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, 1998
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,
1998.
PAGE 1 OF 9
<PAGE>
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,
1998 1997 1998 1997
Net sales $58,951 $55,336 $182,510 $165,581
Cost of goods sold 26,702 33,440 84,774 84,763
32,249 21,896 97,736 80,818
Selling expense 20,264 20,114 60,647 61,038
General and administrative
expenses 1,918 1,853 5,993 5,501
22,182 21,967 66,640 66,539
Income from operations 10,067 (71) 31,096 14,279
Other income:
Dividend income 637 633 1,959 1,978
Interest income 2,066 1,685 5,879 4,823
Other, net 597 550 1,116 951
3,300 2,868 8,954 7,752
Income before taxes 13,367 2,797 40,050 22,031
Income taxes 5,347 1,202 16,020 8,943
Net income $ 8,020 $ 1,595 $ 24,030 $ 13,088
Net income per share $4.16 $.83 $12.47 $6.79
The accompanying notes are an integral part of these financial statements.
<PAGE>
FARMER BROS. CO.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, June 30,
1998 1997
ASSETS
Current assets:
Cash and cash equivalents $ 11,040 $ 34,174
Short term investments 112,814 77,791
Accounts and notes receivable, net 19,184 18,401
Inventories 36,962 35,176
Income tax receivable 97 2,216
Deferred income taxes 1,804 1,804
Prepaid expenses and other 1,433 784
Total current assets 183,334 170,346
Property, plant and equipment, net 30,803 32,526
Notes receivable 2,977 2,977
Long term investments, net 59,774 51,341
Other assets 19,006 18,035
Deferred taxes 1,376 1,624
Total assets $297,270 $276,849
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,830 $ 7,510
Accrued payroll expenses 4,739 4,247
Other 5,552 4,623
Total current liabilities 15,121 16,380
Accrued postretirement benefits 15,416 14,347
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 263,278 242,907
Investment valuation allowance 961 721
Total shareholders' equity 266,733 246,122
Total liabilities and
shareholders' equity $297,270 $276,849
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,
1998 1997
Cash flows from operating
activities:
Net Income $ 24,030 $ 13,088
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 3,634 3,370
Other (87) (80)
Net (gain) on investments (751) (521)
Change in assets and liabilities:
Accounts and notes receivable 796 (935)
Inventories (1,786) 1,709
Income tax receivable 2,119 1,000
Prepaid expenses and other assets (1,661) (3,573)
Accounts payable (2,679) 7,590
Accrued payroll expenses
and other liabilities 1,421 (188)
Other long term liabilities 1,069 743
Total adjustments 2,075 9,115
Net cash provided by operating
activities $ 26,105 $ 22,203
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,
1998 1997
Net cash provided by operating
activities: $ 26,105 $ 22,203
Cash flows from investing
activities:
Purchases of property, plant
and equipment (1,935) (3,299)
Proceeds from sales of property,
plant and equipment 150 134
Purchases of investments (329,455) (303,503)
Proceeds from sales of
investments 287,240 320,028
Notes issued (1,608) -
Notes repaid 29 30
Net cash (used in)provided by
investing activities (45,579) 13,390
Cash flows from financing
activities:
Dividends paid (3,660) (3,467)
Net cash used in financing
activities (3,660) (3,467)
Net increase (decrease) in cash
and cash equivalents (23,134) 32,126
Cash and cash equivalents at
beginning of period 34,174 28,165
Cash and cash equivalents at
end of quarter $ 11,040 $ 60,291
Supplemental disclosure of
cash flow information:
Income tax payments $ 13,042 $ 12,507
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
The Company hedges interest rate risk in its portfolio of preferred stock.
Deferred losses associated with the hedge are $2,639,000 and $1,081,000 at
March 31, 1998 and June 30, 1997, respectively.
(In thousands) Gross Gross
Unrealized Unrealized Fair
March 31, 1998 Cost Loss Gain Value
Current Assets
Commercial Paper $ 76,180 490 $ 76,670
U.S. Government
Obligations 36,187 (44) 1 36,144
$112,367 (44) 491 $112,814
Non-Current Assets
U.S. Government
Obligations $ 14,445 (123) 1 $ 14,323
Other debt 1,695 (51) - 1,644
Preferred stocks 36,624 (66) 3,618 40,176
Liquid asset fund
and other 3,541 - 90 3,631
$ 56,305 (240) 3,709 $ 59,774
(In thousands) Gross Gross
Unrealized Unrealized Fair
June 30, 1997 Cost Loss Gain Value
Current Assets
Commercial Paper $14,814 - 129 $14,943
U.S. Government
Obligations 63,059 (211) - 62,848
$77,873 (211) 129 $77,791
Non-Current Assets
U.S. Government
Obligations $10,453 (169) - $10,284
Preferred stocks 36,816 (22) 2,574 39,368
Liquid asset fund
and other 1,689 - - 1,689
$48,958 (191) 2,574 $51,341
<PAGE>
B. Investments, Continued
The contractual maturities of debt securities classified as current and non-
current available for sale are as follows:
Fair Value
Maturities 03/31/98 06/30/97
(In thousands)
Within 1 year $112,814 $ 77,791
After 1 year through 5 years 15,967 10,284
$128,781 $ 88,075
Gross realized gain from available for sale securities were $751,000 and
$521,000 at March 31, 1998 and 1997, respectively.
C. Inventories
(In thousands) Processed Unprocessed Total
March 31, 1998
Coffee $ 3,926 $ 9,114 $13,040
Allied products 11,012 5,650 16,662
Coffee brewing equipment 2,378 4,882 7,260
$17,316 $19,646 $36,962
June 30, 1997
Coffee $ 3,564 $10,024 $13,588
Allied products 10,551 3,794 14,345
Coffee brewing equipment 2,310 4,933 7,243
$16,425 $18,751 $35,176
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Green coffee continues its volatile price fluctuaions. During the third
quarter of fiscal 1997 the cost of green coffee increased by more than 60%.
During the same quarter of fiscal 1998, the cost of green coffee declined
about 11%. Higher roast coffee prices and improved profit margins in the
most recent quarter, and indeed for fiscal 1998, should be considered
together with price action of fiscal 1997. When green coffee costs rise,
Registrant is often unable to maintain profit margins even with higher
sales prices of roast coffee. A declining market for green cofee allows
return of margins to more normal levels. There is no assurance, however
that current margins can be maintained. Competitive forces tend to make
price competition a reality and the frost season in coffee growing areas in
Brazil begins near the end of May and continues through July, introducing
additional volatility into green coffee prices.
Net sales for the third quarter of fiscal 1998 increased 6.5% to
$58,951,000 from $55,336,000 in the same quarter in the prior fiscal year.
Net sales for the first nine months of fiscal 1998 increased 10.2% to
$182,510,000 from $165,581,000 in the same period of fiscal 1997. Gross
profit in the third quarter increased 47.3% to $32,249,000 or 54.7% of
sales, compared to $21,896,000 or 39.6% of sales in fiscal 1997. Operating
expenses increased 1% to $22,182,000 in the third quarter as compared to
$21,967,000 in the same period of the prior fiscal year. Income after
taxes for the three months ended March 31, 1998, reached $8,020,000, or
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued
$4.16 per share, as compared to $1,595,000 or $0.83 per share in the same
quarter of fiscal 1997. Nine month income for fiscal 1998 reached
$24,030,000 or $12.47 per share as compared to $13,088,000 or $6.79 per
share in the same period of the prior year.
Quarterly Summary of Results
(in thousands of dollars)
03/31/97 06/30/97 09/30/97 12/31/97 03/31/98
Net sales 55,336 59,221 59,497 64,062 58,951
Gross profit 21,896 26,974 29,326 36,161 32,249
Operating income (71) 2,510 7,652 13,377 10,067
Net income 1,595 3,602 6,228 9,782 8,020
(as a percentage of sales)
03/31/97 06/30/97 09/30/97 12/31/97 03/31/98
Net sales 100.00 100.00 100.00 100.00 100.00
Gross profit 39.57 45.55 49.29 56.45 54.70
Operating income (.13) 4.24 12.86 20.88 17.08
Net income 2.88 6.08 10.47 10.05 13.60
(in dollars)
03/31/97 06/30/97 09/30/97 12/31/97 03/31/98
EPS .83 1.86 3.23 5.08 4.16
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 not applicable.
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, 1998 FARMER BROS. CO.
(Registrant)
John E. Simmons
John E. Simmons
Treasurer and
Chief Financial Officer
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