Forum Report: Another Quarterly Loss and More Takeover Defenses

Forum Report: Another Quarterly Loss and More Takeover Defenses

(May 9, 2005)

From: Gary Lutin

To: Distribution: Farmer Bros. Forum

Sent: Monday, May 09, 2005 5:40 PM

Subject: Quarterly report discloses more losses, more takeover defenses

Farmer Bros. filed its Form 10-Q quarterly report with the SEC late this afternoon, the operating summary of which is copied below.

As indicated, the company lost money on operations for the quarter ended March 31. The company also lost money, again, on hedging investments, bringing its nine month net to a $13 million loss. Following is management's explanation of the hedging losses:

For the first nine months of fiscal 2005, Other, net (expense) was

($11,241,000), as compared to Other, net income of $6,149,000 for the same

period of fiscal 2004. Higher green coffee prices during the second and third

quarters of fiscal 2005 resulted in a decrease in the value of green coffee

futures and options used by the Company to hedge against a decline in commodity

prices. Other, net (expense) income during the first nine months of fiscal

2005 consisted of net realized and unrealized coffee trading losses of

($12,992,000), offset by net gains on other investments. The net realized and

unrealized losses during the nine month period ended March 31, 2005 consisted

of the following (in thousands):

Nine month period

ended

March 31, 2005

Realized coffee gains $3,616

Realized coffee losses ($16,862)

Unrealized coffee gains 254

Totals ($12,992)

The Form 10-Q also includes a statement in its appended list of exhibits (for number 10.7), but not in the text section, disclosing that "[o]n January 28, 2005 the Company entered into Change in Control Severance Agreements with each of the following officers: Guenter Berger, Michael J. King and John E. Simmons." There was no reference to these agreements in the company's March 18, 2005 announcement of its adoption of the poison pill takeover defense, and a word search of the company's EDGAR filings shows no prior reference to these agreement in any of its SEC reports.

Please let me know if you have any questions or comments.

Gary Lutin
Lutin & Company
575 Madison Avenue, 10th Floor
New York, New York 10022
Tel: 212-605-0335
Fax: 212-605-0325
Email: gl@shareholderforum.com

From SEC Form 10-Q filed by Farmer Bros. Co. 5/9/05

http://www.sec.gov/Archives/edgar/data/34563/000003456305000019/0000034563-05-000019.txt

FARMER BROS. CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

For the three months For the nine months

ended March 31, ended March 31,

2005 2004 2005 2004

Net sales $50,271 $49,069 $148,199 $146,245

Cost of goods sold 20,928 18,488 59,319 53,459

Gross profit 29,343 30,581 88,880 92,786

Selling expense 23,943 22,735 68,492 68,019

General and administrative expense 7,567 7,103 20,854 19,843

Operating expenses 31,510 29,838 89,346 87,862

(Loss) income from operations (2,167) 743 ( 466) 4,924

Other expense and income:

Dividend income 850 844 2,584 2,527

Interest income 738 935 1,799 2,156

Other, net (expense) income (3,019) 4,980 (11,241) 6,149

(1,431) 6,759 (6,858) 10,832

(Loss) income before taxes (3,598) 7,502 (7,324) 15,756

Income taxes (benefit) (4,454) 1,899 (5,609) 5,077

Net income(loss) $ 856 $5,603 ($1,715) $10,679

Net income (loss) per common share $0.06 $0.42 ($0.13) $0.66

Weighted average

shares outstanding 13,687,840 13,457,300 13,621,390 16,266,410

Dividends declared per share $0.10 $0.095 $0.30 $0.29