Commitments and Contingencies

Leases

As part of the China Mist transaction, the Company assumed the lease on China Mist’s existing facility in Scottsdale, Arizona which is terminable upon twelve months’ notice. As part of the West Coast Coffee transaction, the Company entered into a three-year lease on West Coast Coffee’s existing facility in Hillsboro, Oregon, which expires January 31, 2020, and assumed leases on six branch warehouses in Oregon, California and Nevada, expiring on various dates through November 2020. The Company did not assume any leases in connection with the Boyd Coffee acquisition. See Note 4.

The Company is also obligated under operating leases for certain branch warehouses, distribution centers and its production facility in Portland, Oregon. Some operating leases have renewal options that allow the Company, as lessee, to extend the leases. Approximately 55% of the Company’s facilities are leased with a variety of expiration dates through 2021. The lease on the Portland facility was renewed in fiscal 2018 and expires in 2028, subject to an option to renew up to an additional 10 years. Rent expenses paid for the fiscal years ended June 30, 2018, 2017 and 2016 were $5.5 million, $5.1 million and $4.5 million, respectively.

Contractual obligations for future fiscal years are as follows:



	Contractual Obligations
(In thousands)	Capital Lease Obligations			Operating Lease Obligations		Expansion Project Contract(1)		Pension Plan Obligations(2)		Postretirement Benefits Other Than Pension Plans(3)		Revolving Credit Facility		Purchase Commitments (4)		Other Obligations(5)
Year Ended June 30,
2019	$	202		$	4,803	$	8,520	$	13,652	$	5,915	$	89,787	$	78,690	$	—
2020	$	52		$	3,069	$	—	$	8,200	$	892	$	—	$	—	$	1,754
2021	$	8		$	1,823	$	—	$	8,440	$	973	$	—	$	—	$	—
2022	$	—		$	1,264	$	—	$	8,640	$	1,045	$	—	$	—	$	—
2023	$	—		$	1,070	$	—	$	8,790	$	1,093	$	—	$	—	$	—
Thereafter	$	—		$	5,247	$	—	$	44,410	$	6,374	$	—	$	—	$	—
				$	17,276	$	8,520	$	92,132	$	16,292	$	89,787	$	78,690	$	1,754
Total minimum lease payments	$	262
Less: imputed interest (0.82% to 10.66%)	$	(14	)
Present value of future minimum lease payments	$	248
Less: current portion	$	190
Long-term capital lease obligations	$	58

___________

(1) Includes maximum balance due under guaranteed maximum price contract of up to $19.3 million in connection with the Expansion Project. See Note 6.

(2) Includes $86.7 million in estimated future benefit payments on single employer pension plan obligations, $3.8 million in estimated payments in fiscal 2019 towards settlement of withdrawal liability associated with the Company’s withdrawal from the Local 807 Labor Management Pension Plan and $1.7 million in estimated fiscal 2019 contributions to multiemployer pension plans. See Note 15.

(3) Includes $11.2 million in estimated future benefit payments on postretirement benefit plan obligations and $5.1 million in estimated fiscal 2019 contributions to multiemployer plans other than pension plans. See Note 15.

(4) Purchase commitments include commitments under coffee purchase contracts for which all delivery terms have been finalized but the related coffee has not been received as of June 30, 2018. Amounts shown in the table above: (a) include all coffee purchase contracts that the Company considers to be from normal purchases; and (b) do not include amounts related to derivative instruments that are recorded at fair value on the Company’s consolidated balance sheets.

(5) Includes $1.1 million for Multiemployer Plan Holdback—Boyd Coffee, $0.4 million for Derivative liabilities—noncurrent and $0.3 million for Cumulative preferred dividends, undeclared and unpaid—noncurrent.

Expansion Project Contract

On February 9, 2018, the Company and Haskell entered into Task Order 6 for the expansion of the Company’s production lines in the New Facility. The maximum price payable by the Company to Haskell under Task Order 6 for all of Haskell’s services, equipment procurement and installation, and construction work in connection with the Expansion Project is $19.3 million. In fiscal 2018, the Company paid $10.7 million in capital expenditures associated with the Expansion Project, with the balance of up to the guaranteed maximum price of $19.3 million expected to be paid in fiscal 2019.

Borrowings Under Revolving Credit Facility

At June 30, 2018, the Company had outstanding borrowings of $89.8 million under its Revolving Facility, as compared to outstanding borrowings of $27.6 million at June 30, 2017. The increase in outstanding borrowings in fiscal 2018 included $39.5 million to fund the cash paid at closing for the purchase of the Boyd Business and the initial Company obligations under the post-closing transition services agreement.

Self-Insurance

At June 30, 2018 the Company had posted $2.3 million of cash and a $2.0 million letter of credit, and at June 30, 2017 the Company had posted $3.4 million in cash, as a security deposit for self-insuring workers’ compensation, general liability and auto insurance coverages.

Non-cancelable Purchase Orders

As of June 30, 2018, the Company had committed to purchase green coffee inventory totaling $66.0 million under fixed-price contracts, $9.0 million in other inventory under non-cancelable purchase orders and $3.7 million in other purchases under non-cancelable purchase orders.

Legal Proceedings

Council for Education and Research on Toxics (“CERT”) v. Brad Berry Company Ltd., et al., Superior Court of the State of California, County of Los Angeles

On August 31, 2012, CERT filed an amendment to a private enforcement action adding a number of companies as defendants, the Company’s subsidiary, Coffee Bean International, Inc., which sell coffee in California under the State of California's Safe Drinking Water and Toxic Enforcement Act of 1986, also known as Proposition 65. The suit alleges that the defendants have failed to issue clear and reasonable warnings in accordance with Proposition 65 that the coffee they produce, distribute, and sell contains acrylamide. This lawsuit was filed in Los Angeles Superior Court (the “Court”). CERT has demanded that the alleged violators remove acrylamide from their coffee or provide Proposition 65 warnings on their products and pay $2,500 per day for each and every violation while they are in violation of Proposition 65.

Acrylamide is produced naturally in connection with the heating of many foods, especially starchy foods, and is believed to be caused by the Maillard reaction, though it has also been found in unheated foods such as olives. With respect to coffee, acrylamide is produced when coffee beans are heated during the roasting process-it is the roasting itself that produces the acrylamide. While there has been a significant amount of research concerning proposals for treatments and other processes aimed at reducing acrylamide content of different types of foods, to our knowledge there is currently no known strategy for reducing acrylamide in coffee without negatively impacting the sensorial properties of the product.

The Company has joined a Joint Defense Group, or JDG, and, along with the other co-defendants, has answered the complaint, denying, generally, the allegations of the complaint, including the claimed violation of Proposition 65 and further denying CERT’s right to any relief or damages, including the right to require a warning on products. The Joint Defense Group contends that based on proper scientific analysis and proper application of the standards set forth in Proposition 65, exposures to acrylamide from the coffee products pose no significant risk of cancer and, thus, these exposures are exempt from Proposition 65’s warning requirement.

The JDG filed a pleading responding to claims and asserting affirmative defenses on January 22, 2013. The Court initially limited discovery to the four largest defendants, so the Company was not initially required to participate in discovery. The Court decided to handle the trial in two “phases,” and the “no significant risk level” defense, the First Amendment defense, and the federal preemption defense were tried in the first phase. Trial commenced on September 8, 2014, and testimony completed on November 4, 2014, for the three “Phase 1” defenses.

Following final trial briefing, the Court heard, on April 9, 2015, final arguments on the Phase 1 issues. On September 1, 2015, the Court ruled against the JDG on the Phase 1 affirmative defenses. The JDG received permission to file an interlocutory appeal, which was filed by writ petition on October 14, 2015. On January 14, 2016, the Court of Appeals denied the JDG’s writ petition thereby denying the interlocutory appeal so that the case stays with the trial court.

On February 16, 2016, the Plaintiff filed a motion for summary adjudication arguing that based upon facts that had been stipulated by the JDG, the Plaintiff had proven its prima facie case and all that remains is a determination of whether any affirmative defenses are available to Defendants. On March 16, 2016, the Court reinstated the stay on discovery for all parties except for the four largest defendants. Following a hearing on April 20, 2016, the Court granted Plaintiff’s motion for summary adjudication on its prima facie case. Plaintiff filed its motion for summary adjudication of affirmatives defenses on May 16, 2016. At the August 19, 2016 hearing on Plaintiff’s motion for summary adjudication (and the JDG’s opposition), the Court denied Plaintiff’s motion, thus maintaining the ability of the JDG to defend the issues at trial. On October 7, 2016, the Court continued the Plaintiff’s motion for preliminary injunction until the trial for Phase 2.

In November 2016, the parties pursued mediation, but were not able to resolve the dispute.

In December 2016, discovery resumed for all defendants. Depositions of “person most knowledgeable” witnesses for each defendant in the JDG commenced in late December and proceeded through early 2017, followed by new interrogatories served upon the defendants. The Court set a fact and discovery cutoff of May 31, 2017 and an expert discovery cutoff of August 4, 2017. Depositions of expert witnesses were completed by the end of July. On July 6, 2017, the Court held hearings on a number of discovery motions and denied Plaintiff’s motion for sanctions as to all the defendants.

At a final case management conference on August 21, 2017 the Court set August 31, 2017 as the new trial date for Phase 2, though later changed the starting date for trial to September 5, 2017. The Court elected to break up trial for Phase 2 into two segments, the first focused on liability and the second on remedies. After 14 days at trial, both sides rested on the liability segment, and the Court set a date of November 21, 2017 for the hearing for all evidentiary issues related to this liability segment. The Court also set deadlines for evidentiary motions, issues for oral argument, and oppositions to motions. This hearing date was subsequently moved to January 19, 2018.

On March 28, 2018, the Court issued a proposed statement of decision in favor of Plaintiff. Following evaluation of the parties' objections to the proposed statement of decision, the Court issued its final statement of decision on May 7, 2018 which was substantively similar to the proposed statement from March 2018. The issuance of a final statement of decision does not itself cause or order any remedy, such as any requirement to use a warning notice. Any such remedy, including any monetary damages or fee awards, would be resolved in Phase 3 of the trial.

On June 15, 2018, California’s Office of Environmental Health Hazard Assessment (OEHHA) announced its proposal of a regulation that would establish, for the purposes of Proposition 65, that chemicals present in coffee as a result of roasting or brewing pose no significant risk of cancer. If adopted, the regulation would, among other things, mean that Proposition 65 warnings would generally not be required for coffee. Plaintiff had earlier filed a motion for permanent injunction, prior to OEHHA’s announcement, asking that the Court issue an order requiring defendants to provide cancer warnings for coffee or remove the coffee products from store shelves in California. The JDG petitioned the Court to (1) renew and reconsider the JDG’s First Amendment defense from Phase 1 based on a recent U.S. Supreme Court decision in a First Amendment case that was decided in the context of Proposition 65; (2) vacate the July 31, 2018 hearing date and briefing schedule for Plaintiff’s permanent injunction motion; and (3) stay all further proceedings pending the conclusion of the rulemaking process for OEHHA’s proposed regulation. On June 25, 2018, the Court denied the JDG’s motion to vacate the hearing on Plaintiff’s motion for permanent injunction and added the motion to stay to the July 31, 2018 docket to be heard. At the July 31st hearing, the Court granted the JDG’s application and agreed to continue the hearing on all motions to September 6, 2018.

At the September 6, 2018 hearing, the Court denied the JDG’s First Amendment motion, and denied the motion to stay pending conclusion of OEHHA’s rulemaking process. The Plaintiff agreed to have the permanent injunction motion continued until after the remedies phase of the trial. The Court set this “Phase 3” remedies trial phase to begin on October 15, 2018. The Court further required the submission of a joint trial plan by October 3, 2018 and set the date for the final pretrial conference as October 9, 2018.

At this time, the Company is not able to predict the probability of the outcome or estimate of loss, if any, related to this matter.

The Company is a party to various other pending legal and administrative proceedings. It is management’s opinion that the outcome of such proceedings will not have a material impact on the Company’s financial position, results of operations, or cash flows.