Derivative Financial Instruments

6 Months Ended

Dec. 31, 2015

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 derivative 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. 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, 2015 and June 30, 2015:

(In thousands)	December 31, 2015	June 30, 2015
Derivative instruments designated as cash flow hedges:
Long coffee pounds	39,675	32,288
Derivative instruments not designated as cash flow hedges:
Long coffee pounds	1,419	1,954
Total	41,094	34,242

Coffee-related derivative instruments designated as cash flow hedges outstanding as of December 31, 2015 will expire within 24 months.

Effect of Derivative Instruments on the Financial Statements

Balance Sheets

Fair values of derivative instruments on the Company's 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)	2015		2015		2015		2015
Financial Statement Location:
Short-term derivative assets(1):
Coffee-related derivative instruments	$	581	$	128	$	24	$	25
Long-term derivative assets(1):
Coffee-related derivative instruments	$	286	$	136	$	11	$	2
Short-term derivative liabilities(1):
Coffee-related derivative instruments	$	560	$	4,128	$	125	$	2
Long-term derivative liabilities(2):
Coffee-related derivative instruments	$	421	$	163	$	—	$	—

____________

(1) Included in "Short-term derivative liabilities" on the Company's consolidated balance sheets.

(2) Included in "Other long-term liabilities" on the Company's 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 "AOCI," "Cost of goods sold" and "Other, net":

	Three Months Ended December 31,						Six Months Ended December 31,						Financial Statement Classification
(In thousands)	2015			2014			2015			2014
Net gains (losses) recognized in accumulated other comprehensive (loss) income (effective portion)	$	310		$	(5,915	)	$	(4,330	)	$	(2,583	)	AOCI
Net (losses) gains recognized in earnings (effective portion)	$	(3,859	)	$	5,132		$	(8,827	)	$	9,842		Cost of goods sold
Net losses recognized in earnings (ineffective portion)	$	(128	)	$	(119	)	$	(484	)	$	(170	)	Other, net

For the three and six months ended December 31, 2015 and 2014, 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 theCompany's consolidated statements of operations and in “Net losses (gains) 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)	2015		2014			2015			2014
Net gains (losses) on coffee-related derivative instruments	$	32	$	(904	)	$	(695	)	$	(855	)
Net gains on investments	265		205			118			15
Net gains (losses) on derivative instruments and investments(1)	297		(699		)	(577		)	(840		)
Other gains (losses), net	—		169			(1		)	246
Other, net	$	297	$	(530	)	$	(578	)	$	(594	)

_______________

(1) Excludes net (losses) gains on coffee-related derivative instruments designated as cash flow hedges recorded in cost of goods sold in the three and six months ended December 31, 2015 and 2014.

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		Net Exposure
December 31, 2015	Derivative assets	$	902	$	(717	)	$	—	$	185
	Derivative liabilities	$	1,106	$	(717	)	$	—	$	389
June 30, 2015	Derivative assets	$	291	$	(291	)	$	—	$	—
	Derivative liabilities	$	4,292	$	(291	)	$	1,001	$	3,000

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, 2015 and June 30, 2015, the Company had $0 and $1.0 million in restricted cash representing cash held on deposit in margin accounts for coffee-related derivative instruments. 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 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, 2015, $4.4 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, 2015. Due to the volatile nature of commodity prices, actual gains or losses realized within the next twelve months may likely differ from these values.