-----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, CtGwpMPudjqwVDesxrjvCfFf+Jh+oywtxdbOua3Iaku74zGrFJQ5XvvCYSv2+IK4 T4u60X+nLHo1UKw2uXQ/9w== /in/edgar/work/0000034563-00-000023/0000034563-00-000023.txt : 20001115 0000034563-00-000023.hdr.sgml : 20001115 ACCESSION NUMBER: 0000034563-00-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARMER BROTHERS CO CENTRAL INDEX KEY: 0000034563 STANDARD INDUSTRIAL CLASSIFICATION: [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: 766041 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 0001.txt 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, 2000 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, 2000. 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, 2000 1999 Net sales $52,015 $53,068 Cost of goods sold 19,712 20,298 32,303 32,770 Selling expense 19,981 19,930 General and administrative expenses 2,864 1,991 22,845 21,921 Income from operations 9,458 10,849 Other income: Dividend income 758 615 Interest income 2,991 2,270 Other, net (129) (254) 3,620 2,631 Income before taxes 13,078 13,480 Income taxes 5,167 5,392 Income before cumulative effect of accounting change 7,911 8,088 Cumulative effect of accounting change, net of income taxes (310) - Net income $ 7,601 $ 8,088 Income per common share: Before cumulative effect of accounting change $ 4.30 $4.32 Cumulative effect of accounting change (0.17) - Net income per share $4.13 $4.32 Weighted average shares outstanding 1,842,301 1,840,754 Dividends declared per share $0.80 $0.75 The accompanying notes are an integral part of these financial statements. FARMER BROS. CO. CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, June 30, 2000 2000 ASSETS Current assets: Cash and cash equivalents $ 14,838 $ 15,504 Short term investments 224,115 114,346 Accounts and notes receivable, net 17,158 18,494 Inventories 36,131 36,770 Income tax receivable 1,340 1,340 Deferred income taxes 1,224 1,224 Prepaid expenses 584 882 Total current assets 295,390 188,560 Property, plant and equipment, net 39,587 38,741 Notes receivable 3,081 3,081 Long term investments - 94,243 Other assets 24,606 23,975 Deferred income taxes 3,104 4,867 Total assets $365,768 $353,467 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,585 $ 5,921 Accrued payroll expenses 4,689 5,953 Other 9,861 5,092 Total current liabilities 20,135 16,966 Accrued postretirement benefits 19,516 19,198 Other long term liabilities 4,190 4,190 23,706 23,388 Commitments and contingencies - - Shareholders' equity: Common stock, $1.00 par value, authorized 3,000,000 shares; 1,926,414 shares issued and outstanding 1,926 1,926 Additional paid-in capital 16,388 16,359 Retained earnings 317,278 311,153 Unearned ESOP shares (13,665) (13,679) Accumulated other comprehensive income - (2,646) Total shareholders' equity 321,927 313,113 Total liabilities and shareholders' equity $365,768 $353,467 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, 2000 1999 Cash flows from operating activities: Net income $ 7,601 $ 8,088 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of accounting changes 310 - Depreciation 1,345 1,423 Deferred income taxes 1,763 - Loss on sales of assets (24) (37) ESOP Contribution expense 268 - Net loss (gain) on investments 234 364 Net unrealized loss on investments reclassified as trading 2,336 - Change in assets and liabilities: Investments classified as trading (15,759) - Accounts and notes receivable 1,312 359 Inventories 639 (1,155) Income tax receivable - 249 Prepaid expenses and other assets (351) (866) Accounts payable (336) (2,075) Accrued payroll and expenses and other Liabilities 3,505 4,451 Other long term liabilities 318 416 Total adjustments (4,440) 3,129 Net cash provided by operating activities $ 3,161 $ 11,217 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, 2000 1999 Net cash provided by operating activities: $ 3,161 $ 11,217 Cash flows from investing activities: Purchases of property, plant and equipment (2,184) (3,717) Proceeds from sales of property, plant and equipment 34 52 Purchases of investments - (98,827) Proceeds from sales of investments - 90,920 Notes repaid 24 39 Net cash used in investing activities (2,126) (11,533) Cash flows from financing activities: Dividends paid (1,476) (1,406) ESOP loan (225) - Net cash used in financing activities (1,701) (1,406) Net decrease in cash and cash equivalents (666) (1,722) Cash and cash equivalents at beginning of period 15,504 4,403 Cash and cash equivalents at end of period $14,838 $ 2,681 Supplemental disclosure of cash flow information: Income tax payments $ 53 $ 62 The accompanying notes are an integral part of these financial statements. Notes to Consolidated Financial Statements (Unaudited) Note 1. 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 our 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. The results of operations in the three month period ended September 30, 2000 are not necessarily indicative of the results that may be expected in the fiscal year ending June 30, 2001. Note 2. Summary Significant Accounting Policies Derivatives In June 1998 the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by Statements 137 and 138. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is immediately recognized in earnings. The adoption of Statement No. 133, as amended, on July 1, 2000, resulted in a cumulative effect of an accounting change of $515,000 being recognized in the Statement of Net Income, net of taxes, and a corresponding credit in other comprehensive income. The Company purchases various derivative instruments as investments or to create natural economic hedges of its interest rate risk and commodity price risk. At September 30, 2000 derivative instruments are not designated as accounting hedges as defined by Statement 133. The fair value of derivative instruments is based upon broker quotes. Investments, consisting of marketable debt and equity securities and money market instruments, are held for trading purposes and are stated at fair value. Gains and losses, both realized and unrealized, are included in other income and expense Note 3 Investments On July 1, 2000 the Company transferred all of its investments classified as "available for sale" at June 30, 2000 into the "trading" category. Accordingly, the Company recognized the accumulated unrealized loss of $3,894,000 in the consolidated statement of net income for the period ended September 30, 2000 as other income and a corresponding amount in other comprehensive income for the period ended September 30, 2000. The following is a summary of trading investments at September 30, 2000. (in thousands) Fair Value Corporate debt $ 58,485 U.S. Treasury obligations 46,483 U.S. Agency obligations 71,380 Preferred stock 46,732 Futures, options and other derivative investments 1,035 $224,115 Net unrealized holding gains on trading securities included in earnings is $1,813,000 at September 30, 2000. Note 4. Inventories (In thousands) Processed Unprocessed Total September 30, 2000 Coffee $ 4,103 $ 9,225 $13,328 Allied products 11,433 4,737 16,170 Coffee brewing equipment 1,933 4,700 6,633 $17,469 $18,662 $36,131 June 30, 2000 Coffee $ 4,007 $ 9,239 $13,246 Allied products 11,922 5,210 17,132 Coffee brewing equipment 2,034 4,358 6,392 $17,963 $18,807 $36,770 Note 5. Employee Stock Ownership Plan During the three month period ended September 30, 2000 the Company loaned the ESOP $225,000 which the ESOP used to purchase additional shares, and the Company charged $268,000 to compensation expense related to the ESOP. The difference between cost and fair market value of committed to be released shares is recorded as additional paid-in capital. The ESOP shares as of September 30, 2000 are as follows: Allocated shares - Committed to be released shares 4,392 Unallocated shares 83,783 Total ESOP shares 87,875 Note 6. Comprehensive Income For the three months (In thousands) ended September 30, 2000 1999 Net income $ 7,601 $8,088 Unrealized investment gains (losses), net 2,646 (382) Total comprehensive income $10,247 $7,706 Management's Discussion and Analysis of Financial Condition and Results of Operations Operating trends discussed in the Form 10-K for fiscal 2000 have continued into the first quarter of fiscal 2001. Green coffee costs during the first quarter of fiscal 2001 have decreased slightly since the June 30, 2000 year end and are lower than green coffee costs during the first quarter of fiscal 2000. Gross profit margins have remained strong, but it is not clear whether these margins can be sustained. Net sales for the first quarter of fiscal 2001 decreased 2% to $52,015,000 as compared to $53,068,000 in the same quarter of fiscal 2000 and 4% as compared to $54,035,000 in the same quarter of fiscal 1999. Gross profit decreased 1% to $32,303,000 as compared to $32,770,000 in the same quarter of fiscal 2000 and increased 4% as compared to $31,115,000 in the same quarter of fiscal 1999. Operating expenses in the first quarter of fiscal 2001, consisting of selling and general and administrative expenses, increased 4% to $22,845,000 as compared to $21,921,000 in the same quarter of fiscal 2000, and increased 5% as compared to $21,794,000 in the same quarter of fiscal 1999. The increase is primarily attributed to salaries and other compensation related expenses. On July 1, 2000 we adopted the Financial Accounting Standards Board (FASB) Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by Statements 137 and 138. The statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not designated as hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The adoption of Statement No. 133 and 138 on July 1, 2000 resulted in $3,894,000 recognized in "Other expense," and $515,000 recognized as the "Cumulative effect of accounting change", adjusted for income taxes. The after tax cumulative effect adjustment of $310,000 represents approximately $0.17 per share. Net income before the cumulative effect of accounting change decreased 6% to $7,911,000, or $4.30 per share, as compared to $8,088,000 or $4.32 per share and increased 1% as compared to $7,539,000 or $3.91 per share and increased 1% as compared to $7,539,000 or $3.91 per share in the same periods of fiscal 2000 and 1999, respectively. Quarterly Summary of Results (In thousands of dollars) 09/30/99 12/31/99 03/31/00 06/30/00 09/30/00 Net sales 53,068 56,303 56,354 52,963 52,015 Gross profit 32,770 32,903 38,230 37,816 32,303 Operating income 10,849 10,459 13,913 13,744 9,458 Net income 8,088 8,316 10,364 10,808 7,601 As a percentage of sales 09/30/99 12/31/99 03/31/00 06/30/00 09/30/00 Net sales 100.00 100.00 100.00 100.00 100.00 Gross profit 61.75 58.44 67.84 71.40 62.10 Operating income 20.44 18.58 24.69 25.95 18.18 Net income 15.24 14.77 18.39 20.41 14.61 In dollars 09/30/99 12/31/99 03/31/00 06/30/00 09/30/00 Net income per share 4.32 4.45 5.60 5.85 4.13 Market Risk Disclosures Financial Markets Our portfolio of investment grade money market instruments includes bankers acceptances, discount commercial paper, medium term notes and federal agency and treasury securities. As of September 30, 2000, over 48% of these funds were invested in instruments with maturities shorter than one hundred eighty one days. The portfolio's interest rate risk is not hedged. Its average maturity is approximately 241 days and a 100 basis point move in the Fed Funds Rate is illustrated in the following table. Interest Rate Changes (In thousands) Change in Market Market Value of September 30, 2000 Value of Fixed Fixed Income Investments Income Investments - -100 b.p. $187,350 $1,855 unchanged 185,495 - +100 b.p. 183,640 (1,855) We are exposed to market value risk arising from changes in interest rates on our portfolio of preferred stock. We review the interest rate sensitivity of these securities and (a) enter into "short positions" in futures contracts on U.S. Treasury securities or (b) hold put options on such futures contracts in order to reduce the impact of certain interest rate changes on such preferred stock. Specifically, we attempt to manage the risk arising from changes in the general level of interest rates. 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, 2000. This table is predicated on an instantaneous change in the general level of interest rates and assumes predictable relationships between the prices of preferred stock holdings, the yields on U.S. Treasury securities, and related futures and options. Interest Rate Changes (In thousands) Market Value of September 30, 2000 Change in Market Preferred Futures & Total Value of Total Stock Options Portfolio Portfolio - -200 basis points $52,148.8 $0.0 $52,148.8 $6,021.6 ("b.p.") - -100 b.p. 48,901.3 19.5 48,920.8 2,793.6 Unchanged 45,089.3 1,037.9 46,127.2 0.0 +100 b.p. 41,259.6 4,479.7 45,739.3 (388.0) +200 b.p. 37,726.1 7,713.8 45,439.9 (687.3) The number and type of future and option contracts entered into depends on, among other items, the specific maturity and issuer redemption provisions for each preferred stock 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, 2000 and 1999 the derivatives consisted entirely of put options on a U.S. Treasury Bond futures contract. Commodity Price Changes We are exposed to commodity price risk arising from changes in the market price of green coffee. We price our inventory on the LIFO basis. In the normal course of business, we enter into commodity purchase agreements with suppliers and we purchase green coffee contracts. The following table demonstrates the impact of changes in the price of green coffee on inventory and green coffee contracts at September 30, 2000. It assumes an immediate change in the price of green coffee, and the valuations of coffee index futures and put options and relevant commodity purchase agreements at September 30, 2000. Commodity Risk Disclosure (In thousands) Market Value of Coffee Cost Coffee September 30, 2000 Change in Market Value Change Inventory Futures & Options Totals Derivatives Inventory - -10% $11,995 $393,000 $12,388 $ 395 $(1,333) unchanged 13,328 (2,000) 13,326 - - +10% 14,661 (397,000) 14,264 (395) 1,333 At September 30, 2000 the derivatives consisted mainly of commodity futures 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 security holders. none. 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 right of security holders, including indentures. not applicable. (11) Statement re computation of per share earning. 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. 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, 2000 Farmer Bros. Co. (Registrant) /s/John E. Simmons John E. Simmons Treasurer and Chief Financial Officer EX-27 2 0002.txt
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