Derivative Financial Instruments

6 Months Ended

Dec. 31, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Instruments

Derivative Instruments Held

Coffee-Related Derivative Instruments

The Company is exposed to commodity price risk associated with its PTF green coffee purchase contracts, which are described further in Note 1. The Company utilizes futures contracts and options to manage exposure to the variability in expected future cash flows from forecasted purchases of green coffee attributable to commodity price risk, in some instances, as much as 24 months prior to the actual delivery date. Certain of these coffee-related derivative instruments utilized for risk management purposes have been designated as cash flow hedges, while other coffee-related derivative instruments have not been designated as cash flow hedges or do not qualify for hedge accounting despite hedging the Company's future cash flows on an economic basis.

The following table summarizes the notional volumes for the coffee-related derivative instruments held by the Company at December 31, 2014:

(In thousands)	December 31, 2014
Derivative instruments designated as cash flow hedges:
Long coffee pounds	24,788
Derivative instruments not designated as cash flow hedges:
Long coffee pounds	4,067
Total	28,855

Cash flow hedge contracts outstanding as of December 31, 2014 will expire within 12 months.

Interest Rate Swap

Effective December 1, 2012, the Company entered into an interest rate swap transaction utilizing a notional amount of $10.0 million and a maturity date of March 1, 2015. The Company entered into the swap transaction to effectively fix the future interest rate during the applicable period on a portion of its borrowings under the revolving credit facility. The interest rate swap was not designated as an accounting hedge. The Company terminated the swap transaction on March 5, 2014.

Effect of Derivative Instruments on the Financial Statements

Balance Sheets

Fair values of derivative instruments on the consolidated balance sheets:

	Derivative Instruments Designated as Cash Flow Hedges				Derivative Instruments Not Designated as Accounting Hedges
	December 31,		June 30,		December 31,		June 30,
(In thousands)	2014		2014		2014		2014
Financial Statement Location:
Short-term derivative assets:
Coffee-related derivative instruments	$	1,139	$	5,474	$	—	$	—
Long-term derivative assets(1):
Coffee-related derivative instruments	$	—	$	862	$	—	$	—
Short-term derivative liabilities:
Coffee-related derivative instruments	$	3,930	$	252	$	929	$	69
Long-term derivative liabilities:
Coffee-related derivative instruments	$	—	$	—	$	—	$	—

____________

(1) Included in "Other assets" on the consolidated balance sheets.

Statements of Operations

The following table presents pretax net gains and losses for the Company's coffee-related derivative instruments designated as cash flow hedges, as recognized in "Cost of goods sold," "AOCI" and "Other, net":

	Three Months Ended December 31,						Six Months Ended December 31,						Financial Statement Classification
(In thousands)	2014			2013			2014			2013
Net losses recognized in accumulated other comprehensive income (effective portion)	$	(5,915	)	$	(2,260	)	$	(2,583	)	$	(5,385	)	AOCI
Net gains (losses) recognized in earnings (effective portion)	$	5,132		$	(3,735	)	$	9,842		$	(5,954	)	Cost of goods sold
Net losses recognized in earnings (ineffective portion)	$	(119	)	$	(143	)	$	(170	)	$	(650	)	Other, net

For the three and six months ended December 31, 2014 and 2013 there were no gains or losses recognized in earnings as a result of excluding amounts from the assessment of hedge effectiveness or as a result of reclassifications to earnings following the discontinuance of any cash flow hedges.

Gains and losses on derivative instruments not designated as accounting hedges are included in "Other, net" in the Company's consolidated statements of operations and in "Net (gains) losses on derivative instruments and investments" in the Company's consolidated statements of cash flows.

Net gains and losses recorded in "Other, net" are as follows:

	Three Months Ended December 31,						Six Months Ended December 31,
(In thousands)	2014			2013			2014			2013
Net losses from coffee-related derivative instruments	$	(904	)	$	(347	)	$	(855	)	$	(1,195	)
Net gains (losses) on investments	205			(55		)	15			(750		)
Net gains (losses) on interest rate swap	—			2			—			(4		)
Net losses on derivative instruments and investments(1)	(699		)	(400		)	(840		)	(1,949		)
Other gains (losses), net	169			(114		)	246			529
Other, net	$	(530	)	$	(514	)	$	(594	)	$	(1,420	)

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(1)Excludes net gains (losses) on coffee-related derivative instruments designated as accounting hedges recorded in cost of goods sold in the three and six months ended December 31, 2014 and 2013.

Offsetting of Derivative Assets and Liabilities

The Company has agreements in place that allow for the financial right of offset for derivative assets and liabilities at settlement or in the event of default under the agreements. Additionally, the Company maintains accounts with its brokers to facilitate financial derivative transactions in support of its risk management activities. Based on the value of the Company’s positions in these accounts and the associated margin requirements, the Company may be required to deposit cash into these broker accounts.

The following table presents the Company’s net exposure from its offsetting derivative asset and liability positions, as well as cash collateral on deposit with its counterparty as of the reporting dates indicated:

(In thousands)		Gross Amount Reported on Balance Sheet		Netting Adjustments			Cash Collateral Posted (Received)		Net Exposure
December 31, 2014	Derivative assets	$	1,139	$	(1,139	)	$	—	$	—
	Derivative liabilities	$	4,859	$	(1,139	)	$	720	$	3,000
June 30, 2014	Derivative assets	$	6,336	$	(321	)	$	—	$	6,015
	Derivative liabilities	$	321	$	(321	)	$	—	$	—

Credit-Risk-Related Features

The Company does not have any credit-risk-related contingent features that would require it to post additional collateral in support of its net derivative liability positions. At December 31, 2014, as the Company had a net loss position in its coffee-related derivative margin accounts, $0.7 million of the cash in these accounts was restricted. At June 30, 2014, as the Company had a net gain position in its coffee-related derivative margin accounts, none of the cash in these accounts was restricted. Changes in commodity prices and the number of coffee-related derivative instruments held could have a significant impact on cash deposit requirements under the Company's broker and counterparty agreements.

Cash Flow Hedges

Changes in the fair value of the Company's coffee-related derivative instruments designated as cash flow hedges, to the extent effective, are deferred in AOCI and subsequently reclassified into cost of goods sold in the same period or periods in which the hedged forecasted purchases affect earnings, or when it is probable that the hedged forecasted transaction will not occur by the end of the originally specified time period. Based on recorded values at December 31, 2014, $2.8 million of net losses on coffee-related derivative instruments designated as cash flow hedges are expected to be reclassified into cost of goods sold within the next twelve months. These recorded values are based on market prices of the commodities as of December 31, 2014. Due to the volatile nature of commodity prices, actual gains or losses realized within the next twelve months will likely differ from these values. These gains or losses are expected to substantially offset net losses or gains that will be realized in earnings from previous unfavorable or favorable market movements associated with underlying hedged transactions.