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Farmer Bros. Co. Reports Third Quarter Fiscal 2013 Results

"We are pleased with our third quarter financial performance, in terms of our 4% revenue growth over the third quarter of the prior fiscal year and also our gross margin level of 39%, which was almost a 300 basis point improvement over the third quarter of the prior fiscal year," stated Michael Keown, Farmer Bros. President and Chief Executive Officer. Mr. Keown continued "This top-line growth and margin expansion in the quarter has allowed us to make further strategic investments in our sales team capabilities and in new product initiatives. Early customer feedback on the improvements to our tea products and re-branding under the Farmer Brothers brand is encouraging and the products are scheduled to ship in conjunction with the summer season."

Total other expense in the third quarter of fiscal 2013 was $0.9 million compared to $2.0 million in the third quarter of the prior fiscal year. Total other expense in the third quarter of fiscal 2013 included $2.9 million in net realized and unrealized losses on coffee-related derivatives, compared to $3.3 million in the third quarter of the prior fiscal year.

The Company has adopted a hedging strategy intended to establish predictable prices for future supply of green coffee with futures contracts that it purchases for certain of its national customer accounts as well as for its own account, for longer periods of time than was done previously because the cost of coffee significantly declined during the last 12 to 18 months, making these long-term futures contracts relatively less expensive than they had been previously. Since the coffee-related derivatives are not designated as accounting hedges, in accordance with generally accepted accounting principles, the Company recognized these net unrealized and realized losses immediately in its consolidated statements of operations as the derivative contracts were re-valued to their market prices. These losses are expected to be offset by future derivative gains as the coffee market changes, recovered through operating income as a result of the lower cost of goods assigned to the related coffee or recovered from customers for whom contracts were purchased for their accounts.

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