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, 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 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, 1996. PAGE 1 OF 9
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, 1996 1995 Net sales $52,785 $55,038 Cost of goods sold 25,369 27,511 27,416 27,527 Selling expense 20,181 19,220 General and administrative expenses 1,518 1,894 21,699 21,114 Income from operations 5,717 6,413 Other income (expense): Dividend income 686 625 Interest income 1,444 1,208 Other, net 140 154 2,270 1,987 Income before taxes 7,987 8,400 Income taxes 3,328 3,609 Net income $ 4,659 $ 4,791 Net income per share $2.42 $2.49 The accompanying notes are an integral part of these financial statements.
FARMER BROS. CO. CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, June 30, 1996 1996 ASSETS Current assets: Cash and cash equivalents $ 47,382 $ 28,165 Short term investments 67,108 74,937 Accounts and notes receivable, net 17,128 18,822 Inventories 39,188 40,818 Income tax receivable 29 1,000 Deferred income taxes 2,616 2,616 Prepaid expenses 906 701 Total current assets 174,357 167,059 Property, plant and equipment, net 33,279 33,343 Notes receivable 1,841 1,841 Long term investments 40,514 40,058 Other assets 17,491 17,320 Deferred income taxes 1,521 1,269 Total assets $269,003 $260,890 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,619 $ 4,635 Accrued payroll expenses 4,111 4,153 Other 8,326 5,542 Total current liabilities 19,056 14,330 Accrued postretirement benefits 13,178 12,892 Commitments and contingencies - - Shareholders' equity: Common stock, $1.00 par value, authorized 3,000,000 shares; issued and outstanding 1,926,414 shares 1,926 1,926 Additional paid-in capital 569 568 Retained earnings 234,343 230,840 Investment valuation allowance (69) 334 Total shareholders' equity 236,769 233,668 Total liabilities and shareholders' equity $269,003 $260,890 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, 1996 1995 Cash flows from operating activities: Net Income $ 4,659 $ 4,791 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,430 1,253 Deferred income taxes - 33 Other (15) (32) Net (gain) loss on investments (20) (46) Change in assets and liabilities: Short term investments - - Accounts and notes receivable 1,685 (275) Inventories 1,629 1,734 Income tax receivable 971 1,266 Prepaid expenses and other assets (453) (486) Accounts payable 1,984 (3,730) Accrued payroll expenses and other liabilities 2,743 2,338 Accrued postretirement benefits 286 441 Total adjustments 10,240 2,496 Net cash provided by operating activities $14,899 $ 7,287 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, 1996 1995 Net cash provided by operating activities: $14,899 $ 7,287 Cash flows from investing activities: Purchases of property, plant and equipment (1,308) (2,809) Proceeds from sales of property, plant and equipment 35 72 Purchases of investments (72,417) (26,777) Proceeds from sales of investments 79,155 29,693 Notes issued - - Notes repaid 9,000 50,000 Net cash provided by (used in) investing activities 5,474 229 Cash flows from financing activities: Dividends paid (1,156) (963) Net cash used in financing activities (1,156) (963) Net increase (decrease) in cash and cash equivalents 19,217 6,553 Cash and cash equivalents at beginning of year 28,165 8,321 Cash and cash equivalents at end of quarter $47,382 $14,874 Supplemental disclosure of cash flow information: Income tax payments $ 579 $ 215 The accompanying notes are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) A. Unaudited Financial Statements The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. It is management's opinion that all adjustments of a normal recurring nature necessary for a fair statement of the results of operations for the interim periods have been made. B. Investments September 30, June 30, 1996 1996 Fair Fair (In thousands) Cost Value Cost Value Current Assets Commercial Paper $24,446 $24,148 $34,609 $34,775 U.S. Government Obligations $42,976 $42,960 $40,129 $40,162 $67,422 $67,108 $74,738 $74,937 Non-Current Assets U.S. Government Obligations $ 2,085 $ 2,066 $ 2,096 $ 2,043 Corporate bonds 1,300 1,265 1,400 1,350 Preferred stocks 35,011 35,721 34,475 35,114 Liquid asset fund and other 1,858 1,463 1,551 1,551 $40,254 $40,515 $39,522 $40,058 The gross unrealized gains and (losses) on securities classified as available for sale were $1,026,000 and ($1,079,000), respectively, at September 30, 1996, and $1,263,000 and ($528,000), respectively, at June 30, 1996. Gross realized gains from available for sale securities were $23,000 and $25,000 at September 30, 1995 and 1996, respectively. The Company hedges interest rate risk in its portfolio of preferred stock. Deferred gains associated with the hedge are $424,000 and $162,000 at September 30 and June 30, 1996, respectively. The contractual maturities of debt securities classified as current and non- current available for sale are as follows: Maturities Fair Value (In thousands) 09/30/96 06/30/96 Within 1 year $67,108 $74,937 After 1 year through 5 years 2,066 2,043 After 5 years through 10 years 1,265 1,350 After 10 years - - $70,439 $78,330
C. Inventories Processed Unprocessed Total (In thousands) September 30, 1996 Coffee $ 5,147 $12,308 $17,455 Allied products 9,285 4,881 14,166 Coffee brewing equipment 2,291 5,276 7,567 $16,723 $22,465 $39,188 June 30, 1996 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 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Market trends from the fiscal 1996 continued into fiscal 1997, with higher coffee prices and higher roast coffee costs contributing to improved gross profit and lower sales volume. Net sales decreased 4% to $52,785,000 in the quarter ending September 30, 1996 as compared to $55,038,000 in the same quarter of fiscal 1996. Gross profit decreased in the first quarter of fiscal 1997 to $27,416,000 as compared to $27,527,000 in same quarter of fiscal 1996. Operating expenses, composed of selling and general and administrative expenses, increased 3% to $21,699,000 in the current quarter compared to $21,114,000 in the same quarter of the prior fiscal year. This increase is primarily the result of higher employee benefits and increased coffee brewing equipment related expenses. Other income increased 14% to $2,270,000 in the first quarter of fiscal 1997 as compared to $1,987,000 in the same quarter of the prior fiscal year primarily resulting from an improved interest rate environment. Income before taxes decreased 5% to $7,987,000, or 15% of sales, in the first quarter of the 1997 fiscal year as compared to $8,400,000, or 15% of sales, in the same quarter of 1996. Net income for the first quarter of fiscal 1997 decreased 3% to $4,659,000 or $2.42 per share, from $4,791,000, or $2.49 per share, recorded in the first quarter of fiscal 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Continued Quarterly Summary of Results (in thousands of dollars) 09/30/95 12/31/95 03/31/96 06/30/96 09/30/96 Net sales 55,038 58,571 56,774 53,692 52,785 Gross profit 27,527 30,865 30,885 29,534 27,416 Operating income 6,413 8,007 7,939 6,839 5,717 Net income 4,791 6,573 6,391 5,608 4,659 (as a percentage of sales) 09/30/95 12/31/95 03/31/96 06/30/96 09/30/96 Net sales 100.00 100.00 100.00 100.00 100.00 Gross profit 50.01 52.69 54.40 55.00 51.94 Operating income 11.65 13.67 13.98 12.74 10.83 Net income 8.70 11.22 11.26 10.44 8.82 (in dollars) 09/30/95 12/31/95 03/31/96 06/30/96 09/30/95 EPS 2.49 3.41 3.32 2.91 2.42 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 rights of security holders, including indentures. not applicable. (11) Statement re computation of per share earnings. not applicable.
Part II Other Information, Continued (15) Letter re unaudited interim financial information. not applicable. (18) Letter re change in accounting principles. not applicable. (19) Report furnished to security holders not applicable. (22) Published report regarding matters submitted to vote of security holders. not applicable. (23) Consents of experts and counsel. not applicable. (24) Power of attorney. not applicable. (27) Financial Data Schedule. See attached Form EX-27. (99) Additional exhibits. not applicable. (b) Reports on Form 8-K none. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 14, 1996 FARMER BROS. CO. (Registrant) John E. Simmons John E. Simmons Treasurer and Chief Financial Officer