Employee Benefit Plans

The Company provides benefit plans for most full-time employees, including 401(k), health and other welfare benefit plans and, in certain circumstances, pension benefits. Generally the plans provide benefits based on years of service and/or a combination of years of service and earnings. In addition, the Company contributes to two multiemployer defined benefit pension plans, one multiemployer defined contribution pension plan and ten multiemployer defined contribution plans other than pension plans that provide medical, vision, dental and disability benefits for active, union-represented employees subject to collective bargaining agreements. In addition, the Company sponsors a postretirement defined benefit plan that covers qualified non-union retirees and certain qualified union retirees and provides retiree medical coverage and, depending on the age of the retiree, dental and vision coverage. The Company also provides a postretirement death benefit to certain of its employees and retirees.

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

Single Employer Pension Plans

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

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

Obligations and Funded Status



	Farmer Bros. Plan June 30,						Brewmatic Plan June 30,						Hourly Employees’ Plan June 30,
($ in thousands)	2016			2015			2016			2015			2016			2015
Change in projected benefit obligation
Benefit obligation at the beginning of the year	$	136,962		$	133,136		$	4,064		$	3,991		$	3,145		$	2,619
Service cost	—			—			—			—			389			386
Interest cost	5,875			5,393			172			160			137			108
Actuarial loss	15,999			4,596			682			188			687			56
Benefits paid	(6,511		)	(6,163		)	(344		)	(275		)	(29		)	(24		)
Projected benefit obligation at the end of the year	$	152,325		$	136,962		$	4,574		$	4,064		$	4,329		$	3,145
Change in plan assets
Fair value of plan assets at the beginning of the year	94,815			$	98,426		$	3,291		$	3,435		$	2,104		$	1,629
Actual return on plan assets	1,556			1,731			42			66			85			10
Employer contributions	1,341			821			—			65			287			489
Benefits paid	(6,511		)	(6,163		)	(344		)	(275		)	(29		)	(24		)
Fair value of plan assets at the end of the year	$	91,201		$	94,815		$	2,989		$	3,291		$	2,447		$	2,104
Funded status at end of year (underfunded) overfunded	(61,124		)	$	(42,147	)	(1,585		)	$	(773	)	$	(1,882	)	$	(1,041	)
Amounts recognized in consolidated balance sheets
Non-current liabilities	(61,124		)	(42,147		)	(1,585		)	(773		)	(1,882		)	(1,041		)
Total	$	(61,124	)	$	(42,147	)	$	(1,585	)	$	(773	)	$	(1,882	)	$	(1,041	)
Amounts recognized in consolidated statements of operations
Net loss	70,246			$	50,743		2,756			$	1,965		988			$	237
Total accumulated OCI (not adjusted for applicable tax)	$	70,246		$	50,743		$	2,756		$	1,965		$	988		$	237
Weighted average assumptions used to determine benefit obligations
Discount rate	3.55		%	4.40		%	3.55		%	4.40		%	3.55		%	4.40		%
Rate of compensation increase	N/A			N/A			N/A			N/A			N/A			N/A

Components of Net Periodic Benefit Cost and

Other Changes Recognized in Other Comprehensive Income (Loss) (OCI)



	Farmer Bros. Plan June 30,						Brewmatic Plan June 30,						Hourly Employees’ Plan June 30,
($ in thousands)	2016			2015			2016			2015			2016			2015
Components of net periodic benefit cost
Service cost	$	—		$	—		$	—		$	—		$	389		$	386
Interest cost	5,875			5,393			172			160			137			108
Expected return on plan assets	(6,470		)	(6,938		)	(219		)	(234		)	(149		)	(119		)
Amortization of net loss	1,411			1,153			68			57			—			—
Net periodic benefit cost (credit)	$	816		$	(392	)	$	21		$	(17	)	$	377		$	375
Other changes recognized in OCI
Net loss	$	20,913		$	9,803		$	859		$	356		$	750		$	165
Amortization of net loss	(1,411		)	(1,153		)	(68		)	(57		)	—			—
Total recognized in OCI	$	19,502		$	8,650		$	791		$	299		$	750		$	165
Total recognized in net periodic benefit cost and OCI	$	20,318		$	8,258		$	812		$	282		$	1,127		$	540
Weighted-average assumptions used to determine net periodic benefit cost
Discount rate	4.40		%	4.15		%	4.40		%	4.15		%	4.40		%	4.15		%
Expected long-term return on plan assets	7.50		%	7.50		%	7.50		%	7.50		%	7.50		%	7.50		%
Rate of compensation increase	N/A			N/A			N/A			N/A			N/A			N/A

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

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

Description of Investment Policy

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

Additional Disclosures



	Farmer Bros. Plan June 30,						Brewmatic Plan June 30,						Hourly Employees’ Plan June 30,
($ in thousands)	2016			2015			2016			2015			2016			2015
Comparison of obligations to plan assets
Projected benefit obligation	$	152,325		$	136,962		$	4,574		$	4,064		$	4,329		$	3,145
Accumulated benefit obligation	$	152,325		$	136,962		$	4,574		$	4,064		$	4,329		$	3,145
Fair value of plan assets at measurement date	$	91,201		$	94,815		$	2,989		$	3,291		$	2,447		$	2,104
Plan assets by category
Equity securities	$	58,094		$	47,340		$	1,909		$	1,638		$	1,542		$	1,050
Debt securities	27,586			37,789			899			1,322			758			839
Real estate	5,521			9,686			181			331			147			215
Total	$	91,201		$	94,815		$	2,989		$	3,291		$	2,447		$	2,104
Plan assets by category
Equity securities	64		%	50		%	64		%	50		%	63		%	50		%
Debt securities	30		%	40		%	30		%	40		%	31		%	40		%
Real estate	6		%	10		%	6		%	10		%	6		%	10		%
Total	100.0		%	100		%	100		%	100		%	100		%	100		%

Fair values of plan assets were as follows:



	June 30, 2016
(In thousands)	Total		Level 1		Level 2		Level 3
Farmer Bros. Plan	$	91,201	$	—	$	91,201	$	—
Brewmatic Plan	$	2,989	$	—	$	2,989	$	—
Hourly Employees’ Plan	$	2,447	$	—	$	2,447	$	—



	June 30, 2015
(In thousands)	Total		Level 1		Level 2		Level 3
Farmer Bros. Plan	$	94,815	$	—	$	94,815	$	—
Brewmatic Plan	$	3,291	$	—	$	3,291	$	—
Hourly Employees’ Plan	$	2,104	$	—	$	2,104	$	—

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

The following is the target asset allocation for the Company's single employer pension plans—Farmer Bros. Plan, Brewmatic Plan and Hourly Employees' Plan—for fiscal 2017:



	Fiscal 2017
U.S. large cap equity securities	42.8	%
U.S. small cap equity securities	5.2	%
International equity securities	16.0	%
Debt securities	30.0	%
Real estate	6.0	%
Total	100.0	%

Estimated Amounts in OCI Expected To Be Recognized

In fiscal 2017, the Company expects to recognize as a component of net periodic benefit cost $1.1 million for the Farmer Bros. Plan, $71,000 for the Brewmatic Plan, and $0.5 million for the Hourly Employees’ Plan.

Estimated Future Contributions and Refunds

In fiscal 2017, the Company expects to contribute $2.0 million to the Farmer Bros. Plan, $0.1 million to the Brewmatic Plan, and $0.3 million to the Hourly Employees’ Plan. The Company is not aware of any refunds expected from single employer pension plans.

Estimated Future Benefit Payments

The following benefit payments are expected to be paid over the next 10 fiscal years:



(In thousands)	Farmer Bros. Plan		Brewmatic Plan		Hourly Employees’ Plan
Year Ending:
June 30, 2017	$	7,310	$	320	$	81
June 30, 2018	$	7,520	$	310	$	110
June 30, 2019	$	7,760	$	310	$	120
June 30, 2020	$	8,040	$	300	$	140
June 30, 2021	$	8,250	$	290	$	170
June 30, 2022 to June 30, 2026	$	42,770	$	1,340	$	1,170

These amounts are based on current data and assumptions and reflect expected future service, as appropriate.

Multiemployer Pension Plans

The Company participates in two multiemployer defined benefit pension plans that are union sponsored and collectively bargained for the benefit of certain employees subject to collective bargaining agreements, of which the Western Conference of Teamsters Pension Plan (“WCTPP”) is individually significant. The Company makes contributions to these plans generally based on the number of hours worked by the participants in accordance with the provisions of negotiated labor contracts.

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

The Company's participation in WCTPP is outlined in the table below. The Pension Protection Act (“PPA”) Zone Status available in the Company's fiscal year 2016 and fiscal year 2015 is for the plan's year ended December 31, 2015 and December 31, 2014, respectively. The zone status is based on information obtained from WCTPP and is certified by WCTPP's actuary. Among other factors, plans in the green zone are generally more than 80% funded. Based on WCTPP's annual report on Form 5500, WCTPP was 91.7% and 91.9% funded for its plan year beginning January 1, 2015 and 2014, respectively. The “FIP/RP Status Pending/Implemented” column indicates if a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented.

Pension Plan

Employer

Identification

Number

Pension

Plan

Number

PPA Zone Status

FIP/RP

Status

Pending/

Implemented

Surcharge

Imposed

Expiration Date

of Collective

Bargaining

Agreements

July 1, 2015

July 1,

2014

Western Conference of Teamsters Pension Plan

91-6145047

001

Green

January 31, 2020

Based upon the most recent information available from the trustees managing WCTPP, the Company's share of the unfunded vested benefit liability for the plan was estimated to be approximately $9.1 million if the withdrawal had occurred in calendar year 2015. These estimates were calculated by the trustees managing WCTPP. Although the Company believes the most recent plan data available from WCTPP was used in computing this 2015 estimate, the actual withdrawal liability amount is subject to change based on, among other things, the plan's investment returns and benefit levels, interest rates, financial difficulty of other participating employers in the plan such as bankruptcy, and continued participation by the Company and other employers in the plan, each of which could impact the ultimate withdrawal liability.

If withdrawal liability were to be triggered, the withdrawal liability assessment can be paid in a lump sum or on a monthly basis. The amount of the monthly payment is determined as follows: Average number of hours reported to the pension plan trust during the three consecutive years with highest number of hours in the 10-year period prior to the withdrawal is multiplied by the highest hourly contribution rate during the 10-year period ending with the plan year in which the withdrawal occurred to determine the amount of withdrawal liability that has to be paid annually. The annual amount is divided by 12 to arrive at the monthly payment due. If monthly payments are elected, interest is assessed on the unpaid balance after 12 months at the rate of 7% per annum.

In fiscal 2012, the Company withdrew from the Local 807 Labor-Management Pension Fund (“Pension Fund”) and recorded a charge of $4.3 million associated with withdrawal from this plan, representing the present value of the estimated withdrawal liability expected to be paid in quarterly installments of $0.1 million over 80 quarters. On November 18, 2014, the Pension Fund sent the Company a notice of assessment of withdrawal liability in the amount of $4.4 million, which the Pension Fund adjusted to $4.9 million on January 5, 2015. The Company is in the process of negotiating a reduced liability amount. The Company has commenced quarterly installment payments to the Pension Fund of $91,000 pending the final settlement of the liability. The total estimated withdrawal liability of $3.8 million and $4.3 million, respectively, is reflected in the Company's consolidated balance sheets at June 30, 2016 and June 30, 2015, with the short-term and long-term portions reflected in current and long-term liabilities, respectively.

The Company may incur certain pension-related costs in connection with the Corporate Relocation Plan. Future collective bargaining negotiations may result in the Company withdrawing from the remaining multiemployer pension plans in which it participates and, if successful, the Company may incur a withdrawal liability, the amount of which could be material to the Company's results of operations and cash flows.

Company contributions to the multiemployer pension plans:



(In thousands)	WCTPP(1)(2)(3)		All Other Plans(4)
Year Ended:
June 30, 2016	$	2,587	$	39
June 30, 2015	$	3,593	$	41
June 30, 2014	$	3,153	$	34

____________


(1)	Individually significant plan.


(2)	Less than 5% of total contribution to WCTPP based on WCTPP's most recent annual report on Form 5500 for the calendar year ended December 31, 2015.


(3)	The Company guarantees that one hundred seventy-three (173) hours will be contributed upon for all employees who are compensated for all available straight time hours for each calendar month. An additional 6.5% of the basic contribution must be paid for PEER or the Program for Enhanced Early Retirement.


(4)	Includes one plan that is not individually significant.

The Company's contribution to multiemployer plans decreased in fiscal 2016 as compared to fiscal 2015 and 2014, as a result of reduction in employees due to the Corporate Relocation Plan. The Company expects to contribute an aggregate of $3.3 million towards multiemployer pension plans in fiscal 2017.

Multiemployer Plans Other Than Pension Plans

The Company participates in ten multiemployer defined contribution plans other than pension plans that provide medical, vision, dental and disability benefits for active, union-represented employees subject to collective bargaining agreements. The plans are subject to the provisions of the Employee Retirement Income Security Act of 1974, and provide that participating employers make monthly contributions to the plans in an amount as specified in the collective bargaining agreements. Also, the plans provide that participants make self-payments to the plans, the amounts of which are negotiated through the collective bargaining process. The Company's participation in these plans is governed by collective bargaining agreements which expire on or before January 31, 2020. The Company's aggregate contributions to multiemployer plans other than pension plans in the fiscal years ended June 30, 2016, 2015 and 2014 were $6.3 million, $6.9 million and $6.6 million, respectively. The Company expects to contribute an aggregate of $6.5 million towards multiemployer plans other than pension plans in fiscal 2017.

401(k) Plan

The Company's 401(k) Plan is available to all eligible employees who have worked more than 1,000 hours during a calendar year and were employed at the end of the calendar year. Participants in the 401(k) Plan may choose to contribute a percentage of their annual pay subject to the maximum contribution allowed by the Internal Revenue Service. The Company's matching contribution is discretionary, based on approval by the Company's Board of Directors. For the calendar years 2016, 2015 and 2014, the Company's Board of Directors approved a Company matching contribution of 50% of an employee's annual contribution to the 401(k) Plan, up to 6% of the employee's eligible income. The matching contributions (and any earnings thereon) vest at the rate of 20% for each of the participant's first 5 years of vesting service, so that a participant is fully vested in his or her matching contribution account after 5 years of vesting service, subject to accelerated vesting under certain circumstances in connection with the Corporate Relocation Plan due to the closure of the Company’s Torrance facility or a reduction-in-force at another Company facility designated by the Administrative Committee of the Farmer Bros. Co. Qualified Employee Retirement Plans. A participant is automatically vested in the event of death, disability or attainment of age 65 while employed by the Company. Employees are 100% vested in their contributions. For employees subject to a collective bargaining agreement, the match is only available if so provided in the labor agreement.

The Company recorded matching contributions of $1.6 million, $1.4 million and $1.3 million in operating expenses for the fiscal years ended June 30, 2016, 2015 and 2014, respectively.

Postretirement Benefits

The Company sponsors a postretirement defined benefit plan that covers qualified non-union retirees and certain qualified union retirees (“Retiree Medical Plan”). The plan provides medical, dental and vision coverage for retirees under age 65 and medical coverage only for retirees age 65 and above. Under this postretirement plan, the Company’s contributions toward premiums for retiree medical, dental and vision coverage for participants and dependents are scaled based on length of service, with greater Company contributions for retirees with greater length of service, subject to a maximum monthly Company contribution. The Company's retiree medical, dental and vision plan is unfunded, and its liability was calculated using an assumed discount rate of 3.7% at June 30, 2016. The Company projects an initial medical trend rate of 9.0% in fiscal 2017, ultimately reducing to 4.5% in 10 years.

The Company also provides a postretirement death benefit (“Death Benefit”) to certain of its employees and retirees, subject, in the case of current employees, to continued employment with the Company until retirement and certain other conditions related to the manner of employment termination and manner of death. The Company records the actuarially determined liability for the present value of the postretirement death benefit. The Company has purchased life insurance policies to fund the postretirement death benefit wherein the Company owns the policy but the postretirement death benefit is paid to the employee's or retiree's beneficiary. The Company records an asset for the fair value of the life insurance policies which equates to the cash surrender value of the policies. In fiscal 2016, the Company actuarially determined that no postretirement benefit costs related to the Corporate Relocation Plan were required to be recognized.

Retiree Medical Plan and Death Benefit

The following table shows the components of net periodic postretirement benefit cost for the Retiree Medical Plan and Death Benefit for the fiscal years ended June 30, 2016, 2015 and 2014. Net periodic postretirement benefit cost for fiscal 2016 was based on employee census information as of July 1, 2015 and asset information as of June 30, 2016.



	Year Ended June 30,
(In thousands)	2016			2015			2014
Components of Net Periodic Postretirement Benefit Cost (credit):
Service cost	$	1,388		$	1,195		$	936
Interest cost	1,194			943			810
Amortization of net gains	(196		)	(500		)	(880		)
Amortization of prior service credit	(1,757		)	(1,757		)	(1,757		)
Net periodic postretirement benefit cost (credit)	$	629		$	(119	)	$	(891	)

The difference between the assets and the Accumulated Postretirement Benefit Obligation (APBO) at the adoption of ASC 715-60 was established as a transition (asset) obligation and is amortized over the average expected future service for active employees as measured at the date of adoption. Any plan amendments that retroactively increase benefits create prior service cost. The increase in the APBO due to any plan amendment is established as a base and amortized over the average remaining years of service to the full eligibility date of active participants who are not yet fully eligible for benefits at the plan amendment date. Gains and losses due to experience different than that assumed or from changes in actuarial assumptions are not immediately recognized. The tables below show the remaining bases for the transition (asset) obligation, prior service cost (credit), and the calculation of the amortizable gain or loss.



Amortization Schedule
Transition (Asset) Obligation: The transition (asset) obligations have been fully amortized.

Prior service cost (credit) ($ in thousands):



Date Established	Balance at July 1, 2015			Annual Amortization		Years Remaining	Curtailment	Balance at June 30, 2016
January 1, 2008	$	(962	)	$	230	3.2	—	$	(732	)
July 1, 2012	(13,001		)	1,526		7.5	—	(11,475		)
	$	(13,963	)	$	1,756			$	(12,207	)



	Year Ended June 30,						Year Ended June 30,
	Retiree Medical Plan						Death Benefit
($ in thousands)	2016			2015			2016			2015
Amortization of Net (Gain) Loss:
Net (gain) loss as of July 1	$	(8,710	)	$	(3,655	)	$	690		$	690
Net (gain) loss subject to amortization	(8,710		)	(3,655		)	690			690
Corridor (10% of greater of APBO or assets)	1,724			1,723			(729		)	(729		)
Net (gain) loss in excess of corridor	$	(6,986	)	$	(1,932	)	$	—		$	—
Amortization years	10.0			10.8			7.7			8.7

The following tables provide a reconciliation of the benefit obligation and plan assets:



	Year Ended June 30,
(In thousands)	2016			2015
Change in Benefit Obligation:
Projected postretirement benefit obligation at beginning of year	$	24,522		$	20,889
Service cost	1,388			1,195
Interest cost	1,194			943
Participant contributions	795			711
Actuarial losses	(4,259		)	2,751
Benefits paid	(1,773		)	(1,967		)
Projected postretirement benefit obligation at end of year	$	21,867		$	24,522



	Year Ended June 30,
(In thousands)	2016			2015
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	—		$	—
Employer contributions	978			1,256
Participant contributions	795			711
Benefits paid	(1,773		)	(1,967		)
Fair value of plan assets at end of year	—			—
Projected postretirement benefit obligation at end of year	$	21,867		$	24,522
Funded status of plan	$	(21,867	)	$	(24,522	)



	June 30,
(In thousands)	2016			2015
Amounts Recognized in the Consolidated Balance Sheets Consist of:
Non-current assets	$	—		$	—
Current liabilities	(1,060		)	(1,051		)
Non-current liabilities	(20,807		)	(23,471		)
Total	$	(21,867	)	$	(24,522	)



	Year Ended June 30,
(In thousands)	2016			2015
Amounts Recognized in Accumulated OCI Consist of:
Net gain	$	(7,027	)	$	(2,965	)
Transition obligation	(12,207		)	(13,963		)
Total accumulated OCI	$	(19,234	)	$	(16,928	)



	Year Ended June 30,
(In thousands)	2016			2015
Other Changes in Plan Assets and Benefit Obligations Recognized in OCI:
Unrecognized actuarial loss	$	(4,259	)	$	2,751
Amortization of net loss	196			500
Amortization of prior service cost	1,757			1,757
Total recognized in OCI	(2,306		)	5,008
Net periodic benefit credit	629			(119		)
Total recognized in net periodic benefit cost and OCI	$	(1,677	)	$	4,889

The estimated net gain and prior service credit that will be amortized from accumulated OCI into net periodic benefit cost in fiscal 2017 are $0.6 million and $1.8 million, respectively.



(In thousands)
Estimated Future Benefit Payments:
Year Ending:
June 30, 2017	$	1,080
June 30, 2018	$	1,102
June 30, 2019	$	1,143
June 30, 2020	$	1,176
June 30, 2021	$	1,210
June 30, 2022 to June 30, 2026	$	6,246

Expected Contributions:
June 30, 2017	$	1,080

Sensitivity in Fiscal 2017 Results

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one percentage point change in assumed health care cost trend rates would have the following effects in fiscal 2017:



	1-Percentage Point
(In thousands)	Increase		Decrease
Effect on total of service and interest cost components	$	181	$	(154	)
Effect on accumulated postretirement benefit obligation	$	1,664	$	(1,423	)