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http://www.latimes.com/business/la-fi-farmer27dec27,0,4524238.story?coll=la%2Dheadlines%2Dbusiness%2Dmanual
Farmer Bros. Exec Defends Cash Hoarding
CFO tells shareholders the funds are needed for liquidity. Management
defeats disclosure plan.
By Jerry Hirsch
Times Staff Writer
December 27 2002
For months, management of Farmer Bros. Co. had steadfastly refused to tell
shareholders why it was building a huge cash hoard. Those who called the
Torrance-based coffee roaster and distributor to inquire would typically get
a response as cold as an iced latte.
On Thursday, though, that changed.
Speaking at the annual meeting, Chief Financial Officer John Simmons offered
an 11-page defense of Farmer's management practices, explaining why the
company is hanging on to $300 million in cash and securities -- an amount
that eclipses its $200 million in annual sales.
"Our cash is our working capital, our business-interruption insurance -- our
lifeline -- and we have always made sure it is liquid and safe," Simmons
told about 100 people gathered at the company's headquarters.
For some stockholders, Simmons' comments didn't go far enough, however.
In fact, his presentation came after Farmer management successfully rebuffed
a measure on the annual ballot that would have forced the company to make
greater financial disclosure. The plan had been offered by Franklin Mutual
Advisors, which holds nearly 10% of Farmer stock.
The proposal won about 30% of the shares voted at Thursday's meeting.
Management has voting control over 52% of the company's stock.
Shareholders' Push
Bradley Takahashi, a Franklin vice president who represented the mutual fund
at the meeting, said he would continue to push for more financial disclosure
from the company as long it remains public.
"Farmer Bros. is a legacy, and they want to run it as a private company," he
said. "They can take it private. That's the easiest way to address the
concerns of shareholders. We would really like to have a discussion with
management about that."
Jim Mitchell, who heads Mitchell Partners, a Costa Mesa money management
firm that supported Franklin's effort, said he was pleased that it received
"a significant amount of votes considering management's stake."
"Hopefully, management now understands the issues and concerns of the major
shareholders and will take some positive actions," he said.
Yet Simmons said the company was reluctant to disclose any information
beyond the bare minimum required by the Securities and Exchange Commission
because that would only help Farmer's competitors. Many of these rivals, he
noted, are privately held companies or divisions of large public concerns
such as Procter & Gamble Co. and thus not obligated to divulge much
financial information.
At the same time, Simmons did offer a rare peek into management's thinking.
Coffee is a commodity business, he explained, subject to wide fluctuations
in pricing. Having a pile of cash allows Farmer to survive droughts, freezes
and other climatic disasters that affect prices, he said.
The company also recently launched a two-year, $5-million overhaul of its
computer systems. When the project is completed, Simmons said Farmer may
look for acquisitions, which could be accomplished without borrowings,
thanks to its cash cushion.
"Tomorrow may bring a crisis or opportunity that would dissipate cash
rapidly, and we intend to have the liquidity to meet that crisis or seize
that opportunity," Simmons said.
Independent Director
Meanwhile Thursday, Farmer gave its dissident shareholders a post-Christmas
present in the form of a pledge to add an independent director to the
insular company's board.
Founded in 1912, Farmer has faced criticism in recent months for its lack of
independent board members.
Simmons acknowledged the concerns and said the company had begun the search
for an independent director and was committed to meeting new federal
regulations in that area.
This month, the Washington-based Investor Responsibility Research Center
said only one of Farmer Bros.' six directors -- Glendale accountant John
Merrell -- met its standards of independence.
And Institutional Shareholder Services, which advises more than 950
institutional and corporate clients on corporate governance issues, told
shareholders to withhold votes for Roy F. Farmer, the company's 86-year-old
chairman and chief executive; his son Roy E. Farmer, who is president of the
company; and Guenter Berger, Farmer's vice president of production.
The Rockville, Md., advisory service made its recommendations as a protest
over the lack of an independent nominating committee for the board but had
no expectations of unseating the incumbents.
Indeed, there were no opposing nominees. All six directors were reelected by
wide margins at the meeting.
Roy F. Farmer, who has missed at least half of the company's board meetings
over the last two years, is recovering from surgery and did not attend the
shareholders meeting.
Simmons said shareholders had little to complain about considering that the
company is profitable and debt-free.
Farmer Bros. shares fell $6.10 to close at $312.25 on Nasdaq on Thursday.
They have risen 18% this year.
Copyright 2002 Los Angeles Times
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