Farmer Brothers Company was selected for this Submission because their business

Farmer Brothers Company was selected for this Submission because their business model is
not complex, and their business success depends in part upon inventory management and the
effective use of fixed assets. Farmer Brothers Company is publicly traded, and its fiscal year
ends on June 30th. To avoid introducing complications caused by the extraordinary business
environment of fiscal years 2020 and 2021, the questions focus on operations in pre-Covid
fiscal years.
Part 1
Access the 10-K report filed on September 11, 2019, for the fiscal year ended June 30, 2019.
There are many ways to access a 10-K report. One way is through the website for the Securities
and Exchange Commission (sec.gov). To access the 10-K filings referred to in this module
submission, all you need to do is go to sec.gov and enter Farmer Brothers in the search box,
and then select “10-K (annual reports) and 10-Q (quarterly reports), and then select “View all
10-Ks and 10-Qs).
Scan the 10-K filing submitted by Farmer Brothers for the fiscal year ended June 30, 2019, to
become familiar with the contents and how the 10-K is organized. Then respond to the following
questions. Your responses should be concise.
1. How did Farmer Brothers describe their mission (i.e., what businesses were they in
during the fiscal year ended June 30, 2019)?
2. On pages 3 and 4 of the 10-K for the fiscal year ended June 30, 2019, Farmer
Brothers detailed their efforts to “Reduce Costs and Compete More Effectively.” (note: DSD
refers to direct store delivery) Farmer Brothers is a “price taker” and a relatively small player in a
big market. If they fail to control costs, they will fail as an organization. For a company like
Farmer Brothers, it can accurately be said that for the most part, “they don’t manage costs;
instead, they manage processes and costs are outcomes.”
2.A Based on the disclosures provided in the section “Reduce Costs and Compete More
Effectively,” provide three examples of initiatives undertaken by management that are intended
to utilize fixed costs more effectively.
2.B Based on the disclosures provided in the section “Reduce Costs and Compete More
Effectively,” provide three examples of initiatives undertaken by management intended to
manage variable costs more efficiently.
3. With regards to Property, Plant, and Equipment:
3.A What method(s) of depreciation did Farmer Brothers use in their 10-K filing for the year
ended June 30, 2019?
3.B What useful lives did they assign to their depreciable assets in their 10-K filing for the year
ended June 30, 2019?
3.C Farmer Brothers listed “capitalized software” as an asset. Explain what it means to have
“capitalized software.”
Part 2
For this question, refer to the Farmer Brothers’ 10-K filing for the fiscal year ended June 30,
2015. This 10-K was filed on September 14, 2015 (2015-09-14).
During the fiscal year ended June 30, 2015, Farmer Brothers used the LIFO method of
accounting for inventory. On page 26 of the 10-K filed for the 2015 fiscal year, the company
states: “As a result, we recorded 4.9 million in beneficial effect of liquidation of LIFO inventory
quantities in cost of goods sold in the fiscal year ended June 30, 2015, which reduced net loss
for the fiscal year ended June 30, 2015, by $4.9 million.”
1. Precisely explain the meaning of the sentence quoted above. In other words, what
information is being conveyed by this sentence?
2. Is $4.9 million a significant amount in relation to the net income reported by Farmer Brothers
for the fiscal year ended June 30, 2015? Explain.
Part 3
For this question, refer to the Farmer Brothers’ 10-K filing for the fiscal year ended June 30,
2018. This 10-K was filed on September 13, 2018 (2018-09-13).
During the fiscal year ended June 30, 2018, Farmer Brothers changed their inventory
accounting method from LIFO to FIFO. In Note 3, on pages 79 and 80 of the 10-K, the
Company describes the impact of their decision to change their method of accounting for
inventory. While Generally Accepted Principles of Accounting (GAAP) allow a company to
change accounting methods, the company must satisfy specific carefully stipulated disclosure
requirements. If a company changes from LIFO to FIFO as Farmer Brothers did, the company
must restate financial statements from all previous years included in their 10-K to reflect the new
FIFO method of accounting so that comparisons from year-to-year are consistent and not
affected by an underlying change in the choice of the method of accounting. In the case of a
change in inventory accounting from LIFO to FIFO, the company must increase (or decrease)
the carrying value of the inventory account to reflect their new method of accounting, and they
must also make a corresponding adjustment to the opening balance of retained earnings.
1. For the fiscal year ended JUNE 30, 2017, by how much did the dollar value of inventory
previously reported on June 30, 2017, under the LIFO method change due to the Company’s
decision to change to the FIFO method?
2. Did the change result in an increase or a decrease in the book value of the inventory reported
as of June 30, 2017?
Part 4
Select a company that filed a 10-K and consult their most recent 10-K filing. If you work for a
publicly traded company, you may wish to select this company. Or, you may want to select a
competitor, a major supplier, or a company you might invest in. The choice is yours. (note:
Groups may select one company, or instead, individuals within a group may collaborate on
previous parts of this Module Submission, and select different companies for Part 4.)
1. Why did you select this company?
2. Briefly (150 words or less) discuss one fact related to either inventory accounting or plant and
intangible asset accounting for the company you selected.
3. Briefly (150 words or less) discuss one disclosure from the company’s 10-K that you believe
has significance to investors and/or creditoluvrs who are stakeholders in this company.