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, 1995
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 on each exchange on which registered
Common stock, OTC
$1.00 par value
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, 1995: 1,926,414 and the aggregate market value of the common
shares held by non-affiliates of the Registrant was approximately $124
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 27, 1995 are incorporated by reference
into Part III of this report.
PAGE 1 OF 26 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 63% 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 domestic commodity brokers. 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 96 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.
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 1995.
<PAGE>
Item 1. Business, Continued
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, 1995, Registrant employed 1,172 employees, 486 are
subject to collective bargaining agreements.
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.
Item 4. Submission of Matters to A Vote of Security Holders
None.
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.
1995 1994
High Low Dividend High Low Dividend
1st Quarter $134.00 $123.00 $ 0.50 $156.00 $145.00 $ 0.50
2nd Quarter 132.00 120.00 0.50 156.00 134.00 0.50
3rd Quarter 130.00 117.00 0.50 151.00 126.00 0.50
4th Quarter 132.00 120.00 0.50 148.00 123.00 0.50
There were 654 holders of record on June 30, 1995.
<PAGE>
Item 6. Selected Financial Data
(Dollars in thousands, except per share data)
1995 1994 1993
Net sales $234,662 $193,861 $190,679
Income from operations 25,235 9,488 29,929
Net income 19,517 10,330 18,950*
Net income per share $10.13 $5.36 $9.84*
Total assets $244,340 $219,903 $216,266
Dividends declared
per share $2.00 $2.00 $1.80
1992 1991
Net sales $197,312 $196,232
Income from operations 27,494 28,016
Net income 20,226 21,394
Net income per share $10.50 $11.11
Total assets $190,714 $171,361
Dividends declared
per share $1.60 $1.40
* 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)
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 provided
by internal sources. Registrant has no major commitments for capital
expenditures at this time. Construction of a new laboratory building in
its Torrance compound will be completed this fall at an estimated cost of
$2.5 million. The Company also has a branch warehouse nearing completion
in Austin, Texas with a cost of $725,000 and expects to start construction
of a similar facility in Memphis, Tennessee.
The Company maintains a $50 million line of credit with First Interstate
Bank of California. There was no bank debt incurred during fiscal 1995.
1995 1994 1993
(Dollars in thousands)
Current assets $149,806 $103,375 $155,148
Current liabilities 18,724 12,488 15,269
Working capital $131,082 $ 90,887 $139,879
Quick ratio 5.73:1 4.76:1 7.77:1
Capital Expenditures $ 9,085 $ 6,658 $ 5,388
<PAGE>
Results of Operations
The volatile green coffee market continues to effect Registrant. Green
coffee costs soared last year as Brazil, the world's largest coffee
producer, sustained frost damage to the coffee crop. Speculation about the
extent of crop losses spurred green coffee costs to eight year highs.
Higher green coffee costs have been passed on to Registrant's customers
with higher selling prices of roast coffee, but higher prices result in
lower sales volume and customer resistance to higher prices result in
smaller margins.
Net sales increased 21% to $234,662,000 in 1995 as compared to $193,861,000
in 1994 as the result of higher roast coffee prices, offset by a 7%
decrease in coffee volume. Gross profit increased to $112,899,000 in 1995,
or 48% of sales, compared to $94,295,000, or 49% of sales, in 1994. This
is still less than the $114,258,000 gross profit, or 60% of sales, reached
in fiscal 1993. Other expenses increased 3% to $87,664,000 in 1995 from
$84,807,000 in 1994 and $84,329,000 in 1993.
Income before taxes increased to $31,284,000 or 13% of sales in 1995, as
compared to $16,689,000 or 9% of sales in 1994 and $39,538,000 or 21% of
sales in 1993. 1994 earnings were depressed by a volatile increase in
green coffee market costs. Net income for fiscal 1995 reached $19,517,000,
or $10.13 per share, as compared to $10,330,000, or $5.36 per share, in
1994 and $18,950,000, or $9.84 per share, in 1993.
Registrant adopted the provisions of Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt
and Equity Securities" during the first quarter of fiscal 1995. In
accordance with SFAS 115, prior period financial statements have not been
restated. The adoption of SFAS 115 did not have a significant effect upon
the Company's financial condition or results of operation.
1995 1994 1993*
Income per share:
Before accounting changes $10.13 $ 5.36 $12.59
Cumulative effect of
accounting changes - - (2.75)
Net income per share $10.13 $ 5.36 $ 9.84
Percentage change:
1995 to 1994 1994 to 1993
Net sales 21.1% 1.7%
Cost of goods sold 22.3% 30.3%
Gross profit 19.7% (17.5%)
Operating expenses 3.4% 0.6%
Income from operations 166.0% (68.3%)
Provision for income taxes 85.0% (58.4%)
Income before accounting changes 88.9% (57.4%)
Net income 88.9% (45.5%)
* The Company adopted SFAS 106 and SFAS 109 in 1993.
<PAGE>
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
1995 vs. 1994 1994 vs. 1993
Coffee: Prices $24.11 $ 1.66
Volume (4.08) (2.02)
Cost (10.27) (11.10)
Gross Profit 9.76 (11.46)
Allied products: Gross Profit (0.10) 1.10
Operating expenses (1.48) (0.25)
Other income (0.60) (1.25)
Provision for income taxes (2.81) 4.63
Income before accounting changes 4.77 (7.23)
Cumulative effect of
accounting changes* - 2.75
Net income $4.77 $(4.48)
* The Company adopted SFAS 106 and SFAS 109 in 1993.
Price Risk
The Company's operations are significantly impacted by the world market for
green coffee, its largest product. Coffee is an agricultural product and
fundamental shifts in supply or demand can have a dramatic effect on its
price. Coffee is traded domestically on the New York Coffee Tea and Cocoa
Exchange, and is one of the largest and most volatile commodity markets.
At present, the Company manages its exposure to price risk by managing its
inventory level. Registrant is unable to predict either the direction or
duration of coffee price swings, and cautions against using past results to
predict future results.
<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 of Farmer Bros. Co.
and Subsidiary ("the Company") as listed in Item 14(a) of this Form
10-K. 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 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, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period
ended June 30, 1995 in conformity with generally accepted accounting
principles.
As discussed in Notes B, F and G to the consolidated financial statements,
the Company changed its methods of accounting for certain investments in
debt and equity securities in 1995 and for postretirement benefits other
than pensions and income taxes in 1993.
Coopers & Lybrand L.L.P.
Los Angeles, California
September 22, 1995
<PAGE>
FARMER BROS. CO.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, June 30,
1995 1994
<TABLE>
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,321 $ 8,681
Short term investments 80,530 34,839
Accounts and notes receivable, net 18,481 15,975
Inventories 36,761 34,910
Income tax receivable 1,265 5,357
Deferred income taxes 3,577 2,905
Prepaid expenses 871 708
Total current assets 149,806 103,375
Property, plant and equipment, net 33,213 28,943
Notes receivable 1,880 1,257
Long term investments, net 43,337 71,960
Other assets 15,887 13,649
Deferred income taxes 217 719
Total assets $244,340 $219,903
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,408 $ 3,372
Accrued payroll expenses 4,711 4,573
Other 4,605 4,543
Total current liabilities 18,724 12,488
Accrued postretirement benefits 11,505 10,010
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 211,619 195,955
Investment valuation allowance (2) (1,044)
Total shareholders' equity 214,111 197,405
Total liabilities and
shareholders' equity $244,340 $219,903
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<S> <C> <C> <C>
For the Years Ended June 30,
1995 1994 1993
Net sales $234,662 $193,861 $190,679
Cost of goods sold 121,763 99,566 76,421
112,899 94,295 114,258
Selling expense 76,313 74,534 73,331
General and admini-
strative expense 11,351 10,273 10,998
87,664 84,807 84,329
Income from operations 25,235 9,488 29,929
Other income (expense):
Dividend income 2,459 1,352 1,227
Interest income 4,403 3,630 4,397
Other, net (813) 2,219 3,985
6,049 7,201 9,609
Income before taxes and
cumulative effect of
accounting changes 31,284 16,689 39,538
Provision for
income taxes 11,767 6,359 15,294
Income before cumulative
effect of accounting
changes 19,517 10,330 24,244
Cumulative effect of
accounting changes,
net of income taxes - - 5,294
Net income $ 19,517 $ 10,330 $ 18,950
Income per share:
Before accounting changes $10.13 $5.36 $12.59
Cumulative effect of
accounting changes - - (2.75)
Net income per share $10.13 $ 5.36 $ 9.84
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C>
For the years ended June 30,
1995 1994 1993
Cash flows from operating
activities:
Net income $19,517 $10,330 $18,950
Adjustments to reconcile net
income to net cash provided
by operating activities:
Cumulative effect of
accounting changes - - 5,294
Depreciation 4,677 5,219 5,216
Deferred income taxes (170) 698 466
Other (47) (63) (67)
Net (gain) loss on
investments 1,384 (1,758) (3,552)
Change in assets and
liabilities:
Short term investments - 5,207 (18,145)
Accounts and notes
receivable (2,460) (2,571) 986
Inventories (1,851) (2,577) (913)
Income tax receivable 4,092 (5,357) -
Prepaid expenses and
other assets (2,401) (2,320) (1,986)
Accounts payable 6,036 (3,188) 1,593
Accrued payroll
expenses and other
liabilities 200 407 (400)
Other long term
liabilities 1,495 985 895
Total adjustments 10,955 (5,318) (10,613)
Net cash provided by operating
activities $30,472 $ 5,012 $ 8,337
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FARMER BROS. CO
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C>
For the Years Ended June 30,
1995 1994 1993
Net cash provided by operating
activities: $ 30,472 $ 5,012 $ 8,337
Cash flows from investing
activities:
Purchases of property,
plant and equipment (9,085) (6,658) (5,388)
Proceeds from sales of
property, plant
and equipment 266 259 251
Purchases of investments (164,754) (88,069) (24,333)
Proceeds from sales of
investments 147,263 37,045 62,671
Notes issued (760) (832) (14)
Notes repaid 91 1,035 237
Net cash (used in)
provided by investing
activities (26,979) (57,220) 33,424
Cash flows from financing
activities:
Dividends paid (3,853) (3,853) (3,371)
Net cash used in financing
activities (3,853) (3,853) (3,371)
Net increase (decrease)
in cash and cash
equivalents (360) (56,061) 38,390
Cash and cash equivalents at
beginning of year 8,681 64,742 26,352
Cash and cash equivalents at
end of year $ 8,321 $ 8,681 $64,742
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<TABLE>
<S> <C> <C> <C>
For the Years Ended June 30,
1995 1994 1993
Common stock $ 1,926 $ 1,926 $ 1,926
Additional paid-in capital 568 568 568
Retained earnings
Beginning balance 195,955 189,478 174,766
Net income for the year 19,517 10,330 18,950
Dividends (3,853) (3,853) (4,238)
Ending balance 211,619 195,955 189,478
Investment valuation allowance
Beginning balance (1,044) - -
Adjustment 1,042 (1,044) -
Ending balance (2) (1,044) -
Total shareholders' equity $214,111 $197,405 $191,972
Dividends declared per share $2.00 $2.00 $1.80
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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
The Company adopted Statement of Financial Accounting Standards No. 115
(SFAS 115), Accounting for Certain Investments in Debt and Equity
Securities, as of July 1, 1994. SFAS 115 specifies the accounting
treatment of the Company's investments based on investment classifications
defined in the statement. The Company's investments have been recorded at
fair value and in accordance with SFAS 115 have been classified as
"available for sale". Any unrealized gains or losses on such investments
at June 30, 1995 have been recorded as a separate component of
shareholders' equity (Note B).
As required by SFAS 115, prior year financial statements have not been
restated. Therefore, investments in marketable equity securities as of
June 30, 1994 are carried at the lower of cost or market. Other investments
as of June 30, 1994 are carried at amortized cost which approximate market.
A valuation allowance as of June 30, 1994 is included in shareholders'
equity that represents any net unrealized loss from non-current
investments.
The cost of investments sold is determined on the specific identification
method. Dividend and interest income is 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 (LIFO) basis.
Costs of coffee brewing equipment manufactured are accounted for on the
First In, First Out (FIFO) basis.
In the normal course of business, the Company enters into commodity
purchase agreements with suppliers and futures contracts to minimize
exposure to inventory price fluctuations. Decreases in the market value of
the commodity purchase agreements, if any, are recognized in earnings
currently. In the event of non-performance by the counterparties, the
Company could be exposed to credit and supply risk. The Company monitors
the financial viability of the counterparties. Futures contracts not
designated as hedges are marked to market and changes are recognized in
earnings currently.
<PAGE>
A. Summary of Significant Accounting Policies, Continued
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. Other assets are depreciated using the sum-of-
the-years' digits and straight line methods. 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
Deferred income taxes are determined based on the difference 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.
B. Investments
1995 1994
Fair
Cost Value* Cost Market
(In thousands)
Current Assets
U.S. Government
Obligations $80,608 $80,530 $34,839* $34,924
$80,608 $80,530 $34,839 $34,924
Non-Current Assets
U.S. Government
Obligations $ 8,617 $ 8,610 $39,599* $38,621
Corporate bonds 1,599 1,569 1,799* 1,796
Preferred stocks 30,456 31,896 28,260 27,216*
Liquid asset fund
and other 1,262 1,262 3,346* 3,346
$41,934 $43,337 $73,004 $70,979
* carrying value
The contractual maturities of debt securities classified as current and non-
current available for sale are the following.
Fair Value
Maturities 6/30/95 6/30/94
(In thousands)
Within one year $80,530 $34,924
After 1 year through 5 years 8,610 38,621
After 5 years through 10 years 1,569 1,796
$90,709 $75,341
<PAGE>
B. Investments, Continued
Effective July 1, 1994, the Company adopted SFAS 115. As of June 30, 1995
all investments held by the Company were classified as available for sale.
The gross unrealized gains and (losses) on securities classified as
available for sale were $1,732,000 and ($407,000), respectively, in 1995.
Gross realized gains from available for sale securities were $1,857,000.
The Company hedges interest rate risk in its portfolio of preferred
stock. As of June 30, 1995, a substantial portion of the preferred stock
portfolio was hedged with put options on US Treasury futures traded on a
national exchange. Deferred losses at June 30, 1995, associated with the
hedge were $1,329,000. Such deferred losses will be recognized in other
income as the related unrealized gains in the preferred stock portfolio
are realized.
C. Allowance for Doubtful Accounts and Notes Receivable
1995 1994 1993
(In thousands)
Balance at beginning of year $445 $530 $614
Additions 527 184 339
Deductions (427) (269) (423)
Balance at end of year $545 $445 $530
D. Inventories
June 30, 1995 Processed Unprocessed Total
(In thousands)
Coffee $ 3,093 $10,809 $13,902
Allied products 11,308 4,096 15,404
Coffee brewing equipment 2,120 5,335 7,455
$16,521 $20,240 $36,761
June 30, 1994 Processed Unprocessed Total
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
Current cost of coffee and allied products inventories exceeds the LIFO
cost by approximately $30,246,000, and $6,700,000 as of June 30, 1995 and
1994, respectively.
For the year ended June 30, 1995, a decrease in the Company's green coffee
inventories resulted in a LIFO decrement which increased current year pre-
tax income by approximately $1,008,000.
<PAGE>
E. Property, Plant and Equipment
1995 1994
(In thousands)
Buildings and facilities $26,902 $23,760
Machinery and equipment 43,099 46,237
Office furniture and equipment 8,362 2,217
78,363 72,214
Accumulated depreciation (49,980) (47,997)
Land 4,830 4,726
$33,213 $28,943
Maintenance and repairs charged to expense for the years ended June 30,
1995, 1994 and 1993 were $10,545,000, $9,137,000 and $9,056,000,
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.)
The net periodic pension benefit for 1995, 1994 and 1993 are comprised of
the following:
Farmer Bros. Co. Brewmatic Co.
(In thousands)
1995
Service cost $ 875 $ 16
Interest cost 2,083 119
Actual return on assets (5,358) 304
Net amortization and deferral 1,738 (507)
Net periodic pension benefit $ (662) $ (68)
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)
<PAGE>
F. Retirement Plans, Continued
The funded status of the plans at June 30, 1995 was as follows:
Farmer Bros. Co. Brewmatic Co.
(In thousands)
Actuarial present value of benefit
obligations:
Vested $27,133 $1,621
Non-vested 154 -
Accumulated benefit obligations 27,287 1,621
Effect of projected salary increases 3,075 -
Projected benefit obligations 30,362 1,621
Plan assets at fair value (43,121) (2,509)
Plan assets at fair value in excess
of projected benefit obligations (12,759) (888)
Unrecognized net asset at June 30, 1995 4,965 292
Unrecognized prior service cost (1,763) (104)
Unrecognized net gain (loss) 565 (40)
Prepaid pension cost $(8,992) $ (740)
Assumptions for 1995:
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% -
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% -
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, 1995 and 1994 with a fair value of approximately $2,666,000 and
$2,677,000, respectively.
<PAGE>
F. Retirement Plans, Continued
The Company contributes to two multi-employer defined benefit plans for
certain union employees. The contributions to these multi-employer pension
plans were approximately $1,635,000, $1,615,000 and $1,610,000, for 1995,
1994 and 1993, 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.
Farmer Bros. Co. sponsors defined benefit postretirement medical and dental
plans that cover non-union employees and retirees, and certain union
locals. The plan is contributory; retirees contributions are fixed at a
current level. The plan is unfunded.
The Plan's accumulated postretirement benefit obligation (APBO) is as
follows:
June 30, June 30,
1995 1994
(In thousands)
Retirees and dependents $5,387 $5,276
Fully eligible active participants 5,869 3,300
Other active plan participants 7,575 2,030
Total APBO $18,831 $10,606
Unrecognized net (loss) gain (2,828) (596)
Unrecognized prior service cost (4,498) -
Accrued postretirement benefit cost $11,505 $10,010
Net periodic postretirement benefit costs included the following
components:
For the years ended June 30,
1995 1994 1993
(In thousands)
Service cost $587 $496 $457
Interest cost 1,042 756 681
Amortization of unrecognized
net loss 58 - -
Unrecognized Prior Service Cost 71 - -
Net periodic postretirement
benefit cost $1,758 $1,252 $1,138
A 9.5 percent annual rate increase in the per capita costs of covered
medical care benefits was assumed for the fiscal year ending June 30, 1995,
gradually decreasing to 5.5 percent by the fiscal year ending June 30, 2003
and remaining level thereafter. A 6 percent annual rate increase in the
per capita costs of covered dental care benefits was assumed for all years.
Increasing the assumed health care costs trend rates by one percentage
point each year would increase the accumulated postretirement benefit
obligation as of June 30, 1995 by $1,318,000 and increase the aggregate of
the service cost and interest cost components of net periodic
postretirement benefit cost for the fiscal year ending June 30, 1995 by
$134,000. A discount rate of 8.0% was used to calculate net periodic
postretirement benefit cost for the fiscal year ending June 30, 1995, and
<PAGE>
F. Retirement Plans, Continued
7.75% was used to determine the accumulated postretirement benefit
obligation as of June 30, 1995.
During fiscal 1995, the Company added prescription drug coverage for
retirees covered under the medical and dental plan. The additional retiree
health benefits increased the unrecognized prior service cost by
approximately $4,498,000 as of June 30, 1995.
A 10 percent annual rate increase in the per capita costs of covered
medical care benefits was assumed for the fiscal year ending June 30, 1994,
gradually decreasing to 5.5 percent by the fiscal year ending June 30, 2004
and remaining level thereafter. A 6 percent annual rate increase in the
per capita costs of covered dental care benefits was assumed for all years.
Increasing the assumed health care costs trend rates by one percentage
point in each year would increase the accumulated postretirement benefit
obligation as of June 30, 1994 by $876,000 and increase the aggregate of
the service cost and interest cost components of net periodic
postretirement benefit cost for the fiscal year ending June 30, 1994 by
$109,000. A discount rate of 8.5% was used to calculate net periodic
postretirement benefit cost for the fiscal year ending June 30, 1994, and
8.0% was used to determine the accumulated postretirement benefit
obligation as of June 30, 1994.
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.
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, 1995 and June 30, 1994 are as
follows:
June 30, June 30,
1995 1994
(In thousands)
Deferred tax assets:
Postretirement benefits $4,700 $4,068
Accrued liabilities 1,307 2,014
State taxes 543 287
Other 1,242 922
7,792 7,291
Deferred tax liabilities:
Pension assets 3,976 3,653
Other 22 14
3,998 3,667
Net deferred tax asset $3,794 $3,624
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:
1995 1994 1993
(In thousands)
Current: Federal $ 9,529 $ 4,385 $11,991
State 2,406 1,276 2,837
11,935 5,661 14,828
Deferred: Federal (145) 642 372
State (23) 56 94
(168) 698 466
$11,767 $ 6,359 $15,294
A reconciliation of the provision for income taxes to the statutory federal
income tax expense is as follows:
1995 1994 1993
(In thousands, except percentages)
Statutory tax rate 35.0% 35.0% 34.5%
Income tax expense
at statutory rate $10,949 $ 5,841 $13,641
State income tax
(net of federal tax benefit) 1,549 865 1,856
Dividend income exclusion (581) (324) (302)
Other (net) (150) (23) 99
$11,767 $ 6,359 $15,294
Income taxes paid $10,908 $10,993 $15,636
<PAGE>
H. Other Current Liabilities
1995 1994
(In thousands)
Accrued workers'
compensation liabilities $3,178 $ 3,112
Dividends payable 963 963
Other 464 468
$4,605 $ 4,543
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 $678,000, $666,000, and
$686,000, for the years ended June 30, 1995, 1994 and 1993, 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)
1996 $519
1997 368
1998 255
1999 57
2000 10
The Company is a party to various pending legal and administrative
proceedings. 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, 1995, financial instruments
which potentially subject the Company to concentrations of credit risk
consist of cash in financial institutions (which periodically exceed
federally insured limits), cash equivalents (principally commercial paper),
short term investments and investments in the preferred stocks of other
companies. Commercial paper investments are not concentrated by issuer,
industry or geographic area. Maturities are generally shorter than 90
days. 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
09/30/94 12/31/94 03/31/95 06/30/95
(In thousands, except per share data)
Net sales $54,182 $62,598 $59,514 $58,368
Gross profit 25,908 30,085 26,818 30,088
Income from
operations 4,514 8,023 4,448 8,250
Net income 3,757 5,706 3,220 6,834
Net income per share $1.95 $2.96 $1.67 $3.55
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.
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 27, 1995 (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, 1995, pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended.
Name Age Position
Roy F. Farmer 79 Chairman of Board of Directors since 1951.
Roy E. Farmer 43 President since 1993; various positions since
1976, son of Chairman of the Board,
R.F. Farmer.
Guenter W. Berger 58 Vice President of Production, Director
since 1980; various positions since 1960.
Kenneth R. Carson 55 Vice President of Sales since
1990; Sales Management since 1968.
David W. Uhley 54 Secretary since 1985; various positions
since 1968.
John E. Simmons 44 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 Schedules
1. Financial Statements included in Item 8:
Consolidated Balance Sheets as of June 30, 1995 and 1994.
Consolidated Statements of Income For the Years
Ended June 30, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1995, 1994 and 1993.
Consolidated Statements of Shareholders' Equity
For the Years Ended June 30, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
Financial Statement Schedules are omitted as they are not
applicable, or the required information is given in
the consolidated 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, 1995.
(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>
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 25, 1995
By: John E. Simmons
(John E. Simmons, Treasurer and
Chief Financial and Accounting Officer)
Date: September 25, 1995
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.
Roy E. Farmer
Roy E. Farmer, President and Director
Date: September 25, 1995
Guenter W. Berger
Guenter W. Berger, Vice President and Director
Date: September 25, 1995
Lewis A. Coffman
Lewis A. Coffman, Director
Date: September 25, 1995
John M. Anglin, Director
Date: September 25, 1995
Catherine E. Crowe, Director
Date: September 25, 1995
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