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, 1994
Commission file number: 0-1375
FARMER BROS. CO.
California 95-0725980
State of Incorporation Federal ID Number
20333 S. Normandie Avenue, Torrance, California 90502
Registrant's address Zip
(310) 787-5200
Registrant's telephone number
Securities registered pursuant to Section 12(b) of the Act: None
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 OTC
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 [ ]
Number of shares of Common Stock, $1.00 par value, outstanding as of August
31, 1994August 31, 1993: 1,926,414 and the aggregate market value of the
common shares held by non affiliates of the Registrant was approximately $116
million.
Documents Incorporated by Reference
Certain portions of the Registrant's definitive Proxy Statement to be filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended, in connection with the Annual Meeting of Shareholders of the
Registrant to be held on November 28, 1994 are incorporated by reference into
Part III of this report. Certain portions of Form 10-K for the fiscal year
ended June 30, 1992 and 1993 are incorporated by reference into Part I of
this report.
PAGE 1 OF 27 PAGES
<PAGE>
PART I
Item 1. Business
General: Farmer Bros. Co. (the Company or Registrant) was incorporated in
California in 1923, and is engaged in the production and sale of coffee,
spices and a variety of allied products to the institutional food service
industry.
Raw Materials and Supplies: Coffee is the largest product in the line and is
responsible for approximately 56% of corporate revenues. Purchasing,
roasting and packaging coffee takes place at Registrant's Torrance plant,
which is also the distribution hub for its branches.
Green coffee is purchased through commodity brokers representing foreign
suppliers. Agricultural commodities are subject to fluctuations of both
price and supply. Registrant has not been confronted by shortages in the
supply of green coffee, but has been faced with price fluctuations.
Trademarks & Patents: Registrant owns approximately 23 registered U.S.
trademarks which are integral to customer identification of its products. It
is not possible to assess the impact of the loss of such identification.
Seasonality: Registrant experiences some seasonal influences. The winter
months are the best sales months. Registrant's product line and geographic
diversity provides some sales stability during the summertime decline in
coffee consumption during the warmer months.
Distribution: Registrant's products are distributed by its selling divisions
from 98 branches located in most urban centers in the western states. The
diversity of the product line (over 300 products) and size of the area served
requires each branch to stock a sizable inventory. Registrant maintains its
own trucking fleet to better control the supply of these warehouses.
Customers: No single customer represents a large enough portion of sales to
have a material effect on Registrant. The customer contact and service
quality which is integral to Registrant's sales effort is often secondary to
product pricing for customers with their own distribution systems.
Competition: Registrant faces competition from many sources, including multi-
national firms like Procter and Gamble, Nestle and Philip Morris, grocery
distributors like Sysco and Rykoff-Sexton and regional roasters like Boyd
Coffee Co., Lingle Bros. and Royal Cup.
Registrant has some competitive advantages due to its longevity, strong
regional roots and sales and service force. Registrant's customer base is
price sensitive and the Company is often faced with price competition.
<PAGE>
Item 1. Business, Continued
Working Capital: Registrant makes every effort to finance operations
internally. Management believes that working capital from internal sources
will be adequate for the coming year. Registrant maintains a $50,000,000
line of credit with First Interstate Bank of California. There is no
commitment fee or compensating balance requirement and the line was not used
in fiscal 1994.
Foreign Operations: Registrant has no material revenues that result from
foreign operations. Coffee brewing equipment is sold through distributors in
Canada and Japan and manufactured in Europe under license.
Other: On June 30, 1994, Registrant employed 1,177 employees, 486 are
subject to collective bargaining agreements.
No material amounts have been expended on research and development for
existing or new products during the past three years.
There have been no material effects of compliance with government provisions
regulating discharge of materials into the environment.
The nature of Registrant's business does not provide for maintenance of or
reliance upon a sales backlog.
Item 2. Properties
Registrant's largest facility is the 474,000 sq. ft. roasting plant,
warehouses and administrative offices in Torrance, California. Registrant
believes the existing plant will continue to provide adequate production
capacity for the foreseeable future.
Item 3. Legal Proceedings
Registrant is a defendant in various legal proceedings incidental to its
business which are ordinary and routine. It is management's opinion that the
resolution of these lawsuits will have no material financial impact on the
Company.
Registrant incorporates by reference the information contained in Item 3 of
Form 10-K for the fiscal years ended June 30, 1992 and 1993. The appeal of
the individual action reported therein has resolved unfavorably to
Registrant. The costs associated with this action are not material to
Registrant's financial position and results of operations. A reserve was
established in the year ended June 30, 1992 for these costs.
Item 4. Submission of Matters to A Vote of Security Holders
Reference is made to the information to be set forth in the section entitled
"Amendment of Bylaws" in the Proxy Statement, which is incorporated herein by
reference.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters
Registrant has one class of common stock which is traded in the over the
counter market. The bid prices indicated below are as reported by NASDAQ and
represent prices between dealers, without including retail mark up, mark down
or commission, and do not necessarily represent actual trades.
1994 1993
High Low Dividend High Low Dividend
1st Quarter $156.00 $145.00 $0.50 $123.00 $113.00 $0.45
2nd Quarter 156.00 134.00 0.50 122.00 108.00 0.45
3rd Quarter 151.00 126.00 0.50 144.00 117.00 0.45
4th Quarter 148.00 123.00 0.50 156.00 143.00 0.45
There were 688 holders of record on June 30, 1994.
Item 6. Selected Financial Data
(Dollars in thousands, except per share data)
1994 1993 1992
Net sales $193,861 $190,679 $197,312
Income from operations 9,488 29,929 27,494
Net income 10,330 18,950(a) 20,226
Net income per share $5.36 $9.84(a) $10.50
Total assets $219,903 $216,266 $190,714
Dividends declared
per share $2.00 $1.80 $1.60
1991 1990
Net sales $196,232 $197,773
Income from operations 28,016 26,277
Net income 21,394 19,812
Net income per share $11.11 $10.28
Total assets $171,361 $153,080
Dividends declared
per share $1.40 $1.25
(a) Includes the cumulative impact of adopting Statement of Financial
Accounting Standards Nos. 109 ("SFAS 109"), "Accounting for Income Taxes" and
106 ("SFAS 106"), "Employers' Accounting for Postretirement Benefits Other
Than Pensions" as of July 1, 1992, which reduced net income for the year
ended June 30, 1993 by approximately $5,294,000 or $2.75 per share. (See
Notes F and G to Consolidated Financial Statements)
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Registrant continues to maintain a strong working capital position and
management believes cash requirements for the coming year will be met by
internal sources. Registrant has no major commitments for capital
expenditures at this time, but has developed plans for construction of a new
laboratory building in its Torrance compound at an estimated cost of $2.5
million. Construction is expected to start soon. The Company maintains a
$50 million line of credit with First Interstate Bank of California. There
was no bank debt incurred during fiscal 1994.
1994 1993 1992
(Dollars in thousands)
Current assets $103,375 $155,148 $ 95,245
Current liabilities 12,488 15,269 13,453
Working capital $ 90,887 $139,879 $ 81,792
Quick ratio 4.76:1 7.77:1 4.65:1
Capital Expenditures $ 6,658 $ 5,388 $ 6,967
Results of Operations
Net sales increased 1.7% to $193,861,000 in 1994 as compared to $190,679,000
in 1993, but remained below 1992 sales of $197,312,000. Although some
segments of the national economy are improving, Registrant notes little
improvement in the restaurant and hospitality business in its service area.
The California economy, in particular, has shown little sign of improvement
during fiscal 1994.
Gross profit decreased 17.5% to $94,295,000 in 1994 as compared to
$114,258,000 in 1993 and $112,394,000 in 1992. The volatile world market for
green coffee had a negative impact on Registrant's operations in fiscal 1994.
Speculation about a perceived world shortage of coffee, followed by two
Brazilian frosts in June and July pushed green coffee prices to eight year
highs. The cost of green coffee more than doubled by year end, and
Registrant was unable to raise prices fast enough to accommodate the
increased costs. The rapid erosion of margins has a direct impact on net
profit, resulting in a net loss for the quarter ended June 30, 1994 of
($2,163,000) or ($1.13) per share, as compared to a net profit of $6,640,000
or $3.45 per share in the same quarter of fiscal 1993 and a net profit of
$3,325,000 or $1.73 per share in the fourth quarter of fiscal 1992. Net
income for 1994 decreased 45.5% to $10,330,000 or $5.36 per share from
$18,950,000 or $9.84 per share in 1993 and $20,226,000 or $10.50 per share in
1992. The green coffee market is too volatile to reliably forecast future
coffee costs, and Registrant cautions against using past results to predict
future earnings. Operating expenses were even with prior years, reaching
$84,807,000 or $.44 per share in 1994 as compared to $84,329,000 or $.44 per
share in 1993 and $84,900,000 or $.44 per share in 1992.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
Increased compensation, medical and coffee brewing equipment costs were
offset by reduced legal fees and insurance costs.
1994 1993(1) 1992
Income per share:
Before accounting changes $ 5.36 $12.59 $10.50
Cumulative effect of
accounting changes - (2.75) -
Net income per share $ 5.36 $ 9.84 $10.50
Percentage change:
1994 to 1993 1993 to 1992
Net sales 1.7% (3.4)%
Cost of goods sold 30.3% (10.0)%
Gross profit (17.5)% 1.7%
Operating expenses 0.6% (0.7)%
Income from operations (68.3)% 8.9%
Provision for income taxes (58.4)% 14.9%
Income before accounting changes (57.4)% 19.9%
Net income (45.5)% (6.3%)
Change in Earnings Per Share
A summary of the change in earnings per share, which highlights factors
discussed earlier, is as follows:
Per Share Earnings Per Share Earnings
1994 to 1993 1993 to 1992
Coffee: Prices $1.66 $(2.29)
Volume (2.02) (1.78)
Cost (11.10) 4.76
Gross profit (11.46) 0.69
Allied products: Gross profit 1.10 0.28
Operating expenses (0.25) 0.30
Other income (1.25) 1.85
Provision for income taxes 4.63 (1.03)
Income before accounting changes (7.23) 2.09
Cumulative effect of accounting
changes(1) 2.75 (2.75)
Net income $(4.48) $(0.66)
(1) The Company adopted both SFAS 106 and SFAS 109 in 1993.
<PAGE>
Inflation
The Company's operations are significantly impacted by the world market for
green coffee. Coffee is an agricultural product and its price fluctuates as
the result of many factors beyond Registrant's control, including the actions
of our own and foreign governments, the weather in coffee producing nations
and the operation of the commodity futures markets. Management cautions
against using past results to predict future earnings.
SFAS No. 115
Registrant has not adopted the provisions of Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain
Investments in Debt and Equity Securities." SFAS 115 requires certain
changes in accounting for investments in equity and debt securities. The
Company is required to adopt this standard for the fiscal year beginning July
1, 1994. Registrant does not believe the adoption of SFAS 115 will have a
material impact on its financial position.
<PAGE>
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Farmer Bros. Co. and Subsidiary
We have audited the consolidated financial statements and the financial
statement schedule of Farmer Bros. Co. and Subsidiary ("the Company") as
listed in Item 14(a) of this Form 10-K. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 the Company as
of June 30, 1994 and 1993, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended June 30, 1994
in conformity with generally accepted accounting principles. In addition, in
our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
As discussed in Notes F and G to the consolidated financial statements, the
Company changed its methods of accounting for postretirement benefits other
than pensions and income taxes in 1993.
Coopers & Lybrand L.L.P.
Los Angeles, California
September 23, 1994
<PAGE>
<TABLE>
FARMER BROS. CO.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
June 30, June 30,
1994 1993
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,681 $ 64,742
Short term investments 34,839 40,046
Accounts and notes receivable, net 15,975 13,813
Inventories 34,910 32,333
Income tax receivable 5,357 -
Deferred income taxes 2,905 3,356
Prepaid expenses 708 858
Total current assets 103,375 155,148
Property, plant and equipment, net 28,943 27,701
Notes receivable 1,257 1,050
Long term investments, net 71,960 20,222
Other assets 13,649 11,179
Deferred income taxes 719 966
Total assets $219,903 $216,266
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,372 $ 6,560
Accrued payroll expenses 4,573 4,815
Other 4,543 3,894
Total current liabilities 12,488 15,269
Other long term liabilities 10,010 9,025
Commitments and contingencies
Shareholders' equity:
Common stock, $1.00 par value,
authorized 3,000,000 shares, issued
and outstanding 1,926,414 shares 1,926 1,926
Additional paid-in capital 568 568
Retained earnings 195,955 189,478
Investment valuation allowance (1,044) -
Total shareholders' equity 197,405 191,972
Total liabilities and
shareholders' equity $219,903 $216,266
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<CAPTION>
For the Years Ended June 30,
1994 1993 1992
<S> <C> <C> <C>
Net sales $193,861 $190,679 $197,312
Cost of goods sold 99,566 76,421 84,918
94,295 114,258 112,394
Selling expense 74,534 73,331 70,863
General and admini-
strative expense 10,273 10,998 14,037
84,807 84,329 84,900
Income from operations 9,488 29,929 27,494
Other income:
Dividend income 1,352 1,227 1,275
Interest income 3,630 4,397 4,612
Other, net 2,219 3,985 157
7,201 9,609 6,044
Income before taxes and
cumulative effect
of accounting changes 16,689 39,538 33,538
Provision for income taxes 6,359 15,294 13,312
Income before cumulative
effect of accounting
changes 10,330 24,244 20,226
Cumulative effect of
accounting changes,
net of income taxes - 5,294 -
Net income $ 10,330 $ 18,950 $ 20,226
Income per share:
Before accounting changes $ 5.36 $12.59 $10.50
Cumulative effect of
accounting changes - (2.75) -
Net income per share $ 5.36 $ 9.84 $10.50
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
For the Years Ended June 30,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $10,330 $18,950 $20,226
Adjustments to reconcile net
income to net cash provided
by operating activities:
Cumulative effect of
accounting changes - 5,294 -
Depreciation 5,219 5,216 5,261
Deferred income taxes 698 466 (265)
Other (63) (67) 53
Net (gain) loss on
investments (1,758) (3,552) 422
Change in assets and
liabilities:
Short term investments 5,207 (18,145) 7,464
Accounts and notes
receivable (2,571) 986 531
Inventories (2,577) (913) (1,845)
Income tax receivable (5,357)
Prepaid expenses and
other assets (2,320) (1,986) (2,339)
Accounts payable (3,188) 1,593 (289)
Accrued payroll
expenses and other
liabilities 407 (400) 2,063
Other long term
liabilities 985 895 -
Total adjustments (5,318) (10,613) 11,056
Net cash provided by operating
activities $ 5,012 $ 8,337 $31,282
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
FARMER BROS. CO
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Dollars in thousands)
<CAPTION>
For the Years Ended June 30,
1994 1993 1992
<S> <C> <C> <C>
Net cash provided by
operating activities: $ 5,012 $ 8,337 $31,282
Cash flows from investing
activities:
Purchases of property,
plant and equipment (6,658) (5,388) (6,967)
Proceeds from sales of
property, plant
and equipment 259 251 226
Purchases of investments (88,069) (24,333) (40,995)
Proceeds from sales of
investments 37,045 62,671 22,166
Notes issued (832) (14) (62)
Notes repaid 1,035 237 279
Net cash (used in)
provided by investing
activities (57,220) 33,424 (25,353)
Cash flows from financing
activities:
Dividends paid (3,853) (3,371) (2,986)
Net cash used in financing
activities (3,853) (3,371) (2,986)
Net (decrease) increase
in cash and cash
equivalents (56,061) 38,390 2,943
Cash and cash equivalents
at beginning of year 64,742 26,352 23,409
Cash and cash equivalents
at end of year $ 8,681 $64,742 $26,352
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<CAPTION>
For the Years Ended June 30,
1994 1993 1992
<S> <C> <C> <C>
Common stock $ 1,926 $ 1,926 $ 1,926
Additional paid-in capital 568 568 568
Retained earnings
Beginning balance 189,478 174,766 157,526
Net income for the year 10,330 18,950 20,226
Dividends (3,853) (4,238) (2,986)
Ending balance 195,955 189,478 174,766
Investment valuation allowance
Beginning balance - - (340)
Adjustment (1,044) - 340
Ending balance (1,044) - -
Total shareholders' equity $197,405 $191,972 $177,260
Dividends declared per share $2.00 $1.80 $1.60
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
A. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary FBC Finance Company. All significant
intercompany balances and transactions have been eliminated.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of 30
days or less when purchased to be cash equivalents, which approximate market.
Investments
Marketable equity securities are carried at the lower of cost or market. A
valuation allowance is included in shareholders' equity that represents any
net unrealized loss from non current investments. Other investments are
carried at amortized cost which approximates market. The cost of investments
sold is determined on the specific identification method. Fair value of
investments are based on quoted market prices. Dividend and interest income
are accrued as earned.
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 (LIF0) 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 deprecia
tion. Depreciation of buildings and facilities is computed using the
straight-line method. Other assets are depreciated using primarily the sum-
of-the-years' digits method. The following useful lives are used:
Buildings and facilities 10 to 30 years
Machinery and equipment 3 to 5 years
Office furniture and equipment 5 years
When assets are sold or retired the asset and related depreciation allowance
is eliminated from the records and any gain or loss on disposal is included
in operations. Maintenance and repairs are charged to expense, betterments
are capitalized.
Income Taxes
In 1994 and 1993, deferred income taxes are determined based on the
difference between the financial reporting and tax basis of assets and
liabilities, using enacted tax rates in effect for the year in which
differences are expected to reverse. In 1992, the provision for deferred
income taxes represents the tax effect of differences in the timing of income
and expense recognition for financial reporting and tax purposes.
<PAGE>
B. Investments
1994 1993
Cost Market Cost Market
(In thousands)
Short term:
Commercial Paper $ - $ - $25,266 $25,252
U.S. Government
obligations 34,839 34,924 14,780 15,320
$34,839* $34,924 $40,046* $40,572
Long term:
U.S. Government
obligations $39,599* $38,621 $ 1,604 $ 1,810
Preferred stocks 28,939 27,895* 16,340 17,625
Corporate bonds 1,799* 1,796 1,999 2,149
Liquid asset fund 2,667* 2,667 279 279
$73,004 $70,979 $20,222* $21,863
* Represents carrying value.
A valuation allowance for preferred stocks of approximately $1,044,000 was
recorded at June 30, 1994.
Net realized gains (losses) on the sale of investments were $1,758,000,
$3,552,000, and $(422,000) in 1994, 1993, and 1992, respectively.
The Company has not adopted the provisions of Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain
Investments in Debt and Equity Securities." SFAS 115 requires certain
changes in accounting for investments in equity and debt securities. The
Company is required to adopt this standard for the fiscal year beginning July
1, 1994. The Company does not believe the adoption of SFAS 115 will have a
material impact on its financial position.
C. Allowance for Doubtful Accounts and Notes Receivable
Balance At Additions Deductions of Balance At
Beginning Charged to Uncollectible End of
of Year Costs and Accounts Written Year
Expenses Off
July 1st June 30th
(In thousands)
1994 $ 530 184 269 $ 445
1993 $ 614 339 423 $ 530
1992 $ 583 586 555 $ 614
<PAGE>
D. Inventories
June 30, 1994 Processed Unprocessed Total
(In thousands)
Coffee $ 3,182 $10,829 $14,011
Allied products 10,395 3,022 13,417
Coffee brewing
equipment 1,712 5,770 7,482
$15,289 $19,621 $34,910
June 30, 1993 Processed Unprocessed Total
(In thousands)
Coffee $ 3,430 $ 8,544 $11,974
Allied products 10,079 3,468 13,547
Coffee brewing
equipment 1,523 5,289 6,812
$15,032 $17,301 $32,333
Current cost of coffee and allied products inventories exceeds the LIFO cost
by approximately $6,700,000 and $2,500,000 as of June 30, 1994 and 1993,
respectively.
E. Property, Plant and Equipment
1994 1993
(In thousands)
Buildings and facilities $23,760 $23,244
Machinery and equipment 46,237 42,152
Office furniture and equipment 2,217 2,431
72,214 67,827
Accumulated depreciation (47,997) (44,852)
Land 4,726 4,726
$28,943 $27,701
Maintenance and repairs charged to expense for the years ended June 30, 1994,
1993 and 1992 were $9,137,000, $9,056,000 and $9,338,000, respectively.
F. Retirement Plans
The Company has a contributory defined benefit pension plan for all employees
not covered under a collective bargaining agreement (Farmer Bros. Co.) and a
non contributory defined benefit pension plan for certain hourly employees
covered under a collective bargaining agreement (Brewmatic Co.). The
Company's funding policy is to contribute annually at a rate that is intended
to fund benefits as a level percentage of salary (Farmer Bros. Co.) and as a
level dollar cost per participant (Brewmatic Co.) over the working lifetime
of the plan participants. Benefit payments are determined under a final pay
formula (Farmer Bros. Co.) and flat benefit formula (Brewmatic Co.).
<PAGE>
F. Retirement Plans, Continued
The net periodic pension benefit for 1994, 1993 and 1992 are comprised of the
following:
Farmer Bros. Co. Brewmatic Co.
(In thousands)
1994
Service cost $ 594 $ 14
Interest cost 1,869 116
Actual return on assets (94) 6
Net amortization and deferral (3,651) (216)
Net periodic pension benefit $ (1,282) $ (80)
1993
Service cost $ 588 $ 16
Interest cost 1,629 110
Actual return on assets (5,870) (260)
Net amortization and deferral 2,719 76
Net periodic pension benefit $ (934) $ (58)
1992
Service cost $ 655 $ 17
Interest cost 1,786 100
Actual return on assets (4,846) (256)
Net amortization and deferral 2,032 77
Net periodic pension benefit $ (373) $ (62)
The funded status of the plans at June 30, 1994 was as follows:
Farmer Bros. Co. Brewmatic Co.
(In thousands)
Actuarial present value of benefit
obligations:
Vested $ 22,710 $ 1,590
Non-vested 110 -
Accumulated benefit obligations 22,820 1,590
Effect of projected salary increases 3,724 -
Projected benefit obligations 26,544 1,590
Plan assets at fair value (39,111) (2,295)
Plan assets at fair value in excess
of projected benefit obligations (12,567) (705)
Unrecognized net asset at June 30, 1994 5,585 329
Unrecognized prior service cost (304) (117)
Unrecognized net loss (1,045) (167)
Prepaid pension cost $ (8,331) $ (660)
Assumptions for 1994:
Discount rate for plan obligations 7.75% 7.75%
Assumed long term return on assets 8.00% 8.00%
Projected compensation increases for
pay related plans 3.10% -
<PAGE>
F. Retirement Plans, Continued
The funded status of the plans at June 30, 1993 was as follows:
Farmer Bros. Co. Brewmatic Co.
(In thousands)
Actuarial present value of benefit
obligations:
Vested $ 20,428 $ 1,475
Non-vested 121 3
Accumulated benefit obligations 20,549 1,478
Effect of projected salary increases 3,296 -
Projected benefit obligations 23,845 1,478
Plan assets at fair value (39,920) (2,377)
Plan assets at fair value in excess
of projected benefit obligations (16,075) (899)
Unrecognized net asset at June 30, 1993 6,206 365
Unrecognized prior service cost (335) (130)
Unrecognized net gain 3,155 97
Prepaid pension cost $ (7,049) $ (567)
Assumptions for 1993:
Discount rate for plan obligations 8.00% 8.00%
Assumed long term return on assets 8.00% 8.00%
Projected compensation increases
for pay related plans 3.10% -
The assets of each plan are primarily invested in publicly traded stocks and
bonds, U.S. government securities and money market funds. The Farmer Bros.
Co. Retirement Plan owned 21,765 shares of the Company's common stock at June
30, 1994 and 1993 with a fair value of approximately $2,677,000 and
$3,287,000, respectively.
The Company contributes to two-multi-employer defined benefit plans for
certain union employees. The contributions to these multi employer pension
plans were approximately $1,615,000, $1,610,000, and $1,448,000 for 1994,
1993 and 1992, respectively. The Company also has a defined contribution
plan for eligible non-union employees. No Company contributions have been
made nor required to be made to this plan.
The Company incurred health care and life insurance costs, for both active
employees and retirees, of approximately $4,114,000, $3,665,000 and
$4,305,000 for the years ended June 30, 1994, 1993 and 1992, respectively.
In 1993, the Company adopted Statement of Financial Accounting Standards No.
106 ("SFAS 106"), "Employers' Accounting for Postretirement Benefits Other
Than Pensions." SFAS 106 requires the accrual method of accounting for these
benefits rather than the Company's previous policy of recording these
benefits when paid. The Company recognized the Accumulated Postretirement
Benefit Obligation as of July 1, 1992 of $8,130,000. On an after-tax basis,
the cumulative effect of this charge was $4,901,000 or $2.55 per share.
<PAGE>
F. Retirement Plans, Continued
Net periodic postretirement benefit cost charged to operations for the years
ended June 30, 1994 and 1993 includes the following components:
1994 1993
(In thousands)
Service cost benefits earned
during the year $ 496 $ 457
Interest cost on accumulated
postretirement benefit obligation 756 681
Total expense $1,252 $1,138
At June 30, 1994 and 1993, the recorded liability for these postretirement
benefits was as follows:
Accumulated postretirement benefit obligation:
1994 1993
(In thousands)
Retirees and dependents $ 5,276 $ 4,046
Fully eligible active participants 3,300 2,913
Other active participants 2,030 2,066
Accumulated postretirement
benefit obligation 10,606 9,025
Unrecognized net loss (596) -
Accrued postretirement benefit cost $10,010 $ 9,025
The discount rate used in determining the accumulated postretirement benefit
obligation at June 30, 1994 and 1993 was 8% and 8.5%, respectively. The
health care cost trend rate was assumed to be 10% in 1994 and 1993 grading to
5.5% in ten years for medical and 6% for all years for dental.
An increase in the health care cost trend rate of 1% in each year would
increase the accumulated postretirement benefit obligation as of June 30,
1994 by 8.3% and increase the aggregate of service and interest cost for 1994
by 8.7%.
G. Income Taxes
Effective July 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." The
cumulative effect of adopting SFAS 109 resulted in a charge of $393,000 or
$.20 per share.
<PAGE>
G. Income Taxes, Continued
The primary components of temporary differences which give rise to the
Company's net deferred tax asset at June 30, 1994 and June 30, 1993 are as
follows:
June 30, June 30,
1994 1993
(In thousands)
Deferred tax assets:
Postretirement benefits $ 4,068 $ 3,629
Accrued liabilities 2,014 2,088
State taxes 287 681
Other 922 997
7,291 7,395
Deferred tax liabilities:
Pension assets 3,653 3,063
Other 14 10
3,667 3,073
Net deferred tax asset $ 3,624 $ 4,322
Deferred tax assets are expected to be realized against future taxable income
and have not been reduced by a valuation allowance.
The current and deferred components of the provision for income taxes consist
of the following:
1994 1993 1992
(In thousands)
Current: Federal $ 4,385 $11,991 $10,706
State 1,276 2,837 2,871
5,661 14,828 13,577
Deferred: Federal 642 372 (230)
State 56 94 (35)
698 466 (265)
$ 6,359 $15,294 $13,312
A reconciliation of the provision for income taxes to the statutory federal
income tax expense is as follows:
1994 1993 1992
(In thousands)
Statutory tax rate 35% 34.5% 34%
Income tax expense
at statutory rate $ 5,841 $13,641 $11,403
State income tax
(net of federal tax
benefit) 865 1,856 1,873
Dividend income
exclusion (324) (302) (304)
Other (net) (23) 99 340
$ 6,359 $15,294 $13,312
Income taxes paid $10,993 $15,636 $14,155
<PAGE>
H. Other Current Liabilities
1994 1993
(In thousands)
Accrued workers'
compensation liabilities $ 3,112 $ 2,708
Dividends payable 963 867
Other 468 319
$ 4,543 $ 3,894
I. Line of Credit
The Company has a credit line of $50,000,000. The line has no fee or
compensating balance requirement.
J. Commitments and Contingencies
The Company incurred rent expense of approximately $666,000, $686,000 and
$694,000, for the years ended June 30, 1994, 1993 and 1992, respectively, and
is obligated under leases for branch warehouses with terms not exceeding five
years. Certain leases contain renewal options.
Future minimum lease payments are as follows:
June 30, (In thousands)
1995 $435
1996 230
1997 150
1998 114
1999 44
$973
The Company is a party to various pending legal and administrative pro
ceedings. It is management's opinion that the outcome of such proceedings
will have no material financial impact on the Company.
Concentration of Credit Risk: At June 30, 1994, financial instruments which
potentially subject the Company to concentrations of credit risk consist of
cash and cash equivalents in financial institutions (which periodically
exceed federally insured limits) and investments in the preferred stocks of
other companies. Other investments are in U.S. government securities.
Investment in the preferred stocks of other companies are limited to high
quality issuers and are not concentrated by geographic area or issuer.
<PAGE>
K. Quarterly Financial Data (Unaudited)
Quarter Ended
09/30/93 12/31/93 03/31/94 06/30/94
(In thousands, except per share data)
Net sales $46,998 $49,564 $48,628 $48,671
Gross profit 26,010 27,621 26,811 13,853
Income (loss) from
operations 5,244 5,889 4,679 (6,324)
Net income (loss) 4,365 4,196 3,932 (2,163)
Net income (loss)
per share $2.27 $2.18 $2.04 $(1.13)
Results were negatively impacted by the sudden increase in green coffee
prices which occurred in the fourth quarter of 1994.
Quarter Ended
09/30/92 12/31/92 03/31/93 06/30/93
(In thousands, except per share data)
Net sales $47,788 $49,717 $46,667 $46,507
Gross profit 29,368 28,759 28,399 27,732
Income from
operations 9,029 7,698 7,015 6,187
Income before
cumulative
effect of
accounting changes 6,531 5,886 5,187 6,640
Net income 1,237 5,886 5,187 6,640
Income per share:
Before cumulative effect
of accounting changes $3.39 $3.06 $2.69 $3.45
Net income per share $0.64 $3.06 $2.69 $3.45
Results for the first three quarters of 1993 have been restated to reflect
the adoption of SFAS 106 and SFAS 109 retroactively to July 1, 1992. The
cumulative effect of adopting these accounting changes, net of tax, was
approximately $5,294,000 (or $2.75 per share) during the first quarter.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Reference is made to the information to be set forth in the section entitled
"Election of Directors" in the definitive proxy statement involving the
election of directors in connection with the Annual Meeting of Shareholders
to be held on November 28, 1994 (the "Proxy Statement") which section is
incorporated herein by reference. The Proxy Statement will be filed with the
Securities and Exchange Commission no later than 120 days after June 30,
1994, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended.
Name Age Position
Roy F. Farmer 78 Chairman of Board of Directors since 1951.
Roy E. Farmer 42 President and Director since 1993; various
positions since 1976, son of Chairman of the
Board, R.F. Farmer.
Guenter W. Berger 57 Vice President of Production, Director
since 1980; various positions since 1960.
Kenneth R. Carson 54 Vice President of Sales since 1990;
Sales Management since 1968.
David W. Uhley 53 Secretary since 1985; various positions
since 1968.
John E. Simmons 43 Treasurer since 1985; various positions
since 1980.
All officers are elected annually by the Board of Directors and serve at the
pleasure of the Board.
Item 11. Executive Compensation
Reference is made to the information to be set forth in the section entitled
"Management Remuneration" in the Proxy Statement, which is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Reference is made to the information to be set forth in the sections entitled
"Principal Shareholders" and "Election of Directors" in the Proxy Statement,
which is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Reference is made to the information to be set forth in the sections entitled
"Principal Shareholders" and "Election of Directors" in the Proxy Statement,
which is incorporated herein by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) List of Financial Statements and Financial Statement Schedule
1. Financial Statements included in Item 8:
Consolidated Balance Sheets as of June 30, 1994 and 1993.
Consolidated Statements of Income For the Years
Ended June 30, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1994, 1993 and 1992.
Consolidated Statements of Shareholders' Equity
For the Years Ended June 30, 1994, 1993 and 1992.
Notes to Consolidated Financial Statements
2. Financial Statement Schedule:
Schedule I - Marketable Securities-Other Investments-
June 30, 1994.
Other schedules are omitted as they are not applicable,
not material or the required information is given in
the financial statements or notes thereto.
3. Exhibits required by Item 601 of Regulation S-K.
See item (c) below.
(b) Reports on Form 8-K. Registrant did not file any reports on
Form 8-K during the quarter ended June 30, 1994.
(c) Exhibits required by Item 601 of Regulation S-K.
Exhibits
3. Articles of incorporation and by-laws.
Filed with the Form 10-K for the fiscal year
ended June 30, 1986.
4. Instruments defining the rights of security holders,
including indentures.
Not applicable.
9. Voting trust agreement.
Not applicable.
10. Material contracts
Not applicable.
11. Statement re computation of per share earnings.
Not applicable.
12. Statements re computation of ratios.
Not applicable.
13. Annual report to security holders, Form 10-Q or quarterly report to
security holders.
Not applicable.
18. Letter re change in accounting principles.
Not applicable.
19. Previously unfiled documents.
Not applicable.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8K,
Continued
22. Subsidiaries of the Registrant.
Not applicable.
23. Published report regarding matters submitted to vote of security
holders.
Not applicable.
24. Consents of experts and counsel.
Not applicable.
25. Power of attorney.
Not applicable.
28. Additional exhibits.
Not applicable.
29. Information from reports furnished to state insurance regulatory
authorities.
Not applicable.
(d) Financial statements required by Regulation S-X but excluded from the
annual report to shareholders by
Rule 14a - 3(b).
None.
<PAGE>
FARMER BROS. CO.
SCHEDULE I - MARKETABLE SECURITIES - OTHER INVESTMENTS
JUNE 30, 1994
Column A Column B Column C Column D Column E
Number of Amount at
Description shares & Cost Market which carried
principal value in the
amount balance sheet
(In thousands)
Short term:
U.S. Government
obligations 35,000 $34,839 $34,924 $34,839
Long term:
U.S. Government
obligations 41,000 39,599 38,621 39,599
Various preferred
stocks* - 28,939 27,895 27,895
Corporate bonds* 1,800 1,799 1,796 1,799
Liquid asset fund - 2,667 2,667 2,667
* Securities of any one issuer do not exceed 2% of total assets.
<PAGE>
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.
By: Roy F. Farmer
(Roy F. Farmer, Chief Executive Officer and
Chairman of the Board of Directors)
Date: September 28, 1994
By: John E. Simmons
(John E. Simmons, Treasurer and
Chief Financial and Accounting Officer)
Date: September 28, 1994
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.
Lewis A. Coffman
Lewis A. Coffman, Director
Date: September 28, 1994
Guenter W. Berger
Guenter W. Berger, Vice President and Director
Date: September 28, 1994
Roy E. Farmer
Roy E. Farmer, President and Director
Date: September 28, 1994
John M. Anglin, Director
Date
Catherine E. Crowe, Director
Date
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> JUN-30-1994
<CASH> 8,681,000
<SECURITIES> 34,839,000
<RECEIVABLES> 15,975,000
<ALLOWANCES> 445,000
<INVENTORY> 34,910,000
<CURRENT-ASSETS> 103,375,000
<PP&E> 28,943,000
<DEPRECIATION> 47,997,000
<TOTAL-ASSETS> 219,903,000
<CURRENT-LIABILITIES> 12,488,000
<BONDS> 0
<COMMON> 1,926,000
0
0
<OTHER-SE> 195,479,000
<TOTAL-LIABILITY-AND-EQUITY> 219,903,000
<SALES> 193,861,000
<TOTAL-REVENUES> 193,861,000
<CGS> 99,566,000
<TOTAL-COSTS> 99,566,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 16,689,000
<INCOME-TAX> 6,359,000
<INCOME-CONTINUING> 10,330,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,330,000
<EPS-PRIMARY> 5.36
<EPS-DILUTED> 5.36
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