Derivative Financial Instruments (Notes)

9 Months Ended

Mar. 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.

At March 31, 2014, approximately 86% of the Company's outstanding coffee-related derivative instruments, representing 32.8 million pounds of forecasted green coffee purchases, were designated as cash flow hedges. At March 31, 2013, no coffee-related derivative instruments were designated as cash flow hedges. For the three and nine months ended March 31, 2014, the Company recorded coffee-related net derivative gains in other comprehensive income ("OCI") in the amounts of $26.6 million and $21.2 million, respectively. No coffee-related net derivative gains or losses were recorded in OCI for the three and nine months ended March 31, 2013.

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:

	Derivatives Designated as Cash Flow Hedges				Derivatives Not Designated as Accounting Hedges
	March 31,		June 30,		March 31,		June 30,
(In thousands)	2014		2013		2014		2013
Financial Statement Location:
Short-term derivative assets:
Coffee-related derivatives	$	15,434	$	—	$	3,100	$	4
Long-term derivative assets(1):
Coffee-related derivatives	$	1,233	$	—	$	—	$	—
Short-term derivative liabilities:
Coffee-related derivatives	$	—	$	9,331	$	—	$	565
Other current liabilities:
Interest rate swap	$	—	$	—	$	—	$	25
Long-term derivative liabilities:
Coffee-related derivatives	$	—	$	1,129	$	—	$	—

____________

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

Statements of Operations

For the three and nine months ended March 31, 2014, the Company recognized $0.2 million in net gains and $(0.4) million in net losses, respectively, on coffee-related derivative instruments designated as cash flow hedges for ineffectiveness and 14% of the total coffee-related derivative instruments were excluded from the effectiveness assessment as they were not designated as cash flow hedges. Cash flow hedge contracts outstanding as of March 31, 2014 will expire within 21 months.

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

	Three Months Ended  March 31,					Nine Months Ended  March 31,					Financial Statement Classification
(In thousands)	2014			2013		2014			2013
Net losses recognized in earnings (effective portion)	$	(845	)	$	—	$	(6,799	)	$	—	Cost of goods sold
Net gains recognized in other comprehensive income (loss) (effective portion)	$	26,561		$	—	$	21,175		$	—	AOCI
Net gains (losses) recognized in earnings (ineffective portion)	$	202		$	—	$	(448	)	$	—	Other, net

For the three and nine months ended March 31, 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 derivatives not designated as accounting hedges are included in "Other, net" in the Company's consolidated statements of operations and in "Net losses on derivatives and investments" in the Company's consolidated statements of cash flows. "Net losses on derivatives and investments" in the Company's consolidated statements of cash flows also includes net losses on coffee-related derivatives recognized in earnings.

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

(In thousands)	Three Months Ended March 31,					Nine Months Ended March 31,
	2014		2013			2014			2013
Net gains (losses) on coffee-related derivatives	$	3,748	$	(2,918	)	$	2,554		$	(10,074	)
Net gains on investments	765		636			15			794
Net gains (losses) on interest rate swap	—		4			(5		)	(35		)
Net gains (losses) on derivatives and investments(1)	4,513		(2,278		)	2,564			(9,315		)
Other gains, net	151		329			680			1,452
Other, net	$	4,664	$	(1,949	)	$	3,244		$	(7,863	)

_______________

(1) Excludes net losses on coffee-related derivatives recorded in cost of goods sold in the three and nine months ended March 31, 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 tables present the Company’s net exposure from its offsetting derivative asset and liability positions, as well as cash margins on deposit with each of its counterparties as of the reporting dates indicated:

(In thousands)		Gross Amount Reported on Balance Sheet		Netting Adjustments			Cash Collateral Posted (Received)		Net Exposure
Counterparty A:
At March 31, 2014	Derivative Assets	$	19,825	$	(57	)	$	—	$	19,768
	Derivative Liabilities	$	57	$	(57	)	$	—	$	—
At June 30, 2013	Derivative Assets	$	4	$	(4	)	$	—	$	—
	Derivative Liabilities	$	11,025	$	(4	)	$	8,084	$	2,937

(In thousands)		Gross Amount Reported on Balance Sheet		Netting Adjustments		Cash Collateral Posted (Received)		Net Exposure
Counterparty B:
At March 31, 2014	Derivative Assets	$	—	$	—	$	—	$	—
	Derivative Liabilities	$	—	$	—	$	—	$	—
At June 30, 2013	Derivative Assets	$	—	$	—	$	—	$	—
	Derivative Liabilities	$	25	$	—	$	—	$	25

Credit-Risk-Related Features

The Company does not have any credit-risk-related contingent features that would require it, in certain circumstances, to post additional collateral in support of its net derivative liability positions. The Company had $8.1 million in restricted cash representing cash held on deposit in margin accounts for coffee-related derivative instruments at June 30, 2013 (see Note 5). At March 31, 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 reclassified into earnings 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 March 31, 2014, $18.8 million of net gains are expected to be reclassified into earnings within the next twelve months. These recorded values are based on market prices of the commodities as of March 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.