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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name on each exchange on which registered
Common stock, OTC
$1.00 par value
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, $1.00 par value, outstanding as of
August 31, 1996: 1,926,414 and the aggregate market value of the common
shares held by non-affiliates of the Registrant was approximately $131
million.
Documents Incorporated by Reference
Certain portions of the Registrant's definitive Proxy Statement to be
filed pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended, in connection with the Annual Meeting of Shareholders of the
Registrant to be held on December 2, 1996 are incorporated by reference
into Part III of this report.
PAGE 1 OF 25 PAGES
PART I
Item 1. Business
General: Farmer Bros. Co. (the "Company" or "Registrant") was incorporated
in California in 1923, and is in the business of roasting, packaging and
distributing coffee and allied products to restaurants, hotels, hospitals,
convenience stores and fast food outlets.
Raw Materials and Supplies: Registrant's primary raw material is green
coffee. Roast coffee sales account for approximately 61% of revenues.
Coffee purchasing, roasting and packaging takes place at Registrant's
Torrance, California plant, which is also the distribution hub for its
branches. Green coffee is purchased through domestic commodity brokers.
Coffee is an agricultural commodity, and is subject to fluctuations of both
price and supply. Registrant has not been confronted by shortages in the
supply of green coffee. Green coffee is grown outside the United States
and can be subject to volatile price fluctuations resulting from concerns
about crop availability and related conditions, such as weather, political
events and social instability, in coffee producing nations. Government
actions and trade restrictions between our own and foreign governments can
also influence prices.
Trademarks & Patents: Registrant owns approximately 23 registered U.S.
trademarks which are integral to customer identification of its products.
It is not possible to assess the impact of the loss of such identification.
Seasonality: Registrant experiences some seasonal influences. The winter
months are the best sales months. Registrant's product line and geographic
diversity provides some sales stability during the summertime decline in
coffee consumption during the warmer months.
Distribution: Registrant's products are distributed by its selling
divisions from 97 branches located in most large cities throughout the
western states. The diversity of the product line (over 300 products) and
size of the geographic area served requires each branch to maintain a
sizable inventory. Registrant operates its own trucking fleet to more
effectively control the supply of these warehouses.
Customers: No customer represents a significant concentration of sales.
The loss of any one or more of the larger customer accounts would have no
material adverse effect on the Company. Customer contact and service
quality, which is integral to Registrant's sales effort, is often secondary
to product pricing for customers with their own distribution systems.
Competition: Registrant faces competition from many sources, including
multi-national companies like Procter and Gamble, Nestle and Philip Morris,
grocery distributors like Sysco and Rykoff-Sexton and regional roasters
like Boyd Coffee Co., Lingle Bros. and Royal Cup. Registrant has some
competitive advantages due to its longevity, strong regional roots and
sales and service force. Registrant's customer base is price sensitive and
the Company is often faced with price competition.
Item 1. Business, Continued
Working Capital: Registrant finances its operations internally.
Management believes that working capital from internal sources will be
adequate for the coming year. Registrant maintains a $50,000,000 line of
credit with Wells Fargo Bank. There is no commitment fee or compensating
balance requirement and the line was not used in fiscal year 1996.
Foreign Operations: Registrant has no material revenues that result from
foreign operations. Coffee brewing equipment is sold through distributors
in Canada and Japan and manufactured in Europe under license.
Other: On June 30, 1996, Registrant employed 1,192 employees; 471 are
subject to collective bargaining agreements. The effects of compliance
with government provisions regulating discharge of materials into the
environment have not had a material effect on the Company's financial
condition or results of operations. The nature of Registrant's business
does not provide for maintenance of or reliance upon a sales backlog.
Item 2. Properties
Registrant's largest facility is the 474,000 sq. ft. roasting plant,
warehouses and administrative offices in Torrance, California. Registrant
believes the existing plant will continue to provide adequate production
capacity for the foreseeable future.
Item 3. Legal Proceedings
Registrant is a defendant in various legal proceedings incidental to its
business which are ordinary and routine. It is management's opinion that
the resolution of these lawsuits will not have a material impact on the
Company's financial condition or results of operations.
Item 4. Submission of Matters to A Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters
Registrant has one class of common stock which is traded in the over the
counter market. The bid prices indicated below are as reported by NASDAQ
and represent prices between dealers, without including retail mark up,
mark down or commission, and do not necessarily represent actual trades.
1996 1995
High Low Dividend High Low Dividend
1st Quarter $130.00 $116.00 $ 0.50 $134.00 $123.00 $ 0.50
2nd Quarter 147.00 125.00 0.55 132.00 120.00 0.50
3rd Quarter 144.00 131.75 0.55 130.00 117.00 0.50
4th Quarter 143.00 130.00 0.55 132.00 120.00 0.50
There were 628 holders of record on June 30, 1996.
Item 6. Selected Financial Data
(In thousands, except per share data)
1996 1995 1994
Net sales $224,075 $234,662 $193,861
Income from operations 29,198 25,235 9,488
Net income 23,363 19,517 10,330
Net income per share $12.13 $10.13 $5.36
Total assets $260,890 $244,340 $219,903
Dividends declared
per share $2.15 $2.00 $2.00
1993 1992
Net sales $190,679 $197,312
Income from operations 29,929 27,494
Net income 18,950* 20,226
Net income per share $9.84* $10.50
Total assets $216,266 $190,714
Dividends declared
per share $1.80 $1.60
* Includes the cumulative impact of adopting Statement of Financial
Accounting Standards Nos. 109 ("SFAS 109"), "Accounting for Income Taxes"
and 106 ("SFAS 106"), "Employers' Accounting for Postretirement Benefits
Other Than Pensions" as of July 1, 1992, which reduced net income for the
year ended June 30, 1993 by approximately $5,294,000 or $2.75 per share.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
Registrant continues to maintain a strong working capital position, and
management believes cash requirements for the coming year will be provided
by internal sources. Registrant has no major commitments for capital
expenditures at this time.
The Company maintains a $50 million line of credit with Wells Fargo Bank.
There was no bank debt incurred during fiscal year 1996.
(In thousands) 1996 1995 1994
Current assets $167,059 $149,806 $103,375
Current liabilities 14,330 18,724 12,488
Working capital $152,729 $131,082 $ 90,887
Quick ratio 8.51:1 5.73:1 4.76:1
Capital Expenditures $ 5,277 $ 9,085 $ 6,658
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
Results of Operations
Net sales decreased 5% to $224,075,000 in 1996 as compared to $234,662,000
in 1995, and $193,861,000 in 1994. During 1994, Brazil, the world's largest
green coffee producer suffered a series of frosts that severely damaged its
1994-1995 crop of green coffee. The cost of green coffee soared by 40% as
the market adjusted to a perceived coffee shortage. Higher green coffee
costs were eventually reflected in selling prices of roast coffee during
1995. The higher selling prices resulted in lower sales volume in 1995 and
1996.
Gross profit increased to $118,811,000 in 1996, or 53% of sales, compared
to $112,899,000, or 48% of sales, in 1995 and $94,295,000, or 49% of sales
in 1994. While profit margins improved in 1996, the volatility of the
green coffee market through 1995 and 1996 has kept the cost of green coffee
and selling prices of roast coffee at high levels. Registrant's customers
are price sensitive, and the Company is generally forced to absorb some
coffee cost fluctuations in order to provide stable and predictable
pricing.
Operating expenses, composed of selling and general and administrative
expenses increased 2% to $89,613,000 in 1996 from $87,664,000 in 1995, and
$84,807,000 in 1994.
Other income, net increased 60% to $9,691,000 in 1996 as compared to
$6,049,000 in 1995, and $7,201,000 in 1994 primarily due to increased
interest rates during the 1996 fiscal year.
Income before taxes increased to $38,889,000 or 17% of sales in 1996, as
compared to $31,284,000 or 13% of sales in 1995 and $16,689,000 or 9% of
sales in 1994. Fiscal year 1994 earnings were depressed by an increase in
green coffee costs. Net income for fiscal year 1996 reached $23,363,000,
or $12.13 per share, as compared to $19,517,000, or $10.13 per share, in
1995 and $10,330,000, or $5.36 per share, in 1994.
1996 1995 1994
Net income per share $12.13 $10.13 $ 5.36
Percentage change:
1996 to 1995 1995 to 1994
Net sales (4.5)% 21.1%
Cost of goods sold (13.6)% 22.3%
Gross profit 5.2% 19.7%
Operating expenses 2.2% 3.4%
Income from operations 15.7% 166.0%
Provision for income taxes 31.9% 85.0%
Net income 19.7% 88.9%
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Continued
Change in Earnings Per Share
A summary of the change in earnings per share, which highlights factors
discussed earlier, is as follows:
Per Share Earnings Per Share Earnings
1996 vs. 1995 1995 vs. 1994
Coffee: Prices $(2.02) $24.11
Volume (3.47) (4.08)
Cost 7.32 (10.27)
Gross Profit 1.83 9.76
Allied products: Gross Profit 1.24 (0.10)
Operating expenses (1.01) (1.48)
Other income 1.89 (0.60)
Provision for income taxes (1.95) (2.81)
Net income $2.00 $4.77
Price Risk
The Company's operations are significantly impacted by the world market for
green coffee, its largest product. Coffee is an agricultural product and
fundamental shifts in supply or demand produce dramatic price effects.
Coffee is traded domestically on the New York Coffee Tea and Cocoa
Exchange, and is one of the largest and most volatile commodity markets.
Although the Company attempts to manage its exposure to price risk by
managing its inventory level, there is no assurance that future green
coffee price fluctuations can be passed on to Registrant's customers.
Registrant is unable to predict either the direction or duration of coffee
price swings, and cautions against using past results to predict future
results.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Farmer Bros. Co. and Subsidiary
We have audited the consolidated financial statements of Farmer Bros. Co.
and Subsidiary (the "Company") as listed in Item 14(a) of this Form
10-K. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the
Company as of June 30, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period
ended June 30, 1996 in conformity with generally accepted accounting
principles.
As discussed in Note A to the consolidated financial statements, the
Company changed its method of accounting for certain investments in debt
and equity securities in 1995.
Coopers & Lybrand L.L.P.
Los Angeles, California
September 25, 1996
FARMER BROS. CO.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
June 30, June 30,
1996 1995
ASSETS
Current assets:
Cash and cash equivalents $ 28,165 $ 8,321
Short term investments 74,937 80,530
Accounts and notes receivable, net 18,822 18,481
Inventories 40,818 36,761
Income tax receivable 1,000 1,265
Deferred income taxes 2,616 3,577
Prepaid expenses 701 871
Total current assets 167,059 149,806
Property, plant and equipment, net 33,343 33,213
Notes receivable 1,841 1,880
Long term investments 40,058 43,337
Other assets 17,320 15,887
Deferred income taxes 1,269 217
Total assets $260,890 $244,340
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,635 $ 9,408
Accrued payroll expenses 4,153 4,711
Other 5,542 4,605
Total current liabilities 14,330 18,724
Accrued postretirement benefits 12,892 11,505
Commitments and contingencies (Note J)
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 230,840 211,619
Investment valuation allowance 334 (2)
Total shareholders' equity 233,668 214,111
Total liabilities and
shareholders' equity $260,890 $244,340
The accompanying notes are an integral part of these financial statements.
FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
For the Years Ended June 30,
1996 1995 1994
Net sales $224,075 $234,662 $193,861
Cost of goods sold 105,264 121,763 99,566
118,811 112,899 94,295
Selling expense 81,515 76,313 74,534
General and admini-
strative expense 8,098 11,351 10,273
89,613 87,664 84,807
Income from operations 29,198 25,235 9,488
Other income (expense):
Dividend income 2,549 2,459 1,352
Interest income 6,128 4,403 3,630
Other, net 1,014 (813) 2,219
9,691 6,049 7,201
Income before taxes 38,889 31,284 16,689
Income taxes (Note G) 15,526 11,767 6,359
Net income $ 23,363 $ 19,517 $ 10,330
Net income per share $12.13 $10.13 $ 5.36
The accompanying notes are an integral part of these financial statements.
FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the years ended June 30,
1996 1995 1994
Cash flows from operating
activities:
Net income $23,363 $19,517 $10,330
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 5,698 4,677 5,219
Deferred income taxes 145 (170) 698
Other (645) (47) (63)
Net (gain) loss on
investments (510) 1,384 (1,758)
Change in assets and
liabilities:
Short term investments - - 5,207
Accounts and notes
receivable (383) (2,460) (2,571)
Inventories (4,057) (1,851) (2,577)
Income tax receivable 265 4,092 (5,357)
Prepaid expenses and
other assets (1,931) (2,401) (2,320)
Accounts payable (4,773) 6,036 (3,188)
Accrued payroll
expenses and other
liabilities 379 200 407
Accrued postretirement
benefits 1,387 1,495 985
Total adjustments (4,425) 10,955 (5,318)
Net cash provided by operating
activities $18,938 $30,472 $ 5,012
The accompanying notes are an integral part of these financial statements.
FARMER BROS. CO
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the Years Ended June 30,
1996 1995 1994
Net cash provided by operating
activities: $ 18,938 $ 30,472 $ 5,012
Cash flows from investing
activities:
Purchases of property,
plant and equipment (5,277) (9,085) (6,658)
Proceeds from sales of
property, plant
and equipment 284 266 259
Purchases of investments (259,995) (164,754) (88,069)
Proceeds from sales of
investments 269,955 147,263 37,045
Notes issued - (760) (832)
Notes repaid 81 91 1,035
Net cash provided by
(used in) investing
activities 5,048 (26,979) (57,220)
Cash flows from financing
activities:
Dividends paid (4,142) (3,853) (3,853)
Net cash used in financing
activities (4,142) (3,853) (3,853)
Net increase (decrease)
in cash and cash
equivalents 19,844 (360) (56,061)
Cash and cash equivalents at
beginning of year 8,321 8,681 64,742
Cash and cash equivalents at
end of year $ 28,165 $ 8,321 $ 8,681
The accompanying notes are an integral part of these financial statements.
FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share data)
For the Years Ended June 30,
1996 1995 1994
Common stock $ 1,926 $ 1,926 $ 1,926
Additional paid-in capital 568 568 568
Retained earnings:
Beginning balance 211,619 195,955 189,478
Net income for the year 23,363 19,517 10,330
Dividends (4,142) (3,853) (3,853)
Ending balance 230,840 211,619 195,955
Investment valuation allowance:
Beginning balance (2) (1,044) -
Adjustment 336 1,042 (1,044)
Ending balance 334 (2) (1,044)
Total shareholders' equity $233,668 $214,111 $197,405
Dividends declared per share $2.15 $2.00 $2.00
The accompanying notes are an integral part of these financial statements.
Notes to Consolidated Financial Statements
A. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary FBC Finance Company. All significant
intercompany balances and transactions have been eliminated.
Financial Statement Preparation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of 30
days or less when purchased to be cash equivalents, which approximate fair
value.
Investments
The Company adopted Statement of Financial Accounting Standards No. 115
(SFAS 115), "Accounting for Certain Investments in Debt and Equity
Securities", as of July 1, 1994. SFAS 115 specifies the accounting
treatment of the Company's investments based on investment classifications
defined in the statement. The Company's investments have been recorded at
fair value and have been classified as "available for sale". Any
unrealized gains or losses on such investments at June 30, 1996 and 1995
have been recorded as a separate component of shareholders' equity.
The cost of investments sold is determined on the specific identification
method. Dividend and interest income is accrued as earned.
Inventories
Inventories are valued at the lower of cost or market. Costs of coffee and
allied products are determined on the Last In, First Out (LIFO) basis.
Costs of coffee brewing equipment manufactured are accounted for on the
First In, First Out (FIFO) basis.
In the normal course of business, the Company enters into commodity
purchase agreements with suppliers and futures contracts to minimize
exposure to inventory price fluctuations. Decreases in the market value of
the commodity purchase agreements, if any, are recognized in earnings
currently. In the event of non-performance by the counterparties, the
Company could be exposed to credit and supply risk. The Company monitors
the financial viability of the counterparties. Futures contracts not
designated as hedges are marked to market and changes are recognized in
earnings currently.
A. Summary of Significant Accounting Policies, continued
Property, Plant and Equipment
Property, plant and equipment is carried at cost, less accumulated
depreciation. Depreciation of buildings and facilities is computed using
the straight-line method. Other assets are depreciated using the sum-of-
the-years' digits and straight line methods. The following useful lives
are used:
Buildings and facilities 10 to 30 years
Machinery and equipment 3 to 5 years
Office furniture and equipment 5 years
When assets are sold or retired the asset and related depreciation
allowance are eliminated from the records and any gain or loss on disposal
is included in operations. Maintenance and repairs are charged to expense,
betterments are capitalized.
Income Taxes
Deferred income taxes are determined based on the temporary differences
between the financial reporting and tax bases of assets and liabilities,
using enacted tax rates in effect for the year in which differences are
expected to reverse.
Revenue Recognition
Sales and the cost of products sold are recorded at the time of delivery
to the customer.
B. Investments
1996 1995
Fair Fair
(In thousands) Cost Value Cost Value
Current Assets
Commercial Paper $34,609 $34,775 - -
U.S. Government
Obligations 40,129 40,162 $80,608 $80,530
$74,738 $74,937 $80,608 $80,530
Non-Current Assets
U.S. Government
Obligations $ 2,096 $ 2,043 $ 8,617 $ 8,610
Corporate debt 1,400 1,350 1,599 1,569
Preferred stocks 34,475 35,114 30,456 31,896
Liquid asset fund
and other 1,551 1,551 1,262 1,262
$39,522 $40,058 $41,934 $43,337
The contractual maturities of debt securities classified as current and non-
current available for sale as follows:
Maturities Fair Value
(In thousands) 6/30/96 6/30/95
Within one year $74,937 $80,530
After 1 year through 5 years 2,043 8,610
After 5 years through 10 years 1,350 1,569
$78,330 $90,709
B. Investments, Continued
The gross unrealized gains and (losses) on securities classified as
available for sale were $1,263,000 and ($528,000), respectively, at June
30, 1996 and $1,732,000 and ($407,000), respectively, at June 30, 1995.
Gross realized gains and losses from available for sale securities were
$1,907,000 and ($1,397,000) respectively in 1996 and gross realized gains
from available for sale securities were $1,857,000 in 1995.
The Company hedges interest rate risk in its portfolio of preferred stocks.
A substantial portion of the preferred stock portfolio was hedged with put
options on U.S. Treasury futures traded on a national exchange. Deferred
losses at June 30, 1996 and 1995, associated with the hedge were $162,000
and $1,329,000, respectively. Such deferred losses are recognized in other
income as the related unrealized gains in the preferred stock portfolio are
realized.
C. Allowance for Doubtful Accounts and Notes Receivable
(In thousands) 1996 1995 1994
Balance at beginning of year $545 $445 $530
Additions 683 527 184
Deductions (673) (427) (269)
Balance at end of year $555 $545 $445
D. Inventories
June 30, 1996
(In thousands) Processed Unprocessed Total
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
June 30, 1995
(In thousands) Processed Unprocessed Total
Coffee $ 3,093 $10,809 $13,902
Allied products 11,308 4,096 15,404
Coffee brewing equipment 2,120 5,335 7,455
$16,521 $20,240 $36,761
Current cost of coffee and allied products inventories exceeds the LIFO
cost by approximately $20,475,000, and $30,246,000 as of June 30, 1996 and
1995, respectively.
For the year ended June 30, 1995, a decrease in the Company's green coffee
inventories resulted in a LIFO decrement which increased fiscal 1995 pre-
tax income by approximately $1,008,000.
E. Property, Plant and Equipment
(In thousands) 1996 1995
Buildings and facilities $28,759 $26,902
Machinery and equipment 44,439 43,099
Office furniture and equipment 6,236 8,362
79,434 78,363
Accumulated depreciation (51,225) (49,980)
Land 5,134 4,830
$33,343 $33,213
Maintenance and repairs charged to expense for the years ended June 30,
1996, 1995 and 1994 were $11,608,000, $10,545,000 and $9,137,000,
respectively.
F. Retirement Plans
The Company has a contributory defined benefit pension plan for all
employees not covered under a collective bargaining agreement (Farmer Bros.
Co.) and a non-contributory defined benefit pension plan for certain hourly
employees covered under a collective bargaining agreement (Brewmatic Co.).
The Company's funding policy is to contribute annually at a rate that is
intended to fund benefits as a level percentage of salary (Farmer Bros.
Co.) and as a level dollar cost per participant (Brewmatic Co.) over the
working lifetime of the plan participants. Benefit payments are determined
under a final pay formula (Farmer Bros. Co.) and flat benefit formula
(Brewmatic Co.)
The net periodic pension benefit for 1996, 1995 and 1994 is comprised of
the following:
(In thousands) Farmer Bros. Co. Brewmatic Co.
1996
Service cost $ 1,200 $ 19
Interest cost 2,310 131
Actual return on assets (7,621) (499)
Net amortization and deferral 3,773 284
Net periodic pension benefit $ (338) $ (65)
1995
Service cost $ 875 $ 16
Interest cost 2,083 119
Actual return on assets (5,358) 304
Net amortization and deferral 1,738 (507)
Net periodic pension benefit $ (662) $ (68)
1994
Service cost $ 594 $ 14
Interest cost 1,869 116
Actual return on assets (94) 6
Net amortization and deferral (3,651) (216)
Net periodic pension benefit $(1,282) $ (80)
F. Retirement Plans, Continued
The funded status of the plans at June 30, 1996 was as follows:
(In thousands) Farmer Bros. Co. Brewmatic Co.
Actuarial present value of benefit
obligations:
Vested $29,278 $1,741
Non-vested 172 -
Accumulated benefit obligations 29,450 1,741
Effect of projected salary increases 3,183 43
Projected benefit obligations 32,633 1,784
Plan assets at fair value (49,203) (2,861)
Plan assets at fair value in excess
of projected benefit obligations (16,570) (1,077)
Unrecognized net asset at June 30, 1996 4,344 256
Unrecognized prior service cost (1,580) (145)
Unrecognized net loss 4,475 149
Prepaid pension cost $(9,331) $ (817)
Assumptions for 1996:
Discount rate for plan obligations 7.75% 7.75%
Assumed long term return on assets 8.00% 8.00%
Projected compensation increases for
pay related plans 3.10% -
The funded status of the plans at June 30, 1995 was as follows:
(In thousands) Farmer Bros. Co. Brewmatic Co.
Actuarial present value of benefit
obligations:
Vested $27,133 $1,621
Non-vested 154 -
Accumulated benefit obligations 27,287 1,621
Effect of projected salary increases 3,075 -
Projected benefit obligations 30,362 1,621
Plan assets at fair value (43,121) (2,509)
Plan assets at fair value in excess
of projected benefit obligations (12,759) (888)
Unrecognized net asset at June 30, 1995 4,965 292
Unrecognized prior service cost (1,763) (104)
Unrecognized net gain (loss) 565 (40)
Prepaid pension cost $(8,992) $ (740)
Assumptions for 1995:
Discount rate for plan obligations 7.75% 7.75%
Assumed long term return on assets 8.00% 8.00%
Projected compensation increases for
pay related plans 3.10% -
The assets of each plan are primarily invested in publicly traded stocks
and bonds, U.S. government securities and money market funds. The Farmer
Bros. Co. Retirement Plan owned 27,765 and 21,765 shares of the Company's
common stock at June 30, 1996 and 1995, respectively, with a fair value of
approximately $3,832,000 and $2,666,000, respectively.
F. Retirement Plans, Continued
The Company contributes to two multi-employer defined benefit plans for
certain union employees. The contributions to these multi-employer pension
plans were approximately $1,699,000, $1,635,000 and $1,615,000 for 1996,
1995 and 1994, respectively. The Company also has a defined contribution
plan for eligible non-union employees. No Company contributions have been
made nor are required to be made to this plan.
The Company sponsors defined benefit postretirement medical and dental
plans that cover non-union employees and retirees, and certain union
locals. The plan is contributory and retirees contributions are fixed at a
current level. The plan is unfunded.
The Plan's accumulated postretirement benefit obligation (APBO) is as
follows:
June 30, June 30,
(In thousands) 1996 1995
Retirees and dependents $5,191 $5,387
Fully eligible active participants 4,430 5,869
Other active plan participants 5,089 7,575
Total APBO $14,710 $18,831
Unrecognized net (loss) gain 2,394 (2,828)
Unrecognized prior service cost (4,212) (4,498)
Accrued postretirement benefit cost $12,892 $11,505
Net periodic postretirement benefit costs included the following
components:
For the years ended June 30,
(In thousands) 1996 1995 1994
Service cost $485 $587 $496
Interest cost 1,026 1,042 756
Amortization of unrecognized
net (gain) loss (70) 58 -
Unrecognized prior service cost 286 71 -
Net periodic postretirement
benefit cost $1,727 $1,758 $1,252
The assumptions used to determine the APBO and net periodic postretirement
benefit costs are as follows:
For the years ended June 30,
1996 1995 1994
Discount rate, net periodic
postretirement benefit cost 7.75% 8.00% 8.50%
Discount rate, APBO 7.75% 7.75% 8.00%
Medical care cost trend rate* 9.00% 9.50% 10.00%
*Assumed to decline gradually to 5.5% in 2003 and thereafter.
Dental care cost trend rate for 1996, 1995 and 1994 was 6.00%.
F. Retirement Plans, Continued
Increasing the assumed health care costs trend rates by one percentage
point each year would increase the APBO as of June 30, 1996 and 1995 by
$759,000 and $1,318,000, respectively, and increase the aggregate of the
service cost and interest cost components of net periodic postretirement
benefit cost for the fiscal years ended June 30, 1996 and 1995 by $124,000
and $134,000, respectively
During fiscal year 1995, the Company added prescription drug coverage for
retirees covered under the medical and dental plan. The additional retiree
health benefits increased the unrecognized prior service cost by
approximately $4,498,000 as of June 30, 1995.
G. Income Taxes
The current and deferred components of the provision for income taxes
consist of the following:
(In thousands) 1996 1995 1994
Current: Federal $12,621 $ 9,529 $ 4,385
State 2,760 2,406 1,276
15,381 11,935 5,661
Deferred: Federal (48) (145) 642
State 193 (23) 56
145 (168) 698
$15,526 $11,767 $ 6,359
A reconciliation of the provision for income taxes to the statutory federal
income tax expense is as follows:
1996 1995 1994
Statutory tax rate 35.0% 35.0% 35.0%
(In thousands)
Income tax expense
at statutory rate $13,611 $10,949 $ 5,841
State income tax
(net of federal tax benefit) 1,919 1,549 865
Dividend income exclusion (622) (581) (324)
Other (net) 618 (150) (23)
$15,526 $11,767 $ 6,359
Income taxes paid $14,820 $10,908 $10,993
G. Income Taxes, Continued
The primary components of temporary differences which give rise to the
Company's net deferred tax assets at June 30, 1996 and 1995 are as follows:
June 30, June 30,
(In thousands) 1996 1995
Deferred tax assets:
Postretirement benefits $5,185 $4,700
Accrued liabilities 1,164 1,307
State taxes 688 543
Other 954 1,242
7,991 7,792
Deferred tax liabilities:
Pension assets (4,082) (3,976)
Other (24) (22)
(4,106) (3,998)
Net deferred tax assets $3,885 $3,794
Deferred tax assets are expected to be realized against future taxable
income and have not been reduced by a valuation allowance.
H. Other Current Liabilities
Other current liabilites consist of the following:
(In thousands) 1996 1995
Accrued workers'
compensation liabilities $3,292 $3,178
Dividends payable 1,060 963
Other 1,190 464
$5,542 $4,605
I. Line of Credit
The Company has a credit line of $50,000,000. The line has no fee or
compensating balance requirement.
J. Commitments and Contingencies
The Company incurred rent expense of approximately $682,000, $678,000, and
$666,000, for the fiscal years ended June 30, 1996, 1995 and 1994,
respectively, and is obligated under leases for branch warehouses with
terms not exceeding five years. Certain leases contain renewal options.
Future minimum lease payments are as follows:
June 30, (In thousands)
1997 $566
1998 421
1999 158
2000 53
2001 17
J. Commitments and Contingencies, Continued
The Company is a party to various pending legal and administrative
proceedings. It is management's opinion that the outcome of such
proceedings will not have a material impact on the Company's financial
position or results of operations.
Concentration of Credit Risk: At June 30, 1996, financial instruments
which potentially expose the Company to concentrations of credit risk
consist of cash in financial institutions (which exceeds federally insured
limits), cash equivalents (principally commercial paper), short term
investments, investments in the preferred stocks of other companies and
accounts receivable. Commercial paper investments are not concentrated by
issuer, industry or geographic area. Maturities are generally shorter than
90 days. Other investments are in U.S. government securities. Investment
in the preferred stocks of other companies are limited to high quality
issuers and are not concentrated by geographic area or issuer.
Concentration of credit risk with respect to trade receivables for the
Company is limited due to the large number of customers comprising the
Company's customer base, and their dispersion across many different
geographic areas. The trade receivables are short-term, and all probable
bad debt losses have been appropriately considered in establishing the
allowance for doubtful accounts.
K. Quarterly Financial Data (Unaudited)
Quarter Ended
09/30/95 12/31/95 03/31/96 06/30/96
(In thousands)
Net sales $55,038 $58,571 $56,774 $53,692
Gross profit 27,527 30,865 30,885 29,534
Income from
operations 6,413 8,007 7,939 6,839
Net income 4,791 6,573 6,391 5,608
(Per share)
Net income $2.49 $3.41 $3.32 $2.91
Quarter Ended
09/30/94 12/31/94 03/31/95 06/30/95
(In thousands)
Net sales $54,182 $62,598 $59,514 $58,368
Gross profit 25,908 30,085 26,818 30,088
Income from
operations 4,514 8,023 4,448 8,250
Net income 3,757 5,706 3,220 6,834
(Per share)
Net income $1.95 $2.96 $1.67 $3.55
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Reference is made to the information to be set forth in the section
entitled "Election of Directors" in the definitive proxy statement
involving the election of directors in connection with the Annual Meeting
of Shareholders to be held on December 2, 1996 (the "Proxy Statement")
which section is incorporated herein by reference. The Proxy statement
will be filed with the Securities and Exchange Commission no later than 120
days after June 30, 1996, pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended.
Name Age Position
Roy F. Farmer 80 Chairman of Board of Directors since 1951.
Roy E. Farmer 44 President since 1993; various positions since
1976, son of Chairman of the Board,
R.F. Farmer.
Guenter W. Berger 59 Vice President of Production, Director
since 1980; various positions since 1960.
Kenneth R. Carson 56 Vice President of Sales since
1990; Sales Management since 1968.
David W. Uhley 55 Secretary since 1985; various positions
since 1968.
John E. Simmons 45 Treasurer since 1985; various positions
since 1980.
All officers are elected annually by the Board of Directors and serve at
the pleasure of the Board.
Item 11. Executive Compensation
Reference is made to the information to be set forth in the section
entitled "Management Remuneration" in the Proxy Statement, which is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Reference is made to the information to be set forth in the sections
entitled "Principal Shareholders" and "Election of Directors" in the Proxy
Statement, which is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Reference is made to the information to be set forth in the sections
entitled "Principal Shareholders" and "Election of Directors" in the Proxy
Statement, which is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) List of Financial Statements and Financial Statement Schedules
1. Financial Statements included in Item 8:
Consolidated Balance Sheets as of June 30, 1996 and 1995.
Consolidated Statements of Income For the Years
Ended June 30, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1996, 1995 and 1994.
Consolidated Statements of Shareholders' Equity
For the Years Ended June 30, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
Financial Statement Schedules are omitted as they are not
applicable, or the required information is given in
the consolidated financial statements or notes thereto.
3. Exhibits required by Item 601 of Regulation S-K.
See item (c) below.
(b) Reports on Form 8-K. Registrant did not file any reports on
Form 8-K during the quarter ended June 30, 1996.
(c) Exhibits required by Item 601 of Regulation S-K.
Exhibits
3. Articles of incorporation and by-laws.
Filed with the Form 10-K for the fiscal year
ended June 30, 1986.
4. Instruments defining the rights of security holders,
including indentures.
Not applicable.
9. Voting trust agreement.
Not applicable.
10. Material contracts
Not applicable.
11. Statement re computation of per share earnings.
Not applicable.
12. Statements re computation of ratios.
Not applicable.
13. Annual report to security holders, Form 10-Q or
quarterly report to security holders.
Not applicable.
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K., Continued
18. Letter re change in accounting principles.
Not applicable.
19. Previously unfiled documents.
Not applicable.
22. Subsidiaries of the Registrant.
Not applicable.
23. Published report regarding matters submitted to
vote of security holders.
Not applicable.
24. Consents of experts and counsel.
Not applicable.
25. Power of attorney.
Not applicable.
28. Additional exhibits.
Not applicable.
29. Information from reports furnished to state insurance
regulatory authorities.
Not applicable.
(d) Financial statements required by Regulation S-X
but excluded from the annual report to shareholders by
Rule 14a - 3(b).
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Farmer Bros. Co.
By: Roy F. Farmer
(Roy F. Farmer, Chief Executive Officer and
Chairman of the Board of Directors)
Date: September 25, 1996
By: John E. Simmons
(John E. Simmons, Treasurer and
Chief Financial and Accounting Officer)
Date: September 25, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
Roy E. Farmer
Roy E. Farmer, President and Director
Date: September 25, 1996
Guenter W. Berger
Guenter W. Berger, Vice President and Director
Date: September 25, 1996
Lewis A. Coffman
Lewis A. Coffman, Director
Date: September 25, 1996
John M. Anglin
John M. Anglin, Director
Date: September 25, 1996
Catherine E. Crowe
Catherine E. Crowe, Director
Date: September 25, 1996