Ten Peaks Coffee adoption of hedge accounting results in higher earnings for 2016
On November 9, 2016, Ten Peaks Coffee Inc. (Ten Peaks) released their third quarter financial results press release where they highlight the benefits they realized when they implemented hedge accounting. Having just implemented hedge accounting beginning on January 1, 2016, Ten Peaks quickly realized several benefits including less volatility in their income statement and higher reported earnings.
Ten Peaks is a leading specialty coffee company doing business through two wholly owned subsidiaries: Swiss Water Decaffeinated Coffee Company, Inc (SWDCC) and Seaforth Supply Chain Solutions Inc. SWDCC is the company’s primary business, and the results reported reflect SWDCC’s operating performance.
Per Ten Peak’s financial release, “Recent financial results also reflect the company’s adoption of hedge accounting effective January 1, 2016. The adoption of hedge accounting allows Ten Peaks to better align its accounting practice and results with the way the business is managed. Now, gains or losses associated with hedging instruments entered into to manage Ten Peaks’ exposure to changes in the rising coffee commodity price (NY’C’) and the US / Canadian dollar exchange rate, are reflected on the statement of income directly in revenue and cost of sales. The adoption of hedge accounting reduces Ten Peaks’ earnings volatility, and provides gross profit that reflects the costs/benefits of its risk management activities.”
“SWDCC enters into commodity futures and foreign exchange forward contracts to manage the effect of changes in the NY’C’ and US dollar exchange rates on the business. The company’s hedging strategies have not changed with the adoption of hedge accounting. Now, however, the majority of unrealized gains/losses on derivative instruments are deferred on the balance sheet (for fair value hedges) or in other comprehensive income (for cash flow hedges) until the hedge transaction is realized. This will minimize the earnings volatility historically caused by the revaluation of derivatives instruments associated with SWDCC’s risk management activities.”
The outlook for Ten Peaks looks promising for the remainder of 2016. According to the November 9th press release, “Overall, earnings are expected to be higher than in 2015. This is largely due to the adoption of hedge accounting, which reduces volatility in the company’s earnings.”
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For the full press release click here.
Heidi Lindahl, Marketing Manager