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 December 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 December 31,
1997.
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 six months
ended December 31, ended December 31,
1997 1996 1997 1996
Net sales $64,062 $57,460 $123,559 $110,245
Cost of goods sold 27,901 25,954 58,072 51,323
36,161 31,506 65,487 58,922
Selling expense 20,628 20,743 40,383 40,924
General and administrative
expenses 2,156 2,130 4,075 3,648
22,784 22,873 44,458 44,572
Income from operations 13,377 8,633 21,029 14,350
Other income:
Dividend income 664 659 1,322 1,345
Interest income 1,971 1,694 3,813 3,138
Other, net 206 261 519 401
2,841 2,614 5,654 4,884
Income before taxes 16,218 11,247 26,683 19,234
Income taxes 6,436 4,413 10,673 7,741
Net income $ 9,782 $ 6,834 $ 16,010 $ 11,493
Net income per share $5.08 $3.55 $8.31 $5.97
The accompanying notes are an integral part of these financial statements.
<PAGE>
FARMER BROS. CO.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, June 30,
1997 1997
ASSETS
Current assets:
Cash and cash equivalents $ 17,183 $ 34,174
Short term investments 104,447 77,791
Accounts and notes receivable, net 22,024 18,401
Inventories 35,707 35,176
Income tax receivable 97 2,216
Deferred income taxes 1,804 1,804
Prepaid expenses and other 1,520 784
Total current assets 182,782 170,346
Property, plant and equipment, net 30,841 32,526
Notes receivable 2,977 2,977
Long term investments, net 57,394 51,341
Other assets 18,623 18,035
Deferred taxes 1,465 1,624
Total assets $294,082 $276,849
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,440 $ 7,510
Accrued payroll expenses 4,462 4,247
Other 7,347 4,623
Total current liabilities 19,249 16,380
Accrued postretirement benefits 15,065 14,347
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 256,509 242,907
Investment valuation allowance 765 721
Total shareholders' equity 259,768 246,122
Total liabilities and
shareholders' equity $294,082 $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 six months
ended December 31,
1997 1996
Cash flows from operating
activities:
Net Income $ 16,010 $ 11,493
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 2,679 2,858
Other (35) (60)
Net loss on investments (279) (128)
Change in assets and
liabilities:
Accounts and notes
receivable (2,592) 1,177
Inventories (531) 1,867
Income tax receivable 2,119 1,000
Prepaid expenses and other
assets (1,346) (504)
Accounts payable (69) 4,304
Accrued payroll expenses
and other liabilities 2,938 (263)
Other long term liabilities 718 536
Total adjustments $ 3,602 $ 10,787
Net cash provided by operating
activities $ 19,612 $ 22,280
The accompanying notes are an integral part of these financial statements.
<PAGE>
FARMER BROS. CO
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Unaudited)
For the six months
ended December 31,
1997 1996
Net cash provided by operating
activities: $ 19,612 $22,280
Cash flows from investing
activities:
Purchases of property, plant
and equipment (1,026) (2,527)
Proceeds from sales of property,
plant and equipment 88 92
Purchases of investments (187,662) (195,863)
Proceeds from sales of
investments 155,436 194,900
Notes issued (1,052) -
Notes repaid 21 20
Net cash (used in) investing
activities (34,195) (3,378)
Cash flows from financing
activities:
Dividends paid (2,408) (2,312)
Net cash used in financing
activities (2,408) (2,312)
Net (decrease) increase in cash
and cash equivalents (16,991) 16,590
Cash and cash equivalents at
beginning of year 34,174 28,165
Cash and cash equivalents at
end of quarter $17,183 $44,755
Supplemental disclosure of
cash flow information:
Income tax payments $ 5,830 $ 8,196
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
December 31, 1997 and June 30, 1997, respectively.
(In thousands) Gross Gross
Unrealized Unrealized Fair
December 31, 1997 Cost Loss Gain Value
Current Assets
Commercial Paper $ 34,802 - 261 $ 35,063
U.S. Government
Obligations 69,548 (178) 14 69,384
$104,350 (178) 275 $104,447
Non-Current Assets
U.S. Government
Obligations $ 13,139 (172) - $ 12,967
Other debt 1,695 (43) - 1,652
Preferred stocks 35,537 (29) 4,181 39,689
Liquid asset fund
and other 3,373 (316) 29 3,086
$ 53,744 (560) 4,210 $ 57,394
(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:
(In thousands) Fair Value
Maturities 12/31/97 06/30/97
Within 1 year $104,447 $ 77,791
After 1 year through 5 years 14,619 10,284
$119,066 $ 88,075
Gross realized gain from available for sale securities were $279,000 and
$128,000 at December 31, 1997 and 1996, respectively.
C. Inventories
(In thousands) Processed Unprocessed Total
December 31, 1997
Coffee $ 3,979 $ 8,984 $12,963
Allied products 10,100 5,361 15,461
Coffee brewing equipment 2,404 4,879 7,283
$16,483 $19,224 $35,707
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
Higher green coffee costs and the resulting higher sales prices of roast
coffee continue to effect Registrant's operating results. Improved gross
profit in the most recent quarter signals a return to more normal profit
margins during fiscal 1998. The Company makes every effort to provide
competitive product pricing, and even with stable operating expenses it is
not known whether such operating margins can be maintained.
Net sales for the second quarter of fiscal 1998 increased 11% to
$64,062,000 from $57,460,000 in the same quarter of the prior fiscal year.
Net sales for the first half of fiscal 1998 increased 12% to $123,559,000
from $110,245,000 in the first half of fiscal 1997. Gross profit in the
second quarter increased 15% to $36,161,000 or 56% of sales, as compared to
$31,506,000, or 55% of sales, in the same quarter of fiscal 1997. Gross
profit for the first half of fiscal 1998 increased 11% to $65,487,000 from
$58,922,000 during the same period of the prior fiscal year. Operating
expenses decreased 1% to $22,784,000 in the second quarter of fiscal 1998
as compared to $22,873,000 in the second quarter of fiscal 1997. Operating
expenses for the first half of fiscal 1998 decreased to $44,458,000 from
$44,572,000 during the same period of fiscal 1997.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, CONTINUED
Income after taxes for the three months ended December 31, 1997, reached
$9,782,000, or $5.08 per share, as compared to $6,228,000, or $3.23 per
share, in the first quarter of fiscal 1998 and $6,834,000, or $3.55 per
share, in the same quarter of fiscal 1997. Net income for the first half
of fiscal 1998 reached $16,010,000, or $8.31 per share, as compared to
$11,493,000, or $5.97 per share, in the first six months of fiscal 1997.
Quarterly Summary of Results
(In thousands)
12/31/96 03/31/97 06/30/97 09/30/97 12/31/97
Net sales 57,460 55,336 59,221 59,497 64,062
Gross profit 31,506 21,896 29,974 29,326 36,161
Operating income 8,633 (71) 2,510 7,652 13,377
Net income 6,834 1,595 3,602 6,228 9,782
(As a percentage of sales)
12/31/96 03/31/97 06/30/97 09/30/97 12/31/97
Net sales 100.00 100.00 100.00 100.00 100.00
Gross profit 54.83 39.57 45.55 49.29 56.45
Operating income 15.02 (.13) 4.24 12.86 20.88
Net income 11.89 2.88 6.08 10.47 10.05
(In dollars)
12/31/96 03/31/97 06/30/97 09/30/97 12/31/97
EPS 3.55 .83 1.86 3.23 5.08
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
security holders.
The Annual Meeting of Shareholders of Farmer Bros. Co. was
held on December 2, 1997. Holders of the Company's common
stock were entitled to one vote per share of common stock
held.
Six directors were elected at the meeting, each to serve for
the coming year and until any successors are elected and
qualify. The following persons were elected as directors:
Roy F. Farmer, Roy E. Farmer, Catherine E. Crowe, Lewis A.
Coffman, Guenter W. Berger and John M. Anglin. There were
1,677,818 shares for election and 11,000 shares against.
<PAGE>
PART II OTHER INFORMATION, (CONTINUED)
The proposal to appoint Ernst & Young LLP as the independent
accountants for the Company for the year ended June 30, 1998
was approved with 1,688,379 shares in favor of the
resolution, 211 shares against and 228 shares abstaining.
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.
(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 none.
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: February 11, 1998 FARMER BROS. CO.
(Registrant)
John E. Simmons
John E. Simmons
Treasurer and
Chief Financial Officer
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