Inventories

The Company's inventories consisted of the following:



	Processed		Unprocessed		Total
December 31, 2012 (Unaudited)	(In thousands)
Coffee	$	13,514	$	15,768	$	29,282
Tea and culinary products	22,860		5,081		27,941
Coffee brewing equipment	6,154		5,008		11,162
	$	42,528	$	25,857	$	68,385

	Processed		Unprocessed		Total
June 30, 2012	(In thousands)
Coffee	$	15,485	$	11,836	$	27,321
Tea and culinary products	24,502		4,817		29,319
Coffee brewing equipment	3,977		5,364		9,341
	$	43,964	$	22,017	$	65,981

Inventories are valued at the lower of cost or market. The Company accounts for coffee, tea and culinary products on the last in, first out ("LIFO") basis and coffee brewing equipment manufactured 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. At the end of each quarter, the Company records the expected beneficial effect of the liquidation of LIFO inventory quantities, if any, and records the actual impact at fiscal year-end. An actual valuation of inventory under the LIFO method is made only at the end of each fiscal year based on the inventory levels and costs at that time. If inventory quantities decline at the end of the fiscal year compared to the beginning of the fiscal year, the reduction results in the liquidation of LIFO inventory quantities carried at the cost prevailing in prior years. This LIFO inventory liquidation may result in a decrease or increase in cost of goods sold depending on whether the cost prevailing in prior years was lower or higher, respectively, than the current year cost. Accordingly, interim LIFO calculations must necessarily be based on management's estimates of expected fiscal year-end inventory levels and costs. Because these estimates are subject to many forces beyond management's control, interim results are subject to the final fiscal year-end LIFO inventory valuation. The Company anticipates its inventory levels at June 30, 2013 will decrease from June 30, 2012 levels, and, therefore, recorded $0.5 million in expected beneficial effect of LIFO inventory liquidation in cost of goods sold in the three months ended December 31, 2012 which reduced net loss for the three and six months ended December 31, 2012 by $0.5 million. In the three and six months ended December 31, 2011, the Company recorded $3.8 million and $5.5 million, respectively, in expected beneficial effect of LIFO inventory liquidation in cost of goods sold which reduced net loss for the three and six months ended December 31, 2011 by $3.8 million and $5.5 million, respectively.

The Company routinely enters into specialized hedging transactions to purchase future coffee contracts to enable it to lock in green coffee prices within a pre-established range, and holds a mix of futures contracts and options to help hedge against volatility in green coffee prices. None of these hedging transactions, futures contracts or options is designated as an accounting hedge. The Company values its futures contracts by marking them to market price and recognizes immediately in “Other, net” in the consolidated statements of operations the unrealized and realized gains or losses based on whether the market price is higher or lower than the price that was locked-in. During the three months ended December 31, 2012, green coffee commodity prices declined below the Company's locked-in price, and the Company recognized the resulting losses in its results. Such losses are expected to either be offset by future derivative gains as the coffee market changes, or recovered through operating income as a result of the lower cost of goods assigned to the related coffee.

For the three and six months ended December 31, 2012, the Company recorded $(7.9) million and $(7.2) million, respectively, in net realized and unrealized coffee-related derivative losses. For the three and six months ended December 31, 2011, the Company recorded $(0.5) million and $(4.2) million, respectively, in net realized and unrealized coffee-related derivative losses (see Note 2).