Employee Benefit Plans

Single Employer 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 (the “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”). 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.

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

Components of net periodic benefit cost



	Three Months Ended March 31,						Nine Months Ended March 31,
	2012			2011			2012			2011
(In thousands)	(Unaudited)
Service cost	$	124		$	1,300		$	371		$	3,900
Interest cost	1,525			1,569			4,575			4,708
Expected return on plan assets	(1,703		)	(1,329		)	(5,108		)	(3,987		)
Amortization of net (gain) loss*	342			836			1,027			2,507
Amortization of prior service cost (credit)*	5			41			14			123
Net periodic benefit cost	$	293		$	2,417		$	879		$	7,251

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*	These amounts represent the estimated portion of the net (gain) loss and net prior service cost (credit) remaining in accumulated other comprehensive income that is expected to be recognized as a component of net periodic benefit cost over the current fiscal year.

Weighted-average assumptions used to determine net periodic benefit cost



	Fiscal
	2012	2011
Discount rate	5.60%	5.60%
Expected long-term rate of return	8.25%	8.25%
Rate of compensation increase*	3.00%	3.00%

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*	For Hourly Employees’ Plan only

Basis used to determine expected long-term return on plan assets

Historical and future expected rates of return 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 of return was developed based on those overall rates and the target asset allocation of the plans.

Multiemployer Pension Plans

During the nine months ended March 31, 2012, the Company withdrew from two multiemployer pension plans and recorded a charge of $4.3 million associated with withdrawal from one of these plans, representing the present value of the estimated withdrawal liability expected to be paid in quarterly installments of $0.1 million over 80 quarters. Installment payments will commence once the final determination of the amount of withdrawal liability is established, which determination may take up to 24 months from the date of withdrawal from the pension plan. Upon withdrawal, the employees covered under these multiemployer pension plans were included in the Company’s 401(k) Plan. The $4.3 million estimated withdrawal charge is included in the Company’s statement of operations for the nine months ended March 31, 2012 as “Pension withdrawal expense” and in current and long-term liabilities on the Company’s balance sheet at March 31, 2012. There is no anticipated withdrawal liability associated with the other multiemployer pension plan from which the Company withdrew.

The Company is currently in negotiations to withdraw from the remaining multiemployer pension plan in which it participates and, if successful, may incur a withdrawal liability, the amount of which could be material to the Company’s results of operations and cash flows.

401(k) Plan

The Company’s 401(k) Plan is available to all eligible employees who have worked more than 1,000 hours during a calendar year and were employed at the end of the calendar year. Participants in the 401(k) Plan may choose to contribute 1% to 15% of their annual pay subject to the maximum contribution allowed by the Internal Revenue Service. The Company’s matching contribution is discretionary based on approval by the Company’s Board of Directors. For the calendar years 2011 and 2012, the Company’s Board of Directors approved a Company matching contribution of 50% of an employee’s annual contribution to the 401(k) Plan, up to 6% of the employee’s eligible income. The matching contributions (and any earnings thereon) vest at the rate of 20% for each of the participant’s first five years of vesting service, so that a participant is fully vested in his or her matching contribution account after five years of vesting service. A participant is automatically vested in the event of death, disability or attainment of age 65 while employed by the Company. Employees are 100% vested in their contributions. For employees subject to a collective bargaining agreement, the match is only available if so provided in the labor agreement.

For the calendar year ended December 31, 2011, the Company's matching contribution was $0.7 million which has been recorded in operating expenses as of March 31, 2012. The Company accrued $0.4 million in operating expenses as of March 31, 2012, towards matching contributions for the calendar year ended December 31, 2012.

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.

The following table shows the components of net periodic postretirement benefit cost for the three and nine months ended March 31, 2012 and 2011.

Components of net periodic postretirement benefit cost



	Three Months Ended March 31,						Nine Months Ended March 31,
	2012			2011			2012			2011
(In thousands)	(Unaudited)
Service cost	$	409		$	474		$	1,227		$	1,422
Interest cost	330			314			990			942
Expected return on plan assets	—			—			—			—
Amortization of net (gain) loss	(199		)	(180		)	(597		)	(540		)
Amortization of transition (asset) obligation	—			—			—			—
Amortization of prior service cost (credit)	(58		)	(58		)	(174		)	(174		)
Net periodic postretirement benefit cost	$	482		$	550		$	1,446		$	1,650

Weighted-average assumptions used to determine net periodic postretirement benefit cost



	Fiscal
	2012	2011
Discount rate	5.46%	5.52%

The fiscal 2012 estimate of net periodic postretirement benefit cost is based on July 1, 2010 census data assuming there were no demographic actuarial gains or losses during the fiscal year ended June 30, 2011.