FARMER BROTHERS CO - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2004
Commission file number: 0-1375

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)

Registrant's telephone number, including area code: (310)787-5200

Securities registered pursuant to Section 12(g) of the Act:

Title of each class Name of each exchange on which
registered
Common stock, $1.00 par value NASDAQ

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 [X] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES [X] NO [ ]

The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the closing price at which the Farmer
Bros. Co. common stock was sold on June 30, 2004 was approximately $181
million.

On September 13, 2004 Registrant had 16,075,080 shares outstanding of its
common stock, par value $1.00 per share, which is the registrant's only class
of common stock.

PART I

Item 1. Business

General: Farmer Bros. Co. (the "Company", "we", "our" or "FBC") is a
manufacturer and distributor of coffee and spices to the institutional food
service segment. The Company was incorporated in California in 1923, and
reincorporated in Delaware in 2004.

Our product line is specifically focused on the needs of our market segment:
restaurants and other institutional food service establishments that prepare
and market meals, including hotels, hospitals, convenience stores and fast
food outlets. The product line includes roasted coffee, coffee related
products such as coffee filters, sugar and creamers, assorted teas, cocoa,
spices, and soup and beverage bases. The product line presently includes over
300 items. Roasted coffee products make up about 50% of total sales. No
single product other than coffee accounts for 10% or more of revenue. Coffee
purchasing, roasting and packaging takes place at our Torrance, California
plant, which is also the distribution hub for our branches.

Sales are made "off-truck" to our institutional food service customers at
their places of business by our own sales representatives who are responsible
for soliciting, selling, collecting from and otherwise maintaining our
customer accounts.

Raw Materials and Supplies: Our primary raw material is green coffee, an
agricultural commodity. Coffee is mainly grown outside the United States and
can be subject to volatile price fluctuations. Weather, political events,
labor actions and armed conflict in coffee producing nations, and government
actions, including treaties and trade controls between the US and coffee
producing nations, can affect the price of green coffee.

Green coffee prices can also be affected by the actions of producer
organizations. The most prominent of these are the Colombian Coffee
Federation (CCF), the Association of Coffee Producing Countries (ACPC) and the
International Coffee Organization (ICO). These organizations seek to increase
green coffee prices largely by attempting to restrict supplies, thereby
limiting the availability of green coffee to coffee consuming nations. In
recent years the green coffee market has been influenced by additional
production from a variety of producers, notably Vietnam and Brazil. These
additional supplies have had the tendency to hold prices down.

Other raw materials used in the manufacture of allied products include a
wide variety of spices, including pepper, chilies, oregano & thyme, as well as
cocoa, dehydrated milk products, salt and sugar. These agricultural products
can be subject to wide cost fluctuation. Cost fluctuations of these other
products historically have not had a material effect on operating results.

Trademarks & Patents: We own approximately 38 registered U.S. trademarks,
which are integral to customer identification of our products. It is not
possible to assess the impact of the loss of such identification.

Seasonality: We experience some seasonal influences. The winter months are
the best sales months. However, our product line and geographic diversity
provide some sales stability during the warmer months when coffee consumption
ordinarily decreases. Additionally, the summer months usually experience an
increase in sales to seasonal businesses located in vacation areas.

Distribution: Our selling divisions distribute our products to our
institutional food service customers at their places of business by our sales
representatives. These distribution trucks are replenished from warehouses
located in most large cities in the western United States. We operate our own
long haul trucking fleet to more effectively control the supply of products to
these warehouses. Inventory levels are maintained at each location
sufficient to provide each branch warehouse with a complete product line and
sufficient safety stocks to accommodate a modest interruption in supply.

Customers: No customer represents a significant concentration of sales.
The loss of one or more of our larger customer accounts would have no
material adverse effect on our operations. Customer contact and service
quality, which are integral to our sales effort, are often secondary to
product pricing for customers with their own distribution systems. Such
customers can be very price sensitive.

Competition: We face competition from many sources, including the
institutional food service divisions of multi-national manufacturers of retail
products such as Procter & Gamble (Folgers Coffee), Kraft Foods (Maxwell House
Coffee) and Sara Lee Foods (Superior Coffee), wholesale grocery distributors
such as Sysco and US Food Service and regional institutional coffee roasters
such as Boyd Coffee Company and Lingle Bros. Coffee. We may have some
competitive advantages due to our longevity, strong regional roots and sales
and service force. Our customer base is price sensitive and we are often
faced with price competition.

Working Capital: We finance our operations internally, and we believe that
working capital from internal sources will be adequate for the coming year.

Foreign Operations: We have no material revenues that result from foreign
operations.

Other: On June 30, 2004, we employed 1,104 employees; 461 are subject to
collective bargaining agreements. The effects of compliance with
government provisions regulating discharge of materials into the
environment have not had a material effect on our financial condition or
results of operations. The nature of our business does not provide for
maintenance of or reliance upon a sales backlog.

We file reports electronically with the Securities and Exchange Commission,
including Forms 10-K, 10-Q, 8-K and amendments thereto. The public may read
and copy any materials filed with the SEC at the SEC's Public Reading Room at
450 Fifth Street, NW, Washington, DC 20549. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-
0330. The SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC; the site address is http://www.sec.gov.

Registrant's Internet website address was http://www.farmerbroscousa.com. The
site has been closed for upgrading. When the site reopens, Registrant's Forms
3,4 and 5 as well as its Annual Report to Stockholders, Forms 10-K, 10-Q and 8-
K reports and amendments thereto will be available on the website. Until that
time, SEC reports are available to the public on a real time basis on the
Commission's EDGAR website described above. For those unable to access the
Commission's website, the Company will make paper copies of its form 10-K, 10-
Q and 8-K filings and amendments thereto available without charge upon written
request addressed to Mr. John E. Simmons, Chief Financial Officer, Farmer
Bros. Co., 20333 S. Normandie Avenue, Torrance, CA 90502.

Item 2. Properties

Our largest and most significant facility is the roasting plant, warehouses
and administrative offices in Torrance, California. This facility is our
primary manufacturing facility and the distribution hub for our fleet.
We stage products in 100 small branch warehouses throughout our service area.
These warehouses, taken together, represent a vital part of our business, but
no individual warehouse is material to the group as a whole; most warehouses
vary in size from 2,500-12,000 sq. feet. We believe the existing plant and the
distribution warehouses will continue to provide adequate capacity for the
foreseeable future.

A complete list of facilities is found in Exhibit (99).

Item 3. Legal Proceedings

We are both defendant and plaintiff in various legal proceedings incidental
to our business which are ordinary and routine. It is our opinion that the
resolution of these lawsuits will not have a material impact on our financial
condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders. None.

Executive Officers of Registrant

Name Age Position Last Five Years

Roy E. Farmer 52 Chairman since June 16, 2004, President, Chief
Executive since 2003, Chief Operating Officer
previously.
Guenter W. Berger 67 Vice President - Production
Michael J. King 59 Vice President - Sales since August 2004,
National Sales Manager previously
John E. Simmons 53 Treasurer, Chief Financial Officer
John M. Anglin (1) 57 Secretary since 2003, and Partner in Law Firm of
Anglin, Flewelling, Rasmussen, Campbell &
Trytten, LLP, Pasadena, California since 2002;
partner in Law Firm of Walker, Wright, Tyler
and Ward, LLP, Los Angeles, California,
previously.

(1) Anglin, Flewelling, Rasmussen, Campbell & Trytten LLP provides legal
services to the Company.

All officers are elected annually by the Board of Directors and serve at the
pleasure of the Board.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters

We have one class of common stock which is traded on the NASDAQ national
market under the symbol "FARM". On March 4, 2004, a ten-for-one stock split in
the form of a one-time stock dividend was declared. Each stockholder of record
on April 23, 2004 received nine additional shares for every share of Farmer
Bros. common stock held. The new shares were registered on the books of the
Corporation at the close of business on May 10, 2004. Share and per share
amounts have been restated to reflect the split. The following table sets
forth the high and low sales prices of the shares of Common Stock of the
Company. Prices are as reported on the NASDAQ National Market and represent
prices between dealers, without including retail mark up, mark down or
commission, and do not necessarily represent actual trades.

2004 2003
High Low Dividend High Low Dividend
1st Quarter $35.478 $31.750 $0.095 $35.600 $30.400 $0.090
2nd Quarter $33.349 $30.520 $0.095 $33.500 $30.101 $0.090
3rd Quarter $36.200 $30.100 $0.095 $31.999 $30.350 $0.090
4th Quarter $39.394 $25.110 $0.095 $36.599 $30.324 $0.090

There were 3,017 holders of record on September 10, 2004. Holders of record is
based upon the number of record holders and individual participants in security
position listings.

Item 6. Selected Financial Data
(In thousands, except per share data)

2004 2003 2002 2001 2000
Net sales $193,589 $201,558 $205,857 $215,431 $218,688
Income from operations $ 3,763 $23,888 $38,210 $42,115 $48,965
Net Income $12,687 $23,629 $30,569 $36,178 $37,576
Net income per share (b) $0.81 $1.30 $1.65 $1.96 $2.02

Proforma net income (a) $36,488 $35,445
Proforma net income per share (b) $1.98 $1.91

Total assets $317,871 $416,415 $417,524 $390,395 $353,467
Dividends per share (b) $0.38 $0.36 $0.34 $0.32 $0.30

(a) Upon adoption of Statements of Financial Accounting Standards ("SFAS") No.
133 on July 1, 2000, the Company reclassified its investments held as
"available for sale" to the "trading" category which resulted in an entry to
recognize the accumulated unrealized loss of $3,894,000. The "proforma"
amounts above summarize the effect on earnings and earnings per share on prior
years' results as if the change had been in effect for those periods presented.

(b) All share and per share disclosures have been split-adjusted.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis discusses the results of operations as
reflected in the Company's consolidated financial statements. The following
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of many factors.
The results of operations for the years ended June 30, 2004, 2003 and 2002 are
not necessarily indicative of the results that may be expected for any future
period. The following discussion should be read in combination with the
consolidated financial statements and the notes thereto included in Item 8 of
this report and with the "Risk Factors" described below.

Critical Accounting Policies

Management's discussion and analysis of financial condition and results of
operations is based upon our consolidated financial statements, which have
been prepared in accordance with U.S. generally accepted accounting
principles. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates,
including those related to inventory valuation, including LIFO reserves, the
allowance for doubtful accounts, deferred tax assets, liabilities related to
retirement benefits, liabilities resulting from self-insurance of our worker's
compensation liabilities, and litigation. We base our estimates on historical
experience and other relevant factors that are believed to be reasonable under
the circumstances.

While we believe that the historical experience and other factors considered
provide a meaningful basis for the accounting policies applied in the
preparation of the consolidated financial statements, actual results may
differ from these estimates, which could require the Company to make
adjustments to these estimates in future periods.

Investments: Our investments consist of investment grade marketable debt
instruments issued by the US Government and major US and foreign corporations,
equity securities, primarily preferred stock, and various derivative
instruments, primarily exchange traded treasury futures and options, green
coffee forward contracts and commodity purchase agreements. All derivatives
not designated as accounting hedges are marked to market and changes are
recognized in current earnings. The fair value of derivative instruments is
based upon broker quotes where possible.

Allowance for Doubtful Accounts: We maintain an allowance for estimated
losses resulting from the inability of our customers to meet their
obligations. Our ability to maintain a relatively small reserve is directly
related to our ability to collect from our customers when our sales people
regularly interact with our customers in person. This method of operation has
provided us with a historically low bad debt experience.

Inventories: Inventories are valued at the lower of cost or market and the
costs of coffee and allied products are determined on the last in, first out
(LIFO) basis. Costs of coffee brewing equipment manufactured are accounted
for on the first in, first out (FIFO) basis. We regularly evaluate these
inventories to determine that market conditions are correctly reflected in the
recorded carrying value.

Self-Insurance Retention: We are self-insured for California workers'
compensation insurance and use historical analysis to determine and record
the estimates of expected future expenses resulting from worker's compensation
claims. Additionally, we accrue for estimated losses not covered by insurance
for liability, auto, medical and fire up to the deductible amounts.

Retirement Plans: We have two defined benefit plans that provide retirement
benefits for the majority of our employees (the balance of our employees are
covered by union defined benefit plans). We obtain actuarial valuations for
both plans and at present we discount the pension obligations using 5.60%
discount rate and we estimate an 8% return on plan assets. Our retiree
medical plan is not funded and shares the same discount rate as the defined
benefit plans. We also project an initial medical trend rate of 10%
ultimately reducing to 5.5% in 6 years.

The performance of the stock market and other investments as well as the
overall health of the economy can have a material effect on pension investment
returns and these assumptions. A change in these assumptions could have an
effect on operating results.

Income Taxes: Deferred income taxes are determined based on the temporary
differences between the financial reporting and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which
differences are expected to reverse. We do not presently have a valuation
allowance for our deferred tax assets as we currently believe it is more
likely than not that we will realize our deferred tax assets.

Liquidity and Capital Resources

We have been able to maintain a strong working capital position, and
believe that our short and long term cash requirements for the coming
year will be provided by internal sources.

As reported in the Form 10-Q/A dated February 18, 2004, on December 24, 2003,
the Company purchased 443,845 shares (pre-split) of its common stock held by
the Crowe Family and related trusts for approximately $111 million, or
approximately $250 per share (pre-split). Concurrently with this purchase, the
Company offered its Employee Stock Ownership Plan (ESOP) the opportunity to
acquire 124,939 shares (pre-split) at the same price. This portion of the
transaction was completed on January 11, 2004 when the Company issued said
shares to the ESOP. This fulfilled a previously announced commitment to fund
the ESOP with 300,000 shares (pre-split) by completing the purchase at a
significant discount to market price. The closing price for Farmer Bros. Co.
common stock on December 24, 2003 was $316 per share (pre-split). Please
review Note 11 to the accompanying financial statements for additional
information.

The transaction can be summarized as follows:

Cost of shares purchased $ 111,161,000
Cost of shares retired 79,926,000
Cost of shares transferred to ESOP 31,235,000

The ESOP, established in 2000 for all Farmer Bros. Co. employees, is a
leveraged ESOP. This compensation plan allocates shares to employees as the
Company makes its annual benefit contribution to the plan. The shares are held
for employees by a third party trustee. When employees retire or leave the
Company, they can receive the stock or cash. Cash amounts are based on the
market price of the stock. The Company must make a market in the stock for
the ESOP participants. At this time, based on allocated shares, the Company
has a re-funding liability of approximately $10,000,000.

Our working capital is composed of the following:

(In thousands)
2004 2003 2002
Current assets $252,720 $346,617 $348,434
Current liabilities $21,189 $16,659 $16,259
Working capital $231,531 $329,958 $332,175
Capital expenditures $ 7,683 $9,089 $5,039

We have no major commitments for capital expenditures at this time. The
following projects will require a commitment of funds:

1. We have started construction of a warehouse in Chico, California and
expect to begin construction shortly of another building in Bakersfield,
California to replace existing facilities in those locations. We expect to
complete construction in time to occupy both new warehouses before the end of
fiscal 2005. The combined cost of improvements for the two warehouses is not
expected to exceed $4,000,000.

2. We have completed the second year of a multi-year upgrading of our
internal management information system. To date we have expended $13.9
million for hardware, software, infrastructure, training, consulting and on-
going support. Our financial systems (general ledger, accounts receivable,
accounts payable, fixed assets and payroll) were converted to the new system
on July 1, 2003. On September 1, 2004, we converted our manufacturing systems
and expect to convert our sales systems before the end of fiscal 2005. Costs
to complete this project, including software, hardware and consulting &
configuration of software in 2005, may exceed $7,000,000, not including the
added fixed costs to maintain the new system.

Results of Operations

Years ended June 30, 2004 and 2003

Net sales in fiscal 2004 decreased $7,969,000, or 4%, to $193,589,000 from
$201,558,000 in fiscal 2003. This includes a decrease in coffee brewing
equipment sales during fiscal 2004 of $3.9 million.

Our sales force has persisted in its efforts throughout this recession. We
expect better results as the economy begins to improve. Some improvement has
been noted. Comparing fourth quarter 2004 to fourth quarter 2003, two of our
ten selling divisions had sales declines of less than 1% and one, in the
Mississippi Valley, had a 2.6% sales increase. Some trade reports as well as
published operating results from some restaurant operators seem to indicate
that restaurant sales have improved. The National Restaurant Association has
forecasted that industry sales will increase 4.4% for calendar 2004. A trade
publication, The Restaurant News, reports that restaurant sales in the first
four months of calendar 2004 were 3.4 percent higher than during the same
period of calendar 2003. We have not kept pace with this trend but we note
that regional results often do not reflect national averages. Our California
operations, representing our largest marketing area, continue to show limited
improvement.

Consumer sentiment and spending patterns are not enhanced by rising commodity
prices (leading to higher grocery store and menu prices), record high gasoline
prices (which can have an emotional effect on discretionary spending), and
uncertainty about job stability, terrorism and the Iraq war (which can lead to
just staying home).

Cost of goods sold in fiscal 2004 increased 1% to $71,405,000, or 37% of
sales, as compared to $70,662,000, or 35% of sales, in 2003. The average cost
of green coffee throughout fiscal 2004 has exceeded that of fiscal 2003 by
15%. Through price adjustments we were, on average, able to maintain margins
for the current year, although shrinking gross profit margins were experienced
during the last half of the fiscal year. Selling and General & Administrative
Expenses in 2004 increased 11% to $118,421,000 from $107,008,000 in fiscal
2003.

This increase is primarily attributed to costs associated with employee
benefits, including actuarially derived pension and retiree medical costs, the
cost of the ESOP, legal expenses, including those related to a stockholder
lawsuit during 2004 and reincorporation in Delaware, and our multiyear program
to update our information systems as well as the direct costs of our
Sarbanes-Oxley Act of 2002 ("SOX") compliance work related to Section 404.

2004 2003

Employee benefits $14,104 $11,578
ESOP 6,298 4,637
Legal expenses 2,267 650
IT project expenses 3,400 698
SOX compliance 360 0
total $26,429 $17,563

As a result of these factors, operating income in 2004 decreased 83% to
$3,763,000 from $23,888,000 in the prior fiscal year.

Other income decreased 11% to $12,219,000 in fiscal 2004 as compared to
$13,683,000 in fiscal 2003. Low interest rates have limited investment
returns, and the expenditure of more than $100 million to purchase stock
reduced the amount available for investment. Additionally, the Company's
Chairman, Roy F. Farmer, who guided the Company for more than 50 years, died
on March 16, 2004 (as more fully described in a Form 8-K filed March 16,
2004). The Company received payment of a key man life insurance policy on Mr.
Farmer that is not taxable and paid the deferred compensation due Mr. Farmer.
The Company prevailed in a lawsuit against the California Franchise Tax Board
regarding taxability of dividends. As a result we received a tax refund of
$811,000 and interest income of $629,000. The Company received another court
award, as a plaintiff in a class-action lawsuit regarding price-fixing by
sellers of monosodium glutamate. The non-recurring items in other income
include the following.

Key man life insurance $4,088,000
Court award 1,061,000
Interest on state tax refunds 629,000
Total $5,778,000

Net income for fiscal 2004 decreased 46% to $12,687,000 as compared to
$23,629,000 in fiscal 2003. Income per share decreased 38% in fiscal 2004 to
$0.81 per share as compared to $1.30 per share in fiscal 2003.

Years ended June 30, 2003 and 2002

Net sales in fiscal 2003 decreased 2.1% to $201,558,000 as compared to
$205,857,000 in fiscal 2002. During this period the Company continued to
experience a decline in coffee sales. There are a number of trends that we
believe affect this result.

Fiscal 2003 was the third year of an economic downturn that has been especially
hard on our core service area of California. Our entire 28 state service area
has felt the combination of lay-offs, job uncertainty and the high cost of
living that can restrict consumer spending. Our primary market is the
independently owned and operated restaurant and restaurant chains. A weaker
economy is especially hard on these entrepreneurs who do not have the
geographic or "thematic" diversity of the large restaurant chains. The
success of coffee shops selling specialty coffees has spawned many imitators.
Although we compete favorably with our own line of specialty coffees, our
customers feel the effect of fewer sales dollars (in part because of the
recession) being divided among more direct competitors.

Green coffee costs for fiscal 2003 increased approximately 25% over those of
fiscal 2002. As a result gross profit decreased 5.2% to $130,896,000, or 65%
of sales, in fiscal 2003 as compared to $138,093,000, or 67% of sales, in
fiscal 2002.

Selling expenses for the 2003 fiscal year increased 3.1% to $88,658,000 as
compared to $86,025,000 in fiscal 2002. General and administrative expenses
increased 32.4% in fiscal 2003 to $18,350,000 as compared to $13,858,000 in
fiscal 2002. Operating expenses, composed of selling and general and
administrative expenses, increased $7,125,000, or 7.1%, to $107,008,000 during
fiscal 2003, or 53% of sales, as compared to $99,883,000, or 49% of sales, in
fiscal 2002. This increase primarily reflects additional costs in the
following order: ESOP $1,886,000; computer consulting and training $1,309,000;
insurance (including workers compensation) $1,300,000; life insurance
$1,045,000; defined benefit and post retirement benefit plan costs $997,000;
and the cost of coffee brewing equipment $897,000. These were partially offset
by decreases in legal expenses $941,000 and payroll $815,000.

Other income in fiscal 2003 increased $2,533,000 or 22.7% to $13,683,000 as
compared to $11,150,000 in fiscal 2002. This is primarily the result of the
volatility of the capital markets introduced by an accounting change in 2001
that required unrealized gains and losses on investments to be realized as
incurred. Prior to that time our hedging efforts reduced much of this
volatility. Interest rates declined throughout fiscal 2003. The major
components of this change from 2002 included an increase in unrealized gains of
$5,607,000, offset by decreases in interest income of $3,287,000 and realized
losses $1,897,000 and realized gains $1,864,000.

Pretax income in fiscal 2003 decreased 23.9% to $37,571,000, or 18.6% of
sales, as compared to $49,360,000, or 24% of sales, in fiscal 2002. Net
income in fiscal 2003 decreased 22.7% to $23,629,000, or 11.7% of sales, as
compared to $30,569,000, or 14.9% of sales in fiscal 2002. Earnings per share
in fiscal 2003 decreased 21.3% to $13.02 as compared to $16.54 in fiscal 2002.

Risk Factors

Certain statements contained in this Annual Report on Form 10-K regarding the
risks, circumstances and financial trends that may affect our future operating
results, financial position and cash flows may be forward-looking statements
within the meaning of federal securities laws. These statements are based on
management's current expectations, assumptions, estimates and observations
about our business and are subject to risks and uncertainties. As a result,
actual results could materially differ from the forward looking statements
contained herein. These forward-looking statements can be identified by the
use of words like "expects," "plans," "believes," "intends," "will," "assumes"
and other words of similar meanings. These and other similar words can be
identified by the fact that they do not relate solely to historical or current
facts. While we believe our assumptions are reasonable, we caution that it is
impossible to predict the impact of such factors which could cause actual
results to differ materially from predicted results. We intend these forward-
looking statements to speak only at the time of this report and do not
undertake to update or revise these projections as more information becomes
available. For these statements, we claim the protection of the safe harbor
for forward-looking statements provided by the Private Securities Litigation
Reform Act of 1995.

Factors that could cause our actual results to materially differ from those
expressed or implied by any forward-looking statements described herein
include:

Green coffee price volatility.
Our results of operations can vary dramatically with the volatility of the
green coffee market. Coffee is mainly grown outside the United States and can
be subject to volatile price fluctuations. Weather, real or perceived
shortages, labor actions and political unrest in coffee producing nations, and
government actions, including treaties and trade controls between the US and
coffee producing nations, can affect the price of green coffee. Price
volatility can result in dramatic cost increases that cannot, because of
competition and market conditions, be immediately passed on to our customers.

Competition.
Competition comes in many forms. We compete with other coffee companies,
include multi-national firms with vast financial resources. Large roasters
like Folgers (Proctor & Gamble) and Maxwell House (Kraft) have volumes far in
excess of ours, with a business model and information and distribution
technologies that are substantially different from ours. We compete for a
wide variety of customers, from small restaurants and donut shops to large
institutional buyers like hospitals, hotels, contract food services and
convalescent hospitals. At Farmer Bros. we differentiate ourselves from our
competitors by the quality of our products and customer service. Some
customers are "price" buyers, seeking the low cost provider with little
concern about service; others find great value in the service programs we
provide. We compete well when service is valued, and are less effective when
only price matters. Some of our competitors do not do their own distribution,
and some customers do.

We also compete with other beverages. There are many beverages, hot and cold,
competing for the same restaurant dollar. Our restaurant customers report that
competition from such beverages continues to dilute demand for coffee.
Consumers who choose soft drinks, bottled water, and flavored coffees and teas
are all reducing the restaurant dollar formerly spent on a "standard" cup of
coffee. Some restaurants that only sell coffee and flavored coffee products
may have expanded the beverage market somewhat, but these coffee shops have
also taken market share from existing Farmer Bros. customers. Although we
have a line of products that compares favorably with products sold in such
"specialty coffee" stores, most of our customers are restaurants that do not
specialize in coffee drinks.

Sales and Distribution Network.
We believe our sales and distribution network is one of the best in the
industry. This network is costly to maintain. Costs include the fluctuating
cost of gasoline, diesel and oil, the costs associated with managing,
purchasing, maintaining and insuring a fleet of delivery vehicles, the costs of
maintaining distribution warehouses throughout the country, the costs of
hiring, training and managing our route sales professionals. Many of these
costs are beyond our control, and others are more in the nature of fixed than
variable costs. Some competitors use alternate methods of distribution that
eliminate some of the costs associated with our method of distribution.

General economic and market conditions.
Our primary market is restaurants and other food service establishments. We
also provide coffee and related products to offices. We believe the success
of our market segment is dependent upon personal and business expenditures in
restaurants and other food service businesses. In a slow economy, businesses
and individuals scale back their discretionary spending on travel and
entertainment, including "dining out." Economic conditions may also cause
businesses to reduce travel and entertainment expenses, and even cause office
coffee benefits to be eliminated.

Self insurance.
We are self-insured for many risks up to significant deductible amounts.
The premiums associated with our insurance have recently increased
substantially. General liability, fire, workers' compensation, directors and
officers liability, life, employee medical, dental and vision and automobile
present a large potential liability. While we accrue for this liability based
on historical experience, future losses may exceed losses we have incurred in
the past.

Risks from possible acquisitions and new business ventures.
The Company regularly evaluates opportunities that may enhance stockholder
value. There is no assurance that any such venture, should we decide to enter
into one, will accrue the projected returns. It is possible that such
ventures could result in losses or returns that would have a negative impact
on operating income.

ESOP.
The Farmer Bros. Co. Employee Stock Ownership Plan was designed to help us
attract and retain employees and to better align the efforts of our employees
with the interests of our stockholders. To that end, the Company has
purchased 300,000 shares (pre-split) of stock for the ESOP to allocate to
employees over the next 14 years. It is possible that additional shares could
be acquired that might deplete the Company's cash. We expect that the future
re-funding liability of the existing shares in the ESOP will increase and
require additional investment as the ESOP matures and individual holdings grow.
When employees vested in the ESOP leave the Company, they have the right to
"put" their shares to the Company for cash. This requires the Company to
repurchase the shares at the current market value. When shares are fully
distributed, the Company's refunding liability is approximately $75,000,000 at
current share prices.

Natural disasters.
Over half of our business is conducted in California, Oregon and Washington.
This area is prone to seismic activity and a major earthquake could have a
significant negative effect on our operations. Our major manufacturing
facility and distribution hub is in Los Angeles, and a serious interruption to
highway arteries, gas mains or electrical service could restrict our ability
to supply our branches with product.

Labor actions.
We have union contracts relating to our employees serving our California,
Oregon, Washington and Nevada markets. Although we believe union relations
have been amicable in the past, there is no assurance that this will continue
in the future. There are potential adverse effects of labor disputes with our
own employees or by others who provide transportation (shipping lines, truck
drivers) or cargo handling (longshoremen), both domestic and foreign, of our
raw materials or other products. These actions could restrict our ability to
obtain, process and/or distribute our products.

Pension Plan Viability.
We participate in two multi-employer defined benefit plans for certain union
employees. The management and funding status and future viability of these
plans is not known at this time. The nature of the contract with these plans
allows for future funding demands that are outside our control or ability to
estimate.

ERP System Conversion.
During fiscal 2003 the Company began a multiyear program to update its
management information systems. This has proven to be a challenging
conversion. It is possible that continuing conversion costs, potential
complications resulting from the conversion itself and system problems related
to our use of the new software could have a material impact on our future
operating results.

Depth of management.
There is limited management depth in certain key positions throughout the
Company, and the unexpected loss of one or more of these key employees could
have a material adverse effect on our operations and competitive position.

Purchasing activities.
The most important aspect of our operation is to secure a consistent supply
of coffee. Maintaining a steady supply of green coffee is essential to keep
inventory levels low and sufficient stock to meet customer needs. To help
ensure future supplies, we purchase much of our coffee on forward contracts
for delivery as long as six months in the future. In the event of non-
performance by the counter parties, the Company could be exposed to credit and
supply risk. The Company monitors the financial viability of the counter
parties in an attempt to minimize this risk.

Entering into such future commitments leaves the Company subject to purchase
price risk. Various techniques are used to hedge these purchases against
untoward price movement. Competitive factors make it difficult for the
Company to "pass through" such price fluctuation to its customers. Therefore,
unpredictable price changes can have an immediate effect on operating results
that cannot be corrected in the short run.

Futures contracts not designated as hedges, and terminations of contracts
designated as hedges, are marked to market and changes are recognized in
current earnings. Open contracts at June 30, 2004 are addressed in the
following Item 7A.

Contractual obligations.
The following table contains supplemental information regarding total
contractual obligations as of June 30, 2004.

(In thousands) Less Than More Than
Total One Year 2-3 Years 4-5 Years 5 years
Operating lease obligations $1,711 $631 $828 $252 $ -

Off-Balance Sheet Arrangements.
The Company has no so-called off-balance sheet arrangements.

Item 7A. Qualitative and Quantitative Disclosures About Market Risk

We are exposed to market value risk arising from changes in interest rates
on our securities portfolio. Our portfolio of investment grade money
market instruments can include discount commercial paper, medium term notes,
federal agency issues and treasury securities. As of June 30, 2004 over 90%
of these funds were invested in treasury securities and more than 50% of these
issues have maturities shorter than 113 days. This portfolio's interest rate
risk is not hedged and its average maturity is approximately 90 days. A 100
basis point move in the general level of interest rates would result in a
change in the market value of the portfolio of approximately $1,200,000.

Our portfolio of preferred securities includes investments in derivatives
that provide a natural economic hedge of interest rate risk. We review the
interest rate sensitivity of these securities and (a) enter into "short
positions" in futures contracts on U.S. Treasury securities or (b) hold put
options on such futures contracts in order to reduce the impact of certain
interest rate changes on such preferred stocks. 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 following table demonstrates the impact of varying interest rate
changes based on the preferred stock holdings, futures and options
positions, and market yield and price relationships at June 30, 2004. This
table is predicated on an instantaneous change in the general level of
interest rates and assumes predictable relationships between the prices of
preferred securities holdings, the yields on U.S. Treasury securities and
related futures and options.

The number and type of futures and options contracts entered into depends
on, among other items, the specific maturity and issuer redemption
provisions for each preferred security held, the slope of the Treasury
yield curve, the expected volatility of Treasury yields, and the costs of
using futures and/or options.

Interest Rate Changes
(In thousands) Market Value at June 30, 2004 Change in Market
Preferred Futures and Total Value of Total
Securities Options Portfolio Portfolio

- -150 basis points $63,010 $0 $63,010 $5,558
- -100 basis points 61,140 15 $61,155 3,702
Unchanged 56,020 1,432 $57,453 0
+100 basis points 50,787 6,417 $57,204 (249)
+150 basis points 48,269 8,802 $57,070 (382)

Commodity Price Changes
We are exposed to commodity price risk arising from changes in the market
price of green coffee. We price our inventory on the LIFO basis. In the
normal course of business we enter into commodity purchase agreements with
suppliers and we purchase exchange traded green coffee contracts. The
following table demonstrates the impact of changes in the price of green
coffee on inventory and green coffee contracts at June 30, 2004. It
assumes an immediate change in the price of green coffee, and the valuations
of coffee futures and relevant commodity purchase agreements at June 30, 2004.

Commodity Risk Disclosure
(In thousands)

Market Value
Coffee Futures & Change in Market Value
Coffee Cost Change Inventory Options Total Derivatives Inventory

-20% $11,020 $798 $11,818 $798 ($2,750)
unchanged 13,770 ($314) 13,456 0 0
20% 16,520 ($1,112) 15,408 ($798) $2,750

At June 30, 2004 the derivatives consisted mainly of commodity futures with
maturities shorter than three months.

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Farmer Bros. Co. and Subsidiary

We have audited the accompanying consolidated balance sheets of Farmer Bros.
Co. and Subsidiary (the 'Company') as of June 30, 2004 and 2003, and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 2004. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Farmer Bros. Co.
and Subsidiary at June 30, 2004 and 2003, and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended June 30, 2004, in conformity with U.S. generally accepted
accounting principles.

/s/ Ernst & Young LLP

Los Angeles, California
September 1, 2004

FARMER BROS. CO.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)

June 30, 2004 June 30, 2003

ASSETS
Current assets:
Cash and cash equivalents $21,807 $18,986
Short term investments 176,903 274,444
Accounts and notes receivable, net 14,565 13,756
Inventories 35,579 34,702
Income tax receivable 408 2,878
Deferred income taxes 775 -
Prepaid expenses 2,683 1,851
Total current assets $252,720 $346,617

Property, plant and equipment, net 42,300 41,753
Notes receivable 143 193
Other assets 21,609 26,390
Deferred income taxes 1,099 1,462
Total assets $317,871 $416,415

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $9,589 $3,321
Accrued payroll expenses 6,999 7,362
Deferred income taxes - 976
Other 4,601 5,000
Total current liabilities $21,189 $16,659

Accrued postretirement benefits $26,984 $25,041
Other long term liabilities - 5,570
Total Liabilities $48,173 $47,270
Commitments and contingencies

Stockholders' equity:
Common stock, $1.00 par value;
authorized 25,000,000 shares and
16,075,080 issued and outstanding
at June 30, 2004; authorized
3,000,000 shares and 1,926,414
issued and outstanding at
June 30, 2003 $16,075 $1,926

Additional paid-in capital 32,248 18,798
Retained earnings 283,654 382,831
Unearned ESOP shares (61,542) (33,364)
Less accumulated comprehensive loss ( 737) (1,046)
Total stockholders' equity $269,698 $369,145
Total liabilities and
stockholders' equity $317,871 $416,415

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

FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share and per share data)

2004 2003 2002

Net sales $193,589 $201,558 $205,857
Cost of goods sold 71,405 70,662 67,764
Gross profit 122,184 130,896 138,093

Selling expense 92,029 88,658 86,025
General and administrative expenses 26,392 18,350 13,858
Operating expenses 118,421 107,008 99,883
Income from operations 3,763 23,888 38,210

Other income:
Dividend income 3,396 3,246 3,198
Interest income 2,518 3,974 7,261
Other, net 6,305 6,463 691
Total other income 12,219 13,683 11,150

Income before taxes 15,982 37,571 49,360
Income taxes 3,295 13,942 18,791

Net income $12,687 $23,629 $30,569

Net income per common share $0.81 $1.30 $1.65

Weighted average shares outstanding 15,576,450 18,145,910 18,483,950

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

FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years ended June 30,
2004 2003 2002
Cash flows from operating activities:
Net income $12,687 $23,629 $30,569

Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 7,098 5,776 5,493
Deferred income taxes (1,536) 3,989 495
Gain on sales of assets (94) (498) (239)
ESOP compensation expense 5,516 4,269 2,529
Net gain on investments (706) (5,625) (51)

Change in assets and liabilities:
Short term investments (12,914) 16,721 (51,310)
Accounts and notes receivable (801) 224 1,220
Inventories (877) 2,659 (1,581)
Income tax receivable 2,470 (325) 438
Prepaid expenses and other assets 4,064 (1,128) (1,421)
Accounts payable 6,268 (1,506) (326)
Accrued payroll expenses
other liabilities (762) 930 (1,070)
Accrued postretirement benefits 2,285 1,904 1,926
Other long term liabilities (5,570) 84 594
Total adjustments 4,441 27,474 (43,303)
Net cash provided by (used in)
operating activities $17,128 $51,103 ($12,734)
Cash flows from investing activities:
Purchases of property, plant and equipment (7,683) (9,089) (5,039)
Proceeds from sales of property,
plant and equipment 132 630 307
Notes issued - - (35)
Notes repaid 42 55 2,640
Net cash used in investing activities ($7,509) ($8,404) ($2,127)

Cash flows from financing activities:
Dividends paid (5,621) (6,523) (6,278)
ESOP contributions (32,412) (24,237) (815)
Proceeds from sale of short
term investments 111,161
Purchase of capital stock (111,161)
Sale of capital stock 31,235
Net cash used in financing activities ($ 6,798) ($30,760) ($7,093)

Net increase (decrease) in cash
and cash equivalents $2,821 $11,939 ($21,954)
Cash and cash equivalents at beginning of year 18,986 7,047 29,001
Cash and cash equivalents at end of year $21,807 $18,986 $7,047

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

FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share data)

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

Notes to Consolidated Financial Statements

Note 1 Summary of Significant Accounting Policies

Organization
The Company, which operates in one business segment, is in the business of
roasting, packaging, and distributing coffee and allied products through
direct sales to restaurants, hotels, hospitals, convenience stores and fast
food outlets. The Company's products are distributed by its selling divisions
from branch warehouses located in most large cities throughout the western
United States.

Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary FBC Finance Company. All inter-company balances
and transactions have been eliminated.

Financial Statement Preparation
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

Cash Equivalents
The Company considers all highly liquid investments with original maturity
dates of 90 days or less to be cash equivalents. Fair values of cash
equivalents approximate cost due to the short period of time to maturity.

Investments
The Company's investments consist of marketable debt and equity securities,
money market instruments and various derivative instruments, primarily
exchange traded treasury futures and options, green coffee forward contracts
and commodity purchase agreements. All such instruments not designated as
accounting hedges are marked to market and changes are recognized in current
earnings. At June 30, 2004 and 2003 no derivative instruments were designated
as accounting hedges. The fair value of derivative instruments is based upon
broker quotes. The cost of investments sold is determined on the specific
identification method. Dividend and interest income is accrued as earned.

Concentration of Credit Risk
At June 30, 2004, the financial instruments which potentially expose the
Company to concentrations of credit risk consist of cash in financial
institutions (which exceeds federally insured limits), cash equivalents
(principally commercial paper), short term investments, investments in the
preferred stocks of other companies and trade receivables. Cash equivalents
and short term investments are not concentrated by issuer, industry or
geographic area. Maturities are generally shorter than 180 days. Other
investments are in U.S. government securities. Investments in the preferred
stocks of other companies are limited to high quality issuers and are not
concentrated by geographic area or issuer. Concentration of credit risk with
respect to trade receivables for the Company is limited due to the large
number of customers comprising the Company's customer base and their
dispersion across many different geographic areas. The trade receivables are
short term, and all probable bad debt losses have been appropriately
considered in establishing the allowance for doubtful accounts.

Inventories
Inventories are valued at the lower of cost or market. Costs of coffee and
allied products are determined on the last in, first out (LIFO) basis. Costs
of coffee brewing equipment manufactured are accounted for on the first in,
first out (FIFO) basis.

Property, Plant and Equipment
Property, plant and equipment is carried at cost, less accumulated
depreciation. Depreciation of buildings and facilities is computed using the
straight-line method. All other assets are depreciated using the sum-of-the
years' digits and straight-line methods. The following useful lives are used:

Building and facilities 10 to 30 years
Machinery and equipment 3 to 5 years
Office furniture and equipment 5 years
Capitalized software 3 years

When assets are sold or retired the asset and related depreciation allowance
are eliminated from the records and any gain or loss on disposal is included
in operations. Maintenance and repairs are charged to expense, and
betterments are capitalized.

Income Taxes
Deferred income taxes are determined based on the temporary differences
between the financial reporting and tax bases of assets and liabilities, using
enacted tax rates in effect for the year in which differences are expected to
reverse. A valuation allowance is recorded, if necessary, to reduce deferred
tax assets to an amount management believes is more likely than not to be
realized.

Revenue Recognition
Products are sold and delivered to our customers at their places of
business by our route sales employees. Revenue is recognized at the time our
sales representatives physically deliver products to customers and
title passes.

Net Income Per Share
Net income per share has been computed in accordance with SFAS Statement No.
128, "Earnings per Share" (see Note 11), excluding unallocated shares held by
the Company's Employee Stock Ownership Plan (see Note 7). The Company has no
dilutive shares for any of the three fiscal years in the period ended June 30,
2004. Accordingly, the consolidated financial statements present only basic
net income per share. A ten-for-one stock split in the form of a one-time
stock dividend became effective May 10, 2004. All share and per share amounts
used in calculating net income per share have been restated to reflect the
split.

Employee Stock Ownership Plan ("ESOP")
The ESOP is accounted for in accordance with AICPA Statement of Position
("SOP") 93-6. SOP 93-6 recognizes that the ESOP is a form of compensation.
Compensation cost is based on the fair market value of shares released or
deemed to be released for the period. Dividends on allocated shares retain
character of true dividends, but dividends on unallocated shares are
considered compensation cost. As a leveraged ESOP with the Company as lender,
a contra equity account is established to offset the Company's note
receivable. The contra account will change as compensation is recognized.
Repurchase liability is disclosed as the current value of allocated shares.

Long-lived Assets
The Company reviews the recoverability of its long-lived assets as
required by Statement of Financial Accounting Standards ("SFAS") No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, whenever
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. The estimated future cash flows are based upon,
among other things, assumptions about expected future operating performance,
and may differ from actual cash flows. 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. 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. The Company has determined that no indicators
of impairment of long-lived assets existed as of or during the year ended June
30, 2004.

Shipping and Handling Costs
The Company distributes its products directly to its customers and shipping
and handling costs are recorded as Company selling expenses.

Collective Bargaining Agreements
Certain Company employees are subject to collective bargaining agreements.
The duration of these agreements extend from 2005 to 2006.

Reclassifications
Certain reclassifications have been made to prior year balances to conform to
the current year presentation.

New pronouncements

In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities.
FIN 46 clarifies the application of Accounting Research Bulletin No. 51 and
applies immediately to any variable interest entities created after January 31,
2003 and to variable interest entities in which an interest is obtained after
that date. This interpretation was applicable to the Company in the quarter
ending September 30, 2003, for interests acquired in variable interest entities
prior to February 1, 2003. This interpretation required variable interest
entities to be consolidated if the equity investment at risk is not sufficient
to permit an entity to finance its activities without support from other
parties or the equity investors lack specific characteristics. FIN 46 was
adopted by the Company on September 30, 2003 and did not have a material impact
on the Company's financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity, effective for
financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. SFAS No. 150 was adopted by the Company on July 1, 2003
and did not have a material impact on the Company's financial position or
results of operations.

In December 2003 the FASB issued SFAS No. 132 (Revised), Employer's Disclosure
about Pensions and Other Postretirement Benefits. SFAS No. 132 (Revised)
retained disclosure requirements of the original SFAS No. 132 and requires
additional disclosures relating to assets, obligations, cash flows, and net
periodic benefit cost. SFAS No. 132 (Revised) is effective for fiscal years
ending after December 15, 2003, except that certain disclosures are effective
for fiscal years ending after June 15, 2004. The adoption of the disclosure
provisions of SFAS No. 132 (Revised) did not have a material impact on the
Company's financial position or results of operations.

In May, 2004, the FASB issued FASB Staff Position ("FSP") No. 106-2,
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003," which clarified and
superceded Staff Position No. 106-1 issued in January, 2004. Therefore, in
accordance with FASB Staff Position 106-2, the accumulated postretirement
benefit obligation and net postretirement health care costs included in the
consolidated financial statements do not reflect any amount associated with
the subsidy because the company is unable to conclude at this time whether the
benefits provided by the plan are actuarially equivalent to Medicare Part D
under the Act and accompanying notes do not reflect the effects of the Act on
the plan. In accordance with FSP No. 106-2, the Company will make these
evaluations and adopt the provisions during the year ending June 30, 2005.

Note 2 Investments and Derivative Instruments

The Company purchases various derivative instruments as investments or to
create economic hedges of its interest rate risk and commodity price
risk. At June 30, 2004 and 2003, derivative instruments are not designated as
accounting hedges as defined by SFAS No. 133. The fair value of derivative
instruments is based upon broker quotes. The Company records unrealized gains
and losses on trading securities and changes in the market value of certain
coffee contracts meeting the definition of derivatives in other income and
expense.

Investments, consisting of marketable debt and equity securities and money
market instruments, are held for trading purposes and are stated at fair
value. Gains and losses, both realized and unrealized, are included in other
income and expense.

Investments at June 30, are as follows:
(In thousands)

2004 2003
Trading securities at fair value
U.S. Treasury Obligations $119,528 $220,057
Preferred Stock 56,037 53,897
Futures, options and other derivatives 1,338 490
$176,903 $274,444

Note 3 Allowance for Doubtful Accounts
(In thousands)
2004 2003

Balance at beginning of year $345 $345
Additions 181 356
Deductions (181) (356)
Balance at end of year $345 $345

Note 4 Inventories
(In thousands)

June 30, 2004
Processed Unprocessed Total
Coffee $3,034 $10,736 $13,770
Allied products 11,800 3,665 15,465
Coffee brewing equipment 2,341 4,003 6,344
$17,175 $18,404 $35,579

June 30, 2003
Processed Unprocessed Total
Coffee $3,853 $9,155 $13,008
Allied products 11,776 4,213 15,989
Coffee brewing equipment 2,372 3,333 5,705
$18,001 $16,701 $34,702

Current cost of coffee and allied products inventories is greater than the LIFO
cost by approximately $2,427,000 and $122,000 as of June 30, 2004 and 2003,
respectively.

The change in the Company's green coffee and allied product inventories during
fiscal 2004, 2003, and 2002 resulted in LIFO (increments)/decrements which had
the effect of (decreasing) increasing income before taxes for those years by
$(499,000), $64,000, and $207,000, respectively.

Note 5 Property, Plant and Equipment
(In thousands)
2004 2003

Buildings and facilities $41,179 $40,907
Machinery and equipment 48,945 48,969
Capitalized software costs 9,016 3,934
Office furniture and equipment 5,912 5,845
$105,052 $99,655
Accumulated depreciation (68,899) (63,851)
Land 6,147 5,949
Total property plant and equipment $42,300 $41,753

Maintenance and repairs charged to expense for the years ended June 30, 2004,
2003, and 2002 were $11,151,000, $11,022,000 and $11,202,000, respectively.

Note 6 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. Retirees are also eligible for medical and
life insurance benefits.

Union Pension Plans

The Company contributes to two multi-employer defined benefit plans for
certain union employees. The contributions to these multi-employer pension
plans were approximately $2,114,000, $2,104,000 and $2,183,000 for the years
ended June 30, 2004, 2003 and 2002, respectively.

Company Pension Plans

The Company has a defined benefit plan for all employees not covered under a
collective bargaining agreement (Farmer Bros. Co. Plan) and defined benefit
pension plan (Brewmatic Co. Plan) for certain hourly employees covered under a
collective bargaining agreement. All assets and benefit obligations were
determined using a measurement date of June 30.

Pension Plan Assumptions

The following weighted average assumptions were used to determine the benefit
obligations and the net periodic benefit cost.

Weighted average assumptions used to determine benefit obligation at June 30,

2004 2003
Discount rate 6.30% 5.60%
Rate of compensation increase 3.50% 3.50%

Weighted average assumptions used to determine benefit cost for the years
ended June 30,

2004 2003
Discount rate 5.60% 7.20%
Rate of return on assets 8.00% 8.00%
Rate of compensation increase 3.50% 3.50%

To develop the expected long term rate of return on asset assumption the
Company considers the current level of returns on long term bonds and
equities, the level of risk associated with each asset class and the
expectations for future returns of each asset class. The long-term return on
asset assumption for our plans is 8% for the years ended June 30, 2004 and
2003.

Change in Benefit Obligation
(In thousands)
2004 2003
Benefit obligation at
the beginning of the year $71,853 $55,116
Service cost 2,375 1,708
Interest cost 3,954 3,886
Plan participants contributions 191 180
Actuarial (gain) loss ( 5,961) 13,797
Benefits paid ( 2,896) ( 2,834)
Benefit obligation at
the end of the year $69,516 $71,853

Change in Plan Assets
(In thousands)
2004 2003

Fair value in plan assets at
the beginning of the year $69,247 $75,552
Actual return on plan assets 12,825 ( 3,674)
Company contributions 20 23
Plan participants contributions 191 180
Benefit paid ( 2,896) ( 2,834)
Fair value in plan assets at
the end of the year $79,387 $69,247

Funded Status - Unrecognized Components
2004 2003

Funding surplus (shortage) $9,871 ($2,606)
Unrecognized actuarial (gain)/loss 8,650 23,330
Unrecognized prior service cost 550 800
Net amount recognized $19,071 $21,524

Funded Status - Amounts Recognized on Balance Sheet
(In thousands)
2004 2003

Prepaid pension cost $17,576 $19,854
Accrued benefit liability ( 69) ( 411)
Intangible asset 360 420
Accumulated other comprehensive income 1,204 1,661
Net amount recognized $19,071 $21,524

Components of Net Periodic Benefit Cost
(In thousands)
Pension Benefits
2004 2003 2002

Service cost $2,375 $1,708 $1,527
Interest cost $3,954 $3,886 $3,684
Expected return on Plan assets ($5,448) ($5,965) ($6,267)

Amortization of the unrecognized
transition asset $0 ($657) ($657)
Amortization of net (gain) loss $1,343 $18 ($269)
Amortization of prior service cost $250 $262 $239
Net periodic benefit cost $2,474 ($748) ($1,743)

Additional Information 6/30/2004 6/30/2003
Increase (decrease) in minimum liability
included in other comprehensive income (457) 1,661

Cash Flows
(In thousands)

Contributions expected to be made to the
plans during 2005 $20

Estimated Future Benefit Payments
(In thousands)
2005 $3,022
2006 $3,153
2007 $3,463
2008 $3,770
2009 $3,982
years 2010-2014 $22,978

Information for pension plans with an accumulated benefit obligation in excess
of plan assets is as follows.

(In thousands)
2004 2003
Projected benefit obligation $3,503 $3,689
Accumulated benefit obligation $3,503 $3,608
Fair value of plan assets $3,434 $3,197

The accumulated benefit obligation for all defined pension plans was $63.5
million and $65.1 million at June 30, 2004 and 2003 respectively.

Plan Assets

Assets are allocated between equity securities and debt securities. The
Company seeks to produce a stable return on well diversified investments over
the long term in line with reasonable investment risk. Allocations
historically have been 60-80 percent equities, 20-40 percent debt; the plans
are not invested in real estate and other investments are not significant.

The tables below detail assets by category for the Company's pension plans.

Percent of Plan Assets
Farmer Bros. Plan Brewmatic Plan
As of June 30, As of June 30,
Asset Categories 2004 2003 2004 2003

Debt securities 18% 32% 21% 32%
Equity securities 82% 68% 79% 68%
100% 100% 100% 100%

Post Retirement Benefits

The Company sponsors defined benefit postretirement medical and dental plans
that cover non-union employees and retirees, and certain union locals. The
plan is contributory and retiree contributions are fixed at a current level.
The plan is not funded.

The following weighted average assumptions were used to determine the benefit
obligations and the net periodic benefit cost.

Weighted average assumptions used to determine benefit obligation at June 30,

2004 2003

Discount rate 6.30% 5.60%
Initial medical rate trend 10.00% 10.00%
Ultimate medical trend rate 5.50% 5.50%
Number of years from initial
to ultimate trend rate 6 6
Initial dental/vision trend rate 7.00% 7.00%
Ultimate dental/vision trend rate 5.50% 5.50%
Number of years from initial
to ultimate trend rate 6 6

Reconciliation of funded status.
2004 2003
Accumulated post retirement
benefit obligation
Actives not eligible to retire $9,320 $8,857
Actives eligible to retire 8,275 8,403
Retirees 11,995 13,462
Total APBO $29,590 $30,722

Fair market value of assets $0 $0
Funded status ($29,590) ($30,722)
Unrecognized transition obligation
Unrecognized prior service cost 1,228 1,410
Unrecognized cumulative
net (gain) or loss 1,446 4,682
(Accrued)/prepaid post retirement
benefit cost as of June 30 ($26,915) ($24,630)

Retiree medical claims paid $916 $755

The effects of a 1% increase or decrease in the health care inflation trend
assumption on the accumulated postretirement benefit obligation and net
periodic service and interest cost is shown below.

Change in Inflation Trend
Plan Year Effect of 1%
Results Increase Decrease

Accumulated postretirement benefit
obligation as of June 30, 2004 $29,590 $3,172 ($2,535)
Service Cost for plan year $1,231 $309 ($234)
Interest for plan year $1,681 $251 ($199)

The change in the accumulated postretirement benefit obligation from the prior
year is as follows.

2004 2003
Accumulated postretirement benefit
obligation beginning of year $30,722 $24,335
Service cost 1,231 765
Interest cost 1,681 1,712
Plan participants' contributions 150 0
Actuarial (gain) or loss ( 3,128) 4,665
Benefits paid ( 1,066) (755)
Accumulated postretirement benefit
obligation as of end of year $29,590 $30,722

Presented below is the change in the fair value of assets from the prior year.

2004 2003
Fair value of plan assets at
the beginning of the year $0 $0
Actual return on plan assets 0 0
Company contributions 916 755
Plan participants' contributions 150 132
Benefits paid ( 1,066) ( 887)
Fair value of plan assets at
the end of the year $0 $0

Components of net periodic benefit costs

2004 2003 2002

Service cost $1,231 $765 $670
Interest cost 1,681 1,712 1,721
Expected return on Plan assets - - -
Actuarial (gain)/loss - - -
Amortization of the unrecognized
transition asset 107 - -
Recognized actuarial loss - - -
Amortization of prior service cost 182 182 286
Net periodic benefit cost $3,201 $2,659 $2,677

Cash Flows
(In thousands)

Contributions expected to be made to the
plans during 2005 $1,561

Estimated Future Benefit Payments
(In thousands)
2005 $1,561
2006 $1,770
2007 $1,976
2008 $2,164
2009 $2,319
years 2010-2014 $11,558

Defined Contribution Plans

The Company also has defined contribution plans for all eligible employees.
No Company contributions have been made nor are required to be made to these
defined contribution plans.

Note 7. Employee Stock Ownership Plan

The Farmer Bros. Co. Employee Stock Ownership Plan (ESOP) was established in
2000 to provide benefits to all employees. The plan is a leveraged ESOP in
which Company is the lender. The loan will be repaid from the Company's
discretionary plan contributions over a fifteen year term with a variable rate
of interest, 2.52% at June 30, 2004.

at the years ended June 30,
2004 2003 2002
Loan amount (in thousands) $64,567 $24,237 $815
Shares purchased 1,286,430 778,500 38,000

Shares are held by the plan trustee for allocation among participants as the
loan is repaid. The unencumbered shares are allocated to participants using a
compensation-based formula. Subject to vesting requirements, allocated shares
are owned by participants and shares are held by the plan trustee until the
participant retires.

The Company reports compensation expense equal to the fair market price of
shares committed to be released to employees in the period in which they are
committed. The cost of shares purchased by the ESOP which have not been
committed to be released or allocated to participants are shown as a contra-
equity account "Unearned ESOP Shares" and are excluded from earnings per share
calculations.

During the fiscal years ended June 30, 2004, 2003 and 2002 the Company charged
$4,234,000, $3,098,000 and $1,531,000, to compensation expense related to the
ESOP. The difference between cost and fair market value of committed to be
released shares, which was $1,282,000, $1,171,000 and $998,000 for the years
ended June 30, 2004, 2003 and 2002, respectively, is recorded as additional
paid in capital.

June 30,
2004 2003
Allocated shares 400,110 255,950
Committed to be released shares 106,140 71,700
Unallocated shares 2,494,250 1,387,180
Total ESOP shares 3,000,500 1,174,830

Fair value of ESOP shares (In thousands) $75,013 $58,181

Re-funding liability of ESOP shares is approximately $10 million.

Note 8 Income Taxes

The current and deferred components of the provision for income taxes consist
of the following:
June 30,
(In thousands) 2004 2003 2002

Current: Federal $4,753 $8,030 $15,367
State 78 1,923 2,929
$4,831 $9,953 $18,296

Deferred: Federal ($1,402) $3,775 $434
State ( 134) 214 61
( 1,536) 3,989 495
$ 3,295 $13,942 $18,791

A reconciliation of the provision for income taxes to the statutory federal
income tax expense is as follow.

(In thousands) June 30,
2004 2003 2002

Statutory tax rate 35% 35% 35%

Income tax expense at statutory rate $ 5,594 $13,150 $17,276
State income tax (net federal tax benefit) (65) 1,389 1,943
Officer life insurance proceeds (1,476) - -
Dividend income exclusion (821) (808) (767)
Other (net) 63 211 339
$ 3,295 $13,942 $18,791
State income taxes include a benefit from a refund as a result of a favorable
court settlement in the fiscal year.

Income taxes paid $ 3,443 $10,429 $17,881

The primary components of temporary differences which give rise to the
Company's net deferred tax assets are as follows:

In thousands) June 30,
2004 2003
Deferred tax assets:
Postretirement benefits $10,572 $10,384
Accrued liabilities 2,893 4,859
State taxes 65 -
$13,530 $15,243
Deferred tax liabilities:
Pension assets ($6,566) ($8,205)
Other ( 5,090) ( 6,552)
($11,656)($14,757)
Net deferred tax assets $1,874 $486

Note 9 Other Current Liabilities

Other current liabilities consist of the following:
(In thousands)
2004 2003

Accrued workers' compensation liabilities $2,758 $2,898
Dividends payable 1,527 1,734
Other (including net taxes payable) 316 368
$4,601 $5,000

Note 10 Commitments and Contingencies

The Company incurred rent expense of approximately $753,000, $736,000 and
$698,000 for the fiscal years ended June 30, 2004, 2003 and 2002,
respectively, and is obligated under leases for branch warehouses. A few of
the leases have renewal options that allow the Company, as lessee, to extend
the lease at the Company's option for one or two years at a pre-agreed rental
rate. The Company also has operating leases for computer hardware with terms
that do not exceed three years.

Future minimum lease payments are as follows:
(In thousands)
2005 $631
2006 496
2007 332
2008 156
2009 96
Total $1,711

The Company is a party to various pending legal and administrative
proceedings. It is management's opinion that the outcome of such proceedings
will not have a material impact on the Company's financial position, results
of operations, or cash flows.

Note 11 Equity

On December 24, 2003, the Company purchased the 443,845 shares (4,438,450
shares post-split) of its common stock held by the Crowe Family and related
trusts for approximately $111 million, or approximately $250.00 per share
($25.00 per share post-split). Concurrently with this purchase, the Company
offered its Employee Stock Ownership Plan (ESOP) the opportunity to acquire
124,939 shares (1,249,390 shares post-split) at the same price. This portion
of the transaction was completed on January 11, 2004 when the Company issued
said shares to the ESOP.

On February 17, 2004, the Company was reincorporated as a Delaware corporation
by merger into a wholly-owned Delaware corporation. The total number of
shares of capital stock authorized is 25,500,000, consisting of 25,000,000
shares of common stock, par value $1.00 per share and 500,000 shares of
preferred stock par value $1.00 per share.

On March 04, 2004, the Board of Directors declared a ten-for-one stock
split in the form of a one-time stock dividend. The Board acted after the
Company completed its Delaware reincorporation, which authorized enough shares
to enable the stock split. Each stockholder of record received nine
additional shares for every share of Farmer Bros. stock held at the close of
business on the record date of April 23, 2004.

These transactions are summarized as follows.
Number of Shares
Split
Pre-Split Adjusted
Beginning shares outstanding
at June 30, 2003 1,926,414 19,264,140
Purchase of capital stock (443,845) (4,438,450)
Issue capital stock 124,939 1,249,390
Stock split 14,467,572
Ending shares outstanding
At June 30, 2004 16,075,080 16,075,080

Following the effective date of the stock split, the par value of the common
stock remained $1 per share. As a result the common stock in the accompanying
consolidated balance sheet increased as of the effective date
by $14,468,000 with a corresponding decrease to additional paid-in-capital.
These transactions are reflected in the accompanying consolidated statement of
stockholders' equity for the year ended June 30, 2004.

Per share amounts included in the accompanying consolidated statements of
income and in the notes to the consolidated financial statements have been
retroactively adjusted for all periods presented to reflect the ten-for-one
stock split, unless otherwise noted.

No shares of the Company's preferred stock have been issued.

Note 12 Quarterly Financial Data (Unaudited)
(In thousands except per share data; all per share disclosures have been split
adjusted.)

September 30 December 31 March 31 June 30
2003 2003 2004 2004

Net sales $45,665 $51,511 $49,069 $47,344
Gross profit $29,632 $32,573 $30,581 $29,398
Income (loss) from operations $1,057 $3,124 $743 ($1,161)
Net income $2,511 $2,565 $5,603 $2,008
Net income per common share $0.14 $0.15 $0.42 $0.11

Net income (loss) in the quarter ended June 30, 2004 decreased to $2,008 from
$5,783 in the quarter ended June 30, 2003. This decrease is primarily the
result of the lower level of sales that occurs in the June quarter, combined
with a decrease to 62% gross profit margin in the 2004 quarter as compared to a
67% gross profit in the 2003 quarter. In addition, the Company had higher
operating expenses in the quarter, the largest of which are related to
increases in actuarially derived pension and retiree insurance costs and the
cost of the ESOP as listed below.

4th Quarter
2004 2003

FAS 87 & 105 $928 $132
ESOP 1,978 1,535
Gas, oil & grease 1,620 1,364
IT project costs 415 70
Legal expenses 412 244

Total $5,353 $3,345

September 30 December 31 March 31 June 30
2002 2002 2003 2003

Net sales $50,389 $54,118 $49,267 $47,784
Gross profit $31,532 $35,154 $32,038 $32,172
Income from operations $7,354 $8,319 $4,985 $3,230
Net income $5,608 $5,899 $6,339 $5,783
Net income per common share $0.30 $0.32 $0.35 $0.32

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

Item 9A. Controls and Procedures. The Company's Chief Executive Officer and
Chief Financial Officer have concluded that as of June 30, 2004 there is
reasonable assurance that the Company's disclosure controls and procedures
will meet their objectives and that the disclosure controls and procedures are
effective at the "reasonable assurance" level. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of evaluation by
the Chief Executive Officer and Chief Financial Officer.

Item 9B. Other Information. None.

PART III

Item 10. Directors and Executive Officers of the Registrant

Directors
Served as a
Director
Continuously Principal Occupation
Name Age Since for the Last Five Years/Term

Roy E. Farmer 52 1993 Chairman since June 16, 2004, President, Chief
Executive since 2003, Chief Operating Officer
Previously; term expires at the fiscal 2006
Annual Meeting.
Guenter W. Berger 67 1980 Vice President - Production; term expires at
the fiscal 2005 Annual Meeting.
Lewis A. Coffman 85 1983 Retired (formerly Vice President - Sales); term
expires at the fiscal 2004 Annual Meeting.
John H. Merrell 60 2001 Partner in Accounting Firm of Hutchinson
and Bloodgood LLP, Glendale, California; term
expires at the fiscal 2006 Annual Meeting.
John Samore, Jr. 58 2003 Independent Consultant and CPA in Los
Angeles, California since 2002, formerly
Tax Partner with the Accounting Firm
Arthur Andersen LLP, Los Angeles,
California; term expires at the fiscal 2004
Annual Meeting.
Thomas A. Maloof 52 2003 Chief Financial Officer of Hospitality
Marketing Concepts, Irvine, California
since 2001, previously President of
Perinatal Practice Management-Alfigen
The Genetices Institute, Pasadena,
California(1); term expires at the fiscal 2005
Annual Meeting.
Kenneth R. Carson 64 2004 Retired (formerly Vice President - Sales);
term expires at the fiscal 2004 Annual Meeting.

(1) Mr. Maloof is also a director of eCOST.COM, Inc. and PC Mall, Inc. publicly
traded companies listed on the NASDAQ National Market. None of the other
directors is a director of any other publicly-held company.

The Company has a standing Audit Committee established in accordance with
applicable provisions of the Securities Exchange Act of 1934, as amended.
Messrs. Maloof, Merrell and Samore comprise the Audit Committee. All Audit
Committee members are independent as defined by applicable NASDAQ rules.

The Company's board of directors has determined that at least one member of
the Company's Audit Committee is an "audit committee financial expert" as
defined in item 401(h)(2) of Regulation S-K under the Securities Exchange Act
of 1934, as amended. That person is John H. Merrell, the Company's Audit
Committee Chairman. Mr. Merrell is "independent" as that term is used in item
7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as
amended.

The Company has made no changes in the procedures by which stockholders may
recommend nominees to the Board of Directors since the filing of its most
recent proxy statement.

Information regarding the Company's executive officers appears in Part I
pursuant to instruction 3 of Item 401(b) of Regulation S-K.

The Company has adopted a "code of ethics" within the meaning of Item 406(b)
of Regulation S-K under the Securities Exchange Act of 1934, as amended. The
code of ethics is applicable to the Company's Chief Executive Officer and to
the Company's Chief Financial Officer who is also the Company's principal
accounting officer. The Company has no controller or other person performing
that function. A copy of the Company's code of ethics can be obtained without
charge upon written request addressed to Mr. John E. Simmons, Chief Financial
Officer, Farmer Bros. Co., 20333 S. Normandie Avenue, Torrance, CA 90502.

Section 16(a) Beneficial Ownership Reporting Compliance. Based on a review of
filings received by it or representations from Company officers and directors,
the Company believes that all filing requirements applicable to Company
officers and directors were met for fiscal 2004, except: the ESOP and Mr.
Samore each had one purchase transaction for which the filing was late; and
Franklin Resources has reported 12 purchase transactions, for which all of the
filings were late.

Item 11. Executive Compensation

Compensation Committee Report

The Compensation Committee is a standing committee of the Board and is
comprised of Lewis A. Coffman, John H. Merrell, Thomas A. Maloof and John
Samore, Jr. All members of the Compensation Committee are independent as
defined by applicable NASDAQ rules. The Compensation Committee met once in
fiscal 2004. The Compensation Committee makes all determinations with respect
to executive compensation and administers the Company's Incentive Compensation
Plan. The Compensation Committee report follows:

Compensation Committee Report - Philosophy and Objectives

The Compensation Committee believes that once base salaries of executive
officers are established at competitive levels, increases should generally
reflect cost of living changes and that individual performance should be
rewarded by bonuses or other incentive compensation awards. The Compensation
Committee believes that most of the executive officers will be incentivized to
a greater degree by such a program.

Executive Officer Compensation

In 2003 the Compensation Committee obtained a compensation study
prepared by Valuemetrics Advisors, Inc. relating to officer and director
compensation. The report concluded that the current executive officers
employed by the Company were underpaid when compared to their counterparts at
size-adjusted peer group companies. Consistent with the Compensation
Committee's expressed compensation policy of paying a competitive base salary,
the Compensation Committee has increased base salaries to Messrs. Berger and
Simmons by three percent (3%) for fiscal 2005. In recognition of Mr. Farmer's
increased responsibilities, the Compensation Committee raised his salary for
fiscal 2005 to $595,000.

Incentive Compensation Plan

The Company made awards under its Incentive Compensation Plan (the "Plan") for
fiscal 2004 to all employee executive officers. The Compensation Committee
felt that awards were justified in light of the Company's performance in fiscal
2004, although financial results were below those achieved in the prior two
years. Total awards for fiscal 2004 were $675,000 as compared to $700,000 for
fiscal 2003 and $1,000,000 for fiscal 2002.

Under the provisions of the Plan, a percentage of the Company's annual pre-tax
income is made available for cash or deferred awards. The percentage varies
from three percent of pre-tax income over $14 million to six percent of pre-
tax income of $24 million or more. Amounts available for awards but not
awarded are carried forward. The pool available for awards for fiscal 2004
under the Incentive Compensation Plan was in excess of $14,000,000. Of the
available pool, the Compensation Committee awarded a total of $675,000 of
which $400,000 was awarded to Roy E. Farmer, the Company's Chairman, President
and Chief Executive Officer, and a total of $275,000 was awarded to the other
executive officers.

Lewis A. Coffman John H. Merrell
Thomas A. Maloof John Samore, Jr.

Compensation Committee Interlocks and Insider Participation.

For fiscal 2004 persons serving on the Company's Compensation Committee were
John H. Merrell, an outside director, Lewis A. Coffman, an outside director
and retired executive officer of the Company, Thomas A. Maloof, an outside
director and John Samore, Jr., an outside director.

Summary Compensation Table

The following table sets forth all remuneration paid to the Chief Executive
Officer and the four other most highly compensated officers whose total
compensation during the last fiscal year exceeded $100,000, for services in
all capacities to the Company and its subsidiaries.

Name and Principal Fiscal Annual Compensation All Other
Position Year Salary Bonus (1) Other Compensation (2)

ROY F. FARMER 2004 $300,000 $ - $59,002(3) $0
Deceased - Formerly 2003 $850,000 $ - $ - $164,683(4)
Chairman of the Board 2002 $1,000,000 $450,000 $ - $138,815(4)

ROY E. FARMER 2004 $498,411 $400,000 $ - $282
Chairman and CEO 2003 $335,585 $400,000 $ - $465
2002 $325,730 $300,000 $ - $425

GUENTER W. BERGER 2004 $250,788 $100,000 $ - $644
Vice President, 2003 $244,477 $100,000 $ - $700
Production 2002 $238,113 $100,000 $ - $630

KENNETH R. CARSON 2004 $250,788 $ 75,000 $ - $494
Retired - Formerly 2003 $214,889 $100,000 $ - $414
Vice President, Sales 2002 $208,544 $100,000 $ - $384

MICHAEL KING 2004 $168,967 $ - $ - $226
Vice President, 2003 $162,919 $ - $ - $0
Sales 2002 $156,781 $ - $ - $0

JOHN E. SIMMONS 2004 $228,555 $100,000 $ - $202
Treasurer and CFO 2003 $203,472 $100,000 $ - $216
2002 $188,584 $75,000 $ - $148

(1) Awarded under the Company's Incentive Compensation Plan. The awards for
fiscal 2004 were based primarily upon the Company's earnings achieved that
year. (See "Compensation Committee Report," supra.).
(2) Except as stated in footnote (3) the amount shown represents the dollar
value of the benefit to the executive officer for the years shown under the
Company's executive life insurance plan.
(3) Legal fees paid for tax and estate planning.
(4) The amount shown for Roy F. Farmer represents P.S. 58 costs of the two
split-dollar life insurance policies purchased pursuant to the prior
employment agreement with Mr. Farmer which expired in 1998 plus the dollar
value of the benefit to him under the Company's executive life insurance plan.
No premiums were paid by the Company in fiscal 2002-2004 on the split-dollar
policies.

Pension Plan Table

The following table shows estimated annual benefits payable for the
2004 plan year under the Company's retirement plan upon retirement at age 62 to
persons at various average compensation levels and years of credited
service based on a straight life annuity. The retirement plan is a
contributory defined benefit plan covering all non-union Company employees.
The following figures assume that employee contributions (2% of annual gross
earnings) are made throughout the employees' first five years of service and
are not withdrawn. After five years of participation in the plan, employees
make no further contributions. Benefits under a predecessor plan are
included in the following figures. Maximum annual combined benefits under
both plans generally cannot exceed the lesser of $205,000 or the average of
the employee's highest three years of compensation.

Annualized Pension Compensation
for Highest 60 Consecutive Months Credited Years of Service
in Last Ten Years of Employment 20 25 30 35

$100,000 $30,000 $37,500 $45,000 $52,500
$125,000 $37,500 $46,875 $56,250 $65,625
$150,000 $45,000 $56,250 $67,500 $78,750
$170,000 $52,500 $65,625 $78,750 $91,875
$200,000 $60,000 $75,000 $90,000 $105,000
$250,000 $61,500 $76,875 $92,250 $107,625

The earnings of executive officers by which benefits in part are
measured consist of the amounts reportable under "Annual Compensation" in the
Summary Compensation Table less certain allowance items (none in 2003).

Credited years of service through December 31, 2003 were as follows:
Guenter W. Berger - 39 years; Roy E. Farmer - 27 years; Kenneth R. Carson -
38 years; John E. Simmons - 22 years.

The above straight life annuity amounts are not subject to deductions
for Social Security or other offsets. Other payment options, one of which is
integrated with Social Security benefits, are available.

Compensation of Directors

For fiscal 2004, each director who was not a Company employee (an "outside
director")was paid an annual retainer fee of $20,000 and the additional sum of
$1,500 for each board meeting and committee meeting (if not held in
conjunction with a board meeting). For fiscal 2005, outside directors will
receive an annual retainer fee of $25,000 and $1,500 for each board meeting
and committee meeting (if not held in conjunction with a board meeting)
attended, and the Audit Committee Chairman will receive an additional annual
retainer fee of $2,500. A director also receives reimbursement of travel
expenses from outside the greater Los Angeles area to attend a meeting.

Performance Graph
1999 2000 2001 2002 2003 2004
Farmer Brothers Co. 100.00 87.92 115.04 181.41 171.45 137.07
Russell 2000 Index 100.00 113.01 110.55 99.77 96.69 127.56
Food Processing 100.00 103.82 126.43 155.48 147.87 185.68

Assumes $100 invested at the close of trading 6/30/98 in Farmer Brothers
Co. common stock, Russell 2000 Index and Food Processing Index (Cumulative
total return assumes reinvestment of dividends).
Source: Value Line, Inc. Factual material is obtained from sources believed
to be reliable, but the publisher is not responsible for any errors or
omissions contained herein.

Item 12. Security Ownership of Certain Beneficial Owners and Management

(a) The following are all persons known to management who beneficially own
more than 5% of the Company's common stock:
Amount and Nature Percent
Name and Address of of Beneficial of
Beneficial Owner Ownership (1) Class

Roy E. Farmer 6,311,282 shares (2) 39.3%
c/o Farmer Bros. Co.
20333 South Normandie Ave.
Torrance, California 90502

Farmer Bros. Co. Employee
Stock Ownership Plan 3,000,500 shares (3) 18.7%
c/o Farmer Bros. Co.
20333 South Normandie Ave.
Torrance, California 90502

Franklin Mutual Advisers, LLC 2,065,917 shares (4) 12.9%
51 John F. Kennedy Parkway
Short Hills, NJ 07078
Attn: Bradley Takahashi

Royce & Associates, LLC 946,250 shares (5) 5.9%
1414 Avenue of the Americas
New York, NY 10019
Attn: Daniel A. O'Byrne

(1) Sole voting and investment power unless indicated otherwise in following
footnotes.
(2) Includes 6,269,580 shares held by various trusts of which Mr. Farmer is
sole trustee for the benefit of family members (including himself), 40,000
shares owned outright by Mr. Farmer and 1,702 shares beneficially owned by Mr.
Farmer through the Company's Employee Stock Ownership Plan ("ESOP"), rounded to
the nearest whole share.
(3) There are 400,110 allocated shares and 2,600,390 shares as yet
unallocated to plan participants. Under terms of the ESOP, unallocated shares
and allocated shares which ESOP participants have failed to vote will be voted
proportionately to the vote of allocated shares by ESOP participants.
(4) According to a Form 4 filed with the Securities and Exchange
Commission dated September 10, 2004 by Franklin Mutual Advisers, LLC
("Franklin"), Franklin on that date beneficially owned 2,065,917 shares
(12.9%). Franklin is reported to have sole voting and investment power over
these shares pursuant to certain Investment Advisory contracts with one or
more record stockholders, which advisory clients are the record owners of the
2,065,917 shares.
(5) According to a Schedule 13-G/A filed with the Securities and Exchange
Commission dated April 8, 2004 by Royce & Associates, LLC, ("Royce"), Royce on
that date beneficially owned 946,250 shares (5.9%). Royce is reported to have
sole voting and investment power over these shares.

(b) The following sets forth the beneficial ownership of the common stock
of the Company by each director and nominee, each executive officer named in
the Summary Compensation Table, and all directors and executive officers as a
group:

Number of Shares and Nature
Name of Beneficial Ownership (1) Percent of Class

Guenter W. Berger 6,762(2) *
Kenneth R. Carson 4,202(3) *
Lewis A. Coffman 150(4) *
Roy E. Farmer 6,311,282(5) 39.3%
Michael J. King 1,431(6) *
Thomas A. Maloof - -
John H. Merrell 500(7) -
John Samore, Jr. 500(8) -
John E. Simmons 5,350(9) *
All directors and exec
officers as a group (9 persons) 6,330,177 39.4%

(1) Sole voting and investment power unless indicated otherwise in following
footnotes.

(2) Held in trust with voting and investment power shared by Mr. Berger and
his wife. Includes 1,702 shares beneficially owned by Mr. Berger through the
Company's ESOP, rounded to the nearest whole share.

(3) Includes 1,702 shares beneficially owned by Mr. Carson through the
Company's ESOP, rounded to the nearest whole share and 1,000 shares voted as
custodian for minor children

(4) Voting and investment power shared with spouse.

(5) Includes 40,000 shares owned outright by Mr. Farmer, 6,269,580 shares
held by trusts of which Mr. Farmer is sole trustee for the benefit of himself
and other family members, and 1,702 shares beneficially owned by Mr. Farmer
through the Company's ESOP, rounded to the nearest whole share.

(6) Beneficially owned by Mr. King through the Company's ESOP, rounded to the
nearest whole dollar.

(7) Held in a revocable living trust with voting and investment power shared
by Mr. Merrell and his wife.

(8) Held in a revocable living trust with voting and investment power shared
by Mr. Samore and his wife.

(9) Voting and investment power shared with spouse. Includes 1,702 shares
beneficially owned by Mr. Simmons through the Company's ESOP, rounded to the
nearest whole share.

* Less than 1%.

Item 13. Certain Relationships and Related Transactions

None.

Item 14. Principal Accountant Fees and Services.

Audit Fees

The aggregate fees billed by Ernst & Young, LLP for the audit of the Company's
annual financial statements and review of financial statements included in the
Company's quarterly reports on Form 10-Q were $154,000 for the fiscal year
ended June 30, 2003 ("fiscal 2003") and $244,000 for the fiscal year ended June
30, 2004 ("fiscal 2004"), which includes $28,500 to examine Company
documentation related to SOX 404.

Audit-Related Fees

The aggregate fees billed by Ernst & Young, LLP for assurance and related
services reasonably related to the performance of the audit of the Company's
financial statements and not reported under Audit Fees, above, were $-0- for
fiscal 2003 and $-0- for fiscal 2004.

Tax Fees.

The aggregate fees billed by Ernst & Young, LLP for tax compliance, tax advice
and tax planning services were $126,000 for fiscal 2003 and $210,000 for
fiscal 2004. These tax services consisted of state tax representation and
miscellaneous consulting on taxation matters.

All Other Fees.

For fiscal 2003 and 2004, Ernst & Young, LLP provided no services other than
audit, audit-related and tax services.

The Audit Committee has considered the effect of Ernst & Young, LLP's
providing tax services and other non-audit services on the firm's
independence. All engagements for services by Ernst & Young LLP or other
independent accountants are subject to prior approval by the Audit Committee.
Prior approval was given for all services provided by Ernst & Young LLP in
fiscal 2004

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) List of Financial Statements and Financial Statement Schedules:

1. Financial Statements included in Item 8:
Consolidated Balance Sheets as of June 30, 2004 and 2003.
Consolidated Statements of Income for the Years Ended
June 30, 2004, 2003 and 2002.
Consolidated Statements of Cash Flows for the Years Ended
June 30, 2004, 2003 and 2002.
Consolidated Statements of Stockholders' Equity For the Years
Ended June 30, 2004, 2003, and 2002.
Notes to Consolidated Financial Statements.

2. Financial Statement Schedules: Financial Statement Schedules
are omitted as they are not applicable, of the required information
is given in the consolidated financial statements of notes thereto.

(b) Reports on Form 8-K.

A form 8-K dated July 23, 2003 and filed with the Commission on July 24, 2003
announced approval by the Board of Directors of a loan by the Company to the
ESOP to purchase up to 129,575 shares of Farmer Bros. Co. common stock.

A form 8-K dated December 24, 2003 and filed with the Commission on December
24, 2003 announced the purchase of all Crowe family shares at a cost of
approximately $110.96 million, and the rejection of a request for injunction
on behalf of a stockholder by U.S. District Judge Margaret M. Morrow.

A Form 8-K dated January 12, 2004 and filed with the Commission on January 12,
2004, reporting the purchase of 124,939 shares of stock by the ESOP,
completing the Company's goal of acquiring 300,000 shares of Company stock.

A Form 8-K dated February 23, 2004 and filed with the Commission on February
23, 2004, reporting that the Company had filed to reincorporate in Delaware
following stockholder approval at the stockholder's meeting held February 23,
2004. The Form 8-K also reported the results of proxy voting, and a report
from management on the state of the company.

A Form 8-K dated March 4, 2004 and filed with the Commission on March 4, 2004
noting that the Board of Directors declared a ten for one stock split in the
form of a one time stock dividend. The stock dividend will entitle each pre-
split stockholder to receive nine shares of stock for each share owned at the
opening of business on May 10, 2004.

A Form 8-K dated March 16, 2004 and filed with the Commission on March 16,
2004 to announce the death of Chairman, Roy F. Farmer.

A Form 8-K dated June 18, 2004 and filed with the Commission on June 18, 2004,
to announce that the Board of Directors has elected Roy E. Farmer, Chief
Executive Officer and President, to the additional position as Chairman of the
Board.

A Form 8-K dated August 3, 2004 and filed with the Commission on August 4,
2004, to announce the retirement of Kenneth R. Carson, Vice President of
Sales, and the appointment of Michael J. King as his replacement.

A Form 8-K dated August 17, 2004 and filed with the Commission on August 18,
2004, to announce the appointment of Kenneth R. Carson, retired Vice President
of Sales, to the Board of Directors.

(c) Exhibits

See Exhibit Index

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

/s/Roy E. Farmer
Roy E. Farmer, Chief Executive Officer
Date: September 9, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

/s/Roy E. Farmer
Roy E. Farmer, President and Chief Executive Officer and Director
(principal executive officer)
Date: September 9, 2004

/s/John E. Simmons
John E. Simmons, Treasurer and Chief Financial Officer
(principal financial and accounting officer)
Date: September 9, 2004

/s/Guenter W. Berger
Guenter W. Berger, Vice President and Director
Date: September 9, 2004

/s/Lewis A. Coffman
Lewis A. Coffman
Director
Date: September 9, 2004

/s/Thomas A. Maloof
Thomas A. Maloof
Director
Date: September 9, 2004

/s/John H. Merrell
John H. Merrell
Director
Date: September 9, 2004

/s/John Samore, Jr.
John Samore, Jr.
Director
Date: September 9, 2004

/s/Kenneth R. Carson
Kenneth R. Carson
Director
Date: September 9, 2004

EXHIBIT INDEX

3 (i) Certificate of Incorporation (1)

3(ii) By-laws (2)

14 Code of ethics (CEO and CFO) (filed herewith)

21 Subsidiaries of the Registrant (filed herewith)

31.1 Certification of Chief Executive Officer (Section 302 of Sarbanes-Oxley
Act of 2002) (filed herewith)

31.2 Certificate of Chief Financial Officer (Section 302 of Sarbanes-Oxley
Act of 2002) (filed herewith)

32.1 Certificate of Chief Executive Officer (Section 906 of Sarbanes-Oxley
Act of 2002) (furnished herewith)

32.2 Certification of Chief Financial Officer (Section 906 of Sarbanes-Oxley
Act of 2002) (furnished herewith)

99 Additional Exhibits

1. List of properties (filed herewith)

(1) Incorporated by reference from Company's report on Form 10-Q
filed May 13, 2004.
(2) Incorporated by reference from Company's report on Form 10-Q
filed May 13, 2004.