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 consolidated 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. The Company measures its plan assets and benefit obligations annually as of June 30.

Single Employer Pension Plans

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

The Company also has two defined benefit pension plans for certain hourly employees covered under a collective bargaining agreement (the “Brewmatic Plan” and the “Hourly Employees’ Plan”).

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



	Three Months Ended March 31,						Nine Months Ended March 31,
	2013			2012			2013			2012
(In thousands)	(Unaudited)						(Unaudited)
Service cost	$	119		$	124		$	357		$	371
Interest cost	1,449			1,525			4,347			4,575
Expected return on plan assets	(1,660		)	(1,703		)	(4,980		)	(5,108		)
Amortization of net loss(1)	387			342			1,161			1,027
Amortization of net prior service cost(1)	5			5			15			14
Net periodic benefit cost	$	300		$	293		$	900		$	879

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(1)	These amounts represent the estimated portion of the net loss and net prior service cost 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
	2013	2012
Discount rate	4.55%	5.60%
Expected long-term rate of return	8.00%	8.25%
Rate of compensation increase(1)	—%	3.00%

_____________

(1) For Hourly Employees' Plan only.

Basis used to determine expected long-term rate of 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 of return was developed based on those overall rates and the target asset allocation of the plans.

Multiemployer Pension Plans

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

Effective October 2011, the Company withdrew from the United Teamsters Pension Fund, a defined benefit pension plan, and replaced it with the United Teamsters Annuity Fund (the “Annuity Fund”), a defined contribution pension plan, for certain employees covered by a collective bargaining agreement expiring in 2014. The Company incurred no withdrawal liability related to the withdrawal from the United Teamsters Pension Fund. The Company's contributions to the Annuity Fund are based on the number of compensable hours worked by the Company's employees who participate in the Annuity Fund.

In the second quarter of fiscal 2012, the Company withdrew from the Labor Management Pension Fund, a defined benefit pension plan, and recorded a charge of $4.3 million associated with withdrawal from this plan, representing the present value of the estimated withdrawal liability expected to be paid in quarterly installments of $0.1 million over 80 quarters. 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 this multiemployer pension plan were included in the Company's 401(k) plan (the “401(k) Plan”).

Future collective bargaining negotiations may result in the Company withdrawing from the remaining multiemployer pension plans in which it participates and, if successful, the Company may incur a withdrawal liability, the amount of which could be material to the Company's results of operations and cash flows.

Multiemployer Plans Other Than Pension Plans

The Company participates in five multiemployer defined contribution plans other than pension plans that provide medical, vision, dental and disability benefits to certain retirees subject to collective bargaining agreements who meet the eligibility rules in effect when they retire and/or qualified members of their families.

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 100% 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 year 2013, the Company's Board of Directors approved a Company matching contribution of 50.0% of an employee's annual contribution to the 401(k) Plan, up to 6.0% of the employee's eligible income. The matching contributions (and any earnings thereon) vest at the rate of 20.0% for each of the participant's first 5 years of vesting service, so that a participant is fully vested in his or her matching contribution account after 5 years of vesting service. A participant is automatically vested in the event of death, disability or attainment of age 65 while employed by the Company. Employees are 100% vested in their contributions. For employees subject to a collective bargaining agreement, the match is only available if so provided in the labor agreement.

The Company recorded matching contributions of $0.8 million and $0.9 million in operating expenses for the nine months ended March 31, 2013 and 2012, respectively.

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 net periodic postretirement benefit cost is as follows:



	Three Months Ended March 31,						Nine Months Ended March 31,
	2013			2012			2013			2012
(In thousands)	(Unaudited)						(Unaudited)
Service cost	$	634		$	409		$	1,903		$	1,227
Interest cost	178			330			534			990
Amortization of net gain	(218		)	(199		)	(653		)	(597		)
Amortization of prior service credit	(240		)	(58		)	(720		)	(174		)
Net periodic postretirement benefit cost	$	354		$	482		$	1,064		$	1,446

Weighted average assumptions used to determine net periodic postretirement benefit cost



	Fiscal
	2013	2012
Discount rate	4.40%	5.46%

The fiscal 2013 estimate of net periodic postretirement benefit cost is based on July 1, 2012 census data.