Farmer Bros. Co. Reports Net Loss For Fourth Quarter And Fiscal Year

Farmer Bros. Co. reported a net loss of $22.3 million, or $1.47 per share, for its fiscal fourth quarter ended June 30, 2011, compared with a net loss of $21.0 million, or $1.40 per share, for its prior year fiscal fourth quarter. For the full fiscal year ended June 30, 2011, the company reported a net loss of $54.3 million, or $3.61 per share, compared with a net loss of $24.0 million, or $1.61 per share, in the prior fiscal year. As explained below, excluding the impact of accounting for the increase in the company's LIFO (last-in-first-out) reserve, the company's net loss would have been substantially lower compared with the prior year.

Net sales for fiscal 2011 increased $13.6 million, or 3 percent, to $463.9 million from $450.3 million in the prior fiscal year, primarily due to increases in list prices of the company's coffee, cappuccino, cocoa and selected spice products, offset in part by the effect of a decrease in the number of customers who purchased the company's products compared to the prior fiscal year.

Cost of goods sold in fiscal 2011 increased $54.0 million, or 21 percent, to $306.8 million, or 66 percent of sales, from $252.8 million, or 56 percent of sales, in fiscal 2010 primarily due to the increase in the cost of green coffee beans. The company's green coffee costs increased 80 percent in fiscal 2011 compared to the prior fiscal year, reflective of a similar increase in the green coffee market during the same period. Cost of goods sold in fiscal 2011 included $40.3 million in LIFO charge compared to $1.0 million in LIFO charge in the prior fiscal year. Cost of goods sold was also impacted by an increase in the cost of coffee brewing equipment and service costs, and changes in the mix of customers and the products the company sells to them.

Interim co-CEO and chief financial officer, Jeffrey Wahba, said in a prepared statement, "Unlike most of our publicly traded competitors, we have historically valued our coffee, tea and culinary product inventory on a LIFO method of valuation rather than on a first-in-first-out (FIFO) basis. The rapidly escalating coffee prices of the recent past had a significant impact on our cost of goods sold for fiscal 2011, particularly when reporting on a LIFO basis. Excluding the impact of LIFO on our operations, our fiscal 2011 reported net loss would have improved by the amount of the LIFO charge which is over $40 million. We believe that the $21.1 million improvement in Adjusted EBITDAE from $(3.1) million in fiscal 2010 to $18.0 million in fiscal 2011 is a good indication of the progress the company has been able to achieve with the integration of the former Sara Lee DSD coffee business operations we acquired." The company now has a LIFO reserve of $70.0 million.

Operating expenses, excluding the impact of non-cash impairment loss on intangible assets, decreased $19.0 million, or 8.0 percent, in fiscal 2011 compared to fiscal 2010. The reduction in operating expenses in fiscal 2011, as compared to the prior fiscal year, is primarily due to lower payroll and related expenses resulting from a reduction in the number of employees offset in part by higher freight and fuel costs, and severance costs associated with the reduction in headcount of approximately 200 employees in the amount of $3.1 million. Total operating expenses in fiscal 2011 including $7.8 million in non-cash impairment losses on intangible assets decreased $11.2 million to $225.6 million, or 49 percent of sales, from $236.8 million, or 53 percent of sales, in fiscal 2010.

Interim co-CEO, Patrick Criteser said, "As we enter fiscal 2012, we believe the company is well positioned to meet the challenges of a fluctuating coffee market and competitive environment. We have trimmed our operating expenses, have developed a more sophisticated methodology to hedge our coffee costs and have positioned our sales organization to more effectively compete in the marketplace. We are excited about the prospects for the new fiscal year."

Total other income in fiscal 2011 was $4.9 million compared to $12.7 million in fiscal 2010. The decrease in total other income was primarily due to lower net realized and unrealized gains on a smaller investment portfolio and higher interest expense related to borrowings under our revolving credit line in fiscal 2011 as compared to fiscal 2010.

The company recorded an income tax benefit of $9.2 million in fiscal 2011 compared to $2.5 million in fiscal 2010. Income tax benefit recorded in fiscal 2011 was related to the gain on postretirement benefits and income tax benefit recorded in fiscal 2010 was primarily attributable to federal legislation allowing a five year net operating loss carryback period for net operating losses incurred in tax years that ended in 2008 and 2009.

 

 

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