SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1997
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
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 outstanding: 1,926,414 as of March 31,
1997.
PAGE 1 OF 9
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Dollars in thousands, except per share data)
FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the three months For the nine months
ended March 31, ended March 31,
1997 1996 1997 1996
Net sales $55,336 $56,774 $165,581 $170,383
Cost of goods sold 33,440 25,889 84,763 81,106
21,896 30,885 80,818 89,277
Selling expense 20,114 20,972 61,038 60,990
General and administrative
expenses 1,853 1,974 5,501 5,927
21,967 22,946 66,539 66,917
Income from operations (71) 7,939 14,279 22,360
Other income (expense):
Dividend income 633 619 1,978 1,892
Interest income 1,685 1,656 4,823 4,586
Other 550 463 951 807
2,868 2,738 7,752 7,285
Income before taxes 2,797 10,677 22,031 29,645
Income taxes 1,202 4,286 8,943 11,889
Net income $ 1,595 $ 6,391 $ 13,088 $ 17,756
Net income per share $.83 $3.32 $6.79 $9.22
The accompanying notes are an integral part of these financial statements.
<PAGE>
FARMER BROS. CO.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, June 30,
1997 1996
ASSETS
Current assets:
Cash and cash equivalents $ 60,291 $ 28,165
Short term investments 48,187 74,937
Accounts and notes receivable, net 19,727 18,822
Inventories 39,109 40,818
Income tax receivable - 1,000
Deferred income taxes 2,616 2,616
Prepaid expenses and other 3,524 701
Total current assets 173,454 167,059
Property, plant and equipment, net 33,425 33,343
Notes receivable 1,841 1,841
Long term investments, net 51,634 40,058
Other assets 17,864 17,320
Deferred taxes 930 1,269
Total assets $279,148 $260,890
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,225 $ 4,635
Accrued payroll expenses 4,597 4,153
Other 4,910 5,542
Total current liabilities 21,732 14,330
Accrued postretirement benefits 13,636 12,892
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 240,461 230,840
Investment valuation allowance 825 334
Total shareholders' equity 243,780 233,668
Total liabilities and
shareholders' equity $279,148 $260,890
The accompanying notes are an integral part of these financial statements.
<PAGE>
FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months
ended March 31,
1997 1996
Cash flows from operating
activities:
Net Income $ 13,088 $ 17,756
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 3,370 3,518
Deferred income taxes - (472)
Other (80) (164)
Net (gain) loss on investments (521) (351)
Change in assets and liabilities:
Accounts and notes receivable (935) (1,331)
Inventories 1,709 2,478
Income tax receivable 1,000 1,265
Prepaid expenses and other assets (3,573) (1,041)
Accounts payable 7,590 (873)
Accrued payroll expenses
and other liabilities (188) 2,525
Other long term liabilities 743 1,323
Total adjustments 9,115 6,877
Net cash provided by operating
activities $ 22,203 $ 24,633
The accompanying notes are an integral part of these financial statements.
<PAGE>
FARMER BROS. CO
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Unaudited)
For the nine months
ended March 31,
1997 1996
Net cash provided by operating
activities: $ 22,203 $ 24,633
Cash flows from investing
activities:
Purchases of property, plant
and equipment (3,299) (4,499)
Proceeds from sales of property,
plant and equipment 134 246
Purchases of investments (303,503) (165,351)
Proceeds from sales of
investments 320,028 151,689
Notes repaid 30 78
Net cash (used in)provided by
investing activities 13,390 (17,837)
Cash flows from financing
activities:
Dividends paid (3,467) (3,082)
Net cash used in financing
activities (3,467) (3,082)
Net increase in cash
and cash equivalents 32,126 3,714
Cash and cash equivalents at
beginning of period 28,165 8,321
Cash and cash equivalents at
end of quarter $ 60,291 $ 12,035
Supplemental disclosure of
cash flow information:
Income tax payments $ 12,507 $ 10,013
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. Unaudited Financial Statements
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. It is Management's opinion
that all adjustments of a normal recurring nature necessary for a fair
statement of the results of operations for the interim periods have been
made.
B. Investments
March 31 June 30,
1997 1996
Fair Fair
Cost Value Cost Value
(In thousands)
Current Assets
Commercial Paper $26,765 $26,853 $34,609 $34,775
U.S. Government
Obligations 21,431 21,334 40,129 40,162
$48,196 $48,187 $74,738 $74,937
Non-Current Assets
U.S. Government
Obligations $11,490 $11,332 $ 2,096 $ 2,043
Commercial Paper - - 1,400 1,350
Preferred stocks 34,303 36,226 34,475 35,114
Liquid asset fund
and other 3,690 4,076 1,551 1,551
$49,483 $51,634 $39,522 $40,058
The gross unrealized gains and (losses) on securities classified as
available for sale were $2,484,000 and $(342,000), respectively, at March
31, 1997 and $1,263,000 and $(528,000), respectively, at June 30, 1996.
Gross realized gain from available for sale securities were $521,000 and
$351,000 at March 31, 1997 and 1996, respectively.
The Company hedges interest rate risk in its portfolio of preferred stock.
Deferred losses associated with the hedge are $352,000 and $162,000 at
March 31 and June 30, 1996, respectively.
The contractual maturities of debt securities classified as current and non-
current available for sale are as follows:
Fair Value
Maturities 03/31/97 06/30/96
(In thousands)
Within 1 year $ 48,187 $ 74,937
After 1 year through 5 years 11,332 2,043
After 5 years through 10 years - 1,350
After 10 years - -
$ 59,519 $ 78,330
<PAGE>
C. Inventories
(In thousands) Processed Unprocessed Total
March 31, 1997
Coffee $ 5,503 $12,134 $17,637
Allied products 8,619 5,004 13,623
Coffee brewing equipment 2,290 5,559 7,849
$16,412 $22,697 $39,109
June 30, 1996
Coffee $ 5,302 $12,259 $17,561
Allied products 10,846 4,847 15,693
Coffee brewing equipment 2,475 5,089 7,564
$18,623 $22,195 $40,818
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The cost of Registrant's primary raw material, green coffee, has increased
by more than 60% during the third quarter of fiscal 1997. Since the end of
1996, coffee prices as represented by futures traded on the Coffee, Sugar
and Cocoa Exchange have more than doubled. Concerns about green coffee
stockpiles, labor problems in producing countries and the possibility of
weather related crop reductions have spurred prices to current levels. The
frost season in coffee growing areas of Brazil begins near the end of May
and continues through July. This introduces additional volatility into
green coffee prices.
As Registrant raises roast coffee prices to reflect higher green coffee
costs, roast coffee sales volume is likely to decrease. It has been
reported by the National Coffee Association that in 1995, after the
Brazilian coffee crop was damaged by cold weather, high coffee prices
reduced consumption by 14%. The market for green coffee is very
unpredictable, and Registrant cautions against predicting the future based
upon past results.
Net sales for the third quarter of fiscal 1997 decreased 3% to $55,336,000
from $56,774,000 in the same quarter of the prior fiscal year. Net sales
for the first nine months of fiscal 1997 decreased 3% to $165,581,000 from
$170,383,000 in the same period of fiscal 1996. Gross profit in the third
quarter decreased 29% to $21,896,000, or 40% of sales, as compared to
$30,885,000, or 54% of sales, in the same quarter of the prior fiscal year.
Gross profit for the nine months ending March 31, 1997 decreased 9% to
$80,818,000 from $89,277,000 in the same period of fiscal 1996. Operating
expenses decreased 4% to $21,967,000 in the third quarter of fiscal 1997 as
compared to $22,946,000 in the third quarter of fiscal 1996.
Net income for the three months ended March 31, 1996, reached $1,595,000,
or $0.83 per share, as compared to $6,834,000, or $3.55 per share in the
second quarter of fiscal 1997 and $6,391,000 or $3.32 per share in the same
quarter of fiscal 1996. Net income for the first nine months of fiscal
1997 reached $13,088,000, or $6.79 per share, as compared to $17,756,000,
or $9.22 per share, in the first nine months of fiscal 1996.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (CONTINUED)
Quarterly Summary of Results
(in thousands of dollars)
03/31/96 06/30/96 09/30/96 12/31/96 03/31/97
Net sales 56,774 53,692 52,785 57,460 55,336
Gross profit 30,885 29,534 27,416 31,506 21,896
Operating income 7,939 6,839 5,717 8,633 (71)
Net income 6,391 5,608 4,659 6,834 1,595
(as a percentage of sales)
03/31/96 06/30/96 09/30/96 12/31/96 03/31/97
Net sales 100.00 100.00 100.00 100.00 100.00
Gross profit 54.40 55.00 51.94 54.83 39.57
Operating income 13.98 12.74 10.83 15.02 (.13)
Net income 11.26 10.44 8.82 11.89 2.88
(in dollars)
03/31/96 06/30/96 09/30/96 12/31/96 03/31/97
EPS 3.32 2.91 2.42 3.55 .83
PART II OTHER INFORMATION
Item 1. Legal proceedings. not applicable.
Item 2. Changes in securities. none.
Item 3. Defaults upon senior securities. none.
Item 4. Submission of matters to a vote of none.
security holders.
Item 5. Other information. none.
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits.
(2) Plan of acquisition, reorganization,
arrangement, liquidation or
succession not applicable.
(4) Instruments defining the rights of
security holders, including
indentures. not applicable.
(11) Statement re computation of per
share earnings. not applicable.
<PAGE>
PART II OTHER INFORMATION, (CONTINUED)
(15) Letter re unaudited interim financial
information. not applicable.
(18) Letter re change in accounting
principles. not applicable.
(19) Report furnished to security holders not applicable.
(22) Published report regarding matters
submitted to vote of security holders. not applicable.
(23) Consents of experts and counsel. not applicable.
(24) Power of attorney. not applicable.
(27) Financial Data Schedule See attached Form EX-27.
(99) Additional exhibits. not applicable.
(b) Reports on Form 8-K
Registrant filed a report reporting
a change in accountant. April 14, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 1997 FARMER BROS. CO.
(Registrant)
John E. Simmons
John E. Simmons
Treasurer and
Chief Financial Officer
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