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Derivative Instruments
3 Months Ended
Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
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 2019 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, 2019 and June 30, 2019:
(In thousands)
 
September 30, 2019
 
June 30, 2019
Derivative instruments designated as cash flow hedges:
 
 
 
 
  Long coffee pounds
 
51,563

 
42,113

Derivative instruments not designated as cash flow hedges:
 
 
 
 
  Long coffee pounds
 
1,880

 
6,070

      Total
 
53,443

 
48,183



Coffee-related derivative instruments designated as cash flow hedges outstanding as of September 30, 2019 will expire within 20 months. At September 30, 2019 and June 30, 2019 approximately 96% and 87%, respectively, of the Company's outstanding coffee-related derivative instruments were designated as cash flow hedges.

Interest Rate Swap Derivative Instruments
Pursuant to an International Swap Dealers Association, Inc. Master Agreement (“ISDA”) which was effective March 20, 2019, the Company on March 27, 2019, entered into an interest rate swap transaction utilizing a notional amount of $80.0 million, with an effective date of April 11, 2019 and a maturity date of October 11, 2023 (the “Rate Swap”). The Rate Swap is intended to manage the Company’s interest rate risk on its floating-rate indebtedness under the Company’s revolving credit facility. Under the terms of the Rate Swap, the Company receives 1-month LIBOR, subject to a 0% floor, and makes payments based on a fixed rate of 2.1975%. The Company’s obligations under the ISDA are secured by the collateral which secures the loans under the revolving credit facility on a pari passu and pro rata basis with the principal of such loans. The Company has designated the Rate Swap derivative instruments as a cash flow hedge.

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, 2019
 
June 30, 2019
 
September 30, 2019
 
June 30, 2019
(In thousands)
 
 
 
 
 
 
 
 
Financial Statement Location:
 
 
 
 
 
 
 
 
Short-term derivative assets:
 
 
 
 
 
 
 
 
Coffee-related derivative instruments(1)
 
$
303

 
$
1,254

 
$
13

 
$
611

Long-term derivative assets:
 
 
 
 
 
 
 
 
    Coffee-related derivative instruments (2)
 
$
215

 
$
671

 
$

 
$
3

Short-term derivative liabilities:
 
 
 
 
 
 
 
 
Coffee-related derivative instruments (3)
 
$
2,760

 
$
1,114

 
$
300

 
$
114

Interest rate swap derivative instruments (3)
 
$
401

 
$
246

 
$

 
$

Long-term derivative liabilities:
 
 
 
 
 
 
 
 
Coffee-related derivative instruments (4)
 
$
82

 
$
13

 
$
2

 
$

Interest rate swap derivative instruments (4)
 
$
1,945

 
$
1,599

 
$

 
$


________________
(1) Included in “Short-term derivative assets” on the Company’s condensed consolidated balance sheets.
(2) Included in “Long-term derivative assets” on the Company's condensed consolidated balance sheets.
(3) Included in “Short-term liabilities” on the Company's condensed consolidated balance sheets.
(4) 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 for the Company's derivative instruments designated as cash flow hedges, as recognized in “AOCI,” “Cost of goods sold” and “Other, net”.
 
 
Three Months Ended September 30,
 
Financial Statement Classification
(In thousands)
 
2019
 
2018
 
Net loss recognized in AOCI - Interest rate swap
 
$
(496
)
 
$

 
AOCI
Net gain recognized from AOCI to earnings - Interest rate swap
 
$
20

 
$

 
Interest Expense
Net losses recognized in AOCI - Coffee-related
 
$
(4,699
)
 
$
(8,193
)
 
AOCI
Net loss recognized in earnings - Coffee - related
 
$
(3,471
)
 
$
(1,962
)
 
Cost of goods sold
For the three months ended September 30, 2019 and 2018, 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 losses (gains) on derivative instruments in the Company’s condensed consolidated statements of cash flows also include net losses (gains) 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, 2019 and 2018. 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)
 
2019
 
2018
Net losses on coffee-related derivative instruments(1)
 
$
(1,043
)
 
$
(1,105
)
Non-operating pension and other postretirement benefit plans cost (2)
 
1,248

 
1,763

Other (losses) gains, net
 
(2
)
 
(1
)
             Other, net
 
$
203

 
$
657


___________
(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, 2019 and 2018.
(2) Presented in accordance with ASU 2017-07.

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, under certain coffee derivative agreements, the Company maintains accounts with its counterparties to facilitate financial derivative transactions in support of its risk management activities.

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 counterparties as of the reporting dates indicated:
(In thousands)
 
 
 
Gross Amount Reported on Balance Sheet
 
Netting Adjustments
 
Cash Collateral Posted
 
Net Exposure
September 30, 2019
 
Derivative Assets
 
$
531

 
$
(546
)
 
$

 
$
(15
)
 
 
Derivative Liabilities
 
$
5,490

 
$
(546
)
 
$

 
$
4,944

June 30, 2019
 
Derivative Assets
 
$
2,539

 
$
(698
)
 
$

 
$
1,841

 
 
Derivative Liabilities
 
$
3,086

 
$
(698
)
 
$

 
$
2,388


Cash Flow Hedges
Changes in the fair value of the Company’s coffee-related derivative instruments designated as cash flow hedges 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 September 30, 2019, $7.5 million of net losses on coffee-related derivative instruments designated as a cash flow hedge 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, 2019.
Changes in the fair value of the Company's interest rate swap derivative instruments designated as a cash flow hedge are deferred in AOCI and subsequently reclassified into interest expense in the period or periods when the hedged transaction affects earnings or when it is probable that the hedged forecasted transaction will not occur by the end of the originally specified time period. As of September 30, 2019, $0.4 million of net losses on interest rate swap derivative instruments designated as a cash flow hedge are expected to be reclassified into interest expense within the next twelve months assuming no significant changes in the LIBOR rates. Due to LIBOR volatility, actual gains or losses realized within the next twelve months will likely differ from these values.