311			(426		)
Change in funded status of retiree benefit obligations, net of tax	(1,943		)	—			(7,594		)	—
Pension settlement charge, net of tax	2,801			—			10,948			—
Total comprehensive loss, net of tax	$	(53,595	)	$	(4,185	)	$	(66,424	)	$	(23,095	)

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

FARMER BROS. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Nine Months Ended March 31,
2018 2017
Cash flows from operating activities:
Net (loss) income $ (23,655 ) $ 23,288
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization 22,727
16,613
Provision for (recovery of) doubtful accounts 369
(44 )
Impairment losses on intangible assets 3,820
—
Change in estimated fair value of contingent earnout consideration (500 ) —
Interest on sale-leaseback financing obligation —
681
Restructuring and other transition expenses, net of payments (1,084 ) 2,191
Deferred income taxes 20,138
15,766
Net gain from sale of Torrance Facility —
(37,449 )
Net gains from sales of spice assets and other assets (1,101 ) (2,289 )
ESOP and share-based compensation expense 2,892
2,996
Net losses on derivative instruments and investments 3,292
793
Change in operating assets and liabilities:
Purchases of trading securities —
(4,216 )
Proceeds from sales of trading securities 375
2,911
Accounts receivable (8,417 ) (3,994 )
Inventories (9,533 ) (13,242 )
Income tax receivable 162
(46 )
Derivative (liabilities) assets, net (6,091 ) 3,845
Prepaid expenses and other assets 920
(203 )
Accounts payable 7,516
11,293
Accrued payroll expenses and other current liabilities 353
(5,712 )
Accrued postretirement benefits (1,353 ) (624 )
Other long-term liabilities (2,476 ) (2,028 )
Net cash provided by operating activities $ 8,354
$ 10,530
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired $ (39,608 ) $ (25,853 )
Purchases of property, plant and equipment (25,889 ) (35,497 )
Purchases of assets for construction of New Facility (1,577 ) (26,653 )
Proceeds from sales of property, plant and equipment 1,565
3,984
Net cash used in investing activities $ (65,509 ) $ (84,019 )
(continued on next page)



FARMER BROS. CO. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (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, 2018	14,700	$	15	16,951,659	$	16,952	$	55,965		$	220,307		$	(2,145	)	$	(62,039	)	$	229,055
Net loss	—	—		—	—		—			(2,986		)	—			—			(2,986		)
Net reclassification of unrealized losses on cash flow hedges, net of taxes	—	—		—	—		—			—			—			(4,637		)	(4,637		)
ESOP compensation expense, including reclassifications	—	—		—	—		529			—			—			—			529
Share-based compensation	—	—		—	—		433			—			—			—			433
Stock option exercises	—	—		26,042	26		300			—			—			—			326
Cumulative preferred dividends, undeclared and unpaid	—	—		—	—		—			(132		)	—			—			(132		)
Balance at September 30, 2018	14,700	15		16,977,701	16,978		57,227			217,189			(2,145		)	(66,676		)	222,588
Net loss	—	—		—	—		—			(10,100		)	—			—			(10,100		)
Net reclassification of unrealized gains on cash flow hedges, net of taxes	—	—		—	—		—			—			—			2,398			2,398
Pension settlement charge, net of taxes	—	—		—	—		—			—			—			8,147			8,147
Change in the funded status of retiree benefit obligations, net of taxes	—	—		—	—		—			—			—			(5,651		)	(5,651		)
ESOP compensation expense, including reclassifications	—	—		—	—		(1,740		)	—			2,145			—			405
Share-based compensation	—	—		16,266	16		474			—			—			—			490
Stock option exercises	—	—		8,562	9		173			—			—			—			182
Cumulative preferred dividends, undeclared and unpaid	—	—		—	—		—			(134		)	—			—			(134		)
Balance at December 31, 2018	14,700	15		17,002,529	17,003		56,134			206,955			—			(61,782		)	218,325
Net loss	—	—		—	—		—			(51,749		)	—			—			(51,749		)
Net reclassification of unrealized losses on cash flow hedges, net of taxes	—	—		—	—		—			—			—			(2,705		)	(2,705		)
Pension settlement charge, net of taxes	—	—		—	—		—			—			—			2,801			2,801
Change in the funded status of retiree benefit obligations, net of taxes	—	—		—	—		—			—			—			(1,943		)	(1,943		)
ESOP compensation expense, including reclassifications	—	—		—	—		700			—			—			—			700
Share-based compensation	—	—		2,032	2		487			—			—			—			489
Cumulative preferred dividends, undeclared and unpaid	—	—		—	—		—			(134		)	—			—			(134		)
Balance at March 31, 2019	14,700	$	15	17,004,561	$	17,005	$	57,321		$	155,072		$	—		$	(63,629	)	$	165,784

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

FARMER BROS. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Nine Months Ended March 31,
2018 2017
Cash flows from financing activities:
Proceeds from revolving credit facility $ 76,513
$ 67,583
Repayments on revolving credit facility (18,249 ) (23,517 )
Proceeds from sale-leaseback financing obligation —
42,455
Proceeds from New Facility lease financing obligation —
7,662
Repayments of New Facility lease financing obligation —
(35,772 )
Payments of capital lease obligations (878 ) (1,107 )
Payment of financing costs (560 ) —
Proceeds from stock option exercises 1,062
823
Tax withholding payment - net share settlement of equity awards —
(6 )
Net cash provided by financing activities $ 57,888
$ 58,121
Net increase (decrease) in cash and cash equivalents $ 733
$ (15,368 )
Cash and cash equivalents at beginning of period 6,241
21,095
Cash and cash equivalents at end of period $ 6,974
$ 5,727

Supplemental disclosure of non-cash investing and financing activities:
    Equipment acquired under capital leases $ —
$ 353
        Net change in derivative assets and liabilities
           included in other comprehensive (loss) income, net of tax
$ (2,424 ) $ (1,615 )
    Non-cash additions to property, plant and equipment $ 2,146
$ 8,515
    Non-cash portion of earnout receivable recognized—spice assets sale $ 183
$ 229
    Non-cash portion of earnout payable recognized—China Mist acquisition $ —
$ 500
    Non-cash portion of earnout payable recognized—West Coast Coffee acquisition $ —
$ 600
    Non-cash receivable from West Coast Coffee—post-closing final working capital adjustment $ 218
$ —
    Non-cash consideration given—Issuance of Series A Preferred Stock $ 11,756
$ —
    Non-cash Multiemployer Plan Holdback payable recognized—Boyd Coffee acquisition $ 1,056
$ —
    Option costs paid with exercised shares $ —
$ 174
    Cumulative preferred dividends, undeclared and unpaid $ 257
$ —



FARMER BROS. CO. CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (Continued) (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, 2017	—	$	—	16,846,002		$	16,846		$	41,495		$	236,993		$	(4,289	)	(61,493		)	$	229,552
Net income	—	—		—		—			—			840			—			—			840
Adjustment due to the adoption of ASU 2017-12	—	—		—		—			—			342			—			(209		)	133
Adjustment due to the adoption of ASU 2016-09	—	—		—		—			—			1,641			—			—			1,641
Net reclassification of unrealized losses on cash flow hedges, net of taxes	—	—		—		—			—			—			—			(993		)	(993		)
ESOP compensation expense, including reclassifications	—	—		—		—			580			—			—			—			580
Share-based compensation	—	—		(2,732	)	(3		)	229			—			—			—			226
Balance at September 30, 2017	—	—		16,843,270		16,843			42,304			239,816			(4,289		)	(62,695		)	231,979
Net loss	—	—		—		—			—			(17,060		)	—			—			(17,060		)
Net reclassification of unrealized losses on cash flow hedges, net of taxes	—	—		—		—			—			—			—			(1,215		)	(1,215		)
ESOP compensation expense, including reclassifications	—	—		—		—			(1,525		)	—			2,144			—			619
Share-based compensation	—	—		12,452		13			406			—			—			—			419
Stock option exercises	—	—		43,945		44			581			—			—			—			625
Consideration for Boyd Coffee acquisition	14,700	15		—		—			11,557			—			—			—			11,572
Cumulative preferred dividends, undeclared and unpaid	—	—		—		—			—			(129		)	—			—			(129		)
Balance at December 31, 2017	14,700	15		16,899,667		16,900			53,323			222,627			(2,145		)	(63,910		)	226,810
Net loss	—	—		—		—			—			(2,193		)	—			—			(2,193		)
Net reclassification of unrealized losses on cash flow hedges, net of taxes	—	—		—		—			—			—			—			(2,230		)	(2,230		)
ESOP compensation expense, including reclassifications	—	—		—		—			590			—			—			—			590
Share-based compensation	—	—		(565	)	(1		)	459			—			—			—			458
Stock option exercises	—	—		28,886		29			408			—			—			—			437
Cumulative preferred dividends, undeclared and unpaid	—	—		—		—			—			(128		)	—			—			(128		)
Balance at March 31, 2018	14,700	$	15	16,927,988		$	16,928		$	54,780		$	220,306		$	(2,145	)	$	(66,140	)	$	223,744

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



FARMER BROS. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
	Nine Months Ended March 31,
	2019			2018
Cash flows from operating activities:
Net loss	$	(64,835	)	$	(18,414	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	23,160			22,727
Provision for doubtful accounts	1,886			369
Impairment losses on intangible assets	—			3,820
Change in estimated fair value of contingent earnout consideration	—			(500		)
Restructuring and other transition expenses, net of payments	1,956			(1,084		)
Deferred income taxes	40,078			15,698
Pension settlement charge	10,948			—
Net losses (gains) from sales of spice assets and other assets	971			(1,101		)
ESOP and share-based compensation expense	3,095			2,892
Net losses on derivative instruments and investments	9,228			305
Change in operating assets and liabilities:
Proceeds from sales of trading securities	—			375
Accounts receivable	(7,651		)	(8,417		)
Inventories	3,937			(7,348		)
Income tax receivable	1,621			162
Derivative assets (liabilities), net	(13,229		)	(6,129		)
Prepaid expenses and other assets	(1,441		)	921
Accounts payable	8,466			7,554
Accrued payroll expenses and other current liabilities	(7,786		)	353
Accrued postretirement benefits	(2,524		)	(1,353		)
Other long-term liabilities	(380		)	(2,476		)
Net cash provided by operating activities	$	7,500		$	8,354
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired	$	—		$	(39,608	)
Purchases of property, plant and equipment	(30,393		)	(25,889		)
Purchases of assets for construction of New Facility	—			(1,577		)
Proceeds from sales of property, plant and equipment	143			1,565
Net cash used in investing activities	$	(30,250	)	$	(65,509	)
Cash flows from financing activities:
Proceeds from revolving credit facility	$	50,642		$	76,513
Repayments on revolving credit facility	(17,417		)	(18,249		)
Payments of capital lease obligations	(185		)	(878		)
Payment of financing costs	(1,041		)	(560		)
Proceeds from stock option exercises	507			1,062
Net cash provided by financing activities	$	32,506		$	57,888
Net increase in cash and cash equivalents	$	9,756		$	733
Cash and cash equivalents at beginning of period	2,438			6,241
Cash and cash equivalents at end of period	$	12,194		$	6,974

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



FARMER BROS. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - (continued)
(In thousands)
	Nine Months Ended March 31,
	2019			2018
Supplemental disclosure of non-cash investing and financing activities:
Net change in derivative assets and liabilities included in other comprehensive loss, net of tax	$	(4,943	)	$	(4,681	)
Non-cash additions to property, plant and equipment	$	739		$	2,146
Non-cash portion of earnout receivable recognized—spice assets sale	$	592		$	183
Non-cash receivable from West Coast Coffee—post-closing final working capital adjustment	$	—		$	218
Non-cash portion of earnout payable recognized—West Coast Coffee acquisition	$	1,000		$	—
Non-cash consideration given—Issuance of Series A Preferred Stock	$	—		$	11,756
Non-cash Multiemployer Plan Holdback payable recognized—Boyd Coffee acquisition	$	—		$	1,056
Non-cash - Boyd Coffee post-closing working capital adjustment	$	2,277		$	—
Cumulative preferred dividends, undeclared and unpaid	$	400		$	257

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

FARMER BROS. CO.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Introduction and Basis of Presentation

Farmer Bros. Co., a Delaware corporation (including its consolidated subsidiaries unless the context otherwise requires, the “Company”), is a national coffee roaster, wholesaler and distributor of coffee, tea, and culinary products.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete consolidated financial statements. In the opinion of management, all adjustments ~~(consisting only of normal recurring accruals, unless otherwise indicated)~~ considered necessary for a fair presentation of the interim financial data have been included. Operating results for the three and nine months ended March 31, ~~2018~~2019 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, ~~2018.~~2019. Events occurring subsequent to March 31, ~~2018~~2019 have been evaluated for potential recognition or disclosure in the unaudited condensed consolidated financial statements for the three and nine months ended March 31, ~~2018.~~2019.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2017,~~2018, filed with the Securities and Exchange Commission (the “SEC”) on September ~~28, 2017~~13, 2018 (the ~~“2017~~“2018 Form 10-K”).

Principles of Consolidation

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

The Company has reclassified certain prior period amounts to conform to the current year presentation.

Use of Estimates

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

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Note 2. Summary of Significant Accounting Policies

For a detailed discussion about the Company’s significant accounting policies, see Note 2, “Summary of Significant Accounting Policies,” ~~to the consolidated financial statements~~ in the ~~2017~~Notes to Consolidated Financial Statements in the 2018 Form 10-K.

During the three and nine months ended March 31, ~~2018,~~2019, other than as set forth below and the adoption of Accounting Standards Update (“ASU”) No. ~~2017-12, “Derivatives and Hedging~~2018-05, “Income Taxes (Topic ~~815)~~740): ~~Targeted Improvements~~Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting ~~for Hedging Activities”~~Bulletin No. 118” (“ASU ~~2017-12”~~2018-05”), ASU No. ~~2016-09, “Compensation - Stock Compensation~~2017-07, “Compensation—Retirement Benefits (Topic ~~718)~~715): ~~Improvements to Employee Share-Based Payment Accounting”~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU ~~2016-09”~~2017-07”), ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”), ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”), ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”), and ASU No. ~~2015-11, “Inventory~~2014-09, “Revenue from Contracts with Customers (Topic ~~330): Simplifying the Measurement of Inventory”~~606)” (“ASU ~~2015-11”~~2014-09”), there were no significant updates made to the Company’s significant accounting policies.

Interest Rate Swap

The Company follows the guidelines of Accounting Standards Codification (“ASC”) 815, “Derivatives and Hedging” (“ASC 815”), to account for interest rate swap derivative instruments as an accounting hedge. For interest rate swap derivative instruments designated as a cash flow hedge, the change in fair value of the derivative is reported as accumulated other comprehensive income (loss) (“AOCI”) and subsequently reclassified into interest expense in the period or periods when the hedged transaction affects earnings.

The Company’s interest rate swap derivative instruments are model-derived valuations with directly or indirectly observable significant inputs such as interest rate and, therefore, classified as Level 2.

Concentration of Credit Risk

At March 31, 2019 and June 30, 2018, the financial instruments which potentially expose the Company to concentration of credit risk consist of cash in financial institutions (in excess of federally insured limits), derivative instruments and trade receivables.

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. See Note 6.

At March 31, 2019 and June 30, 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 33% and 20% of the Company’s trade accounts receivable balance was with five customers at March 31, 2019 and June 30, 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.

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 10. Further, the Company classifies certain expenses related to coffee brewing equipment provided to customers as cost of goods sold. These costs include ~~the cost of the equipment as well as~~ the cost of servicing that equipment (including service employees’ salaries, cost of transportation and the cost of supplies and parts) and are considered directly attributable to the

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

generation of revenues from its customers. Accordingly, such costs included in cost of goods sold in the accompanying unaudited condensed consolidated financial statements in the three months ended March 31, 2019 and 2018 ~~and 2017~~ were ~~$9.5~~$12.7 million and ~~$7.0~~$11.6 million, respectively. Coffee brewing ~~equipment~~ costs included in cost of goods sold in the ~~nine months ended March 31, 2018 and 2017 were $23.1 million and $19.9 million, respectively.~~

The Company capitalizes coffee brewing equipment and depreciates it over five years and reports the depreciation expense in cost of goods sold. Such depreciation expense related to capitalized coffee brewing equipment reported in cost of goods sold in the three months ended March 31, 2018 and 2017 was $2.1 million and $2.3 million, respectively, and $6.5 million and $6.9 million, respectively,accompanying unaudited condensed consolidated financial statements in the nine months ended March 31, 2019 and 2018 ~~and 2017. The Company capitalized coffee brewing equipment (included in machinery and equipment) in the amounts of $8.1~~were $34.0 million and ~~$8.3~~$29.4 million, ~~in the nine months ended March 31, 2018 and 2017,~~ respectively.

~~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 be anti-dilutive. The Series A Preferred Stock is anti-dilutive whenever the amount of the dividend declared or accumulated in the current period per common share obtainable upon conversion exceeds basic EPS. See ~~Note 19~~.

~~Impairment of Goodwill and Indefinite-lived Intangible Assets~~

Historically, the Company performed its annual assessment of impairment of goodwill and indefinite-lived intangible assets as of June 30. During the three months ended December 31, 2017, the Company voluntarily changed its annual impairment assessment date from June 30 to January 31. The Company believes this change in assessment date, which represents a change in the method of applying an accounting principle, is preferred under the circumstances. Due to recent acquisitions, the Company’s goodwill and indefinite-lived intangible asset balances have increased. The Company believes the change in measurement date will provide additional time to complete the annual assessment of impairment of goodwill and indefinite-lived intangible assets in advance of year-end reporting. See ~~Note 13~~.

~~Shipping and Handling Costs~~

Shipping and handling costs incurred through outside carriers are recorded as a component of the Company’s selling expenses and were $7.6 million and $6.0 million, respectively, in the three months ended March 31, 2018 and 2017, and $19.5 million and $17.2 million, respectively, in the nine months ended March 31, 2018 and 2017.

~~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

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

awards using the Black-Scholes option valuation model, which requires management to make certain assumptions for estimating the fair value of stock options at the date of grant. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimates, in management’s opinion, the existing models may not necessarily provide a reliable single measure of the fair value of the Company’s stock options. Although the fair value of stock options is determined using an option valuation model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

In addition, the Company estimates the expected impact of forfeited awards and recognizes share-based compensation cost only for those awards ultimately expected to vest. If actual forfeiture rates differ materially from the Company’s estimates, share-based compensation expense could differ significantly from the amounts the Company has recorded in the current period. The Company periodically reviews actual forfeiture experience and will revise its estimates, as necessary. The Company will recognize as compensation cost the cumulative effect of the change in estimated forfeiture rates on current and prior periods in earnings of the period of revision. As a result, if the Company revises its assumptions and estimates, the Company’s share-based compensation expense could change materially in the future.Revenue Recognition

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 criteriasignificant accounting policy for revenue was updated as a ~~condition~~result of the adoption of ASU 2014-09. The Company recognizes revenue in accordance with the five-step model prescribed by ASU 2014-09 in which the Company evaluates the transfer of promised goods or services and recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASU 2014-09, the Company performs the following five steps: (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 ~~vesting.~~ performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 21.

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 $2.4 million and $4.2 million, respectively, in the three months ended March 31, 2019 and 2018. Shipping and handling costs that were recorded as a component of the Company's selling expenses were $9.0 million and $9.3 million, respectively, in the nine months ended March 31, 2019 and 2018.

Effective June 30, 2018, the Company implemented a change in accounting principle for freight costs incurred to transfer goods from a distribution center to a branch warehouse and warehousing overhead costs incurred to store and ready goods prior to their sale, and made certain corrections relating to the classification of allied freight, overhead variances and purchase price variances (“PPVs”) from expensing such costs as incurred within selling expenses to capitalizing such costs as inventory and expensing through cost of goods sold. See Note 3.

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 ~~estimated fair value~~overfunded or underfunded status of ~~performance-based awards, net of estimated forfeitures,~~a defined benefit pension plan 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 basedan asset or liability on ~~changes~~its condensed consolidated balance sheets. Changes in the ~~probability of achieving the performance criteria. Revisions~~funded status are ~~reflected~~recognized through AOCI, in the ~~period~~year in which the ~~estimate is changed. If performance goals are not met, no share-based compensation expense is recognized~~changes occur. The Company recognizes pension settlements when payments from the plan exceed the sum of service and interest cost components of net periodic pension cost associated with the plan 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, additional compensation expense is recorded in the period when that determination is certified by the Compensation Committee of the Board of Directors.fiscal year. See Note 1612.

~~Recently Adopted Accounting Standards~~

~~In August 2017,~~The Company’s significant accounting policy for pension plans was updated as a result of the ~~Financial Accounting Standards Board (“FASB”) issued~~adoption of ASU ~~2017-12. ASU 2017-12 amends~~2017-07, which impacted the ~~hedge accounting model in Accounting Standards Codification (“ASC”) 815 to enable entities to better portray~~presentation of the ~~economics~~components of ~~their risk management activities~~net periodic benefit cost in the ~~financial~~condensed consolidated statements of income. Net periodic benefit cost, other than the service cost component, is retrospectively included in “Interest expense” and enhance the transparency and understandability of hedge results. ASU 2017-12 expands an entity’s ability to hedge non-financial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change“Other, net” in the ~~fair value~~condensed consolidated statements of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. The guidance in ASU 2017-12 is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years, and is effective for the Company beginning July 1, 2019. Early adoption is permitted in any interim period or fiscal year before the effective date. For cash flow and net investment hedges existing at the date of adoption, entities will apply the new guidance using a modified retrospective approach (i.e., with a cumulative effect adjustment recorded to the opening balance of retained earnings as of the initial application date). The guidance provides transition relief to make it easier for entities to apply certain amendments to existing hedges (including fair value hedges) where the hedge documentation needs to be modified. The Company early adopted ASU 2017-12 as of September 30, 2017 for its cash flow hedges related to coffee commodity purchases. Adoption of ASU 2017-12 resulted in a cumulative adjustment of $0.3 million to the opening balance of retained earnings as of October 1, 2017. Adoption of ASU 2017-12 did not have any other material effect on the results of operations, financial position or cash flows of the Company.income.

In March 2016, the FASB issued ASU 2016-09. ASU 2016-09 was issued as part of the FASB’s Simplification Initiative. The areas for simplification in ASU 2016-09 involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 requires that the tax impact related to the difference between share-based

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

compensation for book and tax purposes be recognized as income tax benefit or expense in the reporting period in which such awards vest. ASU 2016-09 also required a modified retrospective adoption for previously unrecognized excess tax benefits. The guidance in ASU 2016-09 is effective for public business entities for annual periods beginning after December 15, 2016, including interim periods within those annual reporting periods. The Company adopted ASU 2016-09 beginning July 1, 2017 on a modified retrospective basis, recognizing all excess tax benefits previously unrecognized, as a cumulative-effect adjustment increasing deferred tax assets by $1.6 million and increasing retained earnings by the same amount as of July 1, 2017. Adoption of ASU 2016-09 did not have any other material effect on the results of operations, financial position or cash flows of the Company.

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

~~New~~Recently Adopted Accounting ~~Pronouncements~~

Standards

In March 2018, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued ASU ~~No.~~ 2018-05 ~~“Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118” (“ASU 2018-05”). ASU 2018-05~~which amends ASC 740, ~~(Income Taxes)~~“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. IfThe Company finalized its assessment of the ~~Company is not able to make a reasonable estimate for the impact~~income tax effects of the Tax Act ~~it should not be recorded until a reasonable estimate can be made during~~in the ~~measurement period. The Company recorded provisional adjustments and expects to finalize the provisional amounts within one year from the enactment date.~~second quarter of fiscal 2019. See Note 18.

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. Under ASU 2017-07, an entity must disaggregate and present the service cost component of net periodic benefit cost in the same income statement line items as other employee compensation costs arising from services rendered during the period, and only the service cost component will be eligible for capitalization. Other components of net periodic benefit cost must be presented separately from the line items that include the service cost. 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 to reclassify net periodic benefit cost, other than the service component, from “Cost of goods sold,” “Selling expenses” and “General and administrative expenses” to “Interest expense” and “Other, net” in the condensed consolidated statements of income. Accordingly, “Interest expense” increased by $1.4 million and $1.6 million for the three months ended March 31, 2019 and 2018, respectively, and “Other, net” increased by $1.4 million and $1.7 million in the three months ended March 31, 2019 and 2018, respectively. “Interest expense” increased by $4.7 million and $4.9 million for the nine months ended March 31, 2019 and 2018, respectively, and “Other, net” increased by $4.9 million and $5.0 million in the nine months ended March 31, 2019 and 2018, respectively. See Note 3 and Note 6. In the fiscal years ended June 30, 2018 and 2017, “Interest expense” increased by $6.6 million and $6.4 million, respectively, and “Other, net” increased by $6.7 million and $6.8 million, respectively, due to reclassifications of net periodic benefit cost, other than the service component, as a result of adopting ASU 2017-07.

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 will apply 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.

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

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

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.

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 31, 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 21.

New Accounting Pronouncements

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 is currently evaluating the impact ASU 2018-02 will have on its consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”). ASU 2017-07 amends the requirements in GAAP related to the income statement presentation of the components of net periodic benefit cost for an entity’s sponsored defined benefit pension and other postretirement plans. ASU 2017-07 changes the income statement presentation of defined benefit plan expense by requiring separation between operating expense (service cost component) and non-operating expense (all other components, including interest cost, amortization of prior service cost, curtailments and settlements, etc.). The operating expense component is reported with similar compensation costs while the non-operating expense components are reported in other income and expense. In addition, only the service cost component is eligible for capitalization as part of an asset such as inventory or property, plant and equipment. The guidance in ASU 2017-07 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years, and is effective for the Company beginning July 1, 2018. Because the expected operating expense component and non-operating expense components of net periodic benefit cost are not material to the consolidated financial statements of the Company, adoption of ASU 2017-07 is not expected to have a material effect on the results of operations, financial position or cash flows of the Company.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The amendments in ASU 2017-04 address concerns regarding the cost

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

and complexity of the two-step goodwill impairment test, and remove the second step of the test. An entity will apply a one-step

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 does not amend the optional qualitative assessment of goodwill impairment. The guidance in ASU 2017-04 is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and is effective for the Company beginning July 1, 2020. Adoption of ASU 2017-04 is not expected to have a material effect on the results of operations, financial position or cash flows of the Company.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). The amendments in ASU 2017-01 clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses and provide a screen to determine when an integrated set of assets and activities (collectively referred to as a “set”) is not a business. If the screen is not met, the amendments (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace the missing elements. The guidance in ASU 2017-01 is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted in certain circumstances. ASU 2017-01 is effective for the Company beginning July 1, 2018. Adoption of ASU 2017-01 is not expected to have a material effect on the results of operations, financial position or cash flows of the Company.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”). The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents. The guidance in ASU 2016-18 is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted in certain circumstances. ASU 2016-18 is effective for the Company beginning July 1, 2018. Adoption of ASU 2016-18 is not expected to have a material effect on the results of operations, financial position or cash flows of the Company.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)” (“ASU 2016-15”). ASU 2016-15 addresses certain issues where diversity in practice was identified in classifying certain cash receipts and cash payments based on the guidance in ASC 230. ASC 230 is principles based and often requires judgment to determine the appropriate classification of cash flows as operating, investing or financing activities. The application of judgment has resulted in diversity in how certain cash receipts and cash payments are classified. Certain cash receipts and cash payments may have aspects of more than one class of cash flows. ASU 2016-15 clarifies that an entity will first apply any relevant guidance in ASC 230 and in other applicable topics. If there is no guidance that addresses those cash receipts and cash payments, an entity will determine each separately identifiable source or use and classify the receipt or payment based on the nature of the cash flow. If a receipt or payment has aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source or use. The guidance in ASU 2016-15 is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted in certain circumstances. ASU 2016-15 is effective for the Company beginning July 1, 2018. Adoption of ASU 2016-15 is not expected to have a material effect on the results of operations, financial position or cash flows of the Company.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which introduces a new lessee model that brings substantially all leases onto the balance sheet. Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments and a related right-of-use asset. 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. ASU 2016-02 is effective for the Company beginning July 1, 2019. The Company is ~~evaluating~~currently identifying and compiling all leases and right–of–use terms to evaluate the impact of this guidance ~~will have~~ on its condensed consolidated financial statements, information systems, business processes, and financial statement disclosures. The Company expects the adoption will have a material effect on the Company’s financial position resulting from the increase in assets and ~~liabilities.~~liabilities as well as additional disclosures.

In May 2014, the FASB issued accounting guidance which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers under ASU No. 2014-09,

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

~~“Revenue~~Note 3. Changes in Accounting Principles and Corrections to Previously Issued Financial Statements

Effective June 30, 2018, the Company changed its method of accounting for its coffee, tea and culinary products from ~~Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. On August 12, 2015,~~ the ~~FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral~~LIFO basis to the FIFO basis. Total inventories accounted for utilizing the LIFO cost flow assumption represented 91% of the ~~Effective Date,” which defers the effective date of ASU 2014-09 by one year allowing early adoption~~Company’s total inventories as of June 30, 2018 prior to this change in method. The Company believes that this change is preferable as it better matches revenues with associated expenses, aligns the ~~original~~accounting with the physical flow of inventory, and improves comparability with the Company’s peers.

Additionally, effective date of January 1, 2017. The deferral results in the new accounting standard being effective for public business entities for annual reporting periods beginning after December 31, 2017, including interim periods within those fiscal years. ASU 2014-09 is effective forJune 30, 2018, the Company ~~beginning July 1, 2018.~~implemented a change in accounting principle for freight costs incurred to transfer goods from a distribution center to a branch warehouse and warehousing overhead costs incurred to store and ready goods prior to their sale, from expensing such costs as incurred within selling expenses to capitalizing such costs as inventory and expensing through cost of goods sold. The Company has ~~evaluated~~determined that it is preferable to capitalize such costs into inventory and expense through cost of goods sold because it better represents the ~~provisions~~costs incurred in bringing the inventory to its existing condition and location for sale to customers, and it is consistent with the Company’s accounting treatment of similar costs.

In connection with these changes in accounting principles, subsequent to the issuance of the Company's consolidated financial statements for the fiscal year ended June 30, 2017, the Company determined that freight associated with certain non-coffee product lines ("allied") was incorrectly expensed as incurred in selling expenses, and the overhead variances and purchase price variances (“PPVs”) associated with these product lines were incorrectly expensed as incurred in cost of goods sold for the fiscal years ended June 30, 2017 and 2016 and for the first three quarters in the fiscal year ended June 30, 2018. These costs should have been capitalized as inventory costs in accordance with ASC 330, "Inventory." Accordingly, the Company has corrected the accompanying condensed consolidated financial statements for the three and nine months ended March 31, 2018 to capitalize the appropriate portion of these costs in ending inventory and to reclassify remaining allied freight to cost of goods sold.

In accordance with SFAS No. 154, “Accounting Changes and Error Corrections,” the change in method of accounting for coffee, tea and culinary products and the change in accounting principle for freight and warehousing overhead costs have been retrospectively applied, and the corrections relating to the reclassification and capitalization of allied freight and the capitalization of allied overhead variances and PPVs have been made, to all prior periods presented herein.

The cumulative effect on retained earnings for these changes as of July 1, 2017 is $17.6 million.

In addition to the foregoing, during the nine months ended March 31, 2019, the Company adopted new accounting standards that required retrospective application. The Company updated the condensed consolidated statements of income as a result of adopting ASU ~~2014-09~~2017-07, and ~~assessed its~~updated the condensed consolidated statements of cash flows as a result of adopting ASU 2016-18. See Note 2.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

The following table presents the impact of these changes on the ~~Company’s financial statements, information systems, business processes, and financial~~Company's condensed consolidated statement ~~disclosures. The Company has analyzed its revenue streams, performed detailed contract reviews~~of operations for ~~each stream, and evaluated~~ the impact ASU 2014-09 will have on revenue recognition. The Company primarily recognizes revenue at point of sale or delivery and has determined that this will not change under the new standard. There are certain unique arrangements related to the contractsthree months ended March 31, 2018:



	Three Months Ended March 31, 2018
(In thousands, except per share data)	As Previously Reported			LIFO to FIFO Adjustment			Preferable Freight and Warehousing Adjustments			Corrections of Freight, Overhead Variances and PPVs			ASU 2017-07 Adjustments(1)			Retrospectively Adjusted
Cost of goods sold	$	99,117		$	(891	)	$	5,888		$	1,602		$	(87	)	$	105,629
Gross profit	$	58,810		$	891		$	(5,888	)	$	(1,602	)	$	87		$	52,298
Selling expenses	$	44,736		$	—		$	(5,495	)	$	(1,200	)	$	(287	)	$	37,754
General and administrative expenses	$	13,766		$	—		$	—		$	—		$	391		$	14,157
Operating expenses	$	61,674		$	—		$	(5,495	)	$	(1,200	)	$	104		$	55,083
Loss from operations	$	(2,864	)	$	891		$	(393	)	$	(401	)	$	(18	)	$	(2,785	)
Interest expense	$	(902	)	$	—		$	—		$	—		$	(1,645	)	$	(2,547	)
Other, net	$	154		$	—		$	—		$	—		$	1,663		$	1,817
Total other expense	$	(747	)	$	—		$	—		$	—		$	18		$	(729	)
Loss before taxes	$	(3,611	)	$	891		$	(393	)	$	(401	)	$	—		$	(3,514	)
Income tax expense (benefit)	$	297		$	(1,562	)	$	436		$	(492	)	$	—		$	(1,321	)
Net loss	$	(3,908	)	$	2,452		$	(829	)	$	92		$	—		$	(2,193	)
Net loss available to common stockholders	$	(4,036	)	$	2,452		$	(829	)	$	92		$	—		$	(2,321	)
Net loss available to common stockholders per common share—basic	$	(0.24	)	$	0.14		$	(0.05	)	$	0.01		$	—		$	(0.14	)
Net loss available to common stockholders per common share—diluted	$	(0.24	)	$	0.14		$	(0.05	)	$	0.01		$	—		$	(0.14	)

_____________

(1) Reflects changes resulting from ~~recent acquisitions in which revenue recognition will be impacted, however, the Company does not expect that~~ the adoption of ASU ~~2014-09 will have a material effect~~2017-07. See Note 2.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

The following table presents the impact of these changes on the ~~results~~Company's condensed consolidated statement of operations ~~financial position or~~for the nine months ended March 31, 2018:



	Nine Months Ended March 31, 2018
(In thousands, except per share data)	As Previously Reported			LIFO to FIFO Adjustment			Preferable Freight and Warehousing Adjustments			Corrections of Freight, Overhead Variances and PPVs			ASU 2017-07 Adjustments(1)			Retrospectively Adjusted
Cost of goods sold	$	283,670		$	994		$	15,578		$	2,323		$	(216	)	$	302,349
Gross profit	$	173,336		$	(994	)	$	(15,578	)	$	(2,323	)	$	216		$	154,657
Selling expenses	$	132,979		$	—		$	(16,418	)	$	(3,279	)	$	(546	)	$	112,736
General and administrative expenses	$	39,007		$	—		$	—		$	—		$	815		$	39,822
Operating expenses	$	175,016		$	—		$	(16,418	)	$	(3,279	)	$	269		$	155,588
Loss from operations	$	(1,680	)	$	(994	)	$	840		$	956		$	(53	)	$	(931	)
Interest expense	$	(2,286	)	$	—		$	—		$	—		$	(4,935	)	$	(7,221	)
Other, net	$	794		$	—		$	—		$	—		$	4,988		$	5,782
Total other expense	$	(1,478	)	$	—		$	—		$	—		$	53		$	(1,425	)
Loss before taxes	$	(3,158	)	$	(994	)	$	840		$	956		$	—		$	(2,356	)
Income tax expense	$	20,497		$	(4,931	)	$	1,699		$	(1,207	)	$	—		$	16,058
Net loss	$	(23,655	)	$	3,937		$	(859	)	$	2,163		$	—		$	(18,414	)
Net loss available to common stockholders	$	(23,912	)	$	3,937		$	(859	)	$	2,163		$	—		$	(18,671	)
Net loss available to common stockholders per common share—basic	$	(1.43	)	$	0.23		$	(0.05	)	$	0.13		$	—		$	(1.12	)
Net loss available to common stockholders per common share—diluted	$	(1.43	)	$	0.23		$	(0.05	)	$	0.13		$	—		$	(1.12	)

_________________

(1) Reflects changes resulting from the adoption of ASU 2017-07. See Note 2.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

The following table presents the impact of these changes on the Company's condensed consolidated statement of cash flows offor the ~~Company. In addition, the Company anticipates expanded disclosures related to revenue in order to comply with ASU 2014-09 and intends to adopt ASU 2014-09 using the modified retrospective method.~~nine months ended March 31, 2018:



	Nine Months Ended March 31, 2018
(In thousands)	As Previously Reported			LIFO to FIFO Adjustment			Preferable Freight and Warehousing Adjustments			Corrections of Freight, Overhead Variances and PPVs			Retrospectively Adjusted
Net loss	$	(23,655	)	$	3,937		$	(859	)	$	2,163		$	(18,414	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Deferred income taxes	$	20,138		$	(4,932	)	$	1,699		$	(1,207	)	$	15,698
Net losses on derivative instruments and investments	$	3,292		$	(2,987	)	$	—		$	—		$	305
Change in operating assets and liabilities:
Inventories	$	(9,533	)	$	3,981		$	(840	)	$	(956	)	$	(7,348	)
Derivative assets (liabilities), net	$	(6,091	)	$	(38	)	$	—		$	—		$	(6,129	)
Accounts payable	$	7,516		$	38		$	—		$	—		$	7,554

The impacts shown above have also been reflected in the Company’s condensed consolidated statements of comprehensive loss for the three and nine months ended March 31, 2018 as follows:



	Three Months Ended March 31, 2018						Nine Months Ended March 31, 2018
(In thousands)	As Previously Reported			Retrospectively Adjusted			As Previously Reported			Retrospectively Adjusted
Net loss	$	(3,908	)	$	(2,193	)	$	(23,655	)	$	(18,414	)
Unrealized losses on derivative instruments designated as cash flow hedges, net of tax	$	(2,437	)	$	(2,430	)	$	(4,148	)	$	(4,255	)
Gains (losses) on derivative instruments designated as cash flow hedges reclassified to cost of goods sold, net of tax	$	1,355		$	438		$	1,724		$	(426	)
Total comprehensive loss, net of tax	$	(4,990	)	$	(4,185	)	$	(26,079	)	$	(23,095	)

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Note 3.4. Acquisitions

~~China Mist Brands, Inc.~~Boyd Coffee Company

On October ~~11, 2016,~~2, 2017 (“Closing Date”), the Company ~~through a wholly owned subsidiary,~~ acquired substantially all of the assets and certain specified liabilities of ~~China Mist Brands, Inc. dba China Mist Tea~~Boyd Coffee Company (“~~China Mist”~~Boyd Coffee” or “Seller”), a ~~provider of flavored~~coffee roaster and ~~unflavored iced~~distributor with a focus on restaurants, hotels, and ~~hot teas. As part~~convenience stores on the West Coast of the ~~transaction,~~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 ~~assumed~~paid the ~~lease on China Mist’s existing 17,400 square foot distribution and warehouse facility in Scottsdale, Arizona which is terminable upon twelve months’ notice.~~

~~The Company acquired China Mist for aggregate purchase consideration of $12.2 million, consisting of $11.2~~Seller $38.9 million in cash ~~paid at closing including estimated working capital adjustments~~from borrowings under its senior secured revolving credit facility (see Note 13) and issued to Boyd Coffee 14,700 shares of ~~$0.4 million, post-closing final working capital adjustments of $0.6 million, and up to $0.5 million in contingent consideration to be paid as earnout if certain sales levels are achieved in~~ the ~~calendar years of 2017 or 2018. This contingent earnout liability was estimated to have~~Company’s Series A Convertible Participating Cumulative Perpetual Preferred Stock, par value $1.00 per share (“Series A Preferred Stock”), with a fair value of ~~$0.5~~$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 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 ~~date and~~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 ~~in other long-term liabilities~~ on the Company’s ~~Condensed Consolidated Balance Sheet~~consolidated balance sheet in “Other long-term liabilities" at June 30, ~~2017. At~~2018. See Note 17. 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 three months ended March 31, 2018, the Company recorded a change in the estimated fair value of contingent earnout consideration of $(0.5) million, resulting in a balance of zero as the Company does not expect the contingent sales levels to be reached.

~~The financial effect of this acquisition was not material to the Company’s condensed consolidated financial statements.~~2019. The Company has ~~not presented pro forma results~~applied the remaining amount of ~~operations for~~ the ~~acquisition because it is not significant to~~Multiemployer Plan Holdback of $0.5 million towards satisfaction of the ~~Company’s consolidated results~~Seller’s post-closing net working capital deficiency under the Asset Purchase Agreement as of ~~operations.~~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 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 ~~is final.~~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.

As of March 31, 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.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

The following table summarizes the final allocation of consideration transferred as of the acquisition date:


(In thousands)	Fair Value			Estimated Useful Life (years)	Fair Value			Estimated Useful Life (years)

Cash paid, net of cash acquired	$	11,183
Post-closing final working capital adjustments	553
Fair value of contingent consideration	500
Cash paid					$	38,871
Holdback Cash Amount					3,150
Multiemployer Plan Holdback					1,056
Fair value of Series A Preferred Stock (14,700 shares)(1)					11,756
Fair value of Holdback Stock (6,300 shares)(1)					4,825
Estimated post-closing net working capital adjustment					(8,059		)
Total consideration	$	12,236			$	51,599

Accounts receivable	$	811			$	7,503
Inventory	544				9,415
Prepaid assets	48
Prepaid expense and other assets					1,951
Property, plant and equipment	189				4,936
Goodwill	2,927				25,395
Intangible assets:
Recipes	930			7
Non-compete agreement	100			5
Customer relationships	2,000			10	16,000			10
Trade name/trademark—indefinite-lived	5,070				3,100
Accounts payable	(383		)		(15,080		)
Total consideration, net of cash acquired	$	12,236
Other liabilities					(1,621		)
Total consideration					$	51,599

______________

(1) Fair value of Series A Preferred Stock and Holdback Stock as of the Closing Date, estimated as the sum of (a) the present value of the dividends payable thereon and (b) the stated value of the Series A Preferred Stock or Holdback Stock, as the case may be, adjusted for both the conversion premium and the discount for lack of marketability arising from conversion restrictions.

In connection with this acquisition, the Company recorded goodwill of ~~$2.9~~$25.4 million, which is deductible for tax purposes. The Company also recorded ~~$3.0~~$16.0 million in finite-lived intangible assets that included ~~recipes, a non-compete agreement and~~ customer relationships and ~~$5.1~~$3.1 million in indefinite-lived intangible assets that included a trade name/trademark. The ~~weighted average~~ amortization period for the finite-lived intangible assets is ~~8.9~~10.0 years. See Note 1311.

The determination of the fair value of intangible assets acquired was primarily based on significant inputs not observable in an active market and thus represent Level 3 fair value measurements as defined under GAAP.

The fair value assigned to the ~~recipes was determined utilizing the replacement cost method, which captures the direct cost of the development effort plus lost profits over the time to re-create the recipes.~~

The fair value assigned to the non-compete agreement was determined utilizing the with and without method. Under the with and without method, the fair value of the intangible asset is estimated based on the difference in projected earnings with the agreement in place versus projected earnings based on starting with no agreement in place. Revenue and earnings projections were significant inputs into estimating the value of China Mist’s non-compete agreement.

~~The fair value assigned to the~~ customer relationships was determined based on ~~management’s~~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.

During the Company’s annual intangible asset impairment test as of January 31, 2018 and assessment of the recoverability of certain finite-lived intangible assets, the Company determined that the fair value of certain China Mist intangible assets was lower than the carrying value. As a result, the Company recorded an impairment charge during the three and nine months ended March 31, 2018. See ~~Note 13~~.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

~~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 Company, Inc. (“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 production, distribution and warehouse facility in Hillsboro, Oregon, which expires January 31, 2020, and assumed leases on six branch warehouses consisting of an aggregate of 24,150 square feet in Oregon, California and Nevada, expiring on various dates through November 2020. The Company acquired West Coast Coffee for aggregate purchase consideration of $15.5 million, which included $14.7 million in cash paid at closing including working capital adjustments of $1.2 million, post-closing final working capital adjustments of $(0.2) million, and up to $1.0 million in contingent consideration to be paid as earnout if certain sales levels are achieved in the twenty-four months following the closing. This contingent earnout liability was estimated to have a fair value of $0.6 million as of the closing date and is recorded in other long-term liabilities on the Company’s Condensed Consolidated Balance Sheet at March 31, 2018 and June 30, 2017. The earnout is expected to be paid within twenty-four months following the closing.

The financial effect of this acquisition was not material to the Company’s condensed 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 following table summarizes the final allocation of consideration transferred as of the acquisition date:~~

(In thousands) Fair Value Estimated Useful Life (years)

Cash paid, net of cash acquired $ 14,671

Post-closing final working capital adjustments (218 )
Fair value of contingent consideration 600

Total consideration $ 15,053

Accounts receivable $ 956

Inventory 910

Prepaid assets 16

Property, plant and equipment 1,546

Goodwill 7,630

Intangible assets:
  Non-compete agreements 100
5
  Customer relationships 4,400
10
  Trade name—finite-lived 260
7
  Brand name—finite-lived 250
1.7
Accounts payable (833 )
Other liabilities (182 )
  Total consideration, net of cash acquired $ 15,053

In connection with this acquisition, the Company recorded goodwill of $7.6 million, which is deductible for tax purposes. The Company also recorded $5.0 million in finite-lived intangible assets that included non-compete agreements, customer relationships, a trade name and a brand name. The weighted average amortization period for the finite-lived intangible assets is 9.3 years. See ~~Note 13~~.

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

The fair value assigned to the non-compete agreements was determined utilizing the with and without method. Under the with and without method, the fair value of the intangible asset is estimated based on the difference in projected earnings with the agreements in place versus projected earnings based on starting with no agreements in place. Revenue and earnings projections were significant inputs into estimating the value of West Coast Coffee’s non-compete agreements.

The fair value assigned to the customer relationships was determined utilizing a multi-period excess earnings approach. Under the multi-period excess earnings approach, the fair value of the intangible asset is estimated to be the present value of future earnings attributable to the asset and this method utilizes revenue and cost projections including an assumed contributory asset charge.

The fair values assigned to the trade name and the brand name were determined utilizing the relief from royalty method. The relief from royalty method is based on the premise that the intangible asset owner would be willing to pay a royalty rate to license the subject asset. The analysis involves forecasting revenue over the life of the asset, applying a royalty rate and a tax rate, and then discounting the savings back to present value at an appropriate discount rate.

~~Boyd Coffee Company~~

On October 2, 2017 (“Closing Date”), the Company, through a wholly-owned subsidiary, acquired substantially all of the assets and certain specified liabilities of Boyd Coffee Company (“Boyd Coffee” or “Seller”), a coffee roaster and distributor with a focus on restaurants, hotels, and convenience stores on the West Coast of the United States. The acquired business of Boyd Coffee (the “Boyd Business”) is expected to add to the Company’s product portfolio, improve growth potential, increase the density and penetration of the Company’s distribution footprint, and increase capacity utilization at the Company’s production facilities.

~~At closing, as consideration for the purchase, the Company paid the Seller $38.9 million in cash from borrowings under its senior secured revolving credit facility (see~~ ~~Note 15~~), and issued to Boyd Coffee 14,700 shares of the Company’s Series A Preferred Stock, with a fair value of $11.8 million as of the Closing Date. Additionally, the Company held back $3.2 million in cash (“Holdback Cash Amount”) and 6,300 shares of Series A Preferred Stock (“Holdback Stock”) with a fair value of $4.8 million as of the Closing Date, for the satisfaction of any post-closing working capital adjustment and to secure the Seller’s (and the other seller parties’) indemnification obligations under the purchase agreement. Any Holdback Cash Amount and Holdback Stock not used to satisfy indemnification claims (including pending claims) will be released to the Seller on the 18-month anniversary of the Closing Date.

In addition to the Holdback Cash, as part of the consideration for the purchase, at closing the Company held back $1.1 million in cash (the “Multiemployer Plan Holdback”) to pay, on behalf of the Seller, any assessment of withdrawal liability made against the Seller following the Closing Date in respect of the Seller’s multiemployer pension plan. As the Company has not made this payment as of March 31, 2018 and expects settling the pension liability will take greater than twelve months, the Multiemployer Plan Holdback is recorded in other long-term liabilities on the Company’s Condensed Consolidated Balance Sheet at March 31, 2018. See ~~Note 17~~.

The parties are in the process of determining the final net working capital under the purchase agreement. At March 31, 2018, the Company estimated a net working capital adjustment of $(8.1) million, which is reflected in the preliminary purchase price allocation set forth below.

~~The following table summarizes the preliminary allocation of consideration transferred as of the acquisition date:~~

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

(In thousands) Fair Value
Estimated
Useful Life
(years)

Cash paid $ 38,871

Holdback Cash Amount 3,150

Multiemployer Plan Holdback 1,056

Fair value of Series A Preferred Stock (14,700 shares)(1) 11,756

Fair value of Holdback Stock (6,300 shares)(1) 4,825

Preliminary estimated post-closing working capital adjustment (8,059 )
Total consideration $ 51,599

Accounts receivable $ 7,166

Inventory 9,415

Prepaid expense and other assets 1,951

Property, plant and equipment 4,936

Goodwill 25,732

Intangible assets:
  Customer relationships 16,000
10
  Trade name/trademark—indefinite-lived 3,100

Accounts payable (15,080 )
Other liabilities (1,621 )
  Total consideration $ 51,599

~~______________~~

In connection with this acquisition, the Company recorded goodwill of $25.7 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. Amounts recorded on the Company’s Condensed Consolidated Balance Sheet at March 31, 2018 reflect the adjustment to amounts allocated to goodwill and intangible assets during the quarter. The amortization period for the finite-lived intangible assets is 10.0 years. See ~~Note 13~~.

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.~~

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

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 ~~loss~~income before taxes from the Boyd Business operations that are included in the Company’s ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Operations~~operations for the three and nine months ended March 31, ~~2018~~2019 (unaudited):


(In thousands)	March 31, 2018				Three Months Ended		Nine Months Ended
	Three Months Ended		Nine Months Ended		March 31, 2019		March 31, 2019
Net sales	$	22,848	$	49,138	$	18,494	$	63,079
Income before taxes	$	81	$	592	$	668	$	4,884

The Company considers the acquisition to be material to the Company’s 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 three and nine months ended March 31, ~~2018~~2019 and ~~2017,~~2018, as if the acquisition of the Boyd Business was consummated on the same terms as of the first day of the applicable fiscal period.


	Three Months Ended March 31,					Nine Months Ended March 31,					Three Months Ended March 31,						Nine Months Ended March 31,
	2018			2017		2018			2017		2019			2018			2019			2018
(In thousands)
Net sales	$	157,927		$	161,339	$	478,988		$	480,749	$	146,679		$	157,927		$	453,892		$	478,988
(Loss) income before taxes	$	(3,611	)	$	2,838	$	(2,832	)	$	39,252
Loss before taxes											$	(8,588	)	$	(3,514	)	$	(25,686	)	$	(2,029	)

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 condensed 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~~transitioned production into its plants. Amounts paid by the Company to the Seller for these services totaled $3.7 million in the nine months ended March 31, 2019 and $10.2 million and $19.4 million in the three and nine months ended March 31, 2018, respectively.

The transition services and co-manufacturing agreements expired on October 2, 2018 and no amounts were paid under these agreements in the three months ended March 31, 2019.

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 ~~consulting~~equipment relocation costs, and one-time payroll and benefit expenses, of $2.4 million and $1.6 million during the three months ended March 31, 2019 and 2018, respectively, and $6.1 million and $5.0 million during the ~~three and~~ nine months ended March 31, 2019 and 2018, ~~respectively, which~~respectively. These expenses are included in ~~general~~cost of goods sold and ~~administrative~~operating expenses in the Company's ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Operations.~~operations.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Note 4.5. Restructuring Plans

Corporate Relocation Plan

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

In the ~~three and~~ nine months ended March 31, ~~2018, no~~2019, the Company incurred $3.4 million in restructuring and other transition expenses associated with the ~~Corporate Relocation~~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 ~~were incurred and there were no unpaid amounts at March 31, 2018.~~

~~The~~(the “WCTPP”) unfunded benefits due to the Company’s partial withdrawal from the WCTPP as a result of employment actions taken by the Company ~~estimated that it would incur approximately $31 million~~ in ~~cash costs~~2016 in connection with the Corporate Relocation Plan ~~consisting~~(see Note 12), of ~~$18~~which the Company has paid $1.3 million ~~in employee retention~~ and ~~separation benefits, $5~~has outstanding contractual obligations of $2.1 million ~~in facility-related costs~~as of March 31, 2019.

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~and $8 million in other related costs.~~ Since the adoption of the Corporate Relocation Plan through March 31, ~~2018,~~2019, the Company has recognized a total of ~~$31.5~~$35.2 million in aggregate cash costs including ~~$17.1~~$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 March 31, ~~2018~~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. ~~The Company may incur certain pension-related costs in connection with the Corporate Relocation Plan. See~~ ~~Note 14~~.

Direct Store Delivery (“DSD”) Restructuring Plan

On February 21, 2017, the Company announced a 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 “DSD Restructuring Plan”). The strategic decision to undertake the DSD Restructuring Plan resulted from an ongoing operational review of various initiatives within the DSD selling organization. The Company ~~has revised its estimated time of completion of~~expects to complete the DSD Restructuring Plan ~~from~~by the end of ~~the second quarter of~~ fiscal ~~2018 to the end of calendar 2018.~~2019.

The Company estimates that it will recognize approximately ~~$3.7 million to~~ $4.9 million of pre-tax restructuring charges by the end of ~~calendar 2018~~fiscal 2019 consisting of approximately ~~$1.9 million to~~ $2.7 million in employee-related costs and contractual termination payments, including severance, prorated bonuses for bonus eligible employees ~~contractual termination payments~~ and outplacement services, and ~~$1.8 million to~~ $2.2 million in other related costs, including legal, recruiting, consulting, other professional services, and travel. The Company may also incur other charges not currently contemplated due to events that may occur as a result of, or associated with, the DSD Restructuring Plan.

~~Expenses~~The Company incurred expenses related to the DSD Restructuring Plan in the amounts of $0.1 million and $0 in employee-related costs, and $1,500 and $0.1 million in other related costs for three months ended March 31, 2019 and 2018, respectively, and $1.3 million and $24,000 in employee-related costs and $0.2 million and $0.3 million in other related costs for the nine months ended March 31, 2019 and 2018, ~~consisted of $0 and $24,000, respectively, in employee-related costs and $0.1 million and $0.3 million, respectively, in other related costs.~~respectively. Since the adoption of the DSD Restructuring Plan through March 31, ~~2018,~~2019, the Company has recognized ~~and paid~~ a total of ~~$2.7~~$4.5 million in aggregate cash costs including ~~$1.1~~$2.6 million in employee-related costs, and ~~$1.6~~$1.9 million in other related costs. ~~The remaining estimated costs~~As of ~~$1.0 million to $2.2 million are expected to be incurred in the remainder of calendar 2018.~~

~~Note 5. New Facility~~

~~Lease Agreement and Purchase Option Exercise~~

~~On June 15, 2016,~~March 31, 2019, the Company ~~exercised~~had paid a total of $4.4 million of these costs, and had a balance of $0.1 million in DSD Restructuring Plan-related liabilities on the purchase option to purchase the land and the partially constructed New Facility located thereon pursuant to the terms of the lease agreement dated as of July 17, 2015, as amended (the “Lease Agreement”). On September 15, 2016 (“Purchase Option Closing Date”), the Company closed the purchase option and acquired the land and the partially constructed New Facility located thereon for an aggregate purchase price of $42.5 million (the “Purchase Price”), consisting of the purchase option price of $42.0 million based on actual construction costs incurred as of the Purchase Option Closing Date plus the option exercise fee, plus amounts paid in respect of real estate commissions, title insurance, and recording fees. Upon closing of the purchase option, the Company recorded the aggregate purchase price of the New Facility in “Property, plant and equipment, net” on itsCompany’s condensed consolidated balance sheet. The ~~asset related~~remaining costs to ~~the New Facility lease obligation included in “Property, plant and equipment, net,” the offsetting liability~~be incurred for the ~~lease obligation included in “Other long-term liabilities” and the rent expense related~~remainder of fiscal 2019 are not expected to the land were reversed. Concurrent with the purchase option closing, on September 15, 2016, the Company terminated the Lease Agreement. The Company did not pay any early termination penalties in connection with the termination of the Lease Agreement.be material.

~~Development Management Agreement~~

In conjunction with the Lease Agreement, the Company also entered into a Development Management Agreement with an affiliate of Stream Realty Partners (the “DMA”) to manage, coordinate, represent, assist and advise the Company on matters from the pre-development through construction of the New Facility. Services under the DMA have concluded. The Company incurred and paid $4.0 million under this agreement which is included in “Buildings and Facilities” (see

~~Note 12~~).

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

~~Amended Building Contract~~

On September 17, 2016, the Company and The Haskell Company (“Builder”) entered into a Change Order, which, among other things, amended the building contract previously entered into between the Company and Builder to provide a guaranteed maximum price and the basis for the price and the scope of Builder’s services in connection with the construction of the New Facility (the “Amended Building Contract”).

Pursuant to the Amended Building Contract, Builder provided pre-construction and construction services, including specialized industrial design and construction work in connection with Builder’s construction of certain production equipment installed in portions of the New Facility (the “Project”). In April 2017, the Company and Builder entered into a change order to change the scope of work which added $0.6 million to the Amended Building Contract. Builder's work on the Project has been completed. The Company incurred and paid $22.5 million for Builder’s services in connection with the Project which amount is included in “Machinery and equipment” (see ~~Note 12~~).

~~New Facility Costs~~

The Company estimated that the total construction costs including the cost of land for the New Facility would be approximately $60 million. As of March 31, 2018, the Company has incurred an aggregate of $60.8 million in construction costs. In addition to the costs to complete the construction of the New Facility, the Company estimated that it would incur approximately $35 million to $39 million for machinery and equipment, furniture and fixtures and related expenditures in connection with construction of the New Facility of which the Company has incurred an aggregate of $33.2 million as of March 31, 2018, including $22.5 million under the Amended Building Contract. The majority of the capital expenditures associated with machinery and equipment, furniture and fixtures, and related expenditures in connection with the initial construction of the New Facility were incurred in the first three quarters of fiscal 2017. The Company commenced distribution activities at the New Facility during the second quarter of fiscal 2017 and initial production activities late in the third quarter of fiscal 2017. The Company began roasting coffee in the New Facility in the fourth quarter of fiscal 2017.

~~New Facility Expansion~~

On February 9, 2018, the Company and Haskell entered into Task Order No. 6 pursuant to the Standard Form of Agreement between Owner and Design-Builder (AIA Document A141-2014 Edition) dated October 23, 2017. The Standard Form of Agreement serves as a master service agreement (“MSA”) between the Company and Haskell and does not contain any actual work scope or compensation amounts, but instead contemplates a number of project specific task orders (the “Task Orders”) to be executed between the parties, which will define the scope and price for particular projects to be performed under the pre-negotiated terms and conditions contained in the MSA. The MSA expires on December 31, 2021 (provided that any Task Order that is not finally complete at such time will remain in effect until completion).

Task Order 6 covers the expansion of the Company’s production lines (the “Expansion Project”) in the New Facility including expanding capacity to support the transition of Boyd Business volumes to the New Facility. Task Order 6 includes (i) pre-construction services to define the Company’s criteria for the industrial capacity Expansion Project, (ii) specialized industrial design services for the Expansion Project, (iii) specialty industrial equipment procurement and installation, and (iv) all construction services necessary to complete any modifications to the New Facility in order to accommodate the production line expansion, and to provide power to that expanded production capability. While the Company and Haskell have previously executed Task Orders 1-5, Task Order 6 includes the work and services to be performed under Task Orders 1-5 and, accordingly, Task Orders 1-5 have been superseded and voided by Task Order 6.

Task Order 6 is a guaranteed maximum price contract. Specifically, the maximum price payable by the Company to Haskell under Task Order 6 for all of Haskell’s services, equipment procurement and installation, and construction work in connection with the Expansion Project is $19.3 million. In fiscal 2018, the Company anticipates paying between $9 million to $14 million in capital expenditures associated with the Expansion Project, of which $2.9 million and $5.6 million has been paid in the three and nine months ended March 31, 2018, respectively, with the balance of up to the guaranteed maximum price of $19.3 million expected to be paid in fiscal 2019.

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~Note 6. Sales of Assets~~

~~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 Condensed 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 nine months ended March 31, 2017, the Company recognized the net gain from sale of the Torrance Facility in the amount of $37.4 million, including non-cash interest expense of $0.7 million and non-cash rent expense of $1.4 million, representing the rent for the zero base rent period previously recorded in “Other current liabilities” and removed the amounts recorded in “Assets held for sale” and the “Sale-leaseback financing obligation” on its consolidated balance sheet.

~~Sale of Northern California Branch Property~~

On September 30, 2016, the Company completed the sale of its branch property in Northern California for a sale price of $2.2 million and leased it back through March 31, 2017, at a base rent of $10,000 per month. The Company recognized a net gain on sale of the Northern California property in the nine months ended March 31, 2017 in the amount of $2.0 million.

Note 7.6. Derivative Instruments

Derivative Instruments Held

Coffee-Related Derivative Instruments

The Company is exposed to commodity price risk associated with its price to be fixed green coffee purchase contracts, which are described further in Note 2 to the consolidated financial statements in the ~~2017~~2018 Form 10-K. 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 March 31, ~~2018~~2019 and June 30, ~~2017:~~2018:


(In thousands)	March 31, 2018		June 30, 2017	March 31, 2019	June 30, 2018
Derivative instruments designated as cash flow hedges:
Long coffee pounds	32,625		33,038	35,213	40,913
Derivative instruments not designated as cash flow hedges:
Long coffee pounds	2,129		2,121	4,394	2,546
Less: Short coffee pounds	(38	)	—
Total	34,716		35,159	39,607	43,459

Coffee-related derivative instruments designated as cash flow hedges outstanding as of March 31, ~~2018~~2019 will expire within 1821 months.

Interest Rate Swap Derivative Instruments

Pursuant to an International Swap Dealers Association, Inc. Master Agreement (“ISDA”) which was 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.

Interest rate swap derivative instruments designated as cash flow hedges outstanding as of March 31, 2019 will expire on October 11, 2023.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Effect of Derivative Instruments on the Financial Statements

Balance Sheets

Fair values of derivative instruments on the Company’s ~~Condensed Consolidated Balance Sheets:~~condensed consolidated balance sheets:


	Derivative Instruments Designated as Cash Flow Hedges				Derivative Instruments Not Designated as Accounting Hedges				Derivative Instruments Designated as Cash Flow Hedges				Derivative Instruments Not Designated as Accounting Hedges
	March 31, 2018		June 30, 2017		March 31, 2018		June 30, 2017		March 31, 2019		June 30, 2018		March 31, 2019		June 30, 2018
(In thousands)
Financial Statement Location:
Short-term derivative assets(1):
Coffee-related derivative instruments	$	16	$	66	$	1	$	—
Long-term derivative assets(2):
Coffee-related derivative instruments	$	—	$	66	$	—	$	—
Short-term derivative liabilities(1):
Short-term derivative assets:
Coffee-related derivative instruments(1)									$	—	$	—	$	4	$	—
Interest rate swap derivative instruments									$	144	$	—	$	—	$	—
Short-term derivative liabilities:
Coffee-related derivative instruments	$	2,068	$	1,733	$	553	$	190	$	4,428	$	3,081	$	1,069	$	219
Long-term derivative liabilities(2):
Coffee-related derivative instruments	$	146	$	446	$	—	$	—	$	493	$	386	$	—	$	—
Interest rate swap derivative instruments									$	221	$	—	$	—	$	—

________________

(1) Included in “Short-term derivative liabilities” on the Company’s ~~Condensed Consolidated Balance Sheets at March 31, 2018 and June 30, 2017.~~condensed consolidated balance sheets.

(2) Included in “Other long-term liabilities” on the Company’s ~~Condensed Consolidated Balance Sheets at March 31, 2018 and June 30, 2017.~~condensed consolidated balance sheets.

Statements of Operations

The following table presents pretax net gains and losses ~~for the Company’s~~on coffee-related and interest rate swap derivative instruments designated as cash flow hedges, as recognized in ~~accumulated other comprehensive income (loss) “AOCI,”~~AOCI and “Cost of goods sold” (prior period amounts have been retrospectively adjusted to reflect the impact of certain changes in accounting principles and ~~“Other, net”:~~corrections to previously issued financial statements as described in Note 3).

Three Months Ended
March 31,

Nine Months Ended
March 31,
Financial Statement Classification
(In thousands) 2018 2017 2018 2017
Net (losses) gains recognized in AOCI $ (3,265 ) $ 188
$ (5,724 ) $ (2,029 ) AOCI
Net (losses) gains recognized in earnings $ (1,815 ) $ 865
$ (2,419 ) $ 614
Costs of goods sold
Net gains recognized in earnings (ineffective portion)(1) $ —
$ 90
$ 48
$ 63
Other, net

~~________________~~

~~(1) Amount included in nine months ended March 31, 2018 relates to trades terminated prior to the adoption of ASU 2017-12. See~~ ~~Note 2~~.



	Three Months Ended March 31,						Nine Months Ended March 31,						Financial Statement Classification
(In thousands)	2019			2018			2019			2018			Financial Statement Classification
Net losses recognized in AOCI -Interest rate swap	$	(78	)	$	—		$	(78	)	$	—		AOCI
Net losses recognized in AOCI - Coffee-related	$	(3,988	)	$	(3,265	)	$	(11,176	)	$	(5,718	)	AOCI
Net (losses) gains recognized in earnings - Coffee-related	$	(2,131	)	$	(588	)	$	(6,310	)	$	573		Cost of Goods Sold

For the three and nine months ended March 31, ~~2018~~2019 and ~~2017,~~2018, 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 on derivative instruments ~~and investments~~ in the Company’s ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Cash Flows~~cash flows also include net gains and losses on coffee-related derivative instruments designated as cash flow hedges reclassified to cost of goods sold from AOCI in the three and nine months ended March 31, ~~2018~~2019 and ~~2017.~~2018. Gains and losses on derivative instruments not designated as accounting hedges are included in “Other, net” in the Company’s ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Operations~~operations and in “Net losses (gains) on derivative instruments and investments” in the Company’s ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Cash Flows.~~cash flows.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

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

Three Months Ended March 31, Nine Months Ended March 31,
(In thousands) 2018 2017 2018 2017
Net (losses) gains on coffee-related derivative instruments $ (444 ) $ 188
$ (537 ) $ (1,052 )
Net gains (losses) on investments —
738
7
(354 )
     Net (losses) gains on derivative instruments and investments(1) (444 ) 926
(530 ) (1,406 )
     Other gains, net(2) 598
118
1,324
318
             Other, net $ 154
$ 1,044
$ 794
$ (1,088 )



	Three Months Ended March 31,						Nine Months Ended March 31,
(In thousands)	2019			2018			2019			2018
Net losses on coffee-related derivative instruments(1)	$	(893	)	$	(444	)	$	(2,918	)	$	(537	)
Net gains on investments	—			—			—			7
Non-operating pension and other postretirement benefit plans cost(2)	1,394			1,663			4,921			4,988
Other (losses) gains, net	(6		)	598			102			1,324
Other, net	$	495		$	1,817		$	2,105		$	5,782

___________

(1) Excludes net gains and losses on coffee-related derivative instruments designated as cash flow hedges recorded in cost of goods sold in the three and nine months ended March 31, ~~2018~~2019 and ~~2017.~~2018.

(2) ~~Includes $(0.5) million change~~Presented in ~~estimated fair value of the China Mist contingent earnout consideration in the three and nine months ended March 31, 2018.~~accordance with newly implemented ASU 2017-07. See Note 2.

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 ~~brokers~~counterparties to facilitate financial derivative transactions in support of its risk management activities. ~~Based on the value of the Company’s positions in these accounts and the associated margin requirements, the Company may be required to deposit cash into these broker accounts.~~

The following table presents the Company’s net exposure from its offsetting derivative asset and liability positions, as well as cash collateral on deposit with its counterparties as of the reporting dates indicated:

(In thousands) Gross Amount Reported on Balance Sheet Netting Adjustments Cash Collateral Posted Net Exposure
March 31, 2018 Derivative Assets $ 17
$ (17 ) $ —
$ —
Derivative Liabilities $ 2,767
$ (17 ) $ —
$ 2,750
June 30, 2017 Derivative Assets $ 132
$ (132 ) $ —
$ —
Derivative Liabilities $ 2,369
$ (132 ) $ —
$ 2,237



(In thousands)		Gross Amount Reported on Balance Sheet		Netting Adjustments			Cash Collateral Posted		Net Exposure
March 31, 2019	Derivative Assets	$	148	$	(148	)	$	—	$	—
	Derivative Liabilities	$	6,211	$	(148	)	$	—	$	6,063
June 30, 2018	Derivative Assets	$	—	$	—		$	—	$	—
	Derivative Liabilities	$	3,686	$	—		$	—	$	3,686

Cash Flow Hedges

Changes in the fair value of the Company’s coffee-related derivative instruments designated as cash flow hedges, to the extent effective, are deferred in AOCI and reclassified into cost of goods sold in the same period or periods in which the hedged forecasted purchases affect earnings, or when it is probable that the hedged forecasted transaction will not occur by the end of the originally specified time period. Based on recorded values at March 31, ~~2018, $(5.4)~~2019, $11.6 million of net losses on coffee-related derivative instruments designated as cash flow hedges are expected to be reclassified into cost of goods sold within the next twelve months. These recorded values are based on market prices of the commodities as of March 31, ~~2018.~~2019. Due to the volatile nature of commodity prices, actual gains or losses realized within the next twelve months will likely differ from these values.

At March 31, 2019 and June 30, 2018 approximately 89% and 94%, respectively, of the Company's outstanding coffee-related derivative instruments were designated as cash flow hedges.

~~Note 8. Investments~~

~~The following table shows~~For interest rate swap derivative instruments designated as a cash flow hedge, the change in fair value of the derivative is reported in AOCI and subsequently reclassified into interest expense in the period or periods when the hedged transaction affects earnings. As of March 31, 2019, $0.1 million of net gains ~~and~~on interest rate swap 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 ~~on trading securities:~~

Three Months Ended March 31, Nine Months Ended March 31,
(In thousands) 2018 2017 2018 2017
Total gains (losses) recognized from trading securities $ —
$ 738
$ 7
$ (354 )
Less: Realized gains from sales of trading securities —
7
7
5
Unrealized gains (losses) from trading securities $ —
$ 731
$ —
$ (359 )
realized within the next twelve months will likely differ from these values. At March 31, 2019 all of the Company's outstanding interest rate swap derivative instruments were designated as cash flow hedges.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Note 9.7. 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
March 31, 2018
Preferred stock $ —
$ —
$ —
$ —
Derivative instruments designated as cash flow hedges:
Coffee-related derivative assets(1) $ 16
$ —
$ 16
$ —
Coffee-related derivative liabilities(1) $ 2,214
$ —
$ 2,214
$ —
Derivative instruments not designated as accounting hedges:
Coffee-related derivative assets(1) $ 1
$ —
$ 1
$ —
Coffee-related derivative liabilities(1) $ 553
$ —
$ 553
$ —

Total Level 1 Level 2 Level 3
June 30, 2017
Preferred stock(2) $ 368
$ —
$ 368
$ —
Derivative instruments designated as cash flow hedges:
Coffee-related derivative assets(1) $ 132
$ —
$ 132

$ —
Coffee-related derivative liabilities(1) $ 2,179
$ —
$ 2,179
$ —
Derivative instruments not designated as accounting hedges:
Coffee-related derivative liabilities(1) $ 190
$ —
$ 190
$ —



(In thousands)	Total		Level 1		Level 2		Level 3
March 31, 2019
Derivative instruments designated as cash flow hedges:
Interest rate swap derivative assets(1)	$	144	$	—	$	144	$	—
Coffee-related derivative liabilities(2)	$	4,921	$	—	$	4,921	$	—
Interest rate swap derivative liabilities	$	221	$	—	$	221	$	—
Derivative instruments not designated as accounting hedges:
Coffee-related derivative assets(2)	$	4	$	—	$	4	$	—
Coffee-related derivative liabilities(2)	$	1,069	$	—	$	1,069	$	—



(In thousands)	Total		Level 1		Level 2		Level 3
June 30, 2018
Derivative instruments designated as cash flow hedges:
Coffee-related derivative liabilities(2)	$	3,467	$	—	$	3,467	$	—
Derivative instruments not designated as accounting hedges:
Coffee-related derivative liabilities(2)	$	219	$	—	$	219	$	—

____________________


(1)	The Company’s interest rate swap derivative instruments are model-derived valuations with directly or indirectly observable significant inputs such as interest rate and, therefore, classified as Level 2.


(2)	The Company’s coffee-related derivative instruments are traded over-the-counter and, therefore, classified as Level 2.


~~(2)~~	~~Included in “Short-term investments” on the Company’s Condensed Consolidated Balance Sheet at June 30, 2017.~~

Note ~~10.~~8. Accounts Receivable, Net


(In thousands)	March 31, 2018			June 30, 2017			March 31, 2019			June 30, 2018
Trade receivables	$	59,804		$	44,531		$	64,975		$	54,547
Other receivables(1)	3,102			2,636			2,450			4,446
Allowance for doubtful accounts	(918		)	(721		)	(1,670		)	(495		)
Accounts receivable, net	$	61,988		$	46,446		$	65,755		$	58,498

__________

(1) AtIncludes vendor rebates and other non-trade receivables.

The $1.2 million increase in the allowance for doubtful accounts during the nine months ended March 31, ~~2018 and June 30, 2017, respectively, the Company had recorded $0.2~~2019 was due to bad debt expense of $1.9 million ~~and $0.4 million,~~associated with an increase in ~~“Other receivables” included in “Accounts~~aging receivables offset by net accounts receivable ~~net” on its Condensed Consolidated Balance Sheets representing earnout receivable from Harris Spice Company.~~write-offs of $0.7 million.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Note ~~11.~~9. Inventories


(In thousands)	March 31, 2018		June 30, 2017		March 31, 2019		June 30, 2018
Coffee
Processed	$	16,755	$	14,085	$	27,955	$	26,882
Unprocessed	26,485		17,083		39,172		37,097
Total	$	43,240	$	31,168	$	67,127	$	63,979
Tea and culinary products
Processed	$	24,981	$	20,741	$	27,800	$	32,406
Unprocessed	922		74		80		1,161
Total	$	25,903	$	20,815	$	27,880	$	33,567
Coffee brewing equipment parts	$	5,937	$	4,268	$	5,363	$	6,885
Total inventories	$	75,080	$	56,251	$	100,370	$	104,431

In addition to product cost, inventory costs include expenditures such as direct labor and certain supply, freight, warehousing, overhead variances, PPVs and ~~overhead~~other expenses incurred in bringing the inventory to its existing condition and location. See Note 3. 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.

The Company does not expect inventory levels at June 30, 2018 to decrease from the levels at June 30, 2017 and, therefore, recorded no expected beneficial effect of the liquidation of LIFO inventory quantities in the three and nine months ended March 31, 2018. The Company recorded $0.8 million and $2.5 million in expected beneficial effect of the liquidation of LIFO inventory quantities in cost of goods sold in the three and nine months ended March 31, 2017, respectively. Interim LIFO calculations must necessarily be based on management’s estimates of expected fiscal year-end inventory levels and costs. Because these estimates are subject to many forces beyond management’s control, interim results are subject to the final fiscal year-end LIFO inventory valuation.

Note ~~12.~~10. Property, Plant and Equipment


(In thousands)	March 31, 2018			June 30, 2017			March 31, 2019			June 30, 2018
Buildings and facilities	$	108,515		$	108,682		$	108,697		$	108,590
Machinery and equipment	224,993			201,236			247,073			231,581
Equipment under capital leases	2,486			7,540			1,369			1,408
Capitalized software	23,611			21,794			26,733			24,569
Office furniture and equipment	13,350			12,758			13,839			13,721
	372,955			352,010			$	397,711		$	379,869
Accumulated depreciation	(205,672		)	(192,280		)	(222,679		)	(209,498		)
Land	16,218			16,336			16,218			16,218
Property, plant and equipment, net	$	183,501		$	176,066		$	191,250		$	186,589

The Company capitalized coffee brewing equipment (included in machinery and equipment) in the amounts of $8.9 million and $8.1 million in the nine months ended March 31, 2019 and 2018, respectively. Depreciation expense related to capitalized coffee brewing equipment reported in cost of goods sold was $2.3 million and $2.1 million in the three months ended March 31, 2019 and 2018, respectively, and $6.7 million and $6.5 million for the nine months ended March 31, 2019 and 2018, respectively.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Note ~~13.~~11. Goodwill and Intangible Assets

~~The~~There were no changes to the carrying value of goodwill in the nine months ended March 31, 2018 increased by $25.6 million. This was due to the acquisition of the Boyd Business adding $25.7 million of goodwill as well as the final working capital adjustment made to the West Coast Coffee purchase price allocation which reduced goodwill by $0.1 million.2019. The carrying value of goodwill at March 31, ~~2018~~2019 and June 30, ~~2017~~2018 was ~~$36.6 million and $11.0 million, respectively.~~

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

$36.2 million.

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

March 31, 2018 June 30, 2017
(In thousands)
Gross Carrying
Amount(1)

Accumulated
Amortization(1)

Gross Carrying
Amount

Accumulated
Amortization
Amortized intangible assets:
Customer relationships(2) $ 33,003
$ (12,300 ) $ 17,353
$ (10,883 )
Non-compete agreements 220
(71 ) 220
(38 )
Recipes 930
(188 ) 930
(88 )
Trade name/brand name 510
(225 ) 510
(84 )
Total amortized intangible assets $ 34,663
$ (12,784 ) $ 19,013
$ (11,093 )
Unamortized intangible assets:
Trademarks, trade names and brand name with indefinite lives(3) $ 10,328
$ —
$ 10,698
$ —
Total unamortized intangible assets $ 10,328
$ —
$ 10,698
$ —
Total intangible assets $ 44,991
$ (12,784 ) $ 29,711
$ (11,093 )

~~___________~~

(1) Reflects the preliminary purchase price allocation for the acquisition of the Boyd Business. Subject to change based on numerous factors, including the final estimated fair value of the assets acquired and the liabilities assumed and the amount of the final post-closing net working capital adjustment. Adjustments in the purchase price allocation may require an adjustment of the amounts allocated to goodwill.

(2) At March 31, 2018, reflects the adjustment of $15.0 million in customer relationships to goodwill in connection with the finalization of valuation inputs including growth assumptions, cost projections and discount rates which were used in the fair value calculation of intangible assets acquired in connection with the Boyd Business acquisition, and impairment charges of $0.3 million for customer relationships acquired in connection with the China Mist acquisition.

(3) At March 31, 2018 reflects the adjustment of $0.3 million in trade name/trademark from goodwill in connection with the finalization of valuation inputs including growth assumptions, cost projections and discount rates which were used in the fair value calculation of intangible assets acquired in connection with the Boyd Business acquisition, and impairment charges of $3.5 million for trade name/trademark acquired in connection with the China Mist acquisition.



	March 31, 2019					June 30, 2018
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer relationships	$	33,003	$	(14,694	)	$	33,003	$	(12,903	)
Non-compete agreements	220		(111		)	220		(81		)
Recipes	930		(321		)	930		(221		)
Trade name/brand name	510		(337		)	510		(271		)
Total amortized intangible assets	$	34,663	$	(15,463	)	$	34,663	$	(13,476	)
Unamortized intangible assets:
Trademarks, trade names and brand name with indefinite lives	$	10,328	$	—		$	10,328	$	—
Total unamortized intangible assets	$	10,328	$	—		$	10,328	$	—
Total intangible assets	$	44,991	$	(15,463	)	$	44,991	$	(13,476	)

Aggregate amortization expense for the three months ended March 31, 2019 and 2018 ~~and 2017~~ was ~~$0.3~~$0.7 million and ~~$0.1~~$0.3 million, respectively. Aggregate amortization expense for the nine months ended March 31, 2019 and 2018 was $2.0 million and ~~2017 was~~ $1.7 million, ~~and $0.2 million,~~ respectively.

The Company performed its annual test of impairment as of January 31, ~~2018,~~2019, to determine the recoverability of the carrying values of goodwill and indefinite-lived intangible assets. The Company also assessed the recoverability of certain finite-lived intangible assets. ~~As a result of these~~No impairment tests, the Company determined that the trade name/trademark and customer relationships intangible assets acquired in connection with the China Mist acquisition were impaired as the carrying value exceeded the estimated fair value. Accordingly, the Companywas recorded ~~total impairment charges of $3.8 million in~~for the three and nine months ended March 31, ~~2018.~~2019 as a result of the Company’s annual test of impairment.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Note ~~14.~~12. 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,

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

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 (“OCI”) certain gains and losses that arise during the period but are deferred under pension accounting rules.

Single Employer Pension Plans

~~The~~As of March 31, 2019, the Company has a defined benefit pension plan, the Farmer Bros. Co. Pension Plan for Salaried Employees (the “Farmer Bros. Plan”), for Company employees hired prior to January 1, 2010, who are not covered under a collective bargaining agreement. The Company amended the Farmer Bros. Plan, freezing the benefit for all participants effective June 30, 2011. After the plan freeze, participants do not accrue any benefits under the Farmer Bros. Plan, and new hires are not eligible to participate in the Farmer Bros. Plan. As all plan participants became inactive following this pension curtailment, net (gain) loss is now amortized based on the remaining life expectancy of these participants instead of the remaining service period of these participants.

~~The Company also~~ has two defined benefit pension plans for certain 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~~

Effective December 1, 2018 the ~~freeze,~~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 reduced its overall pension projected benefit obligation by approximately $24.4 million as of December 31, 2018 and recognized a non-cash pension settlement charge of $10.9 million in the nine months ended March 31, 2019. At December 31, 2018, the new projected benefit obligation and fair value of plan ~~are eligible~~assets for the Brewmatic Plan were $114.1 million and $67.4 million, respectively, resulting in a net underfunded status of $46.7 million. This represents a $6.7 million increase from the net underfunded status of the Farmer Bros. Plan and Brewmatic Plan as of June 30, 2018 primarily due to ~~receive~~actual losses recognized on plan assets during the ~~Company’s matching contributions~~six months ended December 31, 2018. The Hourly Employees’ Plan was not impacted by this transaction.

Farmer Bros. Co.

Notes to ~~their 401(k).~~Unaudited Condensed Consolidated Financial Statements (continued)

The net periodic benefit cost for the defined benefit pension plans is as follows:


	Three Months Ended March 31,						Nine Months Ended March 31,						Three Months Ended March 31,						Nine Months Ended March 31,
	2018			2017			2018			2017			2019			2018			2019			2018
(In thousands)
Service cost	$	—		$	124		$	—		$	372		$	—		$	—		$	—		$	—
Interest cost	1,432			1,397			4,296			4,191			1,173			1,432			4,025			4,296
Expected return on plan assets	(1,456		)	(1,607		)	(4,368		)	(4,821		)	(1,126		)	(1,456		)	(4,096		)	(4,368		)
Amortization of net loss(1)	418			508			1,254			1,524			380			418			1,120			1,254
Pension settlement charge													—			—			10,948			—
Net periodic benefit cost	$	394		$	422		$	1,182		$	1,266		$	427		$	394		$	11,997		$	1,182

___________

(1) These amounts represent the estimated portion of the net loss in AOCI that is expected to be recognized as a component of net periodic benefit cost over the current fiscal year.

On July 1, 2018, the Company adopted ASU 2017-07, which impacted the presentation of the components of net periodic benefit cost in the condensed consolidated statements of income. Net periodic benefit cost, other than the service cost component, is retrospectively included in “Interest expense” and “Other, net” in the condensed consolidated statements of income. See Note 2.

Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost


	Fiscal		Fiscal
	2018	2017	2019	2018
Discount rate	3.80%	3.55%	4.10%	3.80%
Expected long-term return on plan assets	6.75%	7.75%	6.75%	6.75%

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

The expected long-term return on plan assets assumption was developed as a weighted average rate based on the target asset allocation of the plan and the Long-Term Capital Market Assumptions ~~(CMA) 2014.~~(“CMA”) 2016. The capital market assumptions were developed with a primary focus on forward-looking valuation models and market indicators. The key fundamental economic inputs for these models are future inflation, economic growth, and interest rate environment. Due to the long-term nature of the pension obligations, the investment horizon for the CMA ~~2014~~2016 is 20 to 30 years. In addition to forward-looking models, historical analysis of market data and trends was reflected, as well as the outlook of recognized economists, organizations and consensus CMA from other credible studies.

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

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”)~~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.

~~On October 30, 2017, counsel to the~~The Company received ~~written confirmation that the Western Conference of Teamsters Pension Trust (the “WCT Pension Trust”) will be retracting its claim, stated in its~~a letter ~~to the Company~~ dated July 10, ~~2017 (the “WCT~~2018 from the WCT Pension Trust ~~Letter”), that certain~~assessing withdrawal liability against the Company for a share of the ~~Company’s~~WCTPP unfunded vested benefits, on the basis claimed by the WCT Pension Trust that employment actions by the Company in ~~2015 resulting from~~2016 in connection with the Corporate Relocation Plan constituted a partial withdrawal from the WCTPP. The ~~written confirmation stated that~~Company agreed with the WCT Pension ~~Trust has determined that a partial withdrawal did not occur in 2015 and further stated that the~~Trust’s assessment of pension withdrawal liability ~~assessment has been rescinded. This rescinding of withdrawal liability assessment applies to Company employment actions in 2015 with respect to the bargaining units that were specified~~ in the ~~WCT Pension Trust Letter. As~~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 March 31, ~~2018,~~2019 the Company ~~is not able~~had $2.1 million on its condensed consolidated balance sheet relating to ~~predict whether the WCT Pension Trust may make a claim, or estimate the extent of potential withdrawal liability, related~~this obligation in “Accrued payroll expenses.”

Farmer Bros. Co.

Notes to ~~the Corporate Relocation Plan for actions or bargaining units other than those specified in the WCT Pension Trust Letter.~~Unaudited Condensed Consolidated Financial Statements (continued)

In fiscal 2012, the Company withdrew from the Local 807 Labor-Management Pension Fund (“Local 807 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 Local 807 Pension Fund sent the Company a notice of assessment of withdrawal liability in the amount of $4.4 million, which the Local 807 Pension Fund adjusted to $4.9 million on January 5, 2015. ~~The~~In April 2015, the Company ~~is in the process of negotiating a reduced liability amount. The Company has~~ commenced quarterly installment payments to the Local 807 Pension Fund of $91,000 pending the final settlement of the liability. The ~~total~~Company recorded $3.8 million in “Other current liabilities” on its consolidated balance sheet at June 30, 2018 representing the present value of the Company’s estimated withdrawal liability ~~is $4.0~~at June 30, 2018.

During the three months ended December 31, 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. As of March 31, 2019, the Company has paid the Local 807 Pension Fund $3.0 million and ~~its present value are reflected in~~has accrued $0.2 million within “Accrued pension liabilities” on the Company’s ~~Condensed Consolidated Balance Sheets at March 31, 2018 and June 30, 2017 as short-term with the expectation of paying off the liability in fiscal 2019.~~condensed consolidated balance sheet.

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.

Multiemployer Plans Other Than Pension Plans

The Company participates in nine multiemployer defined contribution plans other than pension plans that provide medical, vision, dental and disability benefits for active, union-represented employees subject to collective bargaining agreements. The plans are subject to the provisions of the Employee Retirement Income Security Act of 1974, and provide that participating employers make monthly contributions to the plans in an amount as specified in the collective bargaining agreements. Also, the plans provide that participants make self-payments to the plans, the amounts of which are negotiated through the collective bargaining process. The Company’s participation in these plans is governed by collective bargaining agreements which expire on or before June 30, 2022.

401(k) Plan

The Company’s 401(k) Plan is available to all eligible employees. ~~The Company’s 401(k) match portion is available to all eligible employees who have worked more than 1,000 hours during a calendar year and were employed at the end of the calendar year.~~ Participants in the 401(k) Plan may choose to contribute a percentage of their annual pay subject to the maximum contribution allowed by the Internal Revenue Service. ~~The Company’s matching contribution is discretionary, based on approval by the Company’s Board of Directors.~~

For the calendar years 2018 and 2017, the Company’s Board of Directors approved a Company matching contribution for eligible employees who worked more than 1,000 hours during the calendar year and who were employed at the end of the calendar year or, in the case of calendar year 2018, who were active participants in the plan at any time during the plan year and who were terminated in connection with certain reductions-in-force that occurred during 2018, of 50% of an employee’s annual contribution to the 401(k) Plan, up to 6% of the employee’s eligible income. For employees subject to a collective bargaining agreement, the match was only available if so provided in the labor agreement. The matching contributions (and any earnings thereon) vest at the rate of 20% for

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

each of the participant’s first 5 years of vesting service, so that a participant is fully vested in his or her matching contribution account after 5 years of vesting service, subject to accelerated vesting under certain circumstances in connection with the Corporate Relocation Plan due to the closure of the Company’s Torrance Facility, a reduction-in-force at another Company facility designated by the Administrative Committee of the Farmer Bros. Co. Qualified Employee Retirement Plans (the “Administrative Committee”), or in connection with certain reductions-in-force that occurred during ~~2017.~~2017 and 2018. A participant is automatically vested in the Company’s matching contribution in the event of death, disability or attainment of age 65 while employed by the Company. ~~Employees are 100% vested in their contributions. For employees subject to a collective bargaining agreement, the match is only available if so provided in the labor agreement.~~

The Company recorded matching contributions of ~~$0.5~~$0.7 million and ~~$0.4~~$0.5 million in operating expenses in the three months ended March 31, ~~2018~~2019 and ~~2017, respectively, and $1.5~~2018. The Company recorded matching contributions of $1.6 million and ~~$1.2~~$1.5 million in operating expenses in the nine months ended March 31, ~~2018~~2019 and ~~2017, respectively.~~2018.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

In second quarter of fiscal 2019, the Company amended and restated the 401(k) Plan effective January 1, 2019 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. During the three and nine months March 31, 2019, the Company contributed a total of 37,571 shares of the Company’s common stock to eligible participants’ annual plan compensation. During the three and nine months ended March 31, 2019, the Company charged $0.7 million related to stock contribution.

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 also provides a postretirement death benefit (“Death Benefit”) to certain of its employees and retirees, subject, in the case of current employees, to continued employment with the Company until retirement and certain other conditions related to the manner of employment termination and manner of death. The Company records the actuarially determined liability for the present value of the postretirement death benefit. The Company has purchased life insurance policies to fund the postretirement death benefit wherein the Company owns the policy but the postretirement death benefit is paid to the employee’s or retiree’s beneficiary. The Company records an asset for the fair value of the life insurance policies which equates to the cash surrender value of the policies.

Retiree Medical Plan and Death Benefit

The following table shows the components of net periodic postretirement benefit cost for the Retiree Medical Plan and Death Benefit for the three and nine months ended March 31, ~~2018~~2019 and ~~2017.~~2018. Net periodic postretirement benefit cost for the three and nine months ended March 31, ~~2018~~2019 was based on employee census information and asset information as of June 30, ~~2017.~~2018.


	Three Months Ended March 31,						Nine Months Ended March 31,						Three Months Ended March 31,						Nine Months Ended March 31,
	2018			2017			2018			2017			2019			2018			2019			2018
(In thousands)
Components of Net Periodic Postretirement Benefit Cost (Credit):
Service cost	$	152		$	190		$	456		$	570		$	133		$	152		$	399		$	456
Interest cost	209			207			627			621			222			209			666			627
Amortization of net gain	(210		)	(157		)	(630		)	(471		)	(209		)	(210		)	(627		)	(630		)
Amortization of prior service credit	(439		)	(439		)	(1,317		)	(1,317		)	(439		)	(439		)	(1,317		)	(1,317		)
Net periodic postretirement benefit credit	$	(288	)	$	(199	)	$	(864	)	$	(597	)	$	(293	)	$	(288	)	$	(879	)	$	(864	)

On July 1, 2018, the Company adopted ASU 2017-07, which impacted the presentation of the components of net periodic postretirement benefit cost in the condensed consolidated statements of income. Net periodic postretirement benefit cost, other than the service cost component, is retrospectively included in “Interest expense” and “Other, net” in the condensed consolidated statements of income. See Note 2.

Weighted-Average Assumptions Used to Determine Net Periodic Postretirement Benefit Cost


	Fiscal		Fiscal
	2018	2017	2019	2018
Retiree Medical Plan discount rate	4.13%	3.73%	4.25%	4.13%
Death Benefit discount rate	4.12%	3.79%	4.25%	4.12%

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Note ~~15. Bank Loan~~13. Revolving Credit Facility

~~The~~On November 6, 2018, the Company ~~maintains~~entered into a ~~$125.0~~new $150.0 million senior secured revolving credit facility (the ~~“Revolving~~“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, ~~(collectively, the “Lenders”),~~ with a sublimit on letters of credit and swingline loans of ~~$30.0 million and~~ $15.0 million ~~respectively.~~each. The New Revolving Facility includes an accordion feature whereby the Company may increase the ~~Revolving Commitment by~~revolving commitments or enter into one or more tranches of incremental term loans, up to an additional ~~$50.0~~$75.0 million in aggregate of increased commitments and incremental term loans, subject to certain conditions. ~~Advances~~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 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, eligible inventory, ~~and~~eligible 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 and eligible inventory, less required reserves. The commitment fee iswas a flat fee of 0.25% per annum irrespective of average revolver usage. Outstanding obligations ~~are~~were collateralized by all of the Company’s and guarantors’ assets, excluding, amongst other things, certain real property not included in the borrowing ~~base and machinery and equipment (other than inventory).~~base. Borrowings under the Prior Revolving Facility ~~bear~~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) until March 31, 2019 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 ~~Company is subject to~~Prior Revolving Facility included a variety of affirmative and negative covenants of types customary in an asset-based lending facility, including a financial ~~covenants~~covenant relating to the maintenance of a fixed charge coverage ratio, ~~in certain circumstances,~~ and ~~the right~~provided for customary events of the Lenders to establish reserve requirements, which may reduce the amount of credit otherwise available to the Company. The Company is allowed to pay dividends, provided, among other things, certain excess availability requirements are met, and no event of default exists or has occurred and is continuing as of the date of any such payment and after giving effect thereto. The Revolving Facility matures on August 25, 2022.default.

At March 31, ~~2018,~~2019, the Company was eligible to borrow up to a total of ~~$122.7~~$150.0 million under the New Revolving Facility and had outstanding borrowings of ~~$85.9~~$123.0 million and utilized ~~$1.1~~$2.0 million of the letters of credit ~~sublimit, and had excess availability under the Revolving Facility of $35.7 million.~~sublimit. At March 31, ~~2018,~~2019, the weighted average interest rate on the Company’s outstanding borrowings subject to interest rate variability under the New Revolving Facility was ~~3.85%~~4.25% and the Company was in compliance with all of the ~~restrictive~~ 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. The Company classifies outstanding borrowings as short-term or long-term based on its ability and intent to pay or refinance the outstanding borrowings on a short-term or long-term basis. 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 March 31, 2019 and “Short-Term borrowings under revolving credit facility” at June 30, 2018.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Note 14. Employee Stock Ownership Plan

The Company’s ESOP was established in 2000. The plan is a leveraged ESOP in which the Company is the lender. One of the two loans established to fund the ESOP matured in fiscal 2016 and the remaining loan matured 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 3.80% at June 30, 2018.



	March 31, 2019		June 30, 2018
Loan amount (in thousands)	$	—	$	2,145

Shares are held by the plan trustee for allocation among participants as the loan is repaid. The unencumbered shares are allocated to participants using a compensation-based formula. Subject to vesting requirements, allocated shares are owned by participants and shares are held by the plan trustee until the participant retires.

Historically, the Company used the dividends, if any, on ESOP shares to pay down the loans, and allocated to the ESOP participants shares equivalent to the fair market value of the dividends they would have received. No dividends were paid in the three and nine months ended March 31, 2019.

During the nine months ended March 31, 2019, the Company charged $0.9 million to compensation expense related to the ESOP. During the three and nine months ended March 31, 2018, the Company charged $0.6 million and $1.8 million, respectively, to compensation expense related to the ESOP.



	March 31, 2019		June 30, 2018
Allocated shares	1,321,416		1,502,323
Committed to be released shares	72,114		73,826
Unallocated shares	—		72,114
Total ESOP shares	1,393,530		1,648,263

(In thousands)
Fair value of ESOP shares	$	27,885	$	50,354

During the three months ended 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.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Note ~~16.~~15. 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 March 31, ~~2018,~~2019, there were ~~955,446~~962,953 shares available under the 2017 Plan including shares that were forfeited under the Prior Plans. Shares of common stock granted under the 2017 Plan may be authorized but unissued shares, shares purchased on the open market or 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 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 of the 2017 Plan may not,

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

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.

Non-qualified stock options with time-based vesting (“NQOs”)

In the nine months ended March 31, 2018, the Company granted 124,278 shares issuable upon the exercise of NQOs to eligible employees under the 2017 Plan. These NQOs have an exercise price of $31.70 per share, which was the closing price of the Company’s common stock as reported on the NASDAQ Global Select Market on the date of grant. One-third of the total number of shares subject to each ~~such~~ stock option vest ratably on each of the first three anniversaries of the grant date, contingent on continued employment, and subject to accelerated vesting in certain circumstances.

Following are the assumptions used in the Black-Scholes valuation model for NQOs granted during the nine months ended March 31, ~~2018.~~2019.

~~Nine Months Ended~~



	Nine Months Ended March 31, 2019
Weighted average fair value of NQOs	$	7.78
Risk-free interest rate	3.0		%
Dividend yield	—		%
Average expected term	4.6 years
Expected stock price volatility	29.6		%

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

~~March 31, 2018~~

~~Weighted average fair value of NQOs~~

~~$31.70~~

~~Risk-free interest rate~~

~~2.0%~~

~~Dividend yield~~

—%

~~Average expected term~~

~~4.6 years~~

~~Expected stock price volatility~~

~~35.4%~~

The following table summarizes NQO activity for the nine months ended March 31, ~~2018:~~2019:

Outstanding NQOs:
Number
of NQOs

Weighted
Average
Exercise
Price ($)

Weighted
Average
Grant Date
Fair Value ($)

Weighted
Average
Remaining
Life
(Years)

Aggregate
Intrinsic
Value
($ in thousands)
Outstanding at June 30, 2017 133,464
13.05 5.99 2.6 2,299
Granted 124,278
31.70 10.41 6.4 —
Exercised (62,489 ) 12.51 5.78 — 1,233
Cancelled/Forfeited (9,114 ) 28.12 10.76 — —
Outstanding at March 31, 2018 186,139
24.94 8.78 4.9 1,162
Vested and exercisable at March 31, 2018 63,832
12.01 5.60 1.7 1,162
Vested and expected to vest at March 31, 2018 176,915
24.59 8.69 4.8 1,162



Outstanding NQOs:	Number of NQOs		Weighted Average Exercise Price ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2018	161,324		26.82	5.10	741
Granted	154,263		25.04	—	—
Exercised	(28,798	)	11.32	—	466
Forfeited	(7,991	)	30.50	—	—
Expired	(879	)	31.70	—	—
Outstanding at March 31, 2019	277,919		27.32	5.98	78
Exercisable at March 31, 2019	49,227		27.60	4.54	78

The weighted-average grant-date fair value of options granted during the nine months ended March 31, 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 values, based on the Company’s closing stock price of ~~$30.20~~$20.01 at March 29, ~~2018~~2019 and ~~$30.25~~$30.55 at June ~~30, 2017,~~29, 2018, representing the last trading day of the respective fiscal periods, 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 the nine months ended March 31, ~~2018~~2019 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.

~~During the nine months ended March 31, 2018, 945 NQOs vested and 62,489 NQOs were exercised. Total fair value of NQOs vested during the nine months ended March 31, 2018 was $12,000.~~ The Company received ~~$0.8~~$0.3 million and ~~$0.5~~$0.8 million in proceeds from exercises of vested NQOs in the nine months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

At March 31, ~~2018~~2019 and June 30, ~~2017,~~2018, respectively, there was ~~$1.1~~$1.8 million and ~~$80,000~~$1.0 million of unrecognized NQO compensation ~~cost related to NQOs.~~cost. The unrecognized NQO compensation cost ~~related to NQOs~~ at March 31, ~~2018~~2019 is expected to be recognized over the weighted average period of ~~2.6~~2.3 years. Total compensation expense for NQOs in the three months ended March 31, 2019 and 2018 was $0.2 million and ~~2017 was $92,000 and $14,000,~~$0.1 million, respectively. Total compensation expense for NQOs in the nine months ended March 31, 2019 and 2018 was $0.5 million and ~~2017 was~~ $0.2 million, ~~and $0.1 million,~~ respectively.

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

Non-qualified stock options with performance-based and time-based vesting (“PNQs”)

~~In the nine months ended March 31, 2018, the Company granted no shares issuable upon the exercise of PNQs.~~ The following table summarizes PNQ activity for the nine months ended March 31, ~~2018:~~2019:

Outstanding PNQs:
Number
of
PNQs

Weighted
Average
Exercise
Price ($)

Weighted
Average
Grant Date
Fair Value ($)

Weighted
Average
Remaining
Life
(Years)

Aggregate
Intrinsic
Value
($ in
thousands)
Outstanding at June 30, 2017 358,786
27.75 10.96 5.2 1,181
Granted —
— — — —
Exercised (10,342 ) 27.13 11.02 — 61
Cancelled/Forfeited (46,352 ) 32.08 11.43 — —
Outstanding at March 31, 2018 302,092
27.10 10.89 4.3 1,127
Vested and exercisable at March 31, 2018 223,318
25.54 10.72 4.0 1,104
Vested and expected to vest at March 31, 2018 298,531
27.04 10.88 4.3 1,126



Outstanding PNQs:	Number of PNQs		Weighted Average Exercise Price ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2018	300,708		27.08	4.00	1,207
Granted	—		—	—	—
Exercised	(5,806	)	22.70	—	17
Forfeited	(6,916	)	31.43	—	—
Expired	(14,490	)	27.50	—	—
Outstanding at March 31, 2019	273,496		27.04	3.28	—
Exercisable at March 31, 2019	251,933		26.55	3.17	—

The aggregate intrinsic values outstanding at the end of each fiscal period in the table above represent the total pretax intrinsic values, based on the Company’s closing stock price of ~~$30.20~~$20.01 at March 29, ~~2018~~2019 and ~~$30.25~~$30.55 at June ~~30, 2017~~29, 2018, representing the last trading day of the respective fiscal periods, 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 the nine months ended March 31, ~~2018~~2019 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.

~~During the nine months ended March 31, 2018, 82,899 PNQs vested and 10,342 PNQs were exercised. Total fair value of PNQs vested during the nine months ended March 31, 2018 was $0.9 million.~~

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

The Company received ~~$0.3~~$0.1 million and ~~$0.2~~$0.3 million in proceeds from exercises of vested PNQs in the nine months ended March 31, 2019 and 2018, ~~and 2017,~~ respectively.

~~As of March 31, 2018, the Company met the performance targets for the fiscal 2016 PNQ awards and the fiscal 2015 PNQ awards.~~

In the nine months ended March 31, 2018, based on the Company’s failure to achieve certain financial objectives over the applicable performance period, a total of 18,708 shares subject to fiscal 2017 PNQ awards were forfeited, representing 20% of the shares subject to each such award. Subject to certain continued employment conditions and subject to accelerated vesting in certain circumstances, one half of the remaining PNQs subject to the fiscal 2017 PNQ awards are scheduled to vest on each of the second and third anniversaries of the grant date.

At March 31, ~~2018~~2019 and June 30, ~~2017,~~2018, there was ~~$0.7~~$0.2 million and ~~$1.8~~$0.5 million, respectively, of unrecognized PNQ compensation ~~cost related to PNQs.~~cost. The unrecognized PNQ compensation cost ~~related to PNQs~~ at March 31, ~~2018~~2019 is expected to be recognized over the weighted average period of ~~1.0 year.~~0.6 years. Total compensation expense related to PNQs in ~~each of~~ the three months ended March 31, 2019 and 2018 was $0.1 million and ~~2017 was~~ $0.2 ~~million.~~million, respectively. Total compensation expense related to PNQs in the nine months ended March 31, 2019 and 2018 was $0.3 million and ~~2017 was~~ $0.6 million, ~~and $0.8 million,~~ respectively.

Restricted Stock

~~During~~These restricted stock awards granted in the nine months ended March 31, 2018, the Company granted 13,110 shares of restricted stock under the 2017 Plan, including 11,406 shares of restricted stock to non-employee directors with a grant date fair value of $34.20 per share and 1,704 shares of restricted stock to eligible employees with a grant date fair value of $31.70 per share. The fiscal 2018 restricted stock awards2019 cliff vest on the earlier of the one year anniversary of the grant date or the date of the first annual meeting of the Company’s stockholders immediately following the grant date, ~~in the case of non-employee directors, and the third anniversary of the grant date, in the case of eligible employees, in each case~~ subject to continued service to the Company through the vesting date and the acceleration provisions of the 2017 Plan and restricted stock agreement. ~~During the nine months ended March 31, 2017, the Company granted 5,106 shares~~Restricted stock is expected to vest net of ~~restricted stock to non-employee directors.~~

~~During the nine months ended March 31, 2018, 9,642 shares of restricted stock vested.~~

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

estimated forfeitures.

The following table summarizes restricted stock activity for the nine months ended March 31, ~~2018:~~2019:


Outstanding and Nonvested Restricted Stock Awards:	Shares Awarded		Weighted Average Grant Date Fair Value ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)	Shares Awarded		Weighted Average Grant Date Fair Value ($)
Outstanding and nonvested at June 30, 2017	15,445		29.79	0.9	467
Outstanding and nonvested at June 30, 2018						14,958		33.48
Granted	13,110		33.88	1.7	444	18,298		23.98
Vested/Released	(9,642	)	31.12	—	323	(12,722	)	33.81
Cancelled/Forfeited	(3,955	)	26.13	—	—	—		—
Outstanding and nonvested at March 31, 2018	14,958		33.48	1.7	452
Expected to vest at March 31, 2018	14,327		33.49	1.7	433
Outstanding and nonvested at March 31, 2019						20,534		24.81

The ~~aggregate intrinsic values~~total grant-date fair value of ~~shares outstanding at~~restricted stock granted during the ~~end~~nine months ended March 31, 2019 was $0.4 million. The total fair value of ~~each fiscal period in~~restricted stock vested during the ~~table above represent the total pretax intrinsic values, based on the Company’s closing stock price of $30.20 at~~nine months ended March ~~29, 2018 and $30.25 at June 30, 2017, representing the last trading day of the respective fiscal periods. Restricted stock that is expected to vest is net of estimated forfeitures.~~31, 2019 was $0.3 million.

At March 31, ~~2018~~2019 and June 30, ~~2017,~~2018, there was ~~$0.4 million and~~ $0.3 million ~~respectively,~~in each period of unrecognized compensation cost related to restricted stock. The unrecognized compensation cost related to restricted stock at March 31, ~~2018~~2019 is expected to be recognized over the weighted average period of ~~1.0 year.~~0.8 years. Total compensation expense for restricted stock was $0.1 million ~~and $15,000~~ in each of the three months ended March 31, ~~2018~~2019 and ~~2017, respectively.~~2018. Total compensation expense for restricted stock was $0.3 million and $0.2 million in ~~each of~~ the nine months ended March 31, 2019 and 2018, ~~and 2017.~~respectively.

Performance-Based Restricted Stock Units (“PBRSUs”)

~~During the nine months ended March 31, 2018, the Company granted 37,414 PBRSUs under the 2017 Plan to eligible employees with a grant date fair value of $31.70 per unit.~~ The fiscal ~~2018~~2019 PBRSU awards cliff vest on the third anniversary of the date of grant based on the Company’s achievement of certain financial performance goals for the performance period July 1, ~~2017~~2018 through June 30, ~~2020,~~2021, subject to certain continued employment conditions and subject to acceleration provisions of the 2017 Plan and restricted stock unit agreement. At the end of the three-year performance period, the number of PBRSUs that actually vest will be 0% to 150% of the target amount, depending on the extent to which the Company meets or exceeds the achievement of those financial performance goals measured over the full three-year performance period. No PBRSUs ~~were granted during the nine months ended March 31, 2017.~~that are expected to vest are net of estimated forfeitures.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

The following table summarizes PBRSU activity for the nine months ended March 31, ~~2018:~~2019:



Outstanding and Nonvested PBRSUs:	PBRSUs Awarded(1)		Weighted Average Grant Date Fair Value ($)
Outstanding and nonvested at June 30, 2018	35,732		31.70
Granted(1)	47,928		25.04
Vested/Released	—		—
Cancelled/Forfeited	(2,889	)	30.67
Outstanding and nonvested at March 31, 2019	80,771		27.78
Expected to vest at March 31, 2019	73,095		27.34

Outstanding and Nonvested PBRSUs:
PBRSUs
Awarded

Weighted
Average
Grant Date
Fair Value
($)

Weighted
Average
Remaining
Life
(Years)

Aggregate
Intrinsic
Value
($ in thousands)
Outstanding and nonvested at June 30, 2017 —
—
—
—
Granted(1) 37,414
31.70
—
1,186
Vested/Released —
—
—
—
Cancelled/Forfeited (1,306 ) 31.70
—
—
Outstanding and nonvested at March 31, 2018 36,108
31.70
2.6
1,090
Expected to vest at March 31, 2018 31,743
31.70
2.6
959

_____________

(1) The target number of PBRSUs is presented in the table. Under the terms of the awards, the recipient may earn between 0% and 150% of the target number of PBRSUs depending on the extent to which the Company meets or exceeds the achievement of the applicable financial performance goals.

The ~~aggregate intrinsic~~total grant-date fair value of PBRSUs ~~outstanding~~granted during the nine months ended March 31, 2019 was $1.2 million.

At March 31, 2019 and June 30, 2018, there was $1.7 million and $0.9 million, respectively, of unrecognized PBRSU compensation cost. The unrecognized PBRSU compensation cost at March 31, ~~2018 represents the total pretax intrinsic value, based on the Company’s closing stock price of $30.20 at March 29, 2018, representing the last trading day of the fiscal period. PBRSUs that are~~2019 is expected to ~~vest are net~~be recognized over the weighted average period of ~~estimated forfeitures.~~2.2 years. Total compensation expense for PBRSUs were $0.1 million for each period for the three months ended March 31, 2019 and 2018. Total compensation expense for PBRSUs was $0.3 million and $0.1 million for the nine months ended March 31, 2019 and 2018, respectively.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

AtNote 16. Other Current Liabilities

Other current liabilities consist of the following:



(In thousands)	March 31, 2019		June 30, 2018
Accrued postretirement benefits	$	810	$	810
Accrued workers’ compensation liabilities	1,789		1,698
Short-term pension liabilities (1)	—		3,761
Earnout payable (2)	1,000		600
Other (3)	3,949		3,790
Other current liabilities	$	7,548	$	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. See Note 12.

(2) Includes $1.0 million and $0.6 million at March 31, ~~2018~~2019 and June 30, ~~2017, there was $1.0 million~~2018, respectively, in estimated fair value of earnout payable in connection with the Company’s acquisition of substantially all of the assets of West Coast Coffee completed on February 7, 2017.

(3) Includes accrued property taxes, sales and ~~$0, respectively,~~use taxes, insurance liabilities and the current portion of unrecognized compensation cost related to PBRSUs. The unrecognized compensation cost related to PBRSUs at March 31, 2018 is expected to be recognized over the weighted average period of 2.6 years. Total compensation expense for PBRSUs was $79,000cumulative preferred dividends, undeclared and ~~$0 for the three months ended March 31, 2018 and 2017, respectively. Total compensation expense for PBRSUs was $0.1 million and $0 for the nine months ended March 31, 2018 and 2017, respectively.~~unpaid.

Note 17. Other Long-Term Liabilities

Other long-term liabilities include the following:


(In thousands)	March 31, 2018		June 30, 2017		March 31, 2019		June 30, 2018
Earnout payable(1)	$	600	$	1,100
Long-term obligations under capital leases					$	6	$	58
Derivative liabilities—noncurrent	146		380		714		386
Multiemployer Plan Holdback—Boyd Coffee(1)	1,056		—		—		1,056
Accrued cumulative preferred dividends—noncurrent	206		—
Cumulative preferred dividends, undeclared and unpaid—noncurrent					551		312
Deferred income taxes(2)					1,348		—
Other long-term liabilities	$	2,008	$	1,480	$	2,619	$	1,812

___________

(1) AsOn 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 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, 2018, includes $0.6 million in earnout payable in connection with the Company’s acquisition of substantially all of the assets of West Coast Coffee completed on February 7, 2017. As of June 30, 2017, includes $0.5 million and $0.6 million in earnout payable in connection with the Company’s acquisition of substantially all of the assets of China Mist completed on October 11, 2016 and the Company’s acquisition of substantially all of the assets of West Coast Coffee completed on February 7, 2017, respectively. At March 31, 2018, the Company recorded a change in the estimated fair value of the China Mist contingent earnout consideration of $(0.5) million as the Company does not expect the contingent sales levels to be reached.2019. See Note 4.

(2) Represents deferred tax liabilities that have an indefinite reversal pattern.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Note 18. Income Taxes

On December 22, 2017, the President of the United States signed into law the Tax Act. The SEC subsequently issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. Under SAB 118, companies are able to record a reasonable estimate of the impacts of the Tax Act if one is able to be determined and report it as a provisional amount during the measurement period. The measurement period is not to extend beyond one year from the enactment date. Impacts of the Tax Act that a company is not able to make a reasonable estimate for should not be recorded until a reasonable estimate can be made during the measurement period.

Pursuant to the Tax Act, the ~~Company revised its estimated annual effective rate to reflect a change in the~~ federal ~~statutory rate from 35.0% to 21.0%. The change in statutory~~corporate tax rate was ~~made as a result of the Tax Act. The rate change is administratively~~reduced to 21.0%, effective as of the enactment date and the Company is using the blended rate of 28.1% for its fiscal year ending on June 30, 2018, as prescribed. As a result of the Tax Act, the Company recognized tax expense related to adjusting its deferred tax balances to reflect the new corporate tax rate.January 1, 2018. Deferred tax amounts are calculated based on the rates at which they are expected to reverse in the future. The Company is analyzing certain aspects of the Tax Act and refining its calculations which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional ~~amounts~~amount recorded ~~related~~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. There were ~~$0.5 million and $20.8 million for~~no provisional adjustments recorded in the three and nine months ended March 31, ~~2018, respectively.~~

2019. The Company finalized its assessment of the income tax effects of the Tax Act in the second quarter of fiscal 2019.

The ~~Company’s~~income tax expense (benefit) and the related effective tax rates ~~for the three months ended March 31, 2018 and 2017 were (8.2)% and 44.4%, respectively. The Company’s~~are as follows (in thousands, except effective tax ~~rates for the nine months ended March 31, 2018~~rate):



	Three Months Ended March 31,						Nine Months Ended March 31,
	2019			2018(1)			2019			2018(1)
Income tax expense (benefit)	$	43,161		$	(1,321	)	$	39,149		$	16,058
Effective tax rate	(502.7		)%	37.6		%	(152.4		)%	(682.0		)%

___________

(1) The amounts and ~~2017 were (649.1)% and 40.4%, respectively. The effective~~ tax rates ~~for~~have been retrospectively adjusted to reflect the ~~three~~impact of certain changes in accounting principles and ~~nine months ended March 31, 2018 and 2017 varied from the Company’s federal statutory rates of 28.1% and 35.0%, respectively, primarily due~~corrections to ~~income tax expense resulting from the enactment of the Tax Act.~~previously issued financial statements as described in Note 3.

The Company evaluates its deferred tax assets quarterly to determine if a valuation allowance is required. In making such assessment, significant weight is given to evidence that can be objectively verified, such as recent operating results, and less consideration is given to less objective indicators such as future income projections. After consideration of positive and negative evidence, including the ~~recent history of~~Company’s cumulative 12-month income position at March 31, 2019, the Company concluded that it is more likely than not that the Company will not generate future income sufficient to realize the ~~majority of the~~ Company’s deferred tax ~~assets.~~ assets at March 31, 2019. In addition, as of March 31, 2019, the Company concluded that certain federal and state net operating loss carry forwards and tax credit carryovers will not be utilized before expiration. As a result, the Company recorded a valuation allowance of $44.6 million to reduce deferred tax assets during the three months ended March 31, 2019.

The effective tax rates for the three and nine months ended March 31, 2019 varied from the federal statutory rate of 21.0% primarily due to a valuation allowance of $44.6 million taken against the deferred tax asset, in addition to state income taxes. The effective tax rates for the three and nine months ended March 31, 2018 varied from the federal statutory rate of 28.1% primarily due to income tax expense resulting from the adjustment of deferred tax amounts due to the enactment of the Tax Act, in addition to state income taxes.

As of March 31, 2019 and June 30, 2018 the Company had no unrecognized tax benefits.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

~~2017, the Company’s net deferred tax assets totaled $63.1 million. As discussed in~~ ~~Note 2~~, the Company adopted ASU 2016-09 beginning July 1, 2017 and upon adoption recognized the excess tax benefits of $1.6 million as an increase to deferred tax assets and a corresponding increase to retained earnings. In the nine months ended March 31, 2018, net deferred tax assets decreased by $17.3 million to $45.8 million, primarily as a result of the Tax Act.

~~As of March 31, 2018 and June 30, 2017 the Company had no unrecognized tax benefits.~~

Note 19. Net (Loss) Income Per Common Share

Computation of net (loss) income per share (“EPS”) for the three and nine months ended March 31, 2019 excludes the dilutive effect of 551,415 shares issuable under stock options, 80,771 PBRSUs and 404,197 shares issuable upon the assumed conversion of the outstanding Series A Preferred Stock because the Company incurred net losses in the three and nine months ended March 31, 2019 so their inclusion would be anti-dilutive. There were no unearned ESOP shares excluded from EPS calculations in the three and nine months ended March 31, 2019.

Computation of EPS for the three and nine months ended March 31, 2018 excludes the dilutive effect of 488,231 shares issuable under stock options, 36,108 PBRSUs and 383,611 shares issuable upon the assumed conversion of the outstanding Series A Preferred Stock because the Company incurred net losses in the three and nine months ended March 31, 2018 so their inclusion would be anti-dilutive.

~~Computation of~~ There were 72,114 unearned ESOP shares excluded from EPS ~~for~~calculations in the three and nine months ended March 31, 2017 includes the dilutive effect of 116,020 shares and 120,075 shares, respectively, issuable under stock options with exercise prices below the closing price of the Company’s common stock on the last trading day of the applicable period, but excludes the dilutive effect of 30,401 and 25,508 shares, respectively, issuable under stock options with exercise prices above the closing price of the Company’s common stock on the last trading day of the applicable period because their inclusion would be anti-dilutive.2018.


	Three Months Ended March 31,					Nine Months Ended March 31,					Three Months Ended March 31,						Nine Months Ended March 31,
(In thousands, except share and per share amounts)	2018			2017		2018			2017		2019			2018(1)			2019			2018(1)
Undistributed net (loss) income available to common stockholders	$	(4,033	)	$	1,592	$	(23,899	)	$	23,253
Undistributed net (loss) income available to nonvested restricted stockholders and holders of convertible preferred stock	(3		)	2		(13		)	35
Net (loss) income available to common stockholders—basic	$	(4,036	)	$	1,594	$	(23,912	)	$	23,288
Undistributed net loss available to common stockholders											$	(51,828	)	$	(2,318	)	$	(65,177	)	$	(18,658	)
Undistributed net loss available to nonvested restricted stockholders and holders of convertible preferred stock											(55		)	(3		)	(58		)	(13		)
Net loss available to common stockholders—basic											$	(51,883	)	$	(2,321	)	$	(65,235	)	$	(18,671	)

Weighted average common shares outstanding—basic	16,760,145			16,605,754		16,727,624			16,584,125		17,003,206			16,760,145			16,982,247			16,727,624
Effect of dilutive securities:
Shares issuable under stock options	—			116,020		—			120,075		—			—			—			—
Shares issuable PBRSUs	—			—		—			—
Shares issuable under PBRSUs											—			—			—			—
Shares issuable under convertible preferred stock	—			—		—			—		—			—			—			—
Weighted average common shares outstanding—diluted	16,760,145			16,721,774		16,727,624			16,704,200		17,003,206			16,760,145			16,982,247			16,727,624
Net (loss) income per common share available to common stockholders—basic	$	(0.24	)	$	0.10	$	(1.43	)	$	1.40
Net (loss) income per common share available to common stockholders—diluted	$	(0.24	)	$	0.10	$	(1.43	)	$	1.39
Net loss per common share available to common stockholders—basic											$	(3.05	)	$	(0.14	)	$	(3.84	)	$	(1.12	)
Net loss per common share available to common stockholders—diluted											$	(3.05	)	$	(0.14	)	$	(3.84	)	$	(1.12	)

___________

(1) Prior period amounts have been retrospectively adjusted to reflect the impact of certain changes in accounting principles and corrections to previously issued financial statements as described in Note 3.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Note 20. Preferred Stock

The Company is authorized to issue 500,000 shares of preferred stock at a par value of $1.00, including 21,000 authorized shares of Series A Preferred Stock.

~~Series A Convertible Participating Cumulative Perpetual Preferred Stock~~

On October 2, 2017, the Company issued 14,700 shares of Series A Preferred Stock in connection with the Boyd Coffee acquisition. ~~The~~At March 31, 2019, Series A Preferred Stock ~~pays~~consisted of the following:




(In thousands, except share and per share amounts)
Shares Authorized	Shares Issued and Outstanding	Stated Value per Share		Carrying Value		Cumulative Preferred Dividends, Undeclared and Unpaid		Liquidation Preference
21,000	14,700	$	1,054	$	15,489	$	789	$	15,489

Note 21. 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 ~~dividend,~~material effect on the results of operations, financial position or cash flows of the Company. See Note 2.

The Company’s primary source of revenue are sales of coffee, tea and culinary products. The Company recognizes revenue when ascontrol of the promised good or service is transferred to the customer and ~~if declared by~~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 ~~Board~~sales.

The Company delivers products to customers primarily through two methods, DSD to the Company’s customers at their place of ~~Directors, of 3.5% APR~~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 ~~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~~goods passes to the ~~amount of undeclared and unpaid dividends or subsequent payment of accumulated dividends thereon, respectively, and a conversion premium of 22.5%. Dividends may be paid in cash.~~customer. The Company ~~accrues for undeclared~~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 condensed 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 ~~unpaid dividends~~applied one accounting treatment to all such contracts.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

In accordance with ASC Topic 606, the Company disaggregates net sales from contracts with customers based on the characteristics of the products sold:



	Three Months Ended March 31,
	2019				2018
(In thousands)	$		% of total		$		% of total
Net Sales by Product Category:
Coffee (Roasted)	$	93,211	63.4	%	$	99,315	63.0	%
Coffee (Frozen Liquid)	8,267		5.8	%	8,675		5.0	%
Tea (Iced & Hot)	8,320		5.9	%	7,889		5.0	%
Culinary	15,990		11.0	%	16,872		11.0	%
Spice	5,736		4.1	%	6,115		4.0	%
Other beverages(1)	14,405		9.8	%	18,319		12.0	%
Net sales by product category	145,929		100	%	157,185		100	%
Fuel surcharge	750		—	%	742		—	%
Net sales	$	146,679	100	%	$	157,927	100	%

____________

(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.



	Nine Months Ended March 31,
	2019				2018
(In thousands)	$		% of total		$		% of total
Net Sales by Product Category:
Coffee (Roasted)	$	287,851	63.4	%	$	286,655	63.0	%
Coffee (Frozen Liquid)	26,141		5.9	%	25,825		6.0	%
Tea (Iced & Hot)	25,876		5.8	%	23,312		5.0	%
Culinary	48,779		10.9	%	48,011		10.0	%
Spice	17,895		4.0	%	18,722		4.0	%
Other beverages(1)	44,946		10.0	%	52,354		11.0	%
Net sales by product category	451,488		100	%	454,879		99.0	%
Fuel surcharge	2,404		—	%	2,127		1.0	%
Net sales	$	453,892	100	%	$	457,006	100	%

____________

(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 ~~they~~of March 31, 2019. Receivables from contracts with customers are ~~payable under~~included in “Accounts receivable, net” on the ~~conversion features on a cumulative basis.~~Company’s condensed consolidated balance sheets. At March 31, 2019 and June 30, 2018, ~~the Company had undeclared~~“Accounts receivable, net” included, $65.0 million and ~~unpaid preferred dividends of $257,250 on 14,700~~$54.5 million, respectively, in receivables from contracts with customers.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

issued and outstanding shares of Series A Preferred Stock. Series A Preferred Stock is a participating security because it has rights to earnings that otherwise would have been available to common stockholders. 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 common stock, when declared. Each share of Series A Preferred Stock is convertible into 26 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 filed with the Secretary of State of the State of Delaware). Series A Preferred Stock is a perpetual stock and, therefore, not redeemable. Based on its characteristics, the Company classified Series A Preferred Stock as permanent equity.

Series A Preferred Stock is carried on the Company’s balance sheet at the amount recorded at inception until converted. The Company may mandatorily convert all but not a portion 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. Series A Preferred Stock cannot be sold or transferred by the holder for a period of three years from the date of issue, with the exception of transfer by holder, not for value, to the holder’s shareholder.

~~At March 31, 2018, Series A Preferred Stock consisted of the following:~~

Shares Authorized Shares Issued and Outstanding Par Value per Share Carrying Value Cumulative Preferred Dividends Liquidation Preference
21,000
14,700
$ 1.00
$ 14,700
$ 257,250
$ 820,554

Note ~~21.~~22. Commitments and Contingencies

For a detailed discussion about the Company’s commitments and contingencies, see Note ~~23,~~24, “Commitments and Contingencies” ~~to the consolidated financial statements~~ in the ~~2017~~Notes to Consolidated Financial Statements in the 2018 Form 10-K. During the nine months ended March 31, ~~2018,~~2019, other than the following, or as otherwise disclosed in these footnotes in the current Form 10-Q, there were no material changes in the Company’s commitments and contingencies.

~~New Facility Construction and Equipment Contracts~~

On February 9, 2018, the Company and Haskell entered into Task Order 6 for the expansion of the Company’s production lines in the New Facility. The maximum price payable by the Company to Haskell under Task Order 6 for all of Haskell’s services, equipment procurement and installation, and construction work in connection with the Expansion Project ~~is $19.3 million.~~ Contract

In the third quarter of fiscal 2018, the Company ~~anticipates paying between $9 million~~commenced a project to ~~$14 million in capital expenditures associated with the Expansion Project, of which $2.9 million and $5.6 million has been paid~~expand its production lines (the “Expansion Project”) in the ~~three and nine months ended March 31, 2018, respectively, with~~New Facility, including expanding capacity to support the ~~balance~~transition of acquired business volumes under a guaranteed maximum price contract of up to ~~the guaranteed maximum price of~~ $19.3 ~~million expected to be paid in fiscal 2019.~~

~~Borrowings Under Revolving Credit Facility~~

At March 31, 2018, the Company had outstanding borrowings of $85.9 million under its Revolving Facility, as compared to outstanding borrowings of $27.6 million at June 30, 2017. The increase in outstanding borrowings inmillion. In the nine months ended March 31, ~~2018 included $39.5~~2019, the Company paid $10.6 million ~~to fund~~for machinery and equipment expenditures associated with the ~~cash paid at closing for the purchase~~Expansion Project. Since inception of the ~~Boyd Business and~~contract through March 31, 2019, the ~~initial~~ Company ~~obligations under the post-closing transition services agreement.~~has paid a total of $18.9 million.

~~Non-cancelable~~

Purchase ~~Orders~~Commitments

As of March 31, ~~2018,~~2019, the Company had committed to purchase green coffee inventory totaling ~~$55.8~~$60.4 million under fixed-price contracts and to other purchases totaling ~~$13.9~~$16.0 million under non-cancelable purchase ~~orders.~~orders related primarily to the purchase of finished goods inventory.

As of March 31, 2019, the Company had commitments of $0.9 million for roasting equipment ordered for the New Facility which will be accrued by the Company upon delivery and acceptance of the equipment in the fourth quarter of fiscal 2019.

Legal Proceedings

Council for Education and Research on Toxics (“CERT”) v. Brad Berry Company Ltd., et al., Superior Court of the State of California, County of Los Angeles

On August 31, 2012, CERT filed an amendment to a private enforcement action adding a number of companies as defendants, ~~including CBI,~~the Company’s subsidiary, Coffee Bean International, Inc., which sell coffee in ~~California.~~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

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

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.

~~To date, the pleadings stage of the case has been completed.~~The JDG filed a pleading responding to claims and asserting affirmative defenses on January 22, 2013. The Court ~~has phased~~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 ~~so that~~in two “phases,” and the “no significant risk level” defense, the First Amendment defense, and the federal preemption defense ~~will be~~were tried ~~first. Fact discovery and expert discovery on these “Phase 1” defenses have been completed, and~~in the ~~parties filed trial briefs.~~first phase. Trial commenced on September 8, 2014, and testimony completed on November 4, 2014, for the three ~~Phase 1~~“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

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

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.~~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 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. ~~The parties will respond with any~~Following evaluation of the parties' objections to the proposed statement of decision, ~~and, following that,~~ the Court ~~would rule on the objections and file~~issued its final statement of ~~decision. Based upon the Court’s final~~ decision on May 7, 2018 which was substantively similar to the ~~liability phase, the next step~~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 ~~final~~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 ~~adjudicate remedies, including whether any damages~~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 ~~penalties would be imposed~~reopen its First Amendment defense to the imposition of a cancer warning for their coffee products, or, ~~whether~~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 ~~will order~~of Appeals issued a Temporary Stay Order. The Temporary Stay Order ordered the ~~use~~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 ~~warnings,~~further proceedings, including ~~any packaging warnings.~~both remedies and liability, pending a ruling by the Court of Appeals.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

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 are currently listed under Prop 65. OEHHA extended the public comment period until April 2, 2019. Once OEHHA has reviewed and developed responses to comments and created an updated final statement of reasons, it will resubmit the regulation to OAL. OAL will then have another 30 days to review the regulation. If OAL approves the regulation in time, it could be submitted for publication in the July 1, 2019 update to the California Code of Regulations, at which point it is expected that it would become effective.

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.

Farmer Bros. Co.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Note 23. Subsequent Events

The Company evaluated all events or transactions that occurred after March 31, 2019 through the date the condensed consolidated financial statements were issued. During this period the Company had the following material subsequent events that require disclosure:

None.



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements contained in this Quarterly Report on Form 10-Q 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 our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2017~~2018 filed with the Securities and Exchange Commission (the “SEC”) on September ~~28, 2017~~13, 2018 (the ~~“2017~~“2018 Form 10-K”). and Part II, Item 1A of this report. These forward-looking statements can be identified by the use of words like “anticipates,” “estimates,” ~~“projects,~~��projects,” “expects,” “plans,” “believes,” “intends,” “will,” “could,” “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 report 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 the Corporate Relocation Plan, the timing and success of implementation of the DSD Restructuring Plan, the Company’s success in consummating acquisitions and integrating acquired businesses, the impact of capital improvement projects, the adequacy and availability of capital resources to fund the Company’s existing and planned business operations and the Company’s capital expenditure requirements, the relative effectiveness of compensation-based employee incentives in causing improvements in Company performance, the capacity to meet the demands of our 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 success of the Company’s adaptation to technology and new commerce channels, 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 and interest rate 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, our 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 this report and other factors described from time to time in our filings with the SEC. The results of operations for the three and nine months ended March 31, ~~2018~~2019 are not necessarily indicative of the results that may be expected for any future period.

Business Overview

We are a national coffee roaster, wholesaler and distributor of coffee, tea and culinary products manufactured under supply agreements, under our owned brands, as well as under private labels on behalf of certain customers. We were founded in 1912, incorporated in California in 1923, and reincorporated in Delaware in 2004. We operate in one business segment.

We serve a wide variety of customers, from small independent restaurants and foodservice operators to large institutional buyers like restaurants, department and convenience store chains, hotels, casinos, healthcare facilities, and gourmet coffee houses, as well as grocery chains with private brand and consumer branded coffee and tea ~~products.~~products, and foodservice distributors. 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~~roasted coffee, including organic, Direct Trade, ~~Direct Trade Verified Sustainable (“DTVS”)~~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, Texas (the “New Facility”); Houston, Texas; Portland, Oregon; and Hillsboro, Oregon. Distribution takes place out of the ~~New Facility,~~Northlake, Portland and Hillsboro facilities, as well as separate distribution centers in Northlake, Illinois; Moonachie, New Jersey; and Scottsdale, Arizona. We commenced distribution activities at the New Facility during the second quarter of fiscal 2017 and initial production activities late in the third quarter of fiscal 2017. We began roasting coffee in the New Facility in the fourth quarter of fiscal 2017.

Our products reach our customers primarily in ~~two~~the following ways: through our nationwide Direct Store Delivery (“DSD”) network of ~~449~~384 delivery routes and ~~111~~103 branch warehouses as of March 31, ~~2018,~~2019, or direct-shipped via common carriers or third-party distributors. DSD sales are made ~~“off-truck”~~“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, and we rely on third-party logistics service providers for our long-haul distribution.

~~Corporate Relocation~~

In an effort to make the Company more competitive and better positioned to capitalize on growth opportunities, in fiscal 2015 we began the process of relocating our corporate headquarters, product development lab, and manufacturing and distribution operations from Torrance, California (the “Torrance Facility”) to the New Facility (the “Corporate Relocation Plan”). Approximately 350 positions were impacted as a result of the Torrance Facility closure. We completed the Corporate Relocation Plan in the fourth quarter of fiscal 2017.

~~Recent Developments~~Results of Operations

~~New Facility Expansion~~Changes in Accounting Principles and Corrections to Previously Issued Financial Statements

On February 9, 2018, we entered into Task Order No. 6 with The Haskell Company (“Haskell”) pursuant to the Standard Form of Agreement between Owner and Design-Builder (AIA Document A141-2014 Edition) dated October 23, 2017. Task Order 6 covers the expansion of our production lines (the “Expansion Project”)As discussed in the New Facility including expanding capacity to support the transition of the Boyd Business volumes to the New Facility. Task Order 6 includes (i) pre-construction services to define our criteria for the industrial capacity Expansion Project, (ii) specialized industrial design services for the Expansion Project, (iii) specialty industrial equipment procurement and installation, and (iv) all construction services necessary to complete any modifications to the New Facility in order to accommodate the production line expansion, and to provide power to that expanded production capability. See ~~Liquidity, Capital Resources and Financial Condition—Liquidity—Capital Expenditures, below, and~~ Note 53, ~~New Facility~~Change in Accounting Principles and Corrections to Previously Issued Financial Statements,—~~New Facility Expansion~~, of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this ~~report.~~

~~Acquisitions~~

On October 2, 2017, we acquired substantially all of the assets and certain specified liabilities of Boyd Coffee Company (“Boyd Coffee”), a coffee roaster and distributor with a focus on restaurants, hotels, and convenience stores on the West Coast of the United States,report, prior period amounts recorded in ~~consideration of cash and preferred stock. The acquired business of Boyd Coffee (the “Boyd Business”) is expected~~our condensed consolidated financial statements have been retrospectively adjusted to ~~add to our product portfolio, improve growth potential, increase the density and penetration of our distribution footprint, and increase capacity utilization at our production facilities.~~

In fiscal 2017, we completed two acquisitions. On October 11, 2016, we acquired substantially all of the assets and certain specified liabilities of China Mist Brands, Inc. dba China Mist Tea Company (“China Mist”), a provider of flavored and unflavored iced and hot teas, and on February 7, 2017, we acquired substantially all of the assets and certain specified liabilities of West Coast Coffee Company, Inc. (“West Coast Coffee”), a coffee roaster and distributor with a focus on the convenience store, grocery and foodservice channels. The China Mist acquisition is expected to extend our tea product offerings and give us a greater presence in the high-growth premium tea industry, while the acquisition of West Coast Coffee is expected to broaden our reach in the Northwestern United States.

~~See~~ ~~Liquidity, Capital Resources and Financial Condition~~ ~~below for further details of~~reflect the impact of ~~these acquisitions on our~~certain changes in accounting principles and corrections to previously issued financial ~~condition~~statements, and ~~liquidity, and~~ ~~Note 3~~, ~~Acquisitions,~~ the adoption of ~~the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.~~

~~DSD Restructuring Plan~~

As a result of an ongoing operational review of various initiatives within our DSD selling organization, in the third quarter of fiscal 2017, we commenced a plan to reorganize our DSD operations in an effort to realign functions into a channel based selling organization, streamline operations, acquire certain channel specific expertise, and improve selling effectiveness and financial results (the “DSD Restructuring Plan”). See ~~Liquidity, Capital Resources and Financial Condition—Liquidity—DSD Restructuring Plan, below, and~~ ~~Note 4~~, ~~Restructuring Plans—Direct Store Delivery (“DSD”) Restructuring Plan, of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.~~

~~Results of Operations~~

~~Financial Highlights~~

~~Volume of green coffee pounds processed and sold increased 13.7% and 10.8%, respectively,~~new accounting standards in the three and nine months ended March 31, ~~2018 as compared to~~2019 that required retrospective application. The discussion of our results of operations for the three and nine months ended March 31, ~~2017.~~2018 set forth below reflects these retrospective adjustments.

~~Gross profit increased $5.0 million~~Financial Data Highlights (in thousands, except per share data and percentages)



	Three Months Ended March 31,						Favorable (Unfavorable)					Nine Months Ended March 31,						Favorable (Unfavorable)
	2019			2018			Change			% Change		2019			2018			Change			% Change
Income Statement Data:
Net sales	$	146,679		$	157,927		$	(11,248	)	(7.1	)%	$	453,892		$	457,006		$	(3,114	)	(0.7	)%
Gross margin	27.2		%	33.1		%	(5.9		)%	NM		31.1		%	33.8		%	(2.7		)%	NM
Operating expenses as a % of sales	31.4		%	34.9		%	3.5		%	NM		32.8		%	34.0		%	1.2		%	NM
Loss from operations	$	(6,102	)	$	(2,785	)	$	(3,317	)	(119.1	)%	$	(7,678	)	$	(931	)	$	(6,747	)	(724.7	)%
Net loss	$	(51,749	)	$	(2,193	)	$	(49,556	)	NM		$	(64,835	)	$	(18,414	)	$	(46,421	)	(252.1	)%
Net loss available to common stockholders per common share—basic	$	(3.05	)	$	(0.14	)	$	(2.91	)	NM		$	(3.84	)	$	(1.12	)	$	(2.72	)	NM
Net loss available to common stockholders per common share—diluted	$	(3.05	)	$	(0.14	)	$	(2.91	)	NM		$	(3.84	)	$	(1.12	)	$	(2.72	)	NM

Operating Data:
Coffee pounds	27,873			27,733			140			0.5	%	80,719			80,034			685			0.9	%
EBITDA(1)	$	639		$	4,785		$	(4,146	)	(86.6	)%	$	2,109		$	22,657		$	(20,548	)	(90.7	)%
EBITDA Margin(1)	0.4		%	3.0		%	(2.6		)%	NM		0.5		%	5.0		%	(4.5		)%	NM
Adjusted EBITDA(1)	$	4,535		$	10,644		$	(6,109	)	(57.4	)%	$	27,945		$	33,600		$	(5,655	)	(16.8	)%
Adjusted EBITDA Margin(1)	3.1		%	6.7		%	(3.6		)%	NM		6.2		%	7.4		%	(1.2		)%	NM

Percentage of Total Net Sales By Product Category
Coffee (Roasted)	63.4		%	63.0		%	0.4		%	0.6	%	63.4		%	63.0		%	0.4		%	0.6	%
Coffee (Frozen Liquid)	5.8		%	5.0		%	0.8		%	16.0	%	5.9		%	6.0		%	(0.1		)%	(1.7	)%
Tea (Iced & Hot)	5.9		%	5.0		%	0.9		%	18.0	%	5.8		%	5.0		%	0.8		%	16.0	%
Culinary	11.0		%	11.0		%	—		%	—	%	10.9		%	10.0		%	0.9		%	9.0	%
Spice	4.1		%	4.0		%	0.1		%	2.5	%	4.0		%	4.0		%	—		%	—	%
Other beverages(2)	9.8		%	12.0		%	(2.2		)%	(18.3	)%	10.0		%	11.0		%	(1.0		)%	(9.1	)%
Net sales by product category	100.0		%	100.0		%	—		%	—	%	100.0		%	99.0		%	1.0		%	NM
Fuel Surcharge	—		%	—		%	—		%	—	%	—		%	1.0		%	(1.0		)%	NM
Total	100.0		%	100.0		%	—		%	—	%	100.0		%	100.0		%	—		%	—	%

Other data:
Capital expenditures related to maintenance	$	4,434		$	5,621		$	(1,187	)	(21.1	)%	$	17,001		$	17,373		$	(372	)	(2.1	)%
Total capital expenditures	$	7,273		$	11,217		$	(3,944	)	(35.2	)%	$	30,393		$	27,466		$	2,927		10.7	%
Depreciation and amortization expense	$	7,600		$	7,397		$	203		2.7	%	$	23,230		$	22,727		$	503		2.2	%

________________

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 ~~$58.8 million in~~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.

The following table sets forth information regarding our condensed consolidated results of operations for the three ~~months ended March 31, 2018 from $53.8 million in the three months ended March 31, 2017. Gross profit increased $13.2 million to $173.3 million in the~~and nine months ended March 31, 2019 and 2018 ~~from $160.1 million in~~(in thousands, except percentages):



	Three Months Ended March 31,						Favorable (Unfavorable)					Nine Months Ended March 31,						Favorable (Unfavorable)
	2019			2018			Change			% Change		2019			2018			Change			% Change
Net sales	$	146,679		$	157,927		$	(11,248	)	(7.1	)%	$	453,892		$	457,006		$	(3,114	)	(0.7	)%
Cost of goods sold	106,779			105,629			(1,150		)	(1.1	)%	312,513			302,349			(10,164		)	(3.4	)%
Gross profit	39,900			52,298			(12,398		)	(23.7	)%	141,379			154,657			(13,278		)	(8.6	)%
Selling expenses	34,422			37,754			3,332			8.8	%	111,323			112,736			1,413			1.3	%
General and administrative expenses	11,306			14,157			2,851			20.1	%	32,063			39,822			7,759			19.5	%
Restructuring and other transition expenses	26			52			26			50.0	%	4,700			311			(4,389		)	NM
Net gains from sale of spice assets	(203		)	(110		)	93			84.5	%	(593		)	(655		)	(62		)	(9.5	)%
Net losses (gains) from sales of other assets	451			(590		)	(1,041		)	(176.4	)%	1,564			(446		)	(2,010		)	NM
Impairment losses on intangible assets	—			3,820			3,820			100.0	%	—			3,820			3,820			100.0	%
Operating expenses	46,002			55,083			9,081			16.5	%	149,057			155,588			6,531			4.2	%
Loss from operations	(6,102		)	(2,785		)	(3,317		)	(119.1	)%	(7,678		)	(931		)	(6,747		)	NM
Other (expense) income :
Dividend income	—			1			(1		)	NM		—			12			(12		)	NM
Interest income	—			—			—			—	%	—			2			(2		)	NM
Interest expense	(2,981		)	(2,547		)	(434		)	(17.0	)%	(9,165		)	(7,221		)	(1,944		)	(26.9	)%
Pension settlement charge	—			—			—			—	%	(10,948		)	—			(10,948		)	NM
Other, net	495			1,817			(1,322		)	(72.8	)%	2,105			5,782			(3,677		)	(63.6	)%
Total other expense	(2,486		)	(729		)	(1,757		)	(241.0	)%	(18,008		)	(1,425		)	(16,583		)	NM
Loss before taxes	(8,588		)	(3,514		)	(5,074		)	(144.4	)%	(25,686		)	(2,356		)	(23,330		)	NM
Income tax expense (benefit)	43,161			(1,321		)	(44,482		)	NM		39,149			16,058			(23,091		)	(143.8	)%
Net loss	$	(51,749	)	$	(2,193	)	(49,556		)	NM		$	(64,835	)	$	(18,414	)	(46,421		)	(252.1	)%
Less: Cumulative preferred dividends, undeclared and unpaid	134			128			(6		)	(4.7	)%	400			257			(143		)	(55.6	)%
Net loss available to common stockholders	$	(51,883	)	$	(2,321	)	(49,562		)	NM		$	(65,235	)	$	(18,671	)	(46,564		)	(249.4	)%

_____________

NM - Not Meaningful

The following section discusses the period-over-period fluctuations of our condensed consolidated results of operations for the three and nine months ended March 31, ~~2017.~~2019 compared to 2018.

~~Gross margin decreased~~

Three and Nine Months Ended March 31, 2019 Compared to ~~37.2%~~Three and ~~37.9%, respectively,~~Nine Months Ended March 31, 2018

Net Sales

The following table presents changes in units sold, unit price and net sales by product category in the three and nine months ended March 31, ~~2018, from 38.9% and 39.3%, respectively,~~2019 compared to the same periods in the ~~three~~prior fiscal year (in thousands, except unit price and ~~nine months ended March 31, 2017.~~percentages):

~~Loss from operations was $(2.9) million~~



	Three Months Ended March 31,				Favorable (Unfavorable)					Nine Months Ended March 31,				Favorable (Unfavorable)
	2019		2018		Change			% Change		2019		2018		Change			% Change
Units sold
Coffee (Roasted)	22,298		22,186		112			0.5	%	64,575		64,027		548			0.9	%
Coffee (Frozen Liquid)	101		101		—			—	%	336		295		41			13.9	%
Tea (Iced & Hot)	740		716		24			3.4	%	2,097		1,963		134			6.8	%
Culinary	1,986		2,255		(269		)	(11.9	)%	6,186		6,422		(236		)	(3.7	)%
Spice	162		221		(59		)	(26.7	)%	552		711		(159		)	(22.4	)%
Other beverages(1)	1,100		1,637		(537		)	(32.8	)%	4,009		4,695		(686		)	(14.6	)%
Total	26,387		27,116		(729		)	(2.7	)%	77,755		78,113		(358		)	(0.5	)%

Unit Price
Coffee (Roasted)	$	4.2	$	4.5	$	(0.3	)	(6.7	)%	$	4.5	$	4.5	$	—		(0.4	)%
Coffee (Frozen Liquid)	$	81.9	$	85.9	$	(4.0	)	(4.7	)%	$	77.8	$	87.5	$	(9.7	)	(11.1	)%
Tea (Iced & Hot)	$	11.2	$	11.0	$	0.2		1.8	%	$	12.3	$	11.9	$	0.5		3.9	%
Culinary	$	8.1	$	7.5	$	0.6		8.0	%	$	7.9	$	7.5	$	0.4		5.5	%
Spice	$	35.4	$	27.7	$	7.7		27.8	%	$	32.4	$	26.3	$	6.1		23.1	%
Other beverages(1)	$	13.1	$	11.2	$	1.9		17.0	%	$	11.2	$	11.2	$	0.1		0.5	%
Average unit price	$	5.6	$	5.8	$	(0.2	)	(3.4	)%	$	5.8	$	5.9	$	(0.1	)	(0.2	)%

Total Net Sales By Product Category
Coffee (Roasted)	$	93,211	$	99,315	$	(6,104	)	(6.1	)%	$	287,851	$	286,655	$	1,196		0.4	%
Coffee (Frozen Liquid)	8,267		8,675		(408		)	(4.7	)%	26,141		25,825		316			1.2	%
Tea (Iced & Hot)	8,320		7,889		431			5.5	%	25,876		23,312		2,564			11.0	%
Culinary	15,990		16,872		(882		)	(5.2	)%	48,779		48,011		768			1.6	%
Spice	5,736		6,115		(379		)	(6.2	)%	17,895		18,722		(827		)	(4.4	)%
Other beverages(1)	14,405		18,319		(3,914		)	(21.4	)%	44,946		52,354		(7,408		)	(14.1	)%
Net sales by product category	$	145,929	$	157,185	$	(11,256	)	(7.2	)%	$	451,488	$	454,879	$	(3,391	)	(0.7	)%
Fuel Surcharge	750		742		8			1.1	%	2,404		2,127		277			13.0	%
Total	$	146,679	$	157,927	$	(11,248	)	(7.1	)%	$	453,892	$	457,006	$	(3,114	)	(0.7	)%

____________

(1) Includes all beverages other than roasted coffee, frozen liquid coffee, and ~~$(1.7) million, respectively, in the three~~iced and ~~nine months ended March 31, 2018 as compared to income from operations of $2.1 million~~hot tea, including cappuccino, cocoa, granitas, and ~~$40.5 million, respectively, in the three~~concentrated and nine months ended March 31, 2017. Income from operations in the nine months ended March 31, 2017 included a $37.4 million net gain from the sale of the Torrance Facility. Loss from operations in the threeready-to-drink cold brew and ~~nine months ended March 31, 2018 included $(3.8) million in losses on intangible assets.~~

Net loss was $(3.9) million, or $(0.24) per common share available to common stockholders, in the three months ended March 31, 2018, compared to net income of $1.6 million, or $0.10 per common share available to common stockholders—diluted, in the three months ended March 31, 2017. Net loss was $(23.7) million, or $(1.43) per common share available to common stockholders, in the nine months ended March 31, 2018, compared to net income of $23.3 million, or $1.39 per common share available to common stockholders—diluted, in the nine months ended March 31, 2017. Net loss in the nine months ended March 31, 2018 included income tax expense of $20.5 million, as compared to income tax expense of $15.9 million, in the nine months ended March 31, 2017.

EBITDA decreased (53.3)% to $4.7 million and EBITDA Margin was 3.0% in the three months ended March 31, 2018, as compared to EBITDA of $10.0 million and EBITDA Margin of 7.3% in the three months ended March 31, 2017. EBITDA decreased (61.8)% to $21.9 million and EBITDA Margin was 4.8% in the nine months ended March 31, 2018, as compared to EBITDA of $57.2 million and EBITDA Margin of 14.0% in the nine months ended March 31, 2017.*

Adjusted EBITDA decreased (13.4)% to $10.5 million and Adjusted EBITDA Margin was 6.7% in the three months ended March 31, 2018, as compared to Adjusted EBITDA of $12.2 million and Adjusted EBITDA Margin of 8.8% in the three months ended March 31, 2017. Adjusted EBITDA decreased (4.6)% to $32.8 million and Adjusted EBITDA Margin was 7.2% in the nine months ended March 31, 2018, as compared to Adjusted EBITDA of $34.3 million and Adjusted EBITDA Margin of 8.4% in the nine months ended March 31, 2017.*


•	~~(* EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. See~~ ~~Non-GAAP Financial Measures~~ ~~in Part I, Item 2 of this report for a reconciliation of these non-GAAP measures to their corresponding GAAP measures.)~~

iced coffee.

~~Net Sales~~

Net sales in the three months ended March 31, ~~2018 increased $19.7~~2019 decreased $11.2 million, or ~~14.3%~~7.1%, to ~~$157.9~~$146.7 million from ~~$138.2~~$157.9 million in the three months ended March 31, ~~2017 due to a $11.5 million increase~~2018. The decrease in net sales was driven primarily by declines in revenues and volume of ~~roast~~green coffee processed and ~~ground~~sold through our DSD network, the impact of lower coffee products, a $4.4 million increase in net sales of other beverages, a $3.0 million increase in net sales of culinary products, a $0.4 million increase in net sales of frozen liquid coffee, a $0.2 million increase in net sales of tea products, and a $0.2 million increase in net sales of spice products. These increases were primarily due to the addition of the Boyd Business which added a total of $22.8 million to net sales, offset by a $3.2 million decline in our base business primarily due to price decreases toprices for our cost plus customers and a ~~shortfall~~reduction in ~~sales from our DSD organization~~revenues due to higher customer attrition related to the Boyd Business integration and ~~softness in a few large direct ship accounts.~~route optimization. Net sales in the three months ended March 31, ~~2018~~2019 included ~~$(2.4)~~$2.1 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 ~~$1.2~~$2.4 million in price ~~increases~~decreases to customers utilizing such arrangements in the three months ended March 31, ~~2017.~~2018.

Net sales in the nine months ended March 31, ~~2018 increased $49.3~~2019 decreased $3.1 million, or ~~12.1%~~0.7%, to ~~$457.0~~$453.9 million from ~~$407.7~~$457.0 million in the nine months ended March 31, ~~2017 due to a $30.6 million increase~~2018. The decline in net sales was primarily due to declines in revenues and volume of ~~roast~~green coffee processed and ~~ground~~sold through our DSD network, and the impact of lower coffee ~~products, a $8.5 million increase~~prices for our cost plus customers.

The decline in net sales ~~of other beverages, a $6.7 million~~was partially offset by an increase in ~~net~~ sales of culinary products, a $1.9 million increase in net sales of tea products, a $1.2 million increase in net sales of frozen liquid coffee, and a $0.4 million increase in net sales of spice products. These increases were primarily due tofrom the addition of the Boyd Business which ~~added a total of $49.1 million to net sales as well as the impact of pricing to our cost plus customers. Net sales~~is fully reflected in the nine months ended March 31, ~~2018 included $(1.9) million~~2019, compared to only six months of Boyd Business operations in the nine months ended March 31, 2018. The impact of price decreases to customers utilizing commodity-based pricing arrangements ~~where~~was $5.1 million in price decreases during the ~~changes in the green coffee commodity costs are passed on to the customer,~~nine months ended March 31, 2019 as compared to ~~$(5.4)~~$1.9 million in price decreases to customers utilizing such arrangements in the nine months ended March 31, ~~2017.~~2018.

The following table presents the effect of changes in ~~net~~unit sales, unit pricing and product mix in the three and nine months ended March 31, ~~2018~~2019 compared to the same periods in the prior fiscal year ~~were due to the following:~~(in millions):


(In millions)	Three Months Ended March 31, 2018 vs. 2017			Nine Months Ended March 31, 2018 vs. 2017
						Three Months Ended March 31, 2019 vs. 2018			% Change		Nine Months Ended March 31, 2019 vs. 2018			% Change
Effect of change in unit sales	$	21.6		$	40.6	$	(4.1	)	(36.6	)%	$	(2.1	)	(67.7	)%
Effect of pricing and product mix changes	(1.9		)	8.7		(7.1		)	(63.4	)%	(1.0		)	(32.3	)%
Total increase in net sales	$	19.7		$	49.3
Total decrease in net sales						$	(11.2	)			$	(3.1	)

Unit sales ~~increased 15.9%~~decreased 2.7% and average unit price decreased by 3.4% in the three months ended March 31, ~~2018~~2019 as compared to the same period in the prior fiscal year, ~~while average unit price decreased by (1.4)%~~ resulting in ~~an increase~~a decrease in net sales of ~~14.3%~~7.1%. The ~~increase~~decrease in unit sales was primarily due to ~~a 53.7% increase~~declines in ~~unit sales~~revenues and volume of ~~other beverages, which accounted for approximately 12% of total net sales, a 31.2% increase in unit sales of frozen liquid~~green coffee ~~products, which accounted for approximately 5% of total net sales, a 22.8% increase in unit sales of culinary products, which accounted for approximately 11% of total net sales,~~processed and ~~a 13.7% increase in unit sales of roast and ground coffee products, which accounted for approximately 63% of total net sales.~~sold through our DSD network. Average unit price decreased ~~(1.4)%~~in the three months ended March 31, 2019 primarily due to a decrease in the average price of roasted coffee partially offset by price increases on the majority of our other products. In addition, average unit price decreased during the quarter due to a higher mix of ~~the Boyd Business.~~product being sold via direct ship versus DSD, as direct ship has a lower average unit price. In the three months ended March 31, ~~2018,~~2019, we processed and sold approximately ~~27.7~~27.9 million pounds of green coffee as compared to approximately ~~24.4~~27.7 million pounds of green coffee processed and sold in the three months ended March 31, ~~2017.~~2018. There were no new product category introductions in the three months ended March 31, ~~2018~~2019 or ~~2017~~2018 which had a material impact on our net sales.

Unit sales ~~increased 9.7%~~decreased 0.5% and average unit price decreased by 0.2% in the nine months ended March 31, ~~2018~~2019 as compared to the same period in the prior fiscal year, ~~and average unit price increased by 2.1%~~ resulting in ~~an increase~~a decrease in net sales of ~~12.1%~~0.7%. The ~~increase~~decrease in unit sales was primarily due to ~~a 45.8% increase~~declines in unit sales of other beverages, which accounted for approximately 11% of total net sales, a 27.7% increase in unit sales of frozen liquid coffee products, which accounted for approximately 6% of total net sales,revenues and a 10.8% increase in unit sales of roast and ground coffee which accounted for approximately 63% of total net sales, offset by a (17.7)% decrease in unit sales of spice products, which accounted for approximately 4% of total net sales. Average unit price increased primarily due to price increases on substantially all of our products with the exception of coffee (frozen liquid) partially offset by lower prices attributed from the Boyd Business. In the nine months ended March 31, 2018, we processed and sold approximately 80.0 million pounds of green coffee as compared to approximately 72.2 million poundsvolume of green coffee processed and sold through our DSD network partially offset by an increase in unit sales from the addition of the Boyd Business which is fully reflected in the nine months ended March 31, ~~2017.~~2019, compared to only six months of Boyd Business operations in the nine months ended March 31, 2018. Average unit price decreased in the nine months ended March 31, 2019 primarily due to a decrease in the average price of roasted coffee partially offset by price increases on the majority of our other products. There were no new product category introductions in the nine months ended March 31, ~~2018~~2019 or ~~2017~~2018 which had a material impact on our net sales.

~~The following tables present net sales aggregated by product category for the respective periods indicated:~~

Three Months Ended March 31,
2018 2017
(In thousands) $ % of total $ % of total
Net Sales by Product Category:
Coffee (Roast & Ground) $ 99,315
63 % $ 87,833
64 %
Coffee (Frozen Liquid) 8,675
5 % 8,228
6 %
Tea (Iced & Hot) 7,889
5 % 7,662
6 %
Culinary 16,872
11 % 13,855
10 %
Spice 6,115
4 % 5,948
4 %
Other beverages(1) 18,319
12 % 13,947
10 %
Net sales by product category 157,185
100 % 137,473
100 %
Fuel surcharge 742
— % 714
— %
Net sales $ 157,927
100 % $ 138,187
100 %

~~____________~~

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

Nine Months Ended March 31,
2018 2017
(In thousands) $ % of total $ % of total
Net Sales by Product Category:
Coffee (Roast & Ground) $ 286,655
63 % $ 256,013
63 %
Coffee (Frozen Liquid) 25,825
6 % 24,623
6 %
Tea (Iced & Hot) 23,312
5 % 21,371
5 %
Culinary 48,011
10 % 41,354
10 %
Spice 18,722
4 % 18,303
4 %
Other beverages(1) 52,354
11 % 43,831
11 %
Net sales by product category 454,879
99 % 405,495
99 %
Fuel surcharge 2,127
1 % 2,205
1 %
Net sales $ 457,006
100 % $ 407,700
100 %

~~____________~~

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

~~Cost of Goods Sold~~

Cost of goods sold in the three months ended March 31, 2018 increased $14.8 million, or 17.5%, to $99.1 million, or 62.8% of net sales, from $84.4 million, or 61.1% of net sales, in the three months ended March 31, 2017. The increase in cost of goods sold was primarily due to the addition of the Boyd Business making up $14.2 million of the increase. Cost of goods sold as a percentage of net sales in the three months ended March 31, 2018 increased primarily due to higher manufacturing costs associated with the production operations in the New Facility and the absence of the beneficial effect of the liquidation of LIFO inventory quantities in the three months ended March 31, 2018, as compared to the same period in the prior fiscal year. In the three months ended March 31, 2017, we recorded $0.8 million in expected beneficial effect of the liquidation of LIFO inventory quantities in cost of goods sold which increased income before taxes for the three months ended March 31, 2017 by $0.8 million. In the three months ended March 31, 2018, we recorded no expected beneficial effect of the liquidation of LIFO inventory quantities in cost of goods sold.

Cost of goods sold in the nine months ended March 31, 2018 increased $36.1 million, or 14.6%, to $283.7 million, or 62.1% of net sales, from $247.6 million, or 60.7% of net sales, in the nine months ended March 31, 2017. The increase in cost of goods sold was primarily due to the addition of the Boyd Business making up $30.4 million of the increase. Cost of goods sold as a percentage of net sales in the nine months ended March 31, 2018 increased primarily due to higher manufacturing costs associated with the production operations in the New Facility, higher freight expenses and the absence of the beneficial effect of the liquidation of LIFO inventory quantities in the nine months ended March 31, 2018, as

compared to the same period in the prior fiscal year. In the nine months ended March 31, 2017, we recorded $2.5 million in expected beneficial effect of the liquidation of LIFO inventory quantities in cost of goods sold which increased income before taxes for the nine months ended March 31, 2017 by $2.5 million. In the nine months ended March 31, 2018, we recorded no expected beneficial effect of the liquidation of LIFO inventory quantities in cost of goods sold.

Gross Profit

Gross profit in the three months ended March 31, ~~2018 increased $5.0~~2019 decreased $12.4 million, or ~~9.3%~~23.7%, to ~~$58.8~~$39.9 million from ~~$53.8~~$52.3 million in the three months ended March 31, ~~2017 and gross~~2018. Gross margin decreased to ~~37.2%~~27.2% in the three months ended March 31, ~~2018~~2019 from ~~38.9%~~33.1% in the three months ended March 31, ~~2017. This increase~~2018. The decrease in gross profit for the three months ended March 31, 2019 was primarily driven by lower net sales of $11.2 million between the periods and higher cost of goods sold. Cost of goods sold in the three months ended March 31, 2019 increased $1.2 million, or 1.1%, to $106.8 million, or 72.8% of net sales, from $105.6 million, or 66.9% of net sales, in the three months ended March 31, 2018. Margin was negatively impacted by higher mark downs on slow moving inventory, higher manufacturing costs driven by downtime associated with certain aging production infrastructure, higher coffee brewing equipment and labor costs associated with increased installation activities during the period, higher manufacturing variances due to lower volumes and unfavorable shift in customer mix. Margin impact was partially offset by lower green coffee purchase costs. The average Arabica “C” market price of green coffee decreased 9.6% in the ~~addition of~~three months ended March 31, 2019 as compared to the ~~Boyd Business, while~~prior year period.

Gross profit in the nine months ended March 31, 2019 decreased $13.3 million, or 8.6%, to $141.4 million from $154.7 million in the nine months ended March 31, 2018. Gross margin decreased to 31.1% in the nine months ended March 31, 2019 from 33.8% in the nine months ended March 31, 2018. The decrease in gross ~~margin~~profit for the nine months ended March 31, 2019 was primarily ~~due~~driven by lower net sales of $3.1 million between the periods and higher cost of goods sold. Cost of goods sold in the nine months ended March 31, 2019 increased $10.2 million, or 3.4%, to $312.5 million, or 68.9% of net sales, from $302.3 million, or 66.2% of net sales, in the nine months ended March 31, 2018. Margin was negatively impacted by higher

coffee brewing equipment and labor costs associated with increased installation activity during the period, higher ~~manufacturing~~production costs associated with the production operations in the New Facility, including higher depreciation expense for the ~~addition~~New Facility, higher manufacturing costs driven by downtime associated with certain aging production infrastructure and higher mark downs of ~~the Boyd Business which carries a~~slow-moving inventories, partially offset by lower ~~gross margin rate compared to our base business and the absence~~green coffee purchase costs. The average Arabica “C” market price of ~~the beneficial effect of the liquidation of LIFO inventory quantities in the three months ended March 31, 2018, as compared to the same period in the prior fiscal year.~~

~~Gross profit~~green coffee decreased 15.4% in the nine months ended March 31, 2018 increased $13.2 million, or 8.3%, to $173.3 million from $160.1 million in the nine months ended March 31, 2017 and gross margin decreased to 37.9% in the nine months ended March 31, 2018 from 39.3% in the nine months ended March 31, 2017. This increase in gross profit was primarily due to the addition of the Boyd Business, while the decrease in gross margin was primarily due to higher manufacturing costs associated with the production operations in the New Facility, the addition of the Boyd Business which carries a lower gross margin rate compared to our base business and the absence of the beneficial effect of the liquidation of LIFO inventory quantities in the nine months ended March 31, 2018,2019 as compared to the ~~same period in the~~ prior ~~fiscal year.~~year period.

Operating Expenses

In the three months ended March 31, ~~2018,~~2019, operating expenses ~~increased $9.9~~decreased $9.1 million, or ~~19.1%~~16.5%, to ~~$61.7~~$46.0 million, or ~~39.1%~~31.4% of net sales, from ~~$51.8~~$55.1 million, or ~~37.5%~~34.9% of net sales, in the three months ended March 31, ~~2017,~~2018, primarily due to ~~a $4.6 million increase in general and administrative expenses, a $4.4 million increase in selling expenses, and~~the absence of $3.8 million in impairment losses on intangible ~~assets. The increase~~assets reported in ~~operating expenses was partially offset by~~the prior year period, a ~~$2.5~~$3.3 million decrease in restructuring and other transition expenses associated with the Corporate Relocation Plan and the DSD Restructuring Plan, and an increase in net gains from sales of other assets of $0.5 million primarily from the sale of real estate.

~~The increases~~ in selling expenses and a $2.9 million decrease in general and administrative expenses.

The decrease in selling expenses was primarily due to synergies achieved through the Boyd Business acquisition and headcount reductions and other efficiencies from DSD route optimization, partially offset by higher insurance and employee benefit costs. The decrease in general and administrative expenses ~~during the third quarter of fiscal 2018 were~~was associated primarily ~~driven by the addition of~~with synergies achieved through the Boyd Business ~~which added $6.8 million~~acquisition, the conclusion of the transition services and ~~$1.6 million, respectively, to selling expenses~~co-manufacturing agreements with Boyd Coffee at the beginning of October 2018, and ~~general and administrative expenses exclusive of their related depreciation and amortization expense,~~lower acquisition and integration costs of $1.6 million, and an increase of $1.1 million in depreciation and amortization expense, partially offset by a $1.3 million reduction in payroll and benefits excluding the Boyd Business and the absence of $0.2 million in non-recurring 2016 proxy contest expenses incurred in the three months ended March 31, 2017.

Restructuring and other transition expenses in the three months ended March 31, 2018 decreased $(2.5) million, as compared to the same period in the prior fiscal year primarily due to the absence of expenses related to our Corporate Relocation Plan, partially offset by $0.1 million in costs incurred in connection with the DSD Restructuring Plan in the three months ended March 31, 2018.

~~In the three months ended March 31, 2018 and 2017 net gains from sale of spice assets included $0.1 million and $0.3 million, respectively, in earnout.~~costs.

In the nine months ended March 31, ~~2018,~~2019, operating expenses ~~increased $55.4~~decreased $6.5 million, or ~~46.3%~~4.2%, to ~~$175.0~~$149.1 million, or ~~38.3%~~32.8% of net sales, from ~~$119.6~~$155.6 million, or ~~29.3%~~34.0% of net sales, in the nine months ended March 31, ~~2017,~~2018, primarily due to ~~the effect of the recognition of $37.4~~a $7.8 million ~~in net gain from the sale of the Torrance Facility in the nine months ended March 31, 2017, a $15.1 million increase in selling expenses, a $7.1 million increase~~decrease in general and administrative expenses and the absence of $3.8 million in impairment losses on intangible assets ~~and a $1.1 million reduction~~reported in ~~net gains from sales of other assets. The increase in operating expenses was~~the prior year period, partially offset by a ~~$9.2~~$4.4 million ~~decrease~~increase in restructuring and other transition expenses ~~associated with the Corporate Relocation Plan~~ and ~~the DSD Restructuring Plan.~~a $2.0 million increase in net losses (gains) from sales of other assets.

The ~~increases~~decrease in ~~selling expenses and~~ general and administrative expenses during the nine months ended March 31, ~~2018 were~~2019 was primarily ~~driven by~~due to synergies achieved from the ~~addition~~integration of the Boyd Business ~~which added $13.7 million~~ and ~~$3.5 million, respectively, to selling expenses~~conclusion of the transition services and ~~general and administrative expenses exclusive~~co-manufacturing agreements with Boyd Coffee at the beginning of ~~their related depreciation and amortization expense, acquisition and integration costs of $5.0 million, and an increase of $5.3 million in depreciation and amortization~~

~~expense,~~October 2018, partially offset by ~~a $0.9 million reduction in payroll and benefits excluding~~higher bad debt expense. In the ~~Boyd Business and the absence of $5.2 million in non-recurring 2016 proxy contest expenses incurred in the three~~nine months ended March 31, ~~2017.~~2019, we paid Boyd Coffee a total of $3.7 million for services under these agreements, as compared to $19.4 million paid for such services in the nine months ended March 31, 2018.

Net losses from sales of assets in the nine months ended March 31, 2019 included net losses of $1.6 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 $0.7 million in earnout from the sale of spice assets and net gains of $0.4 million from sales of other assets in the prior year period.

Restructuring and other transition expenses in the nine months ended March 31, ~~2018 decreased $(9.2)~~2019 increased $4.4 million, as compared to the same period in the prior fiscal ~~year primarily~~year. This increase includes $3.4 million, including interest, assessed by the Western Conference of Teamsters Pension Trust (the “WC Pension Trust”) in the nine months ended March 31, 2019, representing the Company’s share of the Western Conference of Teamsters Pension Plan (“WCTPP”) unfunded benefits due to the ~~absence~~Company’s partial withdrawal from the WCTPP as a result of ~~expenses related to our~~employment actions taken by the Company in 2016 in connection with the Corporate Relocation Plan. In addition, in the nine months ended March 31, 2019, we incurred $1.4 million in restructuring and other transition expenses, primarily employee-related costs, associated with the DSD Restructuring Plan, ~~partially offset by~~as compared to $0.3 million in ~~costs incurred in connection~~restructuring and other transition expenses associated with the DSD Restructuring Plan in the nine months ended March 31, 2018.

InTotal Other Expense

Total other expense in the three and nine months ended March 31, ~~2018~~2019 was $2.5 million and ~~2017 net gains from sale of spice assets included~~$18.0 million compared to $0.7 million and ~~$0.8 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$1.4 million in the three and nine months ended March 31, 2018.

~~(Loss) Income from Operations~~

Loss from operations in the three and nine months ended March 31, 2018 was $(2.9) million and $(1.7) million, respectively, as compared to income from operations of $2.1 million and $40.5 million, respectively, in the three and nine months ended March 31, 2017.

Loss from operations in the three and nine months ended March 31, 2018 as compared to the comparable periods of the prior fiscal year was primarily driven by lower net gains from sales of assets, including $37.4 million in net gains from the sale of the Torrance Facility recognized in the prior year periods, higher selling expenses and higher general and administrative expenses primarily due to the addition of the Boyd Business, acquisition and integration costs, impairment losses on intangible assets, and higher depreciation and amortization expense, partially offset by higher gross profit and lower restructuring and other transition expenses associated with the Corporate Relocation Plan.

~~Total Other (Expense) Income~~

Total other (expense) income in the three and nine months ended March 31, 2018 was $(0.7) million and $(1.5) million, respectively, compared to $0.9 million and $(1.3) million in the three and nine months ended March 31, 2017, respectively. The ~~changes~~change in total other expense in the three and nine months ended March 31, ~~2018 were~~2019 was primarily a result of ~~liquidating substantially all of our investment in preferred securities in the fourth quarter of fiscal 2017 to fund expenditures associated with our New Facility,~~ higher ~~mark-to-market~~interest expense and higher net losses on coffee-related derivative instruments and, ~~higher interest expense as compared to~~for the ~~same periods in the prior fiscal year, partially offset by the change in estimated fair value of the China Mist contingent earnout consideration.~~

~~Net gains on investments in the three and~~ nine months ended March 31, ~~2018 were $0 and $7,000, respectively, as compared to net gains (losses) on investments of $0.7 million and $(0.4) million, respectively,~~2019, a pension settlement charge in the ~~comparable periods~~amount of ~~the prior fiscal year. Net losses on coffee-related derivative instruments~~$10.9 million.

The pension settlement charge incurred in the ~~three and~~ nine months ended March 31, ~~2018 were $(0.4)~~2019 of $10.9 million ~~and $(0.5)~~was due to the termination of the Farmer Bros. Co. Pension Plan for Salaried Employees effective December 1, 2018. By terminating the Farmer Bros. Plan, we reduced our overall pension projected benefit obligation by approximately $24.4 million ~~respectively, compared~~as of December 31, 2018. The $10.9 million pension settlement charge is non-cash. As a result of the pension plan termination, we expect to ~~net gains of $0.2 million and net losses of $(1.1) million, respectively,~~

realize lower Pension Benefit Guaranty Corporation expenses in the ~~comparable periods~~future of ~~the prior fiscal year due~~approximately $0.3 million to ~~mark-to-market net losses on coffee-related derivative instruments not designated as accounting hedges. We also recognized a $0.5~~$0.4 million ~~gain from the change in estimated fair value of the China Mist contingent earnout consideration in the three and nine months ended March 31, 2018.~~per year.

Interest expense in the three ~~and~~months ended March 31, 2019 increased $0.4 million to $3.0 million from $2.5 million in the prior year period. Interest expense in the nine months ended March 31, ~~2018, was $0.9~~2019 increased $1.9 million ~~and $2.3~~to $9.2 million ~~respectively,~~ as compared to ~~$0.5~~$7.2 million ~~and $1.4 million, respectively,~~ in the ~~comparable periods of the~~ prior ~~fiscal year.~~year period. The ~~higher~~increase in interest expense in the three and nine months ended March 31, ~~2018~~2019 was ~~primarily~~principally due to higher outstanding borrowings on our revolving credit ~~facility.~~facility, including borrowings for operations and borrowings related to the Boyd Business acquisition and the write-off of deferred financing costs of $0.5 million associated with the ending of our prior credit facility which was replaced with a new facility in November 2018.

Other, net in the three months ended March 31, 2019 decreased by $1.3 million to $0.5 million compared to in $1.8 million in the prior year period. Other, net decreased by $3.7 million to $2.1 million in the nine months ended March 31, 2019 from $5.8 million in the prior year period. The decrease in Other, net in the three and nine months ended March 31, 2019 was primarily due to increased mark-to-market losses on coffee-related derivative instruments not designated as accounting hedges.

Income Taxes

~~Income Taxes~~

In the three and nine months ended March 31, ~~2018,~~2019, we recorded income tax expense of ~~$0.3~~$43.2 million and ~~$20.5~~$39.1 million, respectively, compared to ~~$1.4~~income tax benefit of $1.3 million and ~~$15.9~~income tax expense $16.1 million ~~respectively,~~ in the three and nine months ended March 31, ~~2017.~~2018, respectively. The ~~decrease in income~~higher tax expense ~~was~~of $43.2 million in the current quarter is primarily due to a ~~result~~valuation allowance of ~~the change in net (loss) income. As of June 30, 2017,~~$44.6 million recorded to reduce our ~~net~~ deferred tax assets totaled $63.1 million. In the nine months ended March 31, 2018, our net deferred tax assets decreased by $17.3 million to $45.8 million. These changes are primarily the result of the Tax Cut and Jobs Act effective December 22, 2017.assets. See Note 18, Income Taxes, of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

~~Net Loss~~

As a result of the foregoing factors, net loss was $(3.9) million, or $(0.24) per common share available to common stockholders, in the three months ended March 31, 2018 as compared to net income of $1.6 million, or $0.10 per common share available to common stockholders—diluted, in the three months ended March 31, 2017. Net loss was $(23.7) million, or $(1.43) per common share available to common stockholders, in the nine months ended March 31, 2018 as compared to net income of $23.3 million, or $1.39 per common share available to common stockholders—diluted, in the nine months ended March 31, 2017.

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:

~~“Non-GAAP net (loss) income”~~ ~~is defined as net (loss) income available to common stockholders excluding the impact of:~~

~~restructuring and other transition expenses;~~

~~net gains and losses from sales of assets;~~

~~non-cash income tax expense (benefit), including the release of valuation allowance on deferred tax assets;~~

~~non-recurring 2016 proxy contest-related expenses;~~

~~non-cash interest expense accrued on the Torrance Facility sale-leaseback financing obligation;~~

~~acquisition and integration costs;~~

~~and including the impact of:~~

~~income taxes on non-GAAP adjustments.~~

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

“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;

~~other similar non-cash expenses;~~

restructuring and other transition expenses;

net gains and losses from sales of assets;

~~non-recurring 2016 proxy contest-related expenses;~~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) ~~beginning in the third quarter of fiscal 2017,~~ the DSD Restructuring Plan, consisting primarily of severance, prorated bonuses for bonus eligible employees, contractual termination payments and outplacement services, and other related costs, including legal, recruiting, consulting, other professional services, and travel.

InBeginning in the first quarter of fiscal ~~2017,~~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 because such interest expense is not reflective of our ongoing operating results. See Note 2, Summary of Significant Accounting Policies--Recently Adopted Accounting Standards, of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

In the second quarter of fiscal 2019, we modified the calculation of Non-GAAP net (loss) income and Non-GAAP net (loss) income per diluted common share (i) to exclude non-recurring expenses for legal and other professional services incurred in connection with the 2016 proxy contest that were in excess of the level of expenses normally incurred for an annual meeting of stockholders (“2016 proxy contest-related expenses”) and non-cash interest expense accrued on the

Torrance Facility sale-leaseback financing obligation which has been included in the computation of the gain on sale upon conclusion of the leaseback arrangement, and (ii) to include income tax expense (benefit) on the non-GAAP adjustments based on the Company’s applicable marginal tax rate. We also modified Adjusted EBITDA and Adjusted EBITDA Margin to exclude ~~2016 proxy contest-related expenses. These modifications~~a non-cash pretax pension settlement charge resulting from the amendment and termination of the Farmer Bros. Plan effective December 1, 2018. This modification to our non-GAAP financial measures ~~were~~was made because such expenses are not reflective of our ongoing operating results and adjusting for them will help investors with comparability of our results.

~~Beginning in the third quarter of fiscal 2017 and for all periods presented, we include EBITDA in our~~We believe these non-GAAP financial ~~measures.~~ 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 our ability to service or incur indebtedness, and (iii) we use these measures internally as benchmarks to compare our performance to that of our competitors.

Beginning in the third quarter of fiscal 2017, we modified the calculation of Adjusted EBITDA and Adjusted EBITDA Margin to exclude (loss) income from our short-term investments because we believe excluding (loss) income generated from our investment portfolio is a measure more reflective of our operating results. The historical presentation of Adjusted EBITDA and Adjusted EBITDA Margin was recast to be comparable to the current period presentation.

Beginning in the fourth quarter of fiscal 2017, we modified the calculation of Non-GAAP net (loss) income, Non-GAAP net (loss) income per diluted common share, Adjusted EBITDA and Adjusted EBITDA Margin to exclude acquisition and integration costs. Acquisition and integration costs include legal expenses, consulting expenses and internal costs associated with acquisitions and integration of those acquisitions. Beginning in the fourth quarter of fiscal 2017 acquisition and integration costs were significant and, we believe, excluding them will help investors to better understand our operating results and more accurately compare them across periods. We have not adjusted the historical presentation of Non-GAAP net (loss) income, Non-GAAP net (loss) income per diluted common share, Adjusted EBITDA and Adjusted EBITDA Margin because acquisition and integration costs in prior periods were not material to the Company’s results of operations.

Beginning in the third quarter of fiscal 2018, we modified the calculation of Non-GAAP net (loss) income and Non-GAAP net (loss) income per diluted common share to begin with net (loss) income available to common stockholders to reflect undeclared and unpaid cumulative preferred dividends on the preferred stock issued in the second quarter of fiscal 2018 in connection with the Boyd acquisition.

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.

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

Prior year periods set forth in the tables below have been retrospectively adjusted to reflect the impact of certain changes in accounting principles and corrections to previously issued financial statements, and the adoption of new accounting standards in the three and nine months ended March 31, 2019 that required retrospective application. See Note 3, Changes in Accounting Principles and Corrections to Previously Issued Financial Statements, of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

Set forth below is a reconciliation of reported net ~~(loss) income available~~loss to ~~common stockholders~~EBITDA (unaudited):



	Three Months Ended March 31,						Nine Months Ended March 31,
(In thousands)	2019			2018			2019			2018
Net loss, as reported	$	(51,749	)	$	(2,193	)	$	(64,835	)	$	(18,414	)
Income tax expense (benefit)	43,161			(1,321		)	39,149			16,058
Interest expense (1)	1,627			902			4,565			2,286
Depreciation and amortization expense	7,600			7,397			23,230			22,727
EBITDA	$	639		$	4,785		$	2,109		$	22,657
EBITDA Margin	0.4		%	3.0		%	0.5		%	5.0		%

____________

(1) Excludes interest expense of $1.4 million and $1.6 million in the three months ended March 31, 2019 and 2018, respectively, and $4.7 million and $4.9 million in the nine months ended March 31, 2019 and 2018, respectively, resulting from the adoption of ASU 2017-07. See Note 2, Summary of Significant Accounting Policies--Recently Adopted Accounting Standards, of the Notes to ~~Non-GAAP net (loss) income and reported net (loss) income per common share available to common stockholders—diluted to Non-GAAP net (loss) income per diluted common share (unaudited):~~

Three Months Ended March 31, Nine Months Ended March 31,
(In thousands, except per share data) 2018 2017 2018 2017
Net (loss) income available to common stockholders, as reported $ (4,036 ) $ 1,594
$ (23,912 ) $ 23,288
Restructuring and other transition expenses 52
2,547
311
9,542
Net gain from sale of Torrance Facility —
—
—
(37,449 )
Net gains from sale of spice assets (110 ) (272 ) (655 ) (764 )
Net gains from sales of other assets (590 ) (86 ) (446 ) (1,525 )
Non-recurring 2016 proxy contest-related expenses —
196
—
5,186
Interest expense on sale-leaseback financing obligation —
—
—
681
Acquisition and integration costs 1,639
—
5,021
—
Income tax (benefit) expense on non-GAAP adjustments (317 ) (930 ) (1,354 ) 9,488
Non-GAAP net (loss) income $ (3,362 ) $ 3,049
$ (21,035 ) $ 8,447

Net (loss) income per common share available to common stockholders—diluted, as reported $ (0.24 ) $ 0.10
$ (1.43 ) $ 1.39
Impact of restructuring and other transition expenses $ —
$ 0.15
$ 0.02
$ 0.57
Impact of net gain from sale of Torrance Facility $ —
$ —
$ —
$ (2.24 )
Impact of net gains from sale of spice assets $ —
$ (0.02 ) $ (0.04 ) $ (0.05 )
Impact of net gains from sales of other assets $ (0.04 ) $ (0.01 ) $ (0.03 ) $ (0.09 )
Impact of non-recurring 2016 proxy contest-related expenses $ —
$ 0.01
$ —
$ 0.31
Impact of interest expense on sale-leaseback financing obligation $ —
$ —
$ —
$ 0.04
Impact of acquisition and integration costs $ 0.10
$ —
$ 0.30
$ —
Impact of income tax (benefit) expense on non-GAAP adjustments $ (0.02 ) $ (0.06 ) $ (0.08 ) $ 0.57
Non-GAAP net (loss) income per diluted common share $ (0.20 ) $ 0.17
$ (1.26 ) $ 0.50

Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

Set forth below is a reconciliation of reported net ~~(loss) income to EBITDA (unaudited):~~

Three Months Ended March 31, Nine Months Ended March 31,
(In thousands) 2018 2017 2018 2017
Net (loss) income, as reported $ (3,908 ) $ 1,594
$ (23,655 ) $ 23,288
Income tax expense 297
1,411
20,497
15,910
Interest expense 902
517
2,286
1,430
Depreciation and amortization expense 7,397
6,527
22,727
16,613
EBITDA $ 4,688
$ 10,049
$ 21,855
$ 57,241
EBITDA Margin 3.0 % 7.3 % 4.8 % 14.0 %

~~Set forth below is a reconciliation of reported net (loss) income~~loss to Adjusted EBITDA (unaudited):



	Three Months Ended March 31,						Nine Months Ended March 31,
(In thousands)	2019			2018			2019			2018
Net loss, as reported	$	(51,749	)	$	(2,193	)	$	(64,835	)	$	(18,414	)
Income tax expense (benefit)	43,161			(1,321		)	39,149			16,058
Interest expense(1)	1,627			902			4,565			2,286
Depreciation and amortization expense	7,600			7,397			23,230			22,727
ESOP and share-based compensation expense	1,238			1,048			3,095			2,892
Restructuring and other transition expenses(2)	26			52			4,700			311
Net gains from sale of spice assets	(203		)	(110		)	(593		)	(655		)
Net losses (gains) from sales of other assets	451			(590		)	1,564			(446		)
Impairment losses on intangible assets	—			3,820			—			3,820
Acquisition and integration costs	2,384			1,639			6,122			5,021
Pension settlement charge	—			—			10,948			—
Adjusted EBITDA	$	4,535		$	10,644		$	27,945		$	33,600
Adjusted EBITDA Margin	3.1		%	6.7		%	6.2		%	7.4		%

____________

Three Months Ended March 31, Nine Months Ended March 31,
(In thousands) 2018 2017 2018 2017
Net (loss) income, as reported $ (3,908 ) $ 1,594
$ (23,655 ) $ 23,288
Income tax (benefit) expense 297
1,411
20,497
15,910
Interest expense 902
517
2,286
1,430
Income from short-term investments —
(1,156 ) (19 ) (882 )
Depreciation and amortization expense 7,397
6,527
22,727
16,613
ESOP and share-based compensation expense 1,048
902
2,892
2,996
Restructuring and other transition expenses 52
2,547
311
9,542
Net gain from sale of Torrance Facility —
—
—
(37,449 )
Net gains from sale of spice assets (110 ) (272 ) (655 ) (764 )
Net gains from sales of other assets (590 ) (86 ) (446 ) (1,525 )
Impairment losses on intangible assets 3,820
—
3,820
—
Non-recurring 2016 proxy contest-related expenses —
196
—
5,186
Acquisition and integration costs 1,639
—
5,021
—
Adjusted EBITDA $ 10,547
$ 12,180
$ 32,779
$ 34,345
Adjusted EBITDA Margin 6.7 % 8.8 % 7.2 % 8.4 %
(1) Excludes interest expense of $1.4 million and $1.6 million in the three months ended March 31, 2019 and 2018, respectively, and $4.7 million and $4.9 million in the nine months ended March 31, 2019 and 2018, respectively, resulting from the

adoption of ASU 2017-07. See Note 2, Summary of Significant Accounting Policies--Recently Adopted Accounting Standards, of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

(2) In the nine months ended March 31, 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 in the nine months ended March 31, 2019.

Liquidity, Capital Resources and Financial Condition

Revolving Credit Facility

~~We maintain~~On November 6, 2018 (the “Closing Date”), we entered into a ~~$125.0~~new $150.0 million senior secured revolving credit facility (the ~~“Revolving~~“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, ~~(collectively, the “Lenders”),~~ with a sublimit on letters of credit and swingline loans of ~~$30.0 million and~~ $15.0 million ~~respectively.~~each. The New Revolving Facility includes an accordion feature whereby we may increase the ~~Revolving Commitment by~~revolving commitments or enter into one or more tranches of incremental term loans, up to an additional ~~$50.0~~$75.0 million in aggregate of increased commitments and incremental term loans, subject to certain conditions. ~~Advances~~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 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”). Under the terms of the Rate Swap, we receive 1-month LIBOR, subject to a 0% floor, and make payments based on a fixed rate of 2.1975%. Our obligations under the International Swap Dealers Association, Inc. Master Agreement (“ISDA”), including the related Schedule to the ISDA Master Agreement, entered into in connection with the transaction 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 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 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, 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, eligible inventory, ~~and~~eligible 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 and eligible inventory, less required reserves. The commitment fee iswas a flat fee of 0.25% per annum irrespective of average revolver usage. Outstanding obligations ~~are~~were collateralized by all of our assets, excluding, amongst other things, certain real property not included in the borrowing ~~base, and machinery and equipment (other than inventory).~~base. Borrowings under the Prior Revolving Facility ~~bear~~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%~~. We are~~; provided, that, after the Third Amendment Effective Date, (i) until March 31, 2019 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 ~~covenants~~covenant relating to the maintenance of a fixed charge coverage ratio, ~~in certain circumstances,~~ and ~~the right~~provided for customary events of the Lenders to establish reserve requirements, which may reduce the amount of credit otherwise available to us. We are allowed to pay dividends, provided, among other things, certain excess availability requirements are met, and no event of default exists or has occurred and is continuing as of the date of any such payment and after giving effect thereto. The Revolving Facility matures on August 25, 2022.default.

At March 31, ~~2018,~~2019, we were eligible to borrow up to a total of ~~$122.7~~$150.0 million under the New Revolving Facility and had outstanding borrowings of ~~$85.9~~$123.0 million and utilized ~~$1.1~~$2.0 million of the letters of credit ~~sublimit, and had excess availability under the Revolving Facility of $35.7 million.~~sublimit. At March 31, ~~2018,~~2019, the weighted average interest rate on our outstanding borrowings subject to interest rate variability under the New Revolving Facility was ~~3.85%. At March 31, 2018,~~4.25% and we were in compliance with all of the ~~restrictive~~ covenants under the New Revolving Facility.

At April 30, ~~2018,~~2019, we were eligible to borrow up to a total of ~~$122.7~~$150.0 million under the New Revolving Facility and had outstanding borrowings of ~~$86.2~~$121.0 million and utilized ~~$1.1~~$2.0 million of the letters of credit ~~sublimit,~~sublimit.

We classify borrowings contractually due to be settled one year or less as short-term and ~~had excess availability under the Revolving Facility of $35.4 million. At April 30, 2018, the weighted average interest rate~~more than one year as long-term. We classify outstanding borrowings as short-term or long-term based on our ability and intent to pay or refinance the outstanding borrowings on a short-term or long-term basis. Outstanding borrowings under ~~the Revolving Facility was 3.90%.~~our revolving credit facility were classified on our consolidated balance sheets as “Long-term borrowings under revolving credit facility” at March 31, 2019 and “Short-Term borrowings under revolving credit facility” at June 30, 2018.

Liquidity

We generally finance our operations through cash flows from operations and borrowings under our ~~Revolving Facility~~revolving credit facility described above. ~~At March 31,~~In fiscal 2018, we ~~had $7.0 million in cash and cash equivalents. In~~filed a shelf registration statement with the ~~fourth quarter~~SEC which allows us to issue unspecified amounts of ~~fiscal 2017, we liquidated substantially all of our~~common stock, preferred stock, ~~portfolio, net~~depository shares, warrants for the purchase of ~~purchases, to fund expenditures associated with our New Facility in Northlake, Texas. In the second quarter ended December 31, 2017, we liquidated the remaining security and closed our~~shares of common stock or preferred stock, ~~portfolio.~~

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 ~~to 18~~ months.

~~Changes~~Our New Revolving Facility includes financial covenants that are tested each quarter, including that adjusted EBITDA to debt (net of unrestricted cash up to $7.5 million) must not exceed 3.5 to 1.0. As of March 31, 2019, our leverage ratio as defined in our credit facility was lower than 3.5 to 1.0, therefore, we were in compliance with the financial covenant.

At March 31, 2019, we had $12.2 million in cash and cash equivalents. At March 31, 2019, none of the cash in our coffee-related derivative margin accounts was restricted. Further 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

~~We generate~~The significant captions and amounts from our condensed consolidated statements of cash ~~from operating activities primarily from cash collections related to the sale of our products.~~flows are summarized below:



	Nine Months Ended March 31,
	2019			2018
Condensed Consolidated Statements of cash flows data (in thousands)
Net cash provided by operating activities	$	7,500		$	8,354
Net cash used in investing activities	(30,250		)	(65,509		)
Net cash provided by financing activities	32,506			57,888
Net increase in cash and cash equivalents	$	9,756		$	733

Operating Activities

Net cash provided by operating activities was $7.5 million in the nine months ended March 31, 2019 compared to net cash provided by operating activities of $8.4 million in the nine months ended March 31, 2018, a decrease of $0.9 million. The decrease was primarily attributable to a higher use of cash for working capital of $2.6 million during the current fiscal period. Working capital during the nine months ended March 31, 2019 was impacted by, among other items, cash purchases to fund higher inventory levels and higher payroll and benefit costs associated with the Boyd Business integration, as well as slower collections of several large direct ship customer accounts receivables. These were partially offset by improved vendor terms and timing of accrued liabilities compared to ~~net~~ cash ~~provided by operating~~settlement of such items.

Investing Activities

Net cash used in investing activities ~~of $10.5~~during the nine months ended March 31, 2019 was $30.3 million as compared to $65.5 million in the nine months ended March 31, ~~2017. Net cash provided by operating~~2018, a decrease of $35.3 million. 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 nine months ended March 31, 2018 was primarily due to a higher level of cash inflows from operating activities resulting primarily from the increase in deferred income taxes, depreciation and amortization and accounts payable balances and the change in estimated fair value of the China Mist contingent earnout consideration, partially offset by lower net income, impairment losses on intangible assets and increases in inventory and accounts receivable balances. Net cash provided by operating activities in the nine months ended March 31, 2017 was primarily due to higher net income and a higher level of cash inflows from operating activities resulting primarily from the increase in deferred income taxes and accounts payable balances , partially offset by cash outflows from increases in inventory and accounts receivable balances, payment of previously accrued bonus and restructuring and other transition expenses related to the Torrance Facility closure and purchases of short-term investments.

Net cash used in investing activities in the nine months ended March 31, 2018 was $65.5 million as compared to $84.0 million in the nine months ended March 31, 2017. In the nine months ended March 31, 2018, net cash used in investing activities included $39.6 million net of cash acquired, primarily used to acquire the Boyd Business, $25.9 million used for2019 we had purchases of property, plant and equipment ~~including $5.6~~of $30.4 million, which included $13.4 million for machinery and equipment relating to the Expansion Project, and ~~$1.6~~$17.0 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 assets in connection with construction of the New Facility, partially offset by $1.6 million in proceeds from sales of property, plant and equipment, primarily equipment. In the nine months ended March 31, 2017, net cash used in investing activities included $35.5 millioninstallations for purchases of property, plant and equipment, $26.7 million in purchases of assets in connection with construction of the New Facility, and $25.9 million net of cash acquired, in connection with the China Mist and West Coast Coffee acquisitions, partially offset by $4.0 million in proceeds from sales of property, plant and equipment, primarily real estate.new customers.

Financing Activities

Net cash provided by financing activities in the nine months ended March 31, ~~2018~~2019 was ~~$57.9~~$32.5 million as compared to ~~$58.1~~$57.9 million in the nine months ended March 31, ~~2017.~~2018, a decrease of $25.4 million. Net cash provided by financing activities in the nine months ended March 31, ~~2018~~2019 included $33.2 million in net borrowings under our New Revolving Facility and

Prior Revolving Facility, compared to $58.3 million in net borrowings under ~~our~~the Prior Revolving Facility and $1.1 million in proceeds from stock option exercises, partially offset by $0.9 million used to pay capital lease obligations and $0.6 million in financing costs associated with the amendment of the Revolving Facility. Net cash provided by financing activities in the nine months ended March 31, 2017 included $44.1 million in net borrowings under our Revolving Facility, $42.5 million in proceeds from sale-leaseback financing associated with the sale of the Torrance Facility, $7.7 million in proceeds from lease financing in connection with the purchase of the partially constructed New Facility, and $0.8 million in proceeds from stock option exercises, partially offset by $35.8 million in repayments on lease financing to acquire the partially constructed New Facility upon purchase option closing, and $1.1 million used to pay capital lease obligations.2018.

Acquisitions

On October 2, 2017, we acquired substantially all of the assets and certain specified liabilities of Boyd ~~Coffee.~~Coffee Company (“Boyd Coffee”), a coffee roaster and distributor with a focus on restaurants, hotels, and convenience stores on the West Coast of the United States, in consideration of cash and preferred stock. The acquired business of Boyd Coffee (the “Boyd Business”) is expected to add to our product portfolio, improve our growth potential, deepen our distribution footprint and increase our capacity utilization at our production facilities. At closing, for consideration of the purchase, we paid Boyd Coffee $38.9 million in cash from borrowings under our Prior Revolving Facility and issued to Boyd Coffee 14,700 shares of Series A 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, 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 working capital adjustments 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.~~plan, which amount was 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 ~~parties are in~~Company has applied the ~~process~~remaining amount of ~~determining~~ the ~~final~~Multiemployer Plan Holdback of $0.5 million towards satisfaction of the Seller’s post-closing net working capital deficiency under the ~~purchase agreement. As~~Asset Purchase Agreement as of March 31, ~~2018, we~~2019.

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 afair values on the acquisition 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)~~$8.1 million ~~which is reflected in~~due to the ~~preliminary purchase price allocation. The~~Company at June 30, 2018 when the purchase price allocation ~~is preliminary~~was finalized. On January 23, 2019, PricewaterhouseCoopers LLP (“PwC”), as ~~we are in~~ the ~~process of finalizing~~“Independent Expert” designated under the ~~final~~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. The preliminary purchase price allocation is subject~~adjustment, as determined by the Independent Expert, was $6.3 million due to ~~change~~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 ~~such change could be material based on numerous factors, including the final estimated~~canceling 4,630 shares of Holdback Stock with a fair value of $2.3 million based on the ~~assets acquired~~stated value and ~~liabilities assumed and~~deemed conversion price under the ~~amount~~Asset Purchase Agreement. We have retained the remaining 1,670 shares of the ~~final post-closing net working capital adjustment.~~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.

At closing, the parties entered into a transition services agreement where Boyd Coffee agreed to provide certain accounting, marketing, human resources, information technology, sales and distribution and other administrative support during a transition period of up to 12 months. We also entered into a co-manufacturing agreement with Boyd Coffee for a transition period of up to 12 months as we ~~transition~~transitioned production into our plants. Amounts paid by the Company to Boyd Coffee for these services totaled $3.7 million in the nine months ended March 31, 2019 and $10.2 million and $19.4 million in the three and nine months ended March 31, 2018, respectively.

On The transition services and co-manufacturing agreements expired on October 11, 2016, we acquired substantially all of the assets and certain specified liabilities of China Mist for aggregate purchase consideration of $12.2 million, consisting of $11.2 million in cash paid at closing including working capital adjustments of $0.4 million, post-closing final working capital adjustments of $0.6 million, and up to $0.5 million in contingent consideration to be paid as earnout if certain sales levels are achieved in the calendar years of 2017 or 2018. We funded the purchase price of this acquisition with proceeds under our Revolving Facility and cash flows from operations. In our annual test of impairment as of January 31,2, 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 acquisitionno amounts were ~~impaired as the carrying value exceeded the estimated fair value. Accordingly, we recorded total impairment charges of $3.8 million~~paid under these agreements in the three months ended March 31, 2019.

We 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 $2.4 million and $1.6 million, respectively, during the three months ended March 31, 2019 and 2018, and $6.1 million and $5.0 million, respectively, during the nine months ended March 31, 2019 and 2018. ~~See~~ ~~Note 13~~, ~~Goodwill and Intangible Assets, of the Notes to Unaudited Condensed Consolidated Financial Statements~~These expenses are included in ~~Part I, Item 1 of this report.~~

On February 7, 2017, we acquired substantially all of the assets and certain specified liabilities of West Coast Coffee for aggregate purchase consideration of $15.5 million, which included $14.7 million in cash paid at closing including working capital adjustments of $1.2 million, post-closing working capital adjustment of $(0.2) million and up to $1.0 million in contingent consideration to be paid as earnout if certain sales levels are achievedoperating expenses in the ~~twenty-four months following the closing. We funded the purchase price for this acquisition with proceeds under our Revolving Facility and cash flows from~~Company's condensed consolidated statements of operations.

See Note 34, Acquisitions, of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

DSD Restructuring Plan

~~On February 21, 2017, we announced~~As a result of an ongoing operational review of various initiatives within our DSD selling organization, in the ~~DSD Restructuring Plan. We have revised our estimated time of completion of the DSD Restructuring Plan from the end of the second~~third quarter of fiscal ~~2018~~2017, we commenced a plan to ~~the end of calendar 2018.~~reorganize our DSD operations in an effort to realign functions into a channel based selling organization, streamline operations, acquire certain channel specific expertise, and improve selling effectiveness and financial results (the “DSD Restructuring Plan”). We estimate that we will recognize approximately ~~$3.7 million to~~ $4.9 million of ~~pre-tax~~pretax restructuring charges by the end of ~~calendar 2018~~fiscal 2019 consisting of approximately ~~$1.9 million to~~ $2.7 million in employee-related costs and contractual termination payments, including severance, prorated bonuses for bonus eligible employees ~~contractual termination payments~~ and outplacement services, and ~~$1.8 million to~~ $2.2 million in other related costs, including legal, recruiting, consulting, other professional services, and travel. ~~Expenses~~We expect to complete the DSD Restructuring Plan by the end of fiscal 2019.

We incurred expenses related to the DSD Restructuring Plan in the amounts of $0.1 million and $0 in employee-related costs and $1,500 and $0.1 million in other related costs for three months ended March 31, 2019 and 2018, respectively, and $1.3 million and $24,000 in employee-related costs and $0.2 million and $0.3 million in other related costs for the nine months ended March 31, 2019 and 2018, ~~consisted of $0 and $24,000, respectively, in employee-related costs and $0.1 million and $0.3 million, respectively, in other related costs.~~respectively. Since the adoption of the DSD Restructuring Plan through March 31, ~~2018,~~2019, we have recognized ~~and paid~~ a total of ~~$2.7~~$4.5 million in aggregate cash costs including ~~$1.1~~$2.6 million in employee-related costs and ~~$1.6~~$1.9 million in other related costs. As of March 31, 2019, we had paid a total of $4.4 million of these costs and had a balance of $0.1 million in DSD Restructuring Plan-related liabilities on our condensed consolidated balance sheet. The remaining ~~estimated~~ costs to be incurred for the remainder of ~~$1.0 million to $2.2 million~~fiscal 2019 are not expected to be ~~incurred in the remainder of calendar 2018.~~material. We may also incur other charges not currently contemplated due to events that may occur as a result of, or associated with, the DSD Restructuring Plan. See Note 45, Restructuring ~~Plans—Direct~~Plans-Direct Store Delivery (“DSD”) Restructuring Plan, of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

Corporate Relocation Plan

~~We estimated that~~In the nine months ended March 31, 2019, we ~~would incur approximately $31~~incurred $3.4 million in ~~cash costs~~restructuring and other transition expenses associated with the assessment by the WCTPP of our share of the WCTPP unfunded benefits due to our partial withdrawal from the WCTPP as a result of employment actions taken by the Company in 2016 in connection with the Corporate Relocation ~~Plan consisting of $18 million in employee retention and separation benefits, $5 million in facility-related costs and $8 million in other related costs.~~Plan. Since the adoption of the Corporate Relocation Plan ~~in fiscal 2015~~ through March 31, ~~2018,~~2019, we have recognized a total of ~~$31.5~~$35.2 million in aggregate cash costs including ~~$17.1~~$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~~Company's headquarters, relocation of our Torrance operations and certain distribution operations and $7.4 million in other related ~~costs recorded in “Restructuring and other transition expenses” in our Condensed Consolidated Statements of Operations.~~costs. We ~~completed the Corporate Relocation Plan in the fourth quarter of fiscal 2017 and have no outstanding balances as of March 31, 2018. Additionally,~~also recognized from inception through March 31, ~~2018, we recognized~~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. ~~We may incur certain pension-related costs in connection with the Corporate Relocation Plan which are not included in the estimated $31 million in aggregate cash costs.~~ See Note 45,Restructuring Plans—Corporate Relocation Plan, of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

New Facility Expansion Project

In the third quarter of fiscal 2018, we commenced a project to expand our production lines (the “Expansion Project”) in the New Facility, including expanding capacity to support the transition of acquired business volumes under a guaranteed maximum price contract of up to $19.3 million. See Note 22, Commitments and Contingencies, of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

~~New Facility Costs~~

We estimated that the total construction costs including the cost of the land for the New Facility would be approximately $60 million. As of March 31, 2018, we have incurred an aggregate of $60.8 million in construction costs. In addition to the costs to complete the construction of the New Facility, we estimated that we would incur approximately $35 million to $39 million for machinery and equipment, furniture and fixtures, and related expenditures in connection with construction of the New Facility of which we have incurred an aggregate of $33.2 million as of March 31, 2018, including $22.5 million under the amended building contract for the New Facility. See ~~Note 5~~, ~~New Facility~~ of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report. The majority of the capital expenditures associated with machinery and equipment, furniture and fixtures and related expenditures in connection with the initial construction of the New Facility were incurred in the first three quarters of fiscal 2017. We commenced distribution activities at the New Facility during the second quarter of fiscal 2017 and initial production activities late in the third quarter of fiscal 2017. We began roasting coffee in the New Facility in the fourth quarter of fiscal 2017.

~~The following table summarizes the expenditures incurred for construction of the New Facility as of March 31, 2018 as compared to the final budget:~~

Expenditures Incurred Budget
(In thousands) Nine Months Ended March 31, 2018 Through Fiscal Year Ended June 30, 2017 Total Lower bound Upper bound
Building and facilities, including land $ —
$ 60,770
$ 60,770
$ 55,000
$ 60,000
Machinery and equipment; furniture and fixtures —
33,241
$ 33,241
35,000
39,000
Total $ —
$ 94,011
$ 94,011
$ 90,000
$ 99,000

Capital Expenditures

For the nine months ended March 31, ~~2018~~2019 and ~~2017,~~2018, our capital expenditures paid were as follows:

Nine Months Ended December 31,
(In thousands) 2018 2017
Maintenance:
Coffee brewing equipment $ 8,118
$ 8,280
Building and facilities 324
230
Vehicles, machinery and equipment 5,804
9,439
Software, office furniture and equipment 3,127
1,831
Capital expenditures, maintenance $ 17,373
$ 19,780

Expansion Project:
Machinery and equipment $ 5,601
$ —
Capital expenditures, Expansion Project $ 5,601
$ —

New Facility:
Building and facilities, including land(1) $ 1,577
$ 26,606
Machinery and equipment 2,489
11,774
Software, office furniture and equipment 426
3,990
Capital expenditures, New Facility $ 4,492
$ 42,370
Total capital expenditures $ 27,466
$ 62,150

~~___________~~

~~(1) Includes $26.6 million in purchase of assets for New Facility construction in the nine months ended March 31, 2017.~~



	Nine Months Ended March 31,
(In thousands)	2019		2018
Maintenance:
Coffee brewing equipment	$	12,460	$	8,118
Building and facilities	50		324
Vehicles, machinery and equipment	2,187		5,804
IT, software, office furniture and equipment	2,304		3,127
Capital expenditures, maintenance	$	17,001	$	17,373

Expansion Project:
Machinery and equipment	$	13,392	$	5,601
Capital expenditures, Expansion Project	$	13,392	$	5,601

New Facility Costs
Building and facilities, including land	—		1,577
Machinery and equipment	—		2,489
Software, office furniture and equipment	—		426
Capital expenditures, New Facility	$	—	$	4,492

Total capital expenditures	$	30,393	$	27,466

In fiscal 2018 we expect to pay approximately $20 million to $22 million in maintenance capital expenditures, including to replace normal wear and tear of coffee brewing equipment, vehicles, machinery and equipment and mobile sales solution hardware, of which $17.4 million has been paid in the nine months ended March 31, 2018. In fiscal 20182019, we anticipate paying between $9$34.0 million to ~~$14~~$37.0 million in capital expenditures. We expect to finance these expenditures related to the Expansion Project of which $5.6 million has been paid in the nine months ended March 31, 2018 with the balance of up to the guaranteed maximum price of $19.3 million expected to be paid in fiscal 2019. In the nine months ended March 31, 2018, we paid $4.5 million in capital expenditures for thethrough cash flows from operations and borrowings under our New ~~Facility. As of March 31, 2018, we have paid for all capital expenditures associated with initial construction of the New~~Revolving Facility.

Depreciation and amortization expense was ~~$8.1~~$23.2 million and ~~$6.5 million in the three months ended March 31, 2018 and 2017, respectively. Depreciation and amortization expense was~~ $22.7 ~~million and $16.6~~ million in the nine months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively. We anticipate our depreciation and amortization expense will be approximately $7.5 million to $8.0 million per quarter in the remainder of fiscal ~~2018~~2019 based on our existing fixed asset commitments and the useful lives of our intangible assets.

Working Capital

At March 31, ~~2018~~2019 and June 30, ~~2017,~~2018, our working capital was composed of the following:


	March 31, 2018			June 30, 2017		March 31, 2019		June 30, 2018
(In thousands)
Current assets	$	153,039		$	117,164	$	185,891	$	173,514
Current liabilities(1)	175,034			97,267		91,789		178,457
Working capital	$	(21,995	)	$	19,897	$	94,102	$	(4,943	)

________________

(1) Current liabilities includes short-term borrowings under the Prior Revolving Facility of $89.8 million as of June 30, 2018. Outstanding borrowings under our revolving credit facility were reclassified on our condensed consolidated balance sheet from short-term to long-term as of March 31, 2019.

Contractual Obligations

During the ~~three~~nine months ended March 31, ~~2018,~~2019, other than the following, or as otherwise discussed in this report, there were no material changes in our contractual obligations.

~~On February 9, 2018,~~In the nine months ended March 31, 2019, we ~~entered into Task Order No. 6 with Haskell~~paid $10.6 million for the expansion of our production lines in the New Facility. Task Order 6 is a guaranteed maximum price contract. Specifically, the maximum price payable by the Company to Haskell under Task Order 6 for all of Haskell’s services,machinery and equipment ~~procurement and installation, and construction work in connection with the Expansion Project is $19.3 million. In fiscal 2018, we anticipate paying between $9 million to $14 million in capital~~ expenditures associated with the Expansion ~~Project,~~Project. Since inception of ~~which $2.9 million and $5.6 million has been~~the contract through March 31, 2019, we have paid a total of $18.9 million.

In connection with our partial withdrawal from the WCTPP, we agreed with the WCT Pension Trust’s assessment of pension withdrawal liability in the ~~three and nine months ended March 31, 2018, respectively, with the balance~~amount of ~~up to the guaranteed maximum price~~$3.4 million, including interest, which is payable in 17 monthly installments of ~~$19.3 million expected to be paid in fiscal 2019.~~

$190,507 followed by a final monthly installment of $153,822, commencing September 10, 2018. At March 31, 2019, we had paid $1.3 million and recorded $2.1 million on our condensed consolidated balance sheet relating to this obligation in “Accrued payroll expenses.”

Effective December 1, 2018 we ~~had outstanding borrowings~~amended and terminated the Farmer Bros. Plan. Termination of ~~$85.9~~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, we reduced our overall pension projected benefit obligation by approximately $24.4 million ~~under our Revolving Facility,~~ as ~~compared to outstanding borrowings~~ of ~~$27.6~~December 31, 2018 and recognized a non-cash pension settlement charge of $10.9 million ~~at June 30, 2017. The increase in outstanding borrowings~~ in the nine months ended March 31, 2019. At December 31, 2018, ~~included $39.5 million to fund~~ the ~~purchase price~~new projected benefit obligation and fair value of plan assets for the ~~Boyd Business~~Brewmatic Plan were $114.1 million and ~~initial Company obligations under~~$67.4 million, respectively, resulting in a net underfunded status of $46.7 million. This represents a $6.7 million increase from the ~~post-closing transition services agreement.~~

~~In connection with the Boyd Coffee acquisition, as part~~net underfunded status of the ~~consideration~~Farmer Bros. Plan and Brewmatic Plan as of June 30, 2018 primarily due to actual losses recognized on plan assets during the six months ended December 31, 2018.

During the three months ended December 31, 2018, the Company and the Local 807 Pension Fund agreed to settle the Company’s remaining withdrawal liability to the Local 807 Pension Fund relating to the Company’s withdrawal from the Local 807 Labor Management Pension Plan in fiscal 2012 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. As of March 31, 2019, we paid the ~~purchase, at closing we held back $1.1~~Local 807 Pension Fund $3.0 million in cash ~~to pay, on behalf of Boyd Coffee, any assessment of withdrawal liability made against Boyd Coffee following the closing date~~and recorded $0.2 million in ~~respect of Boyd Coffee’s multiemployer~~“Accrued pension plan. As we have not made this payment as of March 31, 2018 and we expect settling the pension liability will take greater than twelve months, the multiemployer plan holdback is recorded in other long-term liabilitiesliabilities” on our ~~Condensed Consolidated Balance Sheet at March 31, 2018.~~condensed consolidated balance sheet.

As of March 31, ~~2018, we~~2019, the Company had committed to purchase green coffee inventory totaling ~~$55.8~~$60.4 million under fixed-price contracts, and to other purchases totaling ~~$13.9~~$16.0 million under non-cancelable purchase ~~orders.~~orders related primarily to the purchase of finished goods inventory.

As of March 31, 2019, we had commitments of $0.9 million for roasting equipment ordered for the New Facility which will be accrued by the Company upon delivery and acceptance of the equipment in the fourth quarter of fiscal 2019.

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. For a summary of our significant accounting policies, see Note 2, Summary of Significant Accounting Policies, of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report and in our 2018 Form 10-K. For a summary of our critical accounting estimates, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates" in our 2018 Form 10-K.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report and in our 2018 Form 10-K. For a summary of our critical accounting estimates, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates" in our 2018 Form 10-K.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.



Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

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

In the fourth quarter of fiscal 2017, we liquidated substantially all of our preferred stock portfolio, net of purchases, to fund expenditures associated with our New Facility in Northlake, Texas. In the second quarter ended December 31, 2017, we liquidated the remaining security and closed our preferred stock portfolio.

Borrowings under our 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%. Borrowings under our 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) until March 31, 2019 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%.

Effective March 27, 2019, we 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 is intended to manage our interest rate risk on our floating-rate indebtedness under the New Revolving Facility. Under the terms of the Rate Swap, we receive 1-month LIBOR, subject to a 0% floor, and make payments based on a fixed rate of 2.1975%. Our obligations under the ISDA entered into in connection with the transaction 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 Rate Swap derivative instruments as a cash flow hedge.

At March 31, ~~2018,~~2019, we were eligible to borrow up to a total of $150.0 million under the New Revolving Facility and had outstanding borrowings of ~~$85.9~~$123.0 million and utilized ~~$1.1~~$2.0 million of the letters of credit ~~sublimit, and had excess availability under~~sublimit. As a result of the ~~Revolving Facility of $35.7 million.~~interest rate swap, only $43.0 million is now subject to interest rate variability. The weighted average interest rate on our outstanding borrowings subject to interest rate variability under the New Revolving Facility at March 31, ~~2018~~2019 was ~~3.85%~~4.25%.

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 New Revolving Facility ~~excluding interest on letters of credit,~~ based on the weighted average interest rate on the outstanding borrowings as of March 31, ~~2018:~~2019:


($ in thousands)	Principal	Interest Rate		Annual Interest Expense		Principal	Interest Rate		Annual Interest Expense
–150 basis points	$85,885	2.38	%	$	2,044	$43,000	2.75	%	$	1,183
–100 basis points	$85,885	2.88	%	$	2,473	$43,000	3.25	%	$	1,398
Unchanged	$85,885	3.88	%	$	3,332	$43,000	4.25	%	$	1,828
+100 basis points	$85,885	4.88	%	$	4,191	$43,000	5.25	%	$	2,258
+150 basis points	$85,885	5.38	%	$	4,621	$43,000	5.75	%	$	2,473

Commodity Price Risk

We are exposed to commodity price risk arising from changes in the market price of green coffee. We value green coffee inventory on the ~~LIFO~~FIFO basis. In the normal course of business, we hold a large green coffee inventory and enter into forward commodity purchase agreements with suppliers. We are subject to price risk resulting from the volatility of green coffee prices. Due to competition and market conditions, volatile price increases cannot always be passed on to our customers.

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

When we designate coffee-related derivative instruments as cash flow hedges, we formally document the hedging instruments and hedged items, and measure at each balance sheet date the effectiveness of our hedges. The ~~effective portion of the~~ change in fair value of the derivative is reported in AOCI and subsequently reclassified into cost of goods sold in the period or periods when the hedged transaction affects earnings. For the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively, we reclassified ~~$(1.8)~~$2.1 million in net losses and ~~$0.9~~$0.6 million in net ~~gains~~losses on coffee-related derivative instruments designated as cash flow hedges, excluding tax, respectively, into cost of goods sold from AOCI. ~~Any ineffective portion of the derivative’s change in fair value is recognized currently in “Other, net.”~~ For the nine months ended March 31, ~~2018~~2019 and ~~2017,~~ 2018,

respectively, we reclassified ~~$(2.4)~~$6.3 million in net losses and $0.6 million in net gains on coffee-related derivative instruments designated as cash flow hedges, excluding tax, respectively, into cost of goods sold from AOCI. Gains or losses deferred in AOCI associated with terminated derivative instruments, derivative instruments that cease to be highly effective hedges, derivative instruments for which the forecasted transaction is reasonably possible but no longer probable of occurring, and cash flow hedges that have been otherwise discontinued remain in AOCI until the hedged item affects earnings. If it becomes probable that the forecasted transaction designated as the hedged item in a cash flow hedge will not occur, we recognize any gain or loss deferred in AOCI in “Other, net” at that time. For the three months ended March 31, 2018 and 2017, we recognized in “Other, net” $0 and $90,000 in net gains, respectively, on coffee-related derivative instruments designated as cash flow hedges due to ineffectiveness. For the nine months ended March 31, 2018 and 2017, we recognized in “Other, net�� $48,000 and $63,000 in net gains, respectively, on coffee-related derivative instruments designated as cash flow hedges due to ineffectiveness.

For derivative instruments that are not designated in a hedging relationship, and for which the normal purchases and normal sales exception has not been elected, the changes in fair value are reported in “Other, net.” In the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, we recorded in “Other, net” net losses of ~~$(0.4)~~$0.9 million and ~~net gains of $0.2~~$0.4 million, respectively, on coffee-related derivative instruments not designated as accounting hedges. In the nine months ended March 31, ~~2018~~2019 and ~~2017,~~2018, we recorded in “Other, net” net losses of ~~$(0.5)~~$2.9 million and ~~$(1.1)~~$0.5 million, respectively, on coffee-related derivative instruments not designated as accounting hedges.

The following table summarizes the potential impact as of March 31, ~~2018~~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					Increase (Decrease) to Net Loss					Increase (Decrease) to AOCI
	10% Increase in Underlying Rate		10% Decrease in Underlying Rate			10% Increase in Underlying Rate		10% Decrease in Underlying Rate			10% Increase in Underlying Rate		10% Decrease in Underlying Rate			10% Increase in Underlying Rate		10% Decrease in Underlying Rate
(In thousands)
Coffee-related derivative instruments(1)	$	260	$	(260	)	$	4,415	$	(4,415	)	$	434	$	(434	)	$	3,667	$	(3,667	)

__________

(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 March 31, ~~2018.~~2019. These contracts are not included in the sensitivity analysis above as the underlying price has been fixed.



Item 4.	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 Securities Exchange Act of 1934, as amended (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 principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.

As of March 31, ~~2018,~~2019, our management, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial and accounting 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 on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

Management has determined that 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 March 31, ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

On October 2, 2017, we completed the acquisition of substantially all of the assets and certain specified liabilities of Boyd Coffee Company. We are currently integrating processes, employees, technologies and operations. Management will continue to evaluate our internal controls over financial reporting as we complete the integration.



PART II - OTHER INFORMATION



Item 1.	Legal Proceedings

The information set forth in Note 2122, Commitments and Contingencies, of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q is incorporated herein by reference.



Item 1A.	Risk Factors

~~The information set forth~~

An increase in ~~this report should be read~~our debt leverage could adversely affect our liquidity and results of operations and a covenant that governs our current indebtedness may limit our ability to borrow.

As of March 31, 2019 and 2018, we had outstanding borrowings under our revolving credit facility of $123.0 million and $85.9 million, respectively, with excess availability of $25.0 million and $35.7 million, respectively. We may incur significant indebtedness in ~~conjunction with~~ the ~~risk factor set forth below~~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 ~~risk factors discussed~~industries in ~~Part I, Item 1A of the 2017 Form 10-K.~~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.

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

~~Various jurisdictions may seek to adopt significant additional product labeling (such as requiring labeling of products~~extent we become more leveraged, we face an increased likelihood that contain genetically modified organisms) or warning requirements or limitations on the availability of our products relating to the content or perceived adverse health consequences of certain of our products. If these types of requirements become applicable to one or more of the risks described above would materialize. If we are unable to service our ~~products,~~debt or experience a significant reduction in our liquidity, we could be forced to reduce or delay planned capital expenditures and other initiatives, sell assets, restructure or refinance our debt or seek additional equity capital, or need to change certain elements of our strategy, and we may be unable to take any of these actions on satisfactory terms or in a timely manner. If we are unable to make payments as they ~~may inhibit sales~~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 ~~products.~~ 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.

In addition, our New Revolving Facility includes financial covenants that are tested each quarter, including that adjusted EBITDA to debt (net of unrestricted cash up to $7.5 million) must not exceed 3.5 to 1.0. As of March 31, 2019, our leverage ratio as defined in our credit facility was lower than 3.5 to 1.0.

Our liquidity may be 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 New Revolving Facility. If our sources of liquidity do not satisfy our requirements, we may need to seek additional financing. The future availability of financing will depend on a variety of factors, such as economic and market conditions, the regulatory environment for ~~example,~~banks and other financial institutions, the availability of credit and our reputation with potential lenders. Further, disruptions in national and international credit markets could result in limitations on credit

availability, tighter lending standards, higher interest rates on consumer and business loans, and higher fees associated with obtaining and maintaining credit availability. In addition, in the event of disruptions in the financial markets, current or future lenders may become unwilling or unable to continue to advance funds under any agreements in place, increase their commitments under existing credit arrangements or enter into new financing arrangements. These factors could materially adversely affect our liquidity, costs of borrowing, and our ability to respond to changes in the market, to pursue business opportunities, or to grow our business, and threaten our ability to meet our obligations as they become due. 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 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 ~~are~~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.

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

Our primary raw material is green coffee, an exchange-traded agricultural commodity that is subject to price fluctuations. Although coffee “C” market prices in fiscal 2018 averaged 11% below the ~~California Safe Drinking Water~~historical average for the past five years, there can be no assurance that green coffee prices will remain at these levels in the future. The supply and ~~Toxic Enforcement Act~~price of ~~1986 (commonly known~~green coffee may be impacted by, among other things, weather, natural disasters, real or perceived supply shortages, crop disease (such as ~~“Proposition 65”), a law which requires that a specific warning appear on any product sold~~coffee rust) and pests, general increase in California that contains a substance listed by that State as having been found to cause cancer or birth defects. The Council for Education and Research on Toxics (“CERT”) has filed suit against a number of companies as defendants, including our subsidiary, Coffee Bean International, Inc., which sell coffee in California for allegedly failing to issue clear and reasonable warnings in accordance with Proposition 65 that the coffee they produce, distribute and sell contains acrylamide. CERT’s action claims damages, statutory penaltiesfarm inputs and costs of ~~enforcement, which could be significant, as well as~~production, a requirement to provide warnings and other notices to customers or remove acrylamide from finished products (which may be impossible). The court that is hearing the action has issued a proposed statement of decision in favor of CERT on issues of liability, but a later trial phase will resolve remedies, if any, including whether a warning must be included with respect to sales of coffee in California. If we were required to add warning labels to any of our products or place warnings in certain locations where our products are sold, sales of those products could suffer not only in those locations but elsewhere. Any change in ~~labeling requirements~~the use of the “C” market as the benchmark for ~~our products also may lead to~~determining green coffee prices or an increase in ~~packaging~~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 ~~interruptions~~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 ~~delays~~by restricting coffee supplies. Speculative trading in ~~packaging deliveries.~~coffee commodities can also influence coffee prices. Additionally, specialty green coffees tend to trade on a negotiated basis at a premium above the “C” market price which premium, depending on the supply and demand at the time of purchase, may be significant. Increases in the “C” market price may also impact our ability to enter into green coffee purchase commitments at a fixed price or at a price to be fixed whereby the price at which the base “C” market price will be fixed has not yet been established. There can be no assurance that our purchasing practices and hedging activities will mitigate future price risk. As a result, increases in the cost of green coffee could have an adverse impact on our profitability.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None



Item 6.	Exhibits



Exhibit No.		Description

~~2.1~~		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).*

~~2.2~~		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).*

~~2.3~~		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).*

3.1		Certificate of Incorporation of Farmer Bros. Co. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 26, 2017 and incorporated herein by reference).

3.2		Certificate of Amendment to the Certificate of Incorporation of Farmer Bros. Co. (filed as Exhibit 3.2 to the ~~Company's~~Company’s Current Report on Form 8-K filed with the SEC on June 26, 2017 and incorporated herein by reference).

3.3		Amended and Restated Bylaws, adopted as of October 14, 2018 (filed as Exhibit ~~3.2~~3.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~March~~December 31, ~~2016~~2018, filed with the SEC on ~~May 6, 2016 and incorporated herein by reference).~~

~~3.4~~		~~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~~February 11, 2019 and incorporated herein by reference).

~~3.5~~10.1		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).

~~4.1~~		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).

~~4.2~~		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).

~~4.3~~		~~Registration Rights~~ISDA Master Agreement, dated as of ~~June 16, 2016, among~~March 20, 2019, by and between Farmer Bros. Co. and ~~the Investors identified on the signature pages thereto~~Citibank, N.A. (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).~~

~~10.1~~		~~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, 201529, 2019 and incorporated herein by reference).

10.2		~~Pledge and Security~~Schedule to the ISDA Master 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).



~~Exhibit No.~~		~~Description~~

~~10.3~~		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).

~~10.4~~		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).

~~10.5~~		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).

~~10.6~~		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 filed with the SEC on February 7, 2018 and incorporated herein by reference).

~~10.7~~		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 filed with the SEC on February 7, 2018 and incorporated herein by reference).

~~10.8~~		Farmer Bros. Co. Pension Plan for Salaried Employees (filed (filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 7, 2017 and incorporated herein by reference).**

~~10.9~~		Amendment No. 1 to Farmer Bros. Co. Retirement Plan effective June 30, 2011 (filed as Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016 filed with the SEC on September 14, 2016 and incorporated herein by reference).**

~~10.10~~		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 herewith).**

~~10.11~~		Farmer Bros. Co. 2005 Incentive Compensation Plan (filed as Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2013 filed with the SEC on February 10, 2014 and incorporated herein by reference).**

~~10.12~~		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).**

~~10.13~~		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).**

~~10.14~~		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).**



~~Exhibit No.~~		~~Description~~

~~10.15~~		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).**

~~10.16~~		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).**

~~10.17~~		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).**

~~10.18~~		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 filed with the SEC on February 7, 2018 and incorporated herein by reference).**

~~10.19~~		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).

~~10.20~~		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).

~~10.21~~		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).

~~10.22~~		~~Employment Agreement, dated March 9, 2012,~~20, 2019, 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).**

~~10.23~~		Employment Agreement, effective as of May 27, 2015, by and between Farmer Bros. Co. and Scott W. Bixby (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on May 20, 2015 and incorporated herein by reference).**

~~10.24~~		Separation Agreement, dated as of February 6, 2018, by and between Farmer Bros. Co., and Scott Bixby (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 8, 2018 and incorporated herein by reference).

~~10.25~~		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).**

~~10.26~~		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).**

~~10.27~~		~~Employment Agreement, dated as of February 17, 2017, by and between Farmer Bros. Co. and Ellen D. Iobst~~Citibank, N.A. (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on ~~February 23, 2017~~March, 29, 2019 and incorporated herein by reference).**



~~Exhibit No.~~		~~Description~~

~~10.28~~10.3		~~Employment Agreement,~~Interest Rate Swap Confirmation, dated as of ~~February 17, 2017,~~March 28, 2019, by and between Farmer Bros., Co. and ~~Scott A. Siers~~Citibank, N.A. (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).**

~~10.29~~		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).**

~~10.30~~		Confidential General Release and Separation Agreement by and between Barry C. Fischetto and Farmer Bros. Co. dated February 17, 2017 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 17, 2017 and incorporated herein by reference).**

~~10.31~~		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 filed with the SEC on November 7, 2017 and incorporated herein by reference).**

~~10.32~~		Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan (as approved by the stockholders at the 2013 Annual Meeting of Stockholders on December 5, 2013) (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on December 11, 2013 and incorporated herein by reference).**

~~10.33~~		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).**

~~10.34~~		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).**

~~10.35~~		Form of Farmer Bros. Co. 2017 Long-Term Incentive Plan Stock Restricted Stock Unit 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).**

~~10.36~~		Form of Farmer Bros. Co. 2017 Long-Term Incentive Plan Stock Restricted Stock Grant Agreement (Directors) (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).**

~~10.37~~		Form of Farmer Bros. Co. 2017 Long-Term Incentive Plan Stock Restricted Stock Grant Agreement (Employees) (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).**

~~10.38~~		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)**

~~10.39~~		Form of Farmer Bros. Co. 2007 Omnibus Plan Stock Option Grant Notice and Stock Option Agreement (filed herewith).**

~~10.40~~		Form of Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan Stock Option Grant Notice and Stock Option Agreement (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on December 18, 2013 and incorporated herein by reference).**

~~10.41~~		Form of Farmer Bros. Co. 2007 Omnibus Plan Restricted Stock Award Grant Notice and Restricted Stock Award Agreement (filed herewith).**

~~10.42~~		Form of Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan Restricted Stock Award Grant Notice and Restricted Stock Award Agreement (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed with the SEC on December 18, 2013 and incorporated herein by reference).**



~~Exhibit No.~~		~~Description~~


~~10.43~~		Stock Ownership Guidelines for Directors and Executive Officers (filed as Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016 filed with the SEC on September 14, 2016 and incorporated herein by reference).**

~~10.44~~		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).**

~~10.45~~		Form of First Amendment to Change in Control Severance Agreement entered into between Farmer Bros. Co. and each of Michael H. Keown, David G. Robson, Ellen D. Iobst, Scott W. Bixby, Scott A. Siers and Thomas J. Mattei, Jr. (filed as Exhibit 10.36 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 filed with the SEC on May 10, 2017 and incorporated herein by reference).**

~~10.46~~		Form of Indemnification Agreement for Directors and Officers of the Company, as adopted on December 8, 2017 (with schedule of indemnitees attached) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 13, 2017 and incorporated herein by reference).**

~~10.47~~		Lease Agreement, dated as of July 17, 2015, by and between Farmer Bros. Co. as Tenant, and WF-FB NLTX, LLC as Landlord (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July 23, 201529, 2019 and incorporated herein by reference).

~~10.48~~		First Amendment to Lease Agreement dated as of December 29, 2015, by and between Farmer Bros. Co. as Tenant, and WF-FB NLTX, LLC as Landlord (filed as Exhibit 10.36 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed with the SEC on May 6, 2016 and incorporated herein by reference).

~~10.49~~		Amendment No. 2 to Lease Agreement dated as of March 10, 2016, by and between Farmer Bros. Co. as Tenant, and WF-FB NLTX, LLC as Landlord (filed as Exhibit 10.37 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed with the SEC on May 6, 2016 and incorporated herein by reference).

~~10.50~~		Termination of Lease Agreement, dated as of September 15, 2016, by and between Farmer Bros. Co. as Tenant, and WF-FB NLTX, LLC as Landlord (filed as Exhibit 10.33 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 filed with the SEC on November 9, 2016 and incorporated herein by reference).

~~10.51~~		Development Management Agreement dated as of July 17, 2015, by and between Farmer Bros. Co., as Tenant and Stream Realty Partners-DFW, L.P., as Developer (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on July 23, 2015 and incorporated herein by reference).

~~10.52~~		First Amendment to Development Management Agreement dated as of January 1, 2016, by and between Farmer Bros. Co., as Tenant and Stream Realty Partners-DFW, L.P., as Developer (filed as Exhibit 10.39 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed with the SEC on May 6, 2016 and incorporated herein by reference).

~~10.53~~		Second Amendment to Development Management Agreement dated as of March 25, 2016, by and between Farmer Bros. Co., as Tenant and Stream Realty Partners-DFW, L.P., as Developer (filed as Exhibit 10.40 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed with the SEC on May 6, 2016 and incorporated herein by reference).

~~10.54~~		AIA Document A141 - 2014, Standard Form of Agreement Between Owner and Design-Builder, dated as of September 22, 2015, 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 September 22, 2016 and incorporated herein by reference).

~~10.55~~		Change Order No. 12, dated as of September 17, 2016, 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 September 22, 2016 and incorporated herein by reference).



~~Exhibit No.~~		~~Description~~


~~10.56~~		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).

~~10.57~~		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).

~~10.58~~		Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of April 11, 2016, by and between Farmer Bros. Co. as Seller, and Bridge Acquisition, LLC as Buyer (filed as Exhibit 10.41 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed with the SEC on May 6, 2016 and incorporated herein by reference).

~~10.59~~		First Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of June 1, 2016, by and between Farmer Bros. Co. and Bridge Acquisition, LLC (filed as Exhibit 10.39 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).

~~31.1~~31.1*		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).~~2002.

~~31.2~~31.2*		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).~~2002.

~~32.1~~32.1**		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).~~2002.

~~32.2~~32.2**		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).~~2002.

101		The following financial statements from the Company’s Quarterly Report on Form 10-Q for the fiscal period ended March 31, ~~2018,~~2019, formatted in eXtensible Business Reporting Language: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive ~~(Loss) Income,~~Loss, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Stockholders’ Equity and ~~(v)~~(vi) Notes to Unaudited Condensed 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.Filed herewith

**	~~Management contract or compensatory plan or arrangement.~~Furnished, not filed, herewith

SIGNATURES

Pursuant to the requirements 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.




	FARMER BROS. CO.

	By:		/s/ ~~Michael H. Keown~~CHRISTOPHER P. MOTTERN
			~~Michael H. Keown~~Christopher P. Mottern Interim President and Chief Executive Officer (chief executive officer)
			May ~~9, 2018~~7, 2019

	By:		/s/ David G. Robson
			David G. Robson Treasurer and Chief Financial Officer (principal financial and accounting officer)
			May ~~9, 2018~~7, 2019

6371



Supplemental disclosure of non-cash investing and financing activities:
Equipment acquired under capital leases	$	—		$	353
Net change in derivative assets and liabilities included in other comprehensive (loss) income, net of tax	$	(2,424	)	$	(1,615	)
Non-cash additions to property, plant and equipment	$	2,146		$	8,515
Non-cash portion of earnout receivable recognized—spice assets sale	$	183		$	229
Non-cash portion of earnout payable recognized—China Mist acquisition	$	—		$	500
Non-cash portion of earnout payable recognized—West Coast Coffee acquisition	$	—		$	600
Non-cash receivable from West Coast Coffee—post-closing final working capital adjustment	$	218		$	—
Non-cash consideration given—Issuance of Series A Preferred Stock	$	11,756		$	—
Non-cash Multiemployer Plan Holdback payable recognized—Boyd Coffee acquisition	$	1,056		$	—
Option costs paid with exercised shares	$	—		$	174
Cumulative preferred dividends, undeclared and unpaid	$	257		$	—



(In thousands)	Fair Value			Estimated Useful Life (years)

Cash paid, net of cash acquired	$	14,671
Post-closing final working capital adjustments	(218		)
Fair value of contingent consideration	600
Total consideration	$	15,053

Accounts receivable	$	956
Inventory	910
Prepaid assets	16
Property, plant and equipment	1,546
Goodwill	7,630
Intangible assets:
Non-compete agreements	100			5
Customer relationships	4,400			10
Trade name—finite-lived	260			7
Brand name—finite-lived	250			1.7
Accounts payable	(833		)
Other liabilities	(182		)
Total consideration, net of cash acquired	$	15,053



Outstanding and Nonvested PBRSUs:	PBRSUs Awarded		Weighted Average Grant Date Fair Value ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding and nonvested at June 30, 2017	—		—	—	—
Granted(1)	37,414		31.70	—	1,186
Vested/Released	—		—	—	—
Cancelled/Forfeited	(1,306	)	31.70	—	—
Outstanding and nonvested at March 31, 2018	36,108		31.70	2.6	1,090
Expected to vest at March 31, 2018	31,743		31.70	2.6	959



Shares Authorized	Shares Issued and Outstanding	Par Value per Share		Carrying Value		Cumulative Preferred Dividends		Liquidation Preference
21,000	14,700	$	1.00	$	14,700	$	257,250	$	820,554



	Expenditures Incurred						Budget
(In thousands)	Nine Months Ended March 31, 2018		Through Fiscal Year Ended June 30, 2017		Total		Lower bound		Upper bound
Building and facilities, including land	$	—	$	60,770	$	60,770	$	55,000	$	60,000
Machinery and equipment; furniture and fixtures	—		33,241		$	33,241	35,000		39,000
Total	$	—	$	94,011	$	94,011	$	90,000	$	99,000



	Nine Months Ended December 31,
(In thousands)	2018		2017
Maintenance:
Coffee brewing equipment	$	8,118	$	8,280
Building and facilities	324		230
Vehicles, machinery and equipment	5,804		9,439
Software, office furniture and equipment	3,127		1,831
Capital expenditures, maintenance	$	17,373	$	19,780

Expansion Project:
Machinery and equipment	$	5,601	$	—
Capital expenditures, Expansion Project	$	5,601	$	—

New Facility:
Building and facilities, including land(1)	$	1,577	$	26,606
Machinery and equipment	2,489		11,774
Software, office furniture and equipment	426		3,990
Capital expenditures, New Facility	$	4,492	$	42,370
Total capital expenditures	$	27,466	$	62,150