Derivative Instruments

Derivative Instruments Held

Coffee-Related Derivative Instruments

The Company is exposed to commodity price risk associated with its price to be fixed green coffee purchase contracts, which are described further in Note 2 to the consolidated financial statements in the 2018 Form 10-K. The Company utilizes forward and option contracts 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 September 30, 2018 and June 30, 2018:



(In thousands)	September 30, 2018		June 30, 2018
Derivative instruments designated as cash flow hedges:
Long coffee pounds	48,900		40,913
Derivative instruments not designated as cash flow hedges:
Long coffee pounds	2,463		2,546
Less: Short coffee pounds	(37	)	—
Total	51,326		43,459

Coffee-related derivative instruments designated as cash flow hedges outstanding as of September 30, 2018 will expire within 18 months.

Effect of Derivative Instruments on the Financial Statements

Balance Sheets

Fair values of derivative instruments on the Company’s condensed consolidated balance sheets:



	Derivative Instruments Designated as Cash Flow Hedges				Derivative Instruments Not Designated as Accounting Hedges
	September 30, 2018		June 30, 2018		September 30, 2018		June 30, 2018
(In thousands)
Financial Statement Location:
Short-term derivative assets(1):
Coffee-related derivative instruments	$	10	$	—	$	44	$	—
Long-term derivative assets(2):
Coffee-related derivative instruments	$	12	$	—	$	—	$	—
Short-term derivative liabilities(1):
Coffee-related derivative instruments	$	6,527	$	3,081	$	771	$	219
Long-term derivative liabilities(2):
Coffee-related derivative instruments	$	553	$	386	$	—	$	—

________________

(1) Included in “Short-term derivative liabilities” on the Company’s condensed consolidated balance sheets.

(2) Included in “Other long-term liabilities” on the Company’s condensed consolidated balance sheets.

Statements of Operations

The following table presents pretax net gains and losses on coffee-related derivative instruments designated as cash flow hedges, as recognized in accumulated other comprehensive income (loss) “AOCI” and “Cost of goods sold” (prior period amounts have been retrospectively adjusted to reflect the impact of certain changes in accounting principles and corrections to previously issued financial statements as described in Note 3).



	Three Months Ended September 30,						Financial Statement Classification
(In thousands)	2018			2017			Financial Statement Classification
Net losses recognized in AOCI	$	(8,193	)	$	(359	)	AOCI
Net (losses) gains recognized in earnings	$	(1,962	)	$	1,266		Costs of goods sold

For the three months ended September 30, 2018 and 2017, 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.

Net gains on derivative instruments and investments in the Company’s condensed consolidated statements of cash flows also include net gains and losses on coffee-related derivative instruments designated as cash flow hedges reclassified to cost of goods sold from AOCI in the three months ended September 30, 2018 and 2017. Gains and losses on derivative instruments not designated as accounting hedges are included in “Other, net” in the Company’s condensed consolidated statements of operations and in “Net losses (gains) on derivative instruments and investments” in the Company’s condensed consolidated statements of cash flows.

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



	Three Months Ended September 30,
(In thousands)	2018			2017
Net (losses) gains on coffee-related derivative instruments(1)	$	(1,105	)	$	97
Net losses on investments	—			(9		)
Non-operating pension and other postretirement benefit plans cost(2)	1,763			1,663
Other losses, net	(1		)	(1		)
Other, net	$	657		$	1,750

___________

(1) Excludes net gains and losses on coffee-related derivative instruments designated as cash flow hedges recorded in cost of goods sold in the three months ended September 30, 2018 and 2017.

(2) Presented in accordance with newly implemented ASU 2017-07. See Note 2.

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
September 30, 2018	Derivative Assets	$	66	$	(66	)	$	—	$	—
	Derivative Liabilities	$	7,851	$	(66	)	$	2,628	$	5,157
June 30, 2018	Derivative Assets	$	—	$	—		$	—	$	—
	Derivative Liabilities	$	3,686	$	—		$	—	$	3,686

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 September 30, 2018, $(11.5) 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 September 30, 2018. Due to the volatile nature of commodity prices, actual gains or losses realized within the next twelve months will likely differ from these values. At September 30, 2018 and June 30, 2018 approximately 95% and 94% of the Company's outstanding coffee-related derivative instruments were designated as cash flow hedges.