Farmer Bros. Co. (FARM, NASDAQ)
Industry: Packaged Foods
Annual report, fiscal year 2011



HIGH QUALITY DELIVERED

since 1912

Farmer Brothers
COFFEE

2011 ANNUAL REPORT




## Financial Highlights

(In thousands, except per share data)

<table><tr><td>For the fiscal years ended June 30,</td><td>2011</td><td>2010</td><td>2009(a)</td><td>2008(b)</td><td>2007</td></tr><tr><td>Net sales</td><td>$ 463,945</td><td>$ 450,318</td><td>$ 341,724</td><td>$ 266,485</td><td>$ 216,259</td></tr><tr><td>Cost of goods sold</td><td>$ 306,771</td><td>$ 252,754</td><td>$ 181,508</td><td>$ 147,073</td><td>$ 108,171</td></tr><tr><td>Loss from operations</td><td>$ (68,422)</td><td>$ (39,192)</td><td>$ (15,203)</td><td>$ (10,644)</td><td>$ (4,076)</td></tr><tr><td>Net (loss) income (c)</td><td>$ (54,317)</td><td>$ (23,953)</td><td>$ (33,270)</td><td>$ (7,924)</td><td>$ 6,815</td></tr><tr><td>Loss from operations per common share</td><td>$ (4.54)</td><td>$ (2.64)</td><td>$ (1.05)</td><td>$ (0.75)</td><td>$ (0.29)</td></tr><tr><td>Net (loss) income per common share</td><td>$ (3.61)</td><td>$ (1.61)</td><td>$ (2.29)</td><td>$ (0.55)</td><td>$ 0.48</td></tr><tr><td>Cash dividends declared per common share</td><td>$ 0.18</td><td>$ 0.46</td><td>$ 0.46</td><td>$ 0.46</td><td>$ 0.44</td></tr><tr><td>Current assets</td><td>$ 157,410</td><td>$ 189,956</td><td>$ 186,546</td><td>$ 217,750</td><td>$ 239,362</td></tr><tr><td>Current liabilities (d)</td><td>$ 103,462</td><td>$ 98,546</td><td>$ 69,926</td><td>$ 25,358</td><td>$ 27,096</td></tr><tr><td>Capital lease obligations (e)</td><td>$ 8,636</td><td>$ 3,861</td><td>$ 1,252</td><td>$ —</td><td>$ —</td></tr><tr><td>Working capital</td><td>$ 53,948</td><td>$ 91,410</td><td>$ 116,620</td><td>$ 192,392</td><td>$ 212,266</td></tr><tr><td>Capital expenditures</td><td>$ 19,416</td><td>$ 28,484</td><td>$ 38,901</td><td>$ 24,852</td><td>$ 12,485</td></tr><tr><td>Purchase of businesses</td><td>$ —</td><td>$ —</td><td>$ 48,287</td><td>$ —</td><td>$ 23,167</td></tr><tr><td>Total assets</td><td>$ 290,053</td><td>$ 339,121</td><td>$ 330,017</td><td>$ 312,984</td><td>$ 337,609</td></tr><tr><td>Total liabilities</td><td>$ 161,938</td><td>$ 173,526</td><td>$ 133,528</td><td>$ 46,529</td><td>$ 71,393</td></tr><tr><td>Total stockholders&#x27; equity</td><td>$ 128,115</td><td>$ 165,595</td><td>$ 196,489</td><td>$ 266,455</td><td>$ 266,216</td></tr></table>

(a) Includes the results of operations of the DSD Coffee Business since it was acquired by Farmer Bros. Co. on February 28, 2009.

(b) Includes the results of operations of Coffee Bean Holding Co., Inc. since it was acquired by Farmer Bros. Co. on April 27, 2007.

(c) Includes: (i) $7.8 million in impairment loss on intangible assets, and $9.2 million in income tax benefit in fiscal 2011; (ii) $2.5 million in income tax benefit in fiscal 2010; and (iii) a deferred tax asset valuation allowance of $19.7 million recorded as income tax expense in fiscal 2009.

(d) To match fiscal 2011 and fiscal 2010 presentation, reflects reclassification of certain pension liabilities from long-term to current in fiscal 2009; reclassification of certain deferred tax liabilities from current to long-term in fiscal 2009; and reclassification of certain workers' compensation liabilities from current to long-term in fiscal 2009 and 2008.

(e) Excludes imputed interest.



# FARMER BROS. CO.
20333 South Normandie Avenue
Torrance, California 90502

# NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 8, 2011

TO THE STOCKHOLDERS OF FARMER BROS. CO.:

NOTICE IS HEREBY GIVEN that the 2011 Annual Meeting of Stockholders (the “Annual Meeting”) of Farmer Bros. Co., a Delaware corporation (the “Company” or “Farmer Bros.”), will be held at the principal executive offices of the Company located at 20333 South Normandie Avenue, Torrance, California 90502, on Thursday, December 8, 2011, at 10:00 a.m., Pacific Standard Time, for the following purposes:

1. To elect two Class II directors to the Board of Directors of the Company for a three-year term of office expiring at the 2014 Annual Meeting of Stockholders and until their successors are elected and duly qualified.

2. To ratify the selection of Ernst & Young LLP as the Company’s independent registered public accountants for the fiscal year ending June 30, 2012.

3. To hold an advisory (non-binding) vote on executive compensation (the “say-on-pay vote”).

4. To hold an advisory (non-binding) vote on the frequency of holding future say-on-pay votes every 1, 2 or 3 years (the “frequency vote”).

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

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

The Board of Directors has fixed the close of business on October 17, 2011 as the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting and at any continuation, postponement or adjournment thereof.

By Order of the Board of Directors



John M. Anglin
Secretary

Torrance, California
October 28, 2011

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE 2011 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 8, 2011

The accompanying Proxy Statement and the Company’s 2011 Annual Report on Form 10-K are available at: http://proxy.farmerbros.com.

PLEASE SUBMIT A PROXY AS SOON AS POSSIBLE SO THAT YOUR SHARES CAN BE VOTED AT THE ANNUAL MEETING IN ACCORDANCE WITH YOUR INSTRUCTIONS. FOR SPECIFIC INSTRUCTIONS ON VOTING, PLEASE REFER TO THE INSTRUCTIONS ON THE PROXY CARD OR THE INFORMATION FORWARDED BY YOUR BROKER, BANK OR OTHER NOMINEE. EVEN IF YOU HAVE VOTED YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE ANNUAL MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE IN PERSON AT THE ANNUAL MEETING, YOU MUST OBTAIN A PROXY ISSUED IN YOUR NAME FROM SUCH BROKER, BANK OR OTHER NOMINEE. ESOP PARTICIPANTS SHOULD FOLLOW THE INSTRUCTIONS PROVIDED BY THE ESOP TRUSTEE, GREATBANC TRUST COMPANY.

YOUR VOTE IS VERY IMPORTANT. PLEASE SUBMIT YOUR PROXY EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING.



## TABLE OF CONTENTS

INFORMATION CONCERNING VOTING AND SOLICITATION ..... 1
PROPOSAL NO. 1 ELECTION OF DIRECTORS ..... 6
PROPOSAL NO. 2 RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS ..... 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ..... 11
Security Ownership of Certain Beneficial Owners ..... 11
Security Ownership of Directors and Executive Officers ..... 12
CORPORATE GOVERNANCE ..... 15
Director Independence ..... 15
Board Meetings and Attendance ..... 16
Charters; Code of Conduct and Ethics ..... 16
Board Committees ..... 16
Director Qualifications and Board Diversity ..... 20
Board Leadership Structure ..... 20
Board's Role in Risk Oversight ..... 21
Communication with the Board ..... 21
COMPENSATION DISCUSSION AND ANALYSIS ..... 22
EXECUTIVE COMPENSATION ..... 37
Executive Officers ..... 37
Summary Compensation Table ..... 39
Grants of Plan-Based Awards ..... 42
Outstanding Equity Awards at Fiscal Year-End ..... 44
Option Exercises and Stock Vested ..... 45
Compensation Risk Assessment ..... 45
Employment Agreements and Arrangements ..... 45
Pension Benefits ..... 48
Change in Control and Termination Arrangements ..... 49
Indemnification ..... 55
PROPOSAL NO. 3 ADVISORY VOTE ON EXECUTIVE COMPENSATION ..... 56
PROPOSAL NO. 4 ADVISORY VOTE ON THE FREQUENCY OF FUTURE STOCKHOLDER ADVISORY VOTES ON EXECUTIVE COMPENSATION ..... 59
DIRECTOR COMPENSATION ..... 60
Cash Compensation ..... 60
Equity Compensation ..... 60
Stock Ownership Guidelines ..... 60
Director Compensation Table ..... 61
Director Indemnification ..... 61
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS ..... 63
Review and Approval of Related Person Transactions ..... 63
Related Person Transactions ..... 64
AUDIT MATTERS ..... 65
Audit Committee Report ..... 65
Independent Registered Public Accountants ..... 65
Pre-Approval of Audit and Non-Audit Services ..... 66
OTHER MATTERS ..... 67
Annual Report and Form 10-K ..... 67
Section 16(a) Beneficial Ownership Reporting Compliance ..... 67
Stockholder Proposals and Nominations ..... 67
Householding of Proxy Materials ..... 68



# FARMER BROS. CO.
20333 South Normandie Avenue
Torrance, California 90502

# PROXY STATEMENT

# INFORMATION CONCERNING VOTING AND SOLICITATION

## General

The enclosed proxy is solicited on behalf of the Board of Directors (the “Board of Directors” or the “Board”) of Farmer Bros. Co., a Delaware corporation (the “Company” or “Farmer Bros.”), for use at the 2011 Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Thursday, December 8, 2011, at 10:00 a.m., Pacific Standard Time, or at any continuation, postponement or adjournment thereof, for the purposes discussed in this Proxy Statement and in the accompanying Notice of Annual Meeting of Stockholders, and any business properly brought before the Annual Meeting. Proxies are solicited to give all stockholders of record an opportunity to vote on matters properly presented at the Annual Meeting. The Company intends to mail this Proxy Statement, the accompanying proxy card and Annual Report to Stockholders (which is not part of the Company’s soliciting materials) on or about November 8, 2011 to all stockholders entitled to vote at the Annual Meeting. The Annual Meeting will be held at the principal executive offices of the Company located at 20333 South Normandie Avenue, Torrance, California 90502. If you plan to attend the Annual Meeting in person, you can obtain directions to the Company’s principal executive offices at http://proxy.farmerbros.com.

## Solicitation of Proxies

The Company will bear the entire cost of solicitation of proxies, including preparation, assembly, printing and mailing of this Proxy Statement, the accompanying proxy card and any additional information furnished to stockholders. Copies of solicitation materials will be furnished to banks, brokerage houses, fiduciaries and custodians holding shares of Farmer Bros. common stock (“Common Stock”) in their names that are beneficially owned by others to forward to those beneficial owners. The Company may reimburse persons representing beneficial owners for their costs of forwarding the solicitation materials to the beneficial owners. Original solicitation of proxies by mail may be supplemented by telephone, facsimile, electronic mail or personal solicitation by directors, officers or other regular employees of the Company. No additional compensation will be paid to directors, officers or other regular employees for such services. A list of stockholders entitled to vote at the Annual Meeting will be available for examination by any stockholder for any purpose germane to the Annual Meeting during ordinary business hours at the principal executive offices of the Company located at 20333 South Normandie Avenue, Torrance, California 90502 for the ten days prior to the Annual Meeting and also at the Annual Meeting.

## What Am I Voting On?

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

- The election of two Class II directors to serve on our Board for a three-year term of office expiring at the 2014 Annual Meeting of Stockholders and until their successors are elected and duly qualified;

- The ratification of the selection of Ernst & Young LLP (“EY”) as our independent registered public accountants for the fiscal year ending June 30, 2012;

• An advisory (non-binding) vote on executive compensation (the “say-on-pay vote”); and

- An advisory vote on the frequency of future say-on-pay votes every 1, 2 or 3 years (the “frequency vote”).



## Who Can Vote?

You are entitled to vote if you are a holder of record of Common Stock as of the close of business on October 17, 2011. Your shares may be voted at the Annual Meeting only if you are present in person or your shares are represented by a valid proxy.

## Shares Outstanding and Quorum

At the close of business on October 17, 2011, 16,185,572 shares of Common Stock were outstanding and entitled to vote at the Annual Meeting. The Company has no other class of securities outstanding.

A majority of the outstanding shares of Common Stock, present in person or represented by proxy, will constitute a quorum at the Annual Meeting, which is required in order to hold the Annual Meeting and conduct business. Your shares are counted as present at the Annual Meeting if you: (i) are present in person at the Annual Meeting; or (ii) have properly submitted a proxy card by mail. If you are a record holder and you submit your proxy, regardless of whether you abstain from voting on one or more matters, your shares will be counted as present at the Annual Meeting for the purpose of determining a quorum. If your shares are held in “street name,” your shares are counted as present for purposes of determining a quorum if your broker, bank or other nominee submits a proxy covering your shares. Your broker, bank or other nominee is entitled to submit a proxy covering your shares as to certain “routine” matters, even if you have not instructed your broker, bank or other nominee on how to vote on such matters. In the absence of a quorum, the Annual Meeting may be adjourned, from time to time, by the stockholders entitled to vote thereat, present in person or represented by proxy.

## Voting of Shares

Stockholders of record as of the close of business on October 17, 2011 are entitled to one vote for each share of Common Stock held on all matters to be voted upon at the Annual Meeting. There is no cumulative voting in the election of our directors. You may vote by attending the Annual Meeting and voting in person. You may also vote by completing and mailing the enclosed proxy card or the form forwarded by your bank, broker or other nominee. If your shares are held by a bank, broker or other nominee, please refer to the instructions they provide for voting your shares. Participants in the Farmer Bros. Co. Employee Stock Ownership Plan (the “ESOP”) should follow the instructions provided by the ESOP trustee, GreatBanc Trust Company (the “ESOP Trustee”). If you plan to attend the Annual Meeting and wish to vote in person, you will be given a ballot at the Annual Meeting. If your shares are held of record by a bank, broker or other nominee, and you decide to attend and vote at the Annual Meeting, your vote in person at the Annual Meeting will not be effective unless you present a legal proxy, issued in your name from the record holder (your broker, bank or other nominee). All shares entitled to vote and represented by properly executed proxies received before the polls are closed at the Annual Meeting, and not revoked or superseded, will be voted at the Annual Meeting in accordance with the instructions indicated on those proxies.

YOUR VOTE IS VERY IMPORTANT. PLEASE SUBMIT YOUR PROXY EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING.

## Voting Instructions by ESOP Participants

The ESOP owns approximately 17.4% of the outstanding Common Stock. Full time employees of Farmer Bros. and its subsidiaries participate in the ESOP. Each ESOP participant has the right to direct the ESOP Trustee on how to vote the shares of Common Stock allocated to his or her account under the ESOP. The ESOP Trustee will vote all of the unallocated ESOP shares (i.e., shares of Common Stock held in the ESOP, but not allocated to any participant’s account) and allocated shares for which no voting directions are timely received by the ESOP Trustee in the same proportion as the voted allocated shares with respect to each item.



## Counting of Votes

Tabulation; Broker Non-Votes. All votes will be tabulated by the inspector of election appointed for the Annual Meeting, who will separately tabulate affirmative and negative votes, abstentions and “broker non-votes.” A “broker non-vote” occurs when a nominee holding shares for a beneficial owner has not received instructions from the beneficial owner and does not have discretionary authority to vote the shares. If you hold your shares in street name and do not provide voting instructions to your bank, broker or other nominee, your shares will be considered to be broker non-votes and will not be voted on any proposal on which your bank, broker or other nominee does not have discretionary authority to vote. Shares that constitute broker non-votes will be counted as present at the Annual Meeting for purposes of determining a quorum, but will not be considered entitled to vote on the proposal in question. Brokers generally have discretionary authority to vote on the ratification of the selection of EY as our independent registered public accountants. Brokers do not have discretionary authority to vote on the election of directors, the say-on-pay vote or the frequency vote.

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

Ratification of Accountants. The ratification of the selection of EY as our independent registered public accountants for the fiscal year ending June 30, 2012 requires the affirmative vote of a majority of the shares present or represented by proxy at the Annual Meeting and entitled to vote on the matter. Abstentions will have the same effect as votes “against” the ratification. Because brokers have discretionary authority to vote on the ratification, we do not expect any broker non-votes in connection with the ratification.

Say-On-Pay Advisory Vote. The approval of the say-on-pay advisory vote requires the affirmative vote of a majority of the shares present or represented by proxy at the Annual Meeting and entitled to vote on the matter. Abstentions will have the same effect as votes “against” the proposal. Brokers do not have discretionary authority to vote on this proposal. Broker non-votes, therefore, will have no effect on the proposal as brokers are not entitled to vote on such proposals in the absence of voting instructions from the beneficial owner.

Frequency Advisory Vote. The approval of the frequency advisory vote requires the affirmative vote of a majority of the shares present or represented by proxy at the Annual Meeting and entitled to vote on the matter. Abstentions will have the same effect as votes “against” the proposal. Brokers do not have discretionary authority to vote on this proposal. Broker non-votes, therefore, will have no effect the proposal as brokers are not entitled to vote on such proposals in the absence of voting instructions from the beneficial owner.

If none of the frequency alternatives (one year, two years or three years) receives a majority of the shares present or represented by proxy and entitled to vote on the matter, we will consider the highest number of votes cast by stockholders to be the frequency that has been selected by our stockholders. Consistent with current rules of the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our proxy holders will have discretionary authority to vote in accordance with the Board’s frequency vote recommendation for proxy cards that are returned with no selection made relating to the frequency vote. Because the frequency vote is advisory and not binding on us or the Board in any way, the Board may decide that it is in our and our stockholders’ best interests to hold an advisory vote on executive compensation more or less frequently than the option approved by our stockholders.



## If You Receive More Than One Proxy Card

If you receive more than one proxy card, it means you hold shares that are registered in more than one account. To ensure that all of your shares are voted, sign and return each proxy card.

## Proxy Card and Revocation of Proxy

You may vote by completing and mailing the enclosed proxy card. If you sign the proxy card but do not specify how you want your shares to be voted, your shares will be voted by the proxy holders named in the enclosed proxy as follows:

- FOR the election of Guenter W. Berger to serve on our Board for a three-year term of office expiring at the 2014 Annual Meeting of Stockholders and until his successor is elected and duly qualified and, assuming she is validly nominated at the Annual Meeting, WITHHOLD for Hamideh Assadi;

- FOR the ratification of the selection of EY as our independent registered public accountants for the fiscal year ending June 30, 2012;

• FOR the say-on-pay vote; and

• FOR holding future say-on-pay votes every ONE YEAR.

In their discretion, the proxy holders named in the enclosed proxy are authorized to vote on any other matters that may properly come before the Annual Meeting and at any continuation, postponement or adjournment thereof. The Board of Directors knows of no other items of business that will be presented for consideration at the Annual Meeting other than those described in this Proxy Statement. In addition, other than the notice received by the Company from Richard F. Farmer regarding his intent to nominate two candidates to the Board of Directors at the Annual Meeting as described in this Proxy Statement under the heading “Proposal No. 1—Election of Directors,” no other stockholder proposal or nomination was received on a timely basis, so no such matters may be brought to a vote at the Annual Meeting.

If you vote by proxy, you may revoke that proxy or change your vote at any time before it is voted at the Annual Meeting. Stockholders of record may revoke a proxy or change their vote prior to the Annual Meeting by sending to the Company’s Secretary at the Company’s principal executive offices at 20333 South Normandie Avenue, Torrance, California 90502, a written notice of revocation or a duly executed proxy bearing a later date or by attending the Annual Meeting in person and voting in person. Attendance at the Annual Meeting will not, by itself, revoke a proxy.

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

## Voting Results

The preliminary voting results will be announced at the meeting. The final voting results will be reported in a current report on Form 8-K, which will be filed with the SEC within four business days after the Annual Meeting. If our final voting results are not available within four business days after the Annual Meeting, we will file a current report on Form 8-K reporting the preliminary voting results and subsequently file the final voting results in an amendment to the current report on Form 8-K within four business days after the final voting results are known to us.



## Forward-Looking Statements

Certain statements contained in this Proxy Statement are not based on historical fact and are forward-looking statements within the meaning of federal securities laws and regulations. These statements are based on management’s current expectations, assumptions, estimates and observations of future events and include any statements that do not directly relate to any historical or current fact. These forward-looking statements can be identified by the use of words like “anticipates”, “estimates”, “projects”, “expects”, “plans”, “believes”, “intends”, “will”, “assumes” and other words of similar meaning. Owing to the uncertainties inherent in forward-looking statements, actual results could differ materially from those set forth in forward-looking statements. We intend these forward-looking statements to speak only at the time of this Proxy Statement and do not undertake to update or revise these statements as more information becomes available except as required under federal securities laws and the rules and regulations of the SEC. Factors that could cause actual results to differ materially from those in forward-looking statements include, but are not limited to, fluctuations in availability and cost of green coffee, competition, organizational changes, our failure to realize synergies from the integration of recent acquisitions, the impact of a weaker 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, changes in the quality or dividend stream of third parties’ securities and other investment vehicles in which we have invested our assets, as well as other risks described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2011, and other factors described from time to time in our filings with the SEC.



## PROPOSAL NO. 1
ELECTION OF DIRECTORS

## General

Under the Company’s Certificate of Incorporation and Amended and Restated By-Laws (“By-Laws”), the Board of Directors is divided into three classes, each class consisting, as nearly as possible, of one-third of the total number of directors, with members of each class serving for a three-year term. Each year only one class of directors is subject to a stockholder vote. Class II consists of two directors whose term of office expires at the Annual Meeting and whose successors will be elected at the Annual Meeting to serve until the 2014 Annual Meeting of Stockholders. Class III consists of two directors, continuing in office until the 2012 Annual Meeting of Stockholders. Class I consists of three directors, continuing in office until the 2013 Annual Meeting of Stockholders.

The authorized number of directors is set forth in the Company’s Certificate of Incorporation and shall consist of not less than five or more than seven members, the exact number of which shall be fixed from time to time by resolution of the Board. The authorized number of directors is currently seven. If the number of directors is changed, any increase or decrease will be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible. Any vacancy on the Board of Directors that results from an increase in the number of directors may be filled by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring on the Board of Directors may be filled by a majority of the Board of Directors then in office, even if less than a quorum, or by the sole remaining director. Any director of any class elected to fill a vacancy resulting from an increase in the number of directors of such class will hold office for a term that will coincide with the remaining term of that class. Any director elected to fill a vacancy not resulting from an increase in the number of directors will have the same remaining term as that of his or her predecessor.

Based on the recommendation of the Nominating Committee, the Board has nominated Guenter W. Berger for election to the Board as a Class II director. On September 9, 2011, the Company received a notice from Richard F. Farmer (the “Farmer Notice”), stating his intention to nominate Hamideh Assadi and Guenter W. Berger (the “Farmer Nominees”) as nominees for election to the Company’s Board of Directors at the Annual Meeting. Mr. Farmer is the beneficial owner of approximately 38.9% of the Company’s Common Stock and a member of the Farmer Group identified in Schedule 13D/A filed by Carol Farmer Waite, a former director of the Company, with the SEC on September 21, 2006. The Farmer Group is the beneficial owner of approximately 39.6% of the Company’s Common Stock. See “Security Ownership of Certain Beneficial Owners and Management—Security Ownership of Certain Beneficial Owners” below. Ms. Waite joined Mr. Farmer in subsequent correspondence to the Company relating to the Farmer Notice. Jeanne Farmer Grossman, a current director of the Company, has not informed the Company regarding her intention to vote for the Farmer Nominees, however, as a member of the Farmer Group, the Company expects she will vote for the Farmer Nominees. The Nominating Committee interviewed potential director nominees, including Ms. Assadi. In light of the Farmer Group’s beneficial ownership of the Company’s Common Stock, the Board of Directors determined that it was in the best interests of the Company’s stockholders to nominate Mr. Berger to the Board of Directors as a continuing director, and to include information relating to Ms. Assadi in this Proxy Statement on the assumption that she will be validly nominated for election as a director by Richard F. Farmer at the Annual Meeting. If elected, she would fill the seat currently held by Thomas A. Maloof. The Board of Directors determined that the foregoing was in the best interests of the Company’s stockholders to avoid a costly and time-consuming proxy contest and to allow management to focus on the Company’s business. If Ms. Assadi is elected at the Annual Meeting, the Board intends to appoint her to the Audit Committee. Mr. Maloof will serve out the remainder of his term as a Class II director through the Annual Meeting.

All of the present directors, other than Jeffrey A. Wahba, the Company’s Interim Co-Chief Executive Officer, Treasurer and Chief Financial Officer, were elected to their current terms by the stockholders. Mr. Wahba was appointed by the Board to fill the vacancy created when Roger M. Laverty III, the Company’s



former President and Chief Executive Officer, stepped down as a director on June 30, 2011. If someone other than Mr. Wahba is appointed to the position of permanent sole Chief Executive Officer or Mr. Wahba ceases to serve as co-Chief Executive Officer, Mr. Wahba has agreed to resign from the Board of Directors.

There are no family relationships among any directors, nominees for director or executive officers of the Company. None of the continuing directors or nominees is a director of any other publicly-held company. In the case of Hamideh Assadi, the foregoing is based on information provided in the Farmer Notice.

## Vote Required

Each share of Common Stock is entitled to one vote for each of the two director nominees and will be given the option of voting “FOR” or withholding authority to vote for each nominee. Cumulative voting is not permitted. It is the intention of the proxy holders named in the enclosed proxy to vote the proxies received by them FOR the election of Guenter W. Berger and, assuming she is validly nominated at the Annual Meeting, WITHHOLD for Hamideh Assadi unless the proxies direct otherwise. If any nominee should become unavailable for election prior to the Annual Meeting or if Ms. Assadi is not validly nominated at the Annual Meeting, events that currently are not anticipated by the Board, the proxies will be voted for the election of a substitute nominee or nominees proposed by the Board of Directors. Mr. Berger and Ms. Assadi have agreed to serve if elected, and the Board of Directors has no reason to believe that either of them will be unable to serve.

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

## Nominees for Election as Directors

Set forth below is biographical information for each nominee for election as a Class II director at the Annual Meeting. The information for Ms. Assadi is derived entirely from the Farmer Notice and included herein on the assumption that she will be validly nominated for election as a director by Richard F. Farmer at the Annual Meeting.

<table><tr><td>Name</td><td>Age</td><td>Director Since</td><td>Audit Committee</td><td>Compensation Committee</td><td>Nominating Committee</td></tr><tr><td>Guenter W. Berger</td><td>74</td><td>1980</td><td></td><td></td><td>X</td></tr><tr><td>Hamideh Assadi</td><td>66</td><td>—</td><td></td><td></td><td></td></tr></table>

If elected, the Board of Directors intends to appoint Ms. Assadi to the Audit Committee.

Guenter W. Berger currently serves as Chairman of the Board. He retired in December 2007 as Chief Executive Officer of Farmer Bros. after more than 47 years of service with the Company in various capacities. Mr. Berger served as Chief Executive Officer of the Company from 2005 to 2007, President from August 2005 through July 2006, and Interim President and Chief Executive Officer from January 2005 to August 2005. For more than 25 years, from 1980 to 2005, Mr. Berger served as Vice President of Torrance inventory, production, coffee roasting and distribution operations. We believe Mr. Berger’s qualifications to sit on our Board include his longstanding tenure with the Company resulting in a deep understanding of our operations and extensive knowledge of the foodservice industry and the production and distribution processes related to coffee, tea and culinary products.



Hamideh Assadi has been an Associate with Chiurazzi & Associates, Seal Beach, California, since March 2007, where she provides tax and business consulting services for multi-state and multi-national businesses in the retail, distribution, manufacturing, real estate and service sectors, including FASB 109 tax provision calculations, related SEC tax disclosures as well as federal, multi-state and international tax reporting and compliance. Prior to this, Ms. Assadi was an employee of Farmer Bros. from 1983 to 2006, including serving as Tax Manager from 1995 to 2006, Cost Accounting Manager from 1990 to 1995, Assistant to Corporate Secretary from 1985 to 1990, and Production and Inventory Control from 1983 to 1985. Ms. Assadi received her B.S. in Business Administration with an emphasis on Accounting in 1966 from the College of Business—Tehran, Iran, and her Masters of International Law and International Organizations in 1973 from the School of Law—University of Tehran, Iran. As stated in the Farmer Notice, Mr. Farmer believes that Ms. Assadi “is eminently qualified to serve as a member of the FBC Board of Directors in light of, inter alia, her deep knowledge of, and extensive experience as a former employee of, the Company, and her credentials and extensive experience in the fields of taxation and accounting.”

## THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” GUENTER W. BERGER AND MAKES NO RECOMMENDATION REGARDING HAMIDEH ASSADI.

## Directors Continuing in Office

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

<table><tr><td>Name</td><td>Age</td><td>Director Since</td><td>Class</td><td>Term Expires</td><td>Audit Committee</td><td>Compensation Committee</td><td>Nominating Committee</td></tr><tr><td>Jeanne Farmer Grossman</td><td>61</td><td>2009</td><td>III</td><td>2012</td><td></td><td>X</td><td>X</td></tr><tr><td>Martin A. Lynch</td><td>74</td><td>2007</td><td>I</td><td>2013</td><td>X</td><td></td><td>X</td></tr><tr><td>James J. McGarry</td><td>58</td><td>2007</td><td>I</td><td>2013</td><td></td><td>X</td><td>Chair</td></tr><tr><td>John H. Merrell</td><td>67</td><td>2001</td><td>III</td><td>2012</td><td>Chair</td><td>X</td><td>X</td></tr><tr><td>Jeffrey A. Wahba</td><td>55</td><td>2011</td><td>I</td><td>2013</td><td></td><td></td><td></td></tr></table>

Jeanne Farmer Grossman is a retired teacher and a homemaker. She is the sister of Carol Farmer Waite, a former director, and the late Roy E. Farmer, who served as Chairman of the Board from 2004 to 2005, Chief Executive Officer from 2003 to 2005, and President from 1993 to 2005, and the daughter of the late Roy F. Farmer, who served as Chairman of the Board from 1951 to 2004 and Chief Executive Officer from 1951 to 2003. Ms. Grossman received her undergraduate degree and teaching credentials from the University of California at Los Angeles. We believe Ms. Grossman’s qualifications to sit on our Board include her extensive knowledge of the Company’s culture and sensitivity for Company core values, extensive training in program creation and development, curriculum development, the development and evaluation of measurable objective protocol and individual/group task evaluation as well as committee work in various areas including fundraising, staffing and outreach.

Martin A. Lynch is currently the President of Claremorris Consulting, a privately-owned consulting company helping privately-held and publicly-held companies in the areas of strategic and financial projects, and has been serving in this capacity since 2002. From 2003 to 2005, Mr. Lynch served as the Executive Vice President and Chief Financial Officer of Diedrich Coffee, Inc., a diversified operator of coffee houses and franchises that was known for its expertise in specialty coffee. From 2001 to 2003, he served as a consultant to Smart & Final, Inc., an operator of non-membership grocery warehouse stores for food and foodservice supplies, on strategic and financial projects. For twelve years, from 1989 to 2001, he served as Executive Vice President and Chief Financial Officer of Smart & Final. From 1984 to 1989, Mr. Lynch was Executive Vice President and Chief Financial Officer of San Francisco-based Duty Free Shoppers Group, Ltd. (retail). He served in a number of key positions with Los Angeles-based Tiger International (transportation and financial services) from 1970 to



1984 including the position of Senior Vice President, Chief Financial Officer from 1976 to 1984. Mr. Lynch’s earlier experience includes merger and acquisition activities at Scot Lad Foods, Inc. (retail grocery) and service as audit manager for Price Waterhouse & Company (accounting) in Chicago. Mr. Lynch received his undergraduate degree from De Paul University and received his Certified Public Accountant designation in Illinois. We believe Mr. Lynch’s qualifications to sit on our Board include his background and experience, particularly in the foodservice business, and understanding of our business and operations.

James J. McGarry has been a partner in the law firm of McGarry & Laufenberg, El Segundo, California, since 1995, and was a partner in other law firms bearing his name since 1984. A licensed attorney since 1980, his experience has been as a litigator and a mediator, specializing in business, tort and contract litigation. Mr. McGarry received his undergraduate degree from Loyola Marymount University and his law degree from Loyola Law School. We believe Mr. McGarry’s qualifications to sit on our Board include his extensive legal and business experience which provide him with an understanding of the Company’s operations.

John H. Merrell is a retired partner of the regional accounting and consulting firm of Hutchinson and Bloodgood LLP, Glendale, California. He was an active Partner in the firm from 1978 to 2008. He served as Managing Partner of the firm from 1988 to 2002. Prior to 1978, Mr. Merrell spent six years with an international public accounting firm both in the audit and tax departments. Mr. Merrell has also served as the Corporate Controller and then Chief Financial Officer of a publicly-held company in the international insurance industry. Mr. Merrell received his undergraduate degree in Accounting from San Jose State University, and is a Certified Public Accountant. We believe Mr. Merrell’s qualifications to sit on our Board include his extensive accounting background and experience, management and leadership skills, and understanding of our business and operations. Based on his experience, the Board has determined that Mr. Merrell is an Audit Committee financial expert.

Jeffrey A. Wahba was appointed to the position of Interim Co-Chief Executive Officer effective April 19, 2011 subject to the Board’s search for and consideration of a permanent Chief Executive Officer. In this position, Mr. Wahba has oversight responsibility for all financial (including treasury), accounting, legal, compliance, human resources and IT functions of the Company, green coffee purchasing, and the operations of the Company’s Spice Products division. In addition, Mr. Wahba continues to serve as Treasurer and Chief Financial Officer of the Company, a position he has held since June 1, 2010. Prior to joining Farmer Bros., Mr. Wahba was Chief Financial Officer of Nero AG, a consumer software company from 2009 through May 31, 2010. Prior to that, Mr. Wahba was Chief Financial Officer and Secretary of HireRight, Inc., an employment background screening provider, from 2006 to 2008. From 1986 to 2006, Mr. Wahba was Chief Financial Officer of the Henry Group of Companies, a manufacturer of building products and distributor of premium wines. Mr. Wahba’s prior experience includes serving as Chief Financial Officer of Vault Corp., a software security firm, and as Controller of the International Division of Max Factor and Co., a cosmetics manufacturer. Mr. Wahba holds a B.S. in Industrial Engineering and an M.S. in Engineering Management and Industrial Engineering from Stanford University, and an M.B.A. from the University of Southern California. We believe Mr. Wahba’s qualifications to sit on our Board include his knowledge of the Company’s operations and the markets and industries in which we compete, his financial experience and expertise, and his ability to provide a critical link between management and the Board of Directors thereby enabling the Board to provide its oversight function with the benefit of management’s perspective of the business.



# PROPOSAL NO. 2
RATIFICATION OF SELECTION
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

## General

The Audit Committee of the Board of Directors has selected Ernst & Young LLP (“EY”) as the independent registered public accountants for the Company and its subsidiaries for the fiscal year ending June 30, 2012, and has further directed that management submit this selection for ratification by the stockholders at the Annual Meeting. EY served as the Company’s independent registered public accountants in fiscal 2011. A representative of EY is expected to be present at the Annual Meeting, will have the opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

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

## Vote Required

The affirmative vote of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote is required to ratify the selection of EY.

THE BOARD RECOMMENDS A VOTE “FOR” RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS.



# SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

## Security Ownership of Certain Beneficial Owners

The following table sets forth certain information regarding the beneficial ownership of Common Stock as of October 17, 2011, by all persons (including any “group” as that term is used in Section 13(d)(3) of the Exchange Act) known by the Company to be the beneficial owner of more than five percent (5%) of the Common Stock as of such date, except as noted in the footnotes below:

<table><tr><td>Name and Address of Beneficial Owner(1)</td><td>Amount and Nature of Beneficial Ownership(2)</td><td>Percent of Class(3)</td></tr><tr><td>Farmer Group</td><td>6,405,114 shares(4)</td><td>39.6%</td></tr><tr><td>Employee Stock Ownership Plan</td><td>2,817,296 shares(5)</td><td>17.4%</td></tr><tr><td>Franklin Mutual Advisers, LLC</td><td>1,963,669 shares(6)</td><td>12.1%</td></tr></table>

(1) The address for Franklin Mutual Advisers, LLC (“Franklin”) is 101 John F. Kennedy Parkway, Short Hills, New Jersey 07078. The address for all other beneficial owners is c/o Farmer Bros. Co., 20333 South Normandie Avenue, Torrance, California 90502.

(2) For purposes of this table, “beneficial ownership” is determined in accordance with Rule 13d-3 under the Exchange Act. A person is deemed to be the beneficial owner of a security if that person has the right to acquire beneficial ownership of such security within 60 days. Information in this table regarding beneficial owners of more than five percent (5%) of the Common Stock is based on information provided by them or obtained from filings under the Exchange Act. Unless otherwise indicated in the footnotes, each of the beneficial owners of more than five percent (5%) of the Common Stock has sole voting and/or investment power with respect to such shares.

(3) The “Percent of Class” reported in this column has been calculated based upon the number of shares of Common Stock outstanding as of October 17, 2011 and may differ from the “Percent of Class” reported in statements of beneficial ownership filed with the SEC.

(4) Pursuant to a Schedule 13D/A filed on September 21, 2006, for purposes of Section 13 of the Exchange Act, Carol Farmer Waite, Richard F. Farmer, Jeanne Farmer Grossman, Trust A created under the Roy E. Farmer Trust dated October 11, 1957 (“Trust A”) and Farmer Equities, LP, a California limited partnership (“Farmer Equities”), comprise a group (the “Farmer Group”). The Farmer Group is deemed to be the beneficial owner of all shares beneficially owned by its members with shared power to vote and dispose of such shares. Each member of the Farmer Group is the beneficial owner of the following shares (in accordance with the beneficial ownership regulations, in certain cases the same shares of Common Stock are shown as beneficially owned by more than one individual or entity):

<table><tr><td>Name of Beneficial Owner</td><td>Total Shares Beneficially Owned</td><td>Percent of Class</td><td>Shares Disclaimed</td><td>Sole Voting and Investment Power</td><td>Shared Voting and Investment Power</td></tr><tr><td>Carol Farmer Waite</td><td>6,320,938 shares</td><td>39.1%</td><td>14,474 shares</td><td>22,720 shares</td><td>6,312,692 shares</td></tr><tr><td>Richard F. Farmer</td><td>6,294,419 shares</td><td>38.9%</td><td>39,891 shares</td><td>21,820 shares</td><td>6,312,490 shares</td></tr><tr><td>Jeanne Farmer Grossman</td><td>4,135,344 shares</td><td>25.5%</td><td>6,030 shares</td><td>13,942 shares</td><td>4,127,432 shares</td></tr><tr><td>Trust A</td><td>1,463,640 shares</td><td>9.0%</td><td>—</td><td>1,463,640 shares</td><td>—</td></tr><tr><td>Farmer Equities</td><td>2,617,530 shares</td><td>16.2%</td><td>—</td><td>2,617,530 shares</td><td>—</td></tr></table>

(5) Includes 1,720,160 allocated shares and 1,097,136 shares as yet unallocated to plan participants as of October 17, 2011. The ESOP Trustee votes the shares held by the ESOP that are allocated to participant accounts as directed by the participants or beneficiaries of the ESOP. Under the terms of the ESOP, the ESOP Trustee will vote all of the unallocated ESOP shares (i.e., shares of Common Stock held in the ESOP,



but not allocated to any participant’s account) and allocated shares for which no voting directions are timely received by the ESOP Trustee in the same proportion as the voted allocated shares with respect to each item. The present members of the ESOP Administrative Committee are Jeffrey A. Wahba, Hortensia R. Gómez, Larry B. Garrett and Andrea Osterkorn. Each member of the ESOP Administrative Committee disclaims beneficial ownership of the securities held by the ESOP except for those, if any, that have been allocated to the member as a participant in the ESOP.

(6) The amount shown was provided by Franklin pursuant to a Schedule 13F/A filed by Franklin Resources, Inc. with the SEC on September 8, 2011. Franklin is reported to have sole voting and investment power over 1,963,669 shares beneficially owned by one or more open-end investment companies or other managed accounts which, pursuant to investment management contracts, are managed by Franklin. Franklin reports that it has sole voting and dispositive power over all of these shares.

## Security Ownership of Directors and Executive Officers

The following table sets forth certain information regarding the beneficial ownership of Common Stock as of October 17, 2011, by: (i) each director and nominee; (ii) all individuals serving as the Company’s Chief Executive Officer or acting in a similar capacity during fiscal 2011 (all references to “Chief Executive Officer” used in this Proxy Statement include all individuals acting in a similar capacity during fiscal 2011, namely Jeffrey A. Wahba and Patrick G. Criteser, the Company’s current Interim Co-Chief Executive Officers, unless the context otherwise requires); (iii) all individuals serving as the Company’s Chief Financial Officer or acting in a similar capacity during fiscal 2011; (iv) the Company’s three most highly compensated executive officers (other than the Chief Executive Officer and Chief Financial Officer) who were serving as executive officers at the end of fiscal 2011; (v) one additional individual for whom disclosure would have been provided but for the fact that he was not serving as an executive officer of the Company at the end of fiscal 2011 (collectively, the “Named Executive Officers”); and (vi) all directors and executive officers of the Company as a group.

<table><tr><td>Name of Beneficial Owner</td><td>Amount and Nature of Beneficial Ownership(1)(2)</td><td>Percent of Class</td></tr><tr><td>Non-Employee Directors and Nominees</td><td></td><td></td></tr><tr><td>Guenter W. Berger</td><td>19,776(3)</td><td>*</td></tr><tr><td>Jeanne Farmer Grossman</td><td>4,135,344(4)</td><td>25.5%</td></tr><tr><td>Martin A. Lynch</td><td>9,092(5)</td><td>*</td></tr><tr><td>Thomas A. Maloof</td><td>9,888(6)</td><td>*</td></tr><tr><td>James J. McGarry</td><td>4,135</td><td>*</td></tr><tr><td>John H. Merrell</td><td>9,592(7)</td><td>*</td></tr><tr><td>Hamideh Assadi</td><td>—(8)</td><td>—</td></tr><tr><td>Named Executive Officers</td><td></td><td></td></tr><tr><td>Jeffrey A. Wahba</td><td>36,862(9)</td><td>*</td></tr><tr><td>Patrick G. Criteser</td><td>53,100(10)</td><td>*</td></tr><tr><td>Roger M. Laverty III</td><td>20,713(11)</td><td>*</td></tr><tr><td>Mark A. Harding</td><td>26,626(12)</td><td>*</td></tr><tr><td>Hortensia R. Gómez</td><td>14,783(13)</td><td>*</td></tr><tr><td>Larry B. Garrett</td><td>9,046(14)</td><td>*</td></tr><tr><td>Drew H. Webb</td><td>—</td><td>—</td></tr><tr><td>All directors and executive officers as a group (14 individuals)</td><td>4,356,049</td><td>26.9%</td></tr></table>

 \( ^{*} \)  Less than 1%

(1) For purposes of this table, “beneficial ownership” is determined in accordance with Rule 13d-3 under the Exchange Act. A person is deemed to be the beneficial owner of a security if that person has the right to acquire beneficial ownership of such security within 60 days. Information in this table is based on the



Company’s records and information provided by directors, nominees, executive officers and in public filings. Unless otherwise indicated in the footnotes and subject to community property laws where applicable, each of the directors, nominees and executive officers has sole voting and/or investment power with respect to such shares, including shares held in trust.

(2) Includes (i) shares of restricted stock which have not yet vested as of October 17, 2011, awarded under the Farmer Bros. Co. 2007 Omnibus Plan (the “Omnibus Plan”) over which the individuals shown have voting power but no investment power, and (ii) shares which the individuals shown have the right to acquire upon the exercise of vested options as of October 17, 2011 or within 60 days thereafter as set forth in the table below. Such shares are deemed to be outstanding in calculating the percentage ownership of such individual (and the group), but are not deemed to be outstanding as to any other person.

<table><tr><td>Name</td><td>Vested Options (#)</td><td>Right to Acquire Under Vested Options Within 60 Days (#)</td><td>Restricted Stock (#)</td></tr><tr><td>Non-Employee Directors and Nominees</td><td></td><td></td><td></td></tr><tr><td>Guenter W. Berger</td><td>—</td><td>—</td><td>4,135</td></tr><tr><td>Jeanne Farmer Grossman</td><td>—</td><td>—</td><td>3,668</td></tr><tr><td>Martin A. Lynch</td><td>—</td><td>—</td><td>4,135</td></tr><tr><td>Thomas A. Maloof(a)</td><td>—</td><td>—</td><td>1,931</td></tr><tr><td>James J. McGarry</td><td>—</td><td>—</td><td>4,135</td></tr><tr><td>John H. Merrell</td><td>—</td><td>—</td><td>4,135</td></tr><tr><td>Hamideh Assadi</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Named Executive Officers</td><td></td><td></td><td></td></tr><tr><td>Jeffrey A. Wahba</td><td>7,333</td><td>6,667</td><td>7,500</td></tr><tr><td>Patrick G. Criteser</td><td>16,546</td><td>10,592</td><td>16,246</td></tr><tr><td>Roger M. Laverty III(b)</td><td>90,942</td><td>—</td><td>—</td></tr><tr><td>Mark A. Harding</td><td>8,179</td><td>8,225</td><td>4,763</td></tr><tr><td>Hortensia R. Gómez</td><td>6,156</td><td>3,312</td><td>1,832</td></tr><tr><td>Larry B. Garrett</td><td>—</td><td>4,046</td><td>3,000</td></tr><tr><td>Drew H. Webb(c)</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Other Executive Officers</td><td>—</td><td>—</td><td>4,135</td></tr></table>

(a) Excludes 2,204 shares of restricted stock which are expected to be forfeited upon Mr. Maloof’s ceasing to serve on the Board of Directors beyond the Annual Meeting.

(b) Excludes 28,944 shares of restricted stock and 134,714 shares subject to unvested stock options previously granted to Mr. Laverty which were forfeited upon Mr. Laverty’s retirement from the Company on June 30, 2010, and 90,942 shares subject to vested stock options which were not exercised within the terms of the award and cancelled.

(c) Excludes 6,458 shares of restricted stock and 31,542 shares subject to unvested stock options previously granted to Mr. Webb and 1,471 unvested ESOP shares which were forfeited upon Mr. Webb’s separation from the Company on September 17, 2010, and 9,000 shares subject to vested options which were not exercised within the terms of the award and cancelled.

(3) Includes 2,957 shares owned outright, 6,060 shares held in trust with voting and investment power shared by Mr. Berger and his wife, and 6,624 shares previously allocated to Mr. Berger under the ESOP which have been distributed to Mr. Berger and are now owned outright.

(4) Includes shares held in Farmer Equities and various family trusts of which Ms. Grossman (or a trust of which she is the sole trustee) is a general partner or the sole trustee, co-trustee, beneficiary and/or settlor. Ms. Grossman is the beneficial owner of: (i) 9,550 shares of Common Stock as a successor trustee of a



family trust for the benefit of her daughter over which she has sole voting and dispositive power; (ii) 2,617,530 shares of Common Stock as sole trustee of the Jeanne F. Grossman Trust, dated August 22, 1997, which is a general partner of Farmer Equities, and over which she has shared voting and dispositive power with trusts for the benefit of Carol Farmer Waite and Richard F. Farmer; (iii) 1,509,902 shares of Common Stock as successor co-trustee of various family trusts, for the benefit of herself and family members, and over which she has shared voting and dispositive power with Carol Farmer Waite and/or Richard F. Farmer; (iv) 724 shares owned outright; and (v) 3,668 shares of restricted stock. Ms. Grossman disclaims beneficial ownership of 6,030 shares held in a trust for the benefit of her nephew. Total beneficial ownership of the Farmer Group, which includes Ms. Grossman, is 6,405,114, as shown in the table above under the heading “Security Ownership of Certain Beneficial Owners.”

(5) Includes 2,957 shares owned outright and 2,000 shares held in a revocable living trust with voting and investment power shared by Mr. Lynch and his wife.

(6) Includes 2,957 shares owned outright and 5,000 shares beneficially owned by Mr. Maloof through an IRA.

(7) Includes 2,957 shares owned outright and 2,500 shares held in a revocable living trust with voting and investment power shared by Mr. Merrell and his wife.

(8) The information for Ms. Assadi is derived entirely from the Farmer Notice and included herein on the assumption that she will be validly nominated for election as a director by Richard F. Farmer at the Annual Meeting.

(9) Includes 15,000 shares owned outright and 362 shares beneficially owned by Mr. Wahba through the ESOP, rounded to the nearest whole share.

(10) Includes 7,000 shares owned outright and 2,716 shares beneficially owned by Mr. Criteser through the ESOP, rounded to the nearest whole share.

(11) Includes 11,000 shares held in a trust with voting and investment power shared by Mr. Laverty and his wife, 6,600 shares owned outright and 3,113 shares beneficially owned by Mr. Laverty through the ESOP, rounded to the nearest whole share.

(12) Includes 3,588 shares owned outright and 1,871 shares beneficially owned by Mr. Harding through the ESOP, rounded to the nearest whole share.

(13) Includes 129 shares held in a trust over which Ms. Gómez has sole voting and investment power, 300 shares owned outright and 3,054 shares beneficially owned by Ms. Gómez through the ESOP, rounded to the nearest whole share.

(14) Includes 2,000 shares owned outright.



# CORPORATE GOVERNANCE

## Director Independence

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

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

<table><tr><td>Director or Nominee</td><td>Status</td></tr><tr><td>Guenter W. Berger</td><td>Independent(1)</td></tr><tr><td>Jeanne Farmer Grossman</td><td>Independent(2)</td></tr><tr><td>Roger M. Laverty III</td><td>Not Independent(3)</td></tr><tr><td>Martin A. Lynch</td><td>Independent(4)</td></tr><tr><td>Thomas A. Maloof</td><td>Independent</td></tr><tr><td>James J. McGarry</td><td>Independent(5)</td></tr><tr><td>John H. Merrell</td><td>Independent(4)</td></tr><tr><td>Jeffrey A. Wahba</td><td>Not Independent(6)</td></tr><tr><td>Hamideh Assadi</td><td>Independent(7)</td></tr></table>

(1) Mr. Berger is the Chairman of the Board and former Chief Executive Officer of the Company. Mr. Berger is entitled to certain retiree benefits generally available to Company retirees and the payment of life insurance premiums on his behalf by the Company as disclosed below under the heading “Director Compensation—Director Compensation Table.” The Board considered these relationships and determined that such relationships do not interfere with Mr. Berger’s exercise of independent judgment in carrying out his responsibilities as a director.

(2) Ms. Grossman is the sister of Carol Farmer Waite, a former director, and the sister of the late Roy E. Farmer and daughter of the late Roy F. Farmer, both of whom were executive officers of the Company more than three years ago. The Board considered these relationships and determined that such relationships do not interfere with Ms. Grossman’s exercise of independent judgment in carrying out her responsibilities as a director.

(3) Mr. Laverty served as a director through June 30, 2011. He served as the Company’s President and Chief Executive Officer from July 24, 2006 through April 19, 2011. Mr. Laverty’s daughter is Producer Relationship Coordinator, a non-executive officer employee of Coffee Bean International, Inc. (“CBI”), a subsidiary of the Company. Her fiscal 2011 compensation was less than the threshold amount that would require disclosure as a related person transaction.

(4) Messrs. Lynch and Merrell served on the ESOP Administrative Committee through December 9, 2010. The Board considered such membership and determined that such relationship does not interfere with their exercise of independent judgment in carrying out their responsibilities as directors.



(5) Mr. McGarry is a partner in the law firm of McGarry & Laufenberg. During the last three fiscal years, McGarry & Laufenberg billed legal fees and costs to the Company and/or Liberty Mutual Insurance Company, one of the Company’s insurance carriers, in connection with various matters relating to the Company. The foregoing amounts did not exceed the greater of five percent (5%) of McGarry & Laufenberg’s gross revenues or $200,000 during the applicable fiscal year. The Board considered these relationships and transactions and determined that such relationships and transactions do not interfere with Mr. McGarry’s exercise of independent judgment in carrying out his responsibilities as a director.

(6) Mr. Wahba is the Company’s Interim Co-Chief Executive Officer, Treasurer and Chief Financial Officer.

(7) Based in part on information provided in the Farmer Notice.

## Board Meetings and Attendance

The Board held eleven meetings during fiscal 2011, including four regularly scheduled and seven special meetings. During fiscal 2011, each director attended at least 75% of the total number of meetings of the Board of Directors (held during the period for which he or she served as a director) and committees of the Board on which he or she served (during the periods that he or she served). The independent members of the Board generally meet in executive session following each regularly scheduled Board meeting. Although it is customary for all Board members to attend, the Company has no formal policy in place with regard to Board members' attendance at the Company's annual meeting of stockholders. All directors who were then serving were present at the 2010 Annual Meeting of Stockholders held on December 9, 2010.

## Charters; Code of Conduct and Ethics

The Board maintains charters for the Audit Committee, Compensation Committee and Nominating Committee. In addition, the Board has adopted a written Code of Conduct and Ethics for all employees, officers and directors. Current committee charters and the Code of Conduct and Ethics are available on the Company’s website at www.farmerbros.com. Information contained on the website is not incorporated by reference in, or considered part of, this Proxy Statement.

## Board Committees

The Board maintains the following committees to assist it in discharging its oversight responsibilities:

## Audit Committee

The Audit Committee is a standing committee of the Board established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee’s principal purposes are to oversee on behalf of the Board the accounting and financial reporting processes of the Company and the audit of the Company’s financial statements. The Committee’s responsibilities include assisting the Board in overseeing: (i) the integrity of the Company’s financial statements; (ii) the independent auditor’s qualifications and independence; (iii) the performance of the Company’s independent auditor; (iv) the Company’s compliance with legal and regulatory requirements relating to accounting and financial reporting matters; (v) the Company’s system of disclosure controls and procedures and internal control over financial reporting that management has established; and (vi) the Company’s framework and guidelines with respect to risk assessment and risk management. The Audit Committee is directly and solely responsible for the appointment, dismissal, compensation, retention and oversight of the work of any independent auditor engaged by the Company for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company. The independent auditor reports directly to the Audit Committee.

During fiscal 2011, the Audit Committee met five times. John H. Merrell serves as Chairman, and Martin A. Lynch and Thomas A. Maloof currently serve as members of the Audit Committee. All members of the Audit Committee meet the Nasdaq composition requirements, including the requirements regarding financial literacy



and financial sophistication, and the Board has determined that each member is independent under the Nasdaq listing standards and the rules of the SEC regarding audit committee membership. The Board has determined that at least one member of the Audit Committee is an “audit committee financial expert” as defined in Item 407(d) of Regulation S-K under the Exchange Act. That person is John H. Merrell, the Audit Committee Chairman. Mr. Maloof intends to serve as a member of the Audit Committee through the end of his term as a director at the Annual Meeting. If Hamideh Assadi is elected at the Annual Meeting, the Board intends to appoint her to the Audit Committee.

## Compensation Committee

## Overview

The Compensation Committee is a standing committee of the Board. The Compensation Committee’s principal purposes are to discharge the Board’s responsibilities related to compensation of the Company’s executive officers and administer the Company’s incentive and equity compensation plans. The Compensation Committee also is responsible for evaluating and making recommendations to the Board regarding director compensation. In addition, the Compensation Committee is responsible for conducting an annual risk evaluation of the Company’s compensation practices, policies and programs.

During fiscal 2011, the Compensation Committee met six times. Thomas A. Maloof serves as Chairman, and Jeanne Farmer Grossman, James J. McGarry and John H. Merrell currently serve as members of the Compensation Committee. The Board has determined that all Compensation Committee members are independent under the Nasdaq listing standards and the requirements of the SEC. Mr. Maloof intends to serve as a member and Chairman of the Compensation Committee through the end of his term as a director at the Annual Meeting.

## Executive Compensation

The processes and procedures of the Compensation Committee for considering and determining compensation for our executive officers are as follows:

- In making determinations regarding executive officer compensation, the Compensation Committee considers competitive market data among several other factors such as Company performance and financial condition, individual executive performance, tenure, the importance of the role at the Company and pay levels among the Company’s executives, as well as input and recommendations of the Chief Executive Officer with respect to compensation for those executive officers reporting directly to him. The Compensation Committee has typically followed these recommendations. In the case of the Chief Executive Officer’s compensation, the Chief Executive Officer may make a recommendation to the Compensation Committee with respect to his compensation, and the Compensation Committee may also solicit input from the other disinterested Board members; however the Compensation Committee has sole authority for the final compensation determination.

- Cash compensation for our executive officers is generally determined by the Compensation Committee annually in the first quarter of the fiscal year, with any adjustments to base compensation retroactive to the beginning of the applicable fiscal year. Additional adjustments to cash compensation may be made during the fiscal year to reflect, among other things, changes in title and/or job responsibilities, or changes in light of the Company’s financial condition.

- With respect to incentive compensation for our executive officers under the Farmer Bros. Co. 2005 Incentive Compensation Plan (the “Incentive Plan”), generally during the first quarter of each fiscal year, the Compensation Committee evaluates the executive officer’s performance in light of the goals and objectives established for the prior year and determines the level of incentive compensation to be awarded to each executive officer. As part of the evaluation process, the Compensation Committee



solicits comments from the Chief Executive Officer with respect to achievement of individual goals by those executive officers reporting to him. In the case of the Chief Executive Officer, the Compensation Committee may also solicit input from the other disinterested Board members. Additionally, the executive officers, including the Chief Executive Officer, have an opportunity to provide input regarding their contributions to the Company’s success and achievement of individual goals for the period being assessed. Incentive compensation for Named Executive Officers is approved by the Compensation Committee or, upon recommendation of the Compensation Committee, submitted to the disinterested members of the Board for approval. Following determination of incentive compensation awards for the prior fiscal year, the Compensation Committee establishes individual and corporate goals and objectives for each executive officer for the current fiscal year. The Chief Executive Officer typically provides input and recommendations to the Compensation Committee with respect to setting individual and corporate goals and objectives for each executive officer, including the Chief Executive Officer. In light of these recommendations, the Compensation Committee determines the individual and corporate goals and objectives for the fiscal year and informs the executive officer.

- The Compensation Committee has the authority to make equity-based grants under the Omnibus Plan to eligible individuals for purposes of compensation, retention or promotion, and in connection with commencement of employment. Equity compensation is generally determined on the date of the regularly scheduled meeting of the Board of Directors in December of each year. Additional equity awards may be made during the fiscal year to new hires and to reflect, among other things, changes in title and/or job responsibilities, or to offset changes to cash compensation in light of the Company’s financial condition. The Chief Executive Officer typically provides input and recommendations to the Compensation Committee with respect to the number of shares to be granted pursuant to any award. Proposed equity awards to all Named Executive Officers are discussed and presented to the entire Board prior to award by the Compensation Committee.

- The Compensation Committee has the authority to retain consultants to advise on executive officer compensation matters; however no such consultants were engaged in fiscal 2011.

- The Compensation Committee has authority to delegate any of the functions described above to a subcommittee of its members. No delegation of this authority was made in fiscal 2011.

- The Compensation Committee generally holds executive sessions (with no members of management present) at each of its regular meetings.

## Director Compensation

In addition to considering and determining compensation for our executive officers, the Compensation Committee evaluates and makes recommendations to the Board regarding compensation for non-employee Board members. Any Board member who is also an employee of the Company does not receive separate compensation for service on the Board.

The processes and procedures of the Compensation Committee for considering and determining director compensation are as follows:

- The Compensation Committee has authority to evaluate and make recommendations to the Board regarding director compensation. The Compensation Committee conducts this evaluation periodically by reviewing our director compensation practices against the practices of an appropriate peer group and market survey information. Based on this evaluation, the Compensation Committee may determine to make recommendations to the Board regarding possible changes. The Compensation Committee has the authority to delegate any of these functions to a subcommittee of its members. No delegation of this authority was made in fiscal 2011.



- The Compensation Committee has the authority to retain consultants to advise on director compensation matters; however no such consultants were engaged in fiscal 2011. No executive officer has any role in determining or recommending the form or amount of director compensation; provided, however, in fiscal 2011, in light of the Company’s financial condition, upon the request of management, the Board agreed to a ten percent (10%) reduction in the non-employee director retainer for the fourth quarter of fiscal 2011 through the end of fiscal 2012.

- The full Board serves as administrator under the Omnibus Plan with respect to equity awards made to non-employee directors.

## Compensation Committee Interlocks and Insider Participation

During fiscal 2011, Thomas A. Maloof (Chairman), Jeanne Farmer Grossman, James J. McGarry and John H. Merrell served as members of the Compensation Committee. No member of the Compensation Committee is an officer or former officer of the Company, was an employee of the Company during fiscal 2011, or has any relationship requiring disclosure by the Company as a related person transaction under SEC rules.

## Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and, based on the review and discussions, recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011.

## Compensation Committee of the Board of Directors

Thomas A. Maloof, Chairman
Jeanne Farmer Grossman
James J. McGarry
John H. Merrell

## Nominating Committee

The Nominating Committee is a standing committee of the Board. The Nominating Committee’s principal purposes are to assist the Board in ensuring that it is appropriately constituted in order to meet its fiduciary obligations, including by identifying persons qualified to become Board members and recommending to the Board individuals to be selected as director nominees for the next annual meeting of stockholders or for appointment to vacancies on the Board.

During fiscal 2011, the Nominating Committee met two times regarding the nomination of directors for election at the 2010 Annual Meeting. James J. McGarry serves as Chairman, and Guenter W. Berger, Jeanne Farmer Grossman, Martin A. Lynch, Thomas A. Maloof and John H. Merrell currently serve as members of the Nominating Committee. The Board has determined that all Nominating Committee members are independent under the Nasdaq listing standards. Mr. Maloof intends to serve as a member of the Nominating Committee through the end of his term as a director at the Annual Meeting.

## Search Committee

In connection with the retirement of Roger M. Laverty III as President and Chief Executive Officer effective April 19, 2011, the Board formed a Search Committee to identify qualified candidates to serve as the Company’s Chief Executive Officer. Jeanne Farmer Grossman, James J. McGarry and John H. Merrell currently serve as members of the Search Committee, with Martin A. Lynch serving as an alternate. During fiscal 2011, the Search Committee met two times. The Search Committee is expected to be dissolved upon appointment of a permanent Chief Executive Officer of the Company.



## Director Qualifications and Board Diversity

The Nominating Committee is responsible for determining Board of Director membership qualifications and selects, evaluates and recommends to the Board nominees to fill vacancies as they arise. The Nominating Committee maintains, with the approval of the Board, guidelines for selecting nominees to serve on the Board and considering stockholder recommendations for nominees. The Nominating Committee believes that its slate of nominees should include: the Chief Executive Officer of the Company; one or more nominees with upper management experience with the Company, in the coffee industry, in a complementary industry or who have desired professional expertise; three nominees who are independent and have the requisite accounting or financial qualifications to serve on the Audit Committee; and at least three nominees who are independent and have executive compensation experience to serve on the Compensation Committee. All nominees should contribute substantially to the Board’s oversight responsibilities and reflect the needs of the Company’s business. Additionally, the Nominating Committee believes that a member of the Farmer family, founding and substantial stockholders of the Company, or their representative should serve on the Board of Directors. The Nominating Committee believes that diversity has a place when choosing among candidates who otherwise meet the selection criteria, but the Company has not established a policy concerning diversity in Board composition. The Nominating Committee is responsible for evaluating and recommending to the Board the total size and composition of the Board. In connection with the annual nomination of directors, the Nominating Committee reviews with the Board the composition of the Board as a whole and recommends, if necessary, measures to be taken so that the Board reflects the appropriate balance of knowledge, experience, skills, background and diversity required for the Board as a whole. The background of each director and nominee is described above under “Proposal No. 1—Election of Directors.”

For purposes of identifying nominees for the Board of Directors, the Nominating Committee relies on professional and personal contacts of the Board and senior management. If necessary, the Nominating Committee may explore alternative sources for identifying nominees, including engaging, as appropriate, a third party search firm to assist in identifying qualified candidates. The Nominating Committee will consider recommendations for director nominees from Company stockholders. Biographical information and contact information for proposed nominees should be sent to Farmer Bros. Co., 20333 South Normandie Avenue, Torrance, California 90502, Attention: Secretary. The Nominating Committee will evaluate candidates proposed by stockholders using the following criteria: Board needs (see discussion of slate of nominees above); relevant business experience; time availability; absence of conflicts of interest; and perceived ability to contribute to the Company’s success. The process may also include interviews and additional background and reference checks for non-incumbent nominees, at the discretion of the Nominating Committee.

## Board Leadership Structure

Under our By-Laws, the Board of Directors, in its discretion, may choose a Chairman of the Board of Directors. If there is a Chairman of the Board of Directors, such person may exercise such powers as provided in the By-Laws or assigned by the Board of Directors. Since 2007, Guenter W. Berger has served as Chairman of the Board of Directors. As described above under “Proposal No. 1—Election of Directors,” Mr. Berger has served on our Board of Directors since 1980. He retired in 2007 as Chief Executive Officer after more than 47 years of service with the Company in various capacities.

Notwithstanding the current separation of Chairman of the Board and Chief Executive Officer, our Chief Executive Officer is generally responsible for setting agenda items with input from the Board, and leading discussions during Board meetings. This structure allows for effective and efficient Board meetings and information flow on important matters affecting the Company. Other than Mr. Wahba, all members of the Board are independent and all Board committees are comprised solely of independent directors. Due principally to the limited size of the Board, the Board has not formally designated a lead independent director and believes that as a result thereof, executive sessions of the Board, which are attended solely by independent directors, result in an open and free flow of discussion of any and all matters that any director may believe relevant to the Company and/or its management.



Although the roles of Chairman and Chief Executive Officer are currently filled by different individuals, no single leadership model is right for all companies at all times, and the Company has no bylaw or policy in place that mandates this leadership structure. Accordingly, the Board of Directors periodically evaluates its leadership structure to ensure that it remains the optimal structure for the Company and its stockholders.

## Board’s Role in Risk Oversight

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

## Communication with the Board

The Company’s annual meeting of stockholders provides an opportunity each year for stockholders to ask questions of or otherwise communicate directly with members of the Board on appropriate matters. In addition, stockholders may communicate in writing with any particular director, any committee of the Board, or the directors as a group, by sending such written communication to the Secretary of the Company at the Company’s principal executive offices, 20333 South Normandie Avenue, Torrance, California 90502. Copies of written communications received at such address will be collected and organized by the Secretary and provided to the Board or the relevant director unless such communications are considered, in the reasonable judgment of the Secretary, to be inappropriate for submission to the intended recipient(s). Examples of stockholder communications that would be considered inappropriate for submission to the Board include, without limitation, customer complaints, solicitations, communications that do not relate directly or indirectly to the Company’s business, or communications that relate to improper or irrelevant topics. The Secretary or his designee may analyze and prepare a response to the information contained in communications received and may deliver a copy of the communication to other Company employees or agents who are responsible for analyzing or responding to complaints or requests. Communications concerning possible director nominees submitted by any of our stockholders will be forwarded to the members of the Nominating Committee.



# COMPENSATION DISCUSSION AND ANALYSIS

## Executive Summary

## Fiscal 2011 Named Executive Officers

This Compensation Discussion and Analysis describes our executive compensation objectives, each element of our executive compensation program and the decisions made in fiscal 2011 with respect to our Named Executive Officers which include five current and two former executive officers as set forth in the table below:

<table><tr><td>Current Executive OfficersIncluded Among Fiscal 2011 Named Executive Officers</td><td>Former Executive OfficersIncluded Among Fiscal 2011 Named Executive Officers</td></tr><tr><td>Jeffrey A. Wahba(1)Interim Co-Chief Executive Officer, Treasurer and Chief Financial Officer</td><td>Roger M. Laverty III(3)Former President and Chief Executive Officer</td></tr><tr><td>Patrick G. Criteser(1)Interim Co-Chief Executive Officer, President and CEO of CBI</td><td>Drew H. Webb(4)Former Executive Vice President of Sales and Marketing</td></tr><tr><td>Mark A. HardingSenior Vice President of Operations</td><td></td></tr><tr><td>Hortensia R. GómezVice President, Controller and Assistant Treasurer</td><td></td></tr><tr><td>Larry B. Garrett(2)General Counsel and Assistant Secretary</td><td></td></tr></table>

(1) Messrs. Wahba and Criteser were appointed Interim Co-Chief Executive Officers effective April 19, 2011 subject to the Board’s search for and consideration of a permanent Chief Executive Officer.

(2) Mr. Garrett was hired on December 1, 2010.

(3) Mr. Laverty stepped down as President and Chief Executive Officer effective April 19, 2011 and retired from the Company on June 30, 2011.

(4) Mr. Webb separated from the Company on September 17, 2010.

## Executive Compensation Philosophy and Objectives and Pay-for-Performance

Our executive compensation program is based upon achieving the following objectives:

- Balancing compensation elements and levels that attract, motivate and retain talented executives with forms of compensation that are performance-based and/or aligned with stock performance and stockholder interests;

- Setting target total direct compensation (base salary, annual incentives and long-term incentives) for executive officers by reference to median compensation levels for comparable market reference points; and

- Appropriately adjusting total direct compensation to reflect the performance of the executive officer over time (as reflected in his or her goals under the Incentive Plan), as well as the Company’s annual performance (as reflected in the financial performance goals established under the Incentive Plan), and the Company’s long-term performance (as reflected by stock appreciation for equity-based awards granted under the Omnibus Plan).



## Fiscal 2011 Impact of Performance on Pay

At the beginning of fiscal 2011, the Compensation Committee established a target bonus for each Named Executive Officer (other than Mr. Webb who had already separated from the Company at such time and Mr. Garrett who joined the Company in December 2010) and established Company financial performance criteria and individual participant goals. The Compensation Committee established operating cash flow of $24.0 million as a threshold to any bonus payout under the Incentive Plan. Because the Company failed to meet this threshold, no bonuses were awarded to the Named Executive Officers in fiscal 2011. Mr. Laverty was entitled to receive severance in fiscal 2011 based in part on his target award pursuant to the terms of his employment agreement.

## Alignment with Stockholder Interests

We believe that our compensation programs are strongly aligned with the long-term interests of our stockholders. Compensation includes equity-based awards under the Omnibus Plan intended to align total compensation with stockholder interests by encouraging long-term performance. Equity represents a key component of the compensation of our Named Executive Officers as a percentage of total compensation.

For Mr. Laverty, our former President and Chief Executive Officer, approximately 52% of target total direct compensation in fiscal 2011 was in the form of equity; approximately 28% was base salary; and approximately 21% was short-term incentive cash compensation under the Incentive Plan.

For our Named Executive Officers (other than Mr. Laverty and Mr. Webb), on average, approximately 45% of target total direct compensation in fiscal 2011 was in the form of equity; approximately 38% was base salary; and approximately 17% was short-term incentive cash compensation under the Incentive Plan. Mid-year base salary adjustments and additional equity awards were granted to Messrs. Wahba, Criteser and Harding due to the added responsibilities assigned to them subject to the Company’s search for a permanent Chief Executive Officer as described in more detail below.

None of the stock options previously granted by the Company have been exercised, and none of the options outstanding as of October 17, 2011 are “in the money.”

## Good Governance and Best Practices

Executive compensation is determined by the Compensation Committee which is comprised solely of independent directors. The Compensation Committee has authority to retain an independent compensation consultant to provide it with advice on matters related to executive compensation. In light of the Company’s current financial condition and the Compensation Committee’s intent not to make any material changes to the Company’s executive compensation program, the Compensation Committee did not retain a compensation consultant in fiscal 2011.

The Company intends to provide competitive pay opportunities that reflect best practices. Accordingly, the Company:

- Does not provide supplemental retirement benefits to Named Executive Officers in excess of those generally provided to other employees of the Company;

- Maintains incentive compensation plans that do not encourage undue risk taking and align executive rewards with annual and long-term performance;

• Has not engaged in the practice of re-pricing/exchanging stock options;

- Does not provide for any “single trigger” severance payments in connection with a change in control of the Company to any Named Executive Officer;



- Maintains an equity compensation program that generally has a long-term focus, including equity awards that generally vest over a period of 3 years, or, in the case of restricted stock awards, cliff vest at the end of three years (with the exception of the mid-year equity awards made to Messrs. Wahba, Criteser and Harding which have a shorter vesting period as described in more detail below);

- Maintains compensation programs that have a strong pay-for-performance orientation. For example, in fiscal 2011 and fiscal 2010, due to the Company’s failure to meet threshold operating cash flow, the Company did not award any incentive bonuses (other than certain contractually obligated severance amounts based on target awards to certain departing executive officers);

- Limits perquisites except in connection with the facilitation of the Company’s business or where necessary in recruiting and retaining key executives;

- Maintains stock ownership guidelines for executive officers that require significant investment by these individuals in the Company’s Common Stock;

- Has a clawback policy that requires the Board of Directors to review all bonuses and other incentive and equity compensation awarded to the Company’s executive officers if it is subsequently determined that the amounts of such compensation were determined based on financial results that are later restated and the executive officer’s fraud or misconduct caused or partially caused such restatement; and

- Monitors Company performance and adjusts compensation practices accordingly. For example, other than cost of living adjustments for three executive officers and a base salary increase in the case of one executive officer who had an increase in job responsibilities, initial fiscal 2011 base salaries did not increase from fiscal 2010 levels. In addition, for fiscal 2012, none of the Company’s current executive officers received an increase in base salary.



## Primary Elements of Executive Compensation

The primary elements of the Company’s executive compensation program and the purpose of each element are as follows:

<table><tr><td>Compensation Element</td><td>Description</td><td>Purpose</td></tr><tr><td>Base Salary</td><td>Fixed pay element determined annually in the first quarter of the fiscal year, with any adjustments to base pay retroactive to the beginning of the applicable fiscal year. May be subject to adjustment during the fiscal year to reflect, among other things, changes in title and/or job responsibilities, or changes in light of the Company&#x27;s financial condition.</td><td>Attract and retain top talent and compensate for day-to-day job responsibilities performed at an acceptable level.</td></tr><tr><td>Incentive Cash Bonus</td><td>Variable cash compensation based on the achievement of Company and individual annual performance objectives. May be subject to adjustment in the event of a promotion or job change.</td><td>Reward achievement of annual financial objectives as well as near term strategic objectives that will lead to the future success of the Company&#x27;s business.</td></tr><tr><td>Long-Term Incentives</td><td>Variable equity-based compensation, to date consisting of a combination of stock options and restricted stock. Additional equity awards may be made during the fiscal year to new hires, and to reflect, among other things, changes in title and/or job responsibilities, or to offset changes to cash compensation in light of the Company&#x27;s financial condition.</td><td>Create a direct alignment with stockholder objectives, provide a focus on long-term value creation and potentially multi-year financial objectives, retain critical talent over extended timeframes, and enable key employees to share in value creation.</td></tr><tr><td>ESOP Allocation</td><td>Annual variable allocation of stock based on hours of service to the Company, subject to vesting after five years of service to the Company.</td><td>Enhance ownership interest and alignment with stockholders.</td></tr><tr><td>Welfare Benefits</td><td>General welfare benefits including medical, dental, life, disability and accident insurance and 401(k) plan, as well as customary vacation, leave of absence and other similar policies.</td><td>Provide competitive welfare benefits generally consistent with those provided to all employees.</td></tr><tr><td>Perquisites</td><td>Fixed benefits consistent with practices among companies in our industry consisting of executive life insurance, use of a Company-owned automobile or automobile allowance, relocation assistance, and other similar personal benefits. May be subject to adjustment in the event of a promotion or job change.</td><td>Provide limited perquisites to facilitate the operation of the Company&#x27;s business and assist the Company in recruiting and retaining key executives.</td></tr></table>



## Oversight of the Executive Compensation Program

## Compensation Committee

Under its charter, pursuant to the powers delegated by the Board, the Compensation Committee has the sole authority to determine and approve compensation for our Chief Executive Officer and each of our other executive officers, subject to Board review prior to approval in the case of equity compensation awards. In exercising this authority, the Compensation Committee evaluates the performance of the Chief Executive Officer within the context of the overall performance of the Company. The information considered includes a summary of the Company’s performance compared to annual measures, a listing of accomplishments in addition to the areas covered by these measures, and a listing and analysis of challenges or issues encountered during the year. The Compensation Committee also reviews and discusses the Chief Executive Officer’s assessment of the performance of our other executive officers. The Compensation Committee is comprised solely of independent directors and reports to the Board of Directors.

## Compensation Committee Consultants

The Compensation Committee has the authority to retain the services of outside consultants to assist it in performing its responsibilities. The Compensation Committee did not retain any such consultants in fiscal 2011.

In fiscal 2010, the Compensation Committee retained Mercer, a wholly-owned subsidiary of Marsh & McLennan Companies, Inc., to assist the Compensation Committee with its responsibilities related to the Company’s executive compensation programs. Executive compensation consulting services provided by Mercer to the Compensation Committee during fiscal 2010 included analysis and advice related to the following:

• Executive compensation trends;

• Peer companies for competitive pay comparisons;

• Compensation levels and mix for the Company’s executives;

• Design of short- and long-term incentives; and

• Incentive Plan financial goals.

## Management’s Role in Establishing Compensation

There are no material differences in how the compensation policies or decisions are determined with respect to the Named Executive Officers, except that the compensation of the Named Executive Officers other than the Chief Executive Officer is determined by the Compensation Committee taking into account the input and recommendations of the Chief Executive Officer with respect to compensation for those executive officers reporting to him. In the case of the Chief Executive Officer, the Chief Executive Officer may make a recommendation to the Compensation Committee with respect to his compensation, and the Compensation Committee may also solicit input from other disinterested Board members; however the Compensation Committee has sole authority for the final compensation determination. No executive officer has any role in approving his or her own compensation, and the Chief Executive Officer is not present during the portion of the meeting at which the Compensation Committee considers his compensation. The Chief Executive Officer routinely attends the meetings of the Compensation Committee. Other members of the Company’s management may attend Compensation Committee meetings for the purpose of making presentations at the invitation of the Compensation Committee.

## Peer Group Market Information

The Compensation Committee compares the pay levels and programs for the Company’s executive officers to compensation information from a relevant peer group as well as information from published survey sources.



The Compensation Committee uses this comparative data as a reference point in its review and determination of executive compensation. The Compensation Committee’s approach also considers competitive compensation practices and other relevant factors in setting pay rather than establishing compensation at specific benchmark percentiles.

Compensation decisions for fiscal 2011 were based in part on Mercer’s study conducted in fiscal 2010. That study was based on published survey data for similarly sized companies as well as the following fourteen-company peer group, which was developed based on industry, annual revenue and business characteristics that were similar to those of the Company at the time of the study:

• B&G Foods, Inc.

• Calavo Growers, Inc.

• Imperial Sugar Company

• Cal-Maine Foods, Inc.

• J & J Snack Foods Corp.

• Caribou Coffee Company, Inc.

• Lance, Inc.

• Diamond Foods, Inc.

• Overhill Farms, Inc.

• Green Mountain Coffee Roasters, Inc.

• Hansen Natural Corporation

• Peet’s Coffee & Tea, Inc.

• Reddy Ice Holdings, Inc.

• John B. Sanfilippo & Son, Inc.

The Compensation Committee believes this peer group continues to be appropriate because it represents a meaningful sample of comparable companies in terms of industry, annual revenue and business characteristics.

## Base Salary

## Initial Base Salary

Consistent with the compensation philosophy and objectives described above, and based in part on the benchmarking comparisons provided by Mercer in their fiscal 2010 study, in August 2010 (December 2010 in the case of Mr. Garrett), the Compensation Committee set fiscal 2011 base salaries for the Named Executive Officers as follows:

<table><tr><td>Name</td><td>Fiscal 2011 Annual Base Salary</td><td>Fiscal 2010 Annual Base Salary</td><td>Fiscal 2011 Annual Base Salary Percentage Change</td></tr><tr><td>Jeffrey A. Wahba(1)</td><td>$305,000</td><td>$305,000</td><td>0%</td></tr><tr><td>Patrick G. Criteser(2)</td><td>$256,250</td><td>$250,000</td><td>2.5%</td></tr><tr><td>Roger M. Laverty III</td><td>$425,000</td><td>$425,000</td><td>0%</td></tr><tr><td>Mark A. Harding(3)</td><td>$250,000</td><td>$225,000</td><td>11.1%</td></tr><tr><td>Hortensia R. Gómez(4)</td><td>$184,500</td><td>$180,000</td><td>2.5%</td></tr><tr><td>Larry B. Garrett(5)</td><td>$270,000</td><td>—</td><td>—</td></tr><tr><td>Drew H. Webb(6)</td><td>$321,850</td><td>$314,000</td><td>2.5%</td></tr></table>

(1) Amount shown in the table for fiscal 2011 does not include the increase effective April 19, 2011 in connection with appointment as Interim Co-Chief Executive Officer shown in the table below.

(2) Increase in fiscal 2011 reflects 2.5% cost of living increase. Amount shown in the table for fiscal 2011 does not include the increase effective April 19, 2011 in connection with appointment as Interim Co-Chief Executive Officer shown in the table below.

(3) On August 26, 2010, the Board of Directors designated Mr. Harding as an executive officer of the Company with responsibility for route sales, branch operations, warehousing, transportation, manufacturing, fleet operations, purchasing, the National Equipment Service Organization, and Brewmatic refurbishment centers. The increase in fiscal 2011 base salary reflects the increase in his job responsibilities from fiscal 2010. Amount shown in the table for fiscal 2011 does not include the temporary increase effective April 19, 2011 in connection with Mr. Harding’s role in the management transition resulting from the retirement of Roger M. Laverty III shown in the table below.



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After the end of the fiscal year and promptly upon availability of the Company’s audited financial statements, the Compensation Committee will determine the Company’s level of achievement of its financial performance criteria. At such time, the Compensation Committee will also determine for each executive officer the percentage of achievement of assigned individual goals. The level of achievement will be multiplied by the assigned weighting to determine the weighted achievement percentage for each of the executive officer’s assigned individual goals. The weighted achievement percentages for the Company’s financial performance criteria and each individual assigned goal will be added up, and multiplied by the executive officer’s target bonus percentage. The resulting percentage will be multiplied by the executive officer’s base salary. The result will be the amount of the executive officer’s preliminary bonus award. The preliminary bonus award is subject to adjustment, upward or downward, by the Compensation Committee in its discretion. The Compensation Committee also has the discretion to alter the financial performance criteria and individual goals during the year and to decline to award any bonus should the Compensation Committee determine such actions to be warranted by a change in circumstances. Accordingly, no bonus is earned unless and until an award is actually made by the Compensation Committee after year-end.

It is the Compensation Committee’s intent to achieve median target cash compensation (comprised of base salary and target annual cash incentive award) positioning over time, however the Compensation Committee may take other factors into consideration in establishing pay levels, including the amount of the increase in target cash compensation over the prior year, the performance of the executive, the performance of the Company, and the pay levels among the senior executive team. The Compensation Committee believes that the target levels of corporate and individual performance in any given year should not be easily achievable, and typically would not be achieved all of the time.

In 2010, the Compensation Committee established fiscal 2011 target bonus amounts for our executive officers equal to a percentage of their annual base salary. Individual target amounts were determined by the Compensation Committee based on the fiscal 2010 peer group median for comparable positions, as well as expected total compensation, job responsibilities, expected job performance, and, in the case of certain executive officers, the terms of their employment agreements with the Company. Each executive officer’s target bonus was also weighted between corporate and individual performance as set forth in the table below. Fiscal 2011 bonus information for the Named Executive Officers is as follows:

<table><tr><td>Name</td><td>Fiscal 2011 Target Bonus(1)</td><td>Fiscal 2011 Target Bonus as Percentage of Fiscal 2011 Base Salary(1)</td><td>Corporate Performance Goals (Weight)</td><td>Individual Performance Goals (Weight)</td><td>Fiscal 2011 Actual Bonus Award</td></tr><tr><td>Jeffrey A. Wahba</td><td>$167,750</td><td>55%</td><td>80%</td><td>20%</td><td>$ 0</td></tr><tr><td>Patrick G. Criteser</td><td>$128,125</td><td>50%</td><td>80%</td><td>20%</td><td>$ 0</td></tr><tr><td>Roger M. Laverty III(2)</td><td>$318,750</td><td>75%</td><td>80%</td><td>20%</td><td>$ 0</td></tr><tr><td>Mark A. Harding</td><td>$125,000</td><td>50%</td><td>80%</td><td>20%</td><td>$ 0</td></tr><tr><td>Hortensia R. Gómez</td><td>$ 55,350</td><td>30%</td><td>80%</td><td>20%</td><td>$ 0</td></tr><tr><td>Larry B. Garrett(3)</td><td>$ 78,759</td><td>50%</td><td>—</td><td>—</td><td>$ 0</td></tr><tr><td>Drew H. Webb(4)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr></table>

(1) Fiscal 2011 target bonus amounts are based on a percentage of fiscal 2011 base salary as originally set by the Compensation Committee in August 2010 and do not reflect the base salary increases effective for Messrs. Wahba, Criteser and Harding during fiscal 2011 described above under the heading “Mid-Year Increase in Base Salary Due to Change in Job Responsibilities.” In addition, pursuant to the terms of his employment agreement with the Company, Mr. Criteser’s target bonus as a percentage of fiscal 2011 base salary increased to 55% effective April 19, 2011.

(2) Although Mr. Laverty did not receive a fiscal 2011 bonus, he received an amount equal to his fiscal 2011 target award ($318,750) as part of his severance pursuant to the terms of his employment agreement with the Company.



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The Company generally expects to make annual long-term incentive awards under the Omnibus Plan to our executive officers. Since adoption of the Omnibus Plan, grants to executive officers have consisted of stock options and restricted stock, with the number of shares underlying the stock options and shares of restricted stock determined based on the closing price of the Common Stock on the date of grant. Stock options are rights to purchase Common Stock at a pre-determined price (the closing price of the Common Stock on the date of grant), after the stock options have vested. Stock options are designed to create incentives for executives by providing them with an opportunity to share, along with stockholders, in the long-term performance of the Common Stock. The stock options have a seven-year term and generally vest ratably over three years. The Compensation Committee believes a seven-year option term provides a reasonable time frame within which the executive’s contributions to corporate performance can align with stock appreciation. In addition, as compared with a ten-year option term typical at other companies, a seven-year option term allows the Company to more effectively manage the number of unexercised options that are outstanding. Restricted stock are shares that are subject to certain forfeiture restrictions. Restricted stock is designed as a retention device and to directly align the interests of the recipient and the Company’s stockholders. The restricted stock is expected generally to vest at the end of three years.

In making long-term incentive awards, the general intent is to have a majority of the award be performance based and a minority of the award be retention based. In the case of awards made to our executive officers in December 2010, 65% of the value of each award consisted of stock options and 35% of the value of each award consisted of restricted stock. The Compensation Committee considers options to be an appropriate performance based vehicle given that the stock options have no value unless the stock increases above the price on the date of grant.

On December 9, 2010, the Compensation Committee made the following annual grants of non-qualified stock options and restricted stock to our Named Executive Officers under the Omnibus Plan:

<table><tr><td>Name</td><td>Fiscal 2011 Annual Stock Option Grant (# of Shares of Common Stock Issuable Upon Exercise)</td><td>Fiscal 2011 Annual Restricted Stock Grant (# of Shares)</td></tr><tr><td>Jeffrey A. Wahba</td><td>20,000</td><td>4,500</td></tr><tr><td>Patrick G. Criteser</td><td>12,138</td><td>3,000</td></tr><tr><td>Roger M. Laverty III(1)</td><td>72,828</td><td>11,172</td></tr><tr><td>Mark A. Harding</td><td>12,138</td><td>3,000</td></tr><tr><td>Hortensia R. Gómez</td><td>3,468</td><td>1,000</td></tr><tr><td>Larry B. Garrett</td><td>12,138</td><td>3,000</td></tr><tr><td>Drew H. Webb</td><td>—</td><td>—</td></tr></table>

(1) Unvested and forfeited upon Mr. Laverty’s retirement from the Company on June 30, 2011.

The stock options shown in the table above have an exercise price per share of $18.03, which was the closing price of the Common Stock as reported on Nasdaq on the date of grant. The stock options have a seven-year term expiring on December 9, 2017 and vest in one-third increments on each anniversary of the date of grant. The shares of restricted stock vest on December 9, 2013. The Compensation Committee did not grant any equity to Mr. Webb in fiscal 2011 due to his separation from the Company on September 17, 2010.



On May 19, 2011, in connection with the appointment of Messrs. Wahba and Criteser as Interim Co-Chief Executive Officers, and Mr. Harding’s added responsibilities subject to the search for a permanent Chief Executive Officer, the Compensation Committee made the following additional grants of non-qualified stock options and restricted stock under the Omnibus Plan:

<table><tr><td>Name</td><td>Stock Option Grant (# of Shares of Common Stock Issuable Upon Exercise)</td><td>Restricted Stock Grant (# of Shares)</td></tr><tr><td>Jeffrey A. Wahba</td><td>50,000</td><td>—</td></tr><tr><td>Patrick G. Criteser</td><td>50,000</td><td>10,384</td></tr><tr><td>Mark A. Harding</td><td>20,000</td><td>—</td></tr></table>

The stock options shown in the table above have an exercise price per share of $9.63, which was the closing price of the Common Stock as reported on Nasdaq on the date of grant. The stock options have a seven-year term expiring on May 19, 2018 and vest on the one year anniversary of the date of grant subject to the terms of the executive officer’s employment agreement or arrangement with the Company. The shares of restricted stock issued to Mr. Criteser vest on the one year anniversary of the date of grant subject to the provisions of his employment agreement with the Company. These additional equity awards were intended to compensate, in part, Messrs. Wahba, Criteser and Harding for the additional services to be provided by such officers during the Company’s search for a permanent Chief Executive Officer.

None of the stock options previously granted by the Company have been exercised, and none of the options outstanding as of October 17, 2011 are “in the money.”

## ESOP Allocation

The Company’s ESOP was established in 2000 to provide benefits to all employees. ESOP assets are allocated in accordance with a formula based on participant compensation. In order to participate in the ESOP, a participant must complete at least one thousand hours of service to the Company within twelve consecutive months. A participant’s interest in the ESOP becomes one hundred percent vested after five years of service to the Company. Benefits are distributed from the ESOP at such time as a participant retires, dies or terminates service with the Company in accordance with the terms and conditions of the ESOP. Benefits may be distributed in cash or in shares of Common Stock. No participant contributions are allowed to be made to the ESOP.

Company contributions to the ESOP may be in the form of Common Stock or cash. Alternatively, the ESOP can borrow money from the Company or an outside lender and use the proceeds to purchase Common Stock. Shares acquired with loan proceeds are held in a suspense account and are released from the suspense account as the loan is repaid. The loan is repaid from the Company’s annual contribution to the ESOP. The shares of Common Stock that are released are then allocated to participants’ accounts in the same manner as if they had been contributed to the ESOP by the Company. The allocation of ESOP assets is determined by a formula based on participant compensation during the calendar year. The ESOP is intended to satisfy applicable requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and the Employee Retirement and Income Security Act of 1974. As of October 17, 2011, the ESOP owned of record 2,817,296 shares of Common Stock, including 1,720,160 allocated shares and 1,097,136 shares as yet unallocated to plan participants. An unaffiliated bank is trustee of the ESOP. The present members of the ESOP Administrative Committee are Jeffrey A. Wahba, Hortensia R. Gómez, Larry B. Garrett and Andrea Osterkorn.



Our executive officers participate in the ESOP in the same manner as all other participants. In calendar 2011, the Company’s Named Executive Officers received the following ESOP allocations based on compensation earned during calendar 2010:

<table><tr><td>Name</td><td>2011 ESOP Allocation (# of Shares)</td></tr><tr><td>Jeffrey A. Wahba</td><td>362</td></tr><tr><td>Patrick G. Criteser</td><td>551</td></tr><tr><td>Roger M. Laverty III</td><td>555</td></tr><tr><td>Mark A. Harding</td><td>534</td></tr><tr><td>Hortensia R. Gómez</td><td>430</td></tr><tr><td>Larry B. Garrett(1)</td><td>—</td></tr><tr><td>Drew H. Webb(2)</td><td>—</td></tr></table>

(1) Mr. Garrett joined the Company in December 2010, and therefore did not receive an ESOP allocation.

(2) Mr. Webb did not receive an ESOP allocation in calendar 2011 due to his separation from the Company on September 17, 2010.

## Welfare Benefits

The welfare benefits received by employee executive officers are the same as received by other employees, including medical, dental, life, disability and accident insurance. The Company also offers a supplemental disability plan to higher income staff members, including our executive officers, which allows them to buy an additional amount of disability coverage at their own expense. Employee executive officers are eligible on the same basis as other employees for participation in a pension plan, a 401(k) plan and the ESOP. The value of the employee executive officer’s 401(k) plan balances depends solely on the performance of investment alternatives selected by the employee executive officer from among the alternatives offered to all participants. All investment options in the 401(k) plan are market-based, meaning there are no “above-market” or guaranteed rates of return. In fiscal 2011, we significantly modified our retirement-benefit program. Specifically, we amended our defined-benefit pension plan, the Farmer Bros. Salaried Employees Pension Plan, freezing the benefit for all participants effective June 30, 2011. After the plan freeze, participants do not accrue any benefits under the plan, and new hires are not eligible to participate in the plan. However, account balances continue to be credited with interest until paid out. The freeze of the defined benefit pension plan coincided with an enhanced defined contribution 401(k) plan with a discretionary Company match of the employees’ annual contributions. Upon retirement, employee executive officers receive benefits, such as a pension and retiree medical insurance benefits, under the same terms as other retirees.

## Perquisites

Perquisites are limited at the Company; however we believe that offering our executive officers certain perquisites facilitates the operation of our business, allows our executive officers to better focus their time, attention and capabilities on our business, and assists the Company in recruiting and retaining key executives. We also believe that the perquisites offered to our executive officers are generally consistent with practices among companies in our relevant industry.

The perquisites available to employee executive officers include an auto allowance and/or use of a Company-owned car. In addition, certain executive officers who were employed prior to the freeze of the plan are entitled to benefits under an executive life insurance plan. Additionally, during fiscal 2011, pursuant to his employment agreement with the Company, the Board of Directors approved a relocation payment to Mr. Garrett of $2,576, and a total temporary housing allowance of $5,600, as shown in the Summary Compensation Table below under the heading “All Other Compensation.”

It is the Company’s intention to continually assess business needs and evolving practices to ensure that perquisite offerings are competitive and reasonable.



## Change in Control and Termination Arrangements

## Change in Control Severance Agreements; Employment Agreements

The Company has entered into agreements with each of its current Named Executive Officers pursuant to which they will be entitled to receive severance benefits upon the occurrence of certain enumerated events in connection with a change in control or threatened change in control. The events that trigger payment are generally those related to (i) termination of employment other than for cause, disability or death, or (ii) resignation for good reason. The payments and benefit levels under these agreements do not influence and were not influenced by other elements of compensation. These agreements were adopted, and are continued, to help: (i) assure the executives' full attention and dedication to the Company, free from distractions caused by personal uncertainties and risks related to a pending or threatened change in control; (ii) assure the executives' objectivity for stockholders' interests; (iii) assure the executives of fair treatment in case of involuntary termination following a change in control or in connection with a threatened change in control; and (iv) attract and retain key talent during uncertain times. The agreements are structured so that payments and benefits are provided only if there is both a change in control or threatened change in control and a termination of employment, either by us (other than for “Cause,” “Disability” or death), or by the participant for “Good Reason” (as each is defined in the agreement). This is sometimes referred to as a “double-trigger” because the intent of the agreement is to provide appropriate severance benefits in the event of a termination following a change in control, rather than to provide a change in control bonus. A more detailed description of the severance benefits to which our current Named Executive Officers are entitled in connection with a change in control or threatened change in control is set forth below under the heading “Executive Compensation—Change in Control and Termination Arrangements.”

The change in control agreements with Mr. Laverty and Mr. Webb automatically expired in connection with their retirement or separation, as applicable, from the Company. In connection with his employment by the Company, the Company and Mr. Garrett entered into a change in control agreement effective December 1, 2010. In connection with their designation as executive officers of the Company, the Company entered into a change in control agreement with Mr. Harding and Mr. Criteser on August 26, 2010 and April 19, 2011, respectively. The Company and Ms. Gómez entered into a change in control agreement effective May 18, 2011.

Pursuant to the terms of their employment agreements, Messrs. Wahba, Criteser and Garrett are entitled to receive certain benefits upon their termination without cause or resignation for good reason. The Company believes such benefits were necessary to attract and retain these executive officers with demonstrated leadership abilities and to secure the services of these executive officers at agreed upon terms. A more detailed description of the benefits to which these officers are entitled in connection with their termination, including the benefits paid to Messrs. Laverty and Webb in connection with their retirement and separation, respectively, from the Company, is set forth below under the heading “Executive Compensation—Change in Control and Termination Arrangements.”

## Equity Awards

Under the terms of the stock option and restricted stock awards, in the event of death or disability a prorata portion (determined based on the actual number of service days during the vesting period divided by the total number of days during the vesting period) of any unvested stock options and restricted stock will be deemed to have vested immediately prior to the date of death or disability and, in the case of the restricted stock, will no longer be subject to forfeiture. The plan administrator also has discretionary authority regarding accelerated vesting upon termination other than by reason of death or disability, or in connection with an impending Change in Control (as defined in the Omnibus Plan). Additionally, under the Omnibus Plan, unless otherwise provided in any applicable award agreement, if a Change in Control occurs and a participant’s awards are not continued, converted, assumed or replaced by the Company or a parent or subsidiary of the Company, or a Successor Entity (as defined in the Omnibus Plan), such awards will become fully exercisable and/or payable, and all forfeiture, repurchase and other restrictions on such awards will lapse immediately prior to such Change in Control.



The May 19, 2011 equity awards to Messrs. Wahba, Criteser and Harding are also subject to accelerated vesting in the case of death, disability, or termination of employment for other than “Cause” or resignation for “Good Reason,” as such terms are defined in their respective employment agreements or arrangements with the Company. The Compensation Committee believed these accelerated vesting terms were necessary to retain the additional services of Messrs. Wahba, Criteser and Harding subject to the Company’s search for a permanent Chief Executive Officer.

## Compensation Policies and Practices

## Stock Ownership Guidelines

The Board has adopted Stock Ownership Guidelines to further align the interests of the Company’s executive officers and non-employee directors with the interests of the Company’s stockholders. Under these guidelines, executive officers are expected to own and hold a number of shares of Common Stock based on the following guidelines:

<table><tr><td>Officer</td><td>Value of Shares Owned</td></tr><tr><td>Chief Executive Officer</td><td>$450,000</td></tr><tr><td>Other Executive Officers</td><td>$100,000 - $250,000, as determined by the Board in its discretion</td></tr></table>

Non-employee directors are expected to own and hold during their service as a Board member a number of shares of Common Stock with a value equal to at least three (3) times the amount of the non-employee director annual stock-based award, as the same may be adjusted from time to time, under the Omnibus Plan.

Stock that counts toward satisfaction of these guidelines includes: (i) shares of Common Stock owned outright by the officer or non-employee director and his or her immediate family members who share the same household, whether held individually or jointly; (ii) restricted stock or restricted stock units (whether or not the restrictions have lapsed); (iii) ESOP shares; and (iv) shares of Common Stock held in trust for the benefit of the officer or non-employee director or his or her family. Until the applicable guideline is achieved, each officer and non-employee director is required to retain all “profit shares,” which are those shares remaining after payment of taxes on earned equity awards under the Omnibus Plan, such as shares granted pursuant to the exercise of vested options and restricted stock that has vested. Officers and non-employee directors are expected to continuously own sufficient shares to meet these guidelines once attained.

## Insider Trading Policy

Our insider trading policy prohibits all employees, officers, directors, consultants and other associates of the Company and certain of their family members from, among other things, purchasing or selling any type of security, whether the issuer of that security is the Company or any other company, while aware of material, non-public information relating to the issuer of the security or from providing such material, non-public information to any person who may trade while aware of such information. The insider trading policy also prohibits employees from engaging in short sales with respect to our securities, purchasing or pledging Company stock on margin and entering into derivative or similar transactions (i.e., puts, calls, options, forward contracts, collars, swaps or exchange agreements) with respect to our securities. We also have procedures that require trades by certain insiders, including our directors and executive officers, to be pre-cleared by appropriate Company personnel. Additionally, such insiders are generally prohibited from conducting transactions involving the purchase or sale of the Company’s securities from 12:01 a.m. New York City time on the 15th calendar day before the end of each of the Company’s four fiscal quarters (including fiscal year end) through 11:59 p.m. New York City time on the second business day following the date of the public release containing the Company’s quarterly (including annual) results of operations.



## Policy on Executive Compensation in Restatement Situations

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

## Equity Award Grants

Our current and historical practice is to grant long-term incentive awards to our executive officers on the date of the regularly scheduled meeting of the Board of Directors in December of each year, with grants to executive officers hired or promoted since that grant date to receive an interim grant reviewed by the Board and approved by the Compensation Committee outside any blackout period under our insider trading policy described above.

## Taxes and Accounting Standards

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

Section 162(m) of the Code places a $1 million limit on the amount of compensation the Company may deduct for tax purposes in any year with respect to each of the Named Executive Officers, except that performance-based compensation that meets applicable requirements is excluded from the $1 million limit. The Company’s executive compensation program is designed to maximize the deductibility of compensation. However, when warranted due to competitive or other factors, the Compensation Committee may decide in certain circumstances to exceed the deductibility limit under Section 162(m) or to otherwise pay non-deductible compensation. There were no such circumstances in fiscal 2011.

## Section 409A of the Internal Revenue Code

Section 409A of the Code requires that “nonqualified deferred compensation” be deferred and paid under plans or arrangements that satisfy the requirements of the statute with respect to the timing of deferral elections, timing of payments and certain other matters. Failure to satisfy these requirements can expose employees and other service providers to accelerated income tax liabilities and penalty taxes and interest on their vested compensation under such plans. Accordingly, as a general matter, we intend to design and administer our compensation and benefit plans and programs for all of our employees and other service providers, including the Named Executive Officers, either without any deferred compensation component, so that they are either exempt from Section 409A, or in a manner that satisfies the requirements of Section 409A.

## Accounting Standards

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



## EXECUTIVE COMPENSATION

## Executive Officers

The following table sets forth the executive officers of the Company as of the date hereof. All executive officers are elected annually by the Board of Directors and serve at the pleasure of the Board. No executive officer has any family relationship with any director or nominee, or any other executive officer.

<table><tr><td>Name</td><td>Age</td><td>Title</td><td>Executive Officer Since</td></tr><tr><td>Jeffrey A. Wahba</td><td>55</td><td>Interim Co-Chief Executive Officer, Treasurer and Chief Financial Officer</td><td>2010</td></tr><tr><td>Patrick G. Criteser</td><td>43</td><td>Interim Co-Chief Executive Officer, President and Chief Executive Officer of CBI</td><td>2011</td></tr><tr><td>Mark A. Harding</td><td>51</td><td>Senior Vice President of Operations</td><td>2010</td></tr><tr><td>Hortensia R. Gómez</td><td>54</td><td>Vice President, Controller and Assistant Treasurer</td><td>2009</td></tr><tr><td>Larry B. Garrett</td><td>34</td><td>General Counsel and Assistant Secretary</td><td>2010</td></tr><tr><td>John M. Anglin</td><td>64</td><td>Secretary</td><td>2003</td></tr></table>

Jeffrey A. Wahba was appointed to the position of Interim Co-Chief Executive Officer effective April 19, 2011 subject to the Board’s search for and consideration of a permanent Chief Executive Officer. In this position, Mr. Wahba has oversight responsibility for all financial (including treasury), accounting, legal, compliance, human resources and IT functions of the Company, green coffee purchasing, and the operations of the Company’s Spice Products division. In addition, Mr. Wahba continues to serve as Treasurer and Chief Financial Officer of the Company, a position he has held since June 1, 2010. Prior to joining Farmer Bros., Mr. Wahba was Chief Financial Officer of Nero AG, a consumer software company from 2009 through May 31, 2010. Prior to that, Mr. Wahba was Chief Financial Officer and Secretary of HireRight, Inc., an employment background screening provider, from 2006 to 2008. From 1986 to 2006, Mr. Wahba was Chief Financial Officer of the Henry Group of Companies, a manufacturer of building products and distributor of premium wines. Mr. Wahba’s prior experience includes serving as Chief Financial Officer of Vault Corp., a software security firm, and as Controller of the International Division of Max Factor and Co., a cosmetics manufacturer. Mr. Wahba holds a B.S. in Industrial Engineering and an M.S. in Engineering Management and Industrial Engineering from Stanford University, and an M.B.A. from the University of Southern California.

Patrick G. Criteser was appointed to the position of Interim Co-Chief Executive Officer effective April 19, 2011 subject to the Board’s search for and consideration of a permanent Chief Executive Officer. In this position, Mr. Criteser has oversight responsibility for all sales and marketing functions of the Company and CBI, including route sales, and for all Company manufacturing, distribution and DSD operations other than the Spice Products division operations. In addition, Mr. Criteser continues to serve as President and Chief Executive Officer of CBI, a position which he has held since November 2006. Prior to being appointed President and Chief Executive Officer of CBI, Mr. Criteser was CBI’s Vice President of Marketing and Customer Development from December 2004 to November 2006. Prior to joining CBI, Mr. Criteser was a principal at SmartForest Ventures, an early-stage venture capital fund located in Portland, Oregon, from 2000 to 2004. In 1999 and 2000, Mr. Criteser was Manager of Global Strategic Planning for Nike, Inc. Mr. Criteser’s prior experience includes management roles in Operations, Marketing, and Strategic Planning with Procter & Gamble Co. and Walt Disney Co. Mr. Criteser holds a B.S. in Mechanical Engineering from the University of Washington and an M.B.A. from Harvard University.

Mark A. Harding joined the Company in March 2008 as Vice President of Operations, responsible for warehousing, transportation, manufacturing, fleet operations, purchasing and Brewmatic manufacturing. He was promoted to Senior Vice President of Operations in March 2010, responsible for route sales, branch operations, warehousing, transportation, manufacturing, fleet operations, purchasing, the National Equipment Service Organization, and Brewmatic refurbishment centers. Prior to joining the Company, Mr. Harding was Vice President of Operations of Intercontinental Art, Inc., a producer and importer of home decor, from March 2002 to



March 2008, where his responsibilities included warehousing, transportation, quality control, domestic manufacturing and China manufacturing. Mr. Harding attended the University of Phoenix, where he received a B.A. in Business Administration.

Hortensia R. Gómez joined the Company in 2006 as Controller after serving as Chief Financial Officer at Barco Uniforms Inc., a professional apparel company, from 1992 to 2005. Ms. Gómez has more than 28 years of experience in management, accounting and finance positions. Ms. Gómez graduated from the University of California at Los Angeles.

Larry B. Garrett joined the Company in December 2010 as General Counsel and Assistant Secretary. Prior to joining the Company, Mr. Garrett was a partner with the law firm of Schiff Hardin LLP from January 2009 through November 2010, and an attorney with O'Melveny & Myers LLP from September 2002 through December 2008, where he practiced in the areas of labor and employment law, union relations, and general litigation. Mr. Garrett received his A.B. in Economics from Brown University and his Juris Doctorate from the University of Texas (Austin), where he graduated with honors. Mr. Garrett is admitted to practice law in California.

John M. Anglin has served as Secretary of Farmer Bros. since 2003. He served as a member of the Company’s Board of Directors from 1985 until 2003. In addition to his role at Farmer Bros., Mr. Anglin is a partner in the Pasadena-based law firm of Anglin, Flewelling, Rasmussen, Campbell & Trytten LLP (“AFRCT”), where his practice is concentrated in the corporate and real estate areas. Prior to this, Mr. Anglin was a partner of Walker Wright Tyler & Ward, LLP, Los Angeles, California from 1978 to 2002 (managing partner from 1994 to 2000). Mr. Anglin received his undergraduate and law degrees from the University of Southern California. AFRCT provided legal services to the Company in fiscal 2011 as discussed below under the heading “Certain Relationships and Related Person Transactions.” We expect to continue to engage AFRCT to perform legal services in fiscal 2012.



## Summary Compensation Table

The following table sets forth summary information concerning compensation awarded to, earned by, or paid to each of our Named Executive Officers for all services rendered in all capacities to the Company and its subsidiaries in the last three fiscal years. For a complete understanding of the table, please read the footnotes and narrative disclosures that follow the table.

SUMMARY COMPENSATION TABLE

<table><tr><td>A</td><td>B</td><td>C</td><td>D</td><td>E</td><td>F</td><td>G</td><td>H</td><td>I</td><td>J</td></tr><tr><td>Name and Principal Position</td><td>Fiscal Year</td><td>Salary (\()</td><td>Bonus (\))</td><td>Stock Awards (\))</td><td>Option Awards (\))</td><td>Non-Equity Incentive Plan Compensation (\))</td><td>Change in Pension Value (\))</td><td>All Other Compensation (\))</td><td>Total (\))</td></tr><tr><td>Jeffrey A. Wahba(1)</td><td>2011</td><td>306,693</td><td>—</td><td>81,135</td><td>419,400</td><td>—</td><td>—</td><td>4,196</td><td>811,424</td></tr><tr><td>Interim Co-CEO, Treasurer and CFO</td><td>2010</td><td>47,939</td><td>—</td><td>50,340</td><td>124,080</td><td>—</td><td>—</td><td>—</td><td>222,359</td></tr><tr><td>Patrick G. Criteser(2)</td><td>2011</td><td>266,240</td><td>—</td><td>154,088</td><td>355,167</td><td>—</td><td>22,596</td><td>2,065</td><td>800,158</td></tr><tr><td>Interim Co-CEO, President and CEO of CBI</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Roger M. Laverty III(3)</td><td>2011</td><td>423,366</td><td>—</td><td>201,431</td><td>595,005</td><td>—</td><td>(57,184)</td><td>854,019</td><td>2,015,649</td></tr><tr><td>Former President and CEO</td><td>2010</td><td>424,077</td><td>—</td><td>205,677</td><td>447,164</td><td>—</td><td>37,445</td><td>27,675</td><td>1,142,038</td></tr><tr><td></td><td>2009</td><td>389,654</td><td>234,000</td><td>143,616</td><td>267,200</td><td>—</td><td>27,445</td><td>32,969</td><td>1,094,884</td></tr><tr><td>Mark A. Harding(4)</td><td>2011</td><td>249,632</td><td>—</td><td>54,090</td><td>201,567</td><td>—</td><td>20,096</td><td>5,776</td><td>531,161</td></tr><tr><td>Senior VP of Operations</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Hortensia R. Gómez(5)</td><td>2011</td><td>184,535</td><td>—</td><td>18,030</td><td>28,334</td><td>—</td><td>21,530</td><td>6,782</td><td>259,211</td></tr><tr><td>Vice President, Controller and Assistant Treasurer</td><td>2010</td><td>180,073</td><td>—</td><td>9,794</td><td>21,294</td><td>—</td><td>29,263</td><td>11,269</td><td>251,693</td></tr><tr><td></td><td>2009</td><td>166,465</td><td>40,000</td><td>6,528</td><td>20,040</td><td>—</td><td>17,045</td><td>16,265</td><td>266,343</td></tr><tr><td>Larry B. Garrett(6)</td><td>2011</td><td>145,574</td><td>—</td><td>54,090</td><td>99,167</td><td>—</td><td>—</td><td>12,026</td><td>310,858</td></tr><tr><td>General Counsel and Assistant Secretary</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Drew H. Webb(7)</td><td>2011</td><td>80,221</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>364,321</td><td>444,542</td></tr><tr><td>Former Executive VP Sales and Marketing</td><td>2010</td><td>314,001</td><td>—</td><td>63,662</td><td>138,408</td><td>—</td><td>—</td><td>305,720</td><td>821,791</td></tr><tr><td></td><td>2009</td><td>313,909</td><td>140,000</td><td>32,640</td><td>60,120</td><td>—</td><td>7,582</td><td>67,792</td><td>622,043</td></tr></table>

(1) Mr. Wahba was appointed to the position of Interim Co-Chief Executive Officer effective April 19, 2011 subject to the Board’s search for and consideration of a permanent Chief Executive Officer. The amounts shown in the table for fiscal 2011 reflect Mr. Wahba’s compensation for all services rendered in all capacities to the Company for the full fiscal year. The amount reported in column I for fiscal 2011 includes dividends paid on restricted stock awards and an ESOP allocation. The total value of all perquisites and other personal benefits did not exceed $10,000 in fiscal 2011 and has been excluded from the table. Mr. Wahba joined the Company as Treasurer and Chief Financial Officer on June 1, 2010.

(2) Mr. Criteser was appointed to the position of Interim Co-Chief Executive Officer effective April 19, 2011 subject to the Board’s search for and consideration of a permanent Chief Executive Officer. Mr. Criteser continues to serve as President and Chief Executive Officer of CBI. The amounts shown in the table for fiscal 2011 reflect Mr. Criteser’s compensation for all services rendered in all capacities to the Company and its subsidiaries for the full fiscal year. The amount reported in column I for fiscal 2011 includes dividends paid on restricted stock awards and an ESOP allocation. The total value of all perquisites and other personal benefits did not exceed $10,000 in fiscal 2011 and has been excluded from the table. Prior to his appointment as Interim Co-Chief Executive Officer, Mr. Criteser was not considered an executive officer of the Company.

(3) Mr. Laverty stepped down as President and Chief Executive Officer effective April 19, 2011 and retired on June 30, 2011. The amount reported in column I for fiscal 2011 includes: (a) amounts paid in connection



with Mr. Laverty’s retirement pursuant to the terms of the Separation Agreement between the Company and Mr. Laverty (the “Laverty Separation Agreement”), consisting of severance payments to be made in fiscal 2012 ($425,000), and other amounts relating to his separation ($327,429); (b) accumulated paid days off ($76,132); (c) dividends paid on restricted stock awards; (d) an ESOP allocation; and (e) life insurance premiums. The total value of all perquisites and other personal benefits did not exceed $10,000 in fiscal 2011 and has been excluded from the table.

(4) On August 26, 2010, the Board of Directors designated Mr. Harding as an executive officer of the Company. The amount reported in column I for fiscal 2011 includes dividends paid on restricted stock awards and an ESOP allocation. The total value of all perquisites and other personal benefits did not exceed $10,000 in fiscal 2011 and has been excluded from the table.

(5) Ms. Gómez was promoted to Vice President and Controller on March 17, 2009. Prior to her promotion, Ms. Gómez was Controller of the Company. The amounts shown in the table for fiscal 2009 reflect Ms. Gómez’s compensation in all capacities for the full fiscal year. The amount reported in column I for fiscal 2011 includes life insurance premiums, dividends paid on restricted stock awards and an ESOP allocation. The total value of all perquisites and other personal benefits did not exceed $10,000 in fiscal 2011 and has been excluded from the table.

(6) Mr. Garrett joined the Company as General Counsel and Assistant Secretary on December 1, 2010. The amount reported in column I for fiscal 2011 includes perquisites and other personal benefits consisting of an automobile allowance ($3,850) and relocation assistance ($8,176).

(7) Mr. Webb separated from the Company on September 17, 2010. Mr. Webb became Executive Vice President of Sales and Marketing on February 25, 2010, prior to which time he served as Executive Vice President and Chief Operating Officer. The amounts shown in the table for fiscal 2010 reflect Mr. Webb’s compensation in all capacities for the full fiscal year. The amount reported in column I for fiscal 2011 includes: (a) amounts paid in connection with Mr. Webb’s separation pursuant to his employment agreement with the Company, consisting of outplacement services ($10,000) and related tax gross-up ($5,683), severance payments made in fiscal 2011 ($241,388), severance payments to be made in fiscal 2012 ($80,462), and a Company-owned automobile valued at $9,000; (b) accumulated paid days off ($17,045); and (c) dividends paid on restricted stock awards.

## Salary (Column C)

The amounts reported in column C represent base salaries earned by each of the Named Executive Officers for the fiscal year indicated, prorated based on applicable start or separation dates during the fiscal year. The amounts shown include amounts contributed to the Company’s 401(k) plan.

## Bonus (Column D)

The amounts reported in column D for fiscal 2009 reflect non-recurring and discretionary bonuses paid to the Company’s executive officers. All non-equity incentive plan compensation paid to the Named Executive Officers under the Incentive Plan is shown in column G.

## Stock Awards (Column E)

The amounts reported in column E represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. A discussion of the assumptions used in calculating the amounts in this column may be found in Note 10 to our audited consolidated financial statements for the fiscal year ended June 30, 2011 included in our Annual Report on Form 10-K filed with the SEC on September 13, 2011, except that, as required by applicable SEC rules, we did not reduce the amounts in this column for any forfeitures relating to service-based (time-based) vesting conditions.



## Option Awards (Column F)

The amounts reported in column F represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. A discussion of the assumptions used in calculating the amounts in this column may be found in Note 10 to our audited consolidated financial statements for the fiscal year ended June 30, 2011 included in our Annual Report on Form 10-K filed with the SEC on September 13, 2011, except that, as required by applicable SEC rules, we did not reduce the amounts in this column for any forfeitures relating to service-based (time-based) vesting conditions.

## Non-Equity Incentive Plan Compensation (Column G)

The amounts reported in column G represent the aggregate dollar value for each of the Named Executive Officers of the annual performance bonus under the Incentive Plan for the fiscal years indicated. As described above under the heading “Compensation Discussion and Analysis—Incentive Cash Bonus,” because the Company did not achieve threshold operating cash flow of $24.0 million for fiscal 2011, no bonuses were awarded to the Company’s Named Executive Officers in fiscal 2011.

## Change in Pension Value (Column H)

The amounts representing the change in pension value reported in column H were generated by the combination of increases in the accrued pension benefit and change in conversion of that benefit to a present value. Accrued pension benefits for each of the Named Executive Officers were calculated based on the final average pay times years of service as of the end of the fiscal year. Accrued benefits as of the end of each fiscal year increased over accrued benefits as of the end of the prior fiscal year because an additional year of service was included and because the averages of the most recent five years of pay were greater than the averages as of one year earlier. The conversion to a present value produced a further increase because normal retirement age, the assumed commencement of benefits, was one year closer. The present value conversion can also cause an increase or decrease in value due to changes in actuarial assumptions. The discount rate used to calculate present values decreased from 6.25% as of the end of fiscal 2009 to 5.60% as of the end of fiscal 2010, producing an increase in the present value. The discount rate used to calculate present values decreased from 6.80% as of the end of fiscal 2008 to 6.25% as of the end of fiscal 2009, producing an increase in the present value. No other actuarial assumptions changed between the end of fiscal 2008 and the end of fiscal 2011. In the case of Mr. Laverty who left the Company before becoming vested in his accrued benefit, his only remaining pension benefit consists of employee contributions with a value of $29,935 on June 30, 2011. In fiscal 2011, we significantly modified our retirement-benefit program. Specifically, we amended our defined-benefit pension plan freezing the benefit for all participants effective June 30, 2011. After the plan freeze, participants do not accrue any benefits under the plan, and new hires are not eligible to participate in the plan. However, account balances continue to be credited with interest until paid out.

## All Other Compensation (Column I)

The amounts reported in column I represent the aggregate dollar amount for each Named Executive Officer for perquisites and other personal benefits (to the extent not excluded therefrom pursuant to applicable SEC rules); life insurance premiums paid by the Company under the Company’s executive life insurance plan; allocations under the ESOP; dividends on restricted stock; payment for accumulated paid days off; and certain other compensation described in the footnotes to the Summary Compensation Table above.

## Total Compensation (Column J)

The amounts reported in column J are the sum of columns C through I for each of the Named Executive Officers. All compensation amounts reported in column J include amounts paid and amounts deferred.



## Grants of Plan-Based Awards

The following table sets forth summary information regarding all grants of plan-based awards made to our Named Executive Officers for fiscal 2011.

GRANTS OF PLAN-BASED AWARDS

<table><tr><td>Name</td><td>Grant Date</td><td>Approval Date(1)</td><td>Estimated Future Payouts Under Non-Equity Incentive Plan Awards(2)</td><td>Threshold ($)</td><td>Target ($)</td><td>Maximum ($)</td><td>All Other Stock Awards: Number of Shares of Stock or Units (#)(3)</td><td>All Other Option Awards: Number of Securities Underlying Options (#)(4)</td><td>Exercise or Base Price of Option Awards ($/Sh)(5)</td><td>Grant Date Fair Value of Stock and Option Awards ($)(6)</td></tr><tr><td>Jeffrey A. Wahba</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Annual Cash Incentive Bonus</td><td>12/09/10</td><td>12/07/10</td><td>—</td><td>—</td><td>167,750(7)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Time Based</td><td>05/19/11</td><td>05/17/11</td><td>—</td><td>—</td><td>—</td><td>—</td><td>4,500</td><td>20,000</td><td>18.03</td><td>244,535</td></tr><tr><td>Patrick G. Criteser</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td>50,000</td><td>9.63</td><td>256,000</td></tr><tr><td>Annual Cash Incentive Bonus</td><td>12/09/10</td><td>12/07/10</td><td>—</td><td>—</td><td>128,125(7)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Time Based</td><td>05/19/11</td><td>05/17/11</td><td>—</td><td>—</td><td>—</td><td>—</td><td>3,000</td><td>12,138</td><td>18.03</td><td>153,257</td></tr><tr><td>Roger M. Laverty III</td><td></td><td></td><td></td><td></td><td></td><td></td><td>10,384</td><td>50,000</td><td>9.63</td><td>355,998</td></tr><tr><td>Annual Cash Incentive Bonus</td><td>12/09/10</td><td>12/07/10</td><td>—</td><td>—</td><td>318,750</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Time Based</td><td>05/19/11</td><td>05/17/11</td><td>—</td><td>—</td><td>—</td><td>—</td><td>11,172</td><td>72,828</td><td>18.03</td><td>796,436</td></tr><tr><td>Mark A. Harding</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Annual Cash Incentive Bonus</td><td>12/09/10</td><td>12/07/10</td><td>—</td><td>—</td><td>125,000(8)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Time Based</td><td>05/19/11</td><td>05/17/11</td><td>—</td><td>—</td><td>—</td><td>—</td><td>3,000</td><td>12,138</td><td>18.03</td><td>153,257</td></tr><tr><td>Hortensia R. Gómez</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td>20,000</td><td>9.63</td><td>102,400</td></tr><tr><td>Annual Cash Incentive Bonus</td><td>12/09/10</td><td>12/07/10</td><td>—</td><td>—</td><td>55,350</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Time Based</td><td>05/19/11</td><td>05/17/11</td><td>—</td><td>—</td><td>—</td><td>—</td><td>1,000</td><td>3,468</td><td>18.03</td><td>46,364</td></tr><tr><td>Larry B. Garrett</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Annual Cash Incentive Bonus</td><td>12/09/10</td><td>12/07/10</td><td>—</td><td>—</td><td>78,759(9)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Time Based</td><td>05/19/11</td><td>05/17/11</td><td>—</td><td>—</td><td>—</td><td>—</td><td>3,000</td><td>12,138</td><td>18.03</td><td>153,257</td></tr><tr><td>Drew H. Webb</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Annual Cash Incentive Bonus</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td></td><td>—</td><td>—</td></tr><tr><td>Time Based</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td></td><td>—</td><td>—</td></tr></table>

(1) Reflects the date on which the grants were approved by the Compensation Committee.

(2) Represents annual cash incentive opportunities based on fiscal 2011 performance under the Incentive Plan. There are no thresholds or maximums under the Incentive Plan. The targets are set each fiscal year by the Compensation Committee. The bonus amounts are based on the Company’s financial performance and satisfaction of individual participant goals. The Compensation Committee has discretion to increase, decrease or entirely eliminate the bonus amount derived from the Incentive Plan’s formula. The maximum amount that can be awarded under the Incentive Plan is within the discretion of the Compensation Committee.

(3) Restricted stock granted under the Omnibus Plan for the Named Executive Officers cliff vests on the third anniversary of the date of grant, subject to the acceleration provisions contained in the Omnibus Plan, with the exception of the May 19, 2011 award to Mr. Criteser, which vests on the one year anniversary of the date of grant subject to the provisions of Mr. Criteser’s employment agreement with the Company. The restricted stock shown in the table granted to Mr. Laverty was unvested and forfeited upon his retirement from the Company on June 30, 2011. The Compensation Committee did not grant any equity to Mr. Webb in fiscal 2011 due to his separation from the Company in September 2010.



(4) Stock options granted under the Omnibus Plan vest in one-third (1/3) increments on each anniversary of the date of grant, subject to the acceleration provisions contained in the Omnibus Plan, with the exception of the May 19, 2011 awards to Messrs. Wahba, Criteser and Harding, which vest on the one year anniversary of the date of grant subject to the provisions of the employment agreements or arrangements between the Company and such officers. The stock options shown in the table granted to Mr. Laverty were unvested and forfeited upon his retirement from the Company on June 30, 2011. The Compensation Committee did not grant any equity to Mr. Webb in fiscal 2011 due to his separation from the Company in September 2010.

(5) Exercise price of stock option awards is equal to the closing market price on the date of grant.

(6) Reflects the grant date fair value of restricted stock and stock option awards computed in accordance with FASB ASC Topic 718. A discussion of the assumptions used in calculating the amounts in this column may be found in Note 10 to our audited consolidated financial statements for the fiscal year ended June 30, 2011 included in our Annual Report on Form 10-K filed with the SEC on September 13, 2011, except that, as required by applicable SEC rules, we did not reduce the amounts in these columns for any forfeitures relating to service-based (time-based) vesting conditions.

(7) Based on fiscal 2011 annual base salary before giving effect to salary increase in connection with appointment to Interim Co-Chief Executive Officer effective April 19, 2011.

(8) Based on fiscal 2011 annual base salary before giving effect to temporary salary increase in connection with added responsibilities during the Company’s search for a permanent Chief Executive Officer.

(9) Prorated based on commencement date of employment.



## Outstanding Equity Awards at Fiscal Year-End

The following table sets forth summary information regarding the outstanding equity awards at June 30, 2011 granted to each of our Named Executive Officers.

## OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

<table><tr><td rowspan="2">Name</td><td rowspan="2">Number of Securities Underlying Options (#) Exercisable</td><td colspan="3">Option Awards</td><td colspan="4">Stock Awards</td></tr><tr><td>Number of Securities Underlying Options (#) Exercisable(1)</td><td>Equity Incentive Plan Awards: Number of Securities Underlying Options (#)</td><td>Option Exercise Price ($)</td><td>Option Grant Date</td><td>Market Value of Shares or Units of Stock Options</td><td>Number of Unearned Shares, Units or Other Rights</td><td>Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights</td></tr><tr><td>Jeffrey A. Wahba</td><td>7,333</td><td>14,667</td><td>—</td><td>16.78</td><td>06/01/17</td><td>3,000</td><td>30,420</td><td>—</td></tr><tr><td></td><td>—</td><td>20,000</td><td>—</td><td>18.03</td><td>12/09/17</td><td>4,500</td><td>45,630</td><td>—</td></tr><tr><td></td><td>—</td><td>50,000</td><td>—</td><td>9.63</td><td>05/19/18</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Patrick G. Criteser</td><td>7,500</td><td>—</td><td>—</td><td>22.70</td><td>02/20/15</td><td>—</td><td>—</td><td>—</td></tr><tr><td></td><td>5,000</td><td>2,500</td><td>—</td><td>21.76</td><td>12/11/15</td><td>1,000</td><td>10,140</td><td>—</td></tr><tr><td></td><td>4,046</td><td>8,092</td><td>—</td><td>18.41</td><td>12/10/16</td><td>1,862</td><td>18,881</td><td>—</td></tr><tr><td></td><td>—</td><td>12,138</td><td>—</td><td>18.03</td><td>12/09/17</td><td>3,000</td><td>30,420</td><td>—</td></tr><tr><td></td><td>—</td><td>50,000</td><td>—</td><td>9.63</td><td>05/19/18</td><td>10,384</td><td>105,294</td><td>—</td></tr><tr><td>Roger M. Laverty III(4)</td><td>40,000</td><td>—</td><td>—</td><td>22.70</td><td>09/30/11</td><td>—</td><td>—</td><td>—</td></tr><tr><td></td><td>26,666</td><td>—</td><td>—</td><td>21.76</td><td>09/30/11</td><td>—</td><td>—</td><td>—</td></tr><tr><td></td><td>24,276</td><td>—</td><td>—</td><td>18.41</td><td>09/30/11</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Mark. A. Harding</td><td>3,000</td><td>—</td><td>—</td><td>22.11</td><td>03/03/15</td><td>—</td><td>—</td><td>—</td></tr><tr><td></td><td>2,000</td><td>1,000</td><td>—</td><td>21.76</td><td>12/11/15</td><td>300</td><td>3,042</td><td>—</td></tr><tr><td></td><td>3,179</td><td>6,358</td><td>—</td><td>18.41</td><td>12/10/16</td><td>1,463</td><td>14,835</td><td>—</td></tr><tr><td></td><td>—</td><td>12,138</td><td>—</td><td>18.03</td><td>12/09/17</td><td>3,000</td><td>30,420</td><td>—</td></tr><tr><td></td><td>—</td><td>20,000</td><td>—</td><td>9.63</td><td>05/19/18</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Hortensia R. Gómez</td><td>3,000</td><td>—</td><td>—</td><td>22.70</td><td>02/20/15</td><td>—</td><td>—</td><td>—</td></tr><tr><td></td><td>2,000</td><td>1,000</td><td>—</td><td>21.76</td><td>12/11/15</td><td>300</td><td>4,527</td><td>—</td></tr><tr><td></td><td>1,156</td><td>2,312</td><td>—</td><td>18.41</td><td>12/10/16</td><td>532</td><td>5,394</td><td>—</td></tr><tr><td></td><td>—</td><td>3,468</td><td>—</td><td>18.03</td><td>12/09/17</td><td>1,000</td><td>10,140</td><td>—</td></tr><tr><td>Larry B. Garrett</td><td>—</td><td>12,138</td><td>—</td><td>18.03</td><td>12/09/17</td><td>3,000</td><td>30,420</td><td>—</td></tr><tr><td>Drew H. Webb(5)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td></td></tr></table>

(1) Stock options granted under the Omnibus Plan vest in one-third (1/3) increments on each anniversary of the date of grant, subject to the acceleration provisions contained in the Omnibus Plan, with the exception of the May 19, 2011 awards to Messrs. Wahba (50,000 options), Criteser (50,000 options) and Harding (20,000 options), which vest on the one year anniversary of the date of grant subject to the provisions of the applicable employment agreements or arrangements with such officers.

(2) Restricted stock granted under the Omnibus Plan for the Named Executive Officers cliff vests on the third anniversary of the date of grant, subject to the acceleration provisions contained in the Omnibus Plan, with the exception of the May 19, 2011 award of 50,000 shares of restricted stock to Mr. Criteser, which vests on the one year anniversary of the date of grant subject to the provisions of Mr. Criteser’s employment agreement with the Company.

(3) The market value was calculated by multiplying the closing price of our Common Stock on June 30, 2011 ($10.14) by the number of shares of unvested restricted stock.



(4) Excludes 28,944 shares of restricted stock and 134,714 shares subject to unvested stock options previously granted to Mr. Laverty which were forfeited upon Mr. Laverty’s retirement from the Company on June 30, 2011.

(5) Excludes 9,000 shares subject to vested stock options previously granted to Mr. Webb which expired on December 17, 2010.

## Option Exercises and Stock Vested

The following table summarizes the option exercises and vesting of stock awards for each of our Named Executive Officers for the fiscal year ended June 30, 2011.

<table><tr><td rowspan="2">Name</td><td colspan="2">Option Awards</td><td colspan="2">Stock Awards</td></tr><tr><td>Number of Securities Acquired on Exercise(#)</td><td>Value Realized on Exercise($)</td><td>Number of Shares Acquired on Vesting(#)</td><td>Value Realized on Vesting($)(1)</td></tr><tr><td>Jeffrey A. Wahba</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Patrick G. Criteser</td><td>—</td><td>—</td><td>1,000</td><td>14,890</td></tr><tr><td>Roger M. Laverty III</td><td>—</td><td>—</td><td>6,600</td><td>98,274</td></tr><tr><td>Mark A. Harding</td><td>—</td><td>—</td><td>300</td><td>3,600</td></tr><tr><td>Hortensia R. Gómez</td><td>—</td><td>—</td><td>300</td><td>4,467</td></tr><tr><td>Larry B. Garrett</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Drew H. Webb</td><td>—</td><td>—</td><td>—</td><td>—</td></tr></table>

(1) The value realized on vesting of restricted stock was calculated by multiplying the closing price of a share of our Common Stock on the business day prior to the vesting date, multiplied by the number of shares vested.

## Compensation Risk Assessment

The Company generally uses a combination of base salary, performance-based compensation, and retirement plans throughout the Company. In most cases, the compensation policies and practices are centrally designed and administered, and are substantially identical at each business unit. Route sales personnel are paid primarily on a sales commission basis, but all of our executive officers are paid under the programs and plans for non-sales employees. Certain departments have different or supplemental compensation programs tailored to their specific operations and goals. The Company believes that these compensation policies and practices appropriately balance near-term performance improvement with sustainable long-term value creation, and that they do not encourage unnecessary or excessive risk taking.

## Employment Agreements and Arrangements

## Wahba and Criteser Employment Agreements

On May 18, 2011, the Company and Jeffrey A. Wahba entered into an Amended and Restated Employment Agreement, effective as of April 19, 2011, as amended (the “Wahba Employment Agreement”), pursuant to



Interim Co-Chief Executive Officer of the Company, reporting to the Audit Committee of the Board of Directors, and President and CEO of CBI, with oversight responsibility for all sales and marketing functions of the Company and CBI, including, without limitation, route sales, and for all Company manufacturing and distribution operations other than the Spice Products division operations.

Pursuant to the Wahba and Criteser Employment Agreements, so long as Mr. Wahba and Mr. Criteser are serving as Interim Co-CEO’s, they will each receive a base salary of $350,000 per annum; however, for a period of six months starting April 19, 2011, their base salary was reduced to $315,000 per annum. On October 19, 2011, the annual base salary for each of them reverted to $350,000. If either Mr. Wahba or Mr. Criteser is selected as the sole permanent CEO, both are selected as permanent co-CEO’s, or either is serving as sole interim CEO, compensation will be set by mutual agreement. If Mr. Wahba or Mr. Criteser is serving neither as sole interim or sole permanent CEO nor as co-CEO on an interim or permanent basis, but is still employed by the Company or CBI, as applicable, in the case of Mr. Wahba, his present title will revert to Treasurer and Chief Financial Officer and his annual base salary will revert to $305,000, and, in the case of Mr. Criteser, his present title will revert to President and CEO of CBI and his annual base salary will revert to $256,250.

Messrs. Wahba and Criteser will each be entitled to participate in the Incentive Plan (or any successor plan), with the amount of any target award thereunder to be equal to 55% of his base salary. Messrs. Wahba and Criteser are each entitled to all benefits and perquisites provided by the Company from time to time to its senior executives, subject to the eligibility requirements and the terms and conditions of the benefit plans and perquisite policies, including paid days off, group health insurance, participation in the Omnibus Plan, life insurance,



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employment also will terminate upon his resignation, with or without Good Reason (as defined in the Garrett Employment Agreement), death or permanent incapacity. Upon certain events of termination, Mr. Garrett is entitled to the benefits described below under the heading “Change in Control and Termination Arrangements.”

## Webb Employment Agreement

The Company entered into an Employment Agreement, as amended, with Drew H. Webb (the “Webb Employment Agreement”). The Webb Employment Agreement provided that Mr. Webb would serve as Executive Vice President of Sales and Marketing of the Company, with oversight responsibility for the Company’s sales, marketing, strategic planning and corporate development. On September 17, 2010, Mr. Webb separated from the Company. As a result, Mr. Webb received certain severance payments and benefits described below under the heading “Change in Control and Termination Arrangements.”

## Pension Benefits

The following table provides information as of the end of fiscal 2011 with respect to the Farmer Bros. Salaried Employees Pension Plan (the “Farmer Bros. Plan”), a defined benefit plan for the majority of the Company’s employees who are not covered under a collective bargaining agreement, for each of the Named Executive Officers. For a complete understanding of the table, please read the narrative disclosures that follow the table.

## PENSION BENEFITS

<table><tr><td>Name</td><td>Plan Name</td><td>Number of Years Credited Service (#)</td><td>Present Value of Accumulated Benefit ($)</td><td>Payments During Last Fiscal Year ($)</td></tr><tr><td>Jeffrey A. Wahba</td><td>Farmer Bros. Salaried Employees Pension Plan</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Patrick G. Criteser</td><td>Farmer Bros. Salaried Employees Pension Plan</td><td>4.00</td><td>84,905</td><td>—</td></tr><tr><td>Roger M. Laverty III</td><td>Farmer Bros. Salaried Employees Pension Plan</td><td>3.92</td><td>29,935</td><td>—</td></tr><tr><td>Mark A. Harding</td><td>Farmer Bros. Salaried Employees Pension Plan</td><td>2.75</td><td>40,521</td><td>—</td></tr><tr><td>Hortensia R. Gómez</td><td>Farmer Bros. Salaried Employees Pension Plan</td><td>4.42</td><td>77,321</td><td>—</td></tr><tr><td>Larry B. Garrett</td><td>Farmer Bros. Salaried Employees Pension Plan</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Drew H. Webb</td><td>Farmer Bros. Salaried Employees Pension Plan</td><td>—</td><td>—</td><td></td></tr></table>

Named Executive Officers participate in the same contributory defined benefit pension plan offered to other non-union company employees; however Messrs. Wahba and Garrett were hired after participation in the plan was frozen on January 1, 2010, so no benefit is available to them, and Mr. Webb elected not to participate in the plan. Annuity benefits payable monthly under the Farmer Bros. Plan are calculated as 1.50% of average compensation multiplied by the number of years of credited service, but not less than $60 per month for the first 20 years of credited service plus $80 per month for each year of credited service in excess of 20 years. However, no additional benefit accrual will be earned after June 30, 2011. For this formula, average compensation is defined as the monthly average of total pay received for the 60 consecutive months out of the 120 latest months before the retirement date which gives the highest average. The formula above produces the amount payable as a monthly annuity for the life of the Named Executive Officer beginning as early as age 62. Benefits can begin as early as age 55 upon retirement, but are subject to a 4% per year reduction for the number of years before age 62 when benefits began. Benefits under a predecessor plan are included in the figures shown in the table above. Maximum annual combined benefits under both plans generally cannot exceed the lesser of $195,000 or the average of the employee’s highest three years of compensation.

While a present value is shown in the table, benefits are not available as a lump sum and must be taken in the form of an annuity. Present values were calculated using the same actuarial assumptions applied in the calculation of pension liabilities reported in Note 7 to our audited consolidated financial statements for the fiscal year ended June 30, 2011 included in our Annual Report on Form 10-K filed with the SEC on September 13, 2011.



## Change in Control and Termination Arrangements

## Change in Control Agreements

The Company has entered into a Change in Control Severance Agreement (“Severance Agreement”) with each of its current Named Executive Officers which provides certain severance benefits to such persons in the event of a Change in Control (as generally defined below). Each Severance Agreement expires at the close of business on December 31, 2011, subject to automatic one year extensions unless the Company or such executive officer notified the other no later than September 30, 2011 that the term would not be extended. Neither the Company nor any executive officer notified the other that the term would not be extended, so the term of each Severance Agreement has been extended to December 31, 2012, subject to possible further extensions. Notwithstanding the foregoing, if prior to a Change in Control, an executive officer ceases to be an employee of the Company, his or her Severance Agreement will be deemed to have expired. The Severance Agreements with Messrs. Laverty and Webb automatically expired in connection with their retirement and separation, respectively, from the Company.

Under each of the Severance Agreements, a Change in Control generally will be deemed to have occurred at any of the following times: (i) upon the acquisition by any person, entity or group of beneficial ownership of 50% or more of either the then outstanding Common Stock or the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors; (ii) at the time individuals making up the Incumbent Board (as defined in the Severance Agreements) cease for any reason to constitute at least a majority of the Board; or (iii) the approval of the stockholders of the Company of a reorganization, merger, consolidation, complete liquidation, or dissolution of the Company, the sale or disposition of all or substantially all of the assets of the Company or any similar corporate transaction (other than any transaction with respect to which persons who were the stockholders of the Company immediately prior to such transaction continue to represent at least 50% of the outstanding Common Stock of the Company or such surviving entity or parent or affiliate thereof immediately after such transaction). In the event of certain termination events in connection with a Change in Control or Threatened Change in Control (as defined in the Severance Agreements), the current Named Executive Officers will be entitled to certain payments and benefits shown in the tables below.

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

## Employment Agreements

Under the Employment Agreements with Messrs. Wahba, Criteser and Garrett, upon termination without Cause (as defined in the applicable Employment Agreement) or by such officer’s resignation with Good Reason (as defined in the applicable Employment Agreement), such officer will be entitled to certain payments and benefits shown in the tables below. Receipt of any severance amounts under any Employment Agreement is conditioned upon execution of a general release of claims against the Company. Notwithstanding the foregoing, if the officer becomes eligible for severance benefits under the Severance Agreement described above, the benefits provided under that agreement will be in lieu of, and not in addition to, the severance benefits under his Employment Agreement.



## Potential Payments Upon Termination or Change in Control

The following tables describe potential payments and benefits upon termination, including resignation, severance, retirement or a constructive termination, or a change in control, including under the agreements described above, to which our Named Executive Officers serving at the end of the last fiscal year would be entitled. The estimated amount of compensation payable to each such Named Executive Officer in each situation is listed in the tables below assuming that the termination and/or change in control of the Company occurred at June 30, 2011. The actual amount of payments and benefits can only be determined at the time of such a termination or change in control and therefore the actual amounts will vary from the estimated amounts in the tables below. Descriptions of how such payments and benefits are determined under the circumstances, material conditions and obligations applicable to the receipt of payments or benefits and other material factors regarding such agreements, as well as other material assumptions that we have made in calculating the estimated compensation, follow these tables.

The tables and discussion below do not reflect (i) payments that would be provided to each Named Executive Officer under the Farmer Bros. Plan following termination of employment on the last business day of the fiscal year end; and (ii) the value of retiree medical insurance benefits, if any, that would be provided to each Named Executive Officer following such termination of employment, because, in each case, these benefits are generally available to all regular Company employees similarly situated in age, years of service and date of hire and do not discriminate in favor of executive officers.



The tables exclude Mr. Laverty who stepped down as an executive officer on April 19, 2011 and retired as an employee on June 30, 2011, and Mr. Webb, who separated from the Company on September 17, 2010. Pursuant to the Separation Agreement with Mr. Laverty, he will receive as severance (i) his base salary of $425,000, payable in monthly installments for a period of one (1) year in accordance with the Company’s standard payroll practices; (ii) partially Company-paid COBRA coverage under the Company’s health care plan for himself and his spouse for one (1) year; and (iii) $318,750, representing his fiscal 2011 target bonus under the Incentive Plan. In exchange for the foregoing payments, Mr. Laverty provided the Company a general release of claims as required under the Laverty Employment Agreement. Vesting and exercise of all stock options and restricted stock awards granted to Mr. Laverty will be governed by the terms and conditions of the applicable award agreements. Pursuant to the terms of the Webb Employment Agreement, Mr. Webb will continue to receive his base salary for a period of one (1) year from the effective termination date, such payment to be made in installments in accordance with the Company’s standard payroll practices. In addition, Mr. Webb received outplacement services in the amount of $10,000 and a related tax gross-up of $5,683, and a Company-owned automobile valued at $9,000. In exchange for the foregoing payments, Mr. Webb provided the Company a general release of claims as required under the Webb Employment Agreement.

<table><tr><td>JEFFREY A. WAHBA</td><td>Death</td><td>Disability</td><td>Retirement</td><td>Change in Control and Involuntarily Terminated or Resignation for Good Reason within 24 Months of Change in Control</td><td>Threatened Change in Control and Involuntarily Terminated or Resignation for Good Reason</td><td>Termination Without Cause or Resignation With Good Reason</td></tr><tr><td>Base Salary Continuation</td><td>$ —</td><td>$ —</td><td>$—</td><td>$700,000</td><td>$700,000</td><td>$350,000</td></tr><tr><td>Bonus Payments</td><td>$192,500</td><td>$192,500</td><td>$—</td><td>$192,500</td><td>$192,500</td><td>$192,500</td></tr><tr><td>Value of Accelerated Stock Options</td><td>$ 977</td><td>$ 977</td><td>$—</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Value of Accelerated Restricted Stock</td><td>$ 19,387</td><td>$ 19,387</td><td>$—</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Qualified and Non-Qualified Plans</td><td>$ —</td><td>$ —</td><td>$—</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>ESOP</td><td>$ 3,671</td><td>$ 3,671</td><td>$—</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Health and Dental Insurance</td><td>$ —</td><td>$ 11,892</td><td>$—</td><td>$ 23,785</td><td>$ 23,785</td><td>$ 11,892</td></tr><tr><td>Outplacement Services</td><td>$ —</td><td>$ —</td><td>$—</td><td>$ 25,000</td><td>$ 25,000</td><td>$ —</td></tr><tr><td>Life Insurance Proceeds</td><td>$ —</td><td>$ —</td><td>$—</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Total Pre-Tax Benefit</td><td>$216,535</td><td>$228,427</td><td>$—</td><td>$941,285</td><td>$941,285</td><td>$554,392</td></tr><tr><td></td><td></td><td></td><td></td><td>Change in Control and Involuntarily Terminated or Resignation for Good Reason within 24 Months of Change in Control</td><td>Threatened Change in Control and Involuntarily Terminated or Resignation for Good Reason</td><td>Termination Without Cause or Resignation With Good Reason</td></tr><tr><td>PATRICK G. CRITESER</td><td>Death</td><td>Disability</td><td>Retirement</td><td>$ —</td><td>$ 700,000</td><td>$ 700,000</td></tr><tr><td>Base Salary Continuation</td><td>$ —</td><td>$ —</td><td>$—</td><td>$ —</td><td>$ 192,500</td><td>$ 192,500</td></tr><tr><td>Bonus Payments</td><td>$192,500</td><td>$192,500</td><td>$—</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Value of Accelerated Stock Options</td><td>$ 977</td><td>$ 977</td><td>$—</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Value of Accelerated Restricted Stock</td><td>$ 24,894</td><td>$ 24,894</td><td>$—</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Qualified and Non-Qualified Plans</td><td>$ —</td><td>$ —</td><td>$—</td><td>$ 84,905</td><td>$ 84,905</td><td>$ —</td></tr><tr><td>ESOP</td><td>$ 27,540</td><td>$ 27,540</td><td>$—</td><td>$ 38,715</td><td>$ 38,715</td><td>$ —</td></tr><tr><td>Health and Dental Insurance</td><td>$ —</td><td>$ 11,892</td><td>$—</td><td>$ 23,785</td><td>$ 23,785</td><td>$ 11,892</td></tr><tr><td>Outplacement Services</td><td>$ —</td><td>$ —</td><td>$—</td><td>$ 25,000</td><td>$ 25,000</td><td>$ —</td></tr><tr><td>Life Insurance Proceeds</td><td>$ —</td><td>$ —</td><td>$—</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Total Pre-Tax Benefit</td><td>$245,912</td><td>$257,804</td><td>$—</td><td>$1,064,905</td><td>$1,064,905</td><td>$554,392</td></tr></table>



<table><tr><td>MARK A. HARDING</td><td>Death</td><td>Disability</td><td>Retirement</td><td>Change in Control and Involuntarily Terminated or Resignation for Good Reason within 24 Months of Change in Control</td><td>Threatened Change in Control and Involuntarily Terminated or Resignation for Good Reason</td><td>Termination Without Cause or Resignation With Good Reason</td></tr><tr><td>Base Salary Continuation</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$550,000</td><td>$550,000</td><td>$ —</td></tr><tr><td>Bonus Payments</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$137,500</td><td>$137,500</td><td>$ —</td></tr><tr><td>Value of Accelerated Stock Options</td><td>$ 391</td><td>$ 391</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Value of Accelerated Restricted Stock</td><td>$ 16,772</td><td>$16,772</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Qualified and Non-Qualified Plans</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>ESOP</td><td>$ 18,972</td><td>$18,972</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Health and Dental Insurance</td><td>$ —</td><td>$11,892</td><td>$ —</td><td>$ 23,785</td><td>$ 23,785</td><td>$ —</td></tr><tr><td>Outplacement Services</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ 25,000</td><td>$ 25,000</td><td>$ —</td></tr><tr><td>Life Insurance Proceeds</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Total Pre-Tax Benefit</td><td>$ 36,135</td><td>$48,027</td><td>$ —</td><td>$736,285</td><td>$736,285</td><td>$ —</td></tr><tr><td></td><td></td><td></td><td></td><td>Change in Control and Involuntarily Terminated or Resignation for Good Reason within 24 Months of Change in Control</td><td>Threatened Change in Control and Involuntarily Terminated or Resignation for Good Reason</td><td>Termination Without Cause or Resignation With Good Reason</td></tr><tr><td>HORTENSIA R. GÓMEZ</td><td>Death</td><td>Disability</td><td>Retirement</td><td>Change in Control and Involuntarily Terminated or Resignation for Good Reason within 24 Months of Change in Control</td><td>Threatened Change in Control and Involuntarily Terminated or Resignation for Good Reason</td><td>Termination Without Cause or Resignation With Good Reason</td></tr><tr><td>Base Salary Continuation</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$369,000</td><td>$369,000</td><td>$ —</td></tr><tr><td>Bonus Payments</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ 55,350</td><td>$ 55,350</td><td>$ —</td></tr><tr><td>Value of Accelerated Stock Options</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Value of Accelerated Restricted Stock</td><td>$ 7,253</td><td>$ 7,253</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Qualified and Non-Qualified Plans</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ 77,321</td><td>$ 77,321</td><td>$ —</td></tr><tr><td>ESOP</td><td>$ 30,968</td><td>$30,968</td><td>$30,968</td><td>$ 39,688</td><td>$ 39,688</td><td>$30,968</td></tr><tr><td>Health and Dental Insurance</td><td>$ —</td><td>$ 5,272</td><td>$ —</td><td>$ 10,544</td><td>$ 10,544</td><td>$ —</td></tr><tr><td>Outplacement Services</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ 25,000</td><td>$ 25,000</td><td>$ —</td></tr><tr><td>Life Insurance Proceeds</td><td>$100,000</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Total Pre-Tax Benefit</td><td>$138,220</td><td>$43,492</td><td>$30,968</td><td>$576,903</td><td>$576,903</td><td>$30,968</td></tr><tr><td></td><td></td><td></td><td></td><td>Change in Control and Involuntarily Terminated or Resignation for Good Reason within 24 Months of Change in Control</td><td>Threatened Change in Control and Involuntarily Terminated or Resignation for Good Reason</td><td>Termination Without Cause or Resignation With Good Reason</td></tr><tr><td>LARRY B. GARRETT</td><td>Death</td><td>Disability</td><td>Retirement</td><td>Change in Control and Involuntarily Terminated or Resignation for Good Reason within 24 Months of Change in Control</td><td>Threatened Change in Control and Involuntarily Terminated or Resignation for Good Reason</td><td>Termination Without Cause or Resignation With Good Reason</td></tr><tr><td>Base Salary Continuation</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$540,000</td><td>$540,000</td><td>$270,000</td></tr><tr><td>Bonus Payments</td><td>$135,000</td><td>$135,000</td><td>$ —</td><td>$135,000</td><td>$135,000</td><td>$135,000</td></tr><tr><td>Value of Accelerated Stock Options</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Value of Accelerated Restricted Stock</td><td>$ 5,634</td><td>$ 5,634</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Qualified and Non-Qualified Plans</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>ESOP</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ \) —</td><td>$ —</td></tr><tr><td>Health and Dental Insurance</td><td>$ —</td><td>$ 5,272</td><td>$ —</td><td>$ 10,544</td><td>$ 10,544</td><td>$ 5,272</td></tr><tr><td>Outplacement Services</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ 25,000</td><td>$ 25,000</td><td>$ —</td></tr><tr><td>Life Insurance Proceeds</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Total Pre-Tax Benefit</td><td>$140,634</td><td>$145,906</td><td>$ —</td><td>$710,544</td><td>$710,544</td><td>$410,272</td></tr></table>



## Base Salary Continuation

## Severance Agreements

Under each Severance Agreement, if (i) a Change in Control occurs and the executive officer’s employment is terminated within the two years following the occurrence of the Change in Control by the Company other than for Cause, Disability (each as defined in the Severance Agreement) or death, or by Resignation for Good Reason (as defined in the Severance Agreement), or (ii) a Threatened Change in Control (as defined in the Severance Agreement) occurs and the executive officer’s employment is terminated during the Threatened Change in Control Period (as defined in the Severance Agreement) by the Company other than for Cause, Disability or death, or there is a Resignation for Good Reason by the executive officer (a “Change in Control Event”), such executive officer will be entitled to receive his or her base salary, excluding bonuses, at the rate in effect on the date of termination for a period of twenty-four (24) months, such payment to be made in installments in accordance with the Company’s standard payroll practices, commencing in the month following the month in which the executive officer’s Separation from Service (as defined in the Severance Agreement) occurs, subject to the payment limitations with respect to “specified employees” under Section 409A of the Code.

## Employment Agreements

Under the Employment Agreements, if termination occurs at the election of the Company without Cause (as defined in the applicable Employment Agreement) or by the officer’s resignation with Good Reason (as defined in the applicable Employment Agreement), the officer will continue to receive his base salary for a period of one (1) year from the effective termination date, such payment to be made in installments in accordance with the Company’s standard payroll practices, commencing in the month following the month in which the executive officer’s Separation from Service (as defined in the applicable Employment Agreement) occurs, subject to the payment limitations with respect to “specified employees” under Section 409A of the Code.

The base salary amounts shown in the tables above for Messrs. Wahba, Criteser and Harding do not reflect the temporary 10% reduction in annual base salary through October 19, 2011.

## Bonus Payments

## Severance Agreements

Under each Severance Agreement, if a Change in Control Event occurs, the Named Executive Officer will receive a payment equal to one hundred percent (100%) of the Named Executive Officer’s target bonus for the fiscal year in which the date of termination occurs (or, if no target bonus has been assigned as of the date of termination, the average bonus paid to such Named Executive Officer for the last three (3) completed fiscal years or for the number of completed fiscal years such person has been in the employ of the Company if fewer than three (3)), such payment to be made in a lump sum, subject to the payment limitations with respect to “specified employees” under Section 409A of the Code.

## Employment Agreements

Under the Employment Agreements, if termination occurs at the election of the Company without Cause (as defined in the applicable Employment Agreement) or by the officer’s resignation with Good Reason (as defined in the applicable Employment Agreement), such officer will receive an amount equal to his target award under the Incentive Plan for the fiscal year in which such termination is effective (or, if no target bonus has been assigned as of the date of termination, the average bonus paid by the Company to the executive officer for the last three (3) completed fiscal years or for the number of completed fiscal years such person has been in the employ of the Company if fewer than three (3)), prorated through the effective termination date. Payment of such amount will be made in a lump sum within thirty (30) days after the end of the Company’s fiscal year in which the executive officer’s Separation from Service (as defined in the applicable Employment Agreement) occurs,



subject to the payment limitations with respect to “specified employees” under Section 409A of the Code. The Company will also pay a prorated portion of the target award under the Incentive Plan in the event of the executive’s death or disability.

The bonus payment amounts reflected in the tables above for Messrs. Wahba, Criteser and Harding are calculated based on annual base salaries without giving effect to the temporary 10% reduction in annual base salary through October 19, 2011. The bonus payment amounts shown in the table above for Mr. Garrett are based on his fiscal 2012 target bonus of $135,000.

## Value of Accelerated Stock Options and Restricted Stock

Under the terms of the stock option and restricted stock awards, in the event of death or disability a prorata portion (determined based on the actual number of service days during the vesting period divided by the total number of days during the vesting period) of any unvested stock options and restricted stock will be deemed to have vested immediately prior to the date of death or disability and, in the case of the restricted stock, will no longer be subject to forfeiture. The May 19, 2011 equity awards to Messrs. Wahba, Criteser and Harding are also subject to accelerated vesting in the case of death, disability, or termination of employment for other than “Cause” or resignation for “Good Reason,” as such terms are defined in the Wahba and Criteser Employment Agreements and the Harding Letter Agreement, as described above under the heading “—Employment Agreements and Arrangements.”

The value of accelerated equity awards shown in the tables above was calculated using the closing price of our Common Stock on June 30, 2011 ($10.14). The value of the options is the aggregate spread between $10.14 and the exercise price of the accelerated options, if less than $10.14, while $10.14 is the intrinsic value of the restricted stock grants.

Under the Omnibus Plan, the plan administrator also has discretionary authority regarding accelerated vesting upon termination other than by reason of death or disability, or in connection with an impending Change in Control (as defined in the Omnibus Plan). The amounts in the tables above assume such discretionary authority was not exercised. Additionally, under the Omnibus Plan, unless otherwise provided in any applicable award agreement, if a Change in Control occurs and a participant’s awards are not continued, converted, assumed or replaced by the Company or a parent or subsidiary of the Company, or a Successor Entity (as defined in the Omnibus Plan), such awards will become fully exercisable and/or payable, and all forfeiture, repurchase and other restrictions on such awards will lapse immediately prior to such Change in Control. The amounts in the tables above assume such awards were continued, converted, assumed or replaced in connection with a Change in Control.

## Qualified and Non-Qualified Plans; ESOP

Under each Severance Agreement, if a Change in Control Event occurs, subject to eligibility provisions of the plans, the Named Executive Officer will continue to participate in the tax-qualified and non-qualified retirement, savings and employee stock ownership plans of the Company during the twenty-four (24) month period following the Named Executive Officer’s date of termination unless he or she commences other employment prior to the end of the twenty-four (24) month period, in which case, such participation will end on the date of his or her new employment. In addition, upon termination of employment for any reason, including death, disability, retirement or other termination, the Named Executive Officer will be entitled to his or her vested benefits under the Farmer Bros. Plan and the ESOP.

Estimated qualified and non-qualified plan benefits shown in the tables above reflect the present value of the vested accumulated benefits under the Farmer Bros. Plan. Amounts shown in the tables above exclude vested employee contributions under the Farmer Bros. Plan.



Estimated ESOP benefits shown in the tables above reflect the value of vested allocated shares in the ESOP plus, in the case of a Change in Control Event, an annual allocation of ESOP shares to qualified employees (estimated to be $19,033 for Messrs. Wahba, Criteser, and Harding and Ms. Gomez). The estimated value of the ESOP shares is based on the closing price of our Common Stock on June 30, 2011 ($10.14).

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

## Health, Dental and Life Insurance

## Severance Agreements

Under each Severance Agreement, if a Change in Control Event occurs, the health, dental and life insurance benefits coverage provided to the Named Executive Officer at his or her date of termination will be continued by the Company during the twenty-four (24) month period following the Named Executive Officer’s date of termination unless he or she commences employment prior to the end of the twenty-four (24) month period and qualifies for substantially equivalent insurance benefits with his or her new employer, in which case such insurance coverages will end on the date of qualification. The Company will provide for such insurance coverages at its expense at the same level and in the same manner as if the Named Executive Officer’s employment had not terminated (subject to the customary changes in such coverages if the Named Executive Officer retires under a Company retirement plan, reaches age 65, or similar events and subject to the Named Executive Officer’s right to make any changes in such coverages that an active employee is permitted to make). Any additional coverages the Named Executive Officer had at termination, including dependent coverage, will also be continued for such period on the same terms, to the extent permitted by the applicable policies or contracts. Any costs the Named Executive Officer was paying for such coverages at the time of termination will be paid by the Named Executive Officer. If the terms of any benefit plan do not permit continued participation, the Company will arrange for other coverage at its expense providing substantially similar benefits. Estimated payments shown in the tables above represent the current net annual cost to the Company of the employee’s participation in the Company’s medical insurance program offered to all non-union employees. In the event of death, the insurance may be continued for the surviving spouse.

## Employment Agreements

Under the Employment Agreements, if termination occurs at the election of the Company without Cause (as defined in the applicable Employment Agreement) or by the officer’s resignation with Good Reason (as defined in the applicable Employment Agreement), such officer will continue to receive partially Company-paid COBRA coverage under the Company’s health care plan for a period of one (1) year after the effective termination date.

## Company Benefit Plans

Under the Company’s group health plan, an employee who becomes totally disabled and his or her covered dependents will be eligible for coverage one year from the date disability began or a period equal to the time the employee was enrolled under the plan, whichever is less.

## Outplacement Services

Under each Severance Agreement, if a Change in Control Event occurs, the Company will provide the Named Executive Officer with outplacement services at the expense of the Company, in an amount up to $25,000.

## Indemnification

The Company has entered into the same form of Indemnification Agreement with each Named Executive Officer as is described below under the heading “Director Compensation—Director Indemnification.” The Indemnification Agreements do not exclude any other rights to indemnification or advancement of expenses to which the indemnitee may be entitled, including any rights arising under the Certificate of Incorporation or By-Laws of the Company, or the Delaware General Corporation Law.



# PROPOSAL NO. 3
ADVISORY VOTE ON EXECUTIVE COMPENSATION

## Background

As part of the Board’s commitment to excellence in corporate governance, and as required by Section 14A(a)(1) of the Exchange Act, which was added under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Board is providing our stockholders with an opportunity to approve, on an advisory (non-binding) basis, the compensation of our Named Executive Officers as disclosed in this Proxy Statement in accordance with the SEC’s rules.

## Summary

We are asking our stockholders to provide advisory approval of the compensation of our Named Executive Officers as described in the Compensation Discussion and Analysis section of this Proxy Statement and the related executive compensation tables.

Under its charter, pursuant to the powers delegated by the Board, the Compensation Committee has the sole authority to determine and approve compensation for our Named Executive Officers, subject to Board review prior to approval in the case of equity compensation awards. Consistent with our compensation philosophy and objectives, our executive compensation program for our Named Executive Officers has been designed to balance compensation elements and levels that attract, motivate and retain talented executives with forms of compensation that are performance-based and/or aligned with stock performance and stockholder interests. The program rewards superior performance and provides consequences for underperformance. We urge our stockholders to review the Compensation Discussion and Analysis section of this Proxy Statement and the related executive compensation tables for more information.

We emphasize pay-for-performance. Annual performance-based incentives play an important role in providing incentives to our executives to achieve and exceed short-term performance goals. Because the Company failed to meet threshold operating cash flow under the Incentive Plan in fiscal 2011, no bonuses were awarded to the Named Executive Officers.

We believe our compensation programs are strongly aligned with the long-term interests of our stockholders. Compensation includes equity-based awards under the Omnibus Plan intended to align total compensation with stockholder interests by encouraging long-term performance. Equity represents a key component of the compensation of our Named Executive Officers as a percentage of total compensation.

In fiscal 2011, for Roger M. Laverty III, our former President and Chief Executive Officer, approximately 52% of target total direct compensation in fiscal 2011 was in the form of equity; approximately 28% was base salary; and approximately 21% was short-term incentive cash compensation under the Incentive Plan.

For our Named Executive Officers (other than Mr. Laverty and Mr. Webb), on average, approximately 45% of target total direct compensation in fiscal 2011 was in the form of equity; approximately 38% was base salary; and approximately 17% was short-term incentive cash compensation under the Incentive Plan. Mid-year base salary adjustments and additional equity awards were granted to Messrs. Wahba, Criteser and Harding due to the added responsibilities assigned to them subject to the Company’s search for a permanent Chief Executive Officer.

None of the stock options previously granted by the Company have been exercised, and none of the options outstanding as of October 17, 2011 are “in the money.”



We are committed to good governance and providing pay opportunities that reflect best practices. Executive compensation is determined by the Compensation Committee which is comprised solely of independent directors. The Compensation Committee has authority to retain an independent compensation consultant to provide it with advice on matters related to executive compensation. In light of the Company’s current financial condition and the Compensation Committee’s intent not to make any material changes to the Company’s executive compensation program, the Compensation Committee did not retain a compensation consultant in fiscal 2011.

The Company intends to provide competitive pay opportunities that reflect best practices. Accordingly, the Company:

- Does not provide supplemental retirement benefits to Named Executive Officers in excess of those generally provided to other employees of the Company;

- Maintains incentive compensation plans that do not encourage undue risk taking and align executive rewards with annual and long-term performance;

• Has not engaged in the practice of re-pricing/exchanging stock options;

- Does not provide for any “single trigger” severance payments in connection with a change in control of the Company to any Named Executive Officer;

- Maintains an equity compensation program that generally has a long-term focus, including equity awards that generally vest over a period of 3 years, or, in the case of restricted stock awards, cliff vest at the end of three years (with the exception of the mid-year equity awards made to Messrs. Wahba, Criteser and Harding which have a shorter vesting period as described in more detail in the Compensation Discussion and Analysis);

- Maintains compensation programs that have a strong pay-for-performance orientation. For example, in fiscal 2011 and fiscal 2010, due to the Company’s failure to meet threshold operating cash flow, the Company did not award any incentive bonuses (other than certain contractually obligated severance amounts based on target awards to certain departing executive officers);

- Limits perquisites except in connection with the facilitation of the Company’s business or where necessary in recruiting and retaining key executives;

- Maintains stock ownership guidelines for executive officers that require significant investment by these individuals in the Company’s Common Stock;

- Has a clawback policy that requires the Board of Directors to review all bonuses and other incentive and equity compensation awarded to the Company’s executive officers if it is subsequently determined that the amounts of such compensation were determined based on financial results that are later restated and the executive officer’s fraud or misconduct caused or partially caused such restatement; and

- Monitors Company performance and adjusts compensation practices accordingly. For example, other than cost of living adjustments for three executive officers and a base salary increase in the case of one executive officer who had an increase in job responsibilities, initial fiscal 2011 base salaries did not increase from fiscal 2010 levels. In addition, for fiscal 2012, none of the Company’s current executive officers received an increase in base salary.

## Required Vote

The approval of the advisory vote on executive compensation requires the affirmative vote of a majority of the shares present or represented by proxy at the Annual Meeting and entitled to vote on the matter. Abstentions will have the same effect as votes “against” the proposal. Brokers do not have discretionary authority to vote on



this proposal. Broker non-votes, therefore, will have no effect on the proposal as brokers are not entitled to vote on such proposals in the absence of voting instructions from the beneficial owner. The say-on-pay vote is advisory, and therefore, not binding on the Board or the Compensation Committee. While the vote is non-binding, the Board and the Compensation Committee value the opinions that stockholders express in their votes and in any additional dialogue, and will consider the outcome of the vote and those opinions when making future compensation decisions.

## Recommendation

The Board believes that the information provided above and within the Compensation Discussion and Analysis section of this Proxy Statement demonstrates that our executive compensation program was designed appropriately and is working to ensure that management’s interests are aligned with our stockholders’ interests to support long-term value creation.

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

“Resolved, that the Company’s stockholders approve, on an advisory basis, the compensation of the Company’s named executive officers, as described in the Compensation Discussion and Analysis, the compensation tables and the accompanying narrative disclosure, in this Proxy Statement.”

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



# PROPOSAL NO. 4
ADVISORY VOTE ON THE FREQUENCY OF FUTURE STOCKHOLDER
ADVISORY VOTES ON EXECUTIVE COMPENSATION

## Background

As part of the Board’s commitment to excellence in corporate governance, and as required by Section 14A(a)(2) of the Exchange Act, which was added under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Board is providing our stockholders with an opportunity to indicate how frequently they believe we should seek an advisory vote on the compensation of our named executive officers. In this Proposal No. 4, we are seeking an advisory, non-binding determination from our stockholders as to the frequency with which stockholders would have an opportunity to provide an advisory approval of our executive compensation program. We are providing stockholders the option of selecting a frequency of one, two or three years, or abstaining.

## Summary

After careful consideration, the Board recommends that future advisory votes on executive compensation occur every year. We believe that it is important to give our stockholders the opportunity to provide input on our executive compensation in a consistent and meaningful manner. As such, the Board believes that our stockholders should have the opportunity to voice their approval or disapproval of our executive compensation each year. The Board believes that annual votes will facilitate the highest level of accountability to and communication with our stockholders. Further, an annual vote clearly ties the advisory vote on executive compensation to the current year’s compensation disclosure and avoids the potential for confusion that exists with a biennial or triennial vote as to which year stockholders are being asked to evaluate and vote on.

## Required Vote

The approval of the advisory vote on the frequency of future stockholder advisory votes on executive compensation requires the affirmative vote of a majority of the shares present or represented by proxy at the Annual Meeting and entitled to vote on the matter. Abstentions will have the same effect as votes “against” the proposal. Brokers do not have discretionary authority to vote on this proposal. Broker non-votes, therefore, will have no effect on the proposal as brokers are not entitled to vote on such proposals in the absence of voting instructions from the beneficial owner. If none of the frequency alternatives (one year, two years or three years) receives a majority of the shares present or represented by proxy and entitled to vote, we will consider the highest number of votes cast by stockholders to be the frequency that has been selected by our stockholders. The frequency vote is advisory, and therefore, not binding on the Board or the Compensation Committee. While the vote is non-binding, the Board and the Compensation Committee value the opinions that stockholders express in their votes and in any additional dialogue, and will consider the outcome of the vote and those opinions when determining the frequency with which advisory votes on executive compensation should be held.

## Recommendation

For the reasons discussed above, the Board recommends that future say-on-pay advisory votes occur every year. Stockholders are not voting to approve or disapprove the Board’s recommendation, but rather to indicate their choice among these frequency options. Stockholders will be able to specify one of four choices for this proposal on the proxy card: one year, two years, or three years, or abstain.

## THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS ELECT TO HAVE VOTES ON EXECUTIVE COMPENSATION EVERY “ONE YEAR” FOR THE REASONS STATED ABOVE.



## DIRECTOR COMPENSATION

The compensation program for our non-employee directors is intended to fairly compensate them for the time and effort required of a director given the size and complexity of the Company’s operations. Portions of the compensation program utilize our stock in order to further align the interests of the directors with all other stockholders of the Company and to motivate the directors to focus on the long-term financial interest of the Company.

Non-employee members of the Board receive a combination of cash and stock-based incentive compensation. Directors who are Company employees are not paid any fees for serving on the Board or for attending Board meetings.

## Cash Compensation

Each non-employee director receives an annual retainer of $30,000, payable quarterly in advance, and meeting fees of $1,500 for each Board meeting, $2,500 for each Compensation Committee or Audit Committee meeting, and $1,500 for each Nominating Committee or Search Committee meeting attended; provided if more than one meeting (Board or committee) is held and attended on the same date, maximum meeting fees are $4,000. In fiscal 2011, in light of the Company’s financial condition, upon the request of management, the Board agreed to a ten percent (10%) reduction in the non-employee director retainer for the fourth quarter of fiscal 2011 through the end of fiscal 2012.

In addition, the following committee chairs receive additional annual retainers, as follows: (i) Audit Committee, $15,000; and (ii) Compensation Committee, $7,500. Board members are also entitled to reimbursement of reasonable travel expenses from outside the greater Los Angeles area, in accordance with Company policy, incurred in connection with attendance at Board and committee meetings.

## Equity Compensation

Each non-employee director receives an annual grant of restricted stock under the Omnibus Plan having a value equal to $40,000, each such grant to vest over three years in equal annual installments, subject to the non-employee director’s continued service to the Company through each vesting date. The annual grant of restricted stock is generally made on the date on which the Company holds its annual meeting of stockholders or such other date as the Board may determine. The number of shares of Common Stock to be received in the grant of restricted stock is based on the closing price per share of our Common Stock on the date such grant is made.

## Stock Ownership Guidelines

Under the Stock Ownership Guidelines adopted by the Board, non-employee directors are expected to own and hold during their service as a Board member a number of shares of Common Stock with a value equal to at least three (3) times the amount of the non-employee director annual stock-based award, as the same may be adjusted from time to time, under the Omnibus Plan. Stock that counts toward satisfaction of these guidelines includes: (i) shares of Common Stock owned outright by the non-employee director and his or her immediate family members who share the same household, whether held individually or jointly; (ii) restricted stock or restricted stock units (whether or not the restrictions have lapsed); (iii) ESOP shares; and (iv) shares of Common Stock held in trust for the benefit of the non-employee director or his or her family.

Until the applicable guideline is achieved, each non-employee director is required to retain all “profit shares,” which are those shares remaining after payment of taxes on earned equity awards under the Omnibus Plan, such as shares granted pursuant to the exercise of vested options and restricted stock that has vested. Non-employee directors are expected to continuously own sufficient shares to meet these guidelines once attained.



## Director Compensation Table

The following table shows fiscal 2011 non-employee director compensation:

<table><tr><td>Director(1)</td><td>Fees Earned or Paid in Cash (\()</td><td>Stock Awards (\))(2)</td><td>All Other Compensation ($)(3)</td><td>Total ($)</td></tr><tr><td>Guenter W. Berger(4)(6)</td><td>45,000</td><td>3,962</td><td>6,715</td><td>55,676</td></tr><tr><td>Jeanne Farmer Grossman(5)(6)</td><td>67,000</td><td>3,962</td><td>380</td><td>71,342</td></tr><tr><td>Martin A. Lynch(6)(7)</td><td>62,000</td><td>3,962</td><td>853</td><td>66,814</td></tr><tr><td>Thomas A. Maloof(5)(6)(7)(8)</td><td>82,500</td><td>3,962</td><td>853</td><td>87,314</td></tr><tr><td>James J. McGarry(5)(6)</td><td>67,000</td><td>3,962</td><td>853</td><td>71,814</td></tr><tr><td>John H. Merrell(5)(6)(7)(9)</td><td>94,500</td><td>3,962</td><td>853</td><td>99,314</td></tr></table>

(1) Mr. Laverty, the Company’s former President and Chief Executive Officer, is not included in this table since he received no compensation for his service as a director in fiscal 2011. Mr. Wahba, the Company’s current Interim Co-Chief Executive Officer, Treasurer and Chief Financial Officer, is not included in this table since he did not serve as a director in fiscal 2011.

(2) Represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. Each non-employee director received a grant on December 9, 2010 of 2,219 shares of restricted stock, which generally vest over three years in equal annual installments, with a grant date fair value under FASB ASC Topic 718 of $18.03 per share, based on the closing price of our Common Stock on that date of $18.03. The aggregate number of restricted stock awards outstanding at June 30, 2011 for each non-employee director shown in the table above is 4,135, with the exception of Ms. Grossman who was elected to the Board at the 2009 Annual Meeting and has an aggregate of 3,668 shares of restricted stock. Mr. Maloof is expected to forfeit 2,204 shares of restricted stock upon his ceasing to serve on the Board of Directors beyond the Annual Meeting.

(3) Includes cash dividends on restricted stock ($853) for all directors other than Ms. Grossman ($380).

(4) All Other Compensation for Mr. Berger includes life insurance premiums ($3,956) and economic benefit of life insurance policy ($1,906).

(5) Member, Compensation Committee.

(6) Member, Nominating Committee. Mr. Berger was appointed to the Nominating Committee in May 2011.

(7) Member, Audit Committee.

(8) Compensation Committee Chairman.

(9) Audit Committee Chairman.

## Director Indemnification

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



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



# CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

## Review and Approval of Related Person Transactions

Under the Company’s written Policies and Procedures for the Review, Approval or Ratification of Related Person Transactions, a related person transaction may be consummated or may continue only if the Audit Committee approves or ratifies the transaction in accordance with the guidelines set forth in the policy. The policy applies to: (i) any person who is, or at any time since the beginning of the Company’s last fiscal year was, a director, nominee for director or executive officer of the Company; (ii) any person who is known to be the beneficial owner of more than five percent (5%) of any class of the Company’s voting securities; and (iii) any immediate family member, as defined in the policy, of, or sharing a household with, any of the foregoing persons. For purposes of the policy, a related person transaction includes, but is not limited to, any financial transaction, arrangement or relationship or any series of similar transactions, arrangements or relationships, specifically including indebtedness and guarantees of indebtedness, between the Company and any of the foregoing persons since the beginning of the Company’s last fiscal year, or any currently proposed transaction in which the Company was or is to be a participant or a party, in which the amount involved exceeds $120,000, and in which any of the foregoing persons had or will have a direct or indirect material interest.

Under the policy, upon referral by the Chief Compliance Officer or Secretary of the Company, any proposed related person transaction will be reviewed by the Audit Committee for approval or disapproval based on the following:

- The materiality of the related person’s interest, including the relationship of the related person to the Company, the nature and importance of the interest to the related person, the amount involved in the transaction, whether the transaction has the potential to present a conflict of interest, whether there are business reasons for the Company to enter the transaction, and whether the transaction would impair the independence of any independent director;

- Whether the terms of the transaction, in the aggregate, are comparable to those that would have been reached by unrelated parties in an arm’s length transaction;

- The availability of alternative transactions, including whether there is another person or entity that could accomplish the same purposes as the transaction and, if alternative transactions are available, there must be a clear and articulable reason for the transaction with the related person;

- Whether the transaction is proposed to be undertaken in the ordinary course of the Company’s business, on the same terms that the Company offers generally in transactions with persons who are not related persons; and

• Such additional factors as the Audit Committee determines relevant.

The Audit committee may impose conditions or guidelines on any related person transaction, including, but not limited to: (i) conditions relating to on-going reporting to the Audit Committee and other internal reporting; (ii) limitations on the amount involved in the transaction; (iii) limitations on the duration of the transaction or the Audit Committee’s approval of the transaction; and (iv) other conditions for the protection of the Company and to avoid conferring an improper benefit, or creating the appearance of a conflict of interest.

The Audit Committee will direct the Company’s executive officers to disclose all related person transactions approved by the Audit Committee to the extent required under applicable accounting rules, Federal securities laws, SEC rules and regulations, and Nasdaq rules.



## Related Person Transactions

Since the beginning of fiscal 2011, related person transactions reviewed and approved by the Audit Committee include the following:

John M. Anglin, the Company’s Secretary, is a Partner in the law firm of AFRCT, which provides legal services to the Company. During fiscal 2011, we paid AFRCT $523,010 for such services. We expect to continue to engage AFRCT to perform legal services in fiscal 2012.

The son of Carol Farmer Waite, the beneficial owner of more than five percent (5%) of the Company’s voting securities, is a non-executive employee of the Company acting as Vice President of Green Coffee. Mr. Waite’s fiscal 2011 compensation (including salary, stock based compensation, dividends payable on restricted stock, life insurance premium and ESOP allocation) was $162,195. Additionally, Mr. Waite’s fiscal 2012 compensation is expected to exceed $120,000.

In August 2010, the Audit Committee approved a relocation payment to Drew H. Webb, our former Executive Vice President of Sales and Marketing, in the amount of $250,000, less $32,500 in rent and travel expenses previously paid by the Company during fiscal 2010.



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# OTHER MATTERS

## Annual Report and Form 10-K

The 2011 Annual Report to Stockholders (which includes the Company’s Annual Report on Form 10-K as filed with the SEC for the fiscal year ended June 30, 2011) accompanies this Proxy Statement. The 2011 Annual Report is neither incorporated by reference in this Proxy Statement nor part of the proxy soliciting material. Stockholders may obtain, without charge, a copy of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011, filed with the SEC, including the financial statements thereto, without the accompanying exhibits, by writing to: Farmer Bros. Co., 20333 South Normandie Avenue, Torrance, California 90502, Attention: Chief Financial Officer. The Company’s Form 10-K is also available online at the Company’s website, www.farmerbros.com. A list of exhibits is included in the Form 10-K and exhibits are available from the Company upon the payment of the Company’s reasonable expenses in furnishing them.

## Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company’s executive officers and directors, and persons who own more than 10% of a registered class of the Company’s equity securities (collectively, “Reporting Persons”), to file reports of ownership and changes in ownership with the SEC. Reporting Persons are required by SEC regulations to furnish the Company with copies of all forms they file pursuant to Section 16(a). As a practical matter, the Company assists its directors and executive officers by monitoring transactions and completing and filing Section 16 reports on their behalf. Based solely on the Company’s review of the reports filed by Reporting Persons, and written representations from certain Reporting Persons that no other reports were required for those persons, the Company believes that, during the fiscal year ended June 30, 2011, the Reporting Persons met all applicable Section 16(a) filing requirements.

## Stockholder Proposals and Nominations

## Proposals Pursuant to Rule 14a-8

Pursuant to Rule 14a-8 under the Exchange Act, stockholders may present proper proposals for inclusion in the Company’s proxy statement and form of proxy for consideration at the Company’s 2012 annual meeting of stockholders. To be eligible for inclusion in the Company’s 2012 proxy statement, stockholder proposals must be received by the Company at its principal executive offices no later than June 30, 2012, and must otherwise comply with Rule 14a-8. While the Board will consider stockholder proposals, the Company reserves the right to omit from the Company’s proxy statement stockholder proposals that it is not required to include under the Exchange Act, including Rule 14a-8.

## Proposals and Nominations Pursuant to the Company’s By-Laws

The Company’s By-Laws contain an advance notice provision with respect to matters to be brought at an annual meeting of stockholders, including nominations, and not included in the Company’s proxy statement. A stockholder who desires to nominate a director or bring any other business before the stockholders at the 2012 Annual Meeting must notify the Company in writing, must cause such notice to be delivered to or received by the Secretary of the Company no earlier than August 10, 2012, and no later than September 9, 2012, and must comply with the other By-Law provisions summarized below; provided, however, that in the event that the 2011 Annual Meeting is called for a date that is not within thirty (30) days before or after December 8, 2011, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10 \( ^{th} \) ) day following the day on which such notice of the date of the 2012 Annual Meeting was mailed or such public disclosure of the date of the 2012 Annual Meeting was made, whichever first occurs.



The By-Laws provide that nominations may be made by the Board, by a committee appointed by the Board or any stockholder entitled to vote in the election of directors generally. Stockholders must provide actual written notice of their intent to make nomination(s) to the Secretary of the Company within the timeframes described above. Each such notice must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the person, and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act; and (b) as to the stockholder giving notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice, and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with the solicitation of proxies for election of directors pursuant to Section 14 of the Exchange Act. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.

The notice given by a stockholder regarding other business to be brought before an annual meeting of stockholders must be provided within the timeframes described above and set forth (a) a brief description of the business desired to be brought before the annual meeting and the reason for conducting such business at the annual meeting, (b) the name and record address of such stockholder, (c) the class and number of shares of stock of the Company which are owned beneficially or of record by such stockholder, (d) a description of all arrangements or understandings between such stockholder and any other persons (including their names) in connection with the proposal and any material interest of such stockholder in such business, and (e) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.

You may write to the Secretary of the Company at the Company’s principal executive offices, 20333 South Normandie Avenue, Torrance, California 90502, to deliver the notices discussed above and for a copy of the relevant By-Law provisions regarding the requirements for making stockholder proposals and nominating director candidates.

## Householding of Proxy Materials

The SEC has adopted rules that permit companies and intermediaries (such as banks and brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies.

This year, a number of banks and brokers with account holders who are Company stockholders will be “householding” the Company’s proxy materials and annual report. A single proxy statement and annual report will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your bank or broker that it will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and annual report, please notify your bank or broker, or direct your written request to Farmer Bros. Co., 20333 South Normandie Avenue, Torrance, California 90502, Attention: Chief Financial Officer, or contact the Company’s Chief Financial Officer by telephone at (310) 787-5200, and



the Company will deliver a separate copy of the annual report or proxy statement upon request. Stockholders who currently receive multiple copies of the proxy statement and annual report at their address and would like to request “householding” of their communications should contact their bank or broker.

By Order of the Board of Directors



October 28, 2011

John M. Anglin

Secretary



[THIS PAGE INTENTIONALLY LEFT BLANK]



# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended June 30, 2011

OR

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

For the transition period from

to

Commission file number: 001-34249

# FARMER BROS. CO.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

95-0725980

(State of Incorporation)

(I.R.S. Employer Identification No.)

20333 South Normandie Avenue, Torrance, California 90502

(Address of Principal Executive Offices; Zip Code)

Registrant’s telephone number, including area code 310-787-5200

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which Registered

Common Stock, $1.00 par value

The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☑ NO ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☑

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☑ NO ☐

Indicate by check mark whether the registrant has submitted electronically 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 ☐ NO ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ( \( §229.405 \) ) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☑

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.

Large accelerated filer ☐ Accelerated filer ☑ Non-accelerated filer ☐ Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☑

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the closing price at which the Farmer Bros. Co. common stock was sold on December 31, 2010 was $142.6 million.

As of September 9, 2011 the registrant had 16,186,372 shares outstanding of its common stock, par value $1.00 per share, which is the registrant’s only class of common stock.

## DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be filed with the U.S. Securities and Exchange Commission (“SEC”) pursuant to Regulation 14A in connection with the registrant’s 2011 Annual Meeting of Stockholders (the “Proxy Statement”) or portions of the registrant’s 10-K/A, to be filed subsequent to the date hereof, are incorporated by reference into Part III of this report. Such Proxy Statement or 10-K/A will be filed with the SEC not later than 120 days after the conclusion of the registrant’s fiscal year ended June 30, 2011.



## TABLE OF CONTENTS

PART I
ITEM 1. Business ..... 1
ITEM 1A. Risk Factors ..... 4
ITEM 1B. Unresolved Staff Comments ..... 14
ITEM 2. Properties ..... 14
ITEM 3. Legal Proceedings ..... 15
ITEM 4. [Removed and Reserved] ..... 15
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ..... 16
ITEM 6. Selected Financial Data ..... 18
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ..... 19
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk ..... 31
ITEM 8. Financial Statements and Supplementary Data ..... 33
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..... 68
ITEM 9A. Controls and Procedures ..... 68
ITEM 9A(T). Controls and Procedures ..... 70
ITEM 9B. Other Information ..... 70
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance ..... 71
ITEM 11. Executive Compensation ..... 71
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ..... 71
ITEM 13. Certain Relationships and Related Transactions, and Director Independence ..... 72
ITEM 14. Principal Accountant Fees and Services ..... 72
PART IV
ITEM 15. Exhibits and Financial Statement Schedules ..... 73
SIGNATURES ..... 74

## CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this annual report on Form 10-K 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. These forward-looking statements can be identified by the use of words like “anticipates,” “estimates,” “projects,” “expects,” “plans,” “believes,” “intends,” “will,” “assumes” and other words of similar meaning. Owing to the uncertainties inherent in forward-looking statements, actual results could differ materially from those set forth in forward-looking statements. We intend these forward-looking statements to speak only at the time of this 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, fluctuations in availability and cost of green coffee, competition, organizational changes, our ability to successfully integrate the CBI and DSD Coffee Business acquisitions, the impact of a weaker 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, changes in the quality or dividend stream of third parties’ securities and other investment vehicles in which we have invested our assets, as well as other risks described in this report and other factors described from time to time in our filings with the SEC.



## PART I

## Item 1. Business

## Overview

Farmer Bros. Co., a Delaware corporation (including its consolidated subsidiaries unless the context otherwise requires, the “Company,” “we,” “our” or “Farmer Bros.”) is a manufacturer, wholesaler and distributor of coffee, tea and culinary products. We are direct distributors of coffee to restaurants, hotels, casinos, hospitals and other foodservice providers, and are providers of private brand coffee programs to grocery retailers, restaurant chains, convenience stores, and independent coffee houses, nationwide. We were founded in 1912, were incorporated in California in 1923, and reincorporated in Delaware in 2004. We operate in one business segment.

## Business Strategy

Our mission is to “sell great coffee, tea and culinary products and provide superior service—one customer at a time.” We reach our customers in two ways: through our nationwide Direct-Store-Delivery (“DSD”) network of approximately 500 delivery routes, 114 branch locations and six distribution centers, and by using the distribution channels of our national retail and institutional customers. We differentiate ourselves in the marketplace through our customer service model. We offer value-added services including beverage equipment service, menu solutions, wherein we recommend products, how these products are prepared in the kitchen and presented on the menu, and hassle-free inventory and product procurement management to our foodservice customers. These services are conducted primarily in person through Regional Sales Representatives, or RSR’s, who develop personal relationships with chefs, restaurant owners and food buyers at their drop off locations. We also provide comprehensive coffee programs, including private brand development, green coffee procurement, category management, and supply chain management to our national retail customers.

We manufacture and distribute products under our own brands, as well as under private labels on behalf of certain customers. Our branded products are sold primarily into the foodservice channel, and are comprised of both national and regional brands. Our leading national brands include the Farmer Brothers \( ^{®} \)  and Superior \( ^{®} \)  brands, as well as the popular Sierra \( ^{®} \) , Metropolitan \( ^{®} \) , Prebica \( ^{®} \)  and Panache \( ^{®} \)  brands. We also market such regional brands as Cain’s \( ^{®} \) , McGarvey \( ^{®} \) , and Ireland \( ^{®} \) , each maintaining loyal customers in its respective geographies.

Since 2007, Farmer Brothers has achieved growth, primarily due to the acquisition in 2007 of Coffee Bean Holding Co., Inc., a Delaware corporation (“CBH”), the parent company of Coffee Bean International, Inc., an Oregon corporation (“CBI”), a specialty coffee manufacturer and wholesaler headquartered in Portland, Oregon (the “CBI Acquisition”), and the acquisition in 2009 from Sara Lee Corporation (“Sara Lee”) of certain assets used in connection with their DSD coffee business in the United States (the “DSD Coffee Business”). The DSD Coffee Business acquisition helped grow our sales to $463.9 million in fiscal 2011 from $266.5 million in fiscal 2008, and added over 2,000 new SKU’s and over 60 trademarks, tradenames and service marks. In fiscal 2010 we completed much of the post-acquisition integration of the DSD Coffee Business in an effort to realize the selling and operating efficiencies of the combined organization through consolidation of product offerings and SKU’s, streamlining of routes and distribution logistics, and consolidation of warehouses and distribution centers, with an expanded, customer-focused organization enabled by enhanced information management tools and training.

## Business Operations

Our product line is specifically focused on the needs of our market segment: restaurants, hotels, casinos, hospitals and other foodservice providers, as well as private brand retailers in the grocery, restaurant, convenience stores and coffeehouse channels. Our product line of over 2,800 SKUs includes roasted coffee,



liquid coffee, coffee-related products such as coffee filters, sugar and creamers, assorted teas, and cappuccino, cocoa, spices, gelatins and puddings, soup, gravy and sauce mixes, pancake and biscuit mixes, and jellies and preserves. For the past three fiscal years, sales of roasted coffee products represented approximately 50% of our total sales and no single product other than roasted coffee accounted for more than 10% of our total sales. Coffee purchasing, roasting and packaging takes place at our Torrance, California; Portland, Oregon; and Houston, Texas plants. Spice blending and packaging takes place at our Torrance, California plant. Our distribution centers include our Torrance, Houston, and Portland plants, and distribution centers in Northlake, Illinois; Oklahoma City, Oklahoma; and Moonachie, New Jersey. Our distribution center in Fridley, Minnesota, was closed in July 2011.

## Raw Materials and Supplies

Our primary raw material is green coffee, an agricultural commodity. Green coffee is mainly grown outside the United States and can be subject to volatile price fluctuations. Weather, real or perceived supply shortages, political unrest, labor actions, currency fluctuations, armed conflict in coffee producing nations, speculative investment, and government actions, including treaties and trade controls between the U.S. and coffee producing nations, can affect the price of green coffee. Green specialty coffees sell at a premium to other green coffees due to the inability of producers to increase supply in the short run to meet rising demand. As a result, the price spread between specialty coffee and non-specialty coffee is likely to widen as demand for specialty coffee continues to increase.

Producer organizations can also affect green coffee prices. The most prominent of these are the Colombian Coffee Federation, Inc. (CCF) and the International Coffee Organization (ICO). These organizations seek to increase green coffee prices largely by attempting to restrict supplies, thereby limiting the availability of green coffee to coffee consuming nations.

Other raw materials used in the manufacture of our tea and culinary products include a wide variety of spices, such as pepper, chilies, oregano and thyme, as well as cocoa, dehydrated milk products, salt and sugar. These raw materials are agricultural products and can be subject to wide cost fluctuations. In fiscal 2011 such fluctuations in commodity prices had a material effect on our operating results.

## Trademarks and Licenses

We own 148 registered trademarks which are integral to customer identification of our products. It is not possible to assess the impact of the loss of such identification. Additionally, in connection with the DSD Coffee Business acquisition, the Company and Sara Lee have entered into certain operational agreements that include trademark and formula license agreements.

## Seasonality

We experience some seasonal influences. The winter months are generally the strongest sales months. However, our product line and geographic diversity provide some sales stability during the warmer months when coffee consumption ordinarily decreases. Additionally, we usually experience an increase in sales during the summer and early fall months from seasonal businesses located in vacation areas, and from grocery retailers ramping up inventory for the winter selling season.

## Distribution

Most sales are made “off-truck” to our customers at their places of business by our sales representatives who are responsible for soliciting, selling and collecting from and otherwise maintaining our customer accounts. We serve our customers from six distribution centers strategically located for national coverage. In July 2011, we closed our distribution center in Fridley, Minnesota. Our distribution trucks are replenished from 114 branch warehouses located throughout the contiguous United States. We operate our own trucking fleet to support our



long-haul distribution requirements. A portion of our products are distributed by third parties or are direct shipped via common carrier. We maintain inventory levels at each branch warehouse to allow for minimal interruption in supply.

## Customers

We serve a wide variety of customers, from small restaurants and donut shops to large institutional buyers like restaurant chains, hotels, casinos, hospitals, foodservice providers and convenience stores. As a result of the CBI acquisition we added additional customer categories including gourmet coffee houses, bakery/café chains, and large regional and national grocery and specialty food retailers. As a result of the DSD Coffee Business acquisition, we added more national accounts and gaming accounts. Within our DSD channel, we believe on-premise customer contact, our large distribution network and our relationship-based high quality service model are integral to our past and future success. No single customer represents a significant concentration of sales. As a result, the loss of one or more of our larger customer accounts is not likely to have a material adverse effect on our results of operations.

## Competition

We face competition from many sources, including the institutional foodservice divisions of multi-national manufacturers of retail products such as The J.M. Smucker Company (Folgers Coffee), Kraft Foods Inc. (Maxwell House Coffee) and Sara Lee Corporation, wholesale grocery distributors such as Sysco Corporation and U.S. Foodservice, regional institutional coffee roasters such as S & D Coffee, Inc. and Boyd Coffee Company, and specialty coffee suppliers such as Green Mountain Coffee Roasters, Inc. and Peet's Coffee & Tea, Inc. We believe our longevity, the quality of our products, our national distribution network and our superior customer service are the major factors that differentiate us from our competitors.

Competition is robust and is primarily based on products and price, with distribution and service often a major factor. Most of our customers rely on us for distribution; however, some of our customers use third party distribution or conduct their own distribution. Some of our customers are “price” buyers, seeking the low cost provider with little concern about service, while others find great value in the service programs we provide. We compete well when service and distribution are valued by our customers, and are less effective when only price matters. Our customer base is price sensitive, and we are often faced with price competition.

## Working Capital

We finance our operations internally and through borrowings under our $85 million senior secured revolving credit facility with Wells Fargo Bank, National Association (“Wells Fargo”). We believe this credit facility, to the extent available, in addition to our cash flow from operations and other liquid assets, are sufficient to fund our working capital and capital expenditure requirements for the next twelve months.

## Foreign Operations

We have no material revenues from foreign operations.

## Other

On June 30, 2011 we employed 1,820 employees, 616 of whom are subject to collective bargaining agreements. Compliance with government regulations relating to the discharge of materials into the environment has not had a material effect on our financial condition or results of operations. The nature of our business does not provide for maintenance of or reliance upon a sales backlog. None of our business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the government.



## Available Information

Our Internet website address is http://www.farmerbros.com (the website address is not intended to function as a hyperlink, and the information contained in our website is not intended to be part of this filing), where we make available, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K including amendments thereto as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the Securities and Exchange Commission (“SEC”).

## Item 1A. Risk Factors

You should consider each of the following factors as well as the other information in this report, including our financial statements and the related notes, in evaluating our business and our prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also negatively affect our business operations. If any of the following risks actually occurs, our business and financial results could be harmed. In that case, the trading price of our common stock could decline.

## INCREASES IN THE COST OF GREEN COFFEE COULD REDUCE OUR GROSS MARGIN AND PROFIT.

Our primary raw material is green coffee, an agricultural commodity. Green coffee is mainly grown outside the United States and can be subject to volatile price fluctuations. Weather, real or perceived supply shortages, speculation in the commodity markets, political unrest, labor actions, currency fluctuations, armed conflict in coffee producing nations, and government actions, including treaties and trade controls between the U.S. and coffee producing nations, can affect the price of green coffee. In fiscal 2011, the market for green Arabica coffee increased approximately 80% per pound compared to the prior fiscal year. Additionally, green specialty coffees sell at a premium to other green coffees due to the inability of producers to increase supply in the short run to meet rising demand. As a result, the price spread between specialty coffee and non-specialty coffee is likely to widen as demand for specialty coffee continues to increase.

Green coffee prices can also be affected by the actions of producer organizations. The most prominent of these are the Colombian Coffee Federation, Inc. (CCF) and the International Coffee Organization (ICO). These organizations seek to increase green coffee prices largely by attempting to restrict supplies, thereby limiting the availability of green coffee to coffee consuming nations. As a result these organizations or others may succeed in raising green coffee prices.

There can be no assurance that we will be successful in passing commodity price fluctuations on to our customers without losses in sales volume or gross margin. Similarly, rapid, sharp decreases in the cost of green coffee could also force us to lower sales prices before realizing cost reductions in our green coffee inventory. Additionally, if green coffee beans from a region become unavailable or prohibitively expensive, we could be forced to use alternative coffee beans or discontinue certain blends, which could adversely impact our sales.

Some of the Arabica coffee beans of the quality we purchase do not trade directly on the commodity markets. Rather, we purchase the high-end Arabica coffee beans that we use on a negotiated basis. We depend on our relationships with coffee brokers, exporters and growers for the supply of our primary raw material, high quality Arabica coffee beans. If any of our relationships with coffee brokers, exporters or growers deteriorate, we may be unable to procure a sufficient quantity of high quality coffee beans at prices acceptable to us or at all. In such case, we may not be able to fulfill the demand of our existing customers, supply new customers or expand other channels of distribution. A raw material shortage could result in a deterioration of our relationship with our customers, decreased revenues or could impair our ability to expand our business.



## OUR EFFORTS TO SECURE AN ADEQUATE SUPPLY OF QUALITY COFFEES MAY BE UNSUCCESSFUL AND EXPOSE US TO COMMODITY PRICE RISK.

Maintaining a steady supply of green coffee is essential to keep inventory levels low and secure sufficient stock to meet customer needs. To help ensure future supplies, we may purchase coffee on forward contracts for delivery up to twelve months in the future. Non-performance by suppliers could expose us to credit and supply risk. Additionally, entering into such future commitments exposes us to purchase price risk. Because we are not always able to pass price changes through to our customers due to competitive pressures, unpredictable price changes can have an immediate effect on operating results that cannot be corrected in the short run. To reduce our potential price risk exposure we have, from time to time, entered into futures contracts to hedge coffee purchase commitments. Open contracts associated with these hedging activities are described in Item 7A. "Quantitative and Qualitative Disclosures About Market Risk."

## WE FACE EXPOSURE TO OTHER COMMODITY COST FLUCTUATIONS, WHICH COULD IMPAIR OUR PROFITABILITY.

We are exposed to cost fluctuations in other commodities, including, without limitation, milk, spices, natural gas and gasoline. In addition, an increase in the cost of fuel could indirectly lead to higher electricity costs, transportation costs and other commodity costs. Much like green coffee costs, the costs of these commodities depend on various factors beyond our control, including economic and political conditions, foreign currency fluctuations, and global weather patterns. To the extent we are unable to pass along such costs to our customers through price increases, our margins and profitability will decrease.

## IMPAIRMENT CHARGES RELATED TO OUR GOODWILL OR LONG-LIVED ASSETS COULD ADVERSELY AFFECT OUR FUTURE OPERATING RESULTS.

We perform an analysis on our goodwill balances to test for impairment on an annual basis or whenever events occur that may indicate impairment possibly exists. Goodwill is deemed to be impaired if the net book value of a reporting unit exceeds the estimated fair value. A long-lived intangible asset (other than goodwill) is only deemed to have become impaired if the sum of the forecasted undiscounted future cash flows related to the asset is less than the asset’s carrying value. If the sum of the forecasted cash flows is less than the carrying value, then we must write down the carrying value to its estimated fair value.

For the purposes of analysis of our goodwill balances, our estimates of fair value were based on a combination of the income approach, which estimates the fair value of our reporting units based on the future discounted cash flows, and the market approach, which estimates the fair value of our reporting units based on comparable market prices. Our estimates of future cash flows included estimated growth rates and assumptions about the extent and duration of the current economic downturn and operating results of our subsidiary, CBI.

As of June 30, 2011, we had a goodwill balance of $5.3 million. Goodwill impairment analysis and measurement is a process that requires significant judgment and the use of significant estimates related to valuation such as discount rates, long term growth rates and the level and timing of future cash flows. As a result, several factors could indicate potential impairment of our goodwill balance, including, but not limited to:

- a decline in our stock price and resulting market capitalization, if we determine that the decline is sustained and is indicative of a reduction in the fair value of CBI below its carrying value; and

- further weakening of the economy or the failure of CBI to reach our internal forecasts thereby impacting its ability to achieve our forecasted levels of cash flows and reducing the estimated discounted cash flow value of CBI.

We will continue to review our goodwill and other intangible assets for possible impairment. We cannot be certain that a future downturn in CBI’s business, changes in market conditions or a longer-term decline in the quoted market price of our stock will not result in an impairment of goodwill and the recognition of resulting expenses in future periods, which could adversely affect our results of operations for those periods.



We also test our other long-lived assets for impairment annually and whenever events or changes in circumstances indicate that their carrying amount may be impaired. In the fourth quarter of fiscal 2011, we determined that the customer relationships acquired, and the distribution agreement and co-pack agreement that we entered into, in connection with the DSD Coffee Business acquisition were impaired and wrote these intangible assets off in their entirety. The total impairment charge of $7.8 million was included in operating expenses in fiscal 2011. Failure to achieve our forecasted operating results, due to further weakness in the economic environment or other factors, and further declines in our market capitalization, among other things could result in further impairment of our long-lived assets.

## OUR LEVEL OF INDEBTEDNESS COULD ADVERSELY AFFECT OUR ABILITY TO RAISE ADDITIONAL CAPITAL TO FUND OUR OPERATIONS, AND LIMIT OUR ABILITY TO REACT TO CHANGES IN THE ECONOMY OR OUR INDUSTRY.

We have an $85 million revolving credit facility. As of August 31, 2011, we had outstanding borrowings of $35.3 million, utilized $9.0 million of the letters of credit sublimit, and had excess availability under the credit facility of $5.7 million (before giving effect to an increase in the line of credit on September 12, 2011 pursuant to the New Loan Agreement discussed below under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facility”). Maintaining a large loan balance under our credit facility could adversely affect our business and limit our ability to plan for or respond to changes in our business. Additionally, our borrowings under the credit facility are at variable rates of interest, exposing us to the risk of interest rate volatility, which could lead to a decrease in our net income. Our debt obligations could also:

• increase our vulnerability to general adverse economic and industry conditions;

- require us to dedicate a portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow for other purposes, including the payment of dividends, funding daily operations, investing in future business opportunities and capital expenditures;

- limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate thereby placing us at a competitive disadvantage compared to our competitors that may have less debt or debt with less restrictive debt covenants;

- limit, by the financial and other restrictive covenants in our loan agreement, our ability to borrow additional funds; and

- have a material adverse effect on us if we fail to comply with the covenants in our loan agreement because such failure could result in an event of default which, if not cured or waived, could result in our indebtedness becoming immediately due and payable.

## RESTRICTIVE COVENANTS IN OUR CREDIT FACILITY MAY RESTRICT OUR ABILITY TO PURSUE OUR BUSINESS STRATEGIES.

Our revolving credit facility contains various covenants that limit our ability and/or our subsidiaries’ ability to, among other things:

• incur additional indebtedness;

- pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments;

• sell assets;

• create liens on certain assets to secure debt; and

• consolidate, merge, sell or otherwise dispose of all or substantially all of our assets.

Our credit facility also contains restrictive covenants that require the Company and its subsidiaries to satisfy financial condition and liquidity tests. Our ability to meet those tests may be affected by events beyond our control, and there can be no assurance that we will meet those tests. The breach of any of these covenants or our failure to meet the financial condition or liquidity tests could result in a default under the credit facility, and the lender could elect to declare all amounts borrowed thereunder, together with accrued interest, to be due and payable and could proceed against the collateral securing that indebtedness.



## OUR BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH THE CURRENT ECONOMIC CLIMATE.

Our success depends to a significant extent on a number of factors that affect discretionary consumer spending, including economic conditions, disposable consumer income and consumer confidence, which have deteriorated due to current economic conditions. In a slow economy, businesses and individuals scale back their discretionary spending on travel and entertainment, including “dining out” as well as the purchase of high-end consumables like specialty coffee. Economic conditions may also cause businesses to reduce travel and entertainment expenses, and may even cause office coffee benefits to be eliminated. The current economic downturn and decrease in consumer spending may continue to adversely impact our revenues, and may affect our ability to market our products or otherwise implement our business strategy. Additionally, many of the effects and consequences of the global financial crisis and a broader global economic downturn are currently unknown; any one or all of them could potentially have a material adverse effect on our liquidity and capital resources, including our ability to sell third party securities in which we have invested some of our short-term assets or raise additional capital, if needed, or the ability of our lender to honor draws on our credit facility, or otherwise negatively affect our business, financial condition, operating results and cash flows.

## WE RELY ON INFORMATION TECHNOLOGY AND ARE DEPENDENT ON ENTERPRISE RESOURCE PLANNING SOFTWARE IN OUR OPERATIONS. ANY MATERIAL FAILURE, INADEQUACY, INTERRUPTION OR SECURITY FAILURE OF THAT TECHNOLOGY COULD AFFECT OUR ABILITY TO EFFECTIVELY OPERATE OUR BUSINESS.

We rely on information technology systems across our operations, including management of our supply chain, point-of-sale processing, and various other processes and transactions. Our ability to effectively manage our business and coordinate the production, distribution and sale of our products depends significantly on the reliability and capacity of these systems. The failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, or a breach in security of these systems could result in delays in processing replenishment orders from our branches, our inability to record product sales and reduced operational efficiency. Significant capital investments could be required to remediate any potential problems.

## VOLATILITY IN THE EQUITY MARKETS COULD REDUCE THE VALUE OF OUR INVESTMENT PORTFOLIO.

We maintain a significant portfolio of fixed-income based investments disclosed as cash equivalents and short-term investments on our consolidated balance sheet. The value of our investments may be adversely affected by interest rate fluctuations, downgrades in credit ratings, illiquidity in the capital markets and other factors which may result in other than temporary declines in the value of our investments. Any of these events could cause us to record impairment charges with respect to our investment portfolio or to realize losses on the sale of investments. We seek to mitigate these risks with the help of our investment advisors by generally investing in high quality securities and continuously monitoring the overall risk of our portfolio. To date, we have not realized any material impairment within our investment portfolio. If the Company’s operating losses continue, a portion or this entire investment portfolio may be liquidated to fund those losses.

## WE ARE LARGELY RELIANT ON MAJOR FACILITIES IN CALIFORNIA, TEXAS AND OREGON FOR PRODUCTION OF OUR PRODUCT LINE.

A significant interruption in operations at our manufacturing facilities in Torrance, California (our largest facility); Houston, Texas; or Portland, Oregon, whether as a result of an earthquake, hurricane, natural disaster, terrorism or other causes, could significantly impair our ability to operate our business. The majority of our green coffee comes through the Ports of Los Angeles, Long Beach, Houston, San Francisco and Portland. Any interruption to port operations, highway arteries, gas mains or electrical service in these areas could restrict our ability to supply our branches with product and would adversely impact our business.



## WE MAY FAIL TO REALIZE THE EXPECTED SYNERGIES AND OTHER BENEFITS OF THE INTEGRATION OF THE DSD COFFEE BUSINESS, WHICH COULD ADVERSELY AFFECT OUR FUTURE RESULTS.

In fiscal 2010, we completed the integration of the DSD Coffee Business into our existing business. This was a complex, costly and time-consuming process which presented significant challenges and risks to our business, including:

• distraction of management from ongoing business concerns;

• assimilation and retention of employees and customers of the DSD Coffee Business;

• differences in the culture of the DSD Coffee Business and the Company’s culture;

- unforeseen difficulties in integrating the DSD Coffee Business, including information systems and accounting controls;

- failure of the DSD Coffee Business to continue to generate income at the levels upon which we based our acquisition decision;

- managing the DSD Coffee Business operations through offices in Northlake, Illinois, which is distant from the Company’s headquarters in Torrance, California;

• expansion into new geographical markets in which we have limited or no experience;

• integration of technologies, services and products; and

• achievement of appropriate internal control over financial reporting.

We may fail to realize the operating efficiencies, synergies, economies of scale, cost savings and other benefits expected from the acquisition. We may fail to grow and build profits in the DSD Coffee Business or achieve sufficient cost savings through the integration of customers or administrative and other operational activities. Furthermore, we must achieve these objectives without adversely affecting our revenues. If we are not able to successfully achieve these objectives, the anticipated benefits of the acquisition may not be realized fully or at all, or it may take longer to realize them than expected, and our results of operations could be adversely affected.

## INCREASED SEVERE WEATHER PATTERNS MAY INCREASE COMMODITY COSTS, DAMAGE OUR FACILITIES, AND IMPACT OR DISRUPT OUR PRODUCTION CAPABILITIES AND SUPPLY CHAIN.

There is increasing concern that a gradual increase in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere have caused and will continue to cause significant changes in weather patterns around the globe and an increase in the frequency and severity of extreme weather events. Major weather phenomena like El Niño and La Niña are dramatically affecting coffee growing countries. The wet and dry seasons are becoming unpredictable in timing and duration causing improper development of the coffee cherries. Decreased agricultural productivity in certain regions as a result of changing weather patterns may affect the quality, limit availability or increase the cost of key agricultural commodities, such as green coffee, sugar and tea, which are important ingredients for our products. Increased frequency or duration of extreme weather conditions could also damage our facilities, impair production capabilities, disrupt our supply chain or impact demand for our products. As a result, the effects of climate change could have a long-term adverse impact on our business and results of operations.

## OUR INDUSTRY IS HIGHLY COMPETITIVE AND WE MAY NOT HAVE THE RESOURCES TO COMPETE EFFECTIVELY.

We primarily compete with other coffee companies, including multi-national firms with substantially greater financial, marketing and operating resources than the Company. We face competition from many sources



including the foodservice divisions of multi-national manufacturers of retail products such as The J.M. Smucker Company (Folgers Coffee), Kraft Foods Inc. (Maxwell House Coffee) and Sara Lee Corporation, wholesale grocery distributors such as Sysco Corporation and U.S. Foodservice, regional coffee roasters such as S & D Coffee, Inc. and Boyd Coffee Company, and specialty coffee suppliers such as Green Mountain Coffee Roasters, Inc. and Peet's Coffee & Tea, Inc. If we do not succeed in differentiating ourselves from our competitors or our competitors adopt our strategies, then our competitive position may be weakened. In addition, from time to time, we may need to reduce our prices in response to competitive and customer pressures and to maintain our market share. Competition and customer pressures, however, also may restrict our ability to increase prices in response to commodity and other cost increases. Our results of operations will be adversely affected if our profit margins decrease, as a result of a reduction in prices or an increase in costs, and if we are unable to increase sales volumes to offset those profit margin decreases.

## VOLATILITY IN THE EQUITY MARKETS OR INTEREST RATE FLUCTUATIONS COULD SUBSTANTIALLY INCREASE OUR PENSION FUNDING REQUIREMENTS AND NEGATIVELY IMPACT OUR FINANCIAL POSITION.

At the end of fiscal 2011, the projected benefit obligation of our defined benefit pension plans was $111.8 million and assets were $83.7 million. The difference between plan obligations and assets, or the funded status of the plans, significantly affects the net periodic benefit costs of our pension plans and the ongoing funding requirements of those plans. Among other factors, changes in interest rates, mortality rates, early retirement rates, investment returns and the market value of plan assets can affect the level of plan funding, cause volatility in the net periodic pension costs, and increase our future funding requirements. We expect to make approximately $7.5 million in contributions to our pension plans in fiscal 2012 and record an accrued expense of approximately $1.2 million per year beginning in fiscal 2012. These payments are expected to continue at this level for several years, and the current economic environment increases the risk that we may be required to make even larger contributions in the future.

## OUR SALES AND DISTRIBUTION NETWORK IS COSTLY TO MAINTAIN.

Our sales and distribution network requires a large investment to maintain and operate. Costs include the fluctuating cost of gasoline, diesel and oil, costs associated with managing, purchasing, leasing, maintaining and insuring a fleet of delivery vehicles, the cost of maintaining distribution centers and branch warehouses throughout the country, and the cost of hiring, training and managing our route sales professionals. Many of these costs are beyond our control, and others are fixed rather than variable. Some competitors use alternate methods of distribution that eliminate many of the costs associated with our method of distribution.

## EMPLOYEE STRIKES AND OTHER LABOR-RELATED DISRUPTIONS MAY ADVERSELY AFFECT OUR OPERATIONS.

We have union contracts relating to a significant portion of our workforce. Although we believe union relations have been amicable in the past, there is no assurance that this will continue in the future. There are potential adverse effects of labor disputes with our own employees or by others who provide transportation (shipping lines, truck drivers) or cargo handling (longshoremen), both domestic and foreign, of our raw materials or other products. These actions could restrict our ability to obtain, process and/or distribute our products.

## GOVERNMENT MANDATORY HEALTHCARE REQUIREMENTS COULD ADVERSELY AFFECT OUR PROFITS.

We offer healthcare benefits to all employees who work at least 40 hours a week and meet service eligibility requirements. In the past, some states, including California, have proposed legislation mandating that employers pay healthcare premiums into a state-run fund for all employees immediately upon hiring or pay a penalty for failing to do so. If legislation similar to this were to be enacted in California, or in the other states in which we do



business, it could have an adverse effect on our results of operations. In addition, comprehensive health care legislation (the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010) was passed and signed into law in March 2010. Due to the breadth and complexity of this legislation, the phased-in nature of the implementation, and the lack of implementing regulations, it is difficult to predict the financial and operational impacts this legislation will have on us. Our expenses may significantly increase over the long-term as a result of this legislation.

## POSSIBLE LEGISLATION OR REGULATION INTENDED TO ADDRESS CONCERNS ABOUT CLIMATE CHANGE COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS, CASH FLOWS AND FINANCIAL CONDITION.

Governmental agencies are evaluating changes in laws to address concerns about the possible effects of greenhouse gas emissions on climate. Increased public awareness and concern over climate change may increase the likelihood of more proposals to reduce or mitigate the emission of greenhouse gases. Laws enacted that directly or indirectly affect our suppliers (through an increase in the cost of production or their ability to produce satisfactory products) or our business (through an impact on our inventory availability, cost of goods sold, operations or demand for the products we sell) could adversely affect our business, financial condition, results of operations and cash flows. Compliance with any new or more stringent laws or regulations, or stricter interpretations of existing laws, including increased government regulations to limit carbon dioxide and other greenhouse gas emissions as a result of concern over climate change, could require us to reduce emissions and to incur compliance costs which could affect our profitability or impede the production or distribution of our products, which could affect our results of operations, cash flows and financial condition. In addition, public expectations for reductions in greenhouse gas emissions could result in increased energy, transportation and raw material costs and may require us to make additional investments in facilities and equipment.

## CHANGES IN CONSUMER PREFERENCES COULD ADVERSELY AFFECT OUR BUSINESS.

Our continued success depends, in part, upon the demand for coffee. We believe that competition from other beverages continues to dilute the demand for coffee. Consumers who choose soft drinks, juices, bottled water, teas and other beverages all reduce spending on coffee. Consumer trends away from coffee could negatively impact our business.

## WE ARE SELF-INSURED. OUR RESERVES MAY NOT BE SUFFICIENT TO COVER FUTURE CLAIMS.

We are self-insured for many risks up to significant deductible amounts. The premiums associated with our insurance continue to increase. General liability, fire, workers' compensation, directors and officers liability, life, employee medical, dental and vision and automobile risks present a large potential liability. While we accrue for this liability based on historical experience, future claims may exceed claims we have incurred in the past. Should a different number of claims occur compared to what was estimated or the cost of the claims increase beyond what was anticipated, reserves recorded may not be sufficient and the accruals may need to be adjusted accordingly in future periods. In May 2011, we did not meet the minimum credit rating criteria for participation in the alternative security program for California self-insurers. As a result, we were required to post a $5.9 million letter of credit as a security deposit to the State of California Department of Industrial Relations Self-Insurance Plans. We posted the security deposit in June 2011.

## OUR ROASTING AND BLENDING METHODS ARE NOT PROPRIETARY, SO COMPETITORS MAY BE ABLE TO DUPLICATE THEM, WHICH COULD HARM OUR COMPETITIVE POSITION.

We consider our roasting and blending methods essential to the flavor and richness of our coffees and, therefore, essential to our brand. Because our roasting methods cannot be patented, we would be unable to prevent competitors from copying these methods if such methods became known. If our competitors copy our



roasts or blends, the value of our brand may be diminished, and we may lose customers to our competitors. In addition, competitors may be able to develop roasting or blending methods that are more advanced than our production methods, which may also harm our competitive position.

## OUR OPERATING RESULTS MAY HAVE SIGNIFICANT FLUCTUATIONS FROM QUARTER TO QUARTER WHICH COULD HAVE A NEGATIVE EFFECT ON OUR STOCK PRICE.

Our operating results may fluctuate from period to period or within certain periods as a result of a number of factors, including fluctuations in the price and supply of green coffee, fluctuations in the selling prices of our products, the success of our hedging strategy, competition from existing or new competitors in our industry, changes in consumer preferences, and our ability to manage inventory and fulfillment operations and maintain gross margins. During the quarters, we record an estimated impact of the LIFO valuation of our inventory and record the actual impact at year end. Fluctuations in our operating results as a result of these factors or for any other reason could cause our stock price to decline. Accordingly, we believe that period-to-period comparisons of our operating results are not necessarily meaningful, and such comparisons should not be relied upon as indicators of future performance.

## OPERATING LOSSES MAY CONTINUE AND, AS A RESULT, COULD LEAD TO INCREASED LEVERAGE WHICH MAY HARM OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

We have incurred operating losses and net losses for each of the prior three fiscal years. If our current strategies are unsuccessful we may not achieve the levels of sales and earnings we expect. As a result, we could suffer additional losses in future years and our stock price could decline leading to deterioration in our credit rating, which could limit the availability of additional financing and increase the cost of obtaining financing. In addition, an increase in leverage could raise the likelihood of a financial covenant breach which in turn could limit our access to existing funding under our revolving credit facility.

Our ability to satisfy our operating lease obligations and make payments of principal and interest on our indebtedness depends on our future performance. Should we experience deterioration in operating performance, we will have less cash flow available to meet these obligations. In addition, if such deterioration were to lead to the closure of warehouses or distribution centers, we would need to fund the costs of terminating those leases. If we are unable to generate sufficient cash flow from operations in the future to satisfy these financial obligations, we may be required to, among other things:

• seek additional financing in the debt or equity markets;

• refinance or restructure all or a portion of our indebtedness;

• sell selected assets; or

• reduce or delay planned capital or operating expenditures.

Such measures might not be sufficient to enable us to satisfy our financial obligations. In addition, any such financing, refinancing or sale of assets might not be available on economically favorable terms.

## FUTURE FUNDING DEMANDS UNDER PENSION PLANS FOR CERTAIN UNION EMPLOYEES ARE UNKNOWN.

We participate in several multi-employer defined benefit plans for certain union employees. The management, funding status and future viability of these plans is not known at this time. The nature of the contract with these plans allows for future funding demands that are outside our control or ability to estimate.



## WE DEPEND ON THE EXPERTISE OF KEY PERSONNEL. THE UNEXPECTED LOSS OF ONE OR MORE OF THESE KEY EMPLOYEES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS AND COMPETITIVE POSITION.

Our continued success largely depends on the efforts and abilities of our executive officers and other key personnel. There is limited management depth in certain key positions throughout the Company. We must continue to recruit, retain and motivate management and other employees to maintain our current business and support our projected growth. The loss of key employees could adversely affect our operations and competitive position. We do not maintain key person life insurance policies on any of our executive officers.

## CONCENTRATION OF OWNERSHIP AMONG OUR PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT CORPORATE DECISIONS AND MAY RESULT IN A LOWER TRADING PRICE FOR OUR STOCK THAN IF OWNERSHIP OF OUR STOCK WAS LESS CONCENTRATED.

As of September 9, 2011, members of the Farmer family or entities controlled by the Farmer family (including trusts and a family partnership) as a group beneficially owned approximately 39.1% of our outstanding common stock. As a result, these stockholders, acting together, may be able to influence the outcome of stockholder votes, including votes concerning the election and removal of directors and approval of significant corporate transactions. This level of concentrated ownership may have the effect of delaying or preventing a change in the management or voting control of the Company. In addition, this significant concentration of share ownership may adversely affect the trading price of our common stock if investors perceive disadvantages in owning stock in a company with such concentrated ownership.

## FUTURE SALES OF SHARES BY EXISTING STOCKHOLDERS COULD CAUSE OUR STOCK PRICE TO DECLINE.

All of our outstanding shares are eligible for sale in the public market, subject in certain cases to limitations under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”). Also, shares subject to outstanding options and restricted stock under the Farmer Bros. Co. 2007 Omnibus Plan (the “Omnibus Plan”) are eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, our stock ownership guidelines, and Rule 144 under the Securities Act. If these shares are sold, or if it is perceived that they will be sold in the public market, the trading price of our common stock could decline.

## ANTI-TAKEOVER PROVISIONS COULD MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.

We have adopted a stockholder rights plan (the “Rights Plan”) pursuant to which each share of our outstanding common stock is accompanied by one preferred share purchase right (a “Right”). Each Right, when exercisable, will entitle the registered holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock, $1.00 par value per share, at a purchase price of $112.50, subject to adjustment. The Rights expire on March 28, 2015, unless they are earlier redeemed, exchanged or terminated as provided in the Rights Plan. Because the Rights may substantially dilute the stock ownership of a person or group attempting to take us over without the approval of our Board of Directors, our Rights Plan could make it more difficult for a third party to acquire us (or a significant percentage of our outstanding capital stock) without first negotiating with our Board of Directors regarding such acquisition.

In addition, our Board of Directors has the authority to issue up to 500,000 shares of preferred stock (of which 200,000 shares have been designated as Series A Junior Participating Preferred Stock) and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by stockholders. The rights of the holders of our common stock may be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock may have the effect of delaying, deterring or preventing a change of control of the Company without further action by stockholders and may adversely affect the voting and other rights of the holders of our common stock.



Further, certain provisions of our charter documents, including a classified board of directors, provisions eliminating the ability of stockholders to take action by written consent, and provisions limiting the ability of stockholders to raise matters at a meeting of stockholders without giving advance notice, may have the effect of delaying or preventing changes in control or management of the Company, which could have an adverse effect on the market price of our stock. In addition, our charter documents do not permit cumulative voting, which may make it more difficult for a third party to gain control of our Board of Directors. Further, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which will prohibit us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, even if such combination is favored by a majority of stockholders, unless the business combination is approved in a prescribed manner. The application of Section 203 also could have the effect of delaying or preventing a change of control or management.

## QUALITY CONTROL PROBLEMS MAY ADVERSELY AFFECT OUR BRANDS THEREBY NEGATIVELY IMPACTING OUR SALES.

Our success depends on our ability to provide customers with high quality products and service. Although we take measures to ensure that we sell only fresh coffee, tea and culinary products, we have no control over our products once they are purchased by our customers. Accordingly, customers may store our products for longer periods of time, potentially affecting product quality. If consumers do not perceive our products and service to be of high quality, then the value of our brands may be diminished and, consequently, our operating results and sales may be adversely affected.

## ADVERSE PUBLIC OR MEDICAL OPINIONS ABOUT CAFFEINE AND REPORTS OF INCIDENTS INVOLVING FOOD BORNE ILLNESS AND TAMPERING MAY HARM OUR BUSINESS.

Coffee contains significant amounts of caffeine and other active compounds, the health effects of some of which are not fully understood. A number of research studies conclude or suggest that excessive consumption of caffeine may lead to increased adverse health effects. An unfavorable report on the health effects of caffeine or other compounds present in coffee could significantly reduce the demand for coffee which could harm our business and reduce our sales.

Similarly, instances or reports, whether true or not, of unclean water supply, food-borne illnesses and food tampering have in the past severely injured the reputations of companies in the food processing sector and could in the future affect us as well. Any report linking us to the use of unclean water, food-borne illnesses or food tampering could damage the value of our brands, negatively impact sales of our products, and potentially lead to product liability claims. Clean water is critical to the preparation of coffee beverages. We have no ability to ensure that our customers use a clean water supply to prepare coffee beverages.

## PRODUCT RECALLS AND INJURIES CAUSED BY PRODUCTS COULD REDUCE OUR SALES AND HARM OUR BUSINESS.

Selling products for human consumption involves inherent legal risks. We could be required to recall products due to product contamination, spoilage or other adulteration, product misbranding or product tampering. We may also suffer losses if our products or operations violate applicable laws or regulations, or if our products cause injury, illness or death. A significant product liability claim against us, whether or not successful, or a widespread product recall may reduce our sales and harm our business.

## GOVERNMENT REGULATIONS COULD RESULT IN ADDITIONAL COSTS THEREBY AFFECTING OUR PROFITABILITY.

New laws and regulations may be introduced that could result in additional compliance costs, seizures, confiscations, recalls or monetary fines, any of which could prevent or inhibit the development, distribution and



sale of our products. We continually monitor and modify our packaging to be in compliance with applicable laws and regulations. Any change in labeling requirements for our products may lead to an increase in packaging costs or interruptions or delays in packaging deliveries. If we fail to comply with applicable laws and regulations, we may be subject to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on our results of operations.

## FAILURE TO MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE WITH SECTION 404 OF THE SARNBANES OXLEY ACT OF 2002 COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND STOCK PRICE.

As directed by Section 404 of the Sarbanes Oxley Act of 2002 (“SOX”), the SEC adopted rules requiring us, as a public company, to include a report of management on our internal controls over financial reporting in our annual report on Form 10-K and quarterly reports on Form 10-Q that contains an assessment by management of the effectiveness of our internal controls over financial reporting. In addition, our independent auditors must attest to and report on management’s assessment of the effectiveness of our internal controls over financial reporting as of the end of the fiscal year. Compliance with SOX Section 404 has been a challenge for many companies. Our ability to continue to comply is uncertain as we expect that our internal controls will continue to evolve as our business activities change. If, during any year, our independent auditors are not satisfied with our internal controls over financial reporting or the level at which these controls are documented, designed, operated, tested or assessed, or if the independent auditors interpret the requirements, rules or regulations differently than we do, then they may decline to attest to management’s assessment or may issue a report that is qualified. In addition, if we fail to maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with SOX Section 404. Failure to maintain an effective internal control environment could have a material adverse effect on our stock price. In addition, there can be no assurance that we will be able to remediate material weaknesses, if any, which may be identified in future periods.

## Item 1.B. Unresolved Staff Comments

None.

## Item 2. Properties

Our largest and most significant facility is our corporate headquarters in Torrance, California. Our Torrance facility is our primary manufacturing facility and the distribution hub for our long-haul trucking fleet and houses our primary administrative offices. Coffee purchasing, roasting and packaging takes place at our Torrance, California; Portland, Oregon; and Houston, Texas plants. Spice blending and packaging takes place at our Torrance, California plant. Our distribution centers include our Torrance, Houston and Portland plants as well as distribution centers in Northlake, Illinois; Oklahoma City, Oklahoma; and Moonachie, New Jersey. In July 2011, we closed our distribution center in Fridley, Minnesota.

We stage our products in 114 branch warehouses throughout the contiguous United States. These warehouses and our six distribution centers, taken together, represent a vital part of our business, but no individual warehouse is material to the business as a whole. Our branch warehouses vary in size from approximately 2,500 to 50,000 square feet. Approximately 55% of our facilities are leased with a variety of expiration dates through 2019. The lease on the CBI facility expires in 2018 and has a 10 year renewal option.

We believe our plants, distribution centers and branch warehouses will continue to provide adequate capacity for the foreseeable future.

A complete list of properties and facilities operated by Farmer Bros. is attached hereto, and incorporated herein by reference, as Exhibit 99.1.



## Item 3. Legal Proceedings

We are both defendant and plaintiff in various legal proceedings incidental to our business which are ordinary and routine. It is our opinion that the resolution of these lawsuits will not have a material impact on our financial condition or results of operations.

## Item 4. [Removed and Reserved]



## PART II

## Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

## Market Information

We have one class of common stock which is traded on the NASDAQ Global Market under the symbol “FARM.” The following table sets forth, for the periods indicated, the cash dividends declared and the high and low sales prices of the shares of common stock of the Company as quoted on the NASDAQ Global Market.

<table><tr><td rowspan="2"></td><td colspan="3">Fiscal year ended June 30, 2011</td><td colspan="3">Fiscal year ended June 30, 2010</td></tr><tr><td>High</td><td>Low</td><td>Dividend</td><td>High</td><td>Low</td><td>Dividend</td></tr><tr><td>1st Quarter</td><td>$17.46</td><td>$13.94</td><td>$0.115</td><td>$24.07</td><td>$18.55</td><td>$0.115</td></tr><tr><td>2nd Quarter</td><td>$18.93</td><td>$15.55</td><td>$0.060</td><td>$21.21</td><td>$16.31</td><td>$0.115</td></tr><tr><td>3rd Quarter</td><td>$18.13</td><td>$10.28</td><td>$ —</td><td>$20.52</td><td>$16.36</td><td>$0.115</td></tr><tr><td>4th Quarter</td><td>$13.38</td><td>$ 8.59</td><td>$ —</td><td>$19.49</td><td>$14.81</td><td>$0.115</td></tr></table>

## Holders

There were 2,594 holders of record on September 9, 2011. Determination of Holders of record is based upon the number of record holders and individual participants in security position listings.

## Dividends

Although historically the Company has paid a dividend to stockholders, in light of the Company’s current financial position, in the third and fourth quarters of fiscal 2011 and in the first quarter of fiscal 2012, the Company’s Board of Directors voted to omit the payment of a quarterly dividend for the fourth quarter of fiscal 2011, and the first and second quarters of fiscal 2012, respectively. The amount, if any, of dividends to be paid in the future will depend upon the Company’s then available cash, anticipated cash needs, overall financial condition, loan agreement restrictions, future prospects for earnings and cash flows, as well as other relevant factors. For a description of the loan agreement restrictions on the payment of dividends, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” included in Part II, Item 7 of this Form 10-K, and Note 8 “Bank Loan” to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.

## Equity Compensation Plan Information

This information appears in Part III, Item 12, hereof.



## Performance Graph

The chart set forth below shows the value of an investment of $100 on June 30, 2006 in each of Farmer Bros. Co. common stock, the Russell 2000 Index and the Value Line Food Processing Index. All values assume reinvestment of the pre-tax value of dividends paid by companies included in these indices and are calculated as of June 30 of each year. The historical stock price performance of the Company’s common stock shown in the performance graph below is not necessarily indicative of future stock price performance.

Comparison of Five-Year Cumulative Total Return
Farmer Bros. Co., Russell 2000 Index And Value Line Food Processing Index
(Performance Results Through 6/30/11)



<table><tr><td></td><td>2006</td><td>2007</td><td>2008</td><td>2009</td><td>2010</td><td>2011</td></tr><tr><td>Farmer Bros. Co.</td><td>$100.00</td><td>$106.49</td><td>$101.47</td><td>$112.10</td><td>$ 75.63</td><td>$ 51.81</td></tr><tr><td>Russell 2000 Index</td><td>$100.00</td><td>$116.43</td><td>$ 97.58</td><td>$ 73.18</td><td>$ 88.90</td><td>$122.16</td></tr><tr><td>Value Line Food Processing Index</td><td>$100.00</td><td>$126.74</td><td>$121.40</td><td>$115.36</td><td>$141.26</td><td>$182.96</td></tr></table>

Source: Value Line, Inc.



## Item 6. Selected Financial Data

Fiscal years ended June 30,

<table><tr><td rowspan="2"></td><td rowspan="2">2011</td><td>2010</td><td>2009(1)</td><td>2008(2)</td><td>2007</td></tr><tr><td colspan="4">(In thousands, except per share data)</td></tr><tr><td>Net sales</td><td>$463,945</td><td>$450,318</td><td>$341,724</td><td>$266,485</td><td>$216,259</td></tr><tr><td>Cost of goods sold</td><td>$306,771</td><td>$252,754</td><td>$181,508</td><td>$147,073</td><td>$108,171</td></tr><tr><td>Loss from operations</td><td>$ (68,422)</td><td>$ (39,192)</td><td>$ (15,203)</td><td>$ (10,644)</td><td>$ (4,076)</td></tr><tr><td>Net (loss) income(3)</td><td>$ (54,317)</td><td>$ (23,953)</td><td>$ (33,270)</td><td>$ (7,924)</td><td>$ 6,815</td></tr><tr><td>Net (loss) income per common share</td><td>$ (3.61)</td><td>$ (1.61)</td><td>$ (2.29)</td><td>$ (0.55)</td><td>$ 0.48</td></tr><tr><td>Total assets</td><td>$290,053</td><td>$339,121</td><td>$330,017</td><td>$312,984</td><td>$337,609</td></tr><tr><td>Capital lease obligations(4)</td><td>$ 8,636</td><td>$ 3,861</td><td>$ 1,252</td><td>$ —</td><td>$ —</td></tr><tr><td>Cash dividends declared per common share</td><td>$ 0.18</td><td>$ 0.46</td><td>$ 0.46</td><td>$ 0.46</td><td>$ 0.44</td></tr></table>

(1) Includes the results of operations of the DSD Coffee Business since its acquisition by the Company effective February 28, 2009.

(2) Includes the results of operations of CBH since its acquisition by the Company effective April 27, 2007.

(3) Includes: (i) $7.8 million in impairment loss on intangible assets, and $9.2 million in income tax benefit in fiscal 2011; (ii) $2.5 million in income tax benefit in fiscal 2010; and (iii) a deferred tax asset valuation allowance of $19.7 million recorded as income tax expense in fiscal 2009.

(4) Excludes imputed interest.

The Notes to Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this report should be read in conjunction with the selected financial data in order to understand factors such as business combinations and unusual items which may affect the comparability of the information shown above.



## Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors. The results of operations for the fiscal years ended June 30, 2011, 2010 and 2009 are not necessarily indicative of the results that may be expected for any future period. The following discussion should be read in combination with the consolidated financial statements and the notes thereto included in Item 8 of this report and with the “Risk Factors” described in Item 1A of this report.

## Overview

Farmer Bros. Co., a Delaware corporation (including its consolidated subsidiaries unless the context otherwise requires, the “Company,” “we,” “our” or “Farmer Bros.”) is a manufacturer, wholesaler and distributor of coffee, tea and culinary products. We are direct distributors of coffee to restaurants, hotels, casinos, hospitals and other foodservice providers, and are providers of private brand coffee programs to grocery retailers, restaurant chains, convenience stores, and independent coffee houses, nationwide. We were founded in 1912, were incorporated in California in 1923, and reincorporated in Delaware in 2004. We operate in one business segment.

In April 2007, we acquired all of the outstanding shares of CBH for a purchase price of $23.6 million in cash, including transaction costs of approximately $1.4 million, net of the amount of all outstanding indebtedness of CBH and its subsidiaries. The results of operations of CBH have been included in our consolidated financial statements since April 27, 2007.

On February 28, 2009, we acquired from Sara Lee Corporation, a Maryland corporation (“Sara Lee”), and Saramar, L.L.C., a Delaware limited liability company (“Saramar” and collectively with Sara Lee, “Seller Parties”) certain assets used in connection with Seller Parties’ direct store delivery coffee business in the United States (the “DSD Coffee Business”). The purchase price of $45.6 million was paid with approximately $16.1 million of Company cash and $29.5 million of proceeds from a bank loan. In addition, we paid approximately $2.7 million of acquisition related expenses in cash. At closing, we assumed certain liabilities, including obligations under contracts, environmental liabilities with respect to the transferred facilities, pension liabilities, advertising and trade promotion accruals, and accrued vacation as of the closing for hired personnel. As of June 30, 2011, there were no known liabilities related to the DSD Coffee Business acquisition. The results of operations of the DSD Coffee Business have been included in our consolidated financial statements since March 1, 2009.

In connection with the closing, we and Seller Parties entered into certain operational agreements, including trademark and formula license agreements, co-pack agreements, a liquid coffee distribution agreement, a transition services agreement, and a green coffee and tea purchase agreement. One of the co-pack agreements provided that Sara Lee would manufacture branded products for us for a period of three years. This agreement was terminated effective June 30, 2010. Under the other co-pack agreement, we have agreed to perform co-pack services for Sara Lee as Sara Lee’s agent. As a result, we recognize revenue from this arrangement on a net basis, net of direct costs of revenue. The transition services agreement pursuant to which Sara Lee agreed to provide a number of services for us on an interim basis, including hosting, maintaining and supporting IT infrastructure and communications was terminated on August 31, 2010.

## Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. Our significant accounting policies are discussed in Note 1 to our consolidated financial statements, included herein at Item 8. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including



those related to inventory valuation, including LIFO reserves, the allowance for doubtful accounts, deferred tax assets, liabilities relating to retirement benefits, liabilities resulting from self-insurance of our workers' compensation liabilities, tax liabilities and litigation. We base our estimates, judgments and assumptions on historical experience and other relevant factors that are believed to be reasonable based on information available to us at the time these estimates are made.

While we believe that the historical experience and other factors considered provide a meaningful basis for the accounting policies applied in the preparation of the consolidated financial statements, actual results may differ from these estimates, which could require us to make adjustments to these estimates in future periods.

We believe that the estimates, judgments and assumptions involved in the accounting policies described below require the most subjective judgment and have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Our senior management has reviewed the development and selection of these critical accounting policies and estimates, and their related disclosure in this report, with the Audit Committee of our Board of Directors.

## Coffee Brewing Equipment and Service

Our expenses related to coffee brewing equipment provided to customers include the depreciation cost of the equipment as well as the cost of servicing that equipment (including service employees' salaries, the cost of transportation and the cost of supplies and parts). We capitalize coffee brewing equipment and depreciate it over a three year period; the depreciation expense is reported in cost of goods sold. Since we believe the costs of servicing the equipment are better characterized as direct costs of generating revenues from our customers, we have reported such costs as cost of goods sold in the accompanying financial statements.

## Investments

Our investments consist of money market instruments, marketable debt and equity securities, various derivative instruments, primarily exchange traded futures and options, green coffee forward purchase contracts and commodity purchase agreements. All derivative instruments not designated as accounting hedges are marked to market and changes are recognized in current earnings. At June 30, 2011 and 2010, no derivative instruments were designated as accounting hedges. The fair value of derivative instruments is based upon broker quotes. The cost of investments sold is determined on the specific identification method. Dividend and interest income is accrued as earned.

## Allowance for Doubtful Accounts

We maintain an allowance for estimated losses resulting from the inability of our customers to meet their obligations. In fiscal 2010, based on a larger customer base due to the recent Company acquisitions and in response to slower collection of our accounts receivable resulting from the impact of the economic downturn on our customers, we increased our allowance for doubtful accounts. In fiscal 2011, we decreased the allowance for doubtful accounts balance by $0.4 million due to improved collections of outstanding receivables.

## Inventories

Inventories are valued at the lower of cost or market. Costs of coffee, tea and culinary products are determined on the last in, first out (LIFO) basis. We account for the costs of coffee brewing equipment manufactured on the first in, first out (FIFO) basis. We regularly evaluate these inventories to determine whether market conditions are correctly reflected in the recorded carrying value.

## Impairment of Goodwill and Intangible Assets

We perform our annual goodwill, definite and indefinite-lived intangible assets impairment test as of June 30 of each fiscal year. Goodwill and other indefinite-lived intangible assets are not amortized but instead are reviewed for impairment annually and on an interim basis if events or changes in circumstances between annual



tests indicate that an asset might be impaired. Testing for impairment of goodwill is a two-step process. The first step requires us to compare the fair value of our reporting units to the carrying value of the net assets of the respective reporting units, including goodwill. If the fair value of the reporting unit is less than the carrying value, goodwill of the reporting unit is potentially impaired and we then complete step two to measure the impairment loss, if any. The second step requires the calculation of the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit. If the implied fair value of goodwill is less than the carrying amount of goodwill, an impairment loss is recognized equal to the difference.

In fiscal 2011, during our annual test for impairment of our definite-lived intangible assets, we identified indicators of impairment including a decline in market capitalization and continuing losses from operations. We performed impairment tests to determine the recoverability of the carrying values of the assets or if impairment should be measured. We determined that definite-lived intangible assets consisting of the customer relationships acquired, and the distribution agreement and co-pack agreement entered into, in connection with the DSD Coffee Business acquisition were impaired since the sum of the forecasted cash flows from each of these assets did not exceed their respective carrying values. As a result, in the fourth quarter of fiscal 2011, we wrote off the carrying values of these assets for a total of $7.8 million.

## Self-Insurance

We are self-insured for California workers’ compensation insurance subject to specific retention levels and use historical analysis to determine and record the estimates of expected future expenses resulting from workers’ compensation claims. The estimated outstanding losses are the accrued cost of unpaid claims valued as of June 30, 2011. The estimated outstanding losses, including allocated loss adjustment expenses (“ALAE”), include case reserves, the development on known claims and incurred but not reported (IBNR) claims. ALAE are the direct expenses for settling specific claims. The amounts reflect per occurrence and annual aggregate limits maintained by the Company. The analysis does not include estimating a provision for unallocated loss adjustment expenses.

Management believes that the amount accrued is adequate to cover all known claims at June 30, 2011. If the actual costs of such claims and related expenses exceed the amount estimated, additional reserves may be required which could have a material negative effect on operating results. If our estimate were off by as much as 15%, the reserve could be under or overstated by approximately $0.7 million as of June 30, 2011.

In May 2011, we did not meet the minimum credit rating criteria for participation in the alternative security program for California self-insurers. As a result, we were required to post a $5.9 million letter of credit as a security deposit to the State of California Department of Industrial Relations Self-Insurance Plans. We posted the security deposit in June 2011.

Estimated Company liability resulting from our general liability and automobile liability policies, within our deductible limits, is accounted for by specific identification. Large losses have historically been infrequent, and the lag between incurred but not reported claims has historically been short. Once a potential loss has been identified, the case is monitored by our risk manager to try and determine a likely outcome. Lawsuits arising from injury that are expected to reach our deductible are not reserved until we have consulted with legal counsel, become aware of the likely amount of loss and determined when payment is expected.

The estimated liability related to our self-insured group medical insurance is recorded on an incurred but not reported basis, within deductible limits, based on actual claims and the average lag time between the date insurance claims are filed and the date those claims are paid.

## Retirement Plans

We have a defined benefit pension plan for the majority of our employees who are not covered under a collective bargaining agreement, the Farmer Bros. Salaried Employees Pension Plan (“Farmer Bros. Plan”), and



two defined benefit pension plans for certain hourly employees covered under a collective bargaining agreement, the Brewmatic Plan and the Hourly Employees' Plan. In addition, we contribute to several multi-employer defined benefit pension plans for certain union employees.

As of June 30, 2011, we amended the Farmer Bros. Plan, freezing the benefit for all participants effective June 30, 2011. After the plan freeze, participants do not accrue any benefits under the plan, and new hires are not eligible to participate in the plan. As a result, we recorded a curtailment charge of $1.5 million in the fourth quarter ended June 30, 2011.

We obtain actuarial valuations for our plans and at present we discount the pension obligations using a 5.60% discount rate and we estimate an 8.25% return on plan assets. The performance of the stock market and other investments as well as the overall health of the economy can have a material effect on pension investment returns and these assumptions. A change in these assumptions could affect our operating results.

At the end of fiscal 2011, the projected benefit obligation of our defined benefit pension plans was $111.8 million and the fair value of the plan assets was $83.7 million. The difference between the projected benefit obligation and fair value of plan assets is recognized as a decrease in other comprehensive income (“OCI”) and an increase in pension liability and deferred tax assets. The difference between plan obligations and assets, or the funded status of the plans, significantly affects the net periodic benefit costs of our pension plans and the ongoing funding requirements of those plans. Among other factors, changes in interest rates, mortality rates, early retirement rates, investment returns and the market value of plan assets can affect the level of plan funding, cause volatility in the net periodic pension costs, and increase our future funding requirements. We expect to make approximately $7.5 million in contributions to our pension plans in fiscal 2012 and record an accrued expense of approximately $1.2 million per year beginning in fiscal 2012. Pension expense beginning in fiscal 2012 is significantly lower than the pension expense in prior years due to the freeze in benefits as of June 30, 2011 under the Farmer Bros. Plan. The pension plan payments are expected to continue at this level for several years, and the current economic environment increases the risk that we may be required to make even larger contributions in the future.

The following chart quantifies the effect on the projected benefit obligation and the net periodic benefit cost of a change in the discount rate assumption and the impact on the net periodic benefit cost of a change in the assumed long term rate of return for fiscal 2012.

<table><tr><td rowspan="2">Farmer Bros. Plan Discount Rate</td><td colspan="3">(In thousands)</td></tr><tr><td>5.10%</td><td>Actual 5.60%</td><td>6.10%</td></tr><tr><td>Net periodic benefit cost</td><td>$ 1,036</td><td>$ 622</td><td>$ 235</td></tr><tr><td>Projected benefit obligation</td><td>$114,229</td><td>$107,071</td><td>$100,610</td></tr><tr><td>Long Term Rate of Return</td><td>7.75%</td><td>Actual 8.25%</td><td>8.75%</td></tr><tr><td>Net periodic benefit cost</td><td>$ 1,032</td><td>$ 622</td><td>$ 212</td></tr><tr><td>Brewmatic Plan Discount Rate</td><td>5.10%</td><td>Actual 5.60%</td><td>6.10%</td></tr><tr><td>Net periodic benefit cost</td><td>$ 136</td><td>$ 128</td><td>$ 121</td></tr><tr><td>Projected benefit obligation</td><td>$ 3,843</td><td>$ 3,662</td><td>$ 3,497</td></tr><tr><td>Long Term Rate of Return</td><td>7.75%</td><td>Actual 8.25%</td><td>8.75%</td></tr><tr><td>Net periodic benefit cost</td><td>$ 142</td><td>$ 128</td><td>$ 114</td></tr><tr><td>Hourly Employees&#x27; Plan Discount Rate</td><td>5.10%</td><td>Actual 5.60%</td><td>6.10%</td></tr><tr><td>Net periodic benefit cost</td><td>$ 531</td><td>$ 486</td><td>$ 452</td></tr><tr><td>Projected benefit obligation</td><td>$ 1,148</td><td>$ 1,055</td><td>$ 973</td></tr><tr><td>Long Term Rate of Return</td><td>7.75%</td><td>Actual 8.25%</td><td>8.75%</td></tr><tr><td>Net periodic benefit cost</td><td>$ 490</td><td>$ 486</td><td>$ 483</td></tr></table>



## Income Taxes

Deferred income taxes are determined based on the temporary differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which differences are expected to reverse. Estimating our tax liabilities involves judgments related to uncertainties in the application of complex tax regulations. We make certain estimates and judgments to determine tax expense for financial statement purposes as we evaluate the effect of tax credits, tax benefits and deductions, some of which result from differences in timing of recognition of revenue or expense for tax and financial statement purposes. Changes to these estimates may result in significant changes to our tax provision in future periods. Each fiscal quarter we reevaluate our tax provision and reconsider our estimates and our assumptions related to specific tax assets and liabilities, making adjustments as circumstances change.

Income tax expense or benefit from continuing operations is generally determined without regard to other categories of earnings, such as discontinued operations and other comprehensive income. An exception is provided in Accounting Standards Codification (“ASC”) 740, “Accounting for Uncertainty in Income Taxes”, when there is aggregate income from categories other than continuing operations and a loss from continuing operations in the current year. In this case, the tax benefit allocated to continuing operations is the amount by which the loss from continuing operations reduces the tax expenses recorded with respect to the other categories of earnings, even when a valuation allowance has been established against the deferred tax assets. In instances where a valuation allowance is established against current year losses, income from other sources, including gain from postretirement benefits recorded as a component of other comprehensive income, is considered when determining whether sufficient future taxable income exists to realize the deferred tax assets. As a result, for the fiscal year ended June 30, 2011, we recorded a tax expense of $9.8 million in other comprehensive income related to the gain on postretirement benefits, and recorded a corresponding tax benefit of $9.8 million in continuing operations.

## Deferred Tax Asset Valuation Allowance

We assess whether a valuation allowance should be recorded against deferred tax assets based on the likelihood that the benefits of the deferred tax assets will or will not ultimately be realized in future periods. In making such assessment, significant weight is to be given to evidence that can be objectively verified such as recent operating results and less consideration is to be given to less objective indicators such as future earnings projections. We have evaluated our deferred tax assets in accordance with these requirements.

In fiscal 2009, we established a valuation allowance against the deferred tax assets in the amount of $33.3 million. Of this amount $19.7 million was recorded as a fiscal 2009 tax expense and $13.6 million was recorded as a reduction in other comprehensive income. A significant negative factor was the Company’s three-year historical cumulative loss as of the end of the fourth quarter of fiscal 2009, compared to the size of deferred tax assets. The deferred tax assets in fiscal 2010 increased to $53.7 million as compared to $41.4 million in fiscal 2009. The Company remains in a three-year historical cumulative loss position as of the end of fiscal 2011 and is maintaining its valuation allowance.

The deferred tax assets in fiscal 2011 increased to $68.8 million as compared to $53.7 million in fiscal 2010. In fiscal 2011, deferred tax assets increased primarily due to net loss carryovers. This increase was partially offset by a reduction in deferred tax assets due to an increase in pension asset values. In fiscal 2010, deferred tax assets increased primarily due to loss carryovers and decreased pension asset values which in turn created increased pension plan contribution obligations.

## Postretirement Benefits

We sponsor a postretirement medical and dental plan that covers qualified non-union employees and retirees, and certain qualified union retirees. Under this postretirement plan, our contributions toward premiums



for retiree medical, dental and vision coverage for participants and dependents are scaled based on length of service, with greater Company contributions for retirees with greater length of service, but subject to a maximum monthly Company contribution.

Our retiree medical plan is unfunded and its liability was calculated using an assumed discount rate of 5.46% at June 30, 2011. We project an initial medical trend rate of 7.5% ultimately reducing to 5.0% in 6 years.

The effect of adopting the current postretirement plan was recorded on the effective date of the plan, January 1, 2008, as an increase in accumulated other comprehensive income of $16.7 million (net of related tax effects of $10.6 million), and a reduction to the retiree medical liability of $27.3 million. The accumulated other comprehensive income amount is expected to be amortized as a reduction in expense over a period of 7 to 12 years. Amortization in fiscal 2011 and 2010 was $0.7 million and $4.2 million, respectively.

## Share-based Compensation

We measure all share-based compensation cost at the grant date, based on the fair value of the award, and recognize such cost as an expense in our consolidated statement of operations over the requisite service period. The process of estimating the fair value of share-based compensation awards and recognizing share-based compensation cost over the requisite service period involves significant assumptions and judgments. We estimate the fair value of stock option awards on the date of grant using the Black-Scholes option valuation model which requires that we make certain assumptions regarding: (i) the expected volatility in the market price of our common stock; (ii) dividend yield; (iii) risk-free interest rates; and (iv) the period of time employees are expected to hold the award prior to exercise (referred to as the expected holding period). In addition, we estimate the expected impact of forfeited awards and recognize share-based compensation cost only for those awards expected to vest. If actual forfeiture rates differ materially from our estimates, share-based compensation expense could differ significantly from the amounts we have recorded in the current period. We will periodically review actual forfeiture experience and revise our estimates, as necessary. We will recognize as compensation cost the cumulative effect of the change in estimated forfeiture rates on current and prior periods in earnings of the period of revision. As a result, if we revise our assumptions and estimates, our share-based compensation expense could change materially in the future. In fiscal 2011 and 2010, we used an estimated 6.5% annual forfeiture rate to calculate share-based compensation expense based on actual forfeiture experience from the inception of the Omnibus Plan.

## Liquidity and Capital Resources

## Credit Facility

On September 12, 2011, we entered into an Amended and Restated Loan and Security Agreement (the "New Loan Agreement") among the Company and CBI, as Borrowers, certain of the Company's other subsidiaries, as Guarantors, the Lenders party thereto, and Wells Fargo Bank, National Association, as Agent. The following description of the New Loan Agreement does not purport to be complete and is subject to, and qualified in its entirety by, reference to the New Loan Agreement which is included as Exhibit 10.12 to this Form 10-K and incorporated herein by reference. Capitalized terms used below are defined in the New Loan Agreement.

The New Loan Agreement provides for a senior secured revolving credit facility of up to $85 million, with a letter of credit sublimit of $20 million. The new revolving line of credit provides for advances of 85% of eligible accounts receivable and 75% of eligible inventory, as defined. The New Loan Agreement provides for a range of interest rates based on modified Monthly Average Excess Availability levels with a range of PRIME + 0.25% to PRIME + 0.75% or Adjusted Eurodollar Rate + 2.0% to Adjusted Eurodollar Rate + 2.5%. The New Loan Agreement has an amendment fee of 0.375% and an unused line fee of 0.25%. Outstanding obligations under the New Loan Agreement are collateralized by all of the Borrowers' assets, including the Company's preferred stock portfolio. The term of the New Loan Agreement expires on March 2, 2015.



The New Loan Agreement contains a variety of affirmative and negative covenants of types customary in an asset-based lending facility, including those relating to reporting requirements, maintenance of records, properties and corporate existence, compliance with laws, incurrence of other indebtedness and liens, limitations on certain payments, including the payment of dividends and capital expenditures, and transactions and extraordinary corporate events. The New Loan Agreement allows us to pay dividends, subject to certain liquidity requirements. The New Loan Agreement also contains financial covenants requiring the Borrowers to maintain minimum Excess Availability and Total Liquidity levels. The New Loan Agreement allows the Lender to establish reserve requirements, which may reduce the amount of credit otherwise available to us, to reflect events, conditions, or risks that would have a reasonable likelihood of adversely affecting the Lender’s collateral or our assets, including our green coffee inventory.

The New Loan Agreement provides that an event of default includes, among other things, subject to certain grace periods: (i) payment defaults; (ii) failure by any guarantor to perform any guarantee in favor of Lender; (iii) failure to abide by loan covenants; (iv) default with respect to other material indebtedness; (v) final judgment in a material amount not discharged or stayed; (vi) any change of control; (vii) bankruptcy or insolvency; and (viii) the failure of the Farmer Bros. Co. Employee Stock Ownership Benefit Trust, created by the Company to implement the ESOP, to be duly qualified under Section 401(a) of the Code or exempt from federal income taxation, or if the ESOP engages in a material non-exempt prohibited transaction.

The New Loan Agreement replaces our existing Loan and Security Agreement, dated March 2, 2009, as amended (the “Original Loan Agreement”), among the Borrowers, Guarantors and Wells Fargo, as Lender. The Original Loan Agreement provided for a senior secured revolving credit facility of up to $50 million, with a letter of credit sublimit of $10 million. The original revolving line of credit provided for advances of 85% of eligible accounts receivable and 65% of eligible inventory, as defined. The Original Loan Agreement had an unused commitment fee of 0.375%. The Original Loan Agreement provided for a range of interest rates based on modified Monthly Average Excess Availability levels (as defined) with a range of PRIME + 0.25% to PRIME + 0.75% or Adjusted Eurodollar Rate + 2.5% to Adjusted Eurodollar Rate + 3.0%. All outstanding obligations under the Original Loan Agreement were collateralized by the Company’s assets, excluding the preferred stock held in investment accounts.

The interest rate on our outstanding borrowings under the Original Loan Agreement was 4.0% at June 30, 2011. As of June 30, 2011, we had outstanding borrowings of $31.4 million, utilized $3.1 million of the letters of credit sublimit, and had excess availability under the credit facility of $15.5 million. Due to the short-term nature of the credit facility and the variable interest rate, fair value of the balance outstanding approximates carrying value. As of June 30, 2011, we were in compliance with all restrictive covenants under the Original Loan Agreement. On September 12, 2011, the Lender and the Company amended the Original Loan Agreement to reduce required minimum excess availability and required minimum total liquidity for the period from July 1, 2011 through September 30, 2011. The foregoing description of Amendment No. 5 to the Original Loan Agreement does not purport to be complete and is subject to, and qualified in its entirety by, reference to Amendment No. 5 to Loan and Security Agreement which is included as Exhibit 10.11 to this Form 10-K and incorporated herein by reference. There can be no assurance that the Lender will issue a waiver or grant an amendment to the covenants in future periods, if the Company required one. As of August 31, 2011, we had outstanding borrowings of $35.3 million, utilized $9.0 million of the letters of credit sublimit, and had excess availability under the credit facility of $5.7 million (before giving effect to an increase in the line of credit on September 12, 2011 pursuant to the New Loan Agreement).

## Liquidity

We generally finance our operations through cash flow from operations and borrowings under our revolving credit facility described above. As of June 30, 2011, we had $6.1 million in cash and cash equivalents and $24.9 million in short-term investments. We believe our revolving credit facility, to the extent available, in addition to our cash flows from operations and other liquid assets are sufficient to fund our working capital and capital expenditure requirements for the next 12 months.



We generate cash from operating activities primarily from cash collections related to the sale of our products. Net cash provided by operating activities was $33.9 million in fiscal 2011, compared with net cash used in operating activities of (1.0) million in fiscal 2010, and net cash provided by operating activities of $87.2 million in fiscal 2009. The increase in net cash provided by operating activities in fiscal 2011 compared to fiscal 2010 was primarily a result of proceeds from the sale of a portion of our investments and an increase in accounts payable.

Net cash used in investing activities decreased to $17.4 million in fiscal 2011 compared to $28.0 million in fiscal 2010 and $86.6 million in fiscal 2009 due to reduced levels of capital expenditures. Net cash used in investing activities in fiscal 2009 included $48.3 million in cash used to acquire the DSD Coffee Business.

Net cash used in financing activities was $14.6 million in fiscal 2011 compared to net cash provided by financing activities of $13.2 in fiscal 2010 and net cash provided by financing activities of $9.4 million in fiscal 2009. Net cash used in financing activities in fiscal 2011 included net borrowings (repayments) of (8.5) million on our revolving line of credit compared to $21.0 million and $16.2 million, respectively, in fiscal 2010 and 2009.

In fiscal 2011, we capitalized $17.4 million in property and equipment purchases which included $12.7 million in expenditures to replace normal wear and tear of coffee brewing equipment, $3.7 million in building and facility improvements, including installation of the two roasters and other production equipment at our Torrance facility, $2.4 million in expenditures for vehicles, and machinery and equipment, and $0.6 million in information technology related expenditures. In addition, during fiscal 2011, we acquired equipment and trucks under capital leases totaling $5.7 million.

Our expected capital expenditures for fiscal 2012 include expenditures to replace normal wear and tear of coffee brewing equipment, vehicles, and machinery and equipment and are expected to not significantly deviate from fiscal 2011 levels.

Our working capital is comprised of the following:

<table><tr><td rowspan="2"></td><td colspan="2">June 30,</td></tr><tr><td>2011</td><td>2010</td></tr><tr><td></td><td colspan="2">(In thousands)</td></tr><tr><td>Current assets</td><td>$157,410</td><td>$189,956</td></tr><tr><td>Current liabilities</td><td>103,462</td><td>98,546</td></tr><tr><td>Working capital</td><td>$ 53,948</td><td>$ 91,410</td></tr></table>

Liquidity Information:

<table><tr><td rowspan="2"></td><td colspan="3">June 30,</td></tr><tr><td>2011</td><td>2010</td><td>2009</td></tr><tr><td></td><td colspan="3">(In thousands)</td></tr><tr><td>Capital expenditures</td><td>$19,416</td><td>$28,484</td><td>$38,901</td></tr><tr><td>Purchase of business</td><td>$ —</td><td>$ —</td><td>$48,287</td></tr><tr><td>Dividends paid</td><td>$ 4,657</td><td>$ 6,939</td><td>$ 6,631</td></tr><tr><td>Dividend payable</td><td>$ —</td><td>$ 1,849</td><td>$ 1,849</td></tr></table>

## Results of Operations

Fiscal Years Ended June 30, 2011 and 2010

## Overview

Fiscal 2011 was a period of rapid commodity inflation, which impacted our cost of green coffee, sugar and cocoa and freight expense. Since we value our inventory on a last-in-first-out (“LIFO”) method of valuation rather than on a first-in-first out (“FIFO”) basis, the escalating coffee prices had a significant negative impact on our cost of goods sold and the resulting gross profit. To address the increase in freight and fuel expense, we instituted a fuel surcharge in fiscal 2011 and, to minimize gross margin erosion, we increased pricing to our customers several times in fiscal 2011 although the price increases, at times, lagged the relatively rapid and steep cost increases we incurred. In an environment of record-high costs, rising unemployment and a severe economic downturn, we were unable to fully pass along our costs to our customers.



To address downward margin pressures, we continued to focus on streamlining our operations in fiscal 2011. Specifically, we focused on expense reductions, asset redeployment and automation intended to improve our operating results. We implemented a number of initiatives intended to reduce the cost of our operations, including headcount reduction, inventory reduction, implementation of improved collection practices of past due accounts, cost-sharing measures to address increases in employee healthcare costs, automation of certain functions, centralization of certain IT functions, and in-sourcing of certain business support functions. We have and expect to continue to improve our real-estate asset management by divesting underutilized properties and renegotiating our lease terms in response to more favorable market conditions in certain markets.

In fiscal 2011, we significantly modified our retirement-benefit program. Specifically, we amended our defined-benefit pension plan, the Farmer Bros. Salaried Employees Pension Plan, freezing the benefit for all participants effective June 30, 2011. After the plan freeze, participants do not accrue any benefits under the plan, and new hires are not eligible to participate in the plan. However, account balances continue to be credited with interest until paid out. The freeze of the defined benefit pension plan coincided with an enhanced defined contribution 401(k) plan with a discretionary Company match of the employees' annual contributions. In fiscal 2011, the Company accrued $0.1 million towards this Company match. The pension freeze is anticipated to save over $8 million annually in future pension expense accrual, which is expected to be offset by any discretionary Company match under the 401(k) plan.

In fiscal 2011, we also sold a portion of our investments in preferred stock in order to pay down a portion of the outstanding balance on our revolving credit facility.

## Operations

Net sales in fiscal 2011 increased $13.6 million, or 3%, to $463.9 million from $450.3 million in fiscal 2010, primarily due to price increases we implemented in the second half of fiscal 2011. Sales dollars as well as sales volume increased in fiscal 2011 compared to fiscal 2010. The increases were primarily due to the increases in list prices of our coffee, cappuccino, cocoa and selected spice products, offset in part by the effect of a decrease in the number of customers who purchased our products as compared to the prior fiscal year.

Cost of goods sold in fiscal 2011 increased $54.0 million, or 21%, to $306.8 million, or 66% of sales, from $252.8 million, or 56% of sales, in fiscal 2010 primarily due to the increase in the cost of green coffee beans. Green coffee costs increased 80% in fiscal 2011 compared to the prior fiscal year. Cost of goods sold in fiscal 2011 also included $40.3 million in LIFO charge compared to $1.0 million in LIFO charge in the prior fiscal year. Additionally, the cost of coffee brewing equipment and related service also contributed to the increase in cost of goods sold. Cost of coffee brewing equipment and related service in fiscal 2011 was $27.1 million compared to $21.5 million in fiscal 2010.

Gross profit in fiscal 2011 decreased $40.4 million, or 20%, to $157.2 million from $197.6 million in fiscal 2010. Gross margin decreased to 34% in fiscal 2011 from 44% in the prior fiscal year. This decrease in gross margin is primarily due to (1) increased raw material costs including an 80% increase in the cost of green coffee beans in fiscal 2011 compared to the prior fiscal year partially offset by price increases for finished goods during the period, (2) increased coffee brewing equipment and service costs, and (3) changes in the mix of our customers and the products we sell to them.

In fiscal 2011, operating expenses decreased $11.2 million, or 4.7%, to $225.6 million, or 49% of sales, from $236.8 million, or 53% of sales, in fiscal 2010. The reduction in operating expenses in fiscal 2011, as compared to the prior fiscal year, is primarily due to lower payroll and related expenses resulting from a reduction in the number of employees offset in part by higher freight and fuel costs, and severance costs associated with the reduction in headcount of approximately 200 employees in the amount of $3.1 million.



Operating expenses in fiscal 2011 also include $7.8 million in write-off of intangible assets due to impairment, $1.5 million in pension curtailment charge, and $0.7 million in severance costs recorded pursuant to the Separation Agreement between the Company and Roger M. Laverty III, the Company’s former President and Chief Executive Officer.

Loss from operations in fiscal 2011 was $(68.4) million compared to $(39.2) million in fiscal 2010, primarily due to decline in gross profit.

## Total other income (expense)

Total other income in fiscal 2011 was $4.9 million compared to $12.7 million in fiscal 2010. The decrease in total other income was primarily due to lower net realized and unrealized gains on a smaller investment portfolio and higher interest expense related to borrowings under our revolving credit line in fiscal 2011 as compared to fiscal 2010.

## Income taxes

In fiscal 2011, we recorded an income tax benefit of $9.2 million compared to $2.5 million in fiscal 2010. Income tax expense or benefit from continuing operations is generally determined without regard to other categories of earnings, such as discontinued operations and other comprehensive income. An exception is provided in ASC 740 when there is aggregate income from categories other than continuing operations and a loss from continuing operations in the current year. In this case, the tax benefit allocated to continuing operations is the amount by which the loss from continuing operations reduces the tax expenses recorded with respect to the other categories of earnings, even when a valuation allowance has been established against the deferred tax assets. In instances where a valuation allowance is established against current year losses, income from other sources, including gain from postretirement benefits recorded as a component of other comprehensive income, is considered when determining whether sufficient future taxable income exists to realize the deferred tax assets. As a result, for the year ended June 30, 2011, we recorded a tax expense of $9.8 million in other comprehensive income related to the gain on postretirement benefits, and recorded a corresponding tax benefit of $9.8 million in continuing operations. Income tax benefit for fiscal 2010 was primarily attributable to federal legislation allowing a five year net operating loss carryback period for net operating losses incurred in tax years that ended in 2008 and 2009. This legislation allowed us to claim additional income tax receivable and record a corresponding decrease in our deferred tax assets relating to our net operating loss carryovers, thereby reducing the valuation allowance recorded as of June 30, 2009 and resulting in income tax benefit for fiscal 2010.

## Net Loss

As a result of the above operating factors, net loss increased to $(54.3) million, or $(3.61) per common share, in fiscal 2011 compared to a net loss of $(24.0) million, or $(1.61) per common share, in fiscal 2010.

## Fiscal Years Ended June 30, 2010 and 2009

## Overview

Fiscal 2010 was a year in which we primarily focused on integrating the DSD Coffee Business into our existing operations. We streamlined our routes and distribution logistics and consolidated our warehouses and distribution centers from 179 to 115 locations. Our net sales grew $108.6 million, or 32%, to $450.3 million in fiscal 2010 from $341.7 million in fiscal 2009 primarily due to the acquisition of the DSD Coffee Business. Net sales from CBI also increased approximately 8% from the prior fiscal year. Although our net sales increased and our geographic reach widened in fiscal 2010, the weakness in the economy and reduced consumer spending negatively impacted our net sales.



## Operations

Net sales in fiscal 2010 increased $108.6 million, or 32%, to $450.3 million from $341.7 million in fiscal 2009, primarily due to the addition of DSD Coffee Business net sales beginning on March 1, 2009. Cost of goods sold in fiscal 2010 increased $71.2 million, or 39%, to $252.8 million, or 56% of sales, from $181.5 million, or 53% of sales, in fiscal 2009 primarily due to the addition of the DSD Coffee Business beginning on March 1, 2009. Additionally, the cost of coffee brewing equipment and related service included in cost of goods sold also contributed to the increase in cost of goods sold. Cost of coffee brewing equipment and related service for the fiscal year ended June 30, 2010 was $21.5 million compared to $13.1 million for the fiscal year ended June 30, 2009.

Gross profit in fiscal 2010 increased $37.3 million, or 23%, to $197.6 million from $160.2 million in fiscal 2009. However, gross margin decreased to 44% in fiscal 2010 from 47% in the prior fiscal year. As with net sales, the increase in gross profit is directly attributable to the acquisition of the DSD Coffee Business. The decrease in gross margin is primarily due to the increase in coffee brewing equipment and related service cost in cost of goods sold in the amount of $21.5 million in fiscal 2010 from $13.1 million in the prior fiscal year, and the addition of a new class of DSD Coffee Business customers who require a different mix of products.

Operating expenses in fiscal 2010 increased $61.3 million, or 35%, to $236.8 million, or 53% of sales, from $175.4 million, or 51% of sales, in fiscal 2009. Operating expenses in fiscal 2010 consisted of a full year of expenses related to the DSD Coffee Business compared to fiscal 2009 which included only four months of expenses related to the DSD Coffee Business. Additionally, operating expenses included $10.1 million related to the integration of the DSD Coffee Business including expenses related to SKU optimization and streamlining of facilities and routes, $8.5 million in higher depreciation and amortization expense, $8.4 million in higher pension expense and $3.2 million in higher bad debt expense compared to the prior year.

For the reasons noted above, loss from operations in fiscal 2010 increased to $(39.2) million from $(15.2) million in fiscal 2009.

## Total other income (expense)

Total other income in fiscal 2010 was $12.7 million compared to total other expense of $(3.8) million in fiscal 2009. This was primarily due to improved results from our preferred stock portfolio which recorded net realized and unrealized gains in fiscal 2010 compared to net realized and unrealized losses in fiscal 2009, partially offset by $(0.7 million in higher interest expense related to borrowings under our revolving credit line.

## Net Loss

As a result of the above operating factors, net loss decreased to $(24.0) million, or ($1.61) per common share, in fiscal 2010 compared to a net loss of $(33.3) million, or ($2.29) per common share, in fiscal 2009, which included the recognition of a valuation allowance for deferred tax assets of $(19.7) million, or ($1.35) per common share in fiscal 2009.

## Non-GAAP Financial Measures

In addition to net income (loss) determined in accordance with United States Generally Accepted Accounting Principles (GAAP), we use certain non-GAAP financial measures, such as “Net income (loss) excluding LIFO,” “EBITDA” and “Adjusted EBITDA,” in assessing our operating performance. We believe the non-GAAP measures serve as appropriate measures to be used in evaluating the performance of our business.

We define net income (loss) excluding LIFO as net income (loss) excluding the impact of LIFO charge or credit. We define EBITDA as net income (loss) excluding the impact of income taxes, interest expense, depreciation



and amortization, ESOP expense, stock-based compensation expense, non-cash impairment losses, and gains and losses from investment portfolio. We reference this particular non-GAAP financial measure frequently in our decision-making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods. In addition, incentive compensation is based on EBITDAE and we base certain of our forward-looking estimates on EBITDAE to facilitate quantification of planned business activities and enhance subsequent follow-up with comparisons of actual to planned EBITDAE. We define Adjusted EBITDAE as EBITDAE excluding the impact of LIFO charges or credits. We believe the use of the LIFO method of inventory valuation for coffee, tea and culinary products results in a better matching of costs and revenues. Net income (loss) excluding LIFO, EBITDAE and Adjusted EBITDAE 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.

Set forth below is a reconciliation of reported net loss and reported basic and diluted loss per share to net loss excluding LIFO impact and basic and diluted loss per common share excluding LIFO impact, respectively:

<table><tr><td rowspan="3"></td><td colspan="5">Year Ended June 30,</td></tr><tr><td>2011</td><td colspan="2">2010</td><td colspan="2">2009</td></tr><tr><td colspan="5">(In thousands)</td></tr><tr><td>Net loss, as reported</td><td>$ (54,317)</td><td>$ (23,953)</td><td>$ (33,270)</td><td></td><td></td></tr><tr><td>LIFO charge (credit)</td><td>$ 40,317</td><td>$ 1,033</td><td>$ (13)</td><td></td><td></td></tr><tr><td>Net loss, excluding LIFO</td><td>$ (14,000)</td><td>$ (22,920)</td><td>$ (33,283)</td><td></td><td></td></tr><tr><td>Weighted average common shares outstanding, basic and diluted</td><td>15,066,663</td><td>14,866,306</td><td>14,508,320</td><td></td><td></td></tr><tr><td>Net loss per common share, as reported</td><td>$ (3.61)</td><td>$ (1.61)</td><td>$ (2.29)</td><td></td><td></td></tr><tr><td>Net loss per common share excluding LIFO, basic and diluted</td><td>$ (0.93)</td><td>$ (1.54)</td><td>$ (2.29)</td><td></td><td></td></tr></table>

Set forth below is a reconciliation of reported net loss to EBITDAE and Adjusted EBITDAE:

<table><tr><td rowspan="3"></td><td colspan="3">Year Ended June 30,</td></tr><tr><td>2011</td><td>2010</td><td>2009</td></tr><tr><td colspan="3">(In thousands)</td></tr><tr><td>Net loss, as reported</td><td>$ (54,317)</td><td>$ (23,953)</td><td>$ (33,270)</td></tr><tr><td>Income tax (benefit) expense</td><td>(9,167)</td><td>(2,529)</td><td>14,283</td></tr><tr><td>Interest expense</td><td>1,965</td><td>986</td><td>335</td></tr><tr><td>Depreciation and amortization expense</td><td>31,758</td><td>26,778</td><td>18,292</td></tr><tr><td>ESOP and stock-based compensation expense</td><td>3,825</td><td>4,784</td><td>5,452</td></tr><tr><td>Intangible assets impairment losses</td><td>7,805</td><td>—</td><td>—</td></tr><tr><td>Investment portfolio (gains) losses</td><td>(4,191)</td><td>(10,169)</td><td>8,248</td></tr><tr><td>EBITDAE</td><td>$ (22,322)</td><td>$ (4,103)</td><td>$ 13,340</td></tr><tr><td>LIFO charge (credit) net of taxes of zero*</td><td>40,317</td><td>1,033</td><td>(13)</td></tr><tr><td>Adjusted EBITDAE</td><td>$ 17,995</td><td>$ (3,070)</td><td>$ 13,327</td></tr></table>



## Contractual Obligations

The following table contains supplemental information regarding total contractual obligations as of June 30, 2011, including capital leases:

<table><tr><td rowspan="2"></td><td colspan="5">Payment due by period (in thousands)</td></tr><tr><td>Total</td><td>Less Than One Year</td><td>1-3 Years</td><td>3-5 Years</td><td>More Than 5 Years</td></tr><tr><td>Contractual obligations:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Operating lease obligations</td><td>$ 20,727</td><td>$ 5,228</td><td>$ 7,571</td><td>$ 4,698</td><td>$ 3,230</td></tr><tr><td>Capital lease obligations(a)</td><td>10,519</td><td>2,210</td><td>4,213</td><td>3,758</td><td>338</td></tr><tr><td>Pension plan obligations</td><td>73,328</td><td>5,678</td><td>12,071</td><td>13,299</td><td>42,280</td></tr><tr><td>Postretirement benefits other than pensions</td><td>16,944</td><td>1,148</td><td>2,522</td><td>3,092</td><td>10,182</td></tr><tr><td>Revolving credit facility(b)</td><td>31,362</td><td>31,362</td><td>—</td><td>—</td><td>—</td></tr><tr><td></td><td>$152,880</td><td>$45,626</td><td>$26,377</td><td>$24,847</td><td>$56,030</td></tr></table>

(a) Includes imputed interest of $1,883.

(b) Revolving credit facility expires March 2, 2015.

## Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

## Item 7A. 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 derivatives that provide a natural economic hedge of interest rate risk. We review the interest rate sensitivity of these securities and (a) may enter into “short positions” in futures contracts on U.S. Treasury securities or (b) may hold put options on such futures contracts in order to reduce the impact of certain interest rate changes on such preferred stocks. 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 Treasury yield curve, the expected volatility of U.S. Treasury yields, and the costs of using futures and/or options.

The following table demonstrates the impact of varying interest rate changes based on the preferred stock holdings, futures and options positions, and market yield and price relationships at June 30, 2011. This table is predicated on an instantaneous change in the general level of interest rates and assumes predictable relationships between the prices of preferred securities holdings, the yields on U.S. Treasury securities, and related futures and options. At June 30, 2011, we had no futures contracts or put options designated as interest rate risk hedges.

<table><tr><td>Interest Rate Changes</td><td>Market Value of Preferred Securities at June 30, 2011</td><td>Change in Market Value</td></tr><tr><td></td><td colspan="2">(In thousands)</td></tr><tr><td>-150 basis points</td><td>$25,043</td><td>$ 636</td></tr><tr><td>-100 basis points</td><td>$24,944</td><td>$ 537</td></tr><tr><td>Unchanged</td><td>$24,407</td><td>$ —</td></tr><tr><td>+100 basis points</td><td>$23,235</td><td>$(1,172)</td></tr><tr><td>+150 basis points</td><td>$22,522</td><td>$(1,885)</td></tr></table>



Our revolving line of credit with Wells Fargo is at a variable rate. The interest rate varies based upon line usage, borrowing base availability and market conditions. As of June 30, 2011, we had outstanding borrowings of $31.4 million, utilized $3.1 million of our letters of credit sublimit, and had excess availability of $15.5 million under the credit facility. The interest rate on the outstanding borrowings at June 30, 2011 was 4.0%. The New Loan Agreement entered on September 12, 2011, provides for a senior secured revolving credit facility of up to $85 million, with a letter of credit sublimit of $20 million. The New Loan Agreement provides for a range of interest rates based on modified Monthly Average Excess Availability levels with a range of PRIME + 0.25% to PRIME + 0.75% or Adjusted Eurodollar Rate + 2.0% to Adjusted Eurodollar Rate + 2.5%. The term of the New Loan Agreement expires on March 2, 2015.

The following table demonstrates the impact of interest rate changes on our interest expense on the revolving credit facility for a full year based on the outstanding balance and interest rate as of June 30, 2011:

<table><tr><td>Interest Rate Changes</td><td>Interest Rate</td><td>Annual Interest Expense (In thousands)</td></tr><tr><td>-150 basis points</td><td>2.25%</td><td>$ 776</td></tr><tr><td>-100 basis points</td><td>2.75%</td><td>$ 949</td></tr><tr><td>Unchanged</td><td>3.75%</td><td>$1,294</td></tr><tr><td>+100 basis points</td><td>4.75%</td><td>$1,639</td></tr><tr><td>+150 basis points</td><td>5.25%</td><td>$1,812</td></tr></table>

## Commodity Price Risk

We are exposed to commodity price risk arising from changes in the market price of green coffee. We price green coffee inventory on the last-in, first-out (LIFO) 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.

At times we also enter into specialized hedging transactions to purchase future coffee contracts to enable us to lock in green coffee prices within a pre-established range. For the year ended June 30, 2011 we recorded $1.6 million in net unrealized losses related to hedging transactions. From time to time we may hold a mix of futures contracts and options to help hedge against volatility in green coffee prices. Gains and losses on these derivative instruments are realized immediately in “Other income (expense).”

The following table demonstrates the impact of changes in market value of coffee cost on market value of coffee forward purchase contracts:

<table><tr><td rowspan="2">Coffee Cost (Decrease) Increase</td><td colspan="4">Market Value (in thousands)</td><td colspan="2">(Decrease) Increase in Market Value</td></tr><tr><td>Coffee Inventory</td><td>Futures &amp; Options</td><td>Total</td><td>Derivatives</td><td>Inventory</td><td></td></tr><tr><td>- 10%</td><td>$36,000</td><td>$ (17)</td><td>$35,983</td><td>$ (17)</td><td>$ (3,684)</td><td></td></tr><tr><td>unchanged</td><td>$39,684</td><td>$1316</td><td>$41,000</td><td>$—</td><td>$ —</td><td></td></tr><tr><td>10%</td><td>$44,000</td><td>$ 17</td><td>$44,017</td><td>$ 17</td><td>$ 4,316</td><td></td></tr></table>



## Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Farmer Bros. Co. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Farmer Bros. Co. and Subsidiaries as of June 30, 2011 and 2010, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended June 30, 2011. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Farmer Bros. Co. and Subsidiaries at June 30, 2011 and 2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2011, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Farmer Bros. Co. and Subsidiaries' internal control over financial reporting as of June 30, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 12, 2011 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Los Angeles, California
September 12, 2011



## FARMER BROS. CO.

## CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)

<table><tr><td></td><td>June 30, 2011</td><td>June 30, 2010</td></tr><tr><td>ASSETS</td><td></td><td></td></tr><tr><td>Current assets:</td><td></td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$ 6,081</td><td>$ 4,149</td></tr><tr><td>Short-term investments</td><td>24,874</td><td>50,942</td></tr><tr><td>Accounts and notes receivable, net of allowance for doubtful accounts of $2,852 and $3,293, respectively</td><td>43,501</td><td>42,596</td></tr><tr><td>Inventories</td><td>79,759</td><td>83,712</td></tr><tr><td>Income tax receivable</td><td>448</td><td>5,840</td></tr><tr><td>Deferred income taxes</td><td>—</td><td>4</td></tr><tr><td>Prepaid expenses</td><td>2,747</td><td>2,713</td></tr><tr><td>Total current assets</td><td>157,410</td><td>189,956</td></tr><tr><td>Property, plant and equipment, net</td><td>114,107</td><td>121,710</td></tr><tr><td>Goodwill and other intangible assets, net</td><td>14,639</td><td>23,904</td></tr><tr><td>Other assets</td><td>2,892</td><td>2,492</td></tr><tr><td>Deferred income taxes</td><td>1,005</td><td>1,059</td></tr><tr><td>Total assets</td><td>$290,053</td><td>$339,121</td></tr><tr><td>LIABILITIES AND STOCKHOLDERS&#x27; EQUITY</td><td></td><td></td></tr><tr><td>Current liabilities:</td><td></td><td></td></tr><tr><td>Accounts payable</td><td>$ 42,473</td><td>$ 34,053</td></tr><tr><td>Accrued payroll expenses</td><td>15,675</td><td>14,661</td></tr><tr><td>Short-term borrowings under revolving credit facility</td><td>31,362</td><td>37,163</td></tr><tr><td>Short-term obligations under capital leases</td><td>1,570</td><td>724</td></tr><tr><td>Deferred income taxes</td><td>500</td><td>264</td></tr><tr><td>Other current liabilities</td><td>11,882</td><td>11,681</td></tr><tr><td>Total current liabilities</td><td>103,462</td><td>98,546</td></tr><tr><td>Accrued postretirement benefits</td><td>23,585</td><td>22,185</td></tr><tr><td>Other long term liabilities—capital leases</td><td>7,066</td><td>3,137</td></tr><tr><td>Accrued pension liabilities</td><td>22,371</td><td>43,497</td></tr><tr><td>Accrued workers&#x27; compensation liabilities</td><td>3,639</td><td>4,388</td></tr><tr><td>Deferred income taxes</td><td>1,815</td><td>1,773</td></tr><tr><td>Total liabilities</td><td>$161,938</td><td>$173,526</td></tr><tr><td>Commitments and contingencies (Note 14)</td><td></td><td></td></tr><tr><td>Stockholders&#x27; equity:</td><td></td><td></td></tr><tr><td>Preferred stock, $1.00 par value, 500,000 shares authorized and none issued</td><td>$ —</td><td>$ —</td></tr><tr><td>Common stock, $1.00 par value, 25,000,000 shares authorized; 16,186,372 and 16,164,179 issued and outstanding at June 30, 2011 and 2010, respectively</td><td>16,186</td><td>16,164</td></tr><tr><td>Additional paid-in capital</td><td>36,470</td><td>37,468</td></tr><tr><td>Retained earnings</td><td>129,784</td><td>186,900</td></tr><tr><td>Unearned ESOP shares</td><td>(30,437)</td><td>(35,238)</td></tr><tr><td>Less accumulated other comprehensive loss</td><td>(23,888)</td><td>(39,699)</td></tr><tr><td>Total stockholders&#x27; equity</td><td>$128,115</td><td>$165,595</td></tr><tr><td>Total liabilities and stockholders&#x27; equity</td><td>$290,053</td><td>$339,121</td></tr></table>

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



## FARMER BROS. CO.

## CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share data)

<table><tr><td rowspan="2"></td><td colspan="4">Years ended June 30,</td></tr><tr><td>2011</td><td>2010</td><td>2009</td><td></td></tr><tr><td>Net sales</td><td>$ 463,945</td><td>$ 450,318</td><td>$ 341,724</td><td></td></tr><tr><td>Cost of goods sold</td><td>306,771</td><td>252,754</td><td>181,508</td><td></td></tr><tr><td>Gross profit</td><td>157,174</td><td>197,564</td><td>160,216</td><td></td></tr><tr><td>Selling expenses</td><td>170,670</td><td>187,685</td><td>138,876</td><td></td></tr><tr><td>Intangible assets impairment losses</td><td>7,805</td><td>—</td><td>—</td><td></td></tr><tr><td>General and administrative expenses</td><td>47,121</td><td>49,071</td><td>36,543</td><td></td></tr><tr><td>Operating expenses</td><td>225,596</td><td>236,756</td><td>175,419</td><td></td></tr><tr><td>Loss from operations</td><td>(68,422)</td><td>(39,192)</td><td>(15,203)</td><td></td></tr><tr><td>Other income (expense):</td><td></td><td></td><td></td><td></td></tr><tr><td>Dividend income</td><td>2,534</td><td>3,224</td><td>3,563</td><td></td></tr><tr><td>Interest income</td><td>178</td><td>303</td><td>1,236</td><td></td></tr><tr><td>Interest expense</td><td>(1,965)</td><td>(986)</td><td>(335)</td><td></td></tr><tr><td>Other, net</td><td>4,191</td><td>10,169</td><td>(8,248)</td><td></td></tr><tr><td>Total other income (expense)</td><td>4,938</td><td>12,710</td><td>(3,784)</td><td></td></tr><tr><td>Loss before taxes</td><td>(63,484)</td><td>(26,482)</td><td>(18,987)</td><td></td></tr><tr><td>Income tax (benefit) expense</td><td>(9,167)</td><td>(2,529)</td><td>14,283</td><td></td></tr><tr><td>Net loss</td><td>(54,317)</td><td>(23,953)</td><td>(33,270)</td><td></td></tr><tr><td>Net loss per common share, basic and diluted</td><td>(3.61)</td><td>(1.61)</td><td>(2.29)</td><td></td></tr><tr><td>Weighted average common shares outstanding-basic and diluted</td><td>15,066,663</td><td>14,866,306</td><td>14,508,320</td><td></td></tr><tr><td>Cash dividends declared per common share</td><td>0.18</td><td>0.46</td><td>0.46</td><td></td></tr></table>



## FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

<table><tr><td rowspan="2"></td><td colspan="4">Years ended June 30,</td></tr><tr><td>2011</td><td>2010</td><td>2009</td><td></td></tr><tr><td>Cash flows from operating activities:</td><td></td><td></td><td></td><td></td></tr><tr><td>Net loss</td><td>$ (54,317)</td><td>$ (23,953)</td><td>$ (33,270)</td><td></td></tr><tr><td>Adjustments to reconcile net loss to net cash provided by (used in) operating activities:</td><td></td><td></td><td></td><td></td></tr><tr><td>Depreciation and amortization</td><td>31,758</td><td>26,778</td><td>18,292</td><td></td></tr><tr><td>Provision for doubtful accounts</td><td>2,024</td><td>3,188</td><td>810</td><td></td></tr><tr><td>Deferred income taxes</td><td>336</td><td>758</td><td>15,556</td><td></td></tr><tr><td>Intangible assets impairment losses</td><td>7,805</td><td>—</td><td>—</td><td></td></tr><tr><td>Loss (gain) on sales of assets</td><td>358</td><td>430</td><td>(46)</td><td></td></tr><tr><td>Share-based compensation expense</td><td>3,825</td><td>4,784</td><td>5,452</td><td></td></tr><tr><td>Net (gain) loss on investments</td><td>(1,387)</td><td>(9,382)</td><td>8,989</td><td></td></tr><tr><td>Change in operating assets and liabilities:</td><td></td><td></td><td></td><td></td></tr><tr><td>Short-term investments</td><td>27,456</td><td>1,365</td><td>61,371</td><td></td></tr><tr><td>Accounts and notes receivable</td><td>(2,929)</td><td>(40)</td><td>(26,698)</td><td></td></tr><tr><td>Inventories</td><td>3,952</td><td>(14,751)</td><td>1,730</td><td></td></tr><tr><td>Income tax receivable</td><td>5,392</td><td>(1,677)</td><td>(1,283)</td><td></td></tr><tr><td>Prepaid expenses and other assets</td><td>(434)</td><td>179</td><td>6,518</td><td></td></tr><tr><td>Accounts payable</td><td>12,997</td><td>(738)</td><td>22,457</td><td></td></tr><tr><td>Accrued payroll, expenses and other liabilities</td><td>2,112</td><td>2,904</td><td>3,776</td><td></td></tr><tr><td>Accrued postretirement benefits</td><td>1,399</td><td>3,926</td><td>638</td><td></td></tr><tr><td>Other long term liabilities</td><td>(6,410)</td><td>5,182</td><td>2,952</td><td></td></tr><tr><td>Net cash provided by (used in) operating activities</td><td>$ 33,937</td><td>$ (1,047)</td><td>$ 87,244</td><td></td></tr><tr><td>Cash flows from investing activities:</td><td></td><td></td><td></td><td></td></tr><tr><td>Acquisition of businesses, net of cash acquired</td><td>—</td><td>—</td><td>(48,287)</td><td></td></tr><tr><td>Purchases of property, plant and equipment</td><td>(19,416)</td><td>(28,484)</td><td>(38,901)</td><td></td></tr><tr><td>Proceeds from sales of property, plant and equipment</td><td>2,021</td><td>437</td><td>605</td><td></td></tr><tr><td>Net cash used in investing activities</td><td>$ (17,395)</td><td>$ (28,047)</td><td>$ (86,583)</td><td></td></tr><tr><td>Cash flows from financing activities:</td><td></td><td></td><td></td><td></td></tr><tr><td>Proceeds from revolving line of credit</td><td>35,450</td><td>33,737</td><td>29,500</td><td></td></tr><tr><td>Repayments on revolving line of credit</td><td>(43,970)</td><td>(12,756)</td><td>(13,318)</td><td></td></tr><tr><td>Payments of capital lease obligations</td><td>(1,433)</td><td>(837)</td><td>(147)</td><td></td></tr><tr><td>Dividends paid</td><td>(4,657)</td><td>(6,939)</td><td>(6,631)</td><td></td></tr><tr><td>Net cash (used in) provided by financing activities</td><td>$ (14,610)</td><td>$ 13,205</td><td>$ 9,404</td><td></td></tr><tr><td>Net increase (decrease) in cash and cash equivalents</td><td>$ 1,932</td><td>$ (15,889)</td><td>$ 10,065</td><td></td></tr><tr><td>Cash and cash equivalents at beginning of year</td><td>4,149</td><td>20,038</td><td>9,973</td><td></td></tr><tr><td>Cash and cash equivalents at end of year</td><td>$ 6,081</td><td>$ 4,149</td><td>$ 20,038</td><td></td></tr><tr><td>Supplemental disclosure of cash flow information:</td><td></td><td></td><td></td><td></td></tr><tr><td>Cash paid for interest</td><td>$ 1,339</td><td>$ 890</td><td>$ 812</td><td></td></tr><tr><td>Cash paid for income taxes</td><td>$ —</td><td>$ —</td><td>$ 136</td><td></td></tr><tr><td>Non-cash financing and investing activities:</td><td></td><td></td><td></td><td></td></tr><tr><td>Equipment acquired under capital leases</td><td>$ 5,659</td><td>$ 3,954</td><td>$ 1,252</td><td></td></tr><tr><td>Dividends accrued, but not paid</td><td>$ —</td><td>$ 1,849</td><td>$ 1,849</td><td></td></tr></table>

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



## FARMER BROS. CO.

## CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except share and per share data)

<table><tr><td></td><td>Common Shares</td><td>Stock Amount</td><td>Additional Paid-in Capital</td><td>Retained Earnings</td><td>Unearned ESOP Shares</td><td>Accumulated Other Comprehensive Income (Loss)</td><td>Total</td></tr><tr><td>Balance at June 30, 2008</td><td>16,075,080</td><td>$16,075</td><td>$30,612</td><td>$257,693</td><td>$(38,529)</td><td>$ 604</td><td>$266,455</td></tr><tr><td>Comprehensive income</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net income</td><td></td><td></td><td></td><td>(33,270)</td><td></td><td></td><td>(33,270)</td></tr><tr><td>Retiree benefits</td><td></td><td></td><td></td><td></td><td></td><td>(35,516)</td><td>(35,516)</td></tr><tr><td>Total comprehensive loss</td><td></td><td></td><td></td><td></td><td></td><td></td><td>(68,786)</td></tr><tr><td>Dividends ($0.46 per share)</td><td></td><td></td><td></td><td>(6,631)</td><td></td><td></td><td>(6,631)</td></tr><tr><td>ESOP compensation expense</td><td></td><td></td><td>(151)</td><td></td><td>4,925</td><td></td><td>4,774</td></tr><tr><td>Share based compensation</td><td>3,031</td><td>3</td><td>674</td><td></td><td></td><td></td><td>677</td></tr><tr><td>Balance at June 30, 2009</td><td>16,078,111</td><td>$16,078</td><td>$31,135</td><td>$217,792</td><td>$(33,604)</td><td>$(34,912)</td><td>$196,489</td></tr><tr><td>Comprehensive income</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net loss</td><td></td><td></td><td></td><td>(23,953)</td><td></td><td></td><td>(23,953)</td></tr><tr><td>Retiree benefits</td><td></td><td></td><td></td><td></td><td></td><td>(4,787)</td><td>(4,787)</td></tr><tr><td>Total comprehensive loss</td><td></td><td></td><td></td><td></td><td></td><td></td><td>(28,740)</td></tr><tr><td>Dividends ($0.46 per share)</td><td></td><td></td><td></td><td>(6,939)</td><td></td><td></td><td>(6,939)</td></tr><tr><td>ESOP compensation expense, including reclassifications</td><td></td><td></td><td>5,344</td><td></td><td>(1,634)</td><td></td><td>3,710</td></tr><tr><td>Share based compensation</td><td>86,068</td><td>86</td><td>989</td><td></td><td></td><td></td><td>1,075</td></tr><tr><td>Balance at June 30, 2010</td><td>16,164,179</td><td>$16,164</td><td>$37,468</td><td>$186,900</td><td>$(35,238)</td><td>$39,699)</td><td>$165,595</td></tr><tr><td>Comprehensive income</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net loss</td><td></td><td></td><td></td><td>(54,317)</td><td></td><td></td><td>(54,317)</td></tr><tr><td>Retiree benefits</td><td></td><td></td><td></td><td></td><td></td><td>15,811</td><td>15,811</td></tr><tr><td>Total comprehensive loss</td><td></td><td></td><td></td><td></td><td></td><td></td><td>(38,506)</td></tr><tr><td>Dividends ($0.18 per share)</td><td></td><td></td><td></td><td>(2,799)</td><td></td><td></td><td>(2,799)</td></tr><tr><td>ESOP contributions</td><td>1,040</td><td>1</td><td>8</td><td></td><td>(9)</td><td></td><td>—</td></tr><tr><td>ESOP compensation expense, including reclassifications</td><td></td><td></td><td>(2,173)</td><td></td><td>4,810</td><td></td><td>2,637</td></tr><tr><td>Share based compensation</td><td>21,153</td><td>21</td><td>1,167</td><td></td><td></td><td></td><td>1,188</td></tr><tr><td>Balance at June 30, 2011</td><td>16,186,372</td><td>$16,186</td><td>$36,470</td><td>$129,784</td><td>$(30,437)</td><td>$23,888)</td><td>$128,115</td></tr></table>



# FARMER BROS. CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## Note 1. Summary of Significant Accounting Policies

## Organization

Farmer Bros. Co., a Delaware corporation (including its consolidated subsidiaries unless the context otherwise requires, the “Company,” “we,” “our” or “Farmer Bros.”) is a manufacturer, wholesaler and distributor of coffee, tea and culinary products. The Company is a direct distributor of coffee to restaurants, hotels, casinos, hospitals and other foodservice providers, and is a provider of private brand coffee programs to grocery retailers, restaurant chains, convenience stores, and independent coffee houses, nationwide. The Company was founded in 1912, was incorporated in California in 1923, and reincorporated in Delaware in 2004. The Company operates in one business segment.

The Company’s product line includes roasted coffee, liquid coffee, coffee related products such as coffee filters, sugar and creamers, assorted teas, cappuccino, cocoa, spices, gelatins and puddings, soup, gravy and sauce mixes, pancake and biscuit mixes, and jellies and preserves. Most sales are made “off-truck” by the Company to its customers at their places of business.

The Company serves its customers from six distribution centers and its distribution trucks are replenished from 114 branch warehouses located throughout the contiguous United States. The Company operates its own trucking fleet to support its long-haul distribution requirements. A portion of the Company’s products are distributed by third parties or are direct shipped via common carrier.

## Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries FBC Finance Company and Coffee Bean Holding Co., Inc. All inter-company balances and transactions have been eliminated.

## Financial Statement Preparation

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

## Cash Equivalents

The Company considers all highly liquid investments with original maturity dates of 90 days or less to be cash equivalents. Fair values of cash equivalents approximate cost due to the short period of time to maturity.

## Investments

The Company’s investments consist of marketable debt and equity securities, money market instruments and various derivative instruments, primarily exchange traded treasury futures and options, green coffee forward purchase contracts and commodity purchase agreements. Investments are held for trading purposes and stated at fair value. All derivative instruments not designated as accounting hedges are marked to market and changes are recognized in current earnings. At June 30, 2011 and 2010, no derivative instruments were designated as accounting hedges. The fair value of derivative instruments is based upon broker quotes. The cost of investments sold is determined on the specific identification method. Dividend and interest income is accrued as earned.



# FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

## Concentration of Credit Risk

At June 30, 2011, the financial instruments which potentially expose the Company to concentration of credit risk consist of cash in financial institutions (which exceeds federally insured limits), short-term investments, investments in the preferred stocks of other companies and trade receivables. Cash equivalents and short-term investments are not concentrated by issuer, industry or geographic area. Maturities are generally shorter than 180 days. Investments in the preferred stocks of other companies are limited to high quality issuers and are not concentrated by geographic area or issuer.

Concentration of credit risk with respect to trade receivables for the Company is limited due to the large number of customers comprising the Company’s customer base and their dispersion across many different geographic areas. The trade receivables are generally short-term and all probable bad debt losses have been appropriately considered in establishing the allowance for doubtful accounts. In fiscal 2010, based on a larger customer base due to the recent Company acquisitions and in response to slower collection of the Company’s accounts receivable resulting from the impact of the economic downturn on the Company’s customers, the Company increased its allowance for doubtful accounts and recorded a $2.5 million charge to bad debt expense. In fiscal 2011, due to improvements in the collection of past due accounts, the Company reduced its estimate of the allowance for doubtful accounts by $0.4 million.

## Inventories

Inventories are valued at the lower of cost or market. Costs of coffee, tea and culinary products for the Company are determined on the last in, first out (LIFO) basis. Costs of coffee brewing equipment manufactured are accounted for on the first in, first out (FIFO) basis. The Company regularly evaluates these inventories to determine whether market conditions are correctly reflected in the recorded carrying value.

## Property, Plant and Equipment

Property, plant and equipment is carried at cost, less accumulated depreciation. Depreciation is computed using the straight-line method. The following useful lives are used:

Building and facilities ..... 10 to 30 years

Machinery and equipment ..... 3 to 5 years

Equipment under capital lease ..... Term of lease

Office furniture and equipment ..... 5 years

Capitalized software ..... 3 years

When assets are sold or retired, the asset and related accumulated depreciation are removed from the respective account balances and any gain or loss on disposal is included in operations. Maintenance and repairs are charged to expense, and betterments are capitalized.

## Coffee Brewing Equipment and Service

The Company classifies certain expenses related to coffee brewing equipment provided to customers as cost of goods sold. These costs include the depreciation cost of the equipment as well as the cost of servicing that equipment (including service employees' salaries, cost of transportation and the cost of supplies and parts) and are considered directly attributable to the generation of revenues from its customers. Accordingly, such costs included in cost of goods sold in the accompanying financial statements for the years ended June 30, 2011, 2010 and 2009 are $27.1 million, $21.5 million and $13.1 million, respectively.



# FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company has capitalized coffee brewing equipment in the amounts of $12.7 million and $14.1 million in fiscal 2011 and 2010, respectively. During fiscal 2011, 2010 and 2009, the Company had depreciation expense related to the capitalized coffee brewing equipment reported as cost of goods sold in the amounts of $9.6 million, $6.1 million and $1.7 million, respectively.

## Income Taxes

Deferred income taxes are determined based on the temporary differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which differences are expected to reverse. Estimating the Company’s tax liabilities involves judgments related to uncertainties in the application of complex tax regulations. The Company makes certain estimates and judgments to determine tax expense for financial statement purposes as they evaluate the effect of tax credits, tax benefits and deductions, some of which result from differences in timing of recognition of revenue or expense for tax and financial statement purposes. Changes to these estimates may result in significant changes to the Company’s tax provision in future periods. Each fiscal quarter the Company reevaluates their tax provision and reconsiders their estimates and their assumptions related to specific tax assets and liabilities, making adjustments as circumstances change.

## Revenue Recognition

Most product sales are made “off-truck” to the Company’s customers at their places of business by the Company’s sales representatives. Revenue is recognized at the time the Company’s sales representatives physically deliver products to customers and title passes or when it is accepted by the customer when shipped by third-party delivery.

In connection with the acquisition of the DSD Coffee Business in March 2009, the Company entered into an agreement with Sara Lee pursuant to which the Company performs co-packing services for Sara Lee as Sara Lee’s agent. The Company recognizes revenue from this arrangement on a net basis, net of direct costs of revenue. As of June 30, 2011 and 2010, the Company had $4.9 million and $4.1 million, respectively, of receivables from Sara Lee recorded in accounts and notes receivable.

## Net Income (Loss) Per Common Share

Basic earnings (loss) per share (EPS) is computed by dividing net income (loss) by the weighted average common shares outstanding (see Note 13), excluding unallocated shares held by the Company’s Employee Stock Ownership Plan. Diluted EPS includes the effect of any potential shares outstanding, which for the Company consists of dilutive stock options. The dilutive effect of stock options is calculated using the treasury stock method with an offset from expected proceeds upon exercise of the stock options and unrecognized compensation expense. Diluted EPS for the years ended June 30, 2011, 2010 and 2009 does not include the dilutive effect of 467,131, 404,943 and 239,000 shares, respectively, issuable under stock options since their inclusion would be anti-dilutive. Accordingly, the consolidated financial statements present only basic net income (loss) per common share.

Effective July 1, 2009, the Company began using the “Two-Class Method” to compute EPS. The Two-Class Method considers unvested restricted stock with a right to receive non-forfeitable dividends as participating securities and allocates earnings to participating securities in the computation of EPS. The Company computed EPS using the Two-Class Method for all periods presented. The effect for the years ended June 30, 2011, 2010 and 2009 was not material.



# FARMER BROS. CO.

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

## Employee Stock Ownership Plan (“ESOP”)

Compensation cost for the ESOP is based on the fair market value of shares released or deemed to be released for the period. Dividends on allocated shares retain the character of true dividends, but dividends on unallocated shares are considered compensation cost. As a leveraged ESOP with the Company as lender, a contra equity account is established to offset the Company’s note receivable. The contra account will change as compensation is recognized.

## Impairment of Goodwill and Intangible Assets

The Company performs its annual goodwill and indefinite-lived intangible assets impairment test as of June 30 of each fiscal year. Goodwill and other indefinite-lived intangible assets are not amortized but instead are reviewed for impairment annually and on an interim basis if events or changes in circumstances between annual tests indicate that an asset might be impaired. Indefinite-lived intangible assets are tested for impairment by comparing their fair values to their carrying values. Testing for impairment of goodwill is a two-step process. The first step requires the Company to compare the fair value of its reporting units to the carrying value of the net assets of the respective reporting units, including goodwill. If the fair value of the reporting unit is less than the carrying value, goodwill of the reporting unit is potentially impaired and the Company then completes step two to measure the impairment loss, if any. The second step requires the calculation of the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit. If the implied fair value of goodwill is less than the carrying amount of goodwill, an impairment loss is recognized equal to the difference.

In addition to an annual test, goodwill and indefinite-lived intangible assets must also be tested on an interim basis if events or circumstances indicate that the estimated fair value of such assets has decreased below their carrying value. The Company identified indicators of impairment including a decline in market capitalization and continuing losses from operations. The Company performed impairment tests to determine the recoverability of the carrying values of the assets or if impairment should be measured and concluded that as of June 30, 2011 goodwill and the indefinite-lived intangible assets were not impaired.

## Long-Lived Assets, Excluding Goodwill and Indefinite-lived Intangible Assets

The Company reviews the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The estimated future cash flows are based upon, among other things, assumptions about expected future operating performance, and may differ from actual cash flows. Long-lived assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows (excluding interest) is less than the carrying value of the assets, the assets will be written down to the estimated fair value in the period in which the determination is made. In its annual test of impairment as of the end of fiscal 2011, the Company identified indicators of impairment including a decline in market capitalization and continuing losses from operations. The Company performed impairment tests to determine the recoverability of the carrying values of the assets or if impairment should be measured. The carrying value of these intangible assets was higher than the sum of each of their projected undiscounted cash flows. The Company was required to make estimates of the fair value of the intangible assets in this group, which were based on the use of the income approach. Inputs to the analysis include the projection of future cash flows which are Level 3 inputs within the fair value hierarchy. The Company determined that definite-lived intangible assets consisting of the customer relationships acquired, and the distribution agreement and co-pack agreement entered into, in connection with the DSD Coffee Business acquisition were impaired. The total impairment charge recorded in operating expenses on the consolidated statement of operations as a result of the impairment test was $7.8 million.



# FARMER BROS. CO.

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

## Shipping and Handling Costs

The Company distributes its products directly to its customers and shipping and handling costs are recorded as Company selling expenses.

## Collective Bargaining Agreements

Certain Company employees are subject to collective bargaining agreements. The duration of these agreements extend to 2014. Approximately 34% of the workforce is covered by such agreements.

## Reclassifications

Certain reclassifications have been made to prior year balances to conform to the current year presentation.

## Recently Adopted Accounting Standards

In October 2009, the multiple-element arrangements guidance codified in ASC 605-25, “Revenue Recognition—Multiple Element Arrangements,” was modified by the Financial Accounting Standards Board (“FASB”) as a result of the final consensus reached on EITF Issue No. 08-1, “Revenue Arrangements with Multiple Deliverables,” which was codified by Accounting Standards Update (“ASU”) No. 2009-13. The guidance in ASU No. 2009-13 supersedes the existing guidance on such arrangements and is effective for the first annual reporting period after June 15, 2010 and was effective for the Company beginning on July 1, 2010. Adoption of ASU No. 2009-13 did not materially affect the results of operations, financial condition or cash flows of the Company.

## New Accounting Pronouncements

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220), Presentation of Comprehensive Income” (“ASU 2011-05”). The new US GAAP guidance gives companies two choices of how to present items of net income, items of other comprehensive income (“OCI”) and total comprehensive income: Companies can create one continuous statement of comprehensive income or two separate consecutive statements. Companies will no longer be allowed to present OCI in the statement of stockholders’ equity. Earnings per share would continue to be based on net income. Although existing guidance related to items that must be presented in OCI has not changed, companies will be required to display reclassification adjustments for each component of OCI in both net income and OCI. Also, companies will need to present the components of OCI in their interim and annual financial statements. The amendments in the ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and, for the Company, the amendments are effective beginning July 1, 2013. The Company believes that adoption of ASU 2011-05 will not impact the results of operations, financial position or cash flows of the Company.

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). The ASU amends the fair value measurement and disclosure guidance in ASC 820, “Fair Value Measurement,” to converge US GAAP and International Financial Reporting Standards requirements for measuring amounts at fair value as well as disclosures about these measurements. Many of the amendments clarify existing concepts and are generally not expected to result in significant changes to how many companies currently apply the fair value principles. In certain instances, however, the FASB changed a principle to achieve convergence, and while limited, these amendments have the potential to significantly change practice for some



# FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

companies. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011 and, for the Company, the amendments are effective beginning in July 1, 2013. The Company believes that adoption of ASU 2011-04 will not impact the results of operations, financial position or cash flows of the Company.

## Note 2. Investments and Derivative Instruments

The Company purchases various derivative instruments as investments or to create economic hedges of its interest rate risk and commodity price risk. At June 30, 2011 and 2010, derivative instruments were not designated as accounting hedges as defined by ASC 815, “Accounting for Derivative Instruments and Hedging Activities.” The fair value of derivative instruments is based upon broker quotes. The Company records unrealized gains and losses on trading securities and changes in the market value of certain coffee contracts meeting the definition of derivatives in Other, net.

The Company adopted ASC 820, “Fair Value Measurements” (“ASC 820”) on July 1, 2008. ASC 820 defines fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Under ASC 820, the Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

• Level 1—Valuation is based upon quoted prices for identical instruments traded in active markets.

- Level 2—Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

- Level 3—Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Assets and liabilities measured and recorded at fair value on a recurring basis were as follows (in thousands):

<table><tr><td>As of June 30, 2011</td><td>Total</td><td>Level 1</td><td>Level 2</td><td>Level 3</td></tr><tr><td>Preferred stock(1)</td><td>$24,407</td><td>$ 7,181</td><td>$17,226</td><td>$—</td></tr><tr><td>Futures, options and other derivative assets(1)</td><td>$ 467</td><td>$ —</td><td>$ 467</td><td>$—</td></tr><tr><td>Derivative liabilities(2)</td><td>$ 1,647</td><td>$ —</td><td>$ 1,647</td><td>$—</td></tr><tr><td>As of June 30, 2010</td><td>Total</td><td>Level 1</td><td>Level 2</td><td>Level 3</td></tr><tr><td>Preferred stock(1)</td><td>$50,684</td><td>$11,946</td><td>$38,738</td><td>$—</td></tr><tr><td>Futures, options and other derivatives(1)</td><td>$ 258</td><td>$ 258</td><td>$ —</td><td>$—</td></tr></table>

(1) Included in short-term investments on the consolidated balance sheet.

(2) Included in other current liabilities on the consolidated balance sheet.

There were no significant transfers of securities between Level 1 and Level 2.



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Gains and losses, both realized and unrealized, are included in Other, net. Net realized and unrealized gains and losses are as follows:

<table><tr><td rowspan="3"></td><td colspan="4">June 30,</td></tr><tr><td>2011</td><td>2010</td><td>2009</td><td></td></tr><tr><td colspan="4">(In thousands)</td></tr><tr><td>Investments</td><td></td><td></td><td></td><td></td></tr><tr><td>Unrealized gains</td><td>$ 865</td><td>$ 9,647</td><td>$ —</td><td></td></tr><tr><td>Unrealized losses</td><td>—</td><td>—</td><td>(3,584)</td><td></td></tr><tr><td>Realized gains</td><td>447</td><td>—</td><td>238</td><td></td></tr><tr><td>Realized losses</td><td>—</td><td>(265)</td><td>(5,643)</td><td></td></tr><tr><td>Net realized and unrealized gains (losses)</td><td>1,312</td><td>9,382</td><td>(8,989)</td><td></td></tr><tr><td>Net gains from sales of assets</td><td>1,359</td><td>201</td><td>475</td><td></td></tr><tr><td>Other gains, net</td><td>1,520</td><td>586</td><td>266</td><td></td></tr><tr><td>Other, net</td><td>$4,191</td><td>$10,169</td><td>$(8,248)</td><td></td></tr></table>

Preferred stock investments as of June 30, 2011 consisted of securities with a fair value of $18.1 million in an unrealized gain position and securities with a fair value of $6.3 million in an unrealized loss position. Preferred stock investments as of June 30, 2010 consisted of securities with a fair value of $36.3 million in an unrealized gain position and securities with a fair value of $14.4 million in an unrealized loss position. The following tables show gross unrealized losses (although such losses have been recognized in the statements of operations) and fair value for those investments that were in an unrealized loss position as of June 30, 2011 and 2010, aggregated by the length of time those investments have been in a continuous loss position:

<table><tr><td rowspan="3">(In thousands)</td><td colspan="4">June 30, 2011</td></tr><tr><td colspan="2">Less than 12 Months</td><td colspan="2">Total</td></tr><tr><td>Fair Value</td><td>Unrealized Loss</td><td>Fair Value</td><td>Unrealized Loss</td></tr><tr><td>Preferred stock</td><td>$ 319</td><td>$ (3)</td><td>$ 6,326</td><td>$(1,122)</td></tr><tr><td rowspan="3">(In thousands)</td><td colspan="4">June 30, 2010</td></tr><tr><td colspan="2">Less than 12 Months</td><td colspan="2">Total</td></tr><tr><td>Fair Value</td><td>Unrealized Loss</td><td>Fair Value</td><td>Unrealized Loss</td></tr><tr><td>Preferred stock</td><td>$1,889</td><td>$(97)</td><td>$14,358</td><td>$(6,044)</td></tr></table>

## Note 3. Accounts and Notes Receivable, net

<table><tr><td rowspan="3"></td><td colspan="2">June 30,</td></tr><tr><td>2011</td><td>2010</td></tr><tr><td colspan="2">(In thousands)</td></tr><tr><td>Trade receivables</td><td>$40,716</td><td>$39,600</td></tr><tr><td>Other receivables</td><td>5,637</td><td>6,289</td></tr><tr><td>Allowance for doubtful accounts</td><td>(2,852)</td><td>(3,293)</td></tr><tr><td></td><td>$43,501</td><td>$42,596</td></tr></table>

In fiscal 2010, based on a larger customer base due to recent Company acquisitions and in response to slower collection of the Company’s accounts receivable resulting from the impact of the economic downturn on the Company’s customers, the Company increased its allowance for doubtful accounts, and recorded a $2.5



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

million charge to bad debt expense. In fiscal 2011, due to improvements in the collection of past due accounts, the Company reduced its estimate of the allowance for doubtful accounts by $0.4 million.

Allowance for doubtful accounts (in thousands):

<table><tr><td>Balance at June 30, 2008</td><td>$ (494)</td></tr><tr><td>Additions</td><td>(810)</td></tr><tr><td>Write-offs</td><td>131</td></tr><tr><td>Balance at June 30, 2009</td><td>(1,173)</td></tr><tr><td>Additions</td><td>(3,188)</td></tr><tr><td>Write-offs</td><td>1,068</td></tr><tr><td>Balance at June 30, 2010</td><td>(3,293)</td></tr><tr><td>Additions</td><td>(2,024)</td></tr><tr><td>Write-offs</td><td>2,465</td></tr><tr><td>Balance at June 30, 2011</td><td>$ (2,852)</td></tr></table>

## Note 4. Inventories

<table><tr><td>June 30, 2011</td><td>Processed</td><td>Unprocessed (In thousands)</td><td>Total</td></tr><tr><td>Coffee</td><td>$22,464</td><td>$17,220</td><td>$39,684</td></tr><tr><td>Tea and culinary products</td><td>25,469</td><td>4,100</td><td>29,569</td></tr><tr><td>Coffee brewing equipment</td><td>3,930</td><td>6,576</td><td>10,506</td></tr><tr><td></td><td>$51,863</td><td>$27,896</td><td>$79,759</td></tr><tr><td>June 30, 2010</td><td>Processed</td><td>Unprocessed (In thousands)</td><td>Total</td></tr><tr><td>Coffee</td><td>$22,230</td><td>$16,765</td><td>$38,995</td></tr><tr><td>Tea and culinary products</td><td>28,833</td><td>3,145</td><td>31,978</td></tr><tr><td>Coffee brewing equipment</td><td>5,849</td><td>6,890</td><td>12,739</td></tr><tr><td></td><td>$56,912</td><td>$26,800</td><td>$83,712</td></tr></table>

Current cost of coffee, tea and culinary inventories exceeds the LIFO cost by (in thousands):

<table><tr><td rowspan="2"></td><td colspan="2">June 30,</td></tr><tr><td>2011</td><td>2010</td></tr><tr><td>Coffee</td><td>$62,870</td><td>$24,432</td></tr><tr><td>Tea and culinary products</td><td>6,695</td><td>4,816</td></tr><tr><td>Total</td><td>$69,565</td><td>$29,248</td></tr></table>

The change in the Company’s green coffee, tea and culinary product inventories during fiscal 2011, 2010 and 2009 resulted in LIFO (increments) decrements which resulted in a net increase (decrease) in gross profit for those years by $(40.3) million, $(0.7) million and $(1.5) million, respectively.



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At times the Company enters into specialized hedging transactions to purchase future coffee contracts to enable the Company to lock in green coffee prices within a pre-established range. For the year ended June 30, 2011 the Company recorded $1.6 million in net unrealized losses related to hedging transactions. From time to time the Company may hold a mix of futures contracts and options to help hedge against volatility in green coffee prices. Gains and losses on these derivative instruments are realized immediately in “Other income (expense).”

In fiscal 2011 and 2010, certain inventory quantities were reduced. This reduction resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the current year cost in fiscal 2011. The effect of this liquidation was to reduce net loss for fiscal 2011 and 2010 by $1.1 million and $0.8 million, respectively. There was no liquidation of LIFO quantities in fiscal 2009.

## Note 5. Property, Plant and Equipment

<table><tr><td rowspan="3"></td><td colspan="2">June 30,</td></tr><tr><td>2011</td><td>2010</td></tr><tr><td colspan="2">(In thousands)</td></tr><tr><td>Buildings and facilities</td><td>$ 80,352</td><td>$ 79,312</td></tr><tr><td>Machinery and equipment</td><td>119,209</td><td>109,738</td></tr><tr><td>Equipment under capital leases</td><td>10,675</td><td>7,192</td></tr><tr><td>Capitalized software costs</td><td>18,294</td><td>18,749</td></tr><tr><td>Office furniture and equipment</td><td>16,839</td><td>15,583</td></tr><tr><td></td><td>$ 245,369</td><td>$ 230,574</td></tr><tr><td>Accumulated depreciation</td><td>(140,996)</td><td>(118,810)</td></tr><tr><td>Land</td><td>9,734</td><td>9,946</td></tr><tr><td>Property, plant and equipment, net</td><td>$ 114,107</td><td>$ 121,710</td></tr></table>

Capital leases consist mainly of vehicle leases at June 30, 2011 and 2010.

The Company has capitalized coffee brewing equipment in the amounts of $12.7 million, $14.1 million and $5.4 million in fiscal years 2011, 2010 and 2009, respectively. Depreciation expense related to the capitalized coffee brewing equipment reported as cost of goods sold was $9.6 million, $6.1 million and $1.7 million in fiscal years 2011, 2010 and 2009, respectively. Depreciation and amortization expense includes amortization expense for assets recorded under capitalized leases.

Maintenance and repairs to property, plant and equipment charged to expense for the years ended June 30, 2011, 2010 and 2009 were $10.3 million, $15.0 million and $15.2 million, respectively.



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

## Note 6. Goodwill and Intangible Assets

The following is a summary of the Company’s amortized and unamortized intangible assets other than goodwill, along with amortization expense on these intangible assets for the past three fiscal years and estimated aggregate amortization expense for each of the next five fiscal years:

<table><tr><td rowspan="2"></td><td colspan="3">2011</td><td colspan="2">2010</td></tr><tr><td>Gross Carrying Amount</td><td>Accumulated Amortization</td><td>Gross Carrying Amount</td><td>Accumulated Amortization</td><td></td></tr><tr><td>Amortized intangible assets:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Customer relationships</td><td>$ 10,460</td><td>$(7,291)</td><td>$18,216</td><td>$(8,485)</td><td></td></tr><tr><td>Distribution agreement</td><td>—</td><td>—</td><td>2,452</td><td>(327)</td><td></td></tr><tr><td>Co-pack agreement</td><td>—</td><td>—</td><td>743</td><td>(165)</td><td></td></tr><tr><td>Total amortized intangible assets</td><td>$ 10,460</td><td>$(7,291)</td><td>$21,411</td><td>$(8,977)</td><td></td></tr><tr><td>Unamortized intangible assets:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Tradenames with indefinite lives</td><td>$ 4,080</td><td>$ —</td><td>$ 4,080</td><td>$ —</td><td></td></tr><tr><td>Trademarks with indefinite lives</td><td>2,080</td><td>—</td><td>2,080</td><td>—</td><td></td></tr><tr><td>CBI Goodwill</td><td>5,310</td><td>—</td><td>5,310</td><td>—</td><td></td></tr><tr><td>Total unamortized intangible assets</td><td>$ 11,470</td><td>$ —</td><td>$11,470</td><td>$ —</td><td></td></tr><tr><td>Total intangible assets</td><td>$ 21,930</td><td>$(7,291)</td><td>$32,881</td><td>$(8,977)</td><td></td></tr><tr><td>Aggregate amortization expense for the past three fiscal years:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>For the year ended June 30, 2011</td><td>$ 2,948</td><td></td><td></td><td></td><td></td></tr><tr><td>For the year ended June 30. 2010</td><td>$ 2,849</td><td></td><td></td><td></td><td></td></tr><tr><td>For the year ended June 30, 2009</td><td>$ 2,159</td><td></td><td></td><td></td><td></td></tr><tr><td>Estimated amortization expense for each of the next five fiscal years:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>For the year ended June 30, 2012</td><td>$ 1,454</td><td></td><td></td><td></td><td></td></tr><tr><td>For the year ended June 30. 2013</td><td>$ 1,249</td><td></td><td></td><td></td><td></td></tr><tr><td>For the year ended June 30, 2014</td><td>$ 466</td><td></td><td></td><td></td><td></td></tr><tr><td>For the year ended June 30. 2015</td><td>$ —</td><td></td><td></td><td></td><td></td></tr><tr><td>For the year ended June 30, 2016</td><td>$ —</td><td></td><td></td><td></td><td></td></tr><tr><td>The remaining weighted average amortization periods for intangible assets with finite lives are as follows:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Customer relationships</td><td>2.4 years</td><td></td><td></td><td></td><td></td></tr><tr><td>The following is a summary of the changes in the carrying value of goodwill:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Balance at July 1, 2009</td><td>$ 5,310</td><td></td><td></td><td></td><td></td></tr><tr><td>Acquisitions during year</td><td>—</td><td></td><td></td><td></td><td></td></tr><tr><td>Balance at June 30, 2010</td><td>$ 5,310</td><td></td><td></td><td></td><td></td></tr><tr><td>Acquisitions during year</td><td>—</td><td></td><td></td><td></td><td></td></tr><tr><td>Balance at June 30, 2011</td><td>$ 5,310</td><td></td><td></td><td></td><td></td></tr></table>



# FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

## Note 7. Employee Benefit Plans

The Company provides pension plans for most full time employees. Generally the plans provide benefits based on years of service and/or a combination of years of service and earnings. Certain retirees are also eligible for medical, dental and vision benefits.

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

## Union Pension Plans

The Company contributes to several multi-employer defined benefit pension plans for certain union employees. The contributions to these multi-employer pension plans were approximately $3.1 million, $4.0 million, and $2.8 million for the fiscal years ended June 30, 2011, 2010 and 2009, respectively.

## Company Pension Plans

The Company has a defined benefit pension plan, the Farmer Bros. Salaried Employees Pension Plan, for the majority of its employees who are not covered under a collective bargaining agreement (“Farmer Bros. Plan”) and two defined benefit pensions plan for certain hourly employees covered under a collective bargaining agreement (the “Brewmatic Plan” and the “Hourly Employees’ Plan”). All assets and benefit obligations were determined using a measurement date of June 30.

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 plan, and new hires are not eligible to participate in the plan. As a result, the Company recorded $1.5 million in curtailment charge in the fourth quarter ended June 30, 2011.



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

## Obligations and Funded Status

<table><tr><td rowspan="3"></td><td colspan="2">Farmer Bros. Plan June 30,</td><td colspan="2">Brewmatic Plan June 30,</td><td colspan="2">Hourly Employees&#x27; Plan June 30,</td></tr><tr><td>2011</td><td>2010</td><td>2011</td><td>2010</td><td>2011</td><td>2010</td></tr><tr><td colspan="2">(In thousands)</td><td colspan="2">(In thousands)</td><td colspan="2">(In thousands)</td></tr><tr><td>Change in projected benefit obligation</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Benefit obligation at the beginning of the year</td><td>$110,449</td><td>$ 96,652</td><td>$3,707</td><td>$ 3,476</td><td>$ 578</td><td>$ —</td></tr><tr><td>Service cost</td><td>4,609</td><td>4,340</td><td>57</td><td>48</td><td>409</td><td>519</td></tr><tr><td>Interest cost</td><td>5,999</td><td>5,900</td><td>199</td><td>208</td><td>32</td><td>—</td></tr><tr><td>Plan participant contributions</td><td>1,005</td><td>732</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Actuarial (gain)/loss</td><td>(1,409)</td><td>7,410</td><td>(24)</td><td>241</td><td>39</td><td>59</td></tr><tr><td>Benefits paid</td><td>(5,022)</td><td>(4,585)</td><td>(284)</td><td>(266)</td><td>(3)</td><td>—</td></tr><tr><td>Effect of curtailment</td><td>(8,560)</td><td>—</td><td>7</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Projected benefit obligation at the end of the year</td><td>$107,071</td><td>$110,449</td><td>$3,662</td><td>$ 3,707</td><td>$1,055</td><td>$ 578</td></tr><tr><td>Change in plan assets</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fair value of plan assets at the beginning of the year</td><td>63,462</td><td>59,266</td><td>2,490</td><td>2,395</td><td>—</td><td>—</td></tr><tr><td>Actual return on plan assets</td><td>16,619</td><td>8,049</td><td>635</td><td>333</td><td>11</td><td>—</td></tr><tr><td>Employer contributions</td><td>4,383</td><td>—</td><td>30</td><td>28</td><td>413</td><td>—</td></tr><tr><td>Plan participant contributions</td><td>1,005</td><td>732</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Benefits paid</td><td>(5,022)</td><td>(4,585)</td><td>(284)</td><td>(266)</td><td>(3)</td><td>—</td></tr><tr><td>Fair value of plan assets at the end of the year</td><td>$ 80,447</td><td>$ 63,462</td><td>$2,871</td><td>$ 2,490</td><td>$ 421</td><td>$ —</td></tr><tr><td>Funded status at end of year (underfunded)/overfunded</td><td>$ (26,624)</td><td>$ (46,987)</td><td>$ (791)</td><td>$ (1,217)</td><td>$ (634)</td><td>$ (578)</td></tr><tr><td>Amounts recognized in balance sheet</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Noncurrent assets</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td><td>$ —</td></tr><tr><td>Current liabilities</td><td>(5,360)</td><td>(4,970)</td><td>(310)</td><td>(310)</td><td>(8)</td><td>(5)</td></tr><tr><td>Noncurrent liabilities</td><td>(21,264)</td><td>(42,017)</td><td>(481)</td><td>(907)</td><td>(626)</td><td>(573)</td></tr><tr><td>Total</td><td>$ (26,624)</td><td>$ (46,987)</td><td>$ (791)</td><td>$ (1,217)</td><td>$ (634)</td><td>$ (578)</td></tr><tr><td>Amounts recognized in balance sheet</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total net (gain)/loss</td><td>$ 25,900</td><td>$ 50,037</td><td>$1,587</td><td>$ 2,186</td><td>$ 96</td><td>$ 59</td></tr><tr><td>Transition (asset)/obligation</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Prior service cost/(credit)</td><td>—</td><td>1,577</td><td>71</td><td>82</td><td>—</td><td>—</td></tr><tr><td>Total accumulated OCI (not adjusted for applicable tax)</td><td>$ 25,900</td><td>$ 51,614</td><td>$1,658</td><td>$ 2,268</td><td>$ 96</td><td>$ 59</td></tr><tr><td>Weighted average assumptions used to determine benefit obligations</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Discount rate</td><td>5.60%</td><td>5.60%</td><td>5.60%</td><td>5.60%</td><td>6.25%</td><td></td></tr><tr><td>Rate of compensation increase</td><td>—</td><td>3.00%</td><td>—</td><td>—</td><td>3.00%</td><td>3.00%</td></tr></table>



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

## Components of Net Periodic Benefit Cost and Other Changes Recognized in Other Comprehensive Income (OCI)

<table><tr><td rowspan="2"></td><td colspan="2">Farmer Bros. Plan June 30,</td><td colspan="2">Brewmatic Plan June 30,</td><td colspan="2">Hourly Employees&#x27; Plan June 30,</td></tr><tr><td>2011</td><td>2010</td><td>2011</td><td>2010</td><td>2011</td><td>2010</td></tr><tr><td></td><td colspan="2">(In thousands)</td><td colspan="2">(In thousands)</td><td colspan="2">(In thousands</td></tr><tr><td>Components of net periodic benefit cost</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Service cost</td><td>$ 4,609</td><td>$ 4,340</td><td>$ 57</td><td>$ 48</td><td>$ 409</td><td>$ 519</td></tr><tr><td>Interest cost</td><td>5,999</td><td>5,899</td><td>199</td><td>208</td><td>32</td><td>—</td></tr><tr><td>Expected return on plan assets</td><td>(5,323)</td><td>(4,642)</td><td>(179)</td><td>(175)</td><td>(9)</td><td>—</td></tr><tr><td>Amortization of net (gain)/loss</td><td>2,871</td><td>3,291</td><td>119</td><td>131</td><td>—</td><td>—</td></tr><tr><td>Amortization of prior service cost/(credit)</td><td>122</td><td>146</td><td>18</td><td>19</td><td>—</td><td>—</td></tr><tr><td>Amount recognized due to special event (curtailment)</td><td>1,456</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Net periodic benefit cost</td><td>$ 9,734</td><td>$ 9,034</td><td>$ 214</td><td>$ 231</td><td>$ 432</td><td>$ 519</td></tr><tr><td>Other changes recognized in OCI</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net (gain)/loss</td><td>$ (12,705)</td><td>$ 4,003</td><td>$ (480)</td><td>$ 82</td><td>$ 37</td><td>$ 59</td></tr><tr><td>Prior service cost/(credit)</td><td>—</td><td>—</td><td>7</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Amortization of net gain/(loss)</td><td>(2,871)</td><td>(3,291)</td><td>(119)</td><td>(131)</td><td>—</td><td>—</td></tr><tr><td>Amortization of transition asset/ (obligation)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Amortization of prior service (cost)/credit</td><td>(122)</td><td>(146)</td><td>(18)</td><td>(19)</td><td>—</td><td>—</td></tr><tr><td>Amount recognized due to special event (curtailment)</td><td>(10,016)</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Total recognized in other comprehensive income</td><td>$ (25,714)</td><td>$ 566</td><td>$ (610)</td><td>$ (68)</td><td>$ 37</td><td>$ 59</td></tr><tr><td>Total recognized in net periodic benefit cost and OCI</td><td>$ (15,980)</td><td>$ 9,600</td><td>$ (396)</td><td>$ 163</td><td>$ 469</td><td>$ 578</td></tr><tr><td>Weighted-average assumptions used to determine net periodic benefit cost</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Discount rate</td><td>5.60%</td><td>6.25%</td><td>5.60%</td><td>6.25%</td><td>5.60%</td><td></td></tr><tr><td>Expected long-term return on plan assets</td><td>8.25%</td><td>8.25%</td><td>8.25%</td><td>8.25%</td><td></td><td></td></tr><tr><td>Rate of compensation increase</td><td>—</td><td>3.00%</td><td>—</td><td>—</td><td>3.00%</td><td></td></tr></table>

All qualifying employees of the DSD Coffee Business who accepted the Company’s offer of employment were allowed to enroll in the Farmer Bros. Plan during March 2009. Those who enrolled in the Farmer Bros. Plan were granted full service credit for plan vesting and eligibility but not for purposes of benefit accruals.

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

Historical and future projected returns of multiple asset classes were analyzed to develop a risk-free real rate of return and risk premiums for each asset class. The overall rate for each asset class was developed by combining a long-term inflation component, the risk-free real rate of return, and the associated risk premium. A weighted average rate was developed based on those overall rates and the target asset allocations of the plans.

## 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



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

<table><tr><td rowspan="2"></td><td colspan="2">Farmer Bros. Plan June 30,</td><td colspan="2">Brewmatic Plan June 30,</td><td colspan="2">Hourly Employees&#x27; Plan June 30,</td></tr><tr><td>2011</td><td>2010</td><td>2011</td><td>2010</td><td>2011</td><td>2010</td></tr><tr><td></td><td colspan="2">(\( In thousands)</td><td colspan="2">(\) In thousands)</td><td colspan="2">(\( In thousands)</td></tr><tr><td>Comparison of obligations to plan assets</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Projected benefit obligation</td><td>$107,071</td><td>$110,449</td><td>$3,662</td><td>$3,707</td><td>$1,055</td><td>$578</td></tr><tr><td>Accumulated benefit obligation</td><td>$107,071</td><td>$101,280</td><td>$3,662</td><td>$3,707</td><td>$1,035</td><td>$574</td></tr><tr><td>Fair value of plan assets at measurement date</td><td>$ 80,447</td><td>$ 63,462</td><td>$2,871</td><td>$2,490</td><td>$ 421</td><td>$—</td></tr><tr><td>Plan assets by category</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Equity securities</td><td>$ 56,791</td><td>$ 44,398</td><td>$2,016</td><td>$1,675</td><td>$ 297</td><td>$—</td></tr><tr><td>Debt securities</td><td>18,945</td><td>15,917</td><td>688</td><td>683</td><td>99</td><td>—</td></tr><tr><td>Real estate</td><td>4,711</td><td>3,147</td><td>167</td><td>132</td><td>$ 25</td><td>—</td></tr><tr><td>Total</td><td>$ 80,447</td><td>$ 63,462</td><td>$2,871</td><td>$2,490</td><td>$ 421</td><td>$—</td></tr><tr><td>Plan assets by category</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Equity securities</td><td>70%</td><td>70%</td><td>70%</td><td>67%</td><td>70%</td><td>—</td></tr><tr><td>Debt securities</td><td>24%</td><td>25%</td><td>24%</td><td>28%</td><td>24%</td><td>—</td></tr><tr><td>Real estate</td><td>6%</td><td>5%</td><td>6%</td><td>5%</td><td>6%</td><td>—</td></tr><tr><td>Total</td><td>100%</td><td>100%</td><td>100%</td><td>100%</td><td>100%</td><td>—</td></tr></table>

As of June 30, 2011, fair values of plan assets were as follows (in thousands):

<table><tr><td></td><td>Total</td><td>Level 1</td><td>Level 2</td><td>Level 3</td></tr><tr><td>Farmer Bros. Plan</td><td>$80,447</td><td>$—</td><td>$75,736</td><td>$4,711</td></tr><tr><td>Brewmatic Plan</td><td>$ 2,871</td><td>$—</td><td>$ 2,704</td><td>$ 167</td></tr><tr><td>Hourly Employees&#x27; Plan</td><td>$ 421</td><td>$—</td><td>$ 396</td><td>$ 25</td></tr></table>

As of June 30, 2010, fair values of plan assets were as follows (in thousands):

<table><tr><td></td><td>Total</td><td>Level 1</td><td>Level 2</td><td>Level 3</td></tr><tr><td>Farmer Bros. Plan</td><td>$63,462</td><td>$—</td><td>$60,315</td><td>$3,147</td></tr><tr><td>Brewmatic Plan</td><td>$ 2,490</td><td>$—</td><td>$ 2,358</td><td>$ 132</td></tr><tr><td>Hourly Employees&#x27; Plan</td><td>$ —</td><td>$—</td><td>$ —</td><td>$ —</td></tr></table>

As of June 30, 2011 and 2010, approximately 94% and 95%, respectively, of the assets in each of the Farmer Bros. Plan and the Brewmatic Plan and, as of June 30, 2011, approximately 94% of the assets of the Hourly Employees' Plan were invested in pooled separate accounts which did not have publicly quoted prices. The pooled separate accounts invest in publicly traded mutual funds. The fair values of the mutual funds were publicly quoted pricing input (Level 1) and were used to determine the net asset value of the pooled separate accounts. Therefore, these assets have Level 2 pricing inputs.



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of June 30, 2011 and 2010, approximately 6% and 5%, respectively, of the assets in each of the Farmer Bros. Plan and the Brewmatic Plan and, as of June 30, 2011, approximately 6% of assets of the Hourly Employee’s Plan were invested in commercial real estate and include mortgage loans which are backed by the associated properties. These underlying real estate investments have unobservable Level 3 pricing inputs. The fair value of the underlying real estate is estimated using discounted cash flow valuation models that utilize public real estate market data inputs such as transaction prices, market rents, vacancy levels, leasing absorption, market capitalization rates and discount rates. In addition, each property is appraised annually by an independent appraiser. The amounts and types of investments within plan assets did not change significantly from June 30, 2010.

The following is a reconciliation of asset balances with Level 3 input pricing:

As of June 30, 2011:

<table><tr><td>Plan</td><td>Beginning Balance</td><td>Total Gains or Losses</td><td>Settlements</td><td>Ending Balance</td><td>Unrealized Gains or Losses</td></tr><tr><td>Farmer Bros. Plan</td><td>$3,147</td><td>$652</td><td>$912</td><td>$4,711</td><td>$652</td></tr><tr><td>Brewmatic Plan</td><td>$ 132</td><td>$ 28</td><td>$ 7</td><td>$ 167</td><td>$ 28</td></tr><tr><td>Hourly Employees&#x27; Plan</td><td>—</td><td>$—</td><td>$ 25</td><td>$ 25</td><td>$—</td></tr></table>

As of June 30, 2010:

<table><tr><td>Plan</td><td>Beginning Balance</td><td>Total Gains or Losses</td><td>Settlements</td><td>Ending Balance</td><td>Unrealized Gains or Losses</td></tr><tr><td>Farmer Bros. Plan</td><td>$3,458</td><td>$(311)</td><td>$—</td><td>$3,147</td><td>$(311)</td></tr><tr><td>Brewmatic Plan</td><td>$ 145</td><td>$ (13)</td><td>$—</td><td>$ 132</td><td>$ (13)</td></tr><tr><td>Hourly Employees&#x27; Plan</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr></table>

Target Plan Asset Allocation for Farmer Bros. Plan and Brewmatic Plan

<table><tr><td></td><td>Fiscal 2012</td></tr><tr><td>U.S. large cap equity securities</td><td>40.6%</td></tr><tr><td>U.S. small cap equity securities</td><td>10.0%</td></tr><tr><td>International equity securities</td><td>16.9%</td></tr><tr><td>Debt securities</td><td>24.0%</td></tr><tr><td>Real estate</td><td>8.5%</td></tr><tr><td>Total</td><td>100.0%</td></tr></table>

## Estimated Amounts in Other Comprehensive Income Expected To Be Recognized

In fiscal 2012, the Company expects to recognize $1.3 million as a component of net periodic benefit cost for the Farmer Bros. Plan, $87,000 for the Brewmatic Plan, and $0 for the Hourly Employees' Plan.

## Estimated Future Contributions and Refunds

In fiscal 2012, the Company expects to contribute $6.7 million to the Farmer Bros. Plan, $0.2 million to the Brewmatic Plan, and $0.7 million to the Hourly Employees' Plan. The Company is not aware of any refunds expected from postretirement plans.



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

## Estimated Future Benefit Payments

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

Estimated future benefit payments

<table><tr><td>Year ending</td><td>Farmer Bros. Plan</td><td>Brewmatic Plan</td><td>Hourly Employees&#x27; Plan</td></tr><tr><td></td><td colspan="3">(In thousands)</td></tr><tr><td>June 30, 2012</td><td>$ 5,360</td><td>$ 310</td><td>$ 8</td></tr><tr><td>June 30, 2013</td><td>$ 5,640</td><td>$ 300</td><td>$ 17</td></tr><tr><td>June 30, 2014</td><td>$ 5,790</td><td>$ 290</td><td>$ 34</td></tr><tr><td>June 30, 2015</td><td>$ 6,130</td><td>$ 290</td><td>$ 49</td></tr><tr><td>June 30, 2016</td><td>$ 6,470</td><td>$ 290</td><td>$ 70</td></tr><tr><td>June 30, 2017 - June 30, 2021</td><td>$40,180</td><td>$1,420</td><td>$680</td></tr></table>

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

## Defined Contribution Plans

The Company also has defined contribution plans for all its eligible employees. No Company contributions have been made nor were any required to be made to these defined contribution plans during the years ended June 30, 2011, 2010 or 2009.

The Company amended its defined contribution 401(k) plan effective June 30, 2011, to provide for a discretionary Company match of the employees’ annual contribution. As of June 30, 2011, the Company accrued $0.1 million towards this Company match.

## Postretirement Benefits

The Company sponsors an unfunded postretirement medical, dental and vision plan that covers qualified non-union retirees and certain qualified union retirees. 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, but subject to a maximum monthly Company contribution.



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table shows the components of net periodic postretirement benefit cost for the fiscal years ended June 30, 2011 and 2010. Fiscal 2011 postretirement cost/(income) was based on employee census information as of July 1, 2010 and asset information as of June 30, 2011.

<table><tr><td rowspan="3">Components of Net Periodic Postretirement Benefit Cost</td><td colspan="2">June 30,</td></tr><tr><td>2011</td><td>2010</td></tr><tr><td colspan="2">(In thousands)</td></tr><tr><td>Service cost</td><td>$1,564</td><td>$ 1,490</td></tr><tr><td>Interest cost</td><td>1,205</td><td>1,239</td></tr><tr><td>Expected return on plan assets</td><td>—</td><td>—</td></tr><tr><td>Amortization of unrecognized net gain</td><td>(802)</td><td>(1,032)</td></tr><tr><td>Amortization of unrecognized transition (asset)/obligation</td><td>—</td><td>—</td></tr><tr><td>Amortization of unrecognized prior service cost/(credit)</td><td>(230)</td><td>(230)</td></tr><tr><td>Net periodic benefit cost</td><td>$1,737</td><td>$ 1,467</td></tr></table>

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) (dollars in thousands):

<table><tr><td>Date Established</td><td>Balance at July 1, 2010</td><td>Annual Amortization</td><td>Years Remaining</td><td>Curtailment</td><td>Balance at June 30, 2011</td></tr><tr><td>January 1, 2008</td><td>(2,114)</td><td>$230</td><td>9.18</td><td>0</td><td>(1,884)</td></tr><tr><td colspan="6">Amortization of Net (Gain)/Loss (dollars in thousands):</td></tr><tr><td colspan="6">Net (gain)/loss as of July 1, 2010</td></tr><tr><td colspan="6">Asset (gains)/losses not yet recognized in market related value of assets</td></tr><tr><td colspan="6">Net (gain)/loss subject to amortization</td></tr><tr><td colspan="6">Corridor (10% of greater of APBO or assets)</td></tr><tr><td colspan="6">Net (gain)/loss in excess of corridor</td></tr><tr><td colspan="6">Amortization years</td></tr><tr><td colspan="6">Amortization of net (gain)/loss for the year</td></tr></table>



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

<table><tr><td rowspan="3">Change in Benefit Obligation</td><td colspan="2">Year Ended June 30,</td></tr><tr><td>2011</td><td>2010</td></tr><tr><td colspan="2">(In thousands)</td></tr><tr><td>Projected benefit obligation at beginning of year</td><td>$23,261</td><td>$19,222</td></tr><tr><td>Service cost</td><td>1,564</td><td>1,490</td></tr><tr><td>Interest cost</td><td>1,205</td><td>1,239</td></tr><tr><td>Participant contributions</td><td>1,103</td><td>—</td></tr><tr><td>(Gains) losses</td><td>(379)</td><td>2,969</td></tr><tr><td>Benefits paid</td><td>(2,022)</td><td>(1,659)</td></tr><tr><td>Projected benefit obligation at end of year</td><td>$24,732</td><td>$23,261</td></tr></table>

<table><tr><td rowspan="3">Change in Plan Assets</td><td colspan="2">Year Ended June 30,</td></tr><tr><td>2011</td><td>2010</td></tr><tr><td colspan="2">(In thousands)</td></tr><tr><td>Fair value of plan assets at beginning of year</td><td>$ —</td><td>$ —</td></tr><tr><td>Actual return on assets</td><td>—</td><td>—</td></tr><tr><td>Employer contributions</td><td>919</td><td>1,659</td></tr><tr><td>Participant contributions</td><td>1,103</td><td>—</td></tr><tr><td>Benefits paid</td><td>(2,022)</td><td>(1,659)</td></tr><tr><td>Fair value of plan assets at end of year</td><td>$ —</td><td>$ —</td></tr><tr><td>Funded status of plan</td><td>$ (24,732)</td><td>$ (23,261)</td></tr></table>

<table><tr><td rowspan="3">Amounts Recognized in the Balance Sheet Consist of:</td><td colspan="2">As of June 30,</td></tr><tr><td>2011</td><td>2010</td></tr><tr><td colspan="2">(In thousands)</td></tr><tr><td>Noncurrent assets</td><td>$ —</td><td>$ —</td></tr><tr><td>Current liabilities</td><td>1,148</td><td>1,076</td></tr><tr><td>Noncurrent liabilities</td><td>23,584</td><td>22,185</td></tr><tr><td>Total</td><td>$24,732</td><td>$23,261</td></tr></table>

<table><tr><td rowspan="3">Amounts Recognized in Accumulated Other Comprehensive Income Consist of:</td><td colspan="2">Year Ended June 30,</td></tr><tr><td>2011</td><td>2010</td></tr><tr><td colspan="2">(In thousands)</td></tr><tr><td>Net gain</td><td>$ (12,086)</td><td>$ (12,509)</td></tr><tr><td>Transition obligation</td><td>—</td><td>—</td></tr><tr><td>Prior service credit</td><td>(1,884)</td><td>(2,114)</td></tr><tr><td>Total accumulated other comprehensive income</td><td>$ (13,970)</td><td>$ (14,623)</td></tr></table>



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

<table><tr><td rowspan="2">Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income</td><td colspan="2">Year Ended June 30,</td></tr><tr><td>2011</td><td>2010</td></tr><tr><td></td><td colspan="2">(In thousands)</td></tr><tr><td>Unrecognized actuarial loss/(gain)</td><td>$ (379)</td><td>$2,969</td></tr><tr><td>Unrecognized transition (asset)/obligation</td><td>—</td><td>—</td></tr><tr><td>Unrecognized prior service cost</td><td>—</td><td>—</td></tr><tr><td>Amortization of net loss</td><td>802</td><td>1,032</td></tr><tr><td>Amortization of prior service cost</td><td>230</td><td>230</td></tr><tr><td>Total recognized in other comprehensive income</td><td>653</td><td>4,231</td></tr><tr><td>Net periodic benefit cost</td><td>1,737</td><td>1,467</td></tr><tr><td>Total recognized in other comprehensive income and net periodic benefit cost</td><td>$2,390</td><td>$5,698</td></tr></table>

The estimated net gain and prior service cost credit that will be amortized from accumulated other comprehensive income into net periodic benefit cost in fiscal 2012 are $0.8 million and $0.2 million, respectively.

<table><tr><td colspan="2">Estimated Future Benefit Payments (in thousands)</td></tr><tr><td>Fiscal 2012</td><td>$ 1,148</td></tr><tr><td>Fiscal 2013</td><td>$ 1,232</td></tr><tr><td>Fiscal 2014</td><td>$ 1,290</td></tr><tr><td>Fiscal 2015</td><td>$ 1,486</td></tr><tr><td>Fiscal 2016</td><td>$ 1,606</td></tr><tr><td>Fiscal 2017-2021</td><td>$10,182</td></tr><tr><td colspan="2">Expected Contributions for the Year Ending June 30, 2012 (in thousands)</td></tr><tr><td>Fiscal 2012</td><td>$ 1,148</td></tr></table>

## Sensitivity in Fiscal 2011 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 2011 (in thousands):

<table><tr><td rowspan="2"></td><td colspan="2">1-Percentage Point</td></tr><tr><td>Increase</td><td>Decrease</td></tr><tr><td>Effect on total of service and interest cost components</td><td>$ 81</td><td>$ (89)</td></tr><tr><td>Effect on accumulated postretirement benefit obligation</td><td>$794</td><td>$(924)</td></tr></table>

## Note 8. Bank Loan

On September 12, 2011, the Company entered into an Amended and Restated Loan and Security Agreement (the “New Loan Agreement”) among the Company and CBI, as Borrowers, certain of the Company’s other subsidiaries, as Guarantors, the Lenders party thereto, and Wells Fargo Bank, National Association, as Agent. The New Loan Agreement provides for a senior secured revolving credit facility of up to $85 million, with a letter of credit sublimit of $20 million. The new revolving line of credit provides for advances of 85% of eligible



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

accounts receivable and 75% of eligible inventory (subject to a $60 million inventory loan limit), as defined. The New Loan Agreement provides for a range of interest rates based on modified Monthly Average Excess Availability levels with a range of PRIME + 0.25% to PRIME + 0.75% or Adjusted Eurodollar Rate + 2.0% to Adjusted Eurodollar Rate + 2.5%. The New Loan Agreement has an amendment fee of 0.375% and an unused line fee of 0.25%. Outstanding obligations under the New Loan Agreement are collateralized by all of the Borrowers' assets, including the Company's preferred stock portfolio. The term of the New Loan Agreement expires on March 2, 2015.

The New Loan Agreement contains a variety of affirmative and negative covenants of types customary in an asset-based lending facility, including those relating to reporting requirements, maintenance of records, properties and corporate existence, compliance with laws, incurrence of other indebtedness and liens, limitations on certain payments, including the payment of dividends and capital expenditures, and transactions and extraordinary corporate events. The New Loan Agreement allows the Company to pay dividends, subject to certain liquidity requirements. The New Loan Agreement also contains financial covenants requiring the Borrowers to maintain minimum Excess Availability and Total Liquidity levels. The New Loan Agreement allows the Lender to establish reserve requirements, which may reduce the amount of credit otherwise available to the Company, to reflect events, conditions, or risks that would have a reasonable likelihood of adversely affecting the Lender’s collateral or the Company’s assets, including the Company’s green coffee inventory.

The New Loan Agreement replaces the Company’s existing Loan and Security Agreement, dated March 2, 2009, as amended (the “Original Loan Agreement”), among the Borrowers, Guarantors and Wells Fargo, as Lender. The Original Loan Agreement provided for a senior secured revolving credit facility of up to $50 million, with a letter of credit sublimit of $10 million. The original revolving line of credit provided for advances of 85% of eligible accounts receivable and 65% of eligible inventory, as defined. The Original Loan Agreement had an unused commitment fee of 0.375%. The Original Loan Agreement provided for a range of interest rates based on modified Monthly Average Excess Availability levels (as defined) with a range of PRIME + 0.25% to PRIME + 0.75% or Adjusted Eurodollar Rate + 2.5% to Adjusted Eurodollar Rate + 3.0%. All outstanding obligations under the Original Loan Agreement were collateralized by the Company’s assets, excluding the preferred stock held in investment accounts.

The interest rate on the Company’s outstanding borrowings under the Original Loan Agreement was 4.0% at June 30, 2011. As of June 30, 2011, the Company had outstanding borrowings of $31.4 million, utilized $3.1 million of the letters of credit sublimit, and had excess availability under the credit facility of $15.5 million. Due to the short-term nature of the credit facility and the variable interest rate, fair value of the balance outstanding approximates carrying value. As of June 30, 2011, the Company was in compliance with all restrictive covenants under the Original Loan Agreement. On September 12, 2011, the Lender and the Company amended the Original Loan Agreement to reduce required minimum excess availability and required minimum total liquidity for the period from July 1, 2011 through September 30, 2011. There can be no assurance that the Lender will issue a waiver or grant an amendment to the covenants in future periods, if the Company required one.

## Note 9. Employee Stock Ownership Plan

The Company’s ESOP was established in 2000 to provide benefits to all employees. The plan is a leveraged ESOP in which the Company is the lender. The loans will be repaid from the Company’s discretionary plan contributions over the original fifteen year terms with a variable rate of interest. The annual interest rate was 1.68% at June 30, 2011, which is updated on a quarterly basis.



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

<table><tr><td rowspan="2"></td><td colspan="3">As of and for the years ended June 30,</td></tr><tr><td>2011</td><td>2010</td><td>2009</td></tr><tr><td>Loan amount (in thousands)</td><td>$30,437</td><td>$35,238</td><td>$40,039</td></tr><tr><td>Shares purchased</td><td>—</td><td>—</td><td>—</td></tr></table>

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.

In fiscal 2011, fiscal 2010 and fiscal 2009, the Company used $1.3 million, $0.7 million and $1.0 million of dividends 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. In fiscal 2011, the Company issued 1,040 shares of common stock to the ESOP to compensate for a shortfall in unallocated, uncommitted shares.

The Company reports compensation expense equal to the fair market value of shares committed to be released to employees in the period in which they are committed. The cost of shares purchased by the ESOP which have not been committed to be released or allocated to participants are shown as a contra-equity account “Unearned ESOP Shares” and are excluded from earnings per share calculations.

During the fiscal years ended June 30, 2011, 2010 and 2009, the Company charged $2.6 million, $3.7 million and $4.9 million to compensation expense related to the ESOP. The difference between cost and fair market value of committed to be released shares, which was (1.4) million, (0.2) million and (0.2) million for the years ended June 30, 2011, 2010 and 2009, respectively, is recorded as additional paid-in capital.

<table><tr><td rowspan="2"></td><td colspan="2">June 30,</td></tr><tr><td>2011</td><td>2010</td></tr><tr><td>Allocated shares</td><td>1,533,578</td><td>1,488,724</td></tr><tr><td>Committed to be released shares</td><td>186,582</td><td>192,069</td></tr><tr><td>Unallocated shares</td><td>1,097,136</td><td>1,283,719</td></tr><tr><td>Total ESOP shares</td><td>2,817,296</td><td>2,964,512</td></tr><tr><td colspan="3">(In thousands)</td></tr><tr><td>Fair value of ESOP shares</td><td>$ 28,567</td><td>$ 44,632</td></tr></table>

## Note 10. Share-based Compensation

On August 23, 2007, the Company’s Board of Directors approved the Omnibus Plan, which was approved by stockholders on December 6, 2007. Prior to adoption of the Omnibus Plan the Company had no share-based compensation plan. Awards issued under the Omnibus Plan may take the form of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, performance-based awards, stock payments, cash-based awards or other incentives payable in cash or shares of stock, or any combination thereof. Each award will be set forth in a separate agreement with the person receiving the award and will indicate the type, terms and conditions of the award. The maximum number of shares of common stock as to which awards may be granted under the Plan is 1,000,000, subject to adjustment as provided in the Omnibus Plan.

The Company measures and recognizes compensation expense for all share-based payment awards made under the Omnibus Plan based on estimated fair values.



# FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

## Stock Options

The Company estimates the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in the Company’s consolidated statement of operations. Prior to fiscal 2008, the Company did not have share-based compensation.

Share-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Compensation expense recognized for all stock option awards granted is recognized using the straight-line method over the vesting period. The options generally vest ratably over a period of three years. Fiscal 2011 grants include nonqualified options granted in May 2011 (“May Grant”) to purchase 50,000 shares each to Jeffrey A. Wahba and Patrick G. Criteser, and an option to purchase 20,000 shares to Mark A. Harding. The options under the May Grant vest ratably over one year from the date of grant with an exercise price of $9.63 per share. The share-based compensation expense recognized in the Company’s consolidated statement of operations for the fiscal years ended June 30, 2011, 2010 and 2009 is based on awards ultimately expected to vest. Currently, management estimates a forfeiture rate of 6.5% based on the Company’s historical turnover. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company uses 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 the 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. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. 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.

The following are the weighted average assumptions used in the Black-Scholes valuation model:

<table><tr><td rowspan="2"></td><td colspan="4">Year Ended June 30,</td></tr><tr><td>2011</td><td>2010</td><td>2009</td><td></td></tr><tr><td>Average fair value of options</td><td>$ 7.05</td><td>$ 6.09</td><td>$ 6.68</td><td></td></tr><tr><td>Forfeiture rate</td><td>6.50%</td><td>6.50%</td><td>—</td><td></td></tr><tr><td>Risk-free interest rate</td><td>2.70%</td><td>2.59%</td><td>5.45%</td><td></td></tr><tr><td>Dividend yield</td><td>1.27%</td><td>2.50%</td><td>2.20%</td><td></td></tr><tr><td>Average expected life</td><td>6 years</td><td>6 years</td><td>5 years</td><td></td></tr><tr><td>Expected stock price volatility</td><td>54.68%</td><td>41.20%</td><td>32.38%</td><td></td></tr></table>

The Company’s assumption regarding expected stock price volatility is based on the historical volatility of the Company’s stock price. The risk-free interest rate is based on U.S. Treasury zero-coupon issues at the date of grant with a remaining term equal to the expected life of the stock options.



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following tables summarize stock option activity from adoption of the Omnibus Plan through June 30, 2011:

## Outstanding Stock Options

<table><tr><td></td><td>Number of Stock Options</td><td>Weighted Average Exercise Price</td><td>Weighted Average Grant Date Fair Value</td><td>Weighted Average Remaining Life (Years)</td><td>Aggregate Intrinsic Value (In thousands)</td></tr><tr><td>Outstanding at June 30, 2008</td><td>117,500</td><td>$22.62</td><td>$6.16</td><td>6.6</td><td>$—</td></tr><tr><td>Granted</td><td>121,500</td><td>$21.76</td><td>$6.68</td><td>—</td><td>$ 2</td></tr><tr><td>Outstanding at June 30, 2009</td><td>239,000</td><td>$22.22</td><td>$6.41</td><td>6.1</td><td>$ 60</td></tr><tr><td>Granted</td><td>220,789</td><td>$18.25</td><td>$6.09</td><td>—</td><td>$—</td></tr><tr><td>Cancelled/Forfeited</td><td>(54,846)</td><td>$21.65</td><td>$6.87</td><td>—</td><td>$—</td></tr><tr><td>Outstanding at June 30, 2010</td><td>404,943</td><td>$20.17</td><td>$6.25</td><td>5.8</td><td>$—</td></tr><tr><td>Granted</td><td>327,656</td><td>$14.95</td><td>$7.05</td><td>—</td><td>$—</td></tr><tr><td>Cancelled/Forfeited</td><td>(234,789)</td><td>$19.21</td><td>$6.97</td><td>—</td><td>$—</td></tr><tr><td>Outstanding at June 30, 2011</td><td>497,810</td><td>$17.19</td><td>$6.44</td><td>5.7</td><td>$ 61</td></tr><tr><td>Vested and exercisable, June 30, 2011</td><td>174,941</td><td>$21.20</td><td>$6.32</td><td>4.4</td><td>$—</td></tr><tr><td>Vested and expected to vest, June 30, 2011</td><td>467,131</td><td>$17.26</td><td>$6.40</td><td>5.6</td><td>$ 58</td></tr></table>

## Nonvested Stock Options

<table><tr><td></td><td>Number of Stock Options</td><td>Weighted Average Exercise Price</td><td>Weighted Average Grant Date Fair Value</td><td>Weighted Average Remaining Amortization Period (Years)</td></tr><tr><td>Outstanding at June 30, 2008</td><td>117,500</td><td>$22.62</td><td>$6.16</td><td>—</td></tr><tr><td>Granted</td><td>121,500</td><td>$21.76</td><td>$6.68</td><td>—</td></tr><tr><td>Vested</td><td>(40,490)</td><td>$22.66</td><td>$6.16</td><td>—</td></tr><tr><td>Outstanding at June 30, 2009</td><td>198,510</td><td>$22.13</td><td>$6.46</td><td>2.1</td></tr><tr><td>Granted</td><td>220,789</td><td>$18.25</td><td>$6.09</td><td>—</td></tr><tr><td>Vested</td><td>(68,990)</td><td>$22.20</td><td>$6.43</td><td>—</td></tr><tr><td>Cancelled/Forfeited</td><td>(49,515)</td><td>$21.21</td><td>$6.35</td><td>—</td></tr><tr><td>Outstanding at June 30, 2010</td><td>300,794</td><td>$19.42</td><td>$6.22</td><td>2.1</td></tr><tr><td>Granted</td><td>327,656</td><td>$14.95</td><td>$7.05</td><td>—</td></tr><tr><td>Vested</td><td>(105,458)</td><td>$20.29</td><td>$6.30</td><td>—</td></tr><tr><td>Cancelled/Forfeited</td><td>(200,123)</td><td>$18.74</td><td>$7.09</td><td>—</td></tr><tr><td>Outstanding at June 30, 2011</td><td>322,869</td><td>$15.02</td><td>$6.50</td><td>1.7</td></tr></table>



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The aggregate intrinsic values in the table above represent the total pretax intrinsic value, based on the Company’s closing stock price of $10.14 at June 30, 2011, $15.09 at June 30, 2010 and $22.88 at June 30, 2009, representing the last trading day of the respective years, which would have been received by award holders had all award holders exercised their awards that were in-the-money as of those dates. As of June 30, 2011, June 30, 2010 and June 30, 2009, respectively, there was approximately $1.5 million, $1.4 million, and $1.0 million of unrecognized compensation cost related to stock options. Compensation expense recognized in general and administrative expense was $0.7 million, $0.6 million and $0.4 million for fiscal 2011, 2010 and 2009, respectively.

## Restricted Stock

During each of fiscal 2011, 2010 and 2009 the Company granted a total of 63,979 shares, 48,722 shares and 26,100 shares of restricted stock, respectively, with a weighted average grant date fair value of $16.67, $18.31 and $21.76 per share, respectively, to eligible employees, officers and directors under the Omnibus Plan. Shares of restricted stock generally vest at the end of three years for eligible employees and officers who are employees. The fiscal 2011 grant of 63,979 shares include 10,384 shares of restricted stock granted to Patrick G. Criteser, the Company’s Interim Co-CEO, which shares vest at one year from the date of grant. Shares of restricted stock generally vest ratably over a period of three years for directors and officers who are not employees. Compensation expense is recognized on a straight-line basis over the service period based on the estimated fair value of the restricted stock. Compensation expense recognized in general and administrative expense was $0.5 million, $0.4 million and $0.3 million, respectively, for the fiscal years ended June 30, 2011, 2010 and 2009. As of June 30, 2011, 2010 and 2009, there was approximately $0.9 million, $0.9 million and $0.8 million, respectively, of unrecognized compensation cost related to restricted stock. The following tables summarize restricted stock activity from adoption of the Omnibus Plan through June 30, 2011:

## Outstanding Restricted Stock Awards

<table><tr><td></td><td>Shares Awarded</td><td>Weighted Average Grant Date Fair Value</td><td>Weighted Average Remaining Life (Years)</td><td>Aggregate Intrinsic Value (In thousands)</td></tr><tr><td>Outstanding June 30, 2008</td><td>25,600</td><td>$22.67</td><td>—</td><td>$ 545.3</td></tr><tr><td>Granted</td><td>26,100</td><td>$21.76</td><td>—</td><td>$ 568.2</td></tr><tr><td>Exercised/Released</td><td>(3,031)</td><td>$22.70</td><td>—</td><td>$ 57.5</td></tr><tr><td>Cancelled/Forfeited</td><td>(500)</td><td>$21.76</td><td>—</td><td>$ 11.4</td></tr><tr><td>Outstanding at June 30, 2009</td><td>48,169</td><td>$22.19</td><td>2.1</td><td>$1,072.2</td></tr><tr><td>Granted</td><td>48,722</td><td>$18.31</td><td>—</td><td>$ 892.0</td></tr><tr><td>Exercised/Released</td><td>(5,860)</td><td>$22.18</td><td>—</td><td>$ 105.0</td></tr><tr><td>Cancelled/Forfeited</td><td>(10,823)</td><td>$21.79</td><td>—</td><td>$ 235.0</td></tr><tr><td>Outstanding at June 30, 2010</td><td>80,208</td><td>$19.91</td><td>2.0</td><td>$1,210.0</td></tr><tr><td>Granted</td><td>63,979</td><td>$16.67</td><td>—</td><td>$1,066.0</td></tr><tr><td>Exercised/Released</td><td>(20,674)</td><td>$21.52</td><td>—</td><td>$ 332.0</td></tr><tr><td>Cancelled/Forfeited</td><td>(42,826)</td><td>$19.19</td><td>—</td><td>$ 497.0</td></tr><tr><td>Outstanding June 30, 2011</td><td>80,687</td><td>$17.31</td><td>2.6</td><td>$ 818.0</td></tr><tr><td>Vested and exercisable, June 30, 2011</td><td>—</td><td></td><td></td><td></td></tr><tr><td>Vested and expected to vest, June 30, 2011</td><td>73,063</td><td>$17.30</td><td>2.6</td><td>$ 740.0</td></tr></table>



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

## Nonvested Restricted Stock Awards

<table><tr><td></td><td>Shares Awarded</td><td>Weighted Average Grant Date Fair Value</td></tr><tr><td>Outstanding at June 30, 2008</td><td>25,600</td><td>$22.67</td></tr><tr><td>Granted</td><td>26,100</td><td>$21.76</td></tr><tr><td>Vested</td><td>(3,031)</td><td>$22.70</td></tr><tr><td>Cancelled/Forfeited</td><td>(500)</td><td>$21.76</td></tr><tr><td>Outstanding at June 30, 2009</td><td>48,169</td><td>$22.19</td></tr><tr><td>Granted</td><td>48,722</td><td>$18.31</td></tr><tr><td>Vested</td><td>(5,860)</td><td>$22.18</td></tr><tr><td>Cancelled/Forfeited</td><td>(10,823)</td><td>$21.49</td></tr><tr><td>Outstanding at June 30, 2010</td><td>80,208</td><td>$19.91</td></tr><tr><td>Granted</td><td>63,979</td><td>$16.67</td></tr><tr><td>Vested</td><td>(20,674)</td><td>$21.52</td></tr><tr><td>Cancelled/Forfeited</td><td>(42,826)</td><td>$19.19</td></tr><tr><td>Outstanding at June 30, 2011</td><td>80,687</td><td>$17.31</td></tr></table>

## Note 11. Other Current Liabilities

Other current liabilities consist of the following:

<table><tr><td rowspan="3"></td><td colspan="2">June 30,</td></tr><tr><td>2011</td><td>2010</td></tr><tr><td colspan="2">(In thousands)</td></tr><tr><td>Accrued workers’ compensation liabilities</td><td>$ 1,320</td><td>$ 1,293</td></tr><tr><td>Dividends payable</td><td>9</td><td>1,849</td></tr><tr><td>Postretirement medical liability</td><td>1,148</td><td>1,076</td></tr><tr><td>Accrued pension liabilities</td><td>5,678</td><td>5,285</td></tr><tr><td>Other (including net taxes payable)</td><td>3,727</td><td>2,178</td></tr><tr><td></td><td>$11,882</td><td>$11,681</td></tr></table>

## Note 12. Income Taxes

The current and deferred components of the provision for income taxes consist of the following:

<table><tr><td rowspan="3"></td><td colspan="3">June 30,</td></tr><tr><td>2011</td><td>2010</td><td>2009</td></tr><tr><td colspan="3">(In thousands)</td></tr><tr><td>Current:</td><td></td><td></td><td></td></tr><tr><td>Federal</td><td>$ (4)</td><td>$ (3,514)</td><td>$ (1,433)</td></tr><tr><td>State</td><td>324</td><td>227</td><td>(5)</td></tr><tr><td>Total current income tax benefit</td><td>320</td><td>(3,287)</td><td>(1,439)</td></tr><tr><td>Deferred:</td><td></td><td></td><td></td></tr><tr><td>Federal</td><td>(7,867)</td><td>629</td><td>11,916</td></tr><tr><td>State</td><td>(1,620)</td><td>129</td><td>3,805</td></tr><tr><td>Total deferred income tax expense (benefit)</td><td>(9,487)</td><td>758</td><td>15,721</td></tr><tr><td>Income tax (benefit) expense</td><td>$ (9,167)</td><td>$ (2,529)</td><td>$14,283</td></tr></table>



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Income tax expense or benefit from continuing operations is generally determined without regard to other categories of earnings, such as discontinued operations and other comprehensive income. An exception is provided in ASC 740 when there is aggregate income from categories other than continuing operations and a loss from continuing operations in the current year. In this case, the tax benefit allocated to continuing operations is the amount by which the loss from continuing operations reduces the tax expenses recorded with respect to the other categories of earnings, even when a valuation allowance has been established against the deferred tax assets. In instances where a valuation allowance is established against current year losses, income from other sources, including gain from post retirement benefits recorded as a component of other comprehensive income, is considered when determining whether sufficient future taxable income exists to realize the deferred tax assets. As a result, for the year ended June 30, 2011, the Company recorded a tax expense of $9.8 million in other comprehensive income related to the gain on post retirement benefits, and recorded a corresponding tax benefit of $9.8 million in continuing operations.

A reconciliation of income tax (benefit) expense to the federal statutory tax rate is as follows:

<table><tr><td></td><td>June 30, 2011</td><td>June 30, 2010</td><td>June 30, 2009</td></tr><tr><td>Statutory tax rate</td><td>34%</td><td>34%</td><td>34%</td></tr><tr><td></td><td colspan="3">(In thousands)</td></tr><tr><td>Income tax benefit at statutory rate</td><td>$ (21,585)</td><td>$ (9,004)</td><td>$ (6,456)</td></tr><tr><td>State income tax (net of federal tax benefit)</td><td>(2,765)</td><td>(1,238)</td><td>(985)</td></tr><tr><td>Dividend income exclusion</td><td>(532)</td><td>(765)</td><td>(840)</td></tr><tr><td>Valuation allowance</td><td>16,529</td><td>8,752</td><td>19,663</td></tr><tr><td>Change in contingency reserve (net)</td><td>(1,308)</td><td>7</td><td>3,578</td></tr><tr><td>Research tax credit (net)</td><td>(16)</td><td>(66)</td><td>(97)</td></tr><tr><td>Other (net)</td><td>510</td><td>(215)</td><td>(580)</td></tr><tr><td>Income tax (benefit) expense</td><td>$ (9,167)</td><td>$ (2,529)</td><td>$ 14,283</td></tr></table>

The primary components of the temporary differences which give rise to the Company’s net deferred tax assets are as follows:

<table><tr><td rowspan="3"></td><td colspan="3">June 30,</td></tr><tr><td>2011</td><td>2010</td><td>2009</td></tr><tr><td colspan="3">(In thousands)</td></tr><tr><td>Deferred tax assets:</td><td></td><td></td><td></td></tr><tr><td>Postretirement benefits</td><td>$ 20,226</td><td>$ 27,589</td><td>$ 22,110</td></tr><tr><td>Accrued liabilities</td><td>4,138</td><td>4,376</td><td>4,594</td></tr><tr><td>Capital loss carryforward</td><td>2,945</td><td>1,971</td><td>2,757</td></tr><tr><td>Net operating loss carryforward</td><td>37,170</td><td>17,261</td><td>5,564</td></tr><tr><td>Other</td><td>4,328</td><td>2,464</td><td>6,362</td></tr><tr><td>Total deferred tax assets</td><td>68,807</td><td>53,661</td><td>41,387</td></tr><tr><td>Deferred tax liabilities:</td><td></td><td></td><td></td></tr><tr><td>Fixed assets</td><td>(7,881)</td><td>(5,551)</td><td>(5,056)</td></tr><tr><td>Intangible assets</td><td>(1,032)</td><td>(4,498)</td><td>(2,725)</td></tr><tr><td>Other</td><td>(814)</td><td>(726)</td><td>(545)</td></tr><tr><td>Total deferred tax liabilities</td><td>(9,727)</td><td>(10,775)</td><td>(8,326)</td></tr><tr><td>Valuation allowance</td><td>(60,390)</td><td>(43,860)</td><td>(33,278)</td></tr><tr><td>Net deferred tax (liability) asset</td><td>$ (1,310)</td><td>$ (974)</td><td>$ (217)</td></tr></table>



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company has approximately $96.1 million and $104.3 million of federal and state net operating loss carryforwards that will begin to expire in the years ending June 30, 2025 and June 30, 2020, respectively. The Company also has approximately $7.8 million and $7.0 million of federal and state capital loss carryforwards, respectively, that may only be used to offset capital gains that begin expiring in June 30, 2012.

At June 30, 2011, the Company had total deferred tax assets of $68.8 million and a net deferred tax asset before valuation allowance of $59.1 million. The Company considered whether a valuation allowance should be recorded against deferred tax assets based on the likelihood that the benefits of the deferred tax assets would or would not ultimately be realized in future periods. In making such assessment, significant weight was given to evidence that could be objectively verified such as recent operating results and less consideration was given to less objective indicators such as future earnings projections.

After consideration of positive and negative evidence, including the recent history of losses, the Company cannot conclude that it is more likely than not to generate future earnings sufficient to realize the Company’s deferred tax assets as of June 30, 2011. Accordingly, a valuation allowance of $60.4 million has been recorded to offset this deferred tax asset. The valuation allowance increased by $16.5 million, $10.6 million and $33.3 million in fiscal years ended June 30, 2011, 2010 and 2009, respectively.

The “Worker, Homeownership, and Business Assistance Act of 2009,” which was signed into law on November 6, 2009, extended the carryback period for certain net operating losses from two years to five years. As a result of the extended carryback period, the Company recorded a tax benefit of $3.5 million in fiscal 2010.

A tabular reconciliation of the total amounts (in absolute values) of unrecognized tax benefits is as follows (in thousands):

<table><tr><td rowspan="2"></td><td colspan="3">Year Ended June 30,</td></tr><tr><td>2011</td><td>2010</td><td>2009</td></tr><tr><td>Unrecognized tax benefits at beginning of year</td><td>$ 5,218</td><td>$4,382</td><td>$ 807</td></tr><tr><td>Increases in tax positions for prior years</td><td>—</td><td>—</td><td>4,005</td></tr><tr><td>(Decreases) increases in tax positions for current year</td><td>(1,316)</td><td>836</td><td>—</td></tr><tr><td>Settlements</td><td>—</td><td>—</td><td>(430)</td></tr><tr><td>Lapse in statute of limitations</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Unrecognized tax benefits at end of year</td><td>$ 3,902</td><td>$5,218</td><td>$4,382</td></tr></table>

At June 30, 2011 and 2010, the Company has approximately $3.6 million and $5.0 million, respectively, of unrecognized tax benefits that, if recognized, would affect the effective tax rate, subject to the valuation allowance.

The Internal Revenue Service completed an audit of the Company’s open tax years in December 2010. The Company is currently appealing the result of this audit. The State of California is currently conducting a examinations of the Company’s tax returns for the years ended June 20, 2006 and 2007. The Company believes it is reasonably possible that a portion of its total unrecognized tax benefits will decrease in the next twelve months upon the conclusion of these examinations. However, it is premature to assess the range or the nature of the reasonably possible changes to the Company’s unrecognized tax benefits.

The Company files income tax returns in the U.S. and in various state jurisdictions with varying statutes of limitations. The Company is no longer subject to U.S. income tax examinations for the fiscal years prior to June 30, 2003.



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. As of June 30, 2011 and 2010, the Company recorded $47,000 and $36,000, respectively, in accrued interest and penalties associated with uncertain tax positions. Additionally, the Company recorded (income)/expense of $12,000, $10,000 and ($38,000) related to interest and penalties on uncertain tax positions in the years ended June 30, 2011, 2010 and 2009, respectively.

## Note 13. Earnings (Loss) Per Share

<table><tr><td rowspan="2">(In thousands, except share and per share amounts)</td><td colspan="4">Year ended June 30,</td></tr><tr><td>2011</td><td>2010</td><td>2009</td><td></td></tr><tr><td>Net loss attributable to common stockholders-basic</td><td>$ (53,897)</td><td>$ (23,847)</td><td>$ (33,160)</td><td></td></tr><tr><td>Net loss attributable to unvested restricted stockholders</td><td>(420)</td><td>(106)</td><td>(110)</td><td></td></tr><tr><td>Total net loss</td><td>$ (54,317)</td><td>$ (23,953)</td><td>$ (33,270)</td><td></td></tr></table>

<table><tr><td rowspan="2">(In thousands, except share and per share amounts)</td><td colspan="3">Year ended June 30,</td></tr><tr><td>2011</td><td>2010</td><td>2009</td></tr><tr><td>Weighted average shares outstanding-basic</td><td>15,066,663</td><td>14,866,306</td><td>14,508,320</td></tr><tr><td>Effect of dilutive securities:</td><td></td><td></td><td></td></tr><tr><td>Shares issuable under stock options</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Weighted average shares outstanding-diluted</td><td>15,066,663</td><td>14,866,306</td><td>14,508,320</td></tr><tr><td>Basic and diluted net loss per common share</td><td>$ (3.61)</td><td>$ (1.61)</td><td>$ (2.29)</td></tr></table>

## Note 14. Commitments and Contingencies

With the acquisition of the DSD Coffee Business in the fiscal year ended June 30, 2009, the Company assumed some of the operating lease obligations associated with the acquired vehicles. The Company also refinanced some of the existing leases and entered into new capital leases for certain vehicles. The terms of the capital leases vary from 13 months to 26 months with varying expiration dates through 2011. The Company is obligated under operating leases for branch warehouses. 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 10 year renewal option, and operating leases for computer hardware with terms that do not exceed four years. Rent expense for the fiscal years ended June 30, 2011, 2010 and 2009 was $6.3 million, $6.6 million and $3.2 million, respectively.

In May 2011, the Company did not meet the minimum credit rating criteria for participation in the alternative security program for California self-insurers. As a result, the Company was required to post a $5.9 million letter of credit as a security deposit to the State of California Department of Industrial Relations Self-Insurance Plans. The Company posted the security deposit in June 2011.



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Contractual obligations for future fiscal years are as follows (in thousands):

<table><tr><td rowspan="2">Year Ended June 30,</td><td colspan="4">Contractual Obligations</td></tr><tr><td>Capital Leases Obligations</td><td>Operating Lease Obligations</td><td>Pension Plan Obligations</td><td>Postretirement Benefits Other Than Pensions</td></tr><tr><td>2012</td><td>$ 2,210</td><td>$ 5,228</td><td>$ 5,678</td><td>$ 1,148</td></tr><tr><td>2013</td><td>2,171</td><td>4,125</td><td>5,957</td><td>1,232</td></tr><tr><td>2014</td><td>2,042</td><td>3,446</td><td>6,114</td><td>1,290</td></tr><tr><td>2015</td><td>1,994</td><td>2,833</td><td>6,469</td><td>1,486</td></tr><tr><td>2016</td><td>1,764</td><td>1,865</td><td>6,830</td><td>1,606</td></tr><tr><td>Thereafter</td><td>338</td><td>3,230</td><td>42,280</td><td>10,182</td></tr><tr><td></td><td></td><td>$20,727</td><td>$73,328</td><td>$16,944</td></tr><tr><td>Total minimum lease payments</td><td>$10,519</td><td></td><td></td><td></td></tr><tr><td>Less: imputed interest (6.30% to 13.60%)</td><td>(1,883)</td><td></td><td></td><td></td></tr><tr><td>Present value of future minimum lease payments</td><td>$ 8,636</td><td></td><td></td><td></td></tr><tr><td>Less: current portion</td><td>1,570</td><td></td><td></td><td></td></tr><tr><td>Long-term capital lease obligation</td><td>$ 7,066</td><td></td><td></td><td></td></tr></table>

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

## Note 15. Quarterly Financial Data (Unaudited)

<table><tr><td></td><td>September 30, 2010</td><td>December 31, 2010</td><td>March 31, 2011</td><td>June 30, 2011</td></tr><tr><td></td><td colspan="4">(In thousands, except share data)</td></tr><tr><td>Net sales</td><td>$108,743</td><td>$119,227</td><td>$116,732</td><td>$119,243</td></tr><tr><td>Gross profit</td><td>$ 43,945</td><td>$ 45,016</td><td>$ 41,861</td><td>$ 26,352</td></tr><tr><td>Loss from operations</td><td>$ (12,019)</td><td>$ (10,543)</td><td>$ (14,463)</td><td>$ (31,397)</td></tr><tr><td>Net loss</td><td>$ (9,873)</td><td>$ (8,912)</td><td>$ (13,196)</td><td>$ (22,336)</td></tr><tr><td>Net loss per common share</td><td>$ (0.66)</td><td>$ (0.59)</td><td>$ (0.87)</td><td>$ (1.47)</td></tr><tr><td></td><td>September 30, 2009</td><td>December 31, 2009</td><td>March 31, 2010</td><td>June 30, 2010</td></tr><tr><td></td><td colspan="4">(In thousands, except share data)</td></tr><tr><td>Net sales</td><td>$112,127</td><td>$120,225</td><td>$111,002</td><td>$106,964</td></tr><tr><td>Gross profit</td><td>$ 54,304</td><td>$ 51,092</td><td>$ 49,261</td><td>$ 42,907</td></tr><tr><td>Loss from operations</td><td>$ (2,499)</td><td>$ (5,102)</td><td>$ (9,288)</td><td>$ (22,303)</td></tr><tr><td>Net income (loss)</td><td>$ 2,199</td><td>$ 1,417</td><td>$ (6,575)</td><td>$ (20,994)</td></tr><tr><td>Net income (loss) per common share</td><td>$ 0.15</td><td>$ 0.10</td><td>$ (0.44)</td><td>$ (1.40)</td></tr></table>

During the fourth quarter and for the fiscal year ended June 30, 2011, the Company recorded $40.3 million in LIFO charge in cost of goods sold and an impairment loss of $7.8 million related to the write-off of definite-lived intangible assets that the Company acquired or entered into during the DSD Coffee Business acquisition. During the fourth quarter of fiscal 2011, the Company also recorded $9.2 million in income tax benefit (see Note 12).



## FARMER BROS. CO.

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During the fourth quarter and for the fiscal year ended June 30, 2010, the Company identified two errors in its consolidated financial statements. The first error was an understatement of coffee brewing equipment parts inventory and an overstatement of cost of sales by $1.8 million, of which $1.5 million related to fiscal year 2009 and $0.3 million related to the first three quarters of fiscal 2010. The error resulted from the Company charging the cost of coffee brewing equipment at one recently acquired location to cost of sales upon receipt rather than accounting for parts on hand as inventory. The second error was an understatement of accrued liabilities and operating expense by $1.8 million, of which $0.5 million related to fiscal year 2009 and $1.3 million related to the first three quarters of fiscal 2010. This error resulted from a misapplication of a system configuration at a recently acquired location. In accordance with relevant guidance, management evaluated the materiality of these errors from a qualitative and quantitative perspective both individually and in the aggregate. Based on such evaluation, the Company concluded that correcting the cumulative errors would be immaterial to the expected full year results for fiscal 2010 and correcting the error would not have had a material impact to any of the individual prior period financial statements or affect the trend of financial results. Accordingly, the Company recorded an adjustment during the fourth quarter of fiscal 2010 to increase total inventory and reduce cost of sales by $1.8 million and to increase accrued liabilities and operating expense by $1.8 million.

## Note 16. Subsequent Events

On September 12, 2011, the Lender and the Company amended the Original Loan Agreement to reduce required minimum excess availability and required minimum total liquidity for the period from July 1, 2011 through September 30, 2011. See Note 8.

On September 12, 2011, the Company entered into an Amended and Restated Loan and Security Agreement among the Company and CBI, as Borrowers, certain of the Company’s other subsidiaries, as Guarantors, the Lenders party thereto, and Wells Fargo Bank, National Association, as Agent. See Note 8.



## Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

## Item 9A. Controls and Procedures

## Disclosure Controls and Procedures

Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the 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 Chief Executive Officer (including our Interim Co-Chief Executive Officers) and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

As of June 30, 2011, our management, with the participation of our Interim Co-Chief Executive Officers and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(e) promulgated under the Exchange Act. Based upon this evaluation, our Interim Co-Chief Executive Officers and our Chief Financial Officer concluded that, as of June 30, 2011, our disclosure controls and procedures were effective.

## Management Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). With the participation of the Interim Co-Chief Executive Officers and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of June 30, 2011.

Ernst & Young LLP, an independent registered public accounting firm, issued an attestation report on the Company’s internal control over financial reporting as of June 30, 2011, as stated in their report which is included herein.

## Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) during our fiscal quarter ended June 30, 2011, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

During the fiscal quarter ended March 31, 2009, the Company entered into a transition services agreement with Sara Lee to host, maintain and support the IT infrastructure of the DSD Coffee Business for up to eighteen months. This agreement was scaled back in February 2010 to include only IT infrastructure support and terminated on August 31, 2010.



# Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Farmer Bros. Co. and Subsidiaries

We have audited Farmer Bros. Co. and Subsidiaries' internal control over financial reporting as of June 30, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Farmer Bros. Co. and Subsidiaries' management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying "Management Report on Internal Control over Financial Reporting." Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Farmer Bros. Co. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of June 30, 2011, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Farmer Bros. Co. and Subsidiaries as of June 30, 2011 and 2010, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended June 30, 2011 of Farmer Bros. Co. and Subsidiaries and our report dated September 12, 2011 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Los Angeles, California
September 12, 2011



## Item 9A(T). Controls and Procedures

Not applicable.

## Item 9B. Other Information

On September 12, 2011, the Lender and the Company amended the Original Loan Agreement to reduce required minimum excess availability and required minimum total liquidity for the period from July 1, 2011 through September 30, 2011. The foregoing description of Amendment No. 5 to the Original Loan Agreement does not purport to be complete and is subject to, and qualified in its entirety by, reference to Amendment No. 5 to Loan and Security Agreement which is included as Exhibit 10.11 to this Form 10-K and incorporated herein by reference.

On September 12, 2011, we entered into an Amended and Restated Loan and Security Agreement among the Company and CBI, as Borrowers, certain of the Company’s other subsidiaries, as Guarantors, the Lenders party thereto, and Wells Fargo Bank, National Association, as Agent. A description of the material terms and conditions of the Loan Agreement are set forth in Part II, Item 7 of this Annual Report on Form 10-K under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facility” and incorporated herein by reference.



## PART III

## Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item will be set forth in the Proxy Statement or Form 10-K/A and is incorporated in this report by reference.

To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required during the fiscal year ended June 30, 2011, its officers, directors and ten percent shareholders complied with all applicable Section 16(a) filing requirements, with the exception of those filings listed in the Registrant’s Proxy Statement expected to be dated and filed with the SEC on or before October 28, 2011.

## Item 11. Executive Compensation

The information required by this item will be set forth in the Proxy Statement or Form 10-K/A and is incorporated in this report by reference.

## Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item will be set forth in the Proxy Statement or Form 10-K/A and is incorporated in this report by reference.

## Equity Compensation Plan Information

Information about our equity compensation plans at June 30, 2011 that were either approved or not approved by our stockholders was as follows:

<table><tr><td>Plan Category</td><td>Number of Shares to be Issued Upon Exercise of Outstanding Options</td><td>Weighted Average Exercise Price of Outstanding Options</td><td>Number of Shares Remaining Available for Future Issuance(b)</td></tr><tr><td>Equity compensation plans approved by stockholders(a)</td><td>497,810</td><td>$17.19</td><td>391,938</td></tr><tr><td>Equity compensation plans not approved by stockholders</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Total</td><td>497,810</td><td>$17.19</td><td>391,938</td></tr></table>

(a) Includes the Omnibus Plan.

(b) Shares available for future issuance under the Omnibus Plan may be awarded in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, performance-based awards, stock payments, or other incentives payable in shares of stock, or any combination thereof. Shares covered by an award will be counted as used at the time the award is granted to a participant. If any award lapses, expires, terminates or is canceled prior to the issuance of shares thereunder or if shares are issued under the Omnibus Plan to a participant and are thereafter reacquired by the Company, the shares subject to such awards and the reacquired shares shall again be available for issuance under the Omnibus Plan. In addition to the shares that are actually issued to a participant, the following items will be counted against the total number of shares available for issuance under the Omnibus Plan: (i) shares subject to an award that are not delivered to a participant because the award is exercised through a reduction of shares subject to the award (i.e., “net exercised”); (ii) shares subject to an award that are not delivered to a participant because such shares are withheld in satisfaction of the withholding of taxes incurred in connection with the exercise of or issuance of shares under certain types of awards; and (iii) shares that are tendered to the Company to pay the exercise price of any stock award. The following items will not be counted against the total number of shares available for issuance under the Omnibus Plan: (A) the payment in cash of dividends or dividend equivalents; and (B) any award that is settled in cash rather than by issuance of stock.



## Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item will be set forth in the Proxy Statement or Form 10-K/A and is incorporated in this report by reference.

## Item 14. Principal Accountant Fees and Services

The information required by this item will be set forth in the Proxy Statement or Form 10-K/A and is incorporated in this report by reference.



## PART IV

## Item 15. Exhibits and Financial Statement Schedules

(a) List of Financial Statements and Financial Statement Schedules:

1. Financial Statements included in Item 8:

Consolidated Balance Sheets as of June 30, 2011 and 2010 ..... 34
Consolidated Statements of Operations for the Years Ended June 30, 2011, 2010 and 2009 ..... 35
Consolidated Statements of Cash Flows for the Years Ended June 30, 2011, 2010 and 2009..... 36
Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 2011, 2010, and 2009 ..... 37
Notes to Consolidated Financial Statements ..... 38

2. Financial Statement Schedules: Financial Statement Schedules are omitted as they are not applicable, or the required information is given in the consolidated financial statements and notes thereto.

3. The exhibits to this Annual Report on Form 10-K are listed on the accompanying index to exhibits and are incorporated herein by reference or are filed as part of the Annual Report on Form 10-K. Each management contract or compensation plan required to be filed as an exhibit is identified by an asterisk (*).

(b) Exhibits: See Exhibit Index.



## SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FARMER BROS. CO.

By: /s/ JEFFREY A. WAHBA
Jeffrey A. Wahba
Interim Co-Chief Executive Officer,
Treasurer and Chief Financial Officer
(co-chief executive officer, principal financial and
accounting officer)
Date: September 12, 2011

By: /s/ PATRICK G. CRITESER
Patrick G. Criteser
Interim Co-Chief Executive Officer
(co-chief executive officer)
Date: September 12, 2011

By: /s/ HORTENSIA GÓMEZ
Hortensia Gómez
Vice President and Controller
(controller)
Date: September 12, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

<table><tr><td>/s/</td><td>GUENTER W. BERGER</td><td>Chairman of the Board and Director</td><td>September 12, 2011</td></tr><tr><td></td><td>Guenter W. Berger</td><td></td><td></td></tr><tr><td>/s/</td><td>MARTIN A. LYNCH</td><td>Director</td><td>September 12, 2011</td></tr><tr><td></td><td>Martin A. Lynch</td><td></td><td></td></tr><tr><td>/s/</td><td>THOMAS A. MALOOF</td><td>Director</td><td>September 12, 2011</td></tr><tr><td></td><td>Thomas A. Maloof</td><td></td><td></td></tr><tr><td>/s/</td><td>JAMES J. McGARRY</td><td>Director</td><td>September 12, 2011</td></tr><tr><td></td><td>James J. McGarry</td><td></td><td></td></tr><tr><td>/s/</td><td>JOHN H. MERRELL</td><td>Director</td><td>September 12, 2011</td></tr><tr><td></td><td>John H. Merrell</td><td></td><td></td></tr><tr><td>/s/</td><td>JEFFREY A. WAHBA</td><td>Director</td><td>September 12, 2011</td></tr><tr><td></td><td>Jeffrey A. Wahba</td><td></td><td></td></tr><tr><td></td><td></td><td>Director</td><td></td></tr><tr><td></td><td>Jeanne Farmer Grossman</td><td></td><td></td></tr></table>



## EXHIBIT INDEX

3.1 Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 filed with the SEC on May 11, 2009 and incorporated herein by reference).

3.2 Amended and Restated Bylaws (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 25, 2011 and incorporated herein by reference).

4.1 Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock (filed as Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 filed with the SEC on May 10, 2010 and incorporated herein by reference).

4.2 Rights Agreement, dated March 17, 2005, by and between Farmer Bros. Co. and Wells Fargo Bank, N.A., as Rights Agent (filed as Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 filed with the SEC on May 10, 2010 and incorporated herein by reference).

4.3 Specimen Stock Certificate (filed as Exhibit 4.1 to the Company’s Form 8-A/A filed with the SEC on February 6, 2009 and incorporated herein by reference).

10.1 Asset Purchase Agreement dated as of December 2, 2008, by and among Sara Lee Corporation, Saramar, LLC and Farmer Bros. Co. (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2008 filed with the SEC on February 10, 2009 and incorporated herein by reference).

10.2 Amendment No. 1 to Asset Purchase Agreement, dated February 27, 2009, by and among Sara Lee Corporation, Saramar, LLC and Farmer Bros. Co. (filed as Exhibit 10.2 to the Company’s Annual Report on Form 10-K/A for the fiscal year ended June 30, 2009 filed with the SEC on September 15, 2009 and incorporated herein by reference).

10.3 Second Amendment to Asset Purchase Agreement, dated December 17, 2009, by and among Sara Lee Corporation, Saramar, LLC and Farmer Bros. Co. (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2009 filed with the SEC on February 9, 2010 and incorporated herein by reference).

10.4 Stock Purchase Agreement, dated April 27, 2007, by and among Farmer Bros. Co., Coffee Bean Holding Co., Inc., and the Stockholders of Coffee Bean Holding Co., Inc. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 1, 2007 and incorporated herein by reference).

10.5 Loan and Security Agreement, dated March 2, 2009, by and among Farmer Bros. Co. and Coffee Bean International, Inc., as Borrowers, Coffee Bean Holding Co., Inc., FBC Finance Company and SL Realty, LLC, as Guarantors, and Wells Fargo Bank, National Association, successor by merger to Wachovia Bank, National Association, as Lender (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 10, 2009 and incorporated herein by reference).

10.6 Amendment No. 1 to Loan and Security Agreement and Consent, dated March 2, 2009, by and among Farmer Bros. Co. and Coffee Bean International, Inc., as Borrowers, Coffee Bean Holding Co., Inc. and FBC Finance Company, as Guarantors, and Wells Fargo Bank, National Association, successor by merger to Wachovia Bank, National Association, as Lender (filed as Exhibit 10.5 to the Company’s Annual Report on Form 10-K/A for the fiscal year ended June 30, 2009 filed with the SEC on September 15, 2009 and incorporated herein by reference).



10.7 Amendment No. 2 to Loan and Security Agreement and Consent, dated July 27, 2009, by and among Farmer Bros. Co. and Coffee Bean International, Inc., as Borrowers, Coffee Bean Holding Co., Inc. and FBC Finance Company, as Guarantors, and Wells Fargo Bank, National Association, successor by merger to Wachovia Bank, National Association, as Lender (filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 filed with the SEC on November 9, 2009 and incorporated herein by reference).

10.8 Amendment No. 3 to Loan and Security Agreement, dated November 20, 2009, by and among Farmer Bros. Co. and Coffee Bean International, Inc., as Borrowers, Coffee Bean Holding Co., Inc. and FBC Finance Company, as Guarantors, and Wells Fargo Bank, National Association, successor by merger to Wachovia Bank, National Association, as Lender (filed as Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2009 filed with the SEC on February 9, 2010 and incorporated herein by reference).

10.9 Amendment No. 4 to Loan and Security Agreement and Consent, dated August 31, 2010, by and among Farmer Bros. Co. and Coffee Bean International, Inc., as Borrowers, Coffee Bean Holding Co., Inc. and FBC Finance Company, as Guarantors, and Wells Fargo Bank, National Association, successor by merger to Wachovia Bank, National Association, as Lender (filed as Exhibit 10.9 to the Company’s Annual Report on Form 10-K/A for the year ended June 30, 2010 filed with the SEC on September 14, 2010 and incorporated herein by reference).

10.10 Letter Agreement regarding Waiver of Event of Default dated May 7, 2010, by and among Farmer Bros. Co. and Coffee Bean International, Inc., as Borrowers, Coffee Bean Holding Co., Inc. and FBC Finance Company, as Guarantors, and Wells Fargo Bank, National Association, successor by merger to Wachovia Bank, National Association, as Lender (filed as Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 filed with the SEC on May 10, 2010 and incorporated herein by reference).

10.11 Amendment No. 5 to Loan and Security Agreement, dated September 12, 2011, by and among Farmer Bros. Co. and Coffee Bean International, Inc., as Borrowers, Coffee Bean Holding Co., Inc. and FBC Finance Company, as Guarantors, and Wells Fargo Bank, National Association, successor by merger to Wachovia Bank, National Association, as Lender (filed herewith).

10.12 Amended and Restated Loan and Security Agreement, dated September 12, 2011, by and among Farmer Bros. Co. and Coffee Bean International, Inc., as Borrowers, Coffee Bean Holding Co., Inc. and FBC Finance Company, as Guarantors, the Lenders party thereto, and Wells Fargo Bank, National Association, as Agent (filed herewith).

10.13 Farmer Bros. Co. Pension Plan for Salaried Employees (filed as Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2007 filed with the SEC on September 13, 2007 and incorporated herein by reference).*

10.14 Amendment No. 1 to Farmer Bros. Co. Retirement Plan effective June 30, 2011 (filed herewith).*

10.15 Farmer Bros. Co. 2005 Incentive Compensation Plan (Amended and Restated as of December 31, 2008) (filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2008 filed with the SEC on February 10, 2009 and incorporated herein by reference).*

10.16 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 10.12 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2010 filed with the SEC on February 9, 2011 and incorporated herein by reference).*



10.17 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 10.13 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2010 filed with the SEC on February 9, 2011 and incorporated herein by reference).

10.18 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 10.14 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2010 filed with the SEC on February 9, 2011 and incorporated herein by reference).

10.19 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 10.15 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2010 filed with the SEC on February 9, 2011 and incorporated herein by reference).

10.20 Employment Agreement, dated as of June 2, 2006, by and between Farmer Bros. Co. and Roger M. Laverty III (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 8, 2006 and incorporated herein by reference).*

10.21 Amendment No. 1 to Employment Agreement, dated as of December 5, 2007, by and between Farmer Bros. Co. and Roger M. Laverty III (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed with the SEC on December 11, 2007 and incorporated herein by reference).*

10.22 Amendment No. 2 to Employment Agreement, dated as of December 31, 2008, by and between Farmer Bros. Co. and Roger M. Laverty III (filed as Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2008 filed with the SEC on February 10, 2009 and incorporated herein by reference).*

10.23 Separation Agreement, dated as of April 1, 2011, by and between Farmer Bros. Co. and Roger M. Laverty III (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 6, 2011 and incorporated herein by reference).*

10.24 Employment Agreement, dated as of February 25, 2010, by and between Farmer Bros. Co. and Jeffrey A. Wahba (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 3, 2010 and incorporated herein by reference).*

10.25 Amended and Restated Employment Agreement, effective as of April 19, 2011, by and between Farmer Bros. Co. and Jeffrey A. Wahba (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 23, 2011 and incorporated herein by reference).*

10.26 Amendment No. 1 to Amended and Restated Employment Agreement, dated as of August 30, 2011, by and between Farmer Bros. Co. and Jeffrey A. Wahba (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 2, 2011 and incorporated herein by reference).*

10.27 Employment Agreement, effective as of April 19, 2011, by and between Farmer Bros. Co. and Patrick G. Criteser (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 23, 2011 and incorporated herein by reference).*

10.28 Letter Agreement, effective as of April 19, 2011, by and between Farmer Bros. Co. and Mark A. Harding (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on May 23, 2011 and incorporated herein by reference).*

10.29 Employment Agreement, dated as of December 1, 2010, by and between Farmer Bros. Co. and Larry B. Garrett (filed herewith).*



10.30 Consulting Agreement, dated as of March 2, 2009, by and between Farmer Bros. Co. and Michael J. King (filed as Exhibit 10.16 to the Company’s Annual Report on Form 10-K/A for the fiscal year ended June 30, 2009 filed with the SEC on September 15, 2009 and incorporated herein by reference).*

10.31 Interim Services Agreement, dated as of December 17, 2009, by and between Farmer Bros. Co. and Tatum, LLC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 10, 2010 and incorporated herein by reference).*

10.32 2007 Omnibus Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 29, 2007 and incorporated herein by reference).*

10.33 Form of 2007 Omnibus Plan Stock Option Grant Notice and Stock Option Agreement (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 26, 2008 and incorporated herein by reference).*

10.34 Form of 2007 Omnibus Plan Restricted Stock Award Grant Notice and Restricted Stock Award Agreement (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 26, 2008 and incorporated herein by reference).*

10.35 Stock Ownership Guidelines for Directors and Executive Officers (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on February 26, 2008 and incorporated herein by reference).*

10.36 Form of Target Award Notification Letter (Fiscal 2011) under 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 September 30, 2010 and incorporated herein by reference).*

10.37 Form of Target Award Notification Letter (Fiscal 2010) under Farmer Bros. Co. 2005 Incentive Compensation Plan (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on December 16, 2009 and incorporated herein by reference).*

10.38 Form of Change in Control Severance Agreement for Executive Officers of the Company (with schedule of executive officers attached) (filed as Exhibit 10.28 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 filed with the SEC on May 10, 2011 and incorporated herein by reference).*

10.39 Form of Indemnification Agreement for Directors and Officers of the Company, as adopted on May 18, 2006 and as amended on December 31, 2008 (with schedule of indemnitees attached) (filed as Exhibit 10.29 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 filed with the SEC on May 10, 2011 and incorporated herein by reference).*

14.1 Farmer Bros. Co. Code of Conduct and Ethics adopted on August 26, 2010 (filed as Exhibit 14.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 1, 2010 and incorporated herein by reference).

21.1 List of all Subsidiaries of Farmer Bros. Co. (filed herewith).

23.1 Consent of Independent Registered Accounting Firm (filed herewith).

31.1 Principal Executive Officer and 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).

31.2 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).

32.1 Principal Executive Officer and 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).

32.2 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).

99.1 Properties List (filed herewith).

* Management contract or compensatory plan or arrangement.



# Directors and Executive Officers

Farmer Bros. Co.
20333 South Normandie Avenue
Torrance, California 90502

## DIRECTORS

Guenter W. Berger
Chairman of the Board
Farmer Bros. Co. – Retired Chief Executive Officer

Jeanne Farmer Grossman
Retired Teacher

Martin A. Lynch
President, Claremorris Consulting

Thomas A. Maloof
Independent Consultant

James J. McGarry, Esq.
Attorney-at-Law
McGarry & Laufenberg

John H. Merrell
Certified Public Accountant
Retired Partner
Hutchinson and Bloodgood LLP

Jeffrey A. Wahba
Interim Co-CEO, Chief Financial Officer, Treasurer
Farmer Bros. Co.

## EXECUTIVE OFFICERS

Patrick G. Criteser
Interim Co-CEO
President & CEO, Coffee Bean International

Jeffrey A. Wahba
Interim Co-CEO, Chief Financial Officer, Treasurer

Mark A. Harding
Senior Vice President of Operations

Larry B. Garrett, Esq.
General Counsel, Assistant Secretary

Hortensia R. Gómez
Vice President, Controller, Assistant Treasurer

John M. Anglin, Esq.
Secretary
Attorney-at-Law
Anglin, Flewelling, Rasmussen, Campbell & Trytten LLP

## LEGAL COUNSEL

Anglin, Flewelling, Rasmussen, Campbell & Trytten LLP
199 South Los Robles Avenue, Suite 600
Pasadena, California 91101

## INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Ernst & Young LLP
725 South Figueroa Street, Fifth Floor
Los Angeles, California 90017

## TRANSFER AGENT AND REGISTRAR

Wells Fargo Bank, N.A.
Shareowner Services
161 North Concord Exchange
South St. Paul, Minnesota 55075-1139



COFFEE, TEA & CULINARY

20333 South Normandie Avenue
Torrance, CA 90502
1-800-735-3226 | FarmerBros.com