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Market Commentary: Standard Investment Chartered

(May 24, 2004)

Standard Investment Chartered, Inc., a securities firm recognized for its expertise in thinly traded companies, has granted its permission for Forum use of the firm's May 24, 2004 "Market Commentary" report on thinly traded securities, which includes a section on Farmer Bros. Co.  The Commentary addresses questions presented to the board about the company's recently reported performance, and refers to Standard Investment's 2003 equity valuation analysis of Farmer Bros.

The text of the section on Farmer Bros. is copied below, and the complete Commentary can be downloaded from the following link:




Member . NASD. SPIC



Thinly Traded Securities

Market Commentary

May 24, 2004

2801 Bristol Street, Suite 100

Costa Mesa, California 92626


Jack Norberg (800) 746-5743

Jan Koltai –Trading Desk (714) 444-0033

Richard Dixon – Arbitrage (714) 444-4300







Farmer Brothers Company (FARM: $25.73):


Disappointing Sales: The company reported earnings for the third quarter ended March 31, 2004 of $5.6 million or $0.42 per share. This compares with earnings of $6.3 million for the same period last year, or $0.35 per share on a split-adjusted basis. The trend in revenues was essentially flat at $49.0 million in the third quarter of 2004 compared with $49.2 million last year.


Regarding the slight decline in revenue to $49.0 million in the current quarter compared with $49.2 million in the comparable 2003 quarter, management states again that "the sales trend continues to reflect general economic conditions." There is no explanation of what economic conditions they refer to, how those conditions effect Farmer Bros., and why those conditions do not affect other coffee companies or food distributors. Following is what was reported by the three companies, for comparison purposes, showing the date of the quarterly report and the change in sales and income from the previous year's comparable quarter:





Green Mountain (GMCR)

Peet's Coffee (PEET)

Sysco (SYY)



May 6, 2004

April 28, 2004

April 26, 2004











Source: Lutin & Company

Share Price Decline: Farmers May 13th report of quarterly results raised serious concerns among Farmer Bros. Shareholders. The news triggered an immediate 20% drop in the stock’s market price, sending the shares down to a new 12 month low. The report suggests that the company’s coffee business is shrinking rather than growing, and that management is either unable or unwilling to present a recovery strategy.





Shareholder Dissatisfaction: In a letter addressed to Farmer’s directors, Gary Lutin, conductor of the Forum for Shareholders of Farmer Brothers Co., raises several critical issues that need to be addressed by Management. These include, but are not limited to declining sales, shrinking service area, deferral of strategic initiatives and lack of full disclosure concerning the risks associated with investments in hedging and derivatives transactions. The complete text of the letter is available on the internet and can be found at


Farmer Brothers disappointing operating results and failing stock price lend more credence to the argument that public shareholder’s interest would be best served by selling the company through a “going private” transaction. For further analysis of Farmer Brothers operations, valuations and investment rationale please see the Standard Investment Chartered research report published May 22, 2003.




The material contained herein was prepared by Standard Investment Chartered, Inc., 2801 Bristol St., Suite 101, Costa Mesa, California 92626. Phone (714) 444-4300. The information presented herein has been obtained from sources believed to be reliable but no guarantees or representations are made or intended as to accuracy or completeness. In and of itself, this report should not be construed as a solicitation for the purchase or sale of securities inasmuch as such investment decisions should also take into account a potential investor’s objectives, risk tolerance, investment experience, financial resources, and other factors relevant to determining the suitability of a potential transaction. Any opinion expressed herein is as of the date this report is written and subject to change without notice as corporate events and market conditions change. Standard Investment Chartered, Inc., or its employees, officers, directors or shareholders, including the author of this report, may own or buy and sell the securities referred to herein. Past performance in neither a guarantee nor an indication of future profits or losses.



The Forum is open to all Farmer Bros. shareholders, whether institutional or individual, and to professionals concerned with their investment decisions.  Its purpose is to provide shareholders with access to information and a free exchange of views on issues relating to their evaluations of alternatives.  As stated in the Forum's Conditions of Participation, participants are expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

There is no charge for participation.  Franklin Mutual Advisers, LLC, the manager of funds owning approximately 12.6% of Farmer Bros. shares, provided initial sponsorship for the Forum and arranged for it to be chaired by Gary Lutin.  Continuing support and guidance of the Forum is provided by an Advisory Panel of actively interested shareholders.

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