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Farmer Brothers Co · 10-Q · For 9/30/13 · R7

Filed On 11/7/13, 5:14pm ET   ·   Accession Number 34563-13-52   ·   SEC File 1-34249

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  As Of                Filer                Filing    For/On/As Docs:Size

11/07/13  Farmer Brothers Co                10-Q        9/30/13   67:7.5M

Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    388K 
 2: EX-31.1     Certification per Sarbanes-Oxley Act (Section 302)  HTML     25K 
 3: EX-31.2     Certification per Sarbanes-Oxley Act (Section 302)  HTML     25K 
 4: EX-32.1     Certification per Sarbanes-Oxley Act (Section 906)  HTML     21K 
 5: EX-32.2     Certification per Sarbanes-Oxley Act (Section 906)  HTML     21K 
37: EXCEL       XBRL IDEA Workbook -- Financial Report (.xls)        XLS   1.13M 
13: EXCEL       XBRL IDEA Workbook -- Financial Report (.xlsx)      XLSX    159K 
66: R1          Document and Entity Information                     HTML     40K 
44: R2          Consolidated Balance Sheets                         HTML    170K 
41: R3          Consolidated Balance Sheets (Parenthetical)         HTML     42K 
14: R4          Consolidated Statements of Operations               HTML     82K 
43: R5          Consolidated Statements of Comprehensive Income     HTML     40K 
29: R6          Consolidated Statements of Cash Flows               HTML    120K 
57: R7          Summary of Significant Accounting Policies          HTML     51K 
30: R8          Derivative Financial Instruments (Notes)            HTML    147K 
32: R9          Investments                                         HTML     46K 
15: R10         Fair Value Measurements (Notes)                     HTML     87K 
31: R11         Restricted Cash (Notes)                             HTML     25K 
56: R12         Accounts and Notes Receivable, net                  HTML     33K 
52: R13         Inventories                                         HTML     53K 
42: R14         Employee Benefit Plans                              HTML     73K 
63: R15         Bank Loan                                           HTML     35K 
55: R16         Share-Based Compensation                            HTML     82K 
12: R17         Income Taxes                                        HTML     50K 
17: R18         Earnings (Loss) Per Share                           HTML     43K 
62: R19         Summary of Significant Accounting Policies          HTML     78K 
                          (Policies)                                             
65: R20         Income Taxes Classification of Interest and         HTML     26K 
                          Penalties (Policies)                                   
67: R21         Derivative Financial Instruments (Tables)           HTML    138K 
64: R22         Investments (Tables)                                HTML     42K 
47: R23         Fair Value Measurements (Tables)                    HTML     76K 
16: R24         Accounts and Notes Receivable, net (Tables)         HTML     31K 
28: R25         Inventories (Tables)                                HTML     49K 
21: R26         Employee Benefit Plans (Tables)                     HTML     60K 
20: R27         Share-Based Compensation (Tables)                   HTML     69K 
34: R28         Income Taxes (Tables)                               HTML     47K 
46: R29         Earnings (Loss) Per Share (Tables)                  HTML     41K 
53: R30         Summary of Significant Accounting Policies          HTML     41K 
                          (Details)                                              
26: R31         Derivative Financial Instruments - Narrative        HTML     47K 
                          (Details)                                              
35: R32         Derivative Financial Instruments - Fair Value of    HTML     32K 
                          Derivative Instruments on the                          
                          Consolidated Balance Sheets (Details)                  
61: R33         Derivative Financial Instruments - Pretax Effect    HTML     31K 
                          of Derivative Instruments on Earnings                  
                          and OCI (Details)                                      
23: R34         Derivative Financial Instruments - Net Realized     HTML     36K 
                          and Unrealized Gains and Losses Recorded               
                          in "Other, net" (Details)                              
50: R35         Derivative Financial Instruments - Schedule of      HTML     48K 
                          Offsetting Derivative Assets and                       
                          Liabilities (Details)                                  
51: R36         Investments - Narrative (Details)                   HTML     24K 
36: R37         Investments - Gross Unrealized Losses (Details)     HTML     27K 
19: R38         Fair Value Measurements - Assets and Liabilities    HTML     57K 
                          Measured and Recorded at Fair Value on a               
                          Recurring Basis (Details)                              
49: R39         Restricted Cash (Details)                           HTML     22K 
24: R40         Accounts and Notes Receivable, net - Schedule of    HTML     29K 
                          Accounts Receivable (Details)                          
33: R41         Inventories - Narrative (Details)                   HTML     22K 
54: R42         Inventories - Schedule of Inventory (Details)       HTML     32K 
27: R43         Employee Benefit Plans - Narrative (Details)        HTML     50K 
48: R44         Employee Benefit Plans - Components of Net          HTML     60K 
                          Periodic Benefit Cost and Amounts                      
                          Recognized in Other Comprehensive Income               
                          (Details)                                              
40: R45         Bank Loan (Details)                                 HTML     74K 
22: R46         Share-Based Compensation - Narrative (Details)      HTML     54K 
60: R47         Share-Based Compensation - Stock Option Activity    HTML     99K 
                          (Details)                                              
18: R48         Share-Based Compensation - Restricted Stock         HTML     71K 
                          Activity (Details)                                     
25: R49         Income Taxes - Narrative (Details)                  HTML     25K 
39: R50         Income Taxes - Summary of Income Tax Expense        HTML     37K 
                          Recorded (Details)                                     
45: R51         Income Taxes - Unrecognized Tax Benefits (Details)  HTML     25K 
58: R52         Earnings (Loss) Per Share (Details)                 HTML     53K 
38: XML         XBRL XML File -- Filing Summary                      XML    104K 
 6: EX-101.INS  XBRL Instance -- farm-20130930                       XML   1.58M 
 8: EX-101.CAL  XBRL Calculations -- farm-20130930_cal               XML    191K 
 9: EX-101.DEF  XBRL Definitions -- farm-20130930_def                XML    381K 
10: EX-101.LAB  XBRL Labels -- farm-20130930_lab                     XML   1.32M 
11: EX-101.PRE  XBRL Presentations -- farm-20130930_pre              XML    690K 
 7: EX-101.SCH  XBRL Schema -- farm-20130930                         XSD    139K 
59: ZIP         XBRL Zipped Folder -- 0000034563-13-000052-xbrl      Zip    181K 


R7   —   Summary of Significant Accounting Policies


This is an XBRL IDEA Report rendered in HTML by the SEC.  [ Alternative Formats ]



 
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Summary of Significant Accounting Policies
3 Months Ended
Accounting Policies [Abstract]  
Farmer Bros. Co. and Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Organization
Farmer Bros. Co., a Delaware corporation (including its consolidated subsidiaries unless the context otherwise requires, the “Company,” or “Farmer Bros.”), is a manufacturer, wholesaler and distributor of coffee, tea and culinary products. The Company is a direct distributor of coffee to restaurants, hotels, casinos, offices, quick service restaurants ("QSR's"), convenience stores, healthcare facilities and other foodservice providers, as well as private brand retailers in the QSR, grocery, drugstore, restaurant, convenience store and independent coffeehouse channels. The Company was founded in 1912, was incorporated in California in 1923, and reincorporated in Delaware in 2004. The Company operates in one business segment.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete consolidated financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals, unless otherwise indicated) considered necessary for a fair presentation of the interim financial data have been included. Operating results for the three months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2014. Events occurring subsequent to September 30, 2013 have been evaluated for potential recognition or disclosure in the unaudited consolidated financial statements for the three months ended September 30, 2013.
The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2013, filed with the Securities and Exchange Commission (the “SEC”) on October 9, 2013.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company reviews its estimates on an ongoing basis using currently available information. Changes in facts and circumstances may result in revised estimates and actual results may differ from those estimates.
Derivative Instruments
The Company purchases various derivative instruments as investments or to create economic hedges of its commodity price risk and interest rate risk. These derivative instruments consist primarily of futures and swaps. The Company reports the fair value of derivative instruments on its consolidated balance sheets in "Short-term investments," "Other assets," "Short-term derivative liability," or "Long-term derivative liability." The Company determines the current and noncurrent classification based on the timing of expected future cash flows of individual trades and reports these amounts on a gross basis. Additionally, the Company reports cash held on deposit in margin accounts for coffee-related derivative instruments on a gross basis.
The accounting for the changes in fair value of the Company's derivative instruments can be summarized as follows:  
Derivative Treatment
  
Accounting Method
Normal purchases and normal sales exception
  
Accrual accounting
Designated in a qualifying hedging relationship
  
Hedge accounting
All other derivatives
  
Mark-to-market accounting
The Company enters into green coffee purchase commitments at a fixed price or at a price to be fixed (“PTF”). PTF contracts are purchase commitments whereby the quality, quantity, delivery period, price differential to the coffee "C" market price and other negotiated terms are agreed upon, but the price at which the base “C” market price will be fixed has not yet been established. The coffee "C" market price is fixed at some point after the purchase contract date and before the futures market closes for the delivery month and may be fixed either at the direction of the Company to the vendor, or by the application of a derivative that was separately purchased as a hedge. For both fixed-price and PTF contracts, the Company expects to take delivery of and to utilize the coffee in a reasonable period of time and in the conduct of normal business. Accordingly, these purchase commitments qualify as normal purchases and are not recorded at fair value on the Company's consolidated balance sheets.
Prior to April 1, 2013, the Company had no derivative instruments that were designated as accounting hedges. Beginning April 1, 2013, the Company implemented procedures following the guidelines of ASC 815, "Derivatives and Hedging" ("ASC 815"), to enable it to account for certain coffee-related derivatives as accounting hedges in order to minimize the volatility created in the Company's quarterly results from utilizing these derivative contracts and to improve comparability between reporting periods. For a derivative to qualify for designation in a hedging relationship, it must meet specific criteria and the Company must maintain appropriate documentation. The Company establishes hedging relationships pursuant to its risk management policies. The hedging relationships are evaluated at the inception of the hedging relationship and on an ongoing basis to determine whether the hedging relationship is, and is expected to remain, highly effective in achieving offsetting changes in fair value or cash flows attributable to the underlying risk being hedged. The Company also regularly assesses whether the hedged forecasted transaction is probable of occurring. If a derivative ceases to be or is no longer expected to be highly effective, or if the Company believes the likelihood of occurrence of the hedged forecasted transaction is no longer probable, hedge accounting is discontinued prospectively, and future changes in the fair value of the derivative are recognized currently in “Other, net.”
For commodity derivatives designated as cash flow hedges, the effective portion of the change in fair value of the derivative is reported as accumulated other comprehensive income (“AOCI”) and subsequently reclassified into cost of goods sold in the period or periods when the hedged transaction affects earnings. Any ineffective portion of the derivative's change in fair value is recognized currently in “Other, net.” Gains or losses deferred in AOCI associated with terminated derivatives, derivatives that cease to be highly effective hedges, derivatives for which the forecasted transaction is reasonably possible but no longer probable of occurring, and cash flow hedges that have been otherwise discontinued remain in AOCI until the hedged item affects earnings. If it becomes probable that the forecasted transaction designated as the hedged item in a cash flow hedge will not occur, any gain or loss deferred in AOCI is recognized in “Other, net” at that time. For derivative instruments that are not designated in a hedging relationship, and for which the normal purchases and normal sales exception has not been elected, the changes in fair value are reported in “Other, net.”
The following gains and losses on derivative instruments are netted together and reported in “Other, net” in the Company's consolidated statement of operations:

Gains and losses on all derivatives that are not designated as cash flow hedges and for which the normal purchases and normal sales exception has not been elected; and
The ineffective portion of unrealized gains and losses on derivatives that are designated as cash flow hedges.
The fair value of derivative instruments is based upon broker quotes. At September 30, 2013, approximately 90% of the Company's outstanding coffee-related derivative instruments were designated as cash flow hedges (see Note 2). At September 30, 2012, no derivative instruments were designated as accounting hedges.     
Coffee Brewing Equipment and Service
The Company classifies certain expenses related to coffee brewing equipment provided to customers as cost of goods sold. These costs include the cost of the equipment as well as the cost of servicing that equipment (including service employees’ salaries, cost of transportation and the cost of supplies and parts) and are considered directly attributable to the generation of revenues from its customers. Accordingly, such costs included in cost of goods sold in the accompanying consolidated financial statements for the three months ended September 30, 2013 and 2012 are $6.5 million and $5.8 million, respectively.
The Company has capitalized coffee brewing equipment in the amounts of $3.1 million and $1.9 million in the three months ended September 30, 2013 and 2012, respectively. During the three months ended September 30, 2013 and 2012, the Company had depreciation expense related to the capitalized coffee brewing equipment reported as cost of goods sold in the amounts of $2.9 million and $3.3 million, respectively.
Revenue Recognition
Most product sales are made “off-truck” to the Company’s customers at their places of business by the Company’s sales representatives. Revenue is recognized at the time the Company’s sales representatives physically deliver products to customers and title passes or when it is accepted by the customer when shipped by third-party delivery.
The Company sells roast and ground coffee and tea to The J.M. Smucker Company ("J.M. Smucker") pursuant to a co–packing agreement. The Company recognizes revenue from the co-packing arrangement for the sale of tea on a net basis, net of direct costs of revenue, since the Company acts as an agent of J.M. Smucker in such transactions. As of September 30, 2013 and June 30, 2013, the Company had $0.4 million and $0.3 million, respectively, of receivables relating to this arrangement which are included in "Other receivables" (see Note 6).
Earnings (Loss) Per Common Share
Basic earnings (loss) per share (“EPS”) represents net earnings attributable to common stockholders divided by the weighted-average number of common shares outstanding for the period, excluding unallocated shares held by the Company's Employee Stock Ownership Plan ("ESOP"). Diluted EPS represents net earnings attributable to common stockholders divided by the weighted-average number of common shares outstanding, inclusive of the dilutive impact of common equivalent shares outstanding during the period. However, nonvested restricted stock awards (referred to as participating securities) are excluded from the dilutive impact of common equivalent shares outstanding in accordance with authoritative guidance under the two-class method. The nonvested restricted stockholders are entitled to participate in dividends declared on common stock as if the shares were fully vested and hence are deemed to be participating securities. Under the two-class method, earnings (loss) attributable to nonvested restricted stockholders are excluded from net earnings (loss) attributable to common stockholders for purposes of calculating basic and diluted EPS. Computation of EPS for the three months ended September 30, 2013 and 2012 includes the dilutive effect of 58,205 and 0 shares, respectively, issuable under stock options (see Note 12).
Dividends Declared
Although historically the Company has paid a dividend to stockholders, in light of the Company’s current financial position, the Company’s Board of Directors has omitted the payment of a quarterly dividend since the third quarter of fiscal 2011. The amount, if any, of dividends to be paid in the future will depend upon the Company’s then available cash, anticipated cash needs, overall financial condition, loan agreement restrictions, future prospects for earnings and cash flows, as well as other relevant factors.
Impairment of Indefinite-lived Intangible Assets
The Company performs its annual impairment test of goodwill and/or other indefinite-lived intangible assets as of June 30. Goodwill and other indefinite-lived intangible assets are not amortized but instead are reviewed for impairment annually and on an interim basis if events or changes in circumstances between annual tests indicate that an asset might be impaired. Indefinite-lived intangible assets are tested for impairment by comparing their fair values to their carrying values.
In addition to an annual test, indefinite-lived intangible assets must also be tested on an interim basis if events or circumstances indicate that the estimated fair value of such assets has decreased below their carrying value. There were no such events or circumstances during the three months ended September 30, 2013.
Long-Lived Assets, Excluding Indefinite-lived Intangible Assets
The Company reviews the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Long-lived assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The estimated future cash flows are based upon, among other things, assumptions about expected future operating performance, and may differ from actual cash flows. If the sum of the projected undiscounted cash flows (excluding interest) is less than the carrying value of the assets, the assets will be written down to the estimated fair value in the period in which the determination is made. There were no such events or circumstances during the three months ended September 30, 2013.
Recently Adopted Accounting Standards
In February 2013, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2013-02, “Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income” ("ASU 2013-02"), an update to the authoritative guidance related to the reporting of amounts reclassified out of accumulated other comprehensive income. This new requirement about presenting information about amounts reclassified out of accumulated other comprehensive income and their corresponding effect on net income will present, in one place, information about significant amounts reclassified and, in some cases, cross-references to related footnote disclosures. The disclosure amendments in this update are effective prospectively for fiscal years (and interim periods within those years) beginning after December 15, 2012 and early adoption is permitted. The Company adopted ASU 2013-02 beginning July 1, 2013.  Adoption of ASU 2013-02 did not have a material effect on the results of operations, financial position or cash flows of the Company.
In February 2013, the FASB issued ASU No. 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” ("ASU 2013-01"). The amendments limit the scope of ASU No. 2011-11, “Disclosures about Offsetting Assets and Liabilities” ("ASU 2011-11"), to certain derivative instruments (including bifurcated embedded derivatives), repurchase agreements and reverse repurchase agreements, and securities borrowing and lending arrangements that are either (1) offset on the balance sheet or (2) subject to an enforceable master netting arrangement or similar agreement. The requirements as initially written in ASU 2011-11 would have applied more broadly than intended. The disclosure amendments in this update are effective prospectively for fiscal years (and interim periods within those years) beginning after January 1, 2013. The amendments will be applied retrospectively for all comparative periods presented on the balance sheet. The Company adopted ASU 2013-01 beginning July 1, 2013. Adoption of ASU 2013-01 did not have a material effect on the results of operations, financial position or cash flows of the Company.
In July 2012, the FASB issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” ("ASU 2012-02"), an update to the authoritative guidance related to the impairment testing of indefinite-lived intangible assets. Similar to the guidance for goodwill impairment testing, companies will have the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying value. The guidance provides companies with a revised list of examples of events and circumstances to consider, in their totality, to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount. If a company concludes that this is the case, the company is required to perform the quantitative impairment test by comparing the fair value with the carrying value. Otherwise, a company can skip the quantitative test. Companies are not required to perform the qualitative assessment and are permitted to skip the qualitative assessment for any indefinite-lived asset in any period and proceed directly to the quantitative impairment test. The company may resume performing the qualitative assessment in any subsequent period. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company adopted ASU 2012-02 beginning July 1, 2013. Adoption of ASU 2012-02 did not to have a material effect on the results of operations, financial position or cash flows of the Company.
New Accounting Pronouncements
In July 2013, the FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists" ("ASU 2013-11"). An entity is required to present unrecognized tax benefits as a decrease in net operating loss, similar tax loss or tax credit carryforward if certain criteria are met. The determination of whether a deferred tax asset is available is based on the unrecognized tax benefit and the deferred tax asset that exists at the reporting date and presumes disallowance of the tax position at the reporting date. The guidance will eliminate the diversity in practice in the presentation of unrecognized tax benefits but will not alter the way in which entities assess deferred tax assets for realizability. This update is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2013 and will be effective for the Company beginning July 1, 2014. Adoption of ASU 2013-11 is not expected to have a material effect on the results of operations, financial position or cash flows of the Company.

Dates Referenced Herein   and   Documents Incorporated By Reference

This 10-Q Filing   Date   Other Filings
9/15/12
9/30/1210-Q
12/15/12
1/1/13
4/1/138-K
6/30/1310-K
7/1/138-K
For The Period Ended9/30/138-K
10/9/1310-K, 8-K
Filed On / Filed As Of11/7/13
12/15/13
6/30/14
7/1/14
 
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