Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Aug. 31, 2013 |
Accounting Policies [Abstract] | ' |
Basis of Presentation | ' |
Basis of Presentation |
The accompanying consolidated financial statements include the accounts of Penford and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated. Certain reclassifications have been made to prior years’ financial statements in order to conform to the current year presentation. |
Use of Estimates | ' |
Use of Estimates |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates are used in accounting for, among other things, the allowance for doubtful accounts, accruals, legal contingencies, the determination of fair value of net assets acquired in a business combination, the determination of assumptions for pension and postretirement employee benefit costs, useful lives of property and equipment, the assessment of a potential impairment of goodwill or long-lived assets, and income taxes including the determination of a need for a valuation allowance for deferred tax assets. Actual results may differ from previously estimated amounts. |
Cash and Cash Equivalents | ' |
Cash and Cash Equivalents |
Cash and cash equivalents consist of cash and temporary investments with maturities of less than three months when purchased. Amounts are reported in the balance sheets at cost, which approximates fair value. |
Cash Overdrafts | ' |
Cash Overdrafts |
Cash overdrafts represent the amount by which outstanding checks issued, but not yet presented to banks for disbursement, exceed balances on deposit in the applicable bank accounts. The changes in cash overdrafts are included as a component of cash flows from financing activities in the consolidated statements of cash flows. |
Allowance for Doubtful Accounts and Concentration of Credit Risk | ' |
Allowance for Doubtful Accounts and Concentration of Credit Risk |
The Company records accounts receivable at net realizable value, which includes an allowance for doubtful accounts to reflect any loss anticipated on the accounts receivable balances. The allowance for doubtful accounts reflects the Company’s best estimate of probable losses in the accounts receivable balances. Penford estimates the allowance for uncollectible accounts based on historical experience, known troubled accounts, industry trends, economic conditions, how recently payments have been received, and ongoing credit evaluations of its customers. Activity in the allowance for doubtful accounts for fiscal 2013, 2012 and 2011 is as follows (dollars in thousands): |
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| | Balance | | | Charged to | | | Deductions | | | Balance | |
Beginning of | Costs and | and Other | End of Year |
Year | Expenses | | |
Year ended August 31: | | | | | | | | | | | | | | | | |
2013 | | $ | 78 | | | $ | 241 | | | $ | (39 | ) | | $ | 280 | |
2012 | | $ | 1,305 | | | $ | (42 | ) | | $ | (1,185 | ) | | $ | 78 | |
2011 | | $ | 350 | | | $ | 958 | | | $ | (3 | ) | | $ | 1,305 | |
Approximately 38%, 36% and 34% of the Company’s sales in fiscal 2013, 2012 and 2011, respectively, were made to customers who operate in the paper industry. This industry suffered an economic downturn, which has resulted in the closure of a number of mills. In fiscal 2011, the increase in the allowance for uncollectible accounts was related to two paper industry customers. These receivables were written off in fiscal 2012. |
Inventories | ' |
Inventories |
Inventories are stated at the lower of cost or net realizable value. Costs are determined using the first-in, first-out (“FIFO”) method. Capitalized costs include materials, labor and manufacturing overhead related to the purchase and production of inventories. |
Property, Plant and Equipment | ' |
Property, Plant and Equipment |
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The Company’s property consists primarily of plants and equipment used for manufacturing activities. Property, plant and equipment are recorded at cost less accumulated depreciation. Expenditures for maintenance and repairs are expensed as incurred. The Company uses the straight-line method to compute depreciation expense over the estimated useful lives of the depreciable assets. Equipment and vehicles generally have average useful lives ranging from three to twelve years and real estate between twelve to forty-six years. Depreciation, which includes depreciation of assets under capital leases, of $12.8 million, $12.7 million and $12.8 million was recorded in fiscal years 2013, 2012 and 2011, respectively. For income tax purposes, the Company generally uses accelerated depreciation methods. |
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Interest is capitalized on major construction projects while in progress. During fiscal years 2013 and 2012, the Company capitalized $107,000 and $48,000, respectively, in interest costs. No interest was capitalized in fiscal 2011. |
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The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is recognized when estimated expected undiscounted future cash flows are less than the carrying amount of the assets. To the extent that impairment has occurred, the excess of the carrying amount of long-lived assets over its estimated fair value would be recognized as an impairment loss charged to earnings. |
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Goodwill and Other Intangible Assets | ' |
Goodwill and Other Intangible Assets |
Goodwill represents the excess of cost over the fair value of net assets acquired. The Company evaluates its goodwill for impairment annually as of June 1 and whenever events or circumstances make it more likely than not that impairment may have occurred. To determine whether goodwill is impaired, Penford compares the fair value of each reporting unit to that reporting unit’s carrying amount. If the fair value of the reporting unit is greater than its carrying amount goodwill is not considered impaired. If the fair value of the reporting unit is lower than its carrying amount, Penford then compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill, and, if the carrying value is higher than the fair value, an impairment charge would be recorded. The implied fair value of a reporting unit is determined using a discounted cash flow method considering the Company’s market capitalization. |
Definite-lived intangible assets, primarily patents, are amortized using the straight-line method over their expected economic useful lives. At August 31, 2013, the weighted average remaining amortization period for patents is five years. Penford has no intangible assets with indefinite lives. |
Accrued Liabilities | ' |
Accrued Liabilities |
Components of accrued liabilities are as follows (dollars in thousands): |
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| | August 31, | | | | | | | | | |
| | 2013 | | | 2012 | | | | | | | | | |
Employee-related costs | | $ | 3,931 | | | $ | 4,837 | | | | | | | | | |
Other | | | 4,276 | | | | 3,400 | | | | | | | | | |
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Accrued liabilities | | $ | 8,207 | | | $ | 8,237 | | | | | | | | | |
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Employee-related costs include accrued payroll, compensated absences, payroll taxes, benefits and incentives. |
Revenue Recognition | ' |
Revenue Recognition |
Revenue from sales of products and shipping and handling revenue are recognized at the time goods are shipped and title transfers to the customer. This transfer is considered complete when a sales agreement is in place, delivery has occurred, pricing is fixed or determinable and collection is reasonably assured. Proceeds from the sale of by-products from the Company’s corn wet milling operations are classified as sales in the Statements of Operations. Costs associated with shipping and handling are included in cost of sales. |
Significant Customer and Export Sales | ' |
Significant Customer and Export Sales |
The Company has several relatively large customers in each business segment. The Company’s sales of ethanol to its sole ethanol customer, Eco-Energy, Inc., represented approximately 21%, 24% and 28% of the Company’s net sales for fiscal years 2013, 2012 and 2011, respectively. Eco-Energy, Inc. is a marketer and distributor of biofuels in the United States and Canada, is a customer of the Company’s Industrial Ingredients business. Export sales accounted for approximately 8.0%, 7.6% and 7.2% of consolidated sales in fiscal years ended August 31, 2013, 2012 and 2011, respectively. |
Derivatives | ' |
Derivatives |
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Penford uses derivative instruments to manage the exposures associated with commodity prices, interest rates and energy costs. The derivative instruments are reported at fair value in other current assets or current liabilities in the consolidated balance sheets. The Company offsets the fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from derivative instruments recognized at fair value executed with the same counterparty under a master netting arrangement. |
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For derivative instruments designated and qualifying as fair value hedges, the gain or loss on the derivative instruments as well as the offsetting gain or loss on the hedged firm commitments or inventory are recognized in current earnings as a component of cost of goods sold. For derivative instruments designated and qualifying as cash flow hedges, the effective portion of the gain or loss on the derivative instruments is reported as a component of other comprehensive income (loss), net of applicable income taxes, and recognized in earnings when the hedged exposure affects earnings. The Company recognizes the gain or loss on the derivative instrument as a component of cost of goods sold in the period when the finished goods produced from the hedged item are sold or, for interest rate swaps, as a component of interest expense in the period the forecasted transaction is reported in earnings. If it is determined that the derivative instruments used are no longer effective at offsetting changes in cash flows or fair value of the hedged item, then the changes in fair value would be recognized in current earnings as a component of cost of good sold or interest expense. |
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Research and Development | ' |
Research and Development |
Research and development costs are expensed as incurred, except for costs of patents, which are capitalized and amortized over the lives of the patents. The Company’s research and development expenditures primarily consists of internal salaries, wages, consulting and supplies attributable to time spent on research and development activities. Other costs include depreciation and maintenance of research and development facilities and equipment, including assets at manufacturing locations that are engaged in pilot plant activities. Research and development costs expensed were $5.9 million, $5.8 million and $4.8 million in fiscal 2013, 2012 and 2011, respectively. |
Stock-Based Compensation | ' |
Stock-Based Compensation |
The Company has a long-term incentive plan that provides for stock-based compensation, including the granting of stock options and shares of restricted stock to employees and directors. The Company utilizes the Black-Scholes option-pricing model to determine the fair value of stock options on the date of grant. This model derives the fair value of stock options based on certain assumptions related to expected stock price volatility, expected option life, risk-free interest rate and dividend yield. The grant date fair value of restricted stock awards is equal to the market price of the Company’s common stock at the grant date. |
The Company recognizes stock-based compensation expense utilizing the accelerated multiple options approach over the requisite service period, which equals the vesting period. See Note 11 for further detail. |
Income Taxes | ' |
Income Taxes |
The provision for income taxes includes federal and state taxes currently payable and deferred income taxes arising from temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured pursuant to tax laws using the rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The impact on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment. |
A valuation allowance is provided to the extent that it is more likely than not that deferred tax assets will not be realized. Tax benefits from uncertain tax positions are recognized when it is more likely than not that the position will be sustained upon examination based on the technical merits of the position. The amount recognized is measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalty expense associated with uncertain tax positions as a component of income tax expense. |
The Company has not provided deferred taxes related to its investment in foreign subsidiaries, which are classified as discontinued operations, as it does not expect future distributions from the subsidiaries or repayments of permanent advances. |
Foreign Currency | ' |
Foreign Currency |
Assets and liabilities of subsidiaries whose functional currency is deemed to be other than the U.S. dollar are translated at year end rates of exchange. Resulting translation adjustments are accumulated in the currency translation adjustments component of other comprehensive income. Statement of operations amounts are translated at average exchange rates prevailing during the year. Foreign currency transaction gains or losses in fiscal years 2013, 2012 and 2011 were not significant. |
Acquisitions | ' |
Acquisitions |
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Acquisitions of businesses are accounted for using the acquisition method of accounting and the financial statements include the results of the acquired operations from the date of acquisition. The purchase price of the acquired entity is allocated to the net assets acquired and net liabilities assumed based on the estimated fair value at the date of acquisition. The excess of cost over the fair value of the net assets acquired is recognized as goodwill. |
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Recent Accounting Pronouncements | ' |
Recent Accounting Pronouncements |
In June 2011, the Financial Accounting Standards Board (“FASB”) issued guidance requiring entities to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendment did not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income under current accounting standards. The guidance was effective for the Company’s fiscal year and interim periods beginning September 1, 2012. The Company adopted this amended guidance in fiscal 2013 and presented the Consolidated Statements of Comprehensive Income (Loss) immediately following the Consolidated Statements of Operations. |
In February 2013, the FASB issued guidance requiring entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. Entities are required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. This guidance, which is effective prospectively for annual reporting periods’ beginning after December 15, 2012, does not change the current requirements for reporting net income or other comprehensive income. The Company is evaluating the impact this guidance will have on its disclosures. |
In December 2011, the FASB issued guidance creating new disclosure requirements about the nature of an entity’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments. The disclosure requirements are effective for annual reporting periods, and interim reporting periods within those years, beginning on or after January 1, 2013 (fiscal 2014 for Penford). The Company is evaluating the impact this update will have on its disclosures. |
In July 2013, the FASB issued guidance designed to reduce diversity in practice of financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This guidance is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013 (fiscal 2015 for Penford). The Company does not expect this guidance to have a material effect on its financial position, results of operations or liquidity. |