-----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, MlnHUC73TSBU4e7Wopys4zedm19b5m0uZOuyMxXxW0eTeumK3YlH5Prmrd7Isu71 iHJ8wHRZPkH3aJsGFhrBlA== 0000034563-96-000009.txt : 19960930 0000034563-96-000009.hdr.sgml : 19960930 ACCESSION NUMBER: 0000034563-96-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960927 SROS: NASD 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-01375 FILM NUMBER: 96635774 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-K 1 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 EX-27 2
5 1000 YEAR JUN-30-1996 JUN-30-1996 28165 74937 18822 555 40818 167059 33343 51225 260890 14330 0 0 0 1926 0 260890 224075 224075 105264 89613 0 0 0 38889 15526 23363 0 0 0 23363 12.13 12.13
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