UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: February 23, 2004
FARMER BROS. CO.
California 0-1375 95-0725980
State of Incorporation Commission File Number Federal ID Number
20333 South Normandie Avenue, Torrance, California 90502
Address of principal executive offices
(310) 787-5200
Registrant's telephone number
Item 5. Other Events.
Index:
1. Press Release in Connection With Annual Meeting
2. Report of Proxy Voting
3. Management's Report On The State Of The Company
1. Press Release in Connection With Annual Meeting
The following press release was provided to the major services
today:
NEWS RELEASE
February 23, 2004
FARM - NASDAQ NATIONAL MARKET SYSTEM
Farmer Bros. Files for Delaware Reincorporation
Shareholder Approval Clears Way for 10-for-One Stock Split
TORRANCE, Calif.--(BUSINESS WIRE) -- Feb. 23, 2004 -- Farmer Bros. Co.
(Nasdaq: FARM) today said it has filed to reincorporate in Delaware following
shareholder approval at today's annual meeting.
In addition to the reincorporation, shareholders also approved takeover
protections and the reelection of all incumbent directors, a majority of whom
are independent as defined by the Sarbanes-Oxley Act of 2002. The approved
measures had been recommended by the company's board.
The company's approximately 1,100 employees directed the Employee Stock
Ownership Program (ESOP), which controls about 18% of the shares outstanding,
to cast more than 92% of its votes in favor of each of the proposals
recommended by the board. The Farmer family, which controls 39% of the shares,
also supported the proposals, as previously announced.
"This was a landmark election: our employees exercised a significant and
independent say in the future of their Company," said Roy E. Farmer, Chief
Executive Officer.
The board, as previously stated, intends to act as soon as practical after
completing the reincorporation to implement a 10-for-one split of the
company's stock. The new corporate charter authorizes enough shares to enable
this split.
During the annual meeting, Chief Financial Officer John Simmons reported on
the "state of the company," noting that the recent decline in earnings
reflected in large measure heightened competition and a weak economy following
several years of record earnings. Simmons said the company continues to
benefit from a solid base of 50,000 customers and in response to the recent
challenges is working to reinvigorate its relationship-oriented sales efforts
and is pushing ahead with its information systems upgrade, which is designed
"to cut costs, lower inventory levels, improve customer service and make each
employee more efficient and effective."
Simmons said, "We believe that, when we harness the power of these systems,
we'll be more nimble in the way we adapt to changes in our market, smarter in
the way we apply our resources, more efficient in the way we solicit and serve
our customers, and more proficient in how we select and retain our customers,
products and employees."
Simmons cited research showing that the stock of companies with ESOPs have
outperformed the broader stock markets. He said, "Many investors take comfort
when they learn that the people who lead a company have 'skin in the game' -
that they have invested their own money along with the shareholders. At Farmer
Bros., the management and the employees are owners. When shareholders benefit,
everyone benefits."
Simmons concluded by saying, "This remains a company committed to delivering
long-term value to our shareholders."
Farmer Bros. Co. is an institutional coffee roaster that sells a variety of
coffee and allied products to the food service industry. The company's
signature trucks and vans bearing the "Consistently Good" logo are seen
throughout Farmer Brothers' 28-state service area. Farmer Brothers has paid a
dividend for 50 consecutive years, increased the dividend in each of the last
seven consecutive years, and its stock price has grown from $18 in 1980 to
over $300 a share today. The company's common stock is traded on the NASDAQ
National Market System under the symbol "FARM."
Certain statements contained in this news release regarding the risks,
circumstances and financial trends that may affect our future operating
results, financial position and cash flows may be forward-looking statements
within the meaning of federal securities laws. These statements are based on
management's current expectations, assumptions, estimates and observations
about our business and are subject to risks and uncertainties. As a result,
actual results could materially differ from the forward-looking statements
contained herein. These forward looking statements can be identified by the
use of words like "expects," "plans," "believes," "intends," "will," "assumes"
and other words of similar meanings. These and other similar words can be
identified by the fact that they do not relate solely to historical or current
facts. While we believe our assumptions are reasonable, we caution that it is
impossible to predict the impact of such factors which could cause actual
results to differ materially from predicted results. We intend these forward-
looking statements to speak only at the time of this report and do not
undertake to update or revise these projections as more information becomes
available. For these statements, we claim the protection of the safe harbor
for forward-looking statements provided by the Private Securities Litigation
Reform Act of 1995.
Contact:
The Abernathy MacGregor Group
James Lucas / 213-630-6550
2. Report of Proxy Voting
There were 1,607,508 shares of Common Stock entitled to vote at the meeting
and a total of 1,229,762 shares (76.50%) were represented at the meeting.
1. Election of Directors
FOR WITHOLD
Roy F. Farmer (Class I) 1,039,648 190,114
Lewis A. Coffman (Class I) 1,038,784 190,978
John Samore, Jr. (Class I) 1,039,470 190,292
Guenter W. Berger (Class II) 1,037,319 192,443
Thomas A. Maloof (Class II) 1,039,480 190,282
John H. Merrell (Class III) 1,039,470 190,292
Roy E. Farmer (Class III) 1,038,964 190,798
2. Approval of Appointment of Ernst & Young LLP as the Company's
independent public accountants for fiscal year 2004.
FOR AGAINST ABSTAIN BROKER NON-VOTE
1,169,645 57,413 2,704 0
3. Approval of the reincorporation of the Company in the State
of Delaware.
FOR AGAINST ABSTAIN BROKER NON-VOTE
996,860 232,546 356 0
4. Approval of the elimination of the right of our shareholders to
act by written consent.
FOR AGAINST ABSTAIN BROKER NON-VOTE
992,798 236,290 674 0
5. Approval of the implementation of a classified Board of Directors.
FOR AGAINST ABSTAIN BROKER NON-VOTE
985,281 244,205 276 0
6. Approval of the elimination of the right of shareholders holding ten
percent (10%) or more of the voting shares to call a special meeting
of shareholders.
FOR AGAINST ABSTAIN BROKER NON-VOTE
991,318 237,669 775 0
7. Approval of the elimination of cumulative voting for our directors.
FOR AGAINST ABSTAIN BROKER NON-VOTE
995,228 234,348 186 0
8. Approval of the increase in authorized shares of common stock of
the Company from 3,000,000 shares to 25,000,000 shares, and
authorization of 500,000 shares of preferred stockof the Company.
FOR AGAINST ABSTAIN BROKER NON-VOTE
994,050 235,477 235 0
9. Shareholder proposal to amend the Company's bylaws to restore
cumulative voting.
FOR AGAINST ABSTAIN BROKER NON-VOTE
216,937 1,011,562 1,263 0
3. Management's Report On The State Of The Company
The complete text of the address by John Simmons, Treasurer and Chief
Financial Officer of Farmer Bros. Co. follows:
Farmer Bros. Annual Meeting of Shareholders
February 23, 2004
Management's Report On The State Of The Company
Before I begin, I am required to read a statement regarding our safe harbor
for forward-looking statements:
Certain statements contained in this presentation regarding the risks,
circumstances and financial trends that may affect our future operating
results, financial position and cash flows may be forward-looking statements
within the meaning of federal securities laws. These statements are based on
management's current expectations, assumptions, estimates and observations
about our business and are subject to risks and uncertainties. As a result,
actual results could materially differ from the forward-looking statements
contained herein. These forward looking statements can be identified by the
use of words like "expects," "plans," "believes," "intends," "will," "assumes"
and other words of similar meanings. These and other similar words can be
identified by the fact that they do not relate solely to historical or current
facts. While we believe our assumptions are reasonable, we caution that it is
impossible to predict the impact of such factors which could cause actual
results to differ materially from predicted results. We intend these forward-
looking statements to speak only at the time of this presentation and do not
undertake to update or revise these projections as more information becomes
available. For these statements, we claim the protection of the safe harbor
for forward-looking statements provided by the Private Securities Litigation
Reform Act of 1995.
We wanted to use this forum, today, to look ahead - to focus on shareholder
value and the long term. As we reflected on the topics we might discuss we
were struck by the changes this past year. I wondered if this was the most
significant year of change for your Company, or just the most significant
during my tenure here.
Others in this room have a longer view of our history than I. I'd like to ask
them to let everyone know who they are. Let's have a show of hands: please,
raise your hand if you have had ties with this Company for more than 20 years
.... 30 years. Thank you.
After we adjourn I invite you to talk with them about their personal memories
of their time with Farmer Brothers.
Not many in this room remember back to 1952, another year of significant
change for Farmer Bros. The Company was founded in 1912 and, in 1952,
following the untimely death of our founder, Roy Farmer, the Company sold
public shares for the first time. Farmer Bros went public with 380 employees,
revenues of about $15 million and total assets of about $6 million.
* In the offering, our stock was priced at $2.37 1/2 per share
* The cash raised in that public offering - the only time we have gone to Wall
Street for money - raised $2 million for the Company.
This cash was a fuel that helped accelerate our growth over the following
decades.
Today, we continue to reap the benefits of the wise use of that public
investment:
* We are a leader in our markets.
* Our employee ranks have grown to approximately 1,100.
* We have sales of about $190 million a year, and total assets of more than
$300 million. Our Company's management and board took a long view of its
business - and the results are apparent in the strength of our balance sheet.
Operating Principles
Before we look forward, we felt it would be useful to look back to our history
and the principles that led to this Company's success. Since 1952, our
Chairman, Roy Farmer, has guided this Company's growth I think it's
instructive for us think about our business and some of the key principles
that have guided us for this half century under Mr. Farmer's leadership:
* First know your customer and your product.
o Customers are our life's blood. It takes a lot of work to win them. It's
everyone's job at Farmer Brothers to make sure each customer is treasured and
treated right.
o We have applied our motto, "Consistently Good," to our products bearing the
Farmer Bros. label since 1939. But this motto also represents the dependable
service our customers have come to expect.
o We sell our service as well as our coffee. This combination means our
products must be right - and our service must be the best.
* Second, know yourself, know where you're going and know why you're going
there.
o Avoid Debt: it leaves you beholden to those who cannot understand the
intangibles of our business.
o Beware of a focus on short-term results at the expense of financial strength
and long term growth.
o Remember: we sell our products the same way we sell ourselves - face to
face, one person at a time. We get out of the warehouse and into the kitchens,
the buyers' offices, the owners' offices. And we sell with the persistence and
confidence that comes when you know that no one can do a better job than we
can do.
o Base key decisions on these simple questions: Is it the right decision for
Farmer Bros.? Will it make the Company stronger over the long term? Will it
give us the best return over the long term?
* Finally, the third principle: make the best use of our greatest asset - our
people.
o Pay competitive wages for competitive work. This is a Company that takes
pride in its work ethic - it's one of the core values that has been
consistently applied over our long history.
o Make this a place where we can all be proud we work. We've always made high
ethical standards a touchstone for our operations. Our customers must trust
us to maintain their coffee and allied product inventories in their kitchens
and storerooms; we must rely on our branches to care for the facilities, the
inventory, the coffee brewing equipment and vehicles. Our entire operation is
based on trust that is born of pride and high ethical standards.
o Organize our efforts around the skills of our people. We are a small Company
and need to take advantage of every one's special abilities - even if it means
that we organize ourselves in unconventional ways. The test is whether a
person's role makes sense for Farmer Bros.
These principles have guided this Company for 92 years. Today our 50,000
customers in 28 states know us as the little coffee Company down the road,
because their sales representative IS Farmer Bros. to them.
Now, let's look to the future.
Operating Results In Perspective
We have discussed our operating results in great detail in our annual report.
I won't re-visit those today, except to urge everyone to maintain some
perspective.
We believe that to understand our operating results today, it is useful to
consider a time in the recent past. In the fiscal years 1998-2001 we enjoyed
a fabulous run. Earnings per share during that time were: $17.34, $14.36,
$19.08, and $19.79, in 1998, 1999, 2000 & 2001, respectively.
Those last two years - in 2000 and 2001 - were the best the Company had ever
seen. They were accomplished through no special tricks: we marketed our
product the way we always have, and the strength of the economy and,
therefore, the vitality of our customer base carried us, and we benefited from
a fortuitous coffee market which held green coffee costs down.
Those great years were not destined to last. With the bursting of the dot-com
bubble and the ensuing economic malaise that has spread from California across
the country (and, remember, California is our largest market), our business
has suffered.
But, this is where perspective is useful. Our results in 2003 - we earned
$13.02 per share - compare favorably to our earnings prior to 1998 (for
example, in 1997 we earned $8.66; in 1996, $12.13; in 1995, $10.13).
In 2004, in fact, we are presented with an anomaly: our customer count remains
high - but our dollar sales are declining, without a price decrease, and our
unit sales, of coffee, are declining.
To a large degree, this reflects changes in our external environment.
* There's more competition, both from coffee companies and competing
beverages.
* Many of our customers have been squeezed as consumers and businesses spend
less in restaurants and in the hospitality industry.
* We have felt the effects of more concentrated restaurant ownership, as
larger restaurant chains take more market share. Most of our customers have
been small or independent, non-chain restaurants, and many face competition
from chains, including restaurants like Starbucks.
Improving Our Business
We have been keenly aware of these changes. In response, we have been working
hard to confront and resolve impediments to improving our results.
Some of our efforts I will discuss today.
First, we are working to sharpen the focus of our sales effort.
As I mentioned earlier, our founding principles gave us a sales culture that
is intensely focused on our customer relationships. We want to build on that
strong foundation.
Our sales organization - it includes 688 people, more than 60 percent of our
employees - has worked hard on a program of "back to basics" sales training,
and accountability. We recognize that, sometimes, some sales people have been
too complacent in the marketplace and, at other times, we find they have not
been trained effectively in the "Sales" aspect of our "Sales & Service"
function. Sometimes, we find an incomplete "corporate memory" of what works,
what doesn't, and why. We're working to change that.
We've worked hard to hold onto our customer count during this economic
downturn. Were it not for the efforts we have taken so far, our sales declines
probably would have been sharper. This customer base provides us with a
strong foundation for growth when the economy improves over the coming years.
Our efforts to strengthen our sales operation, however, are not complete. In
the Mississippi Valley and in other disparate geographic areas, for example,
we're seeing signs of improvement - deeper market penetration and a reversal
of some of these negative trends. We're optimistic that we can extend these
positive signs into a trend - and duplicate them more broadly throughout our
sales and service organization.
Second, we are working to complete our information-systems project.
Our goals with this project are to cut costs, lower our inventory investment,
improve customer service and make each employee more efficient and effective.
These system changes often result in comprehensive changes in our operations,
and it does come at a cost that, to us, is significant.
We are at the mid-point in our system conversions. At our last Annual
Meeting, I suggested that this information systems conversion may be the most
ambitious undertaking the Company had ever attempted. Nothing that has
occurred in the past year has led me to change that statement.
Here are some details that will help you understand the scope of the project:
* To date, we have spent more than $10 million on the new systems,
infrastructure and on-going overhead costs. Some of these costs are one-time
expenses - for example, we have installed fiber optic cabling and a wireless
branch intranet to speed our information handling. Other costs will continue -
these include the salaries of new technical personnel, the costs of
maintaining our new information networks and the cost of the big computer to
run everything.
* We have approximately 30 people in our accounting department. Last week I
received a time summary for 23 consultants who, on a normal day, are housed in
this room. Today they are primarily working on the manufacturing system, but
we are still "cleaning-up" from our July 1, 2003 launch of our financial
systems: our new systems now drive the accounting function: our general
ledger, accounts receivable and payable, payroll and fixed assets.
* We have gone "live" with our pilot manufacturing system in our Brewmatic
Division, and are working out the bugs. Soon, this new manufacturing
software will be turned on in the coffee and allied plants here in Torrance.
And, significantly, we are about to begin the formal design and development
work on the new sales and customer relationship management system for our
sales force.
* We are a year away from the completion of these systems. It will probably be
two years beyond that before we attain the level of expertise that will help
us take full advantage of the power of this technology - and we expect to
realize the benefits of this technology throughout this period.
This will touch ALL of our employees. It will mean, and for our accounting
personnel, has meant:
o Changes in how we do our jobs;
o Changes in everyone's required skill set; and
o Changes and increases in each person's workload. Many of you have read in
the newspaper about "productivity gains" - we are seeing them here, already.
With continued training and hard work, this project will successfully
transition your Company to the so-called "Age of Information."
We just can't wait to take advantage of it.
Platform For Change
We are designing this Information System to create a platform for change.
For the first time in our 92 years, everyone in the Company will be joined by
a computer. At first, in 1912, the Company was able to function well without
these sophisticated systems. Everyone worked in the same building, often in
the same room: manufacturing and sales and accounting, and there were 4
employees who were constantly talking to each other about each detail of the
business.
Today, however, we are a far-flung enterprise. Our typical branch location
might have 4 employees and be 1,500 miles away and rely for critical support
on dozens of other employees at other locations:
With the new system, each of those folks is as accessible as being in the
office next door. We will return to our roots as a small Company with a
shared organizational culture, with each employee having the ability to share
insights, problems, solutions, information with others - and to provide
assistance to each other in sales, manufacturing and accounting as easily as
the first employees did 90 years ago.
To bring this vision to life, our design work includes additional tools to
help our sales organization. Our goal is to help them:
* To provide more efficient customer service;
* To define and assess the effectiveness of sales promotions and special
pricing programs with speed and accuracy, and
* To direct more productive new customer solicitation with the basic goal of
increasing the size of the average sales invoice.
When we harness the power of these systems, we hope to become even more nimble
in the way we adapt to changes in our market; smarter in the way we apply our
resources; more efficient in the way we solicit and serve our customers; and
more proficient in how we select and retain our customers, products and
employees.
__________________________
We are not content merely to focus on these "back-to-the-basics" actions.
These are important to us in the near and the intermediate term, but we also
continue to investigate other ways to employ our capital and improve
shareholder value over the longer term.
Investment Bank
Last summer we hired an investment bank to help us evaluate where we are and
where we might want to go. Options under consideration include (but are not
limited to and are subject to market conditions and available opportunities)
the possibility of:
* Acquiring another Company;
* Making additional investments in production capabilities;
* Investing in expansions of our product lines;
* Making additional share repurchases; and
* The possibility of paying an extraordinary dividend.
While we will continue to seek out opportunities, for the immediate future and
in general:
* We have little interest in selling the Company;
* We have even less interest in taking the Company private;
* We have no interest in buying a Company that competes with our customers by
operating its own restaurants and retail outlets;
* We are reluctant to proceed with any business acquisition strategy until our
new information systems are in place and the organization is ready to
administer them and the acquisition. Doing so before we are ready is too
great a risk for us.
You are probably aware, as are we, of a number of studies that show that a
large number of acquisitions have failed to deliver value to their
shareholders; in fact they reduced shareholder value. Our goal is to create
value, and we will be very careful in how we commit our assets.
[Solomon Smith Barney looked at US companies making acquisitions between 1997-
99 and found their stock prices trailed the S&P 500 by 14% and their peer
groups by 4% after their deals were announced. PricewaterhouseCoopers studied
companies from 1994-97, finding the average acquirer's stock was 3.7 % lower
than its industry peers a year after announcing deals. A.T. Kearney looked at
115 global mergers in the mid-90s, finding that total return to shareholders
relative to the peer industry groups was negative for 58% of the deals. See
The Wall Street Journal, Oct. 20, 2000; Oct. 11, 1999; and note the WSJ
headline on Oct. 12, 1999: "Most Mergers Fail to Add Value, Consultants
Find."]
__________________________
Other Steps
I should note these other important steps:
* This year, we have two new directors whom many of you met for the first time
today. Each brings valuable insight and business acumen, from which we
already have benefited greatly. As these capable and principled individuals
become more knowledgeable of our operations, we believe they will contribute
an even greater wealth of ideas that will be crucial in coming years.
* We had another important transition in our board room this year: in 2003,
the board elected the third CEO in our history. The grandson of our founder,
and son of our Chairman, Roy Farmer has taken on the role with predictable
authority and thoughtfulness. We are lucky to have him.
* Mr. Farmer, our non-executive Chairman, is unfortunately unable to attend
today. This is the second time Mr. Farmer has missed our annual meeting since
1952. We hope to see him here soon, but we hear from him regularly, and Roy
meets with him weekly to discuss operations and strategies, so we know he's up
to date with our projects and our progress.
In addition to those changes, we ended 2003 with another important event. We
were fortunate enough to be able to acquire, on behalf of the Employee Stock
Ownership Plan, a large block of stock well below the market price. We think
this will have two very positive effects on our long term prospects:
* We removed a distraction and retired approximately 319,000 shares.
* As part of this re-purchase, we have been able to increase employee
ownership in the Company, through the ESOP, to the minimum level we envisioned
when we designed the plan in 1999: 300,000 shares, an ownership stake in the
Company of 18%.
Although the ESOP will be good for our employees, we believe it will benefit
all our shareholders.
According to many studies by the Employee Ownership Foundation, public
companies with an ESOP performed better than the broader market. The latest
study was the 12th Annual study of ESOP companies. Consistently over the 12
years of these studies, ESOP companies have outperformed the broader market
indices.
http://www.esopassociation.org/media/02_stock_lead.html
[The 12th Annual Study looked at stock performance in 2002: More than 80% of
the ESOP companies outperformed three major stock indices (the Dow Jones
Industrial Average, the NASDAQ Composite, and the S&P 500). Another 8%
outperformed at least once index. Only 3% of the ESOP companies performed
worse than all three indices. The Employee Ownership Foundation is funded by
ESOP companies.]
We are not, obviously, promising such results at Farmer Bros. But we believe
that, as our employees gain a meaningful ownership stake in the Company, their
interests will be clearly aligned with the interests of all long-term
shareholders - and those interests will be consistent with management's long-
term perspective.
Many investors take comfort when they learn that the people who lead a company
have "skin in the game" - that they have invested their own money along with
the shareholders. At Farmer Bros., the management and the employees are
owners. When shareholders benefit, everyone benefits.
__________________________
Long-Term Value
This remains a Company committed to delivering long-term value to our
shareholders. We commit to you that we will manage your Company with a focus
on the long term.
In summary, and repeating last year's closing, in the view of the management
of Farmer Brothers, good corporate governance means accepting the burden to
act responsibly in managing, on behalf of the owners, the Company's operations
and actions for the long-term benefit of our employees, customers and vendors
as well as shareholders.
Our record is here for everyone to see:
* We are profitable.
* Our balance sheet is exceptionally strong and this enables us to withstand
short-term economic set-backs and to invest to enhance shareholder value.
* We compete well and successfully against smaller firms - and against huge
conglomerates whose resources far exceed ours.
* We have attracted more than a thousand motivated and skilled employees who,
as part-owners, have a personal stake in its long-term prosperity. [As an
aside, as to their long term perspective: we are proud to note that 43% of our
employees have been with the Company for more than 10 years, and 20% for more
than 20 years, and 57 employees have seniority of 30 years or more.]
Finally, we have launched initiatives and programs that are designed to
position Farmer Brothers for the next 92 years of operation. We have every
reason to be confident of our success in this effort, and we're glad to have
you with us.
Farmer Bros. Annual Meeting Presentation (Feb. 23, 2003)
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 hereunto duly authorized.
FARMER BROS. CO.
s/ John E. Simmons
John E. Simmons
Treasurer
Date: February 23, 2004