-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F07ewt0/46n0BeZgaMNFJXGrrSGJ+A1TB7XGY1b+0QiyNYEqcDhZjCuDPMQcmY4R 3KYrgimbzhUe4aBRnXgF4A== 0000034563-98-000015.txt : 19981116 0000034563-98-000015.hdr.sgml : 19981116 ACCESSION NUMBER: 0000034563-98-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARMER BROTHERS CO CENTRAL INDEX KEY: 0000034563 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FOOD PREPARATIONS & KINDRED PRODUCTS [2090] IRS NUMBER: 950725980 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-01375 FILM NUMBER: 98749066 BUSINESS ADDRESS: STREET 1: 20333 S NORMANDIE AVE CITY: TORRANCE STATE: CA ZIP: 90502 BUSINESS PHONE: 3107875200 MAIL ADDRESS: STREET 1: 20333 SOUTH NORMANDIE AVENUE CITY: TORRANCE STATE: CA ZIP: 90502 10-Q 1 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 September 30, 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 September 30, 1998. PAGE 1 OF 11 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 ended September 30, 1998 1997 Net sales $54,035 $59,497 Cost of goods sold 22,920 30,171 31,115 29,326 Selling expense 19,914 19,755 General and administrative expenses 1,880 1,919 21,794 21,674 Income from operations 9,321 7,652 Other income: Dividend income 605 658 Interest income 2,239 1,842 Other, net 400 313 3,244 2,813 Income before taxes 12,565 10,465 Income taxes 5,026 4,237 Net income $ 7,539 $ 6,228 Net income per common share $3.91 $3.23 Weighted average shares outstanding 1,926,414 1,926,414 The accompanying notes are an integral part of these financial statements. FARMER BROS. CO. CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, June 30, 1998 1998 ASSETS Current assets: Cash and cash equivalents $ 14,744 $ 6,800 Short term investments 139,844 128,004 Accounts and notes receivable, net 18,048 18,006 Inventories 37,068 38,067 Income tax receivable 229 649 Deferred income taxes 2,776 2,776 Prepaid expenses and other 699 526 Total current assets 213,408 194,828 Property, plant and equipment, net 30,513 30,551 Notes receivable 3,988 3,988 Long term investments, net 45,466 55,801 Other assets 19,789 19,527 Deferred taxes 2,860 2,317 Total assets $316,024 $307,012 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,608 $ 5,605 Accrued payroll expenses 4,485 4,876 Other 10,384 5,678 Total current liabilities 19,477 16,159 Accrued postretirement benefits 16,349 15,941 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 277,586 271,395 Accumulated other comprehensive income 118 1,023 Total shareholders' equity 280,198 274,912 Total liabilities and shareholders' equity $316,024 $307,012 The accompanying notes are an integral part of these financial statements. FARMER BROS. CO. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the three months ended September 30, 1998 1997 Cash flows from operating activities: Net Income $ 7,539 $ 6,228 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,403 1,347 Deferred income taxes (23) (24) Net (gain) on investments (285) (167) Changes in assets and liabilities: Accounts and notes receivable (51) (74) Inventories 999 332 Income tax receivable 420 2,119 Prepaid expenses and other assets (455) (382) Accounts payable (997) 1,609 Accrued payroll expenses and other liabilities 4,315 2,083 Other long term liabilities 408 356 Total adjustments 5,734 7,199 Net cash provided by operating activities $ 13,273 $ 13,427 The accompanying notes are an integral part of these financial statements. FARMER BROS. CO CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (Unaudited) For the three months ended September 30, 1998 1997 Net cash provided by operating activities: $ 13,273 $ 13,427 Cash flows from investing activities: Purchases of property, plant and equipment (1,350) (339) Proceeds from sales of property, plant and equipment 28 72 Purchases of investments (161,413) ( 83,646) Proceeds from sales of investments 158,745 61,073 Notes issued 54 - Notes repaid 63 10 Net cash used in investing activities (3,981) (22,830) Cash flows from financing activities: Dividends paid (1,348) (1,156) Net cash used in financing activities (1,348) (1,156) Net increase (decrease) in cash and cash equivalents 7,944 (10,559) Cash and cash equivalents at beginning of period 6,800 34,174 Cash and cash equivalents at end of quarter $ 14,744 $ 23,615 Supplemental disclosure of cash flow information: Income tax payments $ 54 $ 29 The accompanying notes are an integral part of these financial statements. 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 presentation of the financial position of the Company and the results of operations and cash flows 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 $3,314,000 and $2,600,000 at September 30 and June 30, 1998, respectively. (In thousands) Gross Gross Unrealized Unrealized Fair September 30, 1998 Cost Loss Gain Value Current Assets Commercial Paper $ 98,803 - 568 $ 99,371 U.S. Government Obligations 40,473 (27) 27 $ 40,473 $139,276 (27) 595 $139,844 Non-Current Assets Municipal debt $ 1,695 (26) - $ 1,669 Preferred stocks 36,412 (251) 3,299 39,460 Liquid asset fund and other 5,285 (1,000) 52 4,337 $43,392 (1,277) 3,351 $45,466 (In thousands) Gross Gross Unrealized Unrealized Fair June 30, 1998 Cost Loss Gain Value Current Assets Commercial Paper $ 95,838 - 594 $ 96,432 U.S. Government Obligations 31,608 (36) - 31,572 $127,446 (36) 594 $128,004 Non-Current Assets U.S. Government Obligations $ 9,725 (151) - $ 9,574 Municipal debt 1,695 (11) - 1,684 Preferred stocks 36,504 (52) 3,978 40,430 Liquid asset fund and other 4,067 - 46 4,113 $ 51,991 (214) 4,024 $ 55,801 B. Investments, CONTINUED The contractual maturities of debt securities classified as current and non- current available for sale are as follows: Fair Value Maturities 09/30/98 06/30/98 (In thousands) Within 1 year $139,844 $128,004 After 1 year through 5 years 1,669 11,258 $141,513 $139,262 Gross realized gains from available for sale securities were $830,000 and $255,000 at September 30, 1998 and 1997, respectively. C. Inventories (In thousands) Processed Unprocessed Total September 30, 1998 Coffee $ 3,244 $10,642 $13,886 Allied products 12,223 4,348 16,571 Coffee brewing equipment 1,982 4,629 6,611 $17,449 $19,619 $37,068 June 30, 1998 Coffee $ 4,119 $10,406 $ 14,525 Allied products 12,025 5,079 17,104 Coffee brewing equipment 2,191 4,247 6,438 $18,335 $19,732 $ 38,067 D. Comprehensive Income Effective July 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS 130) "Reporting Comprehensive Income". SFAS 130 requires disclosure of total non-stockholder changes in equity in interim periods and additional disclosures of the components of non-stockholder changes in equity on an annual basis. Total non-stockholder changes in equity includes all changes in equity during a period except those resulting from investments by and distributions to shareholders. For the three months (In thousands) ended September 30, 1998 1997 Net income $7,539 $6,228 Unrealized investment gains (losses), net (905) 156 Total comprehensive income $6,634 $6,384 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Registrant's financial condition is substantially the same as at its most recent fiscal year end. The volatile market for green coffee always has an effect on operating results. The lower cost of green coffee in the current period has resulted in lower roast coffee prices. Gross profit margins in the current period have been consistent, but sales volume continues to decline. Registrant has been able to stabilize operating expenses. Net sales for the first quarter of fiscal 1999 decreased 9% to $54,035,000 from $59,497,000 in the same quarter of fiscal 1998. Gross profit increased 6% during the first quarter of fiscal 1998 to $31,115,000 or 58% of sales, as compared to $29,326,000 or 49% of sales, in the same quarter of the prior fiscal year. Operating expenses, composed of selling and general and administrative expenses, reached $21,794,000 in the most recent quarter, compared to $21,674,000 in the same quarter of fiscal 1998. Other income increased 15% to $3,244,000 in the first quarter of fiscal 1999 as compared to $2,813,000 in the same quarter of the prior fiscal year, primarily the result of higher interest income. Income before taxes increased 20% to $12,565,000 or 23% of sales, in the first quarter of the 1999 fiscal year as compared to $10,465,000 or 18% of sales in the same quarter of fiscal 1998. Net income for the first quarter of fiscal 1999 increased 21% to $7,539,000 or $3.91 per common share, from $6,228,000 or $3.23 per common share, recorded in the first quarter of fiscal 1998. Quarterly Summary of Results (In thousands of dollars) 09/30/97 12/31/97 03/31/98 06/30/98 09/30/98 Net sales 59,497 64,062 58,951 57,582 54,035 Gross profit 29,326 36,161 32,249 34,388 31,115 Operating income 7,652 13,377 10,067 9,859 9,321 Net income 6,228 9,782 8,020 9,370 7,539 (As a percentage of sales) 09/30/97 12/31/97 03/31/98 06/30/98 09/30/98 Net sales 100.00 100.00 100.00 100.00 100.00 Gross profit 49.29 56.45 54.70 59.72 57.58 Operating income 12.86 20.88 17.08 17.12 17.25 Net income 10.47 10.05 13.60 16.27 13.95 (In dollars) 09/30/97 12/31/97 03/31/98 06/30/98 09/30/98 EPS 3.23 5.08 4.16 4.86 3.91 Year 2000 Issues There have been no material changes from the fiscal year end. Item 2a. Market Risk Disclosures Financial Markets Securities are recorded at fair value and unrealized gains or losses have been recorded as a separate component of shareholders equity. The Company maintains two distinct portfolios of securities, both portfolios are classified as available for sale. The Company's portfolio of investment grade money market instruments includes bankers acceptances, discount commercial paper, federal agency issues and treasury securities. As of September 30, 1998, over 98% of these funds were invested in instruments with maturities shorter than one year. The remaining balance matures during fiscal 2000. This portfolio's interest rate risk is unhedged. Its average maturity is approximately 90 days and a 100 basis point move in the Fed Funds Rate would not have a material effect on Registrant's results of operations. The Company is exposed to market value risk arising from changes in interest rates on its portfolio of preferred securities. The Company reviews the interest rate sensitivity of these securities and (a) enters into "short positions" in futures contracts on U.S. Treasury securities or (b) holds put options on such futures contracts in order to reduce the impact of certain interest rate changes on such preferred stocks. Specifically, the Company attempts to manage the risk arising from changes in the general level of interest rates. The Company does not transact in futures contracts or put options for speculative purposes. The following table demonstrates the impact of varying interest rate changes based on the preferred stock holdings, futures and options positions, and market yield and price relationships at September 30, 1998. This table is predicated on an instantaneous change in the general level of interest rates and assumes predictable relationships between the prices of preferred securities holdings, the yields on U.S. Treasury securities, and related futures and options. Interest Rate Changes (In thousands) Market Value of Change in Market Preferred Futures and Total Value of Total Securities Options Portfolio Portfolio - -200 basis points $47,617.7 $ 0.0 $47,617.7 $ 4,534.5 ("b.p.") - -100 b.p. 45,448.5 0.4 45,448.9 2,365.7 Unchanged 42,890.0 193.2 43,083.2 - +100 b.p. 39,906.6 2,212.4 42,119.0 (964.2) +200 b.p. 36,829.0 5,121.7 41,950.7 (1,132.5) The number and type of futures and options contracts entered into depends on, among other items, the specific maturity and issuer redemption provisions for each preferred security held, the slope of the Treasury yield curve, the expected volatility of Treasury yields, and the costs of using futures and/or options. At September 30, 1998 and 1997 the hedge consisted entirely of put options on the U.S. Treasury Bond futures contract. Item 2a. Market Risk Disclosures, (CONTINUED) Commodity Price Changes The Company is exposed to commodity price risk arising from changes in the market price of green coffee. Registrant prices its inventory on the LIFO basis. In the normal course of business, the Company enters into commodity purchase agreements with suppliers, and futures contracts to hedge exposure to inventory price fluctuations. The Company does not transact in futures contracts or put options for speculative purposes. The following table demonstrates the impact of changes in the price of green coffee on inventory and hedge instruments at September 30, 1998. It assumes an immediate change in the price of green coffee, and the demonstrable relationship between the price of green coffee and the valuations of coffee index futures and put options and relevant commodity purchase agreements at September 30, 1998. Commodity Risk Disclosure (In thousands) September 30, 1998 Market Value of Change in Coffee Cost Coffee Futures Market Change Inventory & Options Total Value - - 20% $13,886 $ 748 $14,634 $ 554 unchanged 13,886 194 14,080 - + 20% 13,886 (360) 13,526 (554) At September 30, 1998 the hedge consisted mainly of commodity futures and commodity purchase agreements with maturities shorter than three months. 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. PART II OTHER INFORMATION (CONTINUED) (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 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: November 13, 1998 FARMER BROS. CO. (Registrant) John E. Simmons John E. Simmons Treasurer and Chief Financial Officer EX-27 2
5 1000 3-MOS JUN-30-1999 SEP-30-1998 14744 139844 18048 520 37068 213408 30513 57451 316024 19477 0 0 0 1926 278272 319024 54035 54035 22920 21794 0 0 0 12565 5026 7539 0 0 0 7539 3.91 3.91
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