10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2014

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)

310-787-5200

(Registrant’s telephone number, including area code)

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  ý    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  ý    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 

Large accelerated filer	¨	Accelerated filer	ý
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	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  ý

As of February 6, 2015 the registrant had 16,591,825 shares outstanding of its common stock, par value $1.00 per share, which is the registrant’s only class of common stock.

TABLE OF CONTENTS

	Page
PART I – FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 2014 and June 30, 2014	1
Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2014 and 2013	2
Consolidated Statements of Comprehensive (Loss) Income for the Three and Six Months Ended December 31, 2014 and 2013	3
Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2014 and 2013	4
Notes to Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3. Quantitative and Qualitative Disclosures About Market Risk	29
Item 4. Controls and Procedures	31
PART II – OTHER INFORMATION
Item 1. Legal Proceedings	32
Item 1A. Risk Factors	32
Item 6. Exhibits	33
SIGNATURES	34
EXHIBIT INDEX	35

PART I - FINANCIAL INFORMATION (UNAUDITED)

Item 1. Financial Statements

FARMER BROS. CO.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

	December 31, 2014			June 30, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	4,746		$	11,993
Restricted cash	720			—
Short-term investments	23,687			22,632
Accounts and notes receivable, net	46,183			42,230
Inventories	70,677			71,044
Income tax receivable	228			228
Short-term derivative assets	—			5,153
Prepaid expenses	4,919			4,180
Total current assets	151,160			157,460
Property, plant and equipment, net	92,141			95,641
Intangible assets, net	5,628			5,628
Other assets	6,045			7,034
Deferred income taxes	414			414
Total assets	$	255,388		$	266,177
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	37,245		$	44,336
Accrued payroll expenses	19,706			22,190
Short-term borrowings under revolving credit facility	1,345			78
Short-term obligations under capital leases	3,654			3,779
Short-term derivative liabilities	3,720			—
Deferred income taxes	1,169			1,169
Other current liabilities	5,182			5,318
Total current liabilities	72,021			76,870
Accrued postretirement benefits	19,477			19,970
Other long-term liabilities—capital leases	4,156			5,924
Accrued pension liabilities	39,573			40,256
Accrued workers’ compensation liabilities	8,124			7,604
Deferred income taxes	780			689
Total liabilities	$	144,131		$	151,313
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $1.00 par value, 500,000 shares authorized and none issued	$	—		$	—
Common stock, $1.00 par value, 25,000,000 shares authorized; 16,591,825 and 16,562,450 issued and outstanding at December 31, 2014 and June 30, 2014, respectively	16,592			16,562
Additional paid-in capital	34,494			35,917
Retained earnings	111,623			106,212
Unearned ESOP shares	(11,234		)	(16,035		)
Accumulated other comprehensive loss	(40,218		)	(27,792		)
Total stockholders’ equity	$	111,257		$	114,864
Total liabilities and stockholders’ equity	$	255,388		$	266,177

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

1

FARMER BROS. CO.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)

	Three Months Ended December 31,						Six Months Ended December 31,
	2014			2013			2014			2013
Net sales	$	144,809		$	143,129		$	280,793		$	272,658
Cost of goods sold	91,667			88,755			179,530			170,279
Gross profit	53,142			54,374			101,263			102,379
Selling expenses	39,599			38,322			78,049			74,936
General and administrative expenses	9,860			10,329			16,869			18,829
Net losses (gains) from sales of assets	178			73			239			(50		)
Operating expenses	49,637			48,724			95,157			93,715
Income from operations	3,505			5,650			6,106			8,664
Other income (expense):
Dividend income	291			258			585			526
Interest income	90			110			179			218
Interest expense	(208		)	(393		)	(415		)	(765		)
Other, net	(530		)	(514		)	(594		)	(1,420		)
Total other expense	(357		)	(539		)	(245		)	(1,441		)
Income before taxes	3,148			5,111			5,861			7,223
Income tax expense	252			402			450			709
Net income	$	2,896		$	4,709		$	5,411		$	6,514
Net income per common share—basic	$	0.18		$	0.30		$	0.34		$	0.41
Net income per common share—diluted	$	0.18		$	0.29		$	0.33		$	0.41
Weighted average common shares outstanding—basic	16,030,167			15,847,958			16,016,984			15,825,100
Weighted average common shares outstanding—diluted	16,184,138			15,964,682			16,158,725			15,904,456

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

2

FARMER BROS. CO.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

(In thousands)

	Three Months Ended December 31,						Six Months Ended December 31,
	2014			2013			2014			2013
Net income	$	2,896		$	4,709		$	5,411		$	6,514
Other comprehensive income, net of tax:
Unrealized losses on derivative instruments designated as cash flow hedges	(5,915		)	(2,260		)	(2,583		)	(5,385		)
(Gains) losses on derivative instruments designated as cash flow hedges reclassified to cost of goods sold	(5,132		)	3,735			(9,842		)	5,954
Total comprehensive (loss) income, net of tax	$	(8,151	)	$	6,184		$	(7,014	)	$	7,083

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

3

FARMER BROS. CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

	Six Months Ended December 31,
	2014			2013
Cash flows from operating activities:
Net income	$	5,411		$	6,514
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	12,419			14,478
Provision for doubtful accounts	270			168
Deferred income taxes	90			131
Net losses (gains) from sales of assets	239			(50		)
ESOP and share-based compensation expense	2,880			2,134
Net (gains) losses on derivative instruments and investments	(9,002		)	1,949
Change in operating assets and liabilities:
Restricted cash	(720		)	4,508
Purchases of trading securities held for investment	(2,850		)	(2,963		)
Proceeds from sales of trading securities held for investment	1,810			2,207
Accounts and notes receivable	(4,222		)	(2,106		)
Inventories	346			(5,608		)
Income tax receivable	—			251
Derivative assets, net	6,297			—
Prepaid expenses and other assets	(611		)	(85		)
Accounts payable	(6,659		)	2,361
Accrued payroll expenses and other current liabilities	(2,619		)	(2,581		)
Accrued postretirement benefits	(493		)	(670		)
Other long-term liabilities	(165		)	(211		)
Net cash provided by operating activities	$	2,421		$	20,427
Cash flows from investing activities:
Purchases of property, plant and equipment	(9,399		)	(12,128		)
Proceeds from sales of property, plant and equipment	142			333
Net cash used in investing activities	$	(9,257	)	$	(11,795	)
Cash flows from financing activities:
Proceeds from revolving credit facility	34,938			22,550
Repayments on revolving credit facility	(33,929		)	(24,300		)
Payments of capital lease obligations	(1,948		)	(1,821		)
Proceeds from stock option exercises	644			125
Tax withholding payment related to net share settlement of equity awards	(116		)	—
Net cash used in financing activities	$	(411	)	$	(3,446	)
Net (decrease) increase in cash and cash equivalents	$	(7,247	)	$	5,186
Cash and cash equivalents at beginning of period	11,993			2,678
Cash and cash equivalents at end of period	$	4,746		$	7,864

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

4

FARMER BROS. CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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,” 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, offices, quick service restaurants ("QSR's"), convenience stores, healthcare facilities and other foodservice providers, as well as private brand retailers in the QSR, grocery, drugstore, restaurant, convenience store and independent coffeehouse channels. 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.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S‑X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete consolidated financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals, unless otherwise indicated) considered necessary for a fair presentation of the interim financial data have been included. Operating results for the three and six months ended December 31, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2015. Events occurring subsequent to December 31, 2014 have been evaluated for potential recognition or disclosure in the unaudited consolidated financial statements for the three and six months ended December 31, 2014.

The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2014, filed with the Securities and Exchange Commission (the “SEC”) on September 16, 2014 (the "2014 10-K").

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company reviews its estimates on an ongoing basis using currently available information. Changes in facts and circumstances may result in revised estimates and actual results may differ from those estimates.

Corrections to Previously Issued Financial Statements

Subsequent to the issuance of the Company’s consolidated financial statements for the period ended December 31, 2013, the Company identified certain errors in the consolidated statements of operations. Accordingly, the Company has corrected the accompanying unaudited consolidated statement of operations for the six months ended December 31, 2013 in order to comply with GAAP.

The corrections to the consolidated statements of operations include:

1. reclassification of fuel surcharges billed to customers previously netted against the Company's fuel expenses in "Selling expenses" to "Net sales";

2. reclassification of certain labor and overhead expenses previously included in "Selling expenses" and "General and administrative expenses" to "Cost of goods sold"; and

3. reclassification of “Net gains from sales of assets” previously presented within "Other, net" to a separate line item within "Income from operations.”

These errors had no impact on the amounts previously reported in the Company’s consolidated balance sheets, statements of cash flows and statements of comprehensive income (loss). Management has evaluated the materiality of these errors

5

Farmer Bros. Co.

Notes to Consolidated Financial Statements (continued)______________________________________________________________________________________________

quantitatively and qualitatively, including the impact of the errors on gross profit and income from operations, and has concluded that the corrections of these errors are immaterial to the consolidated financial statements as a whole.

The accompanying unaudited consolidated statement of operations for the six months ended December 31, 2013 has been corrected for the errors described above. The following table presents the impact of these corrections:

Consolidated Statement of Operations Data	Six Months Ended December 31, 2013
(In thousands)	As Previously Reported			Adjustments			As Corrected
Net sales	$	270,712		$	1,946		$	272,658
Cost of goods sold	165,802			4,477			170,279
Gross profit	104,910			(2,531		)	102,379
Selling expenses	76,326			(1,390		)	74,936
General and administrative expenses	19,970			(1,141		)	18,829
Net gains from sales of assets	—			(50		)	(50		)
Operating expenses	96,296			(2,581		)	93,715
Income from operations	8,614			50			8,664
Other income (expense):
Dividend income	526			—			526
Interest income	218			—			218
Interest expense	(765		)	—			(765		)
Other, net	(1,370		)	(50		)	(1,420		)
Total other expense	(1,391		)	(50		)	(1,441		)
Income before taxes	7,223			—			7,223
Income tax expense	709			—			709
Net income	$	6,514		$	—		$	6,514

Derivative Instruments

The Company purchases various derivative instruments to create economic hedges of its commodity price risk and interest rate risk. These derivative instruments consist primarily of futures and swaps. The Company reports the fair value of derivative instruments on its consolidated balance sheets in "Short-term derivative assets," "Other assets," "Short-term derivative liabilities," or "Long-term derivative liabilities." The Company determines the current and noncurrent classification based on the timing of expected future cash flows of individual trades and reports these amounts on a gross basis. Additionally, the Company reports cash held on deposit in margin accounts for coffee-related derivative instruments on a gross basis on its consolidated balance sheets in "Restricted cash," if restricted from withdrawal due to a net loss position in such margin accounts.

The accounting for the changes in fair value of the Company's derivative instruments can be summarized as follows:  

Derivative Treatment	Accounting Method
Normal purchases and normal sales exception	Accrual accounting
Designated in a qualifying hedging relationship	Hedge accounting
All other derivative instruments	Mark-to-market accounting

The Company enters into green coffee purchase commitments at a fixed price or at a price to be fixed (“PTF”). PTF contracts are purchase commitments whereby the quality, quantity, delivery period, price differential to the coffee "C" market price and other negotiated terms are agreed upon, but the date, and therefore the price at which the base “C” market price will be fixed has not yet been established. The coffee "C" market price is fixed at some point after the purchase contract date and before the futures market closes for the delivery month and may be fixed either at the direction of the Company to the vendor, or by the application of a derivative that was separately purchased as a hedge. For both fixed-price and PTF contracts, the Company expects to take delivery of and to utilize the coffee in a reasonable period of time and in the conduct of normal

6

Farmer Bros. Co.

Notes to Consolidated Financial Statements (continued)______________________________________________________________________________________________

business. Accordingly, these purchase commitments qualify as normal purchases and are not recorded at fair value on the Company's consolidated balance sheets.

The Company accounts for certain coffee-related derivative instruments as accounting hedges in order to minimize the volatility created in the Company's quarterly results from utilizing these derivative contracts and to improve comparability between reporting periods. For a derivative to qualify for designation in a hedging relationship, it must meet specific criteria and the Company must maintain appropriate documentation. The Company establishes hedging relationships pursuant to its risk management policies. The hedging relationships are evaluated at inception and on an ongoing basis to determine whether the hedging relationship is, and is expected to remain, highly effective in achieving offsetting changes in fair value or cash flows attributable to the underlying risk being hedged. The Company also regularly assesses whether the hedged forecasted transaction is probable of occurring. If a derivative ceases to be or is no longer expected to be highly effective, or if the Company believes the likelihood of occurrence of the hedged forecasted transaction is no longer probable, hedge accounting is discontinued for that derivative, and future changes in the fair value of that derivative are recognized in “Other, net.”

For commodity derivative instruments designated as cash flow hedges, the effective portion of the change in fair value of the derivative is reported as accumulated other comprehensive income (“AOCI”) and subsequently reclassified into cost of goods sold in the period or periods when the hedged transaction affects earnings. Any ineffective portion of the derivative instrument's change in fair value is recognized currently in “Other, net.” Gains or losses deferred in AOCI associated with terminated derivative instruments, derivative instruments that cease to be highly effective hedges, derivative instruments for which the forecasted transaction is reasonably possible but no longer probable of occurring, and cash flow hedges that have been otherwise discontinued remain in AOCI until the hedged item affects earnings. If it becomes probable that the forecasted transaction designated as the hedged item in a cash flow hedge will not occur, any gain or loss deferred in AOCI is recognized in “Other, net” at that time. For derivative instruments that are not designated in a hedging relationship, and for which the normal purchases and normal sales exception has not been elected, the changes in fair value are reported in “Other, net.”

The following gains and losses on derivative instruments are netted together and reported in “Other, net” in the Company's consolidated statements of operations:

• Gains and losses on all derivative instruments that are not designated as cash flow hedges and for which the normal purchases and normal sales exception has not been elected; and

• The ineffective portion of unrealized gains and losses on derivative instruments that are designated as cash flow hedges.

The fair value of derivative instruments is based upon broker quotes. At December 31, 2014 and 2013, approximately 86% and 90%, respectively, of the Company's outstanding coffee-related derivative instruments were designated as cash flow hedges (see Note 2).

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 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 unaudited consolidated financial statements in the three months ended December 31, 2014 and 2013 were $6.4 million and $6.5 million, respectively. In addition, depreciation expense related to capitalized coffee brewing equipment reported in cost of goods sold in the three months ended December 31, 2014 and 2013 was $2.6 million and $2.9 million, respectively.

Coffee brewing equipment costs included in cost of goods sold in the six months ended December 31, 2014 and 2013 were $12.9 million and $13.0 million, respectively. Depreciation expense related to capitalized coffee brewing equipment reported in cost of goods sold in the six months ended December 31, 2014 and 2013 was $5.2 million and $5.7 million, respectively.

The Company capitalized coffee brewing equipment in the amount of $5.8 million in each of the six months ended December 31, 2014 and 2013.

7

Farmer Bros. Co.

Notes to Consolidated Financial Statements (continued)______________________________________________________________________________________________

Revenue Recognition

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

The Company sells roast and ground coffee and tea to The J.M. Smucker Company ("J.M. Smucker") pursuant to a co–packing agreement. The Company recognizes revenue from the co-packing arrangement for the sale of tea on a net basis, net of direct costs of revenue, since the Company acts as an agent of J.M. Smucker in such transactions. As of December 31, 2014 and June 30, 2014, the Company had $0.5 million of receivables relating to this arrangement which are included in "Other receivables" (see Note 5).

Net Income Per Common Share

Net income per share (“EPS”) represents net income attributable to common stockholders divided by the weighted-average number of common shares outstanding for the period, excluding unallocated shares held by the Company's Employee Stock Ownership Plan ("ESOP"). Diluted EPS represents net income attributable to common stockholders divided by the weighted-average number of common shares outstanding, inclusive of the dilutive impact of common equivalent shares outstanding during the period. However, nonvested restricted stock awards (referred to as participating securities) are excluded from the dilutive impact of common equivalent shares outstanding in accordance with authoritative guidance under the two-class method. The nonvested restricted stockholders are entitled to participate in dividends declared on common stock as if the shares were fully vested and hence are deemed to be participating securities. Under the two-class method, net income attributable to nonvested restricted stockholders is excluded from net income attributable to common stockholders for purposes of calculating basic and diluted EPS.

Computation of EPS for the three months ended December 31, 2014 and 2013 includes the dilutive effect of 153,971 shares and 116,724 shares issuable under stock options, respectively, and computation of EPS for the six months ended December 31, 2014 and 2013 includes the dilutive effect of 141,741 shares and 79,356 shares issuable under stock options, respectively (see Note 11). Computation of EPS for the three months ended December 31, 2014 and 2013 excludes 988 shares and 157,962 shares issuable under stock options, respectively, because including them would be anti-dilutive. Computation of EPS for the six months ended December 31, 2014 and 2013 excludes 69,073 shares and 297,896 shares issuable under stock options, respectively, because including them would be anti-dilutive.

Dividends

The Company’s Board of Directors has omitted the payment of a quarterly dividend since the third quarter of fiscal 2011. 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.

Impairment of Indefinite-lived Intangible Assets

The Company performs its annual impairment test of indefinite-lived intangible assets as of June 30. Indefinite-lived intangible assets are not amortized but instead are reviewed for impairment annually, as well as on an interim basis if events or changes in circumstances between annual tests indicate that an asset might be impaired, by comparing their fair values to their carrying values. An impairment charge is recorded if the estimated fair value of such assets has decreased below their carrying value. There were no such events or circumstances during the six months ended December 31, 2014.

Long-Lived Assets, Excluding 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. 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. The estimated future cash flows are based upon, among other things, assumptions about expected future operating performance, and may differ from actual cash flows. 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. There were no such events or circumstances during the six months ended December 31, 2014.

8

Farmer Bros. Co.

Notes to Consolidated Financial Statements (continued)______________________________________________________________________________________________

Self-Insurance

The Company is self-insured for workers’ compensation insurance subject to specific retention levels and uses 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. The estimated outstanding losses, including allocated loss adjustment expenses (“ALAE”), include case reserves, the development of known claims and incurred but not reported 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.

The Company accounts for its accrued liability relating to workers’ compensation claims on an undiscounted basis. The estimated gross undiscounted workers’ compensation liability relating to such claims was $10.5 million and $9.6 million, respectively, and the estimated recovery from reinsurance was $1.2 million as of December 31, 2014 and June 30, 2014. The short-term and long-term accrued liabilities for workers’ compensation claims are presented on the Company's consolidated balance sheets in "Other current liabilities" and in "Accrued workers' compensation liabilities," respectively. The estimated insurance receivable is included in "Other assets" on the Company's consolidated balance sheets.

Due to its failure to meet the minimum credit rating criteria for participation in the alternative security program for California self-insurers for workers’ compensation liability, the Company posted a $5.9 million letter of credit as a security deposit with the State of California Department of Industrial Relations Self-Insurance Plans. At December 31, 2014, this letter of credit continues to serve as a security deposit and has been increased to $6.5 million.

The estimated liability related to the Company's self-insured group medical insurance at December 31, 2014 and June 30, 2014 was $0.9 million and $0.8 million, respectively, 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.

General liability, product liability and commercial auto liability are insured through a captive insurance program. The Company retains the risk within certain aggregate amounts. Cost of the insurance through the captive program is accrued based on estimates of the aggregate liability claims incurred using certain actuarial assumptions and historical claims experience. The Company's liability reserve for such claims at each of December 31, 2014 and June 30, 2014, was $0.5 million.

The estimated liability related to the Company's self-insured group medical insurance, general liability, product liability and commercial auto liability is included on the Company's consolidated balance sheets in "Other current liabilities."

Recently Adopted Accounting Standards

None.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2014-9, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-9”). ASU 2014-9 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-9 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption prohibited. The Company is in the process of assessing the impact of the adoption of ASU 2014-9 on its consolidated financial statements.

Note 2. Derivative Instruments

Derivative Instruments Held

Coffee-Related Derivative Instruments

The Company is exposed to commodity price risk associated with its PTF green coffee purchase contracts, which are described further in Note 1. The Company utilizes futures contracts and options to manage exposure to the variability in expected future cash flows from forecasted purchases of green coffee attributable to commodity price risk, in some instances, as much as 24 months prior to the actual delivery date. Certain of these coffee-related derivative instruments utilized for risk management purposes have been designated as cash flow hedges, while other coffee-related derivative instruments have not been designated as cash flow hedges or do not qualify for hedge accounting despite hedging the Company's future cash flows on an economic basis.

9

Farmer Bros. Co.

Notes to Consolidated Financial Statements (continued)______________________________________________________________________________________________

The following table summarizes the notional volumes for the coffee-related derivative instruments held by the Company at December 31, 2014:

(In thousands)	December 31, 2014
Derivative instruments designated as cash flow hedges:
Long coffee pounds	24,788
Derivative instruments not designated as cash flow hedges:
Long coffee pounds	4,067
Total	28,855

Cash flow hedge contracts outstanding as of December 31, 2014 will expire within 12 months.

Interest Rate Swap

Effective December 1, 2012, the Company entered into an interest rate swap transaction utilizing a notional amount of $10.0 million and a maturity date of March 1, 2015. The Company entered into the swap transaction to effectively fix the future interest rate during the applicable period on a portion of its borrowings under the revolving credit facility. The interest rate swap was not designated as an accounting hedge. The Company terminated the swap transaction on March 5, 2014.

Effect of Derivative Instruments on the Financial Statements

Balance Sheets

Fair values of derivative instruments on the consolidated balance sheets:

	Derivative Instruments Designated as Cash Flow Hedges				Derivative Instruments Not Designated as Accounting Hedges
	December 31,		June 30,		December 31,		June 30,
(In thousands)	2014		2014		2014		2014
Financial Statement Location:
Short-term derivative assets:
Coffee-related derivative instruments	$	1,139	$	5,474	$	—	$	—
Long-term derivative assets(1):
Coffee-related derivative instruments	$	—	$	862	$	—	$	—
Short-term derivative liabilities:
Coffee-related derivative instruments	$	3,930	$	252	$	929	$	69
Long-term derivative liabilities:
Coffee-related derivative instruments	$	—	$	—	$	—	$	—

____________

(1) Included in "Other assets" on the consolidated balance sheets.

10

Farmer Bros. Co.

Notes to Consolidated Financial Statements (continued)______________________________________________________________________________________________

Statements of Operations

The following table presents pretax net gains and losses for the Company's coffee-related derivative instruments designated as cash flow hedges, as recognized in "Cost of goods sold," "AOCI" and "Other, net":

	Three Months Ended December 31,						Six Months Ended December 31,						Financial Statement Classification
(In thousands)	2014			2013			2014			2013
Net losses recognized in accumulated other comprehensive income (effective portion)	$	(5,915	)	$	(2,260	)	$	(2,583	)	$	(5,385	)	AOCI
Net gains (losses) recognized in earnings (effective portion)	$	5,132		$	(3,735	)	$	9,842		$	(5,954	)	Cost of goods sold
Net losses recognized in earnings (ineffective portion)	$	(119	)	$	(143	)	$	(170	)	$	(650	)	Other, net

For the three and six months ended December 31, 2014 and 2013 there were no gains or losses recognized in earnings as a result of excluding amounts from the assessment of hedge effectiveness or as a result of reclassifications to earnings following the discontinuance of any cash flow hedges.

Gains and losses on derivative instruments not designated as accounting hedges are included in "Other, net" in the Company's consolidated statements of operations and in "Net (gains) losses on derivative instruments and investments" in the Company's consolidated statements of cash flows.

Net gains and losses recorded in "Other, net" are as follows:

	Three Months Ended December 31,						Six Months Ended December 31,
(In thousands)	2014			2013			2014			2013
Net losses from coffee-related derivative instruments	$	(904	)	$	(347	)	$	(855	)	$	(1,195	)
Net gains (losses) on investments	205			(55		)	15			(750		)
Net gains (losses) on interest rate swap	—			2			—			(4		)
Net losses on derivative instruments and investments(1)	(699		)	(400		)	(840		)	(1,949		)
Other gains (losses), net	169			(114		)	246			529
Other, net	$	(530	)	$	(514	)	$	(594	)	$	(1,420	)

_______________

(1)Excludes net gains (losses) on coffee-related derivative instruments designated as accounting hedges recorded in cost of goods sold in the three and six months ended December 31, 2014 and 2013.

Offsetting of Derivative Assets and Liabilities

The Company has agreements in place that allow for the financial right of offset for derivative assets and liabilities at settlement or in the event of default under the agreements. Additionally, the Company maintains accounts with its brokers to facilitate financial derivative transactions in support of its risk management activities. Based on the value of the Company’s positions in these accounts and the associated margin requirements, the Company may be required to deposit cash into these broker accounts.

11

Farmer Bros. Co.

Notes to Consolidated Financial Statements (continued)______________________________________________________________________________________________

The following table presents the Company’s net exposure from its offsetting derivative asset and liability positions, as well as cash collateral on deposit with its counterparty as of the reporting dates indicated:

(In thousands)		Gross Amount Reported on Balance Sheet		Netting Adjustments			Cash Collateral Posted (Received)		Net Exposure
December 31, 2014	Derivative assets	$	1,139	$	(1,139	)	$	—	$	—
	Derivative liabilities	$	4,859	$	(1,139	)	$	720	$	3,000
June 30, 2014	Derivative assets	$	6,336	$	(321	)	$	—	$	6,015
	Derivative liabilities	$	321	$	(321	)	$	—	$	—

Credit-Risk-Related Features

The Company does not have any credit-risk-related contingent features that would require it to post additional collateral in support of its net derivative liability positions. At December 31, 2014, as the Company had a net loss position in its coffee-related derivative margin accounts, $0.7 million of the cash in these accounts was restricted. At June 30, 2014, as the Company had a net gain position in its coffee-related derivative margin accounts, none of the cash in these accounts was restricted. Changes in commodity prices and the number of coffee-related derivative instruments held could have a significant impact on cash deposit requirements under the Company's broker and counterparty agreements.

Cash Flow Hedges

Changes in the fair value of the Company's coffee-related derivative instruments designated as cash flow hedges, to the extent effective, are deferred in AOCI and subsequently reclassified into cost of goods sold in the same period or periods in which the hedged forecasted purchases affect earnings, or when it is probable that the hedged forecasted transaction will not occur by the end of the originally specified time period. Based on recorded values at December 31, 2014, $2.8 million of net losses on coffee-related derivative instruments designated as cash flow hedges are expected to be reclassified into cost of goods sold within the next twelve months. These recorded values are based on market prices of the commodities as of December 31, 2014. Due to the volatile nature of commodity prices, actual gains or losses realized within the next twelve months will likely differ from these values. These gains or losses are expected to substantially offset net losses or gains that will be realized in earnings from previous unfavorable or favorable market movements associated with underlying hedged transactions.

Note 3. Investments

The following table shows gains and losses on trading securities held for investment by the Company: 

	Three Months Ended December 31,						Six Months Ended December 31,
(In thousands)	2014			2013			2014			2013
Total gains (losses) recognized from trading securities held for investment	$	205		$	(55	)	$	15		$	(750	)
Less: Realized losses from sales of trading securities held for investment	(39		)	(24		)	$	(39	)	$	(66	)
Unrealized gains (losses) from trading securities held for investment	$	244		$	(31	)	$	54		$	(684	)

Note 4. Fair Value Measurements

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.

12

Farmer Bros. Co.

Notes to Consolidated Financial Statements (continued)______________________________________________________________________________________________

• Level 2—Valuation is based upon inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Inputs include quoted prices for similar instruments in active markets, and quoted prices for similar instruments in markets that are not active. Level 2 includes those financial instruments that are valued with industry standard valuation models that incorporate inputs that are observable in the marketplace throughout the full term of the instrument, or can otherwise be derived from or supported by observable market data in the marketplace.

• Level 3—Valuation is based upon one or more unobservable inputs that are significant in establishing a fair value estimate.  These unobservable inputs are used to the extent relevant observable inputs are not available and are developed based on the best information available. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

Securities with quotes that are based on actual trades or actionable bids and offers with a sufficient level of activity on or near the measurement date are classified as Level 1. Securities that are priced using quotes derived from implied values, indicative bids and offers, or a limited number of actual trades, or the same information for securities that are similar in many respects to those being valued, are classified as Level 2. If market information is not available for securities being valued, or materially-comparable securities, then those securities are classified as Level 3. In considering market information, management evaluates changes in liquidity, willingness of a broker to execute at the quoted price, the depth and consistency of prices from pricing services, and the existence of observable trades in the market.

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

December 31, 2014	Total		Level 1		Level 2		Level 3
Preferred stock(1)	$	23,687	$	19,157	$	4,530	$	—
Derivative instruments designated as cash flow hedges:
Coffee-related derivative assets	$	1,139	$	1,139	$	—	$	—
Coffee-related derivative liabilities	$	3,930	$	3,930	$	—	$	—
Derivative instruments not designated as accounting hedges:
Coffee-related derivative liabilities	$	929	$	929	$	—	$	—
June 30, 2014	Total		Level 1		Level 2		Level 3
Preferred stock(1)	$	22,632	$	18,025	$	4,607	$	—
Derivative instruments designated as cash flow hedges:
Coffee-related derivative liabilities	$	5,153	$	5,153	$	—	$	—
Derivative instruments not designated as accounting hedges:
Coffee-related derivative liabilities	$	862	$	862	$	—	$	—

____________________ 

(1) Included in "Short-term investments" on the consolidated balance sheets.

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

Note 5. Accounts and Notes Receivable, Net

(In thousands)	December 31, 2014			June 30, 2014
Trade receivables	$	45,626		$	41,118
Other receivables(1)	1,478			1,763
Allowance for doubtful accounts	(921		)	(651		)
Accounts and notes receivable, net	$	46,183		$	42,230

_____________

(1) As of December 31, 2014 and June 30, 2014, $0.5 million of other receivables were related to the co-packing arrangement for J.M. Smucker (see Note 1).

13

Farmer Bros. Co.

Notes to Consolidated Financial Statements (continued)______________________________________________________________________________________________

Note  6. Inventories

(In thousands)	December 31, 2014		June 30, 2014
Coffee
Processed	$	18,364	$	17,551
Unprocessed	20,170		21,164
Total	$	38,534	$	38,715
Tea and culinary products
Processed	$	23,128	$	22,381
Unprocessed	3,916		4,598
Total	$	27,044	$	26,979
Coffee brewing equipment parts	$	5,099	$	5,350
Total inventories	$	70,677	$	71,044

In addition to product cost, inventory costs include expenditures such as labor and certain supply and overhead expenses incurred in bringing the inventory to its existing condition and location. The “Unprocessed” inventory values as stated in the above table represent the value of raw materials and the “Processed” inventory values represent all other products consisting primarily of finished goods.

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 parts on the first in, first out ("FIFO") basis. The Company regularly evaluates these inventories to determine whether market conditions are appropriately reflected in the recorded carrying value. At the end of each quarter, the Company records the expected 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, 2015 will decrease from June 30, 2014 levels, and, therefore, recorded $2.2 million and $2.5 million, respectively, in expected beneficial effect of LIFO inventory liquidation in cost of goods sold in the three and six months ended December 31, 2014. No expected beneficial effect of the liquidation of LIFO inventory quantities was included in cost of goods sold in the three and six months ended December 31, 2013.

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. In addition, the Company contributes to two multiemployer defined benefit pension plans, one multiemployer defined contribution pension plan and seven multiemployer defined contribution plans other than pension plans that provide medical, vision, dental and disability benefits for active, union-represented employees subject to collective bargaining agreements. In addition, the Company sponsors a postretirement defined benefit plan that covers qualified non-union retirees and certain qualified union retirees and provides retiree medical coverage and, depending on the age of the retiree, dental and vision coverage. The Company also provides a postretirement death benefit to certain of its employees and retirees.

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 (loss) ("OCI") certain gains and losses that arise during the period but are deferred under pension accounting rules.

Single Employer Pension Plans

The Company has a defined benefit pension plan, the Farmer Bros. Co. Pension Plan for Salaried Employees (the “Farmer Bros. Plan”), for the majority of its employees who are not covered under a collective bargaining agreement. The

14

Farmer Bros. Co.

Notes to Consolidated Financial Statements (continued)______________________________________________________________________________________________

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 Farmer Bros. Plan, and new hires are not eligible to participate in the Farmer Bros. Plan. As all plan participants became inactive following this pension curtailment, net (gain) 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 collective bargaining agreements (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 December 31,						Six Months Ended December 31,
	2014			2013			2014			2013
(In thousands)
Service cost	$	97		$	100		$	194		$	200
Interest cost	1,415			1,452			2,830			2,904
Expected return on plan assets	(1,823		)	(1,705		)	(3,646		)	(3,410		)
Amortization of net loss(1)	303			336			606			672
Net periodic benefit (credit) cost	$	(8	)	$	183		$	(16	)	$	366

_____________

(1) These amounts represent the estimated portion of the net loss remaining in AOCI 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
	2015	2014
Discount rate	4.15%	4.50%
Expected long-term rate of return on plan assets	7.50%	8.00%

Basis Used to Determine Expected Long-Term Return on Plan Assets

The expected long-term return on plan assets assumption was developed as a weighted average rate based on the target asset allocation of the plan and the long-term capital market assumptions. The overall rate for each asset class was developed by combining a long-term inflation component and the associated expected real rates. The development of the capital market assumptions utilized a variety of methodologies, including, but not limited to, historical analysis, stock valuation models such as dividend discount models and earnings yields' models, expected economic growth outlook and market yields analysis.

Multiemployer Pension Plans

The Company participates in two multiemployer defined benefit pension plans that are union sponsored and collectively bargained for the benefit of certain employees subject to collective bargaining agreements, of which the Western Conference of Teamsters Pension Plan is individually significant. The Company makes contributions to these plans generally based on the number of hours worked by the participants in accordance with the provisions of negotiated labor contracts.

The risks of participating in multiemployer pension plans are different from single-employer plans in that: (i) assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers; (ii) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and (iii) if the Company stops participating in the multiemployer plan, the Company may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

In fiscal 2012, the Company withdrew from the Labor Management Pension Fund 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. Upon withdrawal, the employees covered under this multiemployer pension plan were included in the Company's 401(k) plan (the “401(k) Plan”). The short-term and long-term portions of this estimated withdrawal charge are reflected in current and long-term liabilities, respectively, on the Company’s

15

Farmer Bros. Co.

Notes to Consolidated Financial Statements (continued)______________________________________________________________________________________________

consolidated balance sheets at December 31, 2014 and June 30, 2014. As of December 31, 2014, a final determination of liability has not been made by the pension plan administrator and installment payments have not commenced.

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 seven multiemployer defined contribution plans other than pension plans that provide medical, vision, dental and disability benefits for active, union-represented employees subject to collective bargaining agreements. The plans are subject to the provisions of the Employee Retirement Income Security Act of 1974, and provide that participating employers make monthly contributions to the plans in an amount as specified in the collective bargaining agreements. Also, the plans provide that participants make self-payments to the plans, the amounts of which are negotiated through the collective bargaining process. The Company's participation in these plans is governed by collective bargaining agreements which expire on or before January 31, 2020.

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 a percentage 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 2014 and 2013, 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 participant's first 5 years of vesting service, so that the 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 $0.7 million and $0.5 million in operating expenses in the six months ended December 31, 2014 and 2013, respectively.

Postretirement Benefits

The Company sponsors a postretirement defined benefit plan that covers qualified non-union retirees and certain qualified union retirees ("Retiree Medical Plan"). The plan provides medical, dental and vision coverage for retirees under age 65 and medical coverage only for retirees age 65 and above. 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, subject to a maximum monthly Company contribution.

The Company also provides a postretirement death benefit ("Death Benefit") to certain of its employees and retirees, subject, in the case of current employees, to continued employment with the Company until retirement and certain other conditions related to the manner of employment termination and manner of death. The Company records the actuarially determined liability for the present value of the postretirement death benefit. The Company has purchased life insurance policies to fund the postretirement death benefit wherein the Company owns the policy but the postretirement death benefit is paid to the employee's or retiree's beneficiary. The Company records an asset for the fair value of the life insurance policies which equates to the cash surrender value of the policies. 

16

Farmer Bros. Co.

Notes to Consolidated Financial Statements (continued)______________________________________________________________________________________________

Retiree Medical Plan and Death Benefit

The following table shows the components of net periodic postretirement benefit cost (credit) for the Retiree Medical Plan and Death Benefit for the three and six months ended December 31, 2014 and 2013. Net periodic postretirement benefit credit for the three and six months ended December 31, 2014 is based on employee census information as of July 1, 2014 and asset information as of June 30, 2014.

	Three Months Ended December 31,						Six Months Ended December 31,
	2014			2013			2014			2013
(In thousands)
Components of Net Periodic Postretirement Benefit Credit:
Service cost	$	299		$	(25	)	598			(50		)
Interest cost	235			163			470			405
Expected return on plan assets	—			—			—			—
Amortization of net gain	(125		)	(445		)	(250		)	(441		)
Amortization of unrecognized transition (asset) obligation	—			—			—			—
Amortization of net prior service credit	(439		)	(440		)	(878		)	(879		)
Net periodic postretirement benefit credit	$	(30	)	$	(747	)	$	(60	)	$	(965	)

Weighted-Average Assumptions Used to Determine Net Periodic Postretirement Benefit Cost 

	Fiscal
	2015	2014
Retiree Medical Plan discount rate	4.29%	4.80%
Death Benefit discount rate	4.48%	4.53%

Note 8. Bank Loan

On September 12, 2011, the Company entered into an Amended and Restated Loan and Security Agreement (the “Loan Agreement”) among the Company and Coffee Bean International, Inc. (“CBI”), as Borrowers, certain of the Company’s other subsidiaries, as Guarantors, the Lenders party thereto, and Wells Fargo Bank, National Association (“Wells Fargo”), as Agent.

On January 9, 2012, the Loan Agreement was amended in connection with JPMorgan Chase Bank, N.A. (“JPMorgan Chase”), becoming an additional Lender thereunder. On March 18, 2013, the Loan Agreement was amended further ("Amendment No. 2") to amend the definition of "Maximum Credit" available thereunder to $75.0 million from $85.0 million. Pursuant to Amendment No. 2, Wells Fargo agreed to provide a commitment of $53.0 million and JPMorgan Chase agreed to provide a commitment of $22.0 million.

On February 28, 2014, the Company entered into Amendment No. 3 to the Loan Agreement, which, among other things, amended the definition of "Applicable Margin" set forth in the Loan Agreement to provide for interest rates based on modified Monthly Average Excess Availability levels with a range of PRIME + 0% to PRIME + 0.50% or Adjusted Eurodollar Rate + 1.75% to Adjusted Eurodollar Rate + 2.25%. The Loan Agreement provides for a senior secured revolving credit facility of up to $75.0 million, with a letter of credit sublimit of $20.0 million. The revolving credit facility provides for advances of 85% of eligible accounts receivable and 75% of eligible inventory (subject to a $60.0 million inventory loan limit), as defined. The Loan Agreement has an amendment fee of 0.375% and an unused line fee of 0.25%. Outstanding obligations under the Loan Agreement are collateralized by all of the Borrowers’ assets, including the Company’s preferred stock portfolio. The Loan Agreement expires on March 2, 2015. Management cannot provide assurances that the Company will be able to refinance any of its indebtedness under the credit facility on commercially reasonable terms or at all.

The 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 Loan Agreement allows the Company to pay dividends, provided, among other things, certain liquidity requirements are met, the aggregate amount of all

17

Farmer Bros. Co.

Notes to Consolidated Financial Statements (continued)______________________________________________________________________________________________

such payments in any fiscal year is not in excess of $7.0 million ($1.75 million in any fiscal quarter), and no event of default exists or has occurred and is continuing as of the date of any such payment and after giving effect thereto. The Loan Agreement also contains financial covenants requiring the Borrowers to maintain minimum Excess Availability and Total Liquidity levels. The Loan Agreement allows the Lenders 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.

Effective December 1, 2012, the Company entered into an interest rate swap transaction utilizing a notional amount of $10.0 million and a maturity date of March 1, 2015. The Company entered into the swap transaction to effectively fix the future interest rate during the applicable period on a portion of its borrowings under the revolving credit facility. The swap transaction was intended to manage the Company's interest rate risk related to its revolving credit facility and required the Company to pay a fixed rate of 0.48% per annum in exchange for a variable interest rate based on 1-month USD LIBOR-BBA. The Company terminated the swap transaction on March 5, 2014. As of December 31, 2014, the Company had no interest rate swap transactions in place.

The Company had not designated its interest rate swap as an accounting hedge. The Company recorded the interest rate swap on its consolidated balance sheets at fair value with the changes in fair value recorded as gain or loss in "Other, net" in its consolidated statements of operations. No such gain or loss was recorded in the three and six months ended December 31, 2014. The Company recorded a gain of $2,000 in the three months ended December 31, 2013 and a loss of $(4,000) in the six months ended December 31, 2013 for the change in fair value of its interest rate swap (see Note 2).

On December 31, 2014, the Company was eligible to borrow up to a total of $75.0 million under the credit facility. As of December 31, 2014, the Company had outstanding borrowings of $1.3 million, utilized $11.2 million of the letters of credit sublimit, and had excess availability under the credit facility of $62.5 million. At December 31, 2014, the weighted average interest rate on the Company's outstanding borrowings under the credit facility was 1.91%. As of December 31, 2014, the Company was in compliance with all restrictive covenants under the Loan Agreement.

Note 9. Share-based Compensation

On December 5, 2013, the Company’s stockholders approved the Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan (the “Amended Equity Plan”), which is an amendment and restatement of, and successor to, the Farmer Bros. Co. 2007 Omnibus Plan. The principal change to the Amended Equity Plan was to limit awards under the plan to performance-based stock options and to restricted stock under limited circumstances.

Stock Options

The share-based compensation expense recognized in the Company’s consolidated statements of operations is based on awards ultimately expected to vest. Compensation expense is recognized on a straight-line basis over the service period based on the estimated fair value of the stock options. The Company estimates the fair value of option awards using 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 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.

18

Farmer Bros. Co.

Notes to Consolidated Financial Statements (continued)______________________________________________________________________________________________

Non-Qualified Stock Options With Time-Based Vesting ("NQOs")

 The following table summarizes NQO activity for the six months ended December 31, 2014:

Outstanding NQOs:	Number of NQOs		Weighted Average Exercise Price ($)	Weighted Average Grant Date Fair Value ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2014	412,454		12.44	5.30	4.4	3,782
Granted	—		—	—	—	—
Exercised	(42,656	)	15.12	5.74	—	370
Cancelled/Forfeited	(12,134	)	10.31	4.91	—	—
Outstanding at December 31, 2014	357,664		12.20	5.26	4.0	6,171
Vested and exercisable, December 31, 2014	261,542		12.74	5.32	3.7	4,370
Vested and expected to vest, December 31, 2014	354,284		12.20	5.26	4.0	6,111

The aggregate intrinsic value outstanding at the end of each period in the table above represents the total pretax intrinsic value, based on the Company’s closing stock price of $29.45 at December 31, 2014 and $21.61 at June 30, 2014, representing the last trading day of the applicable fiscal period, which would have been received by NQO holders had all award holders exercised their NQOs that were in-the-money as of that date.

The aggregate fair value of NQO grants vested during the six months ended December 31, 2014 was $0.3 million. During the three and six months ended December 31, 2014, the Company received $0.1 million and $0.6 million in proceeds from exercises of vested NQOs. In each of the three and six months ended December 31, 2013, the Company received $0.1 million in proceeds from exercises of vested NQOs.

As of December 31, 2014 and 2013, there was $0.4 million and $1.0 million, respectively, of unrecognized compensation cost related to NQOs. Total compensation expense for NQOs was $0.1 million and $0.2 million in the three months ended December 31, 2014 and 2013, respectively. Total compensation expense for NQOs was $0.2 million and $0.4 million in the six months ended December 31, 2014 and 2013, respectively.

Non-Qualified Stock Options With Performance-Based and Time-Based Vesting ("PNQs")

 The following table summarizes PNQ activity for the six months ended December 31, 2014:

Outstanding PNQs:	Number of PNQs		Weighted Average Exercise Price ($)	Weighted Average Grant Date Fair Value ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2014	112,442		21.27	10.49	6.5	38
Granted	—		—	—	—	—
Exercised	—		—	—	—	—
Cancelled/Forfeited	(9,399	)	21.33	10.52	—	—
Outstanding at December 31, 2014	103,043		21.27	10.49	5.9	843
Vested and exercisable, December 31, 2014	33,167		21.33	10.52	5.8	269
Vested and expected to vest, December 31, 2014	96,676		21.27	10.49	5.9	791

 The aggregate intrinsic value outstanding at the end of each period in the table above represents the total pretax intrinsic value, based on the Company’s closing stock price of $29.45 at December 31, 2014 and $21.61 at June 30, 2014, representing the last trading day of the applicable fiscal period, which would have been received by PNQ holders had all award holders exercised their PNQs that were in-the-money as of that date.

The PNQs shown in the table above vest over a three-year period with one-third of the total number of shares subject to each such PNQ vesting on the first anniversary of the grant date based on the Company’s achievement of a modified net income

19

Farmer Bros. Co.

Notes to Consolidated Financial Statements (continued)______________________________________________________________________________________________

target for the first fiscal year of the performance period as approved by the Compensation Committee, and the remaining two-thirds of the total number of shares subject to each PNQ vesting on the third anniversary of the grant date based on the Company’s achievement of a cumulative modified net income target for all three years during the performance period as approved by the Compensation Committee, in each case, subject to the participant’s employment by the Company or service on the Board of Directors of the Company on the applicable vesting date. As of December 31, 2014, the Company met the performance targets for the first year and expects that it will achieve the cumulative performance targets set forth in the PNQ agreements.

Compensation expense for PNQs recognized in operating expenses in the three and six months ended December 31, 2014 was $0.1 million and $0.3 million, respectively. Compensation expense for PNQs recognized in operating expenses in each of the three and six months ended December 31, 2013 was $30,000. As of December 31, 2014 and June 30, 2014, there was $0.5 million and $0.9 million in unrecognized compensation cost related to PNQs.

Restricted Stock

The following table summarizes restricted stock activity for the six months ended December 31, 2014:

Outstanding and Nonvested Restricted Stock Awards:	Shares Awarded		Weighted Average Grant Date Fair Value ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2014	96,212		10.27	1.5	2,079
Granted	—		—	—	—
Exercised/Released(1)	(28,402	)	9.22	—	772
Cancelled/Forfeited	(8,984	)	8.36	—	—
Outstanding at December 31, 2014	58,826		11.06	1.2	1,732
Expected to vest, December 31, 2014	56,132		13.85	1.2	1,653

 ______________

(1) Includes 4,297 shares that were withheld to meet the employees' minimum statutory tax withholding and retired.

The aggregate intrinsic value of shares outstanding at the end of each period in the table above represents the total pretax intrinsic value, based on the Company’s closing stock price of $29.45 at December 31, 2014 and $21.61 at June 30, 2014, representing the last trading day of the applicable fiscal period.

Shares of restricted stock generally vest at the end of three years for eligible employees and officers who are employees. Shares of restricted stock generally vest ratably over a period of three years for directors. During the six months ended December 31, 2014, 28,402 shares of restricted stock vested, of which 4,297 shares were withheld to meet the employees' minimum statutory tax withholding and retired.

Compensation expense is recognized on a straight-line basis over the service period based on the estimated fair value of the restricted stock. Total compensation expense recognized in the three months ended December 31, 2014 and 2013 was $0.1 million and $0.2 million, respectively. Total compensation expense recognized in the six months ended December 31, 2014 and 2013 was $0.1 million and $0.3 million, respectively. As of December 31, 2014 and June 30, 2014, there was approximately $0.3 million and $0.7 million, respectively, of unrecognized compensation cost related to restricted stock.

Note 10. Income Taxes

The Company adjusts its effective tax rate each quarter based on its current estimated annual effective tax rate. The Company also records the tax impact of certain discrete items, unusual or infrequently occurring tax events and the effects of changes in tax laws or rates, in the interim period in which they occur. In addition, the Company evaluates its deferred tax assets quarterly to determine if a valuation allowance is required.

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 this 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 that it will generate future earnings sufficient to realize the Company's net deferred tax

20

Farmer Bros. Co.

Notes to Consolidated Financial Statements (continued)______________________________________________________________________________________________

assets. Accordingly, the Company is maintaining a valuation allowance against its net deferred tax assets. The Company decreased its valuation allowance by $1.2 million in the three months ended December 31, 2014 to $70.4 million. The valuation allowance at June 30, 2014 was $72.6 million. 

The Company will continue to monitor its cumulative three-year loss position together with all other available evidence, both positive and negative, in determining whether it is more likely than not that the Company will realize its net deferred tax assets. If the Company continues to be profitable, the Company may have enough positive evidence to release part or all of its valuation allowance against its net deferred tax assets during the second half of fiscal 2015.

A summary of the income tax expense recorded for the three and six months ended December 31, 2014 and 2013 is as follows:

	Three Months Ended December 31,						Six Months Ended December 31,
(In thousands)	2014			2013			2014			2013
Income before taxes	$	3,148		$	5,111		$	5,861		$	7,223
Income tax expense at statutory rate	1,070			1,738			1,993			2,456
State income tax expense, net of federal tax benefit	220			374			377			587
Valuation allowance	(1,235		)	(1,847		)	(2,211		)	(2,582		)
Other permanent items	197			137			291			248
Income tax expense	$	252		$	402		$	450		$	709

As of December 31, 2014 and June 30, 2014, the Company had no unrecognized tax benefits.

Note 11. Net Income Per Common Share 

	Three Months Ended December 31,				Six Months Ended December 31,
(In thousands, except share and per share amounts)	2014		2013		2014		2013
Net income attributable to common stockholders—basic	$	2,885	$	4,676	$	5,391	$	6,468
Net income attributable to nonvested restricted stockholders	11		33		20		46
Net income	$	2,896	$	4,709	$	5,411	$	6,514
Weighted average common shares outstanding—basic	16,030,167		15,847,958		16,016,984		15,825,100
Effect of dilutive securities:
Shares issuable under stock options	153,971		116,724		141,741		79,356
Weighted average common shares outstanding—diluted	16,184,138		15,964,682		16,158,725		15,904,456
Net income per common share—basic	$	0.18	$	0.30	$	0.34	$	0.41
Net income per common share—diluted	$	0.18	$	0.29	$	0.33	$	0.41

Note 12. Commitments and Contingencies

As of December 31, 2014, the Company had committed to purchasing green coffee inventory totaling $16.4 million under fixed-price contracts and other inventory totaling $6.6 million under non-cancelable purchase orders.

21

Farmer Bros. Co.

Notes to Consolidated Financial Statements (continued)______________________________________________________________________________________________

Note 13. Subsequent Events

On November 17, 2014, the Company signed a definitive agreement to acquire from Rae' Launo Corporation ("RLC") assets relating to RLC's direct-store-delivery ("DSD") business that primarily serves convenience stores in the Southeast and RLC's in-room distributor channel that primarily serves the hospitality industry. Through this $1.5 million asset acquisition, the Company acquired additional customers and expanded its reach in the Southeastern United States. The acquisition transaction closed in January 2015.

On February 5, 2015, the Company announced a plan ("Corporate Relocation Plan") approved by the Board of Directors of the Company on February 3, 2015, pursuant to which the Company will close its Torrance, California facility and relocate these operations to a new manufacturing, distribution and corporate headquarters facility. The new facility is expected to be located in either Dallas/Fort Worth, Texas or Oklahoma City, Oklahoma pending the outcome of state and local government incentive negotiations and final site selection. The Company expects to close its Torrance facility in phases beginning in the summer of 2015. Construction of the new facility and relocation are expected to be completed by the end of the summer of 2016. Approximately 350 positions will be impacted as a result of the Torrance facility closure.

Subject to the finalization of certain estimates, the Company estimates that it will incur approximately $25 million in cash costs in connection with the exit of the Torrance facility consisting of $14 million in employee retention and separation benefits, $4 million in facility relocation costs and $7 million in other associated costs. The Company expects to incur certain other non-cash asset impairment costs and potential curtailment charges the amount of which the Company has not yet estimated.

The Company expects to recognize approximately 40% of the aggregate cash costs in fiscal 2015, including $1.0 million incurred in the first half of fiscal 2015, with the remainder expected to be recognized in fiscal 2016 and the first quarter of fiscal 2017. The Company also expects to incur approximately $35 million in new facility costs with an additional $20 million to $25 million in anticipated capital expenditures for machinery and equipment, furniture and fixtures, and related expenditures. The capital expenditures associated with the new facility are expected to be partially offset by the net proceeds from the planned sale of the Company's Torrance facility. The Company believes the current land value of the Torrance facility, based strictly on comparable sales data and the size of the parcel (and without any changes or improvements to the parcel or the facility) is estimated to be between $28 million and $35 million.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q 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; actual results may differ materially due in part to the risk factors set forth in Part II, Item 1A of this Form 10-Q and in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2014 filed with the Securities and Exchange Commission (the "SEC") on September 16, 2014 (the "2014 10-K").  These forward-looking statements can be identified by the use of words like “anticipates,” “estimates,” “projects,” “expects,” “plans,” “believes,” “intends,” “will,” “could,” “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, the timing and success of implementation of the Corporate Relocation Plan, the relative effectiveness of compensation-based employee incentives in causing improvements in Company performance, the capacity to meet the demands of the Company’s large national account customers, the extent of execution of plans for the growth of Company business, achievement of financial metrics related to those plans, the success of the Company to retain and/or attract qualified employees, the effect of the capital markets as well as other external factors on stockholder value, fluctuations in availability and cost of green coffee, competition, organizational changes, changes in the strength of the economy, our ability to refinance or replace our existing credit facility upon its expiration, 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

22

described in this report and other factors described from time to time in our filings with the SEC. The results of operations for the three and six months ended December 31, 2014 are not necessarily indicative of the results that may be expected for any future period.

Corporate Relocation Plan

On February 5, 2015, we announced a plan (the "Corporate Relocation Plan") ") approved by our Board of Directors on February 3, 2015, pursuant to which we will close our Torrance, California facility and relocate these operations to a new state-of-the-art manufacturing, distribution and corporate headquarters facility. as discussed in Note 13, "Subsequent Events," of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-Q.

Corrections to Previously Issued Financial Statements

Management’s discussion and analysis gives effect to the correction of certain errors to the accompanying unaudited consolidated statement of operations for the six months ended December 31, 2013 as discussed in Note 1, "Summary of Significant Accounting Policies," of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-Q.

Liquidity and Capital Resources

Credit Facility

On September 12, 2011, we entered into an Amended and Restated Loan and Security Agreement (the “Loan Agreement”) among the Company and Coffee Bean International, Inc. ( “CBI”), as Borrowers, certain of the Company’s other subsidiaries, as Guarantors, the Lenders party thereto, and Wells Fargo Bank, National Association ("Wells Fargo"), as Agent.

On January 9, 2012, the Loan Agreement was amended in connection with JPMorgan Chase Bank, N.A. (“JPMorgan Chase”), becoming an additional Lender thereunder. On March 18, 2013, the Loan Agreement was amended further (“Amendment No. 2") to amend the definition of "Maximum Credit" available thereunder to $75.0 million from $85.0 million. Pursuant to Amendment No. 2, Wells Fargo agreed to provide a commitment of $53.0 million and JPMorgan Chase agreed to provide a commitment of $22.0 million.

On February 28, 2014, we entered into Amendment No. 3 to the Loan Agreement which, among other things, amended the definition of "Applicable Margin" set forth in the Loan Agreement to provide for interest rates based on modified Monthly Average Excess Availability levels with a range of PRIME + 0% to PRIME + 0.50% or Adjusted Eurodollar Rate + 1.75% to Adjusted Eurodollar Rate + 2.25%.

The Loan Agreement provides for a senior secured revolving credit facility of up to $75.0 million, with a letter of credit sublimit of $20.0 million. The revolving credit facility provides for advances of 85% of eligible accounts receivable and 75% of eligible inventory (subject to a $60.0 million inventory loan limit), as defined. The Loan Agreement has an amendment fee of 0.375% and an unused line fee of 0.25%. Outstanding obligations under the Loan Agreement are collateralized by all of the Borrowers’ assets, including the Company’s preferred stock portfolio. The Loan Agreement expires on March 2, 2015. We cannot provide assurances that we will be able to refinance any of our indebtedness under the credit facility on commercially reasonable terms or at all.

The 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 Loan Agreement allows us to pay dividends, provided, among other things, certain liquidity requirements are met, the aggregate amount of all such payments in any fiscal year is not in excess of $7.0 million ($1.75 million in any fiscal quarter), and no event of default exists or has occurred and is continuing as of the date of any such payment and after giving effect thereto. The Loan Agreement also contains financial covenants requiring the Borrowers to maintain minimum Excess Availability and Total Liquidity levels. The Loan Agreement allows the Lenders 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 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

23

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 Farmer Bros. Co. Employee Stock Ownership Plan ("ESOP"), to be duly qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended, or exempt from federal income taxation, or if the ESOP engages in a material non-exempt prohibited transaction.

Effective December 1, 2012, we entered into an interest rate swap transaction utilizing a notional amount of $10.0 million and a maturity date of March 1, 2015. We entered into the swap transaction to effectively fix the future interest rate during the applicable period on a portion of our borrowings under the revolving credit facility. The swap transaction was intended to manage our interest rate risk related to our revolving credit facility and required us to pay a fixed rate of 0.48% per annum in exchange for a variable interest rate based on 1-month USD LIBOR-BBA. We terminated the swap transaction on March 5, 2014. As of December 31, 2014, we had no interest rate swap transactions in place.

We did not designate our interest rate swap as an accounting hedge. In the three and six months ended December 31, 2013, we recorded in “Other, net” in our consolidated statement of operations a gain of $2,000 and a loss of $(4,000), respectively, for the change in fair value of our interest rate swap. No such gain or loss was recorded in the three and six months ended December 31, 2014.

On December 31, 2014, we were eligible to borrow up to a total of $75.0 million under the credit facility. As of December 31, 2014, we had outstanding borrowings of $1.3 million, utilized $11.2 million of the letters of credit sublimit, and had excess availability under the credit facility of $62.5 million. The weighted average interest rate on our outstanding borrowings under the credit facility was 1.91% at December 31, 2014. As of December 31, 2014, we were in compliance with all restrictive covenants under the Loan Agreement.

As of January 31, 2015, we had estimated outstanding borrowings of $5.6 million, utilized $11.2 million of the letters of credit sublimit, and had excess availability under the credit facility of $58.2 million. As of January 31, 2015, the weighted average interest rate on our outstanding borrowings under the credit facility was 2.25%.

Liquidity

We generally finance our operations through cash flows from operations and borrowings under our revolving credit facility described above. As of December 31, 2014, we had $4.7 million in cash and cash equivalents and $23.7 million in short-term investments. At December 31, 2014, as we had a net loss position in our coffee-related derivative margin accounts, $0.7 million of the cash in these accounts was restricted. At June 30, 2014, as we had a net gain position in our coffee-related derivative margin accounts, none of the cash in these accounts was restricted. 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 on the basis of current operations, excluding the Corporate Relocation Plan. Capital expenditures related to the Corporate Relocation Plan in excess of the proceeds from the anticipated sale of our Torrance facility are expected to be funded through cash flows from operations and additional debt, which will result in higher interest expense. Our existing credit facility expires in March 2015. We may be unable to extend or replace this credit facility on terms acceptable to us, or at all.

We generate cash from operating activities primarily from cash collections related to the sale of our products. Net cash provided by operating activities was $2.4 million in the six months ended December 31, 2014 compared to net cash provided by operating activities of $20.4 million in the six months ended December 31, 2013. Net cash provided by operating activities in the six months ended December 31, 2014 was due to lower net income, in addition to a higher level of cash outflows from operating activities primarily from payments of accounts payable balances and payroll expenses including accrued bonuses, and from increase in accounts receivable balances. In the six months ended December 31, 2013, net cash provided by operating activities resulted from a higher net income along with lower cash outflows for payments of accounts payable and payroll expenses and from a decrease in trade receivable balances. In addition, timing differences between the receipt or payment of cash and recognition of the related net gains (losses) from derivative instruments contributed to the differences in cash from operations in the reported periods. In the six months ended December 31, 2014, non-cash net gains from derivative instruments contributed to the reduction in cash flows from operations. In the six months ended December 31, 2013, non-cash net losses from derivative instruments contributed to the cash inflows from operations.

Net cash used in investing activities was $9.3 million in the six months ended December 31, 2014 compared to $11.8 million in the six months ended December 31, 2013. Net cash used in investing activities in the six months

24

ended December 31, 2014 included $9.4 million for purchases of property, plant and equipment offset by proceeds from sales of assets of $0.1 million compared to $12.1 million for purchases of property, plant and equipment offset by proceeds from sales of assets of $0.3 million in the six months ended December 31, 2013.

Net cash used in financing activities was $0.4 million in the six months ended December 31, 2014 compared to $3.4 million in the six months ended December 31, 2013. Net cash used in financing activities in the six months ended December 31, 2014 included net borrowings on our credit facility of $1.0 million, compared to net repayments of $1.8 million in the six months ended December 31, 2013. Proceeds from stock option exercises during the six months ended December 31, 2014 were $0.6 million compared to $0.1 million in the six months ended December 31, 2013. Net cash used in financing activities in the six months ended December 31, 2014 included $0.1 million in tax withholding payments related to net share settlement of equity awards.

In the six months ended December 31, 2014, we capitalized $9.4 million in property, plant and equipment purchases which included $5.8 million in expenditures to replace normal wear and tear of coffee brewing equipment, $0.5 million in building and facility improvements, $2.9 million in expenditures for vehicles, and machinery and equipment, and $0.2 million in information technology related expenditures.

Our expected capital expenditures for fiscal 2015 include expenditures to replace normal wear and tear of coffee brewing equipment, vehicles, machinery and equipment, and expected capital expenditures related to the Corporate Relocation Plan and will exceed our fiscal 2014 levels.

Our working capital is composed of the following: 

(In thousands)	December 31, 2014		June 30, 2014
Current assets	$	151,160	$	157,460
Current liabilities	72,021		76,870
Working capital(1)	$	79,139	$	80,590

____________

(1) Includes in $3.7 million in short-term derivative liabilities at December 31, 2014 and $5.2 million in short-term derivative assets at June 30, 2014.

Contractual Obligations

As of December 31, 2014, we had committed to purchasing green coffee inventory totaling $16.4 million under fixed-price contracts and other inventory totaling $6.6 million under non-cancelable purchase orders.

Results of Operations

Net sales in the three months ended December 31, 2014 increased $1.7 million, or 1.2%, to $144.8 million from $143.1 million in the three months ended December 31, 2013. Net sales in the six months ended December 31, 2014 increased $8.1 million, or 3.0%, to $280.8 million from $272.7 million in the six months ended December 31, 2013. The increase in net sales in the three and six months ended December 31, 2014 included $0.8 million and $0.6 million, respectively, in price increases to customers utilizing commodity-based pricing arrangements, where the changes in the green coffee commodity costs are passed on to the customer. The change in net sales in the three and six months ended December 31, 2014 as compared to the same period in the prior fiscal year was due to the following:

(In millions)	Three Months Ended December 31, 2014 vs. December 31, 2013			Six Months Ended December 31, 2014 vs. December 31, 2013
Effect of change in unit sales	$	(3.4	)	$	2.4
Effect of pricing and product mix changes	5.1			5.7
Total increase in net sales	$	1.7		$	8.1

Unit sales decreased (2)% in the three months ended December 31, 2014 as compared to the same period in the prior fiscal year primarily due to decreases in unit sales of our coffee, culinary, spice and other beverage products, offset, in part, by an increase in unit sales of our iced and hot tea products. In the three months ended December 31, 2014, we processed and sold approximately 23.1 million pounds of green coffee as compared to approximately 23.8 million pounds of green coffee processed and sold in the same period of the prior fiscal year.

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There were no new product category introductions in the three months ended December 31, 2014 or 2013 which had a material impact on our net sales.

Unit sales increased 1% in the six months ended December 31, 2014 as compared to the same period in the prior fiscal year primarily due to increases in unit sales of our coffee, iced and hot tea, spice and other beverage products, offset, in part, by a decrease in unit sales of our frozen coffee and culinary products. In the six months ended December 31, 2014, we processed and sold approximately 45.9 million pounds of green coffee as compared to approximately 45.1 million pounds of green coffee processed and sold in the same period of the prior fiscal year. There were no new product category introductions in the six months ended December 31, 2014 or 2013 which had a material impact on our net sales.

The following tables present net sales aggregated by product category for the respective periods indicated:

	Three Months Ended December 31,
	2014				2013
(In thousands)	$		% of total		$		% of total
Net Sales by Product Category:
Coffee (Roast & Ground)	$	89,259	62	%	$	87,087	61	%
Coffee (Frozen)	9,766		7	%	10,187		7	%
Tea (Iced & Hot)	6,984		5	%	6,806		5	%
Culinary	13,971		9	%	14,720		10	%
Spice	8,002		5	%	8,040		5	%
Other beverages(1)	15,880		11	%	15,311		11	%
Net sales by product category	143,862		99	%	142,151		99	%
Fuel surcharge	947		1	%	978		1	%
Net sales	$	144,809	100	%	$	143,129	100	%

____________

(1) Includes all beverages other than coffee and tea.

	Six Months Ended December 31,
	2014				2013
(In thousands)	$		% of total		$		% of total
Net Sales by Product Category:
Coffee (Roast & Ground)	$	173,524	62	%	$	166,243	61	%
Coffee (Frozen)	18,860		7	%	19,207		7	%
Tea (Iced & Hot)	14,207		5	%	13,791		5	%
Culinary	27,647		10	%	29,418		11	%
Spice	16,104		5	%	15,970		6	%
Other beverages(1)	28,539		10	%	26,083		9	%
Net sales by product category	278,881		99	%	270,712		99	%
Fuel surcharge	1,912		1	%	1,946		1	%
Net sales	$	280,793	100	%	$	272,658	100	%

____________

(1) Includes all beverages other than coffee and tea.

Cost of goods sold in the three months ended December 31, 2014 increased $2.9 million, or 3.3%, to $91.7 million, or 63.3% of net sales, from $88.8 million, or 62.0% of net sales, in the three months ended December 31, 2013. The increase in cost of goods sold in the three months ended December 31, 2014 was primarily due to a 43% increase in the average cost of green coffee purchased. Cost of goods sold in the six months ended December 31, 2014 increased $9.2 million, or 5.4%, to $179.5 million, or 63.9% of net sales, from $170.3 million, or 62.5% of net sales, in the six months ended December 31, 2013. The increase in cost of goods sold in the six months ended December 31, 2014 was primarily due to a 35% increase in the average cost of green coffee purchased. In addition, we recorded the cost of the remainder of our green coffee shipments that we received in the six months ended

26

December 31, 2014, for which the corresponding large marked-to-market hedging gains were recognized in our prior fiscal year. Cost of goods sold in the three and six months ended December 31, 2014 included $5.1 million and $9.8 million, respectively, in coffee-related derivative gains reclassified into cost of goods sold to match the cash flow hedged coffee purchases in cost of goods sold. Cost of goods sold in the three and six months ended December 31, 2013 included $(3.7) million and $(6.0) million, respectively, in coffee-related derivative losses reclassified into cost of goods sold to match the cash flow hedged coffee purchases in cost of goods sold.

We anticipate our inventory levels at June 30, 2015 will decrease from June 30, 2014 levels, and, therefore, recorded $2.2 million and $2.5 million in expected beneficial effect of LIFO inventory liquidation in cost of goods sold in the three and six months ended December 31, 2014, respectively. Cost of goods sold in the three and six months ended December 31, 2013 did not include any expected beneficial effect of the liquidation of LIFO inventory quantities.

Gross profit in the three months ended December 31, 2014 decreased $(1.3) million, or (2.3)%, to $53.1 million from $54.4 million in the three months ended December 31, 2013, primarily due to the 43% increase in the average cost of green coffee purchased, partially offset by the increase in net sales. Gross profit in the six months ended December 31, 2014 decreased $(1.1) million, or (1.1)%, to $101.3 million from $102.4 million in the six months ended December 31, 2013, primarily due to the 35% increase in the average cost of green coffee purchased, partially offset by the increase in net sales. Gross margin decreased to 36.7% and 36.1%, respectively, in the three and six months ended December 31, 2014 from 38.0% and 37.5%, respectively, in the three and six months ended December 31, 2013, primarily due to the higher average cost of green coffee purchased.

In the three months ended December 31, 2014, operating expenses increased $0.9 million to $49.6 million, or 34.3% of net sales, as compared to $48.7 million, or 34.0% of net sales, in the three months ended December 31, 2013. Operating expenses in the three months ended December 31, 2014 increased primarily due to a $1.3 million increase in selling expenses and a $0.1 million increase in net losses from sales of assets, primarily real estate, offset by a $(0.5) million decrease in general and administrative expenses, as compared to the three months ended December 31, 2013. The increase in operating expenses in the three months ended December 31, 2014 was primarily due to the presence of restructuring and other transition expenses attributable to the Corporate Relocation Plan consisting primarily of consulting and legal expenses as compared to the same period in the prior fiscal year.

In the six months ended December 31, 2014, operating expenses increased $1.5 million to $95.2 million, or 33.9% of net sales, as compared to $93.7 million, or 34.4% of net sales, in the six months ended December 31, 2013. Operating expenses in the six months ended December 31, 2014 increased primarily due to a $3.1 million increase in selling expenses and a $0.3 million increase in net losses from sales of assets, primarily real estate, offset, in part, by a $(2.0) million decrease in general and administrative expenses, as compared to the six months ended December 31, 2013. The increase in selling expenses in the six months ended December 31, 2014 was primarily due to an increase in salaries-related expenses and freight charges, as compared to the same period in the prior fiscal year. The decrease in general and administrative expenses in the six months ended December 31, 2014 was primarily due to the absence of expenses related to the restatement of certain prior period financial statements and the absence of intangible assets amortization expense, partially offset by an increase in retiree medical expenses, ESOP expenses and the presence of restructuring and other transition expenses attributable to the Corporate Relocation Plan consisting primarily of consulting and legal expenses, as compared to the same period in the prior fiscal year.

Income from operations in the three months ended December 31, 2014 decreased to $3.5 million from $5.7 million in the three months ended December 31, 2013, primarily due to lower gross profit and higher selling expenses partially offset by lower general and administrative expenses. Income from operations in the six months ended December 31, 2014 decreased to $6.1 million from $8.7 million in the six months ended December 31, 2013, primarily due to lower gross profit and higher selling expenses partially offset by lower general and administrative expenses.

Total other expense in the three months ended December 31, 2014 and 2013 was $(0.4) million and $(0.5) million, respectively. Total other expense in the three months ended December 31, 2014 included net losses from coffee-related derivative instruments of $(0.7) million, partially offset by the reduction in interest expense, whereas, total other expense in the three months ended December 31, 2013 included $(0.4) million in interest expense, partially offset by lower net losses on coffee-related derivative instruments. Total other expense in the six months ended December 31, 2014 and 2013 was $(0.2) million and $(1.4) million, respectively. The decrease in total other expense in the six months ended December 31, 2014 compared to the same period in the prior fiscal year was primarily due to a decrease in net losses from our coffee-related derivative instruments and a decrease in interest expense.

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Net losses from coffee-related derivative instruments recorded in "Other, net" in the three months ended December 31, 2014 included $(0.8) million in net losses from coffee-related derivative instruments not designated as accounting hedges, and $(0.1) million in net losses from coffee-related derivative instruments designated as cash flow hedges due to ineffectiveness. Net losses from coffee-related derivative instruments recorded in "Other, net" in the six months ended December 31, 2014 included $(0.7) million in net losses from coffee-related derivative instruments not designated as accounting hedges, and $(0.2) million in net losses from coffee-related derivative instruments designated as cash flow hedges due to ineffectiveness.

In the three and six months ended December 31, 2014, we recorded income tax expense of $0.3 million and $0.5 million, respectively, compared to $0.4 million and $0.7 million, respectively, in the three and six months ended December 31, 2013.

As of June 30, 2014, our valuation allowance was $72.6 million. In the three months ended December 31, 2014, we decreased our valuation allowance by $1.2 million to $70.4 million. We will continue to monitor our cumulative three-year loss position together with all other available evidence, both positive and negative, in determining whether it is more likely than not that we will realize our net deferred tax assets. If we continue to be profitable, we may have enough positive evidence to release part or all of our valuation allowance against our net deferred tax assets during the second half of fiscal 2015.

As a result of the foregoing factors, net income in the three months ended December 31, 2014 was $2.9 million, or $0.18 per diluted common share, compared to $4.7 million, or $0.29 per diluted common share, in the three months ended December 31, 2013. Net income in the six months ended December 31, 2014 was $5.4 million, or $0.33 per diluted common share, compared to $6.5 million, or $0.41 per diluted common share, in the six months ended December 31, 2013.

Non-GAAP Financial Measures

In addition to net income determined in accordance with GAAP, we use certain non-GAAP financial measures, including “Adjusted EBITDA,” "Adjusted EBITDA Margin," "Net income excluding restructuring and other transition expenses" and "Net income excluding restructuring and other transition expenses per common share—diluted" in assessing our operating performance. We believe these non-GAAP financial measures provide a useful measure of the Company’s operating results, a meaningful comparison with historical results and with the results of other companies, and insight into the Company's ongoing operating performance. Further, management utilizes these measures, in addition to GAAP measures, when evaluating and comparing the Company's operating performance against internal financial forecasts and budgets.

We define “Adjusted EBITDA” as net income (loss) excluding the impact of income taxes, interest expense, depreciation and amortization expense, ESOP and share-based compensation expense, non-cash impairment losses, non-cash pension withdrawal expense, other similar non-cash expenses and, beginning in the quarter ended December 31, 2014, restructuring and other transition expenses associated with the Corporate Relocation Plan. Restructuring and other transition expenses are expenses that are directly attributable to the Corporate Relocation Plan, consisting primarily of consulting and legal expenses in the three and six months ended December 31, 2014. We have excluded these restructuring and other transition expenses because we believe they are not reflective of our ongoing operating results. We define “Adjusted EBITDA Margin” as Adjusted EBITDA expressed as a percentage of net sales. We define “Net income excluding restructuring and other transition expenses” as net income excluding restructuring and other transition expenses associated with the Corporate Relocation Plan, net of tax. We define “Net income excluding restructuring and other transition expenses per common share—diluted” as net income excluding restructuring and other transition expenses divided by the weighted-average number of common shares outstanding, inclusive of the dilutive effect of common equivalent shares outstanding during the period.

Adjusted EBITDA, Adjusted EBITDA Margin, Net income excluding restructuring and other transition expenses and Net income excluding restructuring and other transition expenses per common share—diluted, 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.

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Set forth below is a reconciliation of reported net income to Adjusted EBITDA (unaudited): 

	Three Months Ended December 31,						Six Months Ended December 31,
($ in thousands)	2014			2013			2014			2013
Net income, as reported(1)	$	2,896		$	4,709		$	5,411		$	6,514
Income tax expense	252			402			450			709
Interest expense	208			393			415			765
Depreciation and amortization expense	6,163			7,054			12,419			14,478
ESOP and share-based compensation expense	1,622			1,230			2,880			2,134
Restructuring and other transition expenses	784			—			974			—
Adjusted EBITDA(1)	$	11,925		$	13,788		$	22,549		$	24,600
Adjusted EBITDA Margin	8.2		%	9.6		%	8.0		%	9.0		%

__________

(1) Includes $2.2 million and $0 in expected beneficial effect of liquidation of LIFO inventory quantities in cost of goods sold in the three months ended December 31, 2014 and 2013, respectively. Includes $2.5 million and $0 in expected beneficial effect of liquidation of LIFO inventory quantities in cost of goods sold in the six months ended December 31, 2014 and 2013, respectively.

Set forth below is a reconciliation of reported net income to Net income excluding restructuring and other transition expenses and reported net income per common share—diluted to Net income excluding restructuring and other transition expenses per common share—diluted (unaudited):

	Three Months Ended December 31,				Six Months Ended December 31,
($ in thousands)	2014		2013		2014		2013
Net income, as reported(1)	$	2,896	$	4,709	$	5,411	$	6,514
Restructuring and other transition expenses, net of tax of zero(2)	784		—		974		—
Net income excluding restructuring and other transition expenses	$	3,680	$	4,709	$	6,385	$	6,514
Net income per common share—diluted, as reported	$	0.18	$	0.29	$	0.33	$	0.41
Impact of restructuring and other transition expenses, net of tax of zero(2)	$	0.05	$	—	$	0.06	$	—
Net income excluding restructuring and other transition expenses per common share—diluted	$	0.23	$	0.29	$	0.39	$	0.41

____________

(1) Includes $2.2 million and $0 in expected beneficial effect of liquidation of LIFO inventory quantities in cost of goods sold in the three months ended December 31, 2014 and 2013, respectively. Includes $2.5 million and $0 in expected beneficial effect of liquidation of LIFO inventory quantities in cost of goods sold in the six months ended December 31, 2014 and 2013, respectively.

(2) The impact of restructuring and other transition expenses on income tax expense was not material.

Item 3. 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 may enter into “short positions” in futures contracts on U.S. Treasury securities or hold put options on such futures contracts to reduce the impact of certain interest rate changes. 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

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depends on, among other items, the specific maturity and issuer redemption provisions for each preferred stock held, the slope of the U.S. 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 our preferred securities holdings and market yield and price relationships at December 31, 2014. This table is predicated on an “instantaneous” change in the general level of interest rates and assumes predictable relationships between the prices of our preferred securities holdings and the yields on U.S. Treasury securities. At December 31, 2014, we had no futures contracts or put options with respect to our preferred securities portfolio designated as interest rate risk hedges.

($ in thousands)	Market Value of Preferred Securities at  December 31, 2014		Change in  Market Value
Interest Rate Changes
–150 basis points	$	24,626	$	939
–100 basis points	$	24,380	$	693
Unchanged	$	23,687	$	—
+100 basis points	$	22,831	$	(856	)
+150 basis points	$	22,399	$	(1,288	)

The Loan Agreement for our revolving credit facility provides for interest rates based on modified Monthly Average Excess Availability levels with a range of PRIME + 0% to PRIME + 0.50% or Adjusted Eurodollar Rate + 1.75% to Adjusted Eurodollar Rate + 2.25%. Effective December 1, 2012, we entered into an interest rate swap transaction utilizing a notional amount of $10.0 million and a maturity date of March 1, 2015. We entered into the swap transaction to effectively fix the future interest rate during the applicable period on a portion of our borrowings under our revolving credit facility. We terminated the swap transaction on March 5, 2014. As of December 31, 2014, we had no interest rate swap transactions in place.

We did not designate our interest rate swap as an accounting hedge and recorded the gain or loss from changes in fair value of the interest rate swap in "Other, net" in our consolidated statements of operations. In the three and six months ended December 31, 2013, we recorded a gain of $2,000 and a loss of $(4,000), respectively, for the change in fair value of our interest rate swap. No such gain or loss was recorded in the three and six months ended December 31, 2014.

As of December 31, 2014, we had outstanding borrowings of $1.3 million, utilized $11.2 million of the letters of credit sublimit, and had excess availability under the credit facility of $62.5 million. The weighted average interest rate on our outstanding borrowings under the credit facility at December 31, 2014 was 1.91%.

Commodity Price Risk

We are exposed to commodity price risk arising from changes in the market price of green coffee. We value green coffee inventory on the 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.

We purchase exchange traded coffee derivative instruments to enable us to lock in the price of green coffee commodity purchases, typically three months in advance of the delivery date. These derivative instruments also may be entered into at the direction of the customer under commodity-based pricing arrangements to effectively lock in the purchase price of green coffee under such customer arrangements, in certain cases up to 18 to 24 months or longer in the future. We account for certain coffee-related derivative instruments as accounting hedges in order to minimize the volatility created in our quarterly results from utilizing these derivative contracts and to improve comparability between reporting periods.

When we designate coffee-related derivative instruments as cash flow hedges, we formally document the hedging instruments and hedged items, and measure at each balance sheet date the effectiveness of our hedges. The effective portion of the change in fair value of the derivative is reported as AOCI and subsequently reclassified into cost of goods sold in the period or periods when the hedged transaction affects earnings. In the three months ended December 31, 2014 and 2013, we reclassified $5.1 million in net gains and $(3.7) million in net losses, respectively, into cost of goods sold from AOCI. Any ineffective portion of the derivative's change in fair value is recognized currently in “Other, net.” Gains or losses deferred in AOCI associated with terminated derivative instruments, derivative instruments that cease to be highly effective hedges, derivative instruments for which the forecasted transaction is reasonably possible but no longer probable of occurring, and cash

30

flow hedges that have been otherwise discontinued remain in AOCI until the hedged item affects earnings. If it becomes probable that the forecasted transaction designated as the hedged item in a cash flow hedge will not occur, we recognize any gain or loss deferred in AOCI in “Other, net” at that time. In each of the three months ended December 31, 2014 and 2013, we recognized in "Other, net" $(0.1) million in net losses on coffee-related derivative instruments designated as cash flow hedges due to ineffectiveness. In the six months ended December 31, 2014 and 2013, we recognized in "Other, net" $(0.2) million and $(0.7) million, respectively, in net losses on coffee-related derivative instruments designated as cash flow hedges due to ineffectiveness.

For derivative instruments that are not designated in a hedging relationship, and for which the normal purchases and normal sales exception has not been elected, the changes in fair value are reported in “Other, net.”

In the three months ended December 31, 2014 and 2013, we recorded net losses from coffee-related derivative instruments not designated as accounting hedges in "Other, net" in the amounts of $(0.8) million and $(0.2) million, respectively. In the six months ended December 31, 2014 and 2013, we recorded net losses from coffee-related derivative instruments not designated as accounting hedges in "Other, net" in the amounts of $(0.7) million and $(0.5) million, respectively.

The following table summarizes the potential impact as of December 31, 2014 to net income and OCI from a hypothetical 10% change in coffee commodity prices. The information provided below relates only to the coffee-related derivative instruments and does not include, when applicable, the corresponding changes in the underlying hedged items:

(In thousands)	Increase (Decrease) to Net Income					Increase (Decrease)  to OCI
	10% Increase in Underlying Rate		10% Decrease in Underlying Rate			10% Increase in Underlying Rate		10% Decrease in Underlying Rate
Coffee-related derivative instruments(1)	$	604	$	(604	)	$	4,812	$	(4,812	)

__________

(1) The Company’s purchase contracts that qualify as normal purchases include green coffee purchase commitments for which the price has been locked in as of December 31, 2014. These contracts are not included in the sensitivity analysis above as the underlying price has been fixed.

Item 4. 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 and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

As of December 31, 2014, our management, with the participation of our Chief Executive Officer 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 on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

Management has determined that 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 December 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

On August 31, 2012, the Council for Education and Research on Toxics (“CERT”) filed an amendment to a private enforcement action adding a number of companies as defendants, including CBI, which sell coffee in California. The suit alleges that the defendants have failed to issue clear and reasonable warnings in accordance with the California Safe Drinking Water and Toxic Enforcement Act of 1986 (commonly known as “Proposition 65”) that the coffee they produce, distribute and sell contains acrylamide. This lawsuit was filed in Los Angeles Superior Court (the “Court”). CERT has demanded that the alleged violators remove acrylamide from their coffee or provide Proposition 65 warnings on their products and pay $2,500 per day for each and every violation while they are in violation of Proposition 65.

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

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

To date, the pleadings stage of case has been completed. The Court has phased trial so that the “no significant risk level” defense, the First Amendment defense, and the preemption defense will be tried first. Fact discovery and expert discovery on these issues have been completed, and the parties filed trial briefs. The trial for these first phase defenses commenced on September 8, 2014 and completed on November 4, 2014.  Closing arguments for this phase of the trial are scheduled to take place February 26, 2015. At this time, the Company is not able to predict the probability of the outcome or estimate of loss, if any, related to this matter.

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

Item 1A. Risk Factors

The information set forth in this report should be read in conjunction with the risk factor set forth below and the risk factors discussed in Part I, Item 1A of the 2014 10-K.

WE EXPECT TO INCUR SIGNIFICANT COSTS ASSOCIATED WITH THE EXIT FROM OUR TORRANCE, CALIFORNIA FACILITY AND RELOCATION TO A NEW FACILITY. THE CORPORATE RELOCATION PLAN MAY BE UNSUCCESSFUL OR LESS SUCCESSFUL THAN WE PRESENTLY ANTICIPATE AND MAY ADVERSELY AFFECT OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION.

On February 5, 2015, we announced a plan (the “Corporate Relocation Plan”) to close our Torrance, California facility and relocate these operations to a new manufacturing, distribution and corporate headquarters facility, which is expected to affect approximately 350 positions as a result of the Torrance facility closure. We cannot guarantee that we will be successful in implementing the Corporate Relocation Plan in a timely manner or at all, or that such efforts will not interfere with our ability to achieve our business objectives. For example, our restructuring activities could disrupt our ongoing operations, which could adversely affect our ability to deliver products both on a timely basis and in accordance with customer requirements, the effect of which could delay revenues or result in lost business opportunities. Moreover, reductions in force can be difficult to manage, may cause concerns from current and potential customers, suppliers and other third parties with whom we do business which may cause them to delay or curtail doing business with us, may increase the likelihood of key employees leaving the Company or make it more difficult to recruit new employees, and may have an adverse impact on our business. Restructuring

32

efforts have caused and will continue to cause us to incur significant expenses and other costs, including potential impairment losses on our long-lived assets, write-offs of inventory and losses on the disposal of fixed assets. The timing and costs to implement the Corporate Relocation Plan, including completion of the new facility, may exceed our expectations which will interfere with our ability to achieve our business objectives or could cause us to incur indebtedness in amounts in excess of expectations. If we fail to achieve our objectives of the Corporate Relocation Plan, further restructuring may be necessary. The inability to successfully complete the Corporate Relocation Plan could have a material adverse impact on our business, operating results and financial condition.

Item 6. Exhibits

See Exhibit Index.

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SIGNATURES

Pursuant to the requirements 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/ MICHAEL H. KEOWN
	Michael H. Keown
	President and Chief Executive Officer
	(chief executive officer)
	February 9, 2015
By:	/s/ MARK J. NELSON
	Mark J. Nelson
	Treasurer and Chief Financial Officer
	(principal financial and accounting officer)
	February 9, 2015

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EXHIBIT INDEX

3.1	Certificate of Incorporation (filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K filed with the SEC on September 16, 2014 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 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2013 filed with the SEC on February 10, 2014 and incorporated herein by reference).
10.1	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 as Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011 filed with the SEC on September 12, 2011 and incorporated herein by reference).
10.2	Amendment No. 1 to Amended and Restated Loan and Security Agreement, effective January 9, 2012, 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 as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2011 filed with the SEC on February 8, 2012 and incorporated herein by reference).
10.3	Amendment No. 2 to Amended and Restated Loan and Security Agreement, dated as of March 18, 2013, 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 as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 20, 2013 and incorporated herein by reference).
10.4	Amendment No. 3 to Amended and Restated Loan and Security Agreement, dated as of February 28, 2014, 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 as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 5, 2014 and incorporated herein by reference).
10.5	Letter Agreement regarding Waiver of Event of Default, dated October 3, 2013, 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 as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 4, 2013 and incorporated herein by reference).
10.6	ISDA Master Agreement, dated as of November 19, 2012, by and between Farmer Bros. Co. and Wells Fargo Bank, N.A. (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on November 26, 2012 and incorporated herein by reference).
10.7	Schedule to the ISDA Master Agreement, dated as of November 19, 2012, by and between Farmer Bros. Co. and Wells Fargo Bank, N.A. (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on November 26, 2012 and incorporated herein by reference).

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10.8	Farmer Bros. Co. Pension Plan for Salaried Employees (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 filed with the SEC on November 5, 2012 and incorporated herein by reference).*
10.9	Amendment No. 1 to Farmer Bros. Co. Retirement Plan effective June 30, 2011 (filed as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011 filed with the SEC on September 12, 2011 and incorporated herein by reference).*
10.10	Action of the Administrative Committee of the Farmer Bros. Co. Qualified Employee Retirement Plans amending the Farmer Bros. Co. Retirement Plan, effective as of December 6, 2012 (filed as Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 filed with the SEC on May 6, 2013 and incorporated herein by reference).*
10.11	Farmer Bros. Co. 2005 Incentive Compensation Plan (filed as Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2013 filed with the SEC on February10, 2014 and incorporated herein by reference).*
10.12	Amendment to 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 December 10, 2014 and incorporated herein by reference).*
10.13	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).*
10.14	Action of the Administrative Committee of the Farmer Bros. Co. Qualified Employee Retirement Plans amending the Farmer Bros. Co. Amended and Restated Employee Stock Ownership Plan, effective as of January 1, 2012 (filed as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012 filed with the SEC on September 7, 2012 and incorporated herein by reference).*
10.15	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).
10.16	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).
10.17	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).
10.18	Employment Agreement, dated March 9, 2012, by and between Farmer Bros. Co. and Michael H. Keown (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 13, 2012 and incorporated herein by reference).*
10.19	Consulting Services Agreement, effective as of March 1, 2013, 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 February 28, 2013 and incorporated herein by reference).*
10.20	Letter Agreement by and between Farmer Bros. Co. and Jeffrey A. Wahba (filed as Exhibit 10.7 to the Company's Current Report on Form 8-K filed with the SEC on April 4, 2013 and incorporated herein by reference).*

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10.21	Employment Agreement, dated as of April 1, 2013, by and between Farmer Bros. Co. and Mark J. Nelson (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on April 4, 2013 and incorporated herein by reference).*
10.22	Amendment No. 1 to Employment Agreement, dated as of January 1, 2014, by and between Farmer Bros. Co. and Mark J. Nelson (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on March 5, 2014 and incorporated herein by reference).*
10.23	Employment Agreement, dated as of April 4, 2012, by and between Farmer Bros. Co. and Thomas W. Mortensen (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed with the SEC on April 10, 2012 and incorporated herein by reference).*
10.24	Amendment No. 1 to Employment Agreement, effective as of September 1, 2014, by and between Farmer Bros. Co. and Thomas W. Mortensen (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on October 16, 2014 and incorporated herein by reference).*
10.25	Employment Agreement, dated as of December 2, 2014, by and between Farmer Bros. Co. and Barry C. Fischetto (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on December 5, 2014 and incorporated herein by reference).*
10.26	Separation Agreement, dated as of December 12, 2013, by and between Farmer Bros. Co. and Hortensia R. Gomez (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on December 18, 2013 and incorporated herein by reference).*
10.27	Separation Agreement, dated as of July 16, 2014, by and between Farmer Bros. Co. and Mark A. Harding (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July 17, 2014 and incorporated herein by reference).*
10.28	Farmer Bros. Co. 2007 Omnibus Plan, as amended (as approved by the stockholders at the 2012 Annual Meeting of Stockholders on December 6, 2012) (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on December 12, 2012 and incorporated herein by reference).*
10.29	Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan (as approved by the stockholders at the 2013 Annual Meeting of Stockholders on December 5, 2013) (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on December 11, 2013 and incorporated herein by reference).*
10.30	Addendum to Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan (filed herewith).*
10.31	Form of Farmer Bros. Co. 2007 Omnibus Plan Stock Option Grant Notice and Stock Option Agreement (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 4, 2013 and incorporated herein by reference).*
10.32	Form of Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan Stock Option Grant Notice and Stock Option Agreement (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on December 18, 2013 and incorporated herein by reference).*
10.33	Form of Farmer Bros. Co. 2007 Omnibus Plan Restricted Stock Award Grant Notice and Restricted Stock Award Agreement (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on April 4, 2013 and incorporated herein by reference).*
10.34	Form of Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan Restricted Stock Award Grant Notice and Restricted Stock Award Agreement (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed with the SEC on December 18, 2013 and incorporated herein by reference).*
10.35	Stock Ownership Guidelines for Directors and Executive Officers (filed as Exhibit 10.32 to the Company's Quarterly Report on Form 10-Q filed with the SEC on November 10, 2014 and incorporated herein by reference).*
10.36	Form of Target Award Notification Letter (Fiscal 2014) 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 October 15, 2013 and incorporated herein by reference).*

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10.37	Form of Award Letter (Fiscal 2014) 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 17, 2014 and incorporated herein by reference).*
10.38	Form of Target Award Notification Letter (Fiscal 2015) 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 September 17, 2014 and incorporated herein by reference).*
10.39	Form of Change in Control Severance Agreement for Executive Officers of the Company (with schedule of executive officers attached) (filed herewith).*
10.40	Form of Indemnification Agreement for Directors and Officers of the Company, as adopted on December 5, 2013 (with schedule of indemnitees attached) (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on December 5, 2014 and incorporated herein by reference).*
31.1	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).
31.2	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).
32.1	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).
32.2	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).
101	The following financial statements from the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2014, formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive (Loss) Income, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements (furnished herewith).

________________

* Management contract or compensatory plan or arrangement.

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EX-10.30

Exhibit 10.30

ADDENDUM REGARDING CASH-BASED AWARDS

TO THE

FARMER BROS. CO.

AMENDED AND RESTATED 2007 LONG-TERM INCENTIVE PLAN

(Effective December 5, 2014)

The Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan was approved by the Company’s stockholders at its 2013 annual meeting (the “Plan”). The purpose of this Addendum to the Plan is to further define cash-based awards or other incentives payable in cash, which is permitted under Section 2.2 of the Plan, by setting forth provisions adding phantom stock units as a method of providing a cash-based but equity-related incentive to key employees of the Company and its Board members, in order to provide the Administrator with more flexibility. The Addendum, as set forth in the paragraphs below, will become effective on the date on which it is approved by the Board of Directors.

The following Addendum is hereby added to, and attached at the end of, the Plan:

ADDENDUM TO THE

AMENDED AND RESTATED 2007 LONG-TERM INCENTIVE PLAN

PHANTOM STOCK UNITS

Phantom Stock Units. The Administrator is authorized to make Awards of Phantom Stock Units (as defined below) to any Eligible Individual selected by the Administrator in such amounts and subject to such terms and conditions as determined by the Administrator. At the time the Award is granted, the Administrator may specify the date or dates on which the Phantom Stock Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate. Alternatively, the Administrator may in its discretion specify one or more Performance Goals, or other specific performance goals, the satisfaction of which shall cause the Phantom Stock Units to become fully vested and nonforfeitable. The Administrator may accelerate the vesting of any Award in the event of a Participant’s Termination of Employment or Termination of Directorship, or a Change in Control. “Phantom Stock Unit” means a right to receive a cash payment as set forth in this Addendum. The definition of “Award” set forth in Section 2.2 of the Plan shall also include any Phantom Stock Unit award.

Cash Payments. At the time the Award is granted, the Administrator shall specify the payment date or dates applicable to each Award of Phantom Stock Units which shall be no earlier than the vesting date or dates of the Award. On the payment date, the Company shall pay a cash amount to the Participant for each Phantom Stock Unit that is vested and scheduled to be distributed on such date and not previously forfeited. The cash payment for each Phantom Stock Unit that is vested and payable shall equal the Fair Market Value on the payment date of a share of Stock. The total of such cash payments to any Participant during a calendar year shall be subject to the limitation set forth in Section 3.3 of the Plan.

Award Agreements. Each Award of Phantom Stock Units shall be evidenced by a written Award Agreement satisfying the requirements stated in this Addendum, and also satisfying Section 7 of the Plan to the extent the Award is intended to constitute a Qualified Performance-Based Award.

-1-    

EX-10.39

Exhibit 10.39

[FORM OF EXECUTIVE OFFICER]

CHANGE IN CONTROL SEVERANCE AGREEMENT

THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (this “Agreement”), effective as of , (the “Effective Date”), is made by and between FARMER BROS. CO., a Delaware corporation (the “Company”), and (the “Executive”).

WHEREAS, the Company considers it essential to foster the continued employment of well qualified, senior executive management personnel; and

WHEREAS, the Company has determined that appropriate steps should be taken to foster such continued employment by setting forth the benefits and compensation to be awarded to such personnel in the event of a voluntary or involuntary termination within the meaning of this Agreement; and

WHEREAS, the Company further recognizes that the possibility of a Change in Control of the Company exists and that such possibility, and the uncertainty and questions that it may raise among executive management, may result in the departure or distraction of executive personnel to the detriment of the Company; and

WHEREAS, the Company has further determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company’s executive management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control;

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows:

1.    Term of Agreement. The term of this Agreement shall commence as of the date hereof and expire on the close of business on , 20; provided, however, that (i) commencing on January 1, and each January 1 thereafter, the term of this Agreement will automatically be extended for an additional year unless, not later than September 30 of the immediately preceding year, the Company (provided no Change in Control has occurred and no Threatened Change in Control is pending) or the Executive shall have given notice that it or the Executive, as the case may be, does not wish to have the Term extended; (ii) if, prior to a Change in Control, the Executive ceases for any reason to be an employee of the Company, thereupon without further action the Term shall be deemed to have expired and this Agreement will immediately terminate and be of no further effect.

2.    Definitions

(a)    “Base Salary” shall mean the Executive’s salary, which excludes Bonuses, at the rate in effect when an event triggering benefits under Section 3 of this Agreement occurs.

(b)    “Beneficial Owner” or “Beneficial Ownership” shall have the meaning ascribed to such term in Rule 13d-3 of the Exchange Act.

(c)    “Board” or “Board of Directors” shall mean the Board of Directors of Farmer Bros. Co., or its successor.

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(d)    “Bonus(es)” shall mean current cash compensation over and above Base Salary whether awarded under the Company’s Incentive Compensation Plan or otherwise awarded.

(e)    “Cause” shall mean:

(i)    the Executive’s material fraud, malfeasance, or gross negligence, willful and material neglect of Executive’s employment duties or Executive’s willful and material misconduct with respect to business affairs of the Company or any subsidiary of the Company or

(ii)    Executive’s conviction of or failure to contest prosecution for a felony or a crime involving moral turpitude.

A termination of Executive for “Cause” based on clause (i) of the preceding sentence can be made only by delivery to Executive of a resolution duly adopted by the affirmative vote of not less than three quarters of the Board then in office at a meeting of the Board called and held for such purpose, after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive’s counsel (if the Executive chooses to have counsel present at such meeting), to be heard before the Board, finding that, in the good faith opinion of the Board, the Executive had committed an act constituting “Cause” as herein defined and specifying the particulars thereof in detail.  Nothing herein will limit the right of the Executive or [his/her] beneficiaries to contest the validity or propriety of any such determination.   A termination for Cause based on clause (ii) above shall take effect immediately upon giving of the termination notice. No act or omission shall be deemed “willful” if it was due primarily to an error in judgment or ordinary negligence.

(f)    “Change in Control” shall mean:

(i)    An acquisition by any Person (as such term is defined in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof) of Beneficial Ownership of the Shares then outstanding (the “Company Shares Outstanding”) or the voting securities of the Company then outstanding entitled to vote generally in the election of directors (the “Company Voting Securities Outstanding”), if such acquisition of Beneficial Ownership results in the Person beneficially owning (within the meaning of Rule 13d-3 promulgated under the Exchange Act) fifty percent (50%) or more of the Company Shares Outstanding or fifty percent (50%) or more of the combined voting power of the Company Voting Securities Outstanding; excluding, however, any such acquisition by a trustee or other fiduciary holding such Shares under one or more employee benefit plans maintained by the Company or any of its subsidiaries; or

(ii)    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 (in each case referred to in this Section 2(f) as a “Corporate Transaction”), other than a Corporate Transaction that would result in the outstanding common stock of the Company immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into common stock of the surviving entity or a parent or affiliate thereof) at least fifty percent (50%) of the outstanding common stock of the Company or such surviving entity or parent or affiliate thereof immediately after such Corporate Transaction; provided, however, if the consummation of such Corporate Transaction is subject, at the time of such approval by stockholders, to the consent of any government or governmental agency, the Change in Control shall not occur until the obtaining of such consent (either explicitly or implicitly); or

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(iii)    A change in the composition of the Board such that the individuals who, as of the Effective Date, constitute the Board (such Board shall be hereinafter referred to as the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this Section 2(f) that any individual who becomes a member of the Board subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; but, provided, further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, including any successor to such Rule), or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board, shall not be so considered as a member of the Incumbent Board.

(g)    “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

(h)    “Disability” shall mean the Executive’s inability as a result of physical or mental incapacity to substantially perform [his/her] duties for the Company on a full-time basis for a period of six (6) months.

(i)    “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.

(j)    “Involuntary Termination” shall mean a termination of the Executive’s employment by the Company that occurs for reasons other than for Cause, Disability or death.

(k)    “Threatened Change in Control” shall mean any bona fide pending tender offer for any class of the Company’s outstanding Shares, or any pending bona fide offer to acquire the Company by merger or consolidation, or any other pending action or plan to effect, or which would lead to, a Change in Control of the Company as determined by the Incumbent Board. A Threatened Change in Control Period shall commence on the first day the actions described in the preceding sentence become manifest and shall end when such actions are abandoned or the Change in Control occurs.

(l)    “Shares” shall mean the shares of common stock of the Company.

(m)    “Resignation for Good Reason” shall mean a termination of the Executive’s employment by the Executive due to:

(i)    a significant reduction of the Executive’s responsibilities, duties or authority;

(ii)    a material reduction in the Executive’s Base Salary; or

(iii)    a Company-required material relocation of the Executive’s principal place of employment;

provided, however, that any such condition shall not constitute “Good Reason” unless both (x) the Executive provides written notice to the Company describing the condition claimed to constitute Good Reason in reasonable detail within ninety (90) days of the initial existence of such condition,

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and (y) the Company fails to remedy such condition within thirty (30) days of receiving such written notice thereof; and provided, further, that in all events the termination of the Executive’s employment with the Company shall not be treated as a termination for “Good Reason” unless such termination occurs not more than one (1) year following the initial existence of the condition claimed to constitute “Good Reason.

3.    Events That Trigger Benefits Under This Agreement. The Executive shall be eligible for the compensation and benefits described in Section 4 of this Agreement as follows:

(a)    A Change in Control occurs and Executive’s employment is Involuntarily Terminated or terminated by Resignation for Good Reason within twenty-four (24) months following the occurrence of the Change in Control; or

(b)    A Threatened Change in Control occurs and the Executive’s employment is Involuntarily Terminated or terminated by Resignation for Good Reason during the Threatened Change in Control Period.

4.    Benefits Upon Termination. If the Executive becomes eligible for benefits under Section 3 above, the Company shall pay or provide to the Executive the following compensation and benefits:

(a)    Salary. The Executive will receive as severance an amount equal to [his/her] Base Salary 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, such installments to commence, subject to Section 9(j)(ii), in the month following the month in which the Executive’s Separation from Service occurs. The Executive shall also receive a payment equal to one hundred percent (100%) of the Executive’s target Bonus for the fiscal year in which the date of termination occurs (or, if no target Bonus has been assigned to the Executive as of the date of termination, the average Bonus paid by the Company to the Executive for the last three (3) completed fiscal years or for the number of completed fiscal years that Executive has been in the employ of the Company if fewer than three, prior to the termination date), such payment to be made, subject to Section 9(j)(ii), in a lump sum within thirty (30) days after the end of the Company’s fiscal year in which the Executive’s date of termination occurs. As used herein, a “Separation from Service” occurs when the Executive dies, retires, or otherwise has a termination of employment with the Company that constitutes a “separation from service” within the meaning of Treasury Regulation Section 1.409A-1(h)(1), without regard to the optional alternative definitions available thereunder.

(b)    Qualified and Non-Qualified Plan Coverage. Subject to the eligibility provisions of the plans, the Executive shall 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 Executive’s date of termination unless the Executive commences Employment prior to the end of the twenty four (24) month period, in which case, such participation shall end on the date of [his/her] new employment. The Executive shall inform the Company promptly upon commencing new employment.

(c)    Health, Dental, and Life Insurance Coverage. The health, dental, and life insurance benefits coverage provided to the Executive at [his/her] date of termination shall be continued by the Company during the twenty-four (24) month period following the Executive’s date of termination unless the Executive commences employment prior to the end of the twenty four (24) month period and qualifies for substantially equivalent insurance benefits with the Executive’s new employer , in which case, such insurance coverages shall end on the date of qualification.  The Executive shall inform the Company promptly of [his/her] qualification for any of such insurance coverages.  . The Company shall provide for such insurance coverages at its expense at the same level and in the same manner as if the Executive’s employment had not terminated

4

(subject to the customary changes in such coverages if the Executive retires under a Company retirement plan, reaches age 65, or similar events and subject to Executive’s right to make any changes in such coverages that an active employee is permitted to make). Any additional coverages the Executive 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 Executive was paying for such coverages at the time of termination shall be paid by the Executive by separate check payable to the Company each month in advance. If the terms of any benefit plan referred to in this Section do not permit continued participation by the Executive, the Company will arrange for other coverage at its expense providing substantially similar benefits. If the Executive is covered by a split-dollar or similar life insurance program at the date of termination, [he/she] shall have the option in [his/her] sole discretion to have such policy transferred to him upon termination, provided that the Company is paid for its interest m the policy upon such transfer.

(d)    Outplacement Services. The Company shall provide the Executive with outplacement services by a firm selected by the Executive, at the expense of the Company, in an amount up to $25,000.

(e)    No Mitigation Obligation. The Company hereby acknowledges that it will be difficult and may be impossible for the Executive to find reasonably comparable employment following termination of Executive’s employment by the Company and that the non-solicitation covenant contained in Section 6 may further limit the employment opportunities for the Executive.  Accordingly, the payment of the compensation and benefits by the Company to the Executive in accordance with the terms of this Agreement is hereby acknowledged by the Company to be reasonable, and the Executive will not be required to mitigate the amount of any payment provided for this Agreement by seeking other employment or otherwise, nor will any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of the Executive hereunder or otherwise, except as expressly provided in the first sentence of Section 4(c).

5.    Parachute Payments. Notwithstanding anything contained in this Agreement to the contrary, in the event that the compensation and benefits provided for in this Agreement to Executive together with all other payments and the value of any benefit received or to be received by Executive:

(a)    constitute “parachute payments” within the meaning of Section 280G of the Code, and

(b)    but for this Section, would be subject to the excise tax imposed by Section 4999 of the Code, the Executive’s compensation and benefits pursuant to the terms of this Agreement shall be payable either:

(i)    in full, or

(ii)    in such lesser amount which would result in no portion of such compensation and benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by Executive on an after-tax basis, of the greatest amount of compensation and benefits under this Agreement, notwithstanding that all or some portion of such compensation and benefits may be subject to the excise tax imposed under Section 4999 of the Code.  Unless the Company and Executive otherwise agree in writing, any determination required under this Section 5 shall be made in writing by the Company’s independent public accountants serving immediately before the Change in Control (the “Accountants”), whose determination shall be conclusive and binding upon Executive and the Company

5

for all purposes.  For purposes of making the calculations required by this Section 5, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable good faith interpretations concerning the applications of Section 280G and 4999 of the Code.  The Company shall cause the Accountants to provide detailed supporting calculations of its determination to Executive and the Company.  Executive and the Company shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 5.

6.    Obligation Not to Solicit

(a)    Executive hereby agrees that while Executive is receiving compensation and benefits under this Agreement, Executive shall 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.

(b)    In the event that the Executive engages in any activity in violation of Section 6(a), all compensation and benefits described in Section 4 shall immediately cease.

7.    Confidentiality. The terms of this Agreement are to be of the highest confidentiality. In order to insure and maintain such confidentiality, it is agreed that neither party, including all persons and entities under a party’s control, shall, directly or indirectly, publicize or disclose to third persons the terms of this Agreement or the substance of negotiations with respect to it; provided, however, that nothing herein shall be construed to prevent disclosures which are reasonably necessary to enforce the terms of this Agreement or which are otherwise required by law to be made to governmental agencies or others; moreover, nothing herein shall be construed to prevent the parties hereto, or their attorneys, from making such disclosures for legitimate business purposes to their respective insurers, financial institutions, accountants and attorneys or, in the case of a corporation, limited liability company or partnership, to its respective officers, directors, employees, managers, members and agents or any of its respective subsidiaries, group or divisions, provided that each such recipient of such disclosures agrees to be bound by the requirements concerning disclosure of confidential information as set forth in this Paragraph 7.

8.    Settlement of Disputes; Arbitration

(a)    All disputes arising under or in connection with this Agreement, shall be submitted to binding arbitration in Los Angeles County before an arbitrator selected by mutual agreement of the parties.  If the parties are unable to agree mutually on an arbitrator within thirty (30) days after a written demand for arbitration is made, the matter shall be submitted to JAMS/ENDISPUTE (“JAMS”) or successor organization for binding arbitration in Los Angeles County by a single arbitrator who shall be a former California Superior Court judge.  The arbitrator shall be selected by JAMS in an impartial manner determined by it.  Except as may be otherwise provided herein, the arbitration shall be conducted under the California Arbitration Act, Code of Civil Procedure §1280 et seq.  The parties shall have the discovery rights provided in Code of Civil Procedure §§1283.05 and 1283.1.  The arbitration hearing shall be commenced within ninety (90) days of the appointment of the arbitrator, and a decision shall be rendered by the arbitrator within thirty (30) days of the conclusion of the hearing.  The arbitrator shall have complete authority to render any and all relief, legal and equitable, appropriate under California law, including the award of punitive damages where legally available and warranted.  The arbitrator shall award costs of the proceeding, including reasonable attorneys’ fees, to the party or parties determined to have substantially prevailed, but such award for attorneys’ fees

6

shall not exceed One Hundred Thousand Dollars ($100,000).  Judgment on the award can be entered in a court of competent jurisdiction.

(b)    The foregoing notwithstanding, if the amount in controversy exceeds $200,000, exclusive of attorneys’ fees and costs, the matter shall be litigated in the Los Angeles County Superior Court as a regular civil action except that a former California Superior Court Judge selected by JAMS in an impartial manner shall be appointed as referee to determine, sitting without a jury (a jury being waived by all parties hereto), all issues pursuant to California Code of Civil Procedure §638(1).  Judgment entered on the decision of the referee shall be appealable as a judgment of the Superior Court.  The prevailing party shall be entitled to receive its reasonable attorneys’ fees and costs from the other party, but such award for attorneys’ fees shall not exceed One Hundred Thousand Dollars ($100,000).

9.    Miscellaneous

(a)    Notices. Any notice or other communication required or permitted under this Agreement shall be effective only if it is in writing and shall be deemed to have been duly given when delivered personally or seven days after mailing if mailed first class by registered or certified mail, postage prepaid, addressed as follows:

If to the Company:    Farmer Bros. Co

20333 South Normandie Avenue

Torrance, CA 90502

Attn: Chief Executive Officer

with a copy to:        John M. Anglin, Esq.

Anglin, Flewelling, Rasmussen, Campbell & Trytten LLP

199 South Los Robles Avenue, Suite 600

Pasadena, CA 91101-2459

If to the Executive:    

or to such other address as any party may designate by notice to the others.

(b)    Assignment. This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective executors, administrators, heirs, personal representatives, and successors, but, except as hereinafter provided, neither this Agreement nor any right hereunder may be assigned or transferred by either party thereto, or by any beneficiary or any other person, nor be subject to alienation, anticipation, sale, pledge, encumbrance, execution, levy, or other legal process of any kind against the Executive, [his/her] beneficiary or any other person. Notwithstanding the foregoing, any person or business entity succeeding to substantially all of the business of the Company by purchase, merger, consolidation, sale of assets, or otherwise, shall be bound by and shall adopt and assume this Agreement and the Company shall cause the assumption of this Agreement by such successor. If Executive shall die while any amount would still be payable to Executive hereunder (other than amounts that, by their terms, terminate upon the death of Executive) if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of Executive’s estate.

7

(c)    No Obligation to Fund. The agreement of the Company (or its successor) to make payments to the Executive hereunder shall represent solely the unsecured obligation of the Company (and its successor), except to the extent the Company (or its successors) in its sole discretion elects in whole or in part to fund its obligations under this Agreement pursuant to a trust arrangement or otherwise.

(d)    Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California, without giving effect to conflict of law principles.

(e)    Amendment. This Agreement may only be amended by a written instrument signed by the parties hereto, which makes specific reference to this Agreement.

(f)    Severability. If any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provisions hereof.

(g)    Withholding. The Company shall have the right to withhold any and all local, state and federal taxes which may be withheld in accordance with applicable law.

(h)    Other Benefits. Nothing in this Agreement shall limit or replace the compensation or benefits payable to Executive, or otherwise adversely affect Executive’s rights, under any other benefit plan, program, or agreement to which Executive is a party.

(i)    Employment Rights. Nothing expressed or implied in this Agreement will create any right or duty on the part of the Company or the Executive to have the Executive remain in the employment of the Company or any Subsidiary prior to or following any Change in Control.  [The Company and Executive are parties to an Employment Agreement executed concurrently herewith.  Except as provided in Section 11 of the Employment Agreement, the provisions of the Employment Agreement and this Agreement are cumulative.]

(j)    Section 409A

(i)    It is intended that any amounts payable under this Agreement shall either be exempt from or comply with Section 409A of the Code (including the Treasury regulations and other published guidance relating thereto) (“Code Section 409A”) so as not to subject the Executive to payment of any additional tax, penalty or interest imposed under Code Section 409A. The provisions of this Agreement shall be construed and interpreted to avoid the imputation of any such additional tax, penalty or interest under Code Section 409A yet preserve (to the nearest extent reasonably possible) the intended benefit payable to the Executive.

(ii)    Notwithstanding any provision of this Agreement to the contrary, if the Executive is a “specified employee” within the meaning of Treasury Regulation Section 1.409A-1(i) as of the date of the Executive’s Separation from Service, the Executive shall not be entitled to any payment or benefit pursuant to Section 4 until the earlier of (i) the date which is six (6) months after the Executive’s Separation from Service for any reason other than death, or (ii) the date of the Executive’s death. Any amounts otherwise payable to the Executive upon or in the six (6) month period following the Executive’s Separation from Service that are not so paid by reason of this Section 9(j)(ii) shall be paid (without interest) as soon as practicable (and in all events within thirty (30) days) after the date that is six (6) months after the Executive’s Separation from Service (or, if earlier, as soon as practicable, and in all events within thirty (30)

8

days, after the date of the Executive’s death). The provisions of this Section 9(j)(ii) shall only apply if, and to the extent, required to avoid the imputation of any tax, penalty or interest pursuant to Code Section 409A.

(iii)    To the extent that any benefits or reimbursements pursuant to Section 4(c) or Section 4(d) are taxable to the Executive, any reimbursement payment due to the Executive pursuant to any such provision shall be paid to the Executive on or before the last day of the Executive’s taxable year following the taxable year in which the related expense was incurred. The benefits and reimbursements pursuant to such provisions are not subject to liquidation or exchange for another benefit and the amount of such benefits and reimbursements that the Executive receives in one taxable year shall not affect the amount of such benefits or reimbursements that the Executive receives in any other taxable year.

[SIGNATURES FOLLOW]

9

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officers and the Executive has hereunder set [his/her] hand, as of the date first above written.

Company:                    FARMER BROS. CO.,

a Delaware corporation

By:

Name:

Title:

Executive:

[Name of Executive]

10

SCHEDULE OF EXECUTIVE OFFICERS

Michael H. Keown

Thomas W. Mortensen

Mark J. Nelson

Thomas J. Mattei, Jr.

11

EX-31.1

EXHIBIT 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael H. Keown certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Farmer Bros. Co.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 9, 2015

/S/    MICHAEL H. KEOWN

Michael H. Keown

President and Chief Executive Officer

(principal executive officer)

EX-31.2

EXHIBIT 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Mark J. Nelson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Farmer Bros. Co.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 9, 2015

/S/    MARK J. NELSON

Mark J. Nelson

Treasurer and Chief Financial Officer

(principal financial and accounting officer)

EX-32.1

EXHIBIT 32.1

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Farmer Bros. Co. (the “Company”) on Form 10-Q for the quarterly period ended December 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael H. Keown, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 9, 2015

/S/    MICHAEL H. KEOWN

Michael H. Keown

President and Chief Executive Officer

(principal executive officer)

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Farmer Bros. Co. (the “Company”) on Form 10-Q for the quarterly period ended December 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark J. Nelson, Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a)or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Dated: February 9, 2015

/S/    MARK J. NELSON

Mark J. Nelson

Treasurer and Chief Financial Officer

(principal accounting and financial officer)

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Derivative Financial Instruments - Net Realized and Unrealized Gains and Losses Recorded in "Other, net" (Details) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Derivative Instruments, Gain (Loss) [Line Items]
Net losses on derivative instruments and investments(1)			$ 9,002,000	$ (1,949,000)
Other, net	(530,000)	(514,000)	(594,000)	(1,420,000)
Interest Rate Swap [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Net losses from coffee-related derivative instruments	0
Coffee [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Net losses from coffee-related derivative instruments	(904,000)	(347,000)	(855,000)	(1,195,000)
Net gains (losses) on investments	205,000	(55,000)	15,000	(750,000)
Net losses on derivative instruments and investments(1)	(699,000)	(400,000)	(840,000)	(1,949,000)
Other gains (losses), net	169,000	(114,000)	246,000	529,000
Other, net	(530,000)	(514,000)	(594,000)	(1,420,000)
Coffee [Member] | Interest Rate Swap [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Net gains (losses) on interest rate swap	$ 0	$ 2,000	$ 0	$ (4,000)

XML

Income Taxes - Summary of Income Tax Expense Recorded (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Effective Income Tax Rate, Continuing Operations, Tax Rate Reconciliation [Abstract]
Income before taxes	$ 3,148	$ 5,111	$ 5,861	$ 7,223
Income tax expense at statutory rate	1,070	1,738	1,993	2,456
State income tax expense, net of federal tax benefit	220	374	377	587
Valuation allowance	(1,235)	(1,847)	(2,211)	(2,582)
Other permanent items	197	137	291	248
Income tax expense	$ 252	$ 402	$ 450	$ 709

XML

Bank Loan (Details) (USD $)	3 Months Ended		6 Months Ended		0 Months Ended	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Feb. 28, 2014	Jun. 30, 2014	Jun. 30, 2013	Dec. 01, 2012	Mar. 18, 2013	Jan. 09, 2012
Line of Credit Facility
Notional amount on interest rate swap transaction								$ 10,000,000
Payments to Acquire Property, Plant, and Equipment			9,399,000	12,128,000
Short-term derivative liabilities	3,720,000		3,720,000			0
Short-term derivative assets	0		0			5,153,000
Net sales	144,809,000	143,129,000	280,793,000	272,658,000
Cost of goods sold	91,667,000	88,755,000	179,530,000	170,279,000
Proceeds from sales of property, plant and equipment			142,000	333,000
Proceeds from stock option exercises			644,000	125,000
Interest Expense	208,000	393,000	415,000	765,000
Income tax expense	252,000	402,000	450,000	709,000
Restricted cash	720,000		720,000			0
Cash and cash equivalents	4,746,000	7,864,000	4,746,000	7,864,000		11,993,000	2,678,000
Short-term investments	23,687,000		23,687,000			22,632,000
(Gains) losses on derivative instruments designated as cash flow hedges reclassified to cost of goods sold	(5,132,000)	3,735,000	(9,842,000)	5,954,000
Gain (Loss) on Sale of Investments	(178,000)	(73,000)	(239,000)	50,000
Net income	2,896,000	4,709,000	5,411,000	6,514,000
Net income per common share—diluted	$ 0.18	$ 0.29	$ 0.33	$ 0.41
Revolving Credit Facility
Line of Credit Facility
Current Borrowing Capacity	75,000,000		75,000,000
Amount borrowed	1,300,000		1,300,000
Remaining borrowing capacity	62,500,000		62,500,000
Debt, Weighted Average Interest Rate	1.91%		1.91%
Letter of Credit
Line of Credit Facility
Amount borrowed	11,200,000		11,200,000
Amendment Number 1 [Member] | Revolving Credit Facility
Line of Credit Facility
Maximum borrowing capacity									75,000,000	85,000,000
Wells Fargo | Amendment Number 1 [Member] | Revolving Credit Facility
Line of Credit Facility
Maximum borrowing capacity									53,000,000
Wells Fargo | New Loan Agreement | Revolving Credit Facility
Line of Credit Facility
Maximum borrowing capacity	75,000,000		75,000,000
Percentage of receivables eligible for advance					85.00%
Percentage of inventory eligible for advance					75.00%
Inventory loan limit					60,000,000
Amendment fee, percentage					0.375%
Unused line fee					0.25%
Line Of Credit Facility, Maximum Periodic Payment Under Covenant	1,750,000					7,000,000
Wells Fargo | New Loan Agreement | Letter of Credit
Line of Credit Facility
Maximum borrowing capacity					20,000,000
JP Morgan Chase | Amendment Number 1 [Member] | Revolving Credit Facility
Line of Credit Facility
Maximum borrowing capacity									22,000,000
Interest Rate Swap [Member]
Line of Credit Facility
Fixed interest rate required to be paid per the swap transaction								0.48%
Net losses from coffee-related derivative instruments	0
Coffee [Member]
Line of Credit Facility
Net losses from coffee-related derivative instruments	(904,000)	(347,000)	(855,000)	(1,195,000)
Coffee [Member] | Interest Rate Swap [Member]
Line of Credit Facility
Net losses on interest rate swap	$ 0	$ (2,000)	$ 0	$ 4,000

XML

Net Income (Loss) Per Common Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Earnings Per Share [Abstract]
Net income attributable to common stockholders—basic	$ 2,885	$ 4,676	$ 5,391	$ 6,468
Net income attributable to nonvested restricted stockholders	11	33	20	46
Net income	$ 2,896	$ 4,709	$ 5,411	$ 6,514
Weighted average common shares outstanding—basic	16,030,167	15,847,958	16,016,984	15,825,100
Shares issuable under stock options	153,971	116,724	141,741	79,356
Weighted average common shares outstanding—diluted	16,184,138	15,964,682	16,158,725	15,904,456
Net income per common share—basic	$ 0.18	$ 0.30	$ 0.34	$ 0.41
Net income per common share—diluted	$ 0.18	$ 0.29	$ 0.33	$ 0.41
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	69,073	297,896	988	157,962

XML

Employee Benefit Plans - Narrative (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Jun. 30, 2012 quarter
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Percentage of employee contribution eligible for Company matching	50.00%
Company contribution, maximum percentage of employee's eligible income	6.00%
Plan periodic vesting percentage	20.00%
Plan, periodic vesting period	5 years
Automatic vesting age	65 years
Current employees, percent vested	100.00%
Employer match contribution amount	$ 0.7	$ 0.5
Other Postretirement Benefit Plans, Defined Contribution [Member]
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Number of non-pension multiemployer plans that the Company participates in	7
Labor Management Pension Fund [Member]
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Withdrawal obligation			4.3
Quarterly installment payments on estimated withdrawal liability			$ 0.1
Number of quarters relating to installment payments on estimated withdrawal liability			80
Pension Plan [Member]
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Number of non-pension multiemployer plans that the Company participates in	2

XML

Summary of Significant Accounting Policies - Earnings Per Share (Details)	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Earnings Per Share [Abstract]
Shares issuable under stock options	153,971	116,724	141,741	79,356
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	69,073	297,896	988	157,962

XML

Subsequent Events - Narrative (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended	0 Months Ended
	Dec. 31, 2014	Nov. 17, 2014	Feb. 03, 2015 position
Corporate Relocation Plan [Member]
Subsequent Event [Line Items]
Incurred cost	$ 1.0
RLC [Member]
Subsequent Event [Line Items]
Purchase price		1.5
Subsequent Event [Member] | Corporate Relocation Plan [Member]
Subsequent Event [Line Items]
Number of positions affected			350
Expected cash costs			25
Severance costs			14
Relocation costs			4
Other restructuring costs			7
Expected cost during fiscal year (percent)			40.00%
Expected cost to purchase new facility			35
Subsequent Event [Member] | Corporate Relocation Plan [Member] | Minimum [Member]
Subsequent Event [Line Items]
Expected capital expenditures			20
Proceeds From Sale of Real Estate Estimated Value			28
Subsequent Event [Member] | Corporate Relocation Plan [Member] | Maximum [Member]
Subsequent Event [Line Items]
Expected capital expenditures			25
Proceeds From Sale of Real Estate Estimated Value			$ 35

XML

Accounts and Notes Receivable, net (Tables)

6 Months Ended

Dec. 31, 2014

Receivables [Abstract]

Schedule of Accounts, Notes, Loans and Financing Receivable

(In thousands)	December 31, 2014			June 30, 2014
Trade receivables	$	45,626		$	41,118
Other receivables(1)	1,478			1,763
Allowance for doubtful accounts	(921		)	(651		)
Accounts and notes receivable, net	$	46,183		$	42,230

_____________

(1) As of December 31, 2014 and June 30, 2014, $0.5 million of other receivables were related to the co-packing arrangement for J.M. Smucker (see Note 1).

XML

Share-Based Compensation - Weighted Average Assumptions Used (Details) (2007 Amended and Restated Long-term Incentive Plan [Member], USD $)	3 Months Ended
	Dec. 31, 2014
Non-qualified Stock Options with Time-based Vesting (NQO) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average fair value of PNQs	$ 0.00
Non-qualified Stock Options with Performance-based and Time-based Vesting (PNQ) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average fair value of PNQs	$ 0.00

XML

Fair Value Measurements - Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis (Details) (USD $)	Dec. 31, 2014		Jun. 30, 2014		Dec. 01, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Preferred stock	$ 23,687,000		$ 22,632,000
Notional amount on interest rate swap transaction					10,000,000
Total [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Preferred stock	23,687,000	[1]	22,632,000	[1]
Coffee-related derivative liabilities - cash flow hedges	3,930,000		5,153,000
Price Risk Cash Flow Hedge Asset, at Fair Value	1,139,000
Coffee-related derivative liabilities - not hedging	929,000		862,000
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Preferred stock	19,157,000	[1]	18,025,000	[1]
Coffee-related derivative liabilities - cash flow hedges	3,930,000		5,153,000
Coffee-related derivative liabilities - not hedging	929,000		862,000
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Preferred stock	4,530,000	[1]	4,607,000	[1]
Coffee-related derivative liabilities - cash flow hedges	0		0
Price Risk Cash Flow Hedge Asset, at Fair Value	0
Coffee-related derivative liabilities - not hedging	0		0
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Preferred stock	0	[1]	0	[1]
Coffee-related derivative liabilities - cash flow hedges	0		0
Price Risk Cash Flow Hedge Asset, at Fair Value	0
Coffee-related derivative liabilities - not hedging	0		0
Derivative Liabilities - Interest Rate Swap [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed interest rate required to be paid per the swap transaction					0.48%
Estimate of Fair Value Measurement [Member] | Coffee-related Derivative Instruments [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Price Risk Cash Flow Hedge Asset, at Fair Value	$ 1,139,000

[1] Included in "Short-term investments" on the consolidated balance sheets.

XML

Derivative Financial Instruments - Fair Value of Derivative Instruments on the Consolidated Balance Sheets (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014		Jun. 30, 2014
Short-term derivative assets: [Member] | Derivative Instruments Designated as Cash Flow Hedges [Member]
Derivatives, Fair Value [Line Items]
Derivative Asset, Fair Value, Gross Asset	$ 1,139		$ 5,474
Short-term derivative assets: [Member] | Derivative Instruments Not Designated as Accounting Hedges [Member]
Derivatives, Fair Value [Line Items]
Derivative Asset, Fair Value, Gross Asset	0		0
Long-term derivative assets: [Member] | Derivative Instruments Designated as Cash Flow Hedges [Member]
Derivatives, Fair Value [Line Items]
Derivative Asset, Fair Value, Gross Asset	0	[1]	862	[1]
Long-term derivative assets: [Member] | Derivative Instruments Not Designated as Accounting Hedges [Member]
Derivatives, Fair Value [Line Items]
Derivative Asset, Fair Value, Gross Asset	0	[1]	0	[1]
Short-term derivative liabilities: [Member] | Derivative Instruments Designated as Cash Flow Hedges [Member]
Derivatives, Fair Value [Line Items]
Derivative Liability, Fair Value, Gross Liability	3,930		252
Short-term derivative liabilities: [Member] | Derivative Instruments Not Designated as Accounting Hedges [Member]
Derivatives, Fair Value [Line Items]
Derivative Liability, Fair Value, Gross Liability	929		69
Long-term derivative liabilities: [Member] | Derivative Instruments Designated as Cash Flow Hedges [Member]
Derivatives, Fair Value [Line Items]
Derivative Liability, Fair Value, Gross Liability	0		0
Long-term derivative liabilities: [Member] | Derivative Instruments Not Designated as Accounting Hedges [Member]
Derivatives, Fair Value [Line Items]
Derivative Liability, Fair Value, Gross Liability	$ 0		$ 0

[1] Included in "Other assets" on the consolidated balance sheets.

XML

Share-Based Compensation - Restricted Stock Activity (Details) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Jun. 30, 2014	Sep. 30, 2013
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated Share-based Compensation Expense	$ 100,000	$ 200,000	$ 100,000	$ 300,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Shares Awarded, Beginning balance			96,212
Shares Awarded, Granted	0
Shares Awarded, Exercised/Released	(28,402)
Shares Awarded, Cancelled/Forfeited	(8,984)
Shares Awarded, Ending balance	58,826		58,826		96,212
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]
Weighted Average Grant Date Fair Value, Beginning balance			$ 10.27
Weighted Average Grant Date Fair Value, Granted	$ 0.00
Weighted Average Grant Date Fair Value, Exercised/Released	$ 9.22
Weighted Average Grant Date Fair Value, Cancelled/Forfeited	$ 8.36
Weighted Average Grant Date Fair Value, Ending balance	$ 11.06		$ 11.06		$ 10.27
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Intrinsic Value [Roll Forward]
Aggregate Intrinsic Value, Beginning Balance			2,079,000
Aggregate Intrinsic Value, Exercised/Released	772,000
Aggregate Intrinsic Value, Granted	0
Aggregate Intrinsic Value, Cancelled/Forfeited	0
Aggregate Intrinsic Value, Ending Balance	1,732,000		1,732,000		2,079,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Weighted Average Remaining Life, Beginning balance	1 year 2 months 12 days				1 year 6 months 0 days
Weighted Average Remaining Life, Ending balance	1 year 2 months 12 days				1 year 6 months 0 days
Vested and Expected to Vest, Outstanding, Number	56,132		56,132
Vested and Expected to Vest, Weighted Average Exercise Price	$ 13.85		$ 13.85
Vested and Expected to Vest, Weighted Average Remaining Life	1 year 2 months 12 days
Vested and Expected to Vest, Aggregate Intrinsic Value	1,653,000		1,653,000
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation cost related to restricted stock	$ 300,000		$ 300,000			$ 700,000

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Employee Benefit Plans - Components of Net Periodic Benefit Cost and Amounts Recognized in Other Comprehensive Income (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Pension Plan [Member]
Components of net periodic benefit cost
Service cost	$ 97	$ 100	$ 194	$ 200
Interest cost	1,415	1,452	2,830	2,904
Expected return on plan assets	(1,823)	(1,705)	(3,646)	(3,410)
Amortization of net loss(1)	303	336	606	672
Net periodic benefit (credit) cost	(8)	183	(16)	366
Weighted average assumptions used to determine benefit obligations
Discount rate	4.15%	4.50%
Expected long-term return on plan assets	7.50%	8.00%
Other Postretirement Benefit Plan, Defined Benefit [Member]
Components of net periodic benefit cost
Service cost	299	(25)	598	(50)
Interest cost	235	163	470	405
Expected return on plan assets	0	0	0	0
Amortization of net loss(1)	(125)	(445)	(250)	(441)
Amortization of unrecognized transition (asset) obligation	0	0	0	0
Amortization of prior service cost (credit)	(439)	(440)	(878)	(879)
Net periodic benefit (credit) cost	$ (30)	$ (747)	$ (60)	$ (965)
Retiree Medical Plan
Weighted average assumptions used to determine benefit obligations
Discount rate			4.29%	4.80%
Death Benefit Plan
Weighted average assumptions used to determine benefit obligations
Discount rate			4.48%	4.53%

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Investments

6 Months Ended

Dec. 31, 2014

Investments, Debt and Equity Securities [Abstract]

Investments

Investments

The following table shows gains and losses on trading securities held for investment by the Company: 

	Three Months Ended December 31,						Six Months Ended December 31,
(In thousands)	2014			2013			2014			2013
Total gains (losses) recognized from trading securities held for investment	$	205		$	(55	)	$	15		$	(750	)
Less: Realized losses from sales of trading securities held for investment	(39		)	(24		)	$	(39	)	$	(66	)
Unrealized gains (losses) from trading securities held for investment	$	244		$	(31	)	$	54		$	(684	)

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Accounts and Notes Receivable, net - Schedule of Accounts Receivable (Details) (USD $)	Dec. 31, 2014		Jun. 30, 2014
Receivables [Abstract]
Trade receivables	$ 45,626,000		$ 41,118,000
Other receivables(1)	1,478,000	[1]	1,763,000	[1]
Allowance for doubtful accounts	(921,000)		(651,000)
Accounts and notes receivable, net	46,183,000		42,230,000
J. M. Smucker [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Other Receivables			$ 500,000

[1] As of December 31, 2014 and June 30, 2014, $0.5 million of other receivables were related to the co-packing arrangement for J.M. Smucker (see Note 1).

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Income Taxes (Tables)

6 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Schedule of Components of Income Tax Expense (Benefit)

A summary of the income tax expense recorded for the three and six months ended December 31, 2014 and 2013 is as follows:

	Three Months Ended December 31,						Six Months Ended December 31,
(In thousands)	2014			2013			2014			2013
Income before taxes	$	3,148		$	5,111		$	5,861		$	7,223
Income tax expense at statutory rate	1,070			1,738			1,993			2,456
State income tax expense, net of federal tax benefit	220			374			377			587
Valuation allowance	(1,235		)	(1,847		)	(2,211		)	(2,582		)
Other permanent items	197			137			291			248
Income tax expense	$	252		$	402		$	450		$	709

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Share-Based Compensation (Tables)

6 Months Ended

Dec. 31, 2014

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity

The following table summarizes restricted stock activity for the six months ended December 31, 2014:

Outstanding and Nonvested Restricted Stock Awards:	Shares Awarded		Weighted Average Grant Date Fair Value ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2014	96,212		10.27	1.5	2,079
Granted	—		—	—	—
Exercised/Released(1)	(28,402	)	9.22	—	772
Cancelled/Forfeited	(8,984	)	8.36	—	—
Outstanding at December 31, 2014	58,826		11.06	1.2	1,732
Expected to vest, December 31, 2014	56,132		13.85	1.2	1,653

Non-qualified Stock Options with Time-based Vesting (NQO) [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of Share-based Compensation, Stock Options, Activity

The following table summarizes NQO activity for the six months ended December 31, 2014:

Outstanding NQOs:	Number of NQOs		Weighted Average Exercise Price ($)	Weighted Average Grant Date Fair Value ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2014	412,454		12.44	5.30	4.4	3,782
Granted	—		—	—	—	—
Exercised	(42,656	)	15.12	5.74	—	370
Cancelled/Forfeited	(12,134	)	10.31	4.91	—	—
Outstanding at December 31, 2014	357,664		12.20	5.26	4.0	6,171
Vested and exercisable, December 31, 2014	261,542		12.74	5.32	3.7	4,370
Vested and expected to vest, December 31, 2014	354,284		12.20	5.26	4.0	6,111

Non-qualified Stock Options with Performance-based and Time-based Vesting (PNQ) [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Share-based Compensation, Performance Shares Award Outstanding Activity [Table Text Block]

The following table summarizes PNQ activity for the six months ended December 31, 2014:

Outstanding PNQs:	Number of PNQs		Weighted Average Exercise Price ($)	Weighted Average Grant Date Fair Value ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2014	112,442		21.27	10.49	6.5	38
Granted	—		—	—	—	—
Exercised	—		—	—	—	—
Cancelled/Forfeited	(9,399	)	21.33	10.52	—	—
Outstanding at December 31, 2014	103,043		21.27	10.49	5.9	843
Vested and exercisable, December 31, 2014	33,167		21.33	10.52	5.8	269
Vested and expected to vest, December 31, 2014	96,676		21.27	10.49	5.9	791

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Commitments and Contingencies (Details) (Inventories [Member], USD $) In Millions, unless otherwise specified	Dec. 31, 2014
Coffee [Member]
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Purchase Obligation, Due in Next Twelve Months	$ 16.4
Other Inventory [Member]
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Purchase Obligation, Due in Next Twelve Months	$ 6.6

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Inventories - Schedule of Inventory (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Jun. 30, 2014
Product Information
Total	$ 70,677	$ 71,044
Coffee
Product Information
Processed	18,364	17,551
Unprocessed	20,170	21,164
Total	38,534	38,715
Tea and culinary products
Product Information
Processed	23,128	22,381
Unprocessed	3,916	4,598
Total	27,044	26,979
Coffee brewing equipment parts
Product Information
Total	$ 5,099	$ 5,350

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Net Income (Loss) Per Common Share (Tables)

6 Months Ended

Dec. 31, 2014

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

	Three Months Ended December 31,				Six Months Ended December 31,
(In thousands, except share and per share amounts)	2014		2013		2014		2013
Net income attributable to common stockholders—basic	$	2,885	$	4,676	$	5,391	$	6,468
Net income attributable to nonvested restricted stockholders	11		33		20		46
Net income	$	2,896	$	4,709	$	5,411	$	6,514
Weighted average common shares outstanding—basic	16,030,167		15,847,958		16,016,984		15,825,100
Effect of dilutive securities:
Shares issuable under stock options	153,971		116,724		141,741		79,356
Weighted average common shares outstanding—diluted	16,184,138		15,964,682		16,158,725		15,904,456
Net income per common share—basic	$	0.18	$	0.30	$	0.34	$	0.41
Net income per common share—diluted	$	0.18	$	0.29	$	0.33	$	0.41

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Summary of Significant Accounting Policies - Narrative (Details) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2014 segment	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Jun. 30, 2014
Property, Plant and Equipment [Line Items]
Number of operating segments	1
Derivative Instruments, Percentage Designated As Cash Flow Hedges	86.00%	90.00%	86.00%	90.00%
Cost of goods sold	$ 91,667,000	$ 88,755,000	$ 179,530,000	$ 170,279,000
Coffee Brewing Equipment and Service
Property, Plant and Equipment [Line Items]
Cost of goods sold	6,400,000	6,500,000	12,900,000	13,000,000
Coffee brewing equipment parts [Member]
Property, Plant and Equipment [Line Items]
Depreciation	2,600,000	2,900,000	5,200,000	5,700,000
Capitalized coffee brewing equipment	5,800,000	5,800,000	5,800,000	5,800,000
J. M. Smucker [Member]
Property, Plant and Equipment [Line Items]
Receivables from co-packing arrangement					$ 500,000

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Derivative Financial Instruments

6 Months Ended

Dec. 31, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Instruments

Derivative Instruments Held

Coffee-Related Derivative Instruments

The Company is exposed to commodity price risk associated with its PTF green coffee purchase contracts, which are described further in Note 1. The Company utilizes futures contracts and options to manage exposure to the variability in expected future cash flows from forecasted purchases of green coffee attributable to commodity price risk, in some instances, as much as 24 months prior to the actual delivery date. Certain of these coffee-related derivative instruments utilized for risk management purposes have been designated as cash flow hedges, while other coffee-related derivative instruments have not been designated as cash flow hedges or do not qualify for hedge accounting despite hedging the Company's future cash flows on an economic basis.

The following table summarizes the notional volumes for the coffee-related derivative instruments held by the Company at December 31, 2014:

(In thousands)	December 31, 2014
Derivative instruments designated as cash flow hedges:
Long coffee pounds	24,788
Derivative instruments not designated as cash flow hedges:
Long coffee pounds	4,067
Total	28,855

Cash flow hedge contracts outstanding as of December 31, 2014 will expire within 12 months.

Interest Rate Swap

Effective December 1, 2012, the Company entered into an interest rate swap transaction utilizing a notional amount of $10.0 million and a maturity date of March 1, 2015. The Company entered into the swap transaction to effectively fix the future interest rate during the applicable period on a portion of its borrowings under the revolving credit facility. The interest rate swap was not designated as an accounting hedge. The Company terminated the swap transaction on March 5, 2014.

Effect of Derivative Instruments on the Financial Statements

Balance Sheets

Fair values of derivative instruments on the consolidated balance sheets:

	Derivative Instruments Designated as Cash Flow Hedges				Derivative Instruments Not Designated as Accounting Hedges
	December 31,		June 30,		December 31,		June 30,
(In thousands)	2014		2014		2014		2014
Financial Statement Location:
Short-term derivative assets:
Coffee-related derivative instruments	$	1,139	$	5,474	$	—	$	—
Long-term derivative assets(1):
Coffee-related derivative instruments	$	—	$	862	$	—	$	—
Short-term derivative liabilities:
Coffee-related derivative instruments	$	3,930	$	252	$	929	$	69
Long-term derivative liabilities:
Coffee-related derivative instruments	$	—	$	—	$	—	$	—

____________

(1) Included in "Other assets" on the consolidated balance sheets.

Statements of Operations

The following table presents pretax net gains and losses for the Company's coffee-related derivative instruments designated as cash flow hedges, as recognized in "Cost of goods sold," "AOCI" and "Other, net":

	Three Months Ended December 31,						Six Months Ended December 31,						Financial Statement Classification
(In thousands)	2014			2013			2014			2013
Net losses recognized in accumulated other comprehensive income (effective portion)	$	(5,915	)	$	(2,260	)	$	(2,583	)	$	(5,385	)	AOCI
Net gains (losses) recognized in earnings (effective portion)	$	5,132		$	(3,735	)	$	9,842		$	(5,954	)	Cost of goods sold
Net losses recognized in earnings (ineffective portion)	$	(119	)	$	(143	)	$	(170	)	$	(650	)	Other, net

For the three and six months ended December 31, 2014 and 2013 there were no gains or losses recognized in earnings as a result of excluding amounts from the assessment of hedge effectiveness or as a result of reclassifications to earnings following the discontinuance of any cash flow hedges.

Gains and losses on derivative instruments not designated as accounting hedges are included in "Other, net" in the Company's consolidated statements of operations and in "Net (gains) losses on derivative instruments and investments" in the Company's consolidated statements of cash flows.

Net gains and losses recorded in "Other, net" are as follows:

	Three Months Ended December 31,						Six Months Ended December 31,
(In thousands)	2014			2013			2014			2013
Net losses from coffee-related derivative instruments	$	(904	)	$	(347	)	$	(855	)	$	(1,195	)
Net gains (losses) on investments	205			(55		)	15			(750		)
Net gains (losses) on interest rate swap	—			2			—			(4		)
Net losses on derivative instruments and investments(1)	(699		)	(400		)	(840		)	(1,949		)
Other gains (losses), net	169			(114		)	246			529
Other, net	$	(530	)	$	(514	)	$	(594	)	$	(1,420	)

_______________

(1)Excludes net gains (losses) on coffee-related derivative instruments designated as accounting hedges recorded in cost of goods sold in the three and six months ended December 31, 2014 and 2013.

Offsetting of Derivative Assets and Liabilities

The Company has agreements in place that allow for the financial right of offset for derivative assets and liabilities at settlement or in the event of default under the agreements. Additionally, the Company maintains accounts with its brokers to facilitate financial derivative transactions in support of its risk management activities. Based on the value of the Company’s positions in these accounts and the associated margin requirements, the Company may be required to deposit cash into these broker accounts.

The following table presents the Company’s net exposure from its offsetting derivative asset and liability positions, as well as cash collateral on deposit with its counterparty as of the reporting dates indicated:

(In thousands)		Gross Amount Reported on Balance Sheet		Netting Adjustments			Cash Collateral Posted (Received)		Net Exposure
December 31, 2014	Derivative assets	$	1,139	$	(1,139	)	$	—	$	—
	Derivative liabilities	$	4,859	$	(1,139	)	$	720	$	3,000
June 30, 2014	Derivative assets	$	6,336	$	(321	)	$	—	$	6,015
	Derivative liabilities	$	321	$	(321	)	$	—	$	—

Credit-Risk-Related Features

The Company does not have any credit-risk-related contingent features that would require it to post additional collateral in support of its net derivative liability positions. At December 31, 2014, as the Company had a net loss position in its coffee-related derivative margin accounts, $0.7 million of the cash in these accounts was restricted. At June 30, 2014, as the Company had a net gain position in its coffee-related derivative margin accounts, none of the cash in these accounts was restricted. Changes in commodity prices and the number of coffee-related derivative instruments held could have a significant impact on cash deposit requirements under the Company's broker and counterparty agreements.

Cash Flow Hedges

Changes in the fair value of the Company's coffee-related derivative instruments designated as cash flow hedges, to the extent effective, are deferred in AOCI and subsequently reclassified into cost of goods sold in the same period or periods in which the hedged forecasted purchases affect earnings, or when it is probable that the hedged forecasted transaction will not occur by the end of the originally specified time period. Based on recorded values at December 31, 2014, $2.8 million of net losses on coffee-related derivative instruments designated as cash flow hedges are expected to be reclassified into cost of goods sold within the next twelve months. These recorded values are based on market prices of the commodities as of December 31, 2014. Due to the volatile nature of commodity prices, actual gains or losses realized within the next twelve months will likely differ from these values. These gains or losses are expected to substantially offset net losses or gains that will be realized in earnings from previous unfavorable or favorable market movements associated with underlying hedged transactions.

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Summary of Significant Accounting Policies - Corrections to Consolidated Statements of Operations (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Net sales	$ 144,809	$ 143,129	$ 280,793	$ 272,658
Cost of goods sold	91,667	88,755	179,530	170,279
Gross profit	53,142	54,374	101,263	102,379
Selling expenses	39,599	38,322	78,049	74,936
General and administrative expenses	9,860	10,329	16,869	18,829
Net losses (gains) from sales of assets	178	73	239	(50)
Operating expenses	49,637	48,724	95,157	93,715
Income from operations	3,505	5,650	6,106	8,664
Dividend income	291	258	585	526
Interest income	90	110	179	218
Interest expense	(208)	(393)	(415)	(765)
Other, net	(530)	(514)	(594)	(1,420)
Total other expense	(357)	(539)	(245)	(1,441)
Income before taxes	3,148	5,111	5,861	7,223
Income tax expense	252	402	450	709
Net income	2,896	4,709	5,411	6,514
Previously Reported
Net sales				270,712
Cost of goods sold				165,802
Gross profit				104,910
Selling expenses				76,326
General and administrative expenses				19,970
Net losses (gains) from sales of assets				0
Operating expenses				96,296
Income from operations				8,614
Dividend income				526
Interest income				218
Interest expense				(765)
Other, net				(1,370)
Total other expense				(1,391)
Income before taxes				7,223
Income tax expense				709
Net income				6,514
Adjustments
Net sales				1,946
Cost of goods sold				4,477
Gross profit				(2,531)
Selling expenses				(1,390)
General and administrative expenses				(1,141)
Net losses (gains) from sales of assets				(50)
Operating expenses				(2,581)
Income from operations				50
Dividend income				0
Interest income				0
Interest expense				0
Other, net				(50)
Total other expense				(50)
Income before taxes				0
Income tax expense				0
Net income				$ 0

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Derivative Financial Instruments - Schedule of Offsetting Derivative Assets and Liabilities (Details) (Counterparty A: [Member], USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Jun. 30, 2014
Counterparty A: [Member]
Derivative [Line Items]
Derivative Asset, Gross Amount Reported on Balance Sheet	$ 1,139	$ 6,336
Derivative Asset - Netting Adjustment	(1,139)	(321)
Cash Collateral Posted	0	0
Derivative Assets - Net Exposure	0	6,015
Derivative Liability - Gross Amount Reported on Balance Sheet	4,859	321
Derivative Liability - Netting Adjustment	(1,139)	(321)
Derivative Liability - Cash Collateral Received	720	0
Derivative Liabilities - Net Exposure	$ 3,000	$ 0

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Income Taxes - Narrative (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 31, 2014	Jun. 30, 2014
Income Tax Disclosure [Abstract]
Decrease in valuation allowance	$ (1.2)
Valuation allowance	$ 70.4	$ 72.6

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Jun. 30, 2014
Current assets:
Cash and cash equivalents	$ 4,746	$ 11,993
Restricted cash	720	0
Short-term investments	23,687	22,632
Accounts and notes receivable, net	46,183	42,230
Inventories	70,677	71,044
Income tax receivable	228	228
Short-term derivative assets	0	5,153
Prepaid expenses	4,919	4,180
Total current assets	151,160	157,460
Property, plant and equipment, net	92,141	95,641
Intangible assets, net	5,628	5,628
Other assets	6,045	7,034
Deferred income taxes	414	414
Total assets	255,388	266,177
Current liabilities:
Accounts payable	37,245	44,336
Accrued payroll expenses	19,706	22,190
Short-term borrowings under revolving credit facility	1,345	78
Short-term obligations under capital leases	3,654	3,779
Short-term derivative liabilities	3,720	0
Deferred income taxes	1,169	1,169
Other current liabilities	5,182	5,318
Total current liabilities	72,021	76,870
Accrued postretirement benefits	19,477	19,970
Other long-term liabilities—capital leases	4,156	5,924
Accrued pension liabilities	39,573	40,256
Accrued workers’ compensation liabilities	8,124	7,604
Deferred income taxes	780	689
Total liabilities	144,131	151,313
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock, $1.00 par value, 500,000 shares authorized and none issued	0	0
Common stock, $1.00 par value, 25,000,000 shares authorized; 16,591,825 and 16,562,450 issued and outstanding at December 31, 2014 and June 30, 2014, respectively	16,592	16,562
Additional paid-in capital	34,494	35,917
Retained earnings	111,623	106,212
Unearned ESOP shares	(11,234)	(16,035)
Accumulated other comprehensive loss	(40,218)	(27,792)
Total stockholders’ equity	111,257	114,864
Total liabilities and stockholders’ equity	$ 255,388	$ 266,177

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Inventories - Narrative (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014
Inventory Disclosure [Abstract]
Inventory, LIFO Reserve, Effect on Income, Net	$ 2.2	$ 0	$ 2.5

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Cash flows from operating activities:
Net income	$ 5,411	$ 6,514
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	12,419	14,478
Provision for doubtful accounts	270	168
Deferred income taxes	90	131
Net losses (gains) from sales of assets	239	(50)
ESOP and share-based compensation expense	2,880	2,134
Net (gains) losses on derivative instruments and investments	(9,002)	1,949
Change in operating assets and liabilities:
Restricted cash	(720)	4,508
Purchases of trading securities held for investment	(2,850)	(2,963)
Proceeds from sales of trading securities held for investment	1,810	2,207
Accounts and notes receivable	(4,222)	(2,106)
Inventories	346	(5,608)
Income tax receivable	0	251
Derivative assets, net	6,297	0
Prepaid expenses and other assets	(611)	(85)
Accounts payable	(6,659)	2,361
Accrued payroll expenses and other current liabilities	(2,619)	(2,581)
Accrued postretirement benefits	(493)	(670)
Other long-term liabilities	(165)	(211)
Net cash provided by operating activities	2,421	20,427
Cash flows from investing activities:
Purchases of property, plant and equipment	(9,399)	(12,128)
Proceeds from sales of property, plant and equipment	142	333
Net cash used in investing activities	(9,257)	(11,795)
Cash flows from financing activities:
Proceeds from revolving credit facility	34,938	22,550
Repayments on revolving credit facility	(33,929)	(24,300)
Payments of capital lease obligations	(1,948)	(1,821)
Proceeds from stock option exercises	644	125
Tax withholding payment related to net share settlement of equity awards	(116)	0
Net cash used in financing activities	(411)	(3,446)
Net (decrease) increase in cash and cash equivalents	(7,247)	5,186
Cash and cash equivalents at beginning of period	11,993	2,678
Cash and cash equivalents at end of period	$ 4,746	$ 7,864

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Derivative Financial Instruments - Narrative (Details) (USD $)	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Jun. 30, 2014	Dec. 01, 2012
Derivative [Line Items]
Notional amount on interest rate swap transaction				$ 10,000,000
Restricted cash	720,000		0
Net losses to be reclassified into earnings within the next twelve months	2,800,000
Derivative Instruments Designated as Cash Flow Hedges [Member]
Derivative [Line Items]
Gain (Loss) from Components Excluded from Assessment of Cash Flow Hedge Effectiveness, Net	$ 0	$ 0

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Derivative Financial Instruments (Tables)

6 Months Ended

Dec. 31, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Notional Volumes for Coffee Related Derivatives

The following table summarizes the notional volumes for the coffee-related derivative instruments held by the Company at December 31, 2014:

(In thousands)	December 31, 2014
Derivative instruments designated as cash flow hedges:
Long coffee pounds	24,788
Derivative instruments not designated as cash flow hedges:
Long coffee pounds	4,067
Total	28,855

Schedule of Fair Values of Derivative Instruments on the Consolidated Balance Sheets

Fair values of derivative instruments on the consolidated balance sheets:

	Derivative Instruments Designated as Cash Flow Hedges				Derivative Instruments Not Designated as Accounting Hedges
	December 31,		June 30,		December 31,		June 30,
(In thousands)	2014		2014		2014		2014
Financial Statement Location:
Short-term derivative assets:
Coffee-related derivative instruments	$	1,139	$	5,474	$	—	$	—
Long-term derivative assets(1):
Coffee-related derivative instruments	$	—	$	862	$	—	$	—
Short-term derivative liabilities:
Coffee-related derivative instruments	$	3,930	$	252	$	929	$	69
Long-term derivative liabilities:
Coffee-related derivative instruments	$	—	$	—	$	—	$	—

____________

(1) Included in "Other assets" on the consolidated balance sheets.

Schedule of Pretax Effect of Derivative Instruments on Earnings and OCI

The following table presents pretax net gains and losses for the Company's coffee-related derivative instruments designated as cash flow hedges, as recognized in "Cost of goods sold," "AOCI" and "Other, net":

	Three Months Ended December 31,						Six Months Ended December 31,						Financial Statement Classification
(In thousands)	2014			2013			2014			2013
Net losses recognized in accumulated other comprehensive income (effective portion)	$	(5,915	)	$	(2,260	)	$	(2,583	)	$	(5,385	)	AOCI
Net gains (losses) recognized in earnings (effective portion)	$	5,132		$	(3,735	)	$	9,842		$	(5,954	)	Cost of goods sold
Net losses recognized in earnings (ineffective portion)	$	(119	)	$	(143	)	$	(170	)	$	(650	)	Other, net

Schedule of Net Realized and Unrealized Gains and Losses Recorded in 'Other, net'

Net gains and losses recorded in "Other, net" are as follows:

	Three Months Ended December 31,						Six Months Ended December 31,
(In thousands)	2014			2013			2014			2013
Net losses from coffee-related derivative instruments	$	(904	)	$	(347	)	$	(855	)	$	(1,195	)
Net gains (losses) on investments	205			(55		)	15			(750		)
Net gains (losses) on interest rate swap	—			2			—			(4		)
Net losses on derivative instruments and investments(1)	(699		)	(400		)	(840		)	(1,949		)
Other gains (losses), net	169			(114		)	246			529
Other, net	$	(530	)	$	(514	)	$	(594	)	$	(1,420	)

_______________

(1)Excludes net gains (losses) on coffee-related derivative instruments designated as accounting hedges recorded in cost of goods sold in the three and six months ended December 31, 2014 and 2013.

Schedule of Offsetting Derivative Assets and Liabilities

Offsetting of Derivative Assets and Liabilities

The Company has agreements in place that allow for the financial right of offset for derivative assets and liabilities at settlement or in the event of default under the agreements. Additionally, the Company maintains accounts with its brokers to facilitate financial derivative transactions in support of its risk management activities. Based on the value of the Company’s positions in these accounts and the associated margin requirements, the Company may be required to deposit cash into these broker accounts.

The following table presents the Company’s net exposure from its offsetting derivative asset and liability positions, as well as cash collateral on deposit with its counterparty as of the reporting dates indicated:

(In thousands)		Gross Amount Reported on Balance Sheet		Netting Adjustments			Cash Collateral Posted (Received)		Net Exposure
December 31, 2014	Derivative assets	$	1,139	$	(1,139	)	$	—	$	—
	Derivative liabilities	$	4,859	$	(1,139	)	$	720	$	3,000
June 30, 2014	Derivative assets	$	6,336	$	(321	)	$	—	$	6,015
	Derivative liabilities	$	321	$	(321	)	$	—	$	—

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Derivative Financial Instruments - Schedule of Notional Amounts of Outstanding Derivative Positions (Details)	Dec. 31, 2014 lb
Derivative [Line Items]
Derivative, Nonmonetary Notional Amount	28,855,000
Derivative Instruments Designated as Cash Flow Hedges [Member]
Derivative [Line Items]
Derivative, Nonmonetary Notional Amount	24,788,000
Derivative Instruments Not Designated as Accounting Hedges [Member]
Derivative [Line Items]
Derivative, Nonmonetary Notional Amount	4,067,000

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Fair Value Measurements (Tables)

6 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

Schedule of Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

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

December 31, 2014	Total		Level 1		Level 2		Level 3
Preferred stock(1)	$	23,687	$	19,157	$	4,530	$	—
Derivative instruments designated as cash flow hedges:
Coffee-related derivative assets	$	1,139	$	1,139	$	—	$	—
Coffee-related derivative liabilities	$	3,930	$	3,930	$	—	$	—
Derivative instruments not designated as accounting hedges:
Coffee-related derivative liabilities	$	929	$	929	$	—	$	—
June 30, 2014	Total		Level 1		Level 2		Level 3
Preferred stock(1)	$	22,632	$	18,025	$	4,607	$	—
Derivative instruments designated as cash flow hedges:
Coffee-related derivative liabilities	$	5,153	$	5,153	$	—	$	—
Derivative instruments not designated as accounting hedges:
Coffee-related derivative liabilities	$	862	$	862	$	—	$	—

____________________ 

(1) Included in "Short-term investments" on the consolidated balance sheets.

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Summary of Significant Accounting Policies

6 Months Ended

Dec. 31, 2014

Accounting Policies [Abstract]

Farmer Bros. Co. and Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Organization

Farmer Bros. Co., a Delaware corporation (including its consolidated subsidiaries unless the context otherwise requires, the “Company,” 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, offices, quick service restaurants ("QSR's"), convenience stores, healthcare facilities and other foodservice providers, as well as private brand retailers in the QSR, grocery, drugstore, restaurant, convenience store and independent coffeehouse channels. 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.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S‑X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete consolidated financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals, unless otherwise indicated) considered necessary for a fair presentation of the interim financial data have been included. Operating results for the three and six months ended December 31, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2015. Events occurring subsequent to December 31, 2014 have been evaluated for potential recognition or disclosure in the unaudited consolidated financial statements for the three and six months ended December 31, 2014.

The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2014, filed with the Securities and Exchange Commission (the “SEC”) on September 16, 2014 (the "2014 10-K").

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company reviews its estimates on an ongoing basis using currently available information. Changes in facts and circumstances may result in revised estimates and actual results may differ from those estimates.

Corrections to Previously Issued Financial Statements

Subsequent to the issuance of the Company’s consolidated financial statements for the period ended December 31, 2013, the Company identified certain errors in the consolidated statements of operations. Accordingly, the Company has corrected the accompanying unaudited consolidated statement of operations for the six months ended December 31, 2013 in order to comply with GAAP.

The corrections to the consolidated statements of operations include:

1. reclassification of fuel surcharges billed to customers previously netted against the Company's fuel expenses in "Selling expenses" to "Net sales";

2. reclassification of certain labor and overhead expenses previously included in "Selling expenses" and "General and administrative expenses" to "Cost of goods sold"; and

3. reclassification of “Net gains from sales of assets” previously presented within "Other, net" to a separate line item within "Income from operations.”

These errors had no impact on the amounts previously reported in the Company’s consolidated balance sheets, statements of cash flows and statements of comprehensive income (loss). Management has evaluated the materiality of these errors quantitatively and qualitatively, including the impact of the errors on gross profit and income from operations, and has concluded that the corrections of these errors are immaterial to the consolidated financial statements as a whole.

The accompanying unaudited consolidated statement of operations for the six months ended December 31, 2013 has been corrected for the errors described above. The following table presents the impact of these corrections:

Consolidated Statement of Operations Data	Six Months Ended December 31, 2013
(In thousands)	As Previously Reported			Adjustments			As Corrected
Net sales	$	270,712		$	1,946		$	272,658
Cost of goods sold	165,802			4,477			170,279
Gross profit	104,910			(2,531		)	102,379
Selling expenses	76,326			(1,390		)	74,936
General and administrative expenses	19,970			(1,141		)	18,829
Net gains from sales of assets	—			(50		)	(50		)
Operating expenses	96,296			(2,581		)	93,715
Income from operations	8,614			50			8,664
Other income (expense):
Dividend income	526			—			526
Interest income	218			—			218
Interest expense	(765		)	—			(765		)
Other, net	(1,370		)	(50		)	(1,420		)
Total other expense	(1,391		)	(50		)	(1,441		)
Income before taxes	7,223			—			7,223
Income tax expense	709			—			709
Net income	$	6,514		$	—		$	6,514

Derivative Instruments

The Company purchases various derivative instruments to create economic hedges of its commodity price risk and interest rate risk. These derivative instruments consist primarily of futures and swaps. The Company reports the fair value of derivative instruments on its consolidated balance sheets in "Short-term derivative assets," "Other assets," "Short-term derivative liabilities," or "Long-term derivative liabilities." The Company determines the current and noncurrent classification based on the timing of expected future cash flows of individual trades and reports these amounts on a gross basis. Additionally, the Company reports cash held on deposit in margin accounts for coffee-related derivative instruments on a gross basis on its consolidated balance sheets in "Restricted cash," if restricted from withdrawal due to a net loss position in such margin accounts.

The accounting for the changes in fair value of the Company's derivative instruments can be summarized as follows:  

Derivative Treatment	Accounting Method
Normal purchases and normal sales exception	Accrual accounting
Designated in a qualifying hedging relationship	Hedge accounting
All other derivative instruments	Mark-to-market accounting

The Company enters into green coffee purchase commitments at a fixed price or at a price to be fixed (“PTF”). PTF contracts are purchase commitments whereby the quality, quantity, delivery period, price differential to the coffee "C" market price and other negotiated terms are agreed upon, but the date, and therefore the price at which the base “C” market price will be fixed has not yet been established. The coffee "C" market price is fixed at some point after the purchase contract date and before the futures market closes for the delivery month and may be fixed either at the direction of the Company to the vendor, or by the application of a derivative that was separately purchased as a hedge. For both fixed-price and PTF contracts, the Company expects to take delivery of and to utilize the coffee in a reasonable period of time and in the conduct of normal business. Accordingly, these purchase commitments qualify as normal purchases and are not recorded at fair value on the Company's consolidated balance sheets.

The Company accounts for certain coffee-related derivative instruments as accounting hedges in order to minimize the volatility created in the Company's quarterly results from utilizing these derivative contracts and to improve comparability between reporting periods. For a derivative to qualify for designation in a hedging relationship, it must meet specific criteria and the Company must maintain appropriate documentation. The Company establishes hedging relationships pursuant to its risk management policies. The hedging relationships are evaluated at inception and on an ongoing basis to determine whether the hedging relationship is, and is expected to remain, highly effective in achieving offsetting changes in fair value or cash flows attributable to the underlying risk being hedged. The Company also regularly assesses whether the hedged forecasted transaction is probable of occurring. If a derivative ceases to be or is no longer expected to be highly effective, or if the Company believes the likelihood of occurrence of the hedged forecasted transaction is no longer probable, hedge accounting is discontinued for that derivative, and future changes in the fair value of that derivative are recognized in “Other, net.”

For commodity derivative instruments designated as cash flow hedges, the effective portion of the change in fair value of the derivative is reported as accumulated other comprehensive income (“AOCI”) and subsequently reclassified into cost of goods sold in the period or periods when the hedged transaction affects earnings. Any ineffective portion of the derivative instrument's change in fair value is recognized currently in “Other, net.” Gains or losses deferred in AOCI associated with terminated derivative instruments, derivative instruments that cease to be highly effective hedges, derivative instruments for which the forecasted transaction is reasonably possible but no longer probable of occurring, and cash flow hedges that have been otherwise discontinued remain in AOCI until the hedged item affects earnings. If it becomes probable that the forecasted transaction designated as the hedged item in a cash flow hedge will not occur, any gain or loss deferred in AOCI is recognized in “Other, net” at that time. For derivative instruments that are not designated in a hedging relationship, and for which the normal purchases and normal sales exception has not been elected, the changes in fair value are reported in “Other, net.”

The following gains and losses on derivative instruments are netted together and reported in “Other, net” in the Company's consolidated statements of operations:

• Gains and losses on all derivative instruments that are not designated as cash flow hedges and for which the normal purchases and normal sales exception has not been elected; and

• The ineffective portion of unrealized gains and losses on derivative instruments that are designated as cash flow hedges.

The fair value of derivative instruments is based upon broker quotes. At December 31, 2014 and 2013, approximately 86% and 90%, respectively, of the Company's outstanding coffee-related derivative instruments were designated as cash flow hedges (see Note 2).

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 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 unaudited consolidated financial statements in the three months ended December 31, 2014 and 2013 were $6.4 million and $6.5 million, respectively. In addition, depreciation expense related to capitalized coffee brewing equipment reported in cost of goods sold in the three months ended December 31, 2014 and 2013 was $2.6 million and $2.9 million, respectively.

Coffee brewing equipment costs included in cost of goods sold in the six months ended December 31, 2014 and 2013 were $12.9 million and $13.0 million, respectively. Depreciation expense related to capitalized coffee brewing equipment reported in cost of goods sold in the six months ended December 31, 2014 and 2013 was $5.2 million and $5.7 million, respectively.

The Company capitalized coffee brewing equipment in the amount of $5.8 million in each of the six months ended December 31, 2014 and 2013.

Revenue Recognition

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

The Company sells roast and ground coffee and tea to The J.M. Smucker Company ("J.M. Smucker") pursuant to a co–packing agreement. The Company recognizes revenue from the co-packing arrangement for the sale of tea on a net basis, net of direct costs of revenue, since the Company acts as an agent of J.M. Smucker in such transactions. As of December 31, 2014 and June 30, 2014, the Company had $0.5 million of receivables relating to this arrangement which are included in "Other receivables" (see Note 5).

Net Income Per Common Share

Net income per share (“EPS”) represents net income attributable to common stockholders divided by the weighted-average number of common shares outstanding for the period, excluding unallocated shares held by the Company's Employee Stock Ownership Plan ("ESOP"). Diluted EPS represents net income attributable to common stockholders divided by the weighted-average number of common shares outstanding, inclusive of the dilutive impact of common equivalent shares outstanding during the period. However, nonvested restricted stock awards (referred to as participating securities) are excluded from the dilutive impact of common equivalent shares outstanding in accordance with authoritative guidance under the two-class method. The nonvested restricted stockholders are entitled to participate in dividends declared on common stock as if the shares were fully vested and hence are deemed to be participating securities. Under the two-class method, net income attributable to nonvested restricted stockholders is excluded from net income attributable to common stockholders for purposes of calculating basic and diluted EPS.

Computation of EPS for the three months ended December 31, 2014 and 2013 includes the dilutive effect of 153,971 shares and 116,724 shares issuable under stock options, respectively, and computation of EPS for the six months ended December 31, 2014 and 2013 includes the dilutive effect of 141,741 shares and 79,356 shares issuable under stock options, respectively (see Note 11). Computation of EPS for the three months ended December 31, 2014 and 2013 excludes 988 shares and 157,962 shares issuable under stock options, respectively, because including them would be anti-dilutive. Computation of EPS for the six months ended December 31, 2014 and 2013 excludes 69,073 shares and 297,896 shares issuable under stock options, respectively, because including them would be anti-dilutive.

Dividends

The Company’s Board of Directors has omitted the payment of a quarterly dividend since the third quarter of fiscal 2011. 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.

Impairment of Indefinite-lived Intangible Assets

The Company performs its annual impairment test of indefinite-lived intangible assets as of June 30. Indefinite-lived intangible assets are not amortized but instead are reviewed for impairment annually, as well as on an interim basis if events or changes in circumstances between annual tests indicate that an asset might be impaired, by comparing their fair values to their carrying values. An impairment charge is recorded if the estimated fair value of such assets has decreased below their carrying value. There were no such events or circumstances during the six months ended December 31, 2014.

Long-Lived Assets, Excluding 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. 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. The estimated future cash flows are based upon, among other things, assumptions about expected future operating performance, and may differ from actual cash flows. 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. There were no such events or circumstances during the six months ended December 31, 2014.

Self-Insurance

The Company is self-insured for workers’ compensation insurance subject to specific retention levels and uses 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. The estimated outstanding losses, including allocated loss adjustment expenses (“ALAE”), include case reserves, the development of known claims and incurred but not reported 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.

The Company accounts for its accrued liability relating to workers’ compensation claims on an undiscounted basis. The estimated gross undiscounted workers’ compensation liability relating to such claims was $10.5 million and $9.6 million, respectively, and the estimated recovery from reinsurance was $1.2 million as of December 31, 2014 and June 30, 2014. The short-term and long-term accrued liabilities for workers’ compensation claims are presented on the Company's consolidated balance sheets in "Other current liabilities" and in "Accrued workers' compensation liabilities," respectively. The estimated insurance receivable is included in "Other assets" on the Company's consolidated balance sheets.

Due to its failure to meet the minimum credit rating criteria for participation in the alternative security program for California self-insurers for workers’ compensation liability, the Company posted a $5.9 million letter of credit as a security deposit with the State of California Department of Industrial Relations Self-Insurance Plans. At December 31, 2014, this letter of credit continues to serve as a security deposit and has been increased to $6.5 million.

The estimated liability related to the Company's self-insured group medical insurance at December 31, 2014 and June 30, 2014 was $0.9 million and $0.8 million, respectively, 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.

General liability, product liability and commercial auto liability are insured through a captive insurance program. The Company retains the risk within certain aggregate amounts. Cost of the insurance through the captive program is accrued based on estimates of the aggregate liability claims incurred using certain actuarial assumptions and historical claims experience. The Company's liability reserve for such claims at each of December 31, 2014 and June 30, 2014, was $0.5 million.

The estimated liability related to the Company's self-insured group medical insurance, general liability, product liability and commercial auto liability is included on the Company's consolidated balance sheets in "Other current liabilities."

Recently Adopted Accounting Standards

None.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2014-9, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-9”). ASU 2014-9 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-9 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption prohibited. The Company is in the process of assessing the impact of the adoption of ASU 2014-9 on its consolidated financial statements.

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Dec. 31, 2014	Jun. 30, 2014
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 1	$ 1
Preferred stock, shares authorized	500,000	500,000
Preferred stock, issued	0	0
Common stock, par value	$ 1	$ 1
Common stock, shares authorized	25,000,000	25,000,000
Common stock, shares issued	16,591,825	16,562,450
Common stock, shares outstanding	16,591,825	16,562,450

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Net Income (Loss) Per Common Share

6 Months Ended

Dec. 31, 2014

Earnings Per Share [Abstract]

Net Income (Loss) Per Common Share

Net Income Per Common Share 

	Three Months Ended December 31,				Six Months Ended December 31,
(In thousands, except share and per share amounts)	2014		2013		2014		2013
Net income attributable to common stockholders—basic	$	2,885	$	4,676	$	5,391	$	6,468
Net income attributable to nonvested restricted stockholders	11		33		20		46
Net income	$	2,896	$	4,709	$	5,411	$	6,514
Weighted average common shares outstanding—basic	16,030,167		15,847,958		16,016,984		15,825,100
Effect of dilutive securities:
Shares issuable under stock options	153,971		116,724		141,741		79,356
Weighted average common shares outstanding—diluted	16,184,138		15,964,682		16,158,725		15,904,456
Net income per common share—basic	$	0.18	$	0.30	$	0.34	$	0.41
Net income per common share—diluted	$	0.18	$	0.29	$	0.33	$	0.41

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Document and Entity Information	6 Months Ended
	Dec. 31, 2014	Feb. 06, 2015
Document Documentand Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Dec. 31, 2014
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2015
Trading Symbol	FARM
Entity Registrant Name	FARMER BROTHERS CO
Entity Central Index Key	0000034563
Current Fiscal Year End Date	--06-30
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		16,591,825

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Commitments and Contingencies

6 Months Ended

Dec. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

As of December 31, 2014, the Company had committed to purchasing green coffee inventory totaling $16.4 million under fixed-price contracts and other inventory totaling $6.6 million under non-cancelable purchase orders.

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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Income Statement [Abstract]
Net sales	$ 144,809	$ 143,129	$ 280,793	$ 272,658
Cost of goods sold	91,667	88,755	179,530	170,279
Gross profit	53,142	54,374	101,263	102,379
Selling expenses	39,599	38,322	78,049	74,936
General and administrative expenses	9,860	10,329	16,869	18,829
Net losses (gains) from sales of assets	178	73	239	(50)
Operating expenses	49,637	48,724	95,157	93,715
Income from operations	3,505	5,650	6,106	8,664
Other income (expense):
Dividend income	291	258	585	526
Interest income	90	110	179	218
Interest expense	(208)	(393)	(415)	(765)
Other, net	(530)	(514)	(594)	(1,420)
Total other expense	(357)	(539)	(245)	(1,441)
Income before taxes	3,148	5,111	5,861	7,223
Income tax expense	252	402	450	709
Net income	$ 2,896	$ 4,709	$ 5,411	$ 6,514
Net income per common share—basic	$ 0.18	$ 0.30	$ 0.34	$ 0.41
Net income per common share—diluted	$ 0.18	$ 0.29	$ 0.33	$ 0.41
Weighted average common shares outstanding—basic	16,030,167	15,847,958	16,016,984	15,825,100
Weighted average common shares outstanding—diluted	16,184,138	15,964,682	16,158,725	15,904,456

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Inventories

6 Months Ended

Dec. 31, 2014

Inventory Disclosure [Abstract]

Inventory Disclosure

Inventories

(In thousands)	December 31, 2014		June 30, 2014
Coffee
Processed	$	18,364	$	17,551
Unprocessed	20,170		21,164
Total	$	38,534	$	38,715
Tea and culinary products
Processed	$	23,128	$	22,381
Unprocessed	3,916		4,598
Total	$	27,044	$	26,979
Coffee brewing equipment parts	$	5,099	$	5,350
Total inventories	$	70,677	$	71,044

In addition to product cost, inventory costs include expenditures such as labor and certain supply and overhead expenses incurred in bringing the inventory to its existing condition and location. The “Unprocessed” inventory values as stated in the above table represent the value of raw materials and the “Processed” inventory values represent all other products consisting primarily of finished goods.

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 parts on the first in, first out ("FIFO") basis. The Company regularly evaluates these inventories to determine whether market conditions are appropriately reflected in the recorded carrying value. At the end of each quarter, the Company records the expected 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, 2015 will decrease from June 30, 2014 levels, and, therefore, recorded $2.2 million and $2.5 million, respectively, in expected beneficial effect of LIFO inventory liquidation in cost of goods sold in the three and six months ended December 31, 2014. No expected beneficial effect of the liquidation of LIFO inventory quantities was included in cost of goods sold in the three and six months ended December 31, 2013.

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Accounts and Notes Receivable, net

6 Months Ended

Dec. 31, 2014

Receivables [Abstract]

Accounts and Notes Receivable, net

Accounts and Notes Receivable, Net

(In thousands)	December 31, 2014			June 30, 2014
Trade receivables	$	45,626		$	41,118
Other receivables(1)	1,478			1,763
Allowance for doubtful accounts	(921		)	(651		)
Accounts and notes receivable, net	$	46,183		$	42,230

_____________

(1) As of December 31, 2014 and June 30, 2014, $0.5 million of other receivables were related to the co-packing arrangement for J.M. Smucker (see Note 1).

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Investments (Tables)

6 Months Ended

Dec. 31, 2014

Investments, Debt and Equity Securities [Abstract]

Gains and Losses on Trading Securities Held For Investment

The following table shows gains and losses on trading securities held for investment by the Company: 

	Three Months Ended December 31,						Six Months Ended December 31,
(In thousands)	2014			2013			2014			2013
Total gains (losses) recognized from trading securities held for investment	$	205		$	(55	)	$	15		$	(750	)
Less: Realized losses from sales of trading securities held for investment	(39		)	(24		)	$	(39	)	$	(66	)
Unrealized gains (losses) from trading securities held for investment	$	244		$	(31	)	$	54		$	(684	)

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Subsequent Events

6 Months Ended

Dec. 31, 2014

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

On November 17, 2014, the Company signed a definitive agreement to acquire from Rae' Launo Corporation ("RLC") assets relating to RLC's direct-store-delivery ("DSD") business that primarily serves convenience stores in the Southeast and RLC's in-room distributor channel that primarily serves the hospitality industry. Through this $1.5 million asset acquisition, the Company acquired additional customers and expanded its reach in the Southeastern United States. The acquisition transaction closed in January 2015.

On February 5, 2015, the Company announced a plan ("Corporate Relocation Plan") approved by the Board of Directors of the Company on February 3, 2015, pursuant to which the Company will close its Torrance, California facility and relocate these operations to a new manufacturing, distribution and corporate headquarters facility. The new facility is expected to be located in either Dallas/Fort Worth, Texas or Oklahoma City, Oklahoma pending the outcome of state and local government incentive negotiations and final site selection. The Company expects to close its Torrance facility in phases beginning in the summer of 2015. Construction of the new facility and relocation are expected to be completed by the end of the summer of 2016. Approximately 350 positions will be impacted as a result of the Torrance facility closure.

Subject to the finalization of certain estimates, the Company estimates that it will incur approximately $25 million in cash costs in connection with the exit of the Torrance facility consisting of $14 million in employee retention and separation benefits, $4 million in facility relocation costs and $7 million in other associated costs. The Company expects to incur certain other non-cash asset impairment costs and potential curtailment charges the amount of which the Company has not yet estimated.

The Company expects to recognize approximately 40% of the aggregate cash costs in fiscal 2015, including $1.0 million incurred in the first half of fiscal 2015, with the remainder expected to be recognized in fiscal 2016 and the first quarter of fiscal 2017. The Company also expects to incur approximately $35 million in new facility costs with an additional $20 million to $25 million in anticipated capital expenditures for machinery and equipment, furniture and fixtures, and related expenditures. The capital expenditures associated with the new facility are expected to be partially offset by the net proceeds from the planned sale of the Company's Torrance facility. The Company believes the current land value of the Torrance facility, based strictly on comparable sales data and the size of the parcel (and without any changes or improvements to the parcel or the facility) is estimated to be between $28 million and $35 million.

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Share-Based Compensation

6 Months Ended

Dec. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Compensation

Share-based Compensation

On December 5, 2013, the Company’s stockholders approved the Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan (the “Amended Equity Plan”), which is an amendment and restatement of, and successor to, the Farmer Bros. Co. 2007 Omnibus Plan. The principal change to the Amended Equity Plan was to limit awards under the plan to performance-based stock options and to restricted stock under limited circumstances.

Stock Options

The share-based compensation expense recognized in the Company’s consolidated statements of operations is based on awards ultimately expected to vest. Compensation expense is recognized on a straight-line basis over the service period based on the estimated fair value of the stock options. The Company estimates the fair value of option awards using 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 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.

Non-Qualified Stock Options With Time-Based Vesting ("NQOs")

 The following table summarizes NQO activity for the six months ended December 31, 2014:

Outstanding NQOs:	Number of NQOs		Weighted Average Exercise Price ($)	Weighted Average Grant Date Fair Value ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2014	412,454		12.44	5.30	4.4	3,782
Granted	—		—	—	—	—
Exercised	(42,656	)	15.12	5.74	—	370
Cancelled/Forfeited	(12,134	)	10.31	4.91	—	—
Outstanding at December 31, 2014	357,664		12.20	5.26	4.0	6,171
Vested and exercisable, December 31, 2014	261,542		12.74	5.32	3.7	4,370
Vested and expected to vest, December 31, 2014	354,284		12.20	5.26	4.0	6,111

The aggregate intrinsic value outstanding at the end of each period in the table above represents the total pretax intrinsic value, based on the Company’s closing stock price of $29.45 at December 31, 2014 and $21.61 at June 30, 2014, representing the last trading day of the applicable fiscal period, which would have been received by NQO holders had all award holders exercised their NQOs that were in-the-money as of that date.

The aggregate fair value of NQO grants vested during the six months ended December 31, 2014 was $0.3 million. During the three and six months ended December 31, 2014, the Company received $0.1 million and $0.6 million in proceeds from exercises of vested NQOs. In each of the three and six months ended December 31, 2013, the Company received $0.1 million in proceeds from exercises of vested NQOs.

As of December 31, 2014 and 2013, there was $0.4 million and $1.0 million, respectively, of unrecognized compensation cost related to NQOs. Total compensation expense for NQOs was $0.1 million and $0.2 million in the three months ended December 31, 2014 and 2013, respectively. Total compensation expense for NQOs was $0.2 million and $0.4 million in the six months ended December 31, 2014 and 2013, respectively.

Non-Qualified Stock Options With Performance-Based and Time-Based Vesting ("PNQs")

 The following table summarizes PNQ activity for the six months ended December 31, 2014:

Outstanding PNQs:	Number of PNQs		Weighted Average Exercise Price ($)	Weighted Average Grant Date Fair Value ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2014	112,442		21.27	10.49	6.5	38
Granted	—		—	—	—	—
Exercised	—		—	—	—	—
Cancelled/Forfeited	(9,399	)	21.33	10.52	—	—
Outstanding at December 31, 2014	103,043		21.27	10.49	5.9	843
Vested and exercisable, December 31, 2014	33,167		21.33	10.52	5.8	269
Vested and expected to vest, December 31, 2014	96,676		21.27	10.49	5.9	791

 The aggregate intrinsic value outstanding at the end of each period in the table above represents the total pretax intrinsic value, based on the Company’s closing stock price of $29.45 at December 31, 2014 and $21.61 at June 30, 2014, representing the last trading day of the applicable fiscal period, which would have been received by PNQ holders had all award holders exercised their PNQs that were in-the-money as of that date.

The PNQs shown in the table above vest over a three-year period with one-third of the total number of shares subject to each such PNQ vesting on the first anniversary of the grant date based on the Company’s achievement of a modified net income target for the first fiscal year of the performance period as approved by the Compensation Committee, and the remaining two-thirds of the total number of shares subject to each PNQ vesting on the third anniversary of the grant date based on the Company’s achievement of a cumulative modified net income target for all three years during the performance period as approved by the Compensation Committee, in each case, subject to the participant’s employment by the Company or service on the Board of Directors of the Company on the applicable vesting date. As of December 31, 2014, the Company met the performance targets for the first year and expects that it will achieve the cumulative performance targets set forth in the PNQ agreements.

Compensation expense for PNQs recognized in operating expenses in the three and six months ended December 31, 2014 was $0.1 million and $0.3 million, respectively. Compensation expense for PNQs recognized in operating expenses in each of the three and six months ended December 31, 2013 was $30,000. As of December 31, 2014 and June 30, 2014, there was $0.5 million and $0.9 million in unrecognized compensation cost related to PNQs.

Restricted Stock

The following table summarizes restricted stock activity for the six months ended December 31, 2014:

Outstanding and Nonvested Restricted Stock Awards:	Shares Awarded		Weighted Average Grant Date Fair Value ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2014	96,212		10.27	1.5	2,079
Granted	—		—	—	—
Exercised/Released(1)	(28,402	)	9.22	—	772
Cancelled/Forfeited	(8,984	)	8.36	—	—
Outstanding at December 31, 2014	58,826		11.06	1.2	1,732
Expected to vest, December 31, 2014	56,132		13.85	1.2	1,653

 ______________

(1) Includes 4,297 shares that were withheld to meet the employees' minimum statutory tax withholding and retired.

The aggregate intrinsic value of shares outstanding at the end of each period in the table above represents the total pretax intrinsic value, based on the Company’s closing stock price of $29.45 at December 31, 2014 and $21.61 at June 30, 2014, representing the last trading day of the applicable fiscal period.

Shares of restricted stock generally vest at the end of three years for eligible employees and officers who are employees. Shares of restricted stock generally vest ratably over a period of three years for directors. During the six months ended December 31, 2014, 28,402 shares of restricted stock vested, of which 4,297 shares were withheld to meet the employees' minimum statutory tax withholding and retired.

Compensation expense is recognized on a straight-line basis over the service period based on the estimated fair value of the restricted stock. Total compensation expense recognized in the three months ended December 31, 2014 and 2013 was $0.1 million and $0.2 million, respectively. Total compensation expense recognized in the six months ended December 31, 2014 and 2013 was $0.1 million and $0.3 million, respectively. As of December 31, 2014 and June 30, 2014, there was approximately $0.3 million and $0.7 million, respectively, of unrecognized compensation cost related to restricted stock.

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Employee Benefit Plans

6 Months Ended

Dec. 31, 2014

Compensation and Retirement Disclosure [Abstract]

Employee Benefit Plans

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. In addition, the Company contributes to two multiemployer defined benefit pension plans, one multiemployer defined contribution pension plan and seven multiemployer defined contribution plans other than pension plans that provide medical, vision, dental and disability benefits for active, union-represented employees subject to collective bargaining agreements. In addition, the Company sponsors a postretirement defined benefit plan that covers qualified non-union retirees and certain qualified union retirees and provides retiree medical coverage and, depending on the age of the retiree, dental and vision coverage. The Company also provides a postretirement death benefit to certain of its employees and retirees.

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 (loss) ("OCI") certain gains and losses that arise during the period but are deferred under pension accounting rules.

Single Employer Pension Plans

The Company has a defined benefit pension plan, the Farmer Bros. Co. Pension Plan for Salaried Employees (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 Farmer Bros. Plan, and new hires are not eligible to participate in the Farmer Bros. Plan. As all plan participants became inactive following this pension curtailment, net (gain) 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 collective bargaining agreements (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 December 31,						Six Months Ended December 31,
	2014			2013			2014			2013
(In thousands)
Service cost	$	97		$	100		$	194		$	200
Interest cost	1,415			1,452			2,830			2,904
Expected return on plan assets	(1,823		)	(1,705		)	(3,646		)	(3,410		)
Amortization of net loss(1)	303			336			606			672
Net periodic benefit (credit) cost	$	(8	)	$	183		$	(16	)	$	366

_____________

(1) These amounts represent the estimated portion of the net loss remaining in AOCI 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
	2015	2014
Discount rate	4.15%	4.50%
Expected long-term rate of return on plan assets	7.50%	8.00%

Basis Used to Determine Expected Long-Term Return on Plan Assets

The expected long-term return on plan assets assumption was developed as a weighted average rate based on the target asset allocation of the plan and the long-term capital market assumptions. The overall rate for each asset class was developed by combining a long-term inflation component and the associated expected real rates. The development of the capital market assumptions utilized a variety of methodologies, including, but not limited to, historical analysis, stock valuation models such as dividend discount models and earnings yields' models, expected economic growth outlook and market yields analysis.

Multiemployer Pension Plans

The Company participates in two multiemployer defined benefit pension plans that are union sponsored and collectively bargained for the benefit of certain employees subject to collective bargaining agreements, of which the Western Conference of Teamsters Pension Plan is individually significant. The Company makes contributions to these plans generally based on the number of hours worked by the participants in accordance with the provisions of negotiated labor contracts.

The risks of participating in multiemployer pension plans are different from single-employer plans in that: (i) assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers; (ii) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and (iii) if the Company stops participating in the multiemployer plan, the Company may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

In fiscal 2012, the Company withdrew from the Labor Management Pension Fund 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. Upon withdrawal, the employees covered under this multiemployer pension plan were included in the Company's 401(k) plan (the “401(k) Plan”). The short-term and long-term portions of this estimated withdrawal charge are reflected in current and long-term liabilities, respectively, on the Company’s consolidated balance sheets at December 31, 2014 and June 30, 2014. As of December 31, 2014, a final determination of liability has not been made by the pension plan administrator and installment payments have not commenced.

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 seven multiemployer defined contribution plans other than pension plans that provide medical, vision, dental and disability benefits for active, union-represented employees subject to collective bargaining agreements. The plans are subject to the provisions of the Employee Retirement Income Security Act of 1974, and provide that participating employers make monthly contributions to the plans in an amount as specified in the collective bargaining agreements. Also, the plans provide that participants make self-payments to the plans, the amounts of which are negotiated through the collective bargaining process. The Company's participation in these plans is governed by collective bargaining agreements which expire on or before January 31, 2020.

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 a percentage 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 2014 and 2013, 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 participant's first 5 years of vesting service, so that the 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 $0.7 million and $0.5 million in operating expenses in the six months ended December 31, 2014 and 2013, respectively.

Postretirement Benefits

The Company sponsors a postretirement defined benefit plan that covers qualified non-union retirees and certain qualified union retirees ("Retiree Medical Plan"). The plan provides medical, dental and vision coverage for retirees under age 65 and medical coverage only for retirees age 65 and above. 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, subject to a maximum monthly Company contribution.

The Company also provides a postretirement death benefit ("Death Benefit") to certain of its employees and retirees, subject, in the case of current employees, to continued employment with the Company until retirement and certain other conditions related to the manner of employment termination and manner of death. The Company records the actuarially determined liability for the present value of the postretirement death benefit. The Company has purchased life insurance policies to fund the postretirement death benefit wherein the Company owns the policy but the postretirement death benefit is paid to the employee's or retiree's beneficiary. The Company records an asset for the fair value of the life insurance policies which equates to the cash surrender value of the policies. 

Retiree Medical Plan and Death Benefit

The following table shows the components of net periodic postretirement benefit cost (credit) for the Retiree Medical Plan and Death Benefit for the three and six months ended December 31, 2014 and 2013. Net periodic postretirement benefit credit for the three and six months ended December 31, 2014 is based on employee census information as of July 1, 2014 and asset information as of June 30, 2014.

	Three Months Ended December 31,						Six Months Ended December 31,
	2014			2013			2014			2013
(In thousands)
Components of Net Periodic Postretirement Benefit Credit:
Service cost	$	299		$	(25	)	598			(50		)
Interest cost	235			163			470			405
Expected return on plan assets	—			—			—			—
Amortization of net gain	(125		)	(445		)	(250		)	(441		)
Amortization of unrecognized transition (asset) obligation	—			—			—			—
Amortization of net prior service credit	(439		)	(440		)	(878		)	(879		)
Net periodic postretirement benefit credit	$	(30	)	$	(747	)	$	(60	)	$	(965	)

Weighted-Average Assumptions Used to Determine Net Periodic Postretirement Benefit Cost 

	Fiscal
	2015	2014
Retiree Medical Plan discount rate	4.29%	4.80%
Death Benefit discount rate	4.48%	4.53%

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Bank Loan

6 Months Ended

Dec. 31, 2014

Debt Disclosure [Abstract]

Bank Loan

Bank Loan

On September 12, 2011, the Company entered into an Amended and Restated Loan and Security Agreement (the “Loan Agreement”) among the Company and Coffee Bean International, Inc. (“CBI”), as Borrowers, certain of the Company’s other subsidiaries, as Guarantors, the Lenders party thereto, and Wells Fargo Bank, National Association (“Wells Fargo”), as Agent.

On January 9, 2012, the Loan Agreement was amended in connection with JPMorgan Chase Bank, N.A. (“JPMorgan Chase”), becoming an additional Lender thereunder. On March 18, 2013, the Loan Agreement was amended further ("Amendment No. 2") to amend the definition of "Maximum Credit" available thereunder to $75.0 million from $85.0 million. Pursuant to Amendment No. 2, Wells Fargo agreed to provide a commitment of $53.0 million and JPMorgan Chase agreed to provide a commitment of $22.0 million.

On February 28, 2014, the Company entered into Amendment No. 3 to the Loan Agreement, which, among other things, amended the definition of "Applicable Margin" set forth in the Loan Agreement to provide for interest rates based on modified Monthly Average Excess Availability levels with a range of PRIME + 0% to PRIME + 0.50% or Adjusted Eurodollar Rate + 1.75% to Adjusted Eurodollar Rate + 2.25%. The Loan Agreement provides for a senior secured revolving credit facility of up to $75.0 million, with a letter of credit sublimit of $20.0 million. The revolving credit facility provides for advances of 85% of eligible accounts receivable and 75% of eligible inventory (subject to a $60.0 million inventory loan limit), as defined. The Loan Agreement has an amendment fee of 0.375% and an unused line fee of 0.25%. Outstanding obligations under the Loan Agreement are collateralized by all of the Borrowers’ assets, including the Company’s preferred stock portfolio. The Loan Agreement expires on March 2, 2015. Management cannot provide assurances that the Company will be able to refinance any of its indebtedness under the credit facility on commercially reasonable terms or at all.

The 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 Loan Agreement allows the Company to pay dividends, provided, among other things, certain liquidity requirements are met, the aggregate amount of all such payments in any fiscal year is not in excess of $7.0 million ($1.75 million in any fiscal quarter), and no event of default exists or has occurred and is continuing as of the date of any such payment and after giving effect thereto. The Loan Agreement also contains financial covenants requiring the Borrowers to maintain minimum Excess Availability and Total Liquidity levels. The Loan Agreement allows the Lenders 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.

Effective December 1, 2012, the Company entered into an interest rate swap transaction utilizing a notional amount of $10.0 million and a maturity date of March 1, 2015. The Company entered into the swap transaction to effectively fix the future interest rate during the applicable period on a portion of its borrowings under the revolving credit facility. The swap transaction was intended to manage the Company's interest rate risk related to its revolving credit facility and required the Company to pay a fixed rate of 0.48% per annum in exchange for a variable interest rate based on 1-month USD LIBOR-BBA. The Company terminated the swap transaction on March 5, 2014. As of December 31, 2014, the Company had no interest rate swap transactions in place.

The Company had not designated its interest rate swap as an accounting hedge. The Company recorded the interest rate swap on its consolidated balance sheets at fair value with the changes in fair value recorded as gain or loss in "Other, net" in its consolidated statements of operations. No such gain or loss was recorded in the three and six months ended December 31, 2014. The Company recorded a gain of $2,000 in the three months ended December 31, 2013 and a loss of $(4,000) in the six months ended December 31, 2013 for the change in fair value of its interest rate swap (see Note 2).

On December 31, 2014, the Company was eligible to borrow up to a total of $75.0 million under the credit facility. As of December 31, 2014, the Company had outstanding borrowings of $1.3 million, utilized $11.2 million of the letters of credit sublimit, and had excess availability under the credit facility of $62.5 million. At December 31, 2014, the weighted average interest rate on the Company's outstanding borrowings under the credit facility was 1.91%. As of December 31, 2014, the Company was in compliance with all restrictive covenants under the Loan Agreement.

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Income Taxes

6 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company adjusts its effective tax rate each quarter based on its current estimated annual effective tax rate. The Company also records the tax impact of certain discrete items, unusual or infrequently occurring tax events and the effects of changes in tax laws or rates, in the interim period in which they occur. In addition, the Company evaluates its deferred tax assets quarterly to determine if a valuation allowance is required.

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 this 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 that it will generate future earnings sufficient to realize the Company's net deferred tax assets. Accordingly, the Company is maintaining a valuation allowance against its net deferred tax assets. The Company decreased its valuation allowance by $1.2 million in the three months ended December 31, 2014 to $70.4 million. The valuation allowance at June 30, 2014 was $72.6 million. 

The Company will continue to monitor its cumulative three-year loss position together with all other available evidence, both positive and negative, in determining whether it is more likely than not that the Company will realize its net deferred tax assets. If the Company continues to be profitable, the Company may have enough positive evidence to release part or all of its valuation allowance against its net deferred tax assets during the second half of fiscal 2015.

A summary of the income tax expense recorded for the three and six months ended December 31, 2014 and 2013 is as follows:

	Three Months Ended December 31,						Six Months Ended December 31,
(In thousands)	2014			2013			2014			2013
Income before taxes	$	3,148		$	5,111		$	5,861		$	7,223
Income tax expense at statutory rate	1,070			1,738			1,993			2,456
State income tax expense, net of federal tax benefit	220			374			377			587
Valuation allowance	(1,235		)	(1,847		)	(2,211		)	(2,582		)
Other permanent items	197			137			291			248
Income tax expense	$	252		$	402		$	450		$	709

As of December 31, 2014 and June 30, 2014, the Company had no unrecognized tax benefits.

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Summary of Significant Accounting Policies - Self Insurance (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2014	Jun. 30, 2014	May 31, 2011
Accounting Policies [Abstract]
Workers' Compensation Liability	$ 10.5	$ 9.6
Loss Contingency, Estimated Recovery from Third Party, Amount	1.2	1.2
Letters of credit outstanding, amount	6.5		5.9
Medical insurance, reserve	0.9	0.8
Liability for Unpaid Claims and Claims Adjustment Expense, Gross	$ 0.5	$ 0.4

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Share-Based Compensation - Stock Option Activity (Details) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Jun. 30, 2014	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share Price	$ 29.45		$ 29.45		$ 21.61
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Proceeds from stock option exercises			$ 644,000	$ 125,000
Non-qualified Stock Options with Time-based Vesting (NQO) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested in Period, Fair Value			300,000
Proceeds from stock option exercises	100,000	100,000	600,000
2007 Amended and Restated Long-term Incentive Plan [Member] | Non-qualified Stock Options with Time-based Vesting (NQO) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Number of Outstanding Options	357,664		357,664		412,454
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding [Roll Forward]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	(42,656)
Number of Stock Options, Cancelled/Forfeited	(12,134)
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
Weighted Average Exercise Price, Beginning balance			$ 12.44
Weighted Average Exercise Price, Granted	$ 0.00
Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price	$ 15.12
Weighted Average Exercise Price, Cancelled/Forfeited	$ 10.31
Weighted Average Exercise Price, Ending balance	$ 12.20		$ 12.20		$ 12.44
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]
Weighted Average Grant Date Fair Value, Beginning balance			$ 5.30
Weighted average fair value of PNQs	$ 0.00
ShareBased Compensation Arrangement By ShareBased Payment Award,Options, Exercises In Period, Weighted Average Grant Date Fair Value	$ 5.74
Weighted Average Grant Date Fair Value, Cancelled/Forfeited	$ 4.91
Weighted Average Grant Date Fair Value, Ending balance	$ 5.26		$ 5.26		$ 5.30
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Intrinsic Value [Roll Forward]
Aggregate Intrinsic Value, Beginning balance	6,171,000		6,171,000		3,782,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Total Intrinsic Value	370,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Cancellations/Forfeitures in Period, Total Intrinsic Value	0
Aggregate Intrinsic Value, Ending balance	6,171,000		6,171,000		3,782,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Weighted Average Remaining Life, Beginning balance	4 years 0 months 0 days				4 years 4 months 24 days
Weighted Average Remaining Life, Ending balance	4 years 0 months 0 days				4 years 4 months 24 days
Options, Vested and exercisable, Outstanding	261,542		261,542
Options, Vested and exercisable, Weighted Average Exercise Price	$ 12.74		$ 12.74
Options, Vested and exercisable, Weighted Average Grant Date Fair Value	$ 5.32
Options, Vested and exercisable, Weighted Average Remaining Contractual Term	3 years 8 months 12 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value	4,370,000		4,370,000
Options, Vested and expected to vest, Outstanding	354,284		354,284
Options, Vested and expected to vest, Weighted Average Exercise Price	$ 12.20		$ 12.20
Options, Vested and expected to vest, Weighted Average Grant Date Fair Value	$ 5.26
Options, Vested and expected to vest, Exercisable, Weighted Average Remaining Life	4 years 0 months 0 days
Options, Vested and expected to vest, Aggregate Intrinsic Value	6,111,000		6,111,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Grant Date Intrinsic Value	$ 0
Allocated Share-based Compensation Expense	100,000	200,000	200,000	400,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options	400,000		400,000			1,000,000
2007 Amended and Restated Long-term Incentive Plan [Member] | Non-qualified Stock Options with Performance-based and Time-based Vesting (PNQ) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding [Roll Forward]
Number of Stock Options, Beginning balance			112,442
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	0
Number of Stock Options, Cancelled/Forfeited	(9,399)
Number of Stock Options, Ending balance	103,043		103,043		112,442
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
Weighted Average Exercise Price, Beginning balance			$ 21.27
Weighted Average Exercise Price, Granted	$ 0.00
Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price	$ 0.00
Weighted Average Exercise Price, Cancelled/Forfeited	$ 21.33
Weighted Average Exercise Price, Ending balance	$ 21.27		$ 21.27		$ 21.27
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]
Weighted Average Grant Date Fair Value, Beginning balance			$ 10.49
Weighted average fair value of PNQs	$ 0.00
ShareBased Compensation Arrangement By ShareBased Payment Award,Options, Exercises In Period, Weighted Average Grant Date Fair Value	$ 0.00
Weighted Average Grant Date Fair Value, Cancelled/Forfeited	$ 10.52
Weighted Average Grant Date Fair Value, Ending balance	$ 10.49		$ 10.49		$ 10.49
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Intrinsic Value [Roll Forward]
Aggregate Intrinsic Value, Beginning balance	843,000		843,000		38,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Total Intrinsic Value	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Cancellations/Forfeitures in Period, Total Intrinsic Value	0
Aggregate Intrinsic Value, Ending balance	843,000		843,000		38,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Weighted Average Remaining Life, Beginning balance	5 years 10 months 24 days
Weighted Average Remaining Life, Ending balance	5 years 10 months 24 days
Options, Vested and exercisable, Outstanding	33,167		33,167
Options, Vested and exercisable, Weighted Average Exercise Price	$ 21.33		$ 21.33
Options, Vested and exercisable, Weighted Average Grant Date Fair Value	$ 10.52
Options, Vested and exercisable, Weighted Average Remaining Contractual Term	5 years 9 months 18 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value	269,000		269,000
Options, Vested and expected to vest, Outstanding	96,676		96,676
Options, Vested and expected to vest, Weighted Average Exercise Price	$ 21.27		$ 21.27
Options, Vested and expected to vest, Weighted Average Grant Date Fair Value	$ 10.49
Options, Vested and expected to vest, Exercisable, Weighted Average Remaining Life	5 years 10 months 24 days				6 years 6 months 0 days
Options, Vested and expected to vest, Aggregate Intrinsic Value	791,000		791,000
Allocated Share-based Compensation Expense	100,000	30,000	300,000	30,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options	$ 500,000		$ 500,000		$ 900,000

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Dec. 31, 2014

Accounting Policies [Abstract]

Impact of Revisions To Prior issued Financial Statements

The accompanying unaudited consolidated statement of operations for the six months ended December 31, 2013 has been corrected for the errors described above. The following table presents the impact of these corrections:

Consolidated Statement of Operations Data	Six Months Ended December 31, 2013
(In thousands)	As Previously Reported			Adjustments			As Corrected
Net sales	$	270,712		$	1,946		$	272,658
Cost of goods sold	165,802			4,477			170,279
Gross profit	104,910			(2,531		)	102,379
Selling expenses	76,326			(1,390		)	74,936
General and administrative expenses	19,970			(1,141		)	18,829
Net gains from sales of assets	—			(50		)	(50		)
Operating expenses	96,296			(2,581		)	93,715
Income from operations	8,614			50			8,664
Other income (expense):
Dividend income	526			—			526
Interest income	218			—			218
Interest expense	(765		)	—			(765		)
Other, net	(1,370		)	(50		)	(1,420		)
Total other expense	(1,391		)	(50		)	(1,441		)
Income before taxes	7,223			—			7,223
Income tax expense	709			—			709
Net income	$	6,514		$	—		$	6,514

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Inventories (Tables)

6 Months Ended

Dec. 31, 2014

Inventory Disclosure [Abstract]

Schedule of Inventory, Current

(In thousands)	December 31, 2014		June 30, 2014
Coffee
Processed	$	18,364	$	17,551
Unprocessed	20,170		21,164
Total	$	38,534	$	38,715
Tea and culinary products
Processed	$	23,128	$	22,381
Unprocessed	3,916		4,598
Total	$	27,044	$	26,979
Coffee brewing equipment parts	$	5,099	$	5,350
Total inventories	$	70,677	$	71,044

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Share-Based Compensation - Narrative (Details) (USD $)	6 Months Ended		3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Jun. 30, 2014	Sep. 30, 2013
Employee Service Share-based Compensation, Allocation of Recognized Period Costs
Common Stock, Par or Stated Value Per Share	$ 1		$ 1		$ 1
Closing stock price	$ 29.45		$ 29.45		$ 21.61
Proceeds from stock option exercises	$ 644,000	$ 125,000
Non-qualified Stock Options with Time-based Vesting (NQO) [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs
Proceeds from stock option exercises	600,000		100,000	100,000
Non-qualified Stock Options with Time-based Vesting (NQO) [Member] | 2007 Amended and Restated Long-term Incentive Plan [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs
Unrecognized compensation cost	400,000		400,000			1,000,000
Allocated Share-based Compensation Expense	200,000	400,000	100,000	200,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			0
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price			$ 0.00
Non-qualified Stock Options with Performance-based and Time-based Vesting (PNQ) [Member] | 2007 Amended and Restated Long-term Incentive Plan [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs
Award vesting period			3 years
Unrecognized compensation cost	500,000		500,000		900,000
Allocated Share-based Compensation Expense	300,000	30,000	100,000	30,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			0
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price			$ 0.00
Restricted Stock [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs
Allocated Share-based Compensation Expense	$ 100,000	$ 300,000	$ 100,000	$ 200,000
Restricted stock granted			0
Restricted stock, Granted, Weighted Average Grant Date Fair Value			$ 0.00

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Investments - Gross Unrealized Losses (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Schedule of Trading Securities and Other Trading Assets
Trading Securities, Realized Gain (Loss)	$ (39)	$ (24)	$ (39)	$ (66)
Unrealized gains (losses) from trading securities held for investment	244	(31)	54	(684)
Preferred Stock [Member]
Schedule of Trading Securities and Other Trading Assets
Trading Securities, Realized Gain (Loss)	$ 205	$ (55)	$ 15	$ (750)

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Statement of Comprehensive Income [Abstract]
Net income	$ 2,896	$ 4,709	$ 5,411	$ 6,514
Other comprehensive income, net of tax:
Unrealized losses on derivative instruments designated as cash flow hedges	(5,915)	(2,260)	(2,583)	(5,385)
(Gains) losses on derivative instruments designated as cash flow hedges reclassified to cost of goods sold	(5,132)	3,735	(9,842)	5,954
Total comprehensive (loss) income, net of tax	$ (8,151)	$ 6,184	$ (7,014)	$ 7,083

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Fair Value Measurements

6 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

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 inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Inputs include quoted prices for similar instruments in active markets, and quoted prices for similar instruments in markets that are not active. Level 2 includes those financial instruments that are valued with industry standard valuation models that incorporate inputs that are observable in the marketplace throughout the full term of the instrument, or can otherwise be derived from or supported by observable market data in the marketplace.

• Level 3—Valuation is based upon one or more unobservable inputs that are significant in establishing a fair value estimate.  These unobservable inputs are used to the extent relevant observable inputs are not available and are developed based on the best information available. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

Securities with quotes that are based on actual trades or actionable bids and offers with a sufficient level of activity on or near the measurement date are classified as Level 1. Securities that are priced using quotes derived from implied values, indicative bids and offers, or a limited number of actual trades, or the same information for securities that are similar in many respects to those being valued, are classified as Level 2. If market information is not available for securities being valued, or materially-comparable securities, then those securities are classified as Level 3. In considering market information, management evaluates changes in liquidity, willingness of a broker to execute at the quoted price, the depth and consistency of prices from pricing services, and the existence of observable trades in the market.

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

December 31, 2014	Total		Level 1		Level 2		Level 3
Preferred stock(1)	$	23,687	$	19,157	$	4,530	$	—
Derivative instruments designated as cash flow hedges:
Coffee-related derivative assets	$	1,139	$	1,139	$	—	$	—
Coffee-related derivative liabilities	$	3,930	$	3,930	$	—	$	—
Derivative instruments not designated as accounting hedges:
Coffee-related derivative liabilities	$	929	$	929	$	—	$	—
June 30, 2014	Total		Level 1		Level 2		Level 3
Preferred stock(1)	$	22,632	$	18,025	$	4,607	$	—
Derivative instruments designated as cash flow hedges:
Coffee-related derivative liabilities	$	5,153	$	5,153	$	—	$	—
Derivative instruments not designated as accounting hedges:
Coffee-related derivative liabilities	$	862	$	862	$	—	$	—

____________________ 

(1) Included in "Short-term investments" on the consolidated balance sheets.

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

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Employee Benefit Plans (Tables)

6 Months Ended

Dec. 31, 2014

Pension Plan [Member]

Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]

Schedule of Net Periodic Benefit Costs

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

	Three Months Ended December 31,						Six Months Ended December 31,
	2014			2013			2014			2013
(In thousands)
Service cost	$	97		$	100		$	194		$	200
Interest cost	1,415			1,452			2,830			2,904
Expected return on plan assets	(1,823		)	(1,705		)	(3,646		)	(3,410		)
Amortization of net loss(1)	303			336			606			672
Net periodic benefit (credit) cost	$	(8	)	$	183		$	(16	)	$	366

_____________

(1) These amounts represent the estimated portion of the net loss remaining in AOCI that is expected to be recognized as a component of net periodic benefit cost over the current fiscal year.

Schedule of Weighted Average Assumptions Used

Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost

	Fiscal
	2015	2014
Discount rate	4.15%	4.50%
Expected long-term rate of return on plan assets	7.50%	8.00%

Other Postretirement Benefit Plan, Defined Benefit [Member]

Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]

Schedule of Net Periodic Benefit Costs

The following table shows the components of net periodic postretirement benefit cost (credit) for the Retiree Medical Plan and Death Benefit for the three and six months ended December 31, 2014 and 2013. Net periodic postretirement benefit credit for the three and six months ended December 31, 2014 is based on employee census information as of July 1, 2014 and asset information as of June 30, 2014.

	Three Months Ended December 31,						Six Months Ended December 31,
	2014			2013			2014			2013
(In thousands)
Components of Net Periodic Postretirement Benefit Credit:
Service cost	$	299		$	(25	)	598			(50		)
Interest cost	235			163			470			405
Expected return on plan assets	—			—			—			—
Amortization of net gain	(125		)	(445		)	(250		)	(441		)
Amortization of unrecognized transition (asset) obligation	—			—			—			—
Amortization of net prior service credit	(439		)	(440		)	(878		)	(879		)
Net periodic postretirement benefit credit	$	(30	)	$	(747	)	$	(60	)	$	(965	)

Schedule of Weighted Average Assumptions Used

Weighted-Average Assumptions Used to Determine Net Periodic Postretirement Benefit Cost 

	Fiscal
	2015	2014
Retiree Medical Plan discount rate	4.29%	4.80%
Death Benefit discount rate	4.48%	4.53%

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Derivative Financial Instruments - Pretax Effect of Derivative Instruments on Earnings and OCI (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Derivative Instruments, Gain (Loss) [Line Items]
Net losses recognized in accumulated other comprehensive income (effective portion)	$ (5,915)	$ (2,260)	$ (2,583)	$ (5,385)
Net losses recognized in earnings (ineffective portion)	(119)	(143)	(170)	(650)
Derivative Instruments Designated as Cash Flow Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Net gains (losses) recognized in earnings (effective portion)	$ 5,132	$ (3,735)	$ 9,842	$ (5,954)

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Dec. 31, 2014

Accounting Policies [Abstract]

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S‑X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete consolidated financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals, unless otherwise indicated) considered necessary for a fair presentation of the interim financial data have been included. Operating results for the three and six months ended December 31, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2015. Events occurring subsequent to December 31, 2014 have been evaluated for potential recognition or disclosure in the unaudited consolidated financial statements for the three and six months ended December 31, 2014.

The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2014, filed with the Securities and Exchange Commission (the “SEC”) on September 16, 2014 (the "2014 10-K").

Use of Estimates

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company reviews its estimates on an ongoing basis using currently available information. Changes in facts and circumstances may result in revised estimates and actual results may differ from those estimates.

Corrections to Previously Issued Financial Statements

Corrections to Previously Issued Financial Statements

Subsequent to the issuance of the Company’s consolidated financial statements for the period ended December 31, 2013, the Company identified certain errors in the consolidated statements of operations. Accordingly, the Company has corrected the accompanying unaudited consolidated statement of operations for the six months ended December 31, 2013 in order to comply with GAAP.

The corrections to the consolidated statements of operations include:

1. reclassification of fuel surcharges billed to customers previously netted against the Company's fuel expenses in "Selling expenses" to "Net sales";

2. reclassification of certain labor and overhead expenses previously included in "Selling expenses" and "General and administrative expenses" to "Cost of goods sold"; and

3. reclassification of “Net gains from sales of assets” previously presented within "Other, net" to a separate line item within "Income from operations.”

These errors had no impact on the amounts previously reported in the Company’s consolidated balance sheets, statements of cash flows and statements of comprehensive income (loss). Management has evaluated the materiality of these errors quantitatively and qualitatively, including the impact of the errors on gross profit and income from operations, and has concluded that the corrections of these errors are immaterial to the consolidated financial statements as a whole.

Derivative Instruments

Derivative Instruments

The Company purchases various derivative instruments to create economic hedges of its commodity price risk and interest rate risk. These derivative instruments consist primarily of futures and swaps. The Company reports the fair value of derivative instruments on its consolidated balance sheets in "Short-term derivative assets," "Other assets," "Short-term derivative liabilities," or "Long-term derivative liabilities." The Company determines the current and noncurrent classification based on the timing of expected future cash flows of individual trades and reports these amounts on a gross basis. Additionally, the Company reports cash held on deposit in margin accounts for coffee-related derivative instruments on a gross basis on its consolidated balance sheets in "Restricted cash," if restricted from withdrawal due to a net loss position in such margin accounts.

The accounting for the changes in fair value of the Company's derivative instruments can be summarized as follows:  

Derivative Treatment	Accounting Method
Normal purchases and normal sales exception	Accrual accounting
Designated in a qualifying hedging relationship	Hedge accounting
All other derivative instruments	Mark-to-market accounting

The Company enters into green coffee purchase commitments at a fixed price or at a price to be fixed (“PTF”). PTF contracts are purchase commitments whereby the quality, quantity, delivery period, price differential to the coffee "C" market price and other negotiated terms are agreed upon, but the date, and therefore the price at which the base “C” market price will be fixed has not yet been established. The coffee "C" market price is fixed at some point after the purchase contract date and before the futures market closes for the delivery month and may be fixed either at the direction of the Company to the vendor, or by the application of a derivative that was separately purchased as a hedge. For both fixed-price and PTF contracts, the Company expects to take delivery of and to utilize the coffee in a reasonable period of time and in the conduct of normal business. Accordingly, these purchase commitments qualify as normal purchases and are not recorded at fair value on the Company's consolidated balance sheets.

The Company accounts for certain coffee-related derivative instruments as accounting hedges in order to minimize the volatility created in the Company's quarterly results from utilizing these derivative contracts and to improve comparability between reporting periods. For a derivative to qualify for designation in a hedging relationship, it must meet specific criteria and the Company must maintain appropriate documentation. The Company establishes hedging relationships pursuant to its risk management policies. The hedging relationships are evaluated at inception and on an ongoing basis to determine whether the hedging relationship is, and is expected to remain, highly effective in achieving offsetting changes in fair value or cash flows attributable to the underlying risk being hedged. The Company also regularly assesses whether the hedged forecasted transaction is probable of occurring. If a derivative ceases to be or is no longer expected to be highly effective, or if the Company believes the likelihood of occurrence of the hedged forecasted transaction is no longer probable, hedge accounting is discontinued for that derivative, and future changes in the fair value of that derivative are recognized in “Other, net.”

For commodity derivative instruments designated as cash flow hedges, the effective portion of the change in fair value of the derivative is reported as accumulated other comprehensive income (“AOCI”) and subsequently reclassified into cost of goods sold in the period or periods when the hedged transaction affects earnings. Any ineffective portion of the derivative instrument's change in fair value is recognized currently in “Other, net.” Gains or losses deferred in AOCI associated with terminated derivative instruments, derivative instruments that cease to be highly effective hedges, derivative instruments for which the forecasted transaction is reasonably possible but no longer probable of occurring, and cash flow hedges that have been otherwise discontinued remain in AOCI until the hedged item affects earnings. If it becomes probable that the forecasted transaction designated as the hedged item in a cash flow hedge will not occur, any gain or loss deferred in AOCI is recognized in “Other, net” at that time. For derivative instruments that are not designated in a hedging relationship, and for which the normal purchases and normal sales exception has not been elected, the changes in fair value are reported in “Other, net.”

The following gains and losses on derivative instruments are netted together and reported in “Other, net” in the Company's consolidated statements of operations:

• Gains and losses on all derivative instruments that are not designated as cash flow hedges and for which the normal purchases and normal sales exception has not been elected; and

• The ineffective portion of unrealized gains and losses on derivative instruments that are designated as cash flow hedges.

The fair value of derivative instruments is based upon broker quotes. At December 31, 2014 and 2013, approximately 86% and 90%, respectively, of the Company's outstanding coffee-related derivative instruments were designated as cash flow hedges (see Note 2).

Coffee Brewing Equipment and Service

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 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.

Revenue Recognition

Revenue Recognition

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

The Company sells roast and ground coffee and tea to The J.M. Smucker Company ("J.M. Smucker") pursuant to a co–packing agreement. The Company recognizes revenue from the co-packing arrangement for the sale of tea on a net basis, net of direct costs of revenue, since the Company acts as an agent of J.M. Smucker in such transactions.

Net Income Per Common Share

Net Income Per Common Share

Net income per share (“EPS”) represents net income attributable to common stockholders divided by the weighted-average number of common shares outstanding for the period, excluding unallocated shares held by the Company's Employee Stock Ownership Plan ("ESOP"). Diluted EPS represents net income attributable to common stockholders divided by the weighted-average number of common shares outstanding, inclusive of the dilutive impact of common equivalent shares outstanding during the period. However, nonvested restricted stock awards (referred to as participating securities) are excluded from the dilutive impact of common equivalent shares outstanding in accordance with authoritative guidance under the two-class method. The nonvested restricted stockholders are entitled to participate in dividends declared on common stock as if the shares were fully vested and hence are deemed to be participating securities. Under the two-class method, net income attributable to nonvested restricted stockholders is excluded from net income attributable to common stockholders for purposes of calculating basic and diluted EPS.

Computation of EPS for the three months ended December 31, 2014 and 2013 includes the dilutive effect of 153,971 shares and 116,724 shares issuable under stock options, respectively, and computation of EPS for the six months ended December 31, 2014 and 2013 includes the dilutive effect of 141,741 shares and 79,356 shares issuable under stock options, respectively (see Note 11). Computation of EPS for the three months ended December 31, 2014 and 2013 excludes 988 shares and 157,962 shares issuable under stock options, respectively, because including them would be anti-dilutive. Computation of EPS for the six months ended December 31, 2014 and 2013 excludes 69,073 shares and 297,896 shares issuable under stock options, respectively, because including them would be anti-dilutive.

Dividends

Dividends

The Company’s Board of Directors has omitted the payment of a quarterly dividend since the third quarter of fiscal 2011. 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.

Impairment of Indefinite-lived Intangible Assets

Impairment of Indefinite-lived Intangible Assets

The Company performs its annual impairment test of indefinite-lived intangible assets as of June 30. Indefinite-lived intangible assets are not amortized but instead are reviewed for impairment annually, as well as on an interim basis if events or changes in circumstances between annual tests indicate that an asset might be impaired, by comparing their fair values to their carrying values. An impairment charge is recorded if the estimated fair value of such assets has decreased below their carrying value. There were no such events or circumstances during the six months ended December 31, 2014.

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

Long-Lived Assets, Excluding 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. 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. The estimated future cash flows are based upon, among other things, assumptions about expected future operating performance, and may differ from actual cash flows. 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. There were no such events or circumstances during the

Self Insurance

Self-Insurance

The Company is self-insured for workers’ compensation insurance subject to specific retention levels and uses 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. The estimated outstanding losses, including allocated loss adjustment expenses (“ALAE”), include case reserves, the development of known claims and incurred but not reported 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.

The Company accounts for its accrued liability relating to workers’ compensation claims on an undiscounted basis. The estimated gross undiscounted workers’ compensation liability relating to such claims was $10.5 million and $9.6 million, respectively, and the estimated recovery from reinsurance was $1.2 million as of December 31, 2014 and June 30, 2014. The short-term and long-term accrued liabilities for workers’ compensation claims are presented on the Company's consolidated balance sheets in "Other current liabilities" and in "Accrued workers' compensation liabilities," respectively. The estimated insurance receivable is included in "Other assets" on the Company's consolidated balance sheets.

Due to its failure to meet the minimum credit rating criteria for participation in the alternative security program for California self-insurers for workers’ compensation liability, the Company posted a $5.9 million letter of credit as a security deposit with the State of California Department of Industrial Relations Self-Insurance Plans. At December 31, 2014, this letter of credit continues to serve as a security deposit and has been increased to $6.5 million.

The estimated liability related to the Company's self-insured group medical insurance at December 31, 2014 and June 30, 2014 was $0.9 million and $0.8 million, respectively, 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.

General liability, product liability and commercial auto liability are insured through a captive insurance program. The Company retains the risk within certain aggregate amounts. Cost of the insurance through the captive program is accrued based on estimates of the aggregate liability claims incurred using certain actuarial assumptions and historical claims experience. The Company's liability reserve for such claims at each of December 31, 2014 and June 30, 2014, was $0.5 million.

The estimated liability related to the Company's self-insured group medical insurance, general liability, product liability and commercial auto liability is included on the Company's consolidated balance sheets in "Other current liabilities."

Recently Adopted Accounting Standards

Recently Adopted Accounting Standards

None.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2014-9, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-9”). ASU 2014-9 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-9 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption prohibited. The Company is in the process of assessing the impact of the adoption of ASU 2014-9 on its consolidated financial statements.

Income Tax, Policy

The Company adjusts its effective tax rate each quarter based on its current estimated annual effective tax rate. The Company also records the tax impact of certain discrete items, unusual or infrequently occurring tax events and the effects of changes in tax laws or rates, in the interim period in which they occur. In addition, the Company evaluates its deferred tax assets quarterly to determine if a valuation allowance is required.

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 this 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 that it will generate future earnings sufficient to realize the Company's net deferred tax assets. Accordingly, the Company is maintaining a valuation allowance against its net deferred tax assets. The Company decreased its valuation allowance by $1.2 million in the three months ended December 31, 2014 to $70.4 million. The valuation allowance at June 30, 2014 was $72.6 million. 

The Company will continue to monitor its cumulative three-year loss position together with all other available evidence, both positive and negative, in determining whether it is more likely than not that the Company will realize its net deferred tax assets. If the Company continues to be profitable, the Company may have enough positive evidence to release part or all of its valuation allowance against its net deferred tax assets during the second half of fiscal 2015.

A summary of the income tax expense recorded for the three and six months ended December 31, 2014 and 2013 is as follows:

	Three Months Ended December 31,						Six Months Ended December 31,
(In thousands)	2014			2013			2014			2013
Income before taxes	$	3,148		$	5,111		$	5,861		$	7,223
Income tax expense at statutory rate	1,070			1,738			1,993			2,456
State income tax expense, net of federal tax benefit	220			374			377			587
Valuation allowance	(1,235		)	(1,847		)	(2,211		)	(2,582		)
Other permanent items	197			137			291			248
Income tax expense	$	252		$	402		$	450		$	709

As of December 31, 2014 and June 30, 2014, the Company had no unrecognized tax benefits.