Commitments and Contingencies

Leases

On July 17, 2015, the Company entered into the Lease Agreement, with lessor pursuant to which the Company leased the New Facility (see Note 4). The Company recorded an asset related to the New Facility lease obligation included in property, plant and equipment of $28.1 million at June 30, 2016 with an offsetting liability of $28.1 million for the lease obligation included in "Other long-term liabilities" on the Company's consolidated balance sheet at June 30, 2016. There were no such amounts recorded at June 30, 2015 (see Note 19). On June 15, 2016, the Company exercised its option to purchase the partially constructed New Facility under the Lease Agreement. The terms of the Company's capital leases vary from 12 months to 84 months with varying expiration dates through 2021.

The Company is also obligated under operating leases for branch warehouses, distribution centers and its production facility in Portland, Oregon. Some operating leases have renewal options that allow the Company, as lessee, to extend the leases. The Company has one operating lease with a term greater than five years that expires in 2018 and has a ten year renewal option, and operating leases for computer hardware with terms that do not exceed three years. Rent expense for the fiscal years ended June 30, 2016, 2015 and 2014 was $4.5 million, $3.8 million and $3.7 million, respectively.

Contractual obligations for future fiscal years are as follows:



	Contractual Obligations
(In thousands)	Capital Lease Obligations			Operating Lease Obligations		New Facility Purchase Option Exercise Price(1)		Pension Plan Obligations		Postretirement Benefits Other Than Pension Plans		Revolving Credit Facility		Purchase Commitments (2)
Year Ended June 30,
2017	$	1,443		$	4,093	$	58,779	$	8,075	$	1,080	$	109	$	72,217
2018	$	880		$	3,366	$	—	$	8,304	$	1,102	$	—	$	—
2019	$	125		$	2,561	$	—	$	8,554	$	1,143	$	—	$	—
2020	$	52		$	1,279	$	—	$	8,844	$	1,176	$	—	$	—
2021	$	4		$	441	$	—	$	9,074	$	1,210	$	—	$	—
Thereafter	$	—		$	61	$	—	$	47,099	$	6,246	$	—	$	—
				$	11,801	$	58,779	$	89,950	$	11,957	$	109	$	72,217
Total minimum lease payments	$	2,504
Less: imputed interest (0.82% to 10.7%)	$	(145	)
Present value of future minimum lease payments	$	2,359
Less: current portion	$	1,323
Long-term capital lease obligations	$	1,036

___________

(1) Includes estimated purchase option exercise price pursuant to the Lease Agreement for the partially constructed New Facility. The table above reflects purchase option exercise price based on the budget and after completion of the construction, payable in fiscal year ending June 30, 2017 (see Note 4). The actual purchase option exercise price will be based on actual construction-related costs for the partially constructed facility as of the purchase option closing date.

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

Self-Insurance

At June 30, 2016 and 2015, the Company had posted a $7.4 million and $7.0 million letter of credit, respectively, as a security deposit with the State of California Department of Industrial Relations Self-Insurance Plans for participation in the alternative security program for California self-insurers for workers’ compensation liability. At June 30, 2016 and 2015, the Company had posted a $4.3 million letter of credit as a security deposit for self-insuring workers’ compensation, general liability and auto insurance coverages outside of California.

Non-cancelable Purchase Orders

As of June 30, 2016, the Company had committed to purchase green coffee inventory totaling $62.5 million under fixed-price contracts, equipment for the New Facility totaling $3.3 million and other inventory totaling $6.3 million under non-cancelable purchase orders.

Legal Proceedings

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

On August 31, 2012, CERT filed an amendment to a private enforcement action adding a number of companies as defendants, including CBI, which sell coffee in California. The suit alleges that the defendants have failed to issue clear and reasonable warnings in accordance with Proposition 65 that the coffee they produce, distribute and sell contains acrylamide. This lawsuit was filed in Los Angeles Superior Court (the “Court”). CERT has demanded that the alleged violators remove acrylamide from their coffee or provide Proposition 65 warnings on their products and pay $2,500 per day for each and every violation while they are in violation of Proposition 65.

Acrylamide is produced naturally in connection with the heating of many foods, especially starchy foods, and is believed to be caused by the Maillard reaction, though it has also been found in unheated foods such as olives. With respect to coffee, acrylamide is produced when coffee beans are heated during the roasting process-it is the roasting itself that produces the acrylamide. While there has been a significant amount of research concerning proposals for treatments and other processes aimed at reducing acrylamide content of different types of foods, to our knowledge there is currently no known strategy for reducing acrylamide in coffee without negatively impacting the sensorial properties of the product.

The Company has joined a Joint Defense Group and, along with the other co-defendants, has answered the complaint, denying, generally, the allegations of the complaint, including the claimed violation of Proposition 65 and further denying CERT’s right to any relief or damages, including the right to require a warning on products. The Joint Defense Group contends that based on proper scientific analysis and proper application of the standards set forth in Proposition 65, exposures to acrylamide from the coffee products pose no significant risk of cancer and, thus, these exposures are exempt from Proposition 65’s warning requirement.

To date, the pleadings stage of the case has been completed. The Court has phased trial so that the “no significant risk level” defense, the First Amendment defense, and the preemption defense will be tried first. Fact discovery and expert discovery on these “Phase 1” defenses have been completed, and the parties filed trial briefs. Trial commenced on September 8, 2014, and testimony completed on November 4, 2014, for the three Phase 1 defenses. Following two continuances, the court heard on April 9, 2015 final arguments on the Phase 1 issues. On July 25, 2015, the Court issued its Proposed Statement of Decision with respect to Phase 1 defenses against the defendants, which was confirmed, on September 2, 2015 in the Final Statement of Decision. The Court has stated that all defendants would be included in “Phase 2,” though this remains unresolved, including the extent of the involvement or participation in discovery. Following permission from the Court, on October 14, 2015 the Joint Defense Group filed a writ petition for an interlocutory appeal. In late December 2015, plaintiff’s counsel served letters proposing a new plan to file the anticipated motion for summary adjudication and a new set of discovery on all defendants. On January 14, 2016, the Court of Appeals denied the Joint Defense Group’s writ petition thereby denying the interlocutory appeal. On February 16, 2016, CERT filed a motion for summary adjudication arguing that based upon facts that had been stipulated by defendants, CERT had proven its prima facie case and all that remains is a determination of whether any affirmative defenses are available to defendants. On March 16, 2016, the Court reinstated the stay on discovery for all defendant parties except for the four largest defendants, so the Company is not currently obligated to participate in discovery. Following a hearing on April 20, 2016, the Court granted CERT’s motion for summary adjudication on its prima facie case. Plaintiff filed its motion for summary adjudication of affirmatives defenses on May 16, 2016 and the defendants’ opposition brief was filed on July 22, 2016. Certain discovery responses were scheduled to be due by September 9, 2016. At an August 19, 2016 hearing on Plaintiff’s motion for summary adjudication and defendants’ opposition with respect to the affirmative defenses, the Court denied Plaintiff’s motion, thus the Joint Defense Group will continue to be able to present the affirmative defenses at trial. At this time, the Company is not able to predict the probability of the outcome or estimate of loss, if any, related to this matter.

Steve Hernandez vs. Farmer Bros. Co., Superior Court of State of California, County of Los Angeles

On July 24, 2015, former Company employee Hernandez filed a putative class action complaint for damages alleging a single cause of action for unfair competition under the California Business & Professions Code. The claim purports to seek disgorgement of profits for alleged violations of various provisions of the California Labor Code relating to: failing to pay overtime, failing to provide meal breaks, failing to pay minimum wage, failing to pay wages timely during employment and upon termination, failing to provide accurate and complete wage statements, and failing to reimburse business-related expenses. Hernandez’s complaint seeks restitution in an unspecified amount and injunctive relief, in addition to attorneys’ fees and expenses. Hernandez alleges that the putative class is all “current and former hourly-paid or non-exempt individuals” for the four (4) years preceding the filing of the complaint through final judgment, and Hernandez also purports to reserve the right to establish sub-classes as appropriate. On November 12, 2015, a separate putative class representative, Monica Zuno, filed claim under the same class action; the Court has related this case to the Hernandez case. On November 17, 2015, the unified case was assigned to a judge, and this judge ordered the stay on discovery to remain intact until after a decision on the Company’s demurrer action. The plaintiff filed an Opposition to the Demurrer and, in response, on January 5, 2016, the Company filed a reply to this Opposition to the Demurrer. On February 2, 2016, the Court held a hearing on the demurrer and found in the Company’s favor, sustaining the demurrer in its entirety without leave to amend as to the plaintiff Hernandez, and so dismissing Hernandez’s claims and the related putative class. Claims on behalf of the plaintiff Zuno remain at this time, pending the filing of an amended complaint on behalf of this remaining plaintiff and reduced putative class. The Company provided responses to discovery following a lift by the Court of the stay on discovery. The Court has set a case management conference for October 18, 2016 to give Plaintiff’s counsel time to review the discovery documents the Company produced and determine whether Plaintiff intends to proceed with the case as a putative class action or on an individual basis only. At this time, we are not able to predict the probability of the outcome or estimate of loss, if any, related to this matter.

The Company is a party to various other pending legal and administrative proceedings. It is management’s opinion that the outcome of such proceedings will not have a material impact on the Company’s financial position, results of operations, or cash flows.