Derivative Instruments

12 Months Ended

Jun. 30, 2020

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 PTF green coffee purchase contracts, which are described further in Note 2. 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 June 30, 2020 and 2019:

	As of June 30,
(In thousands)	2020	2019
Derivative instruments designated as cash flow hedges:
Long coffee pounds	36,413	42,113
Derivative instruments not designated as cash flow hedges:
Long coffee pounds	8,348	6,070
Total	44,761	48,183

Coffee-related derivative instruments designated as cash flow hedges outstanding as of June 30, 2020 will expire within 18 months. At June 30, 2020 and 2019 approximately 81% 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”) effective March 20, 2019, the Company on March 27, 2019, entered into a 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”). In December 2019, the Company amended the notional amount to $65.0 million. 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 consolidated balance sheets:

	Derivative Instruments Designated as Cash Flow Hedges				Derivative Instruments Not Designated as Accounting Hedges
	As of June 30,				As of June 30,
(In thousands)	2020		2019		2020		2019
Financial Statement Location:
Short-term derivative assets:
Coffee-related derivative instruments(1)	$	35	$	1,254	$	130	$	611
Long-term derivative assets:
Coffee-related derivative instruments(2)	$	10	$	671	$	—	$	3
Short-term derivative liabilities:
Coffee-related derivative instruments(3)	$	3,322	$	1,114	$	706	$	114
Interest rate swap derivative instruments(3)	$	1,228	$	246	$	—	$	—
Long-term derivative liabilities:
Coffee-related derivative instruments(4)	$	246	$	13	$	—	$	—
Interest rate swap derivative instruments(4)	$	2,613	$	1,599	$	—	$	—

________________

(1) Included in “Short-term derivative assets” on the Company's consolidated balance sheets.

(2) Included in “Long-term derivative assets” on the Company's consolidated balance sheets.

(3) Included in “Short-term liabilities” on the Company's consolidated balance sheets.

(4) 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 derivative instruments designated as cash flow hedges, as recognized in “AOCI,” “Cost of goods sold” and “Other, net”.

	Year Ended June 30,									Financial Statement Classification
(In thousands)	2020			2019			2018
Net losses recognized in AOCI - Interest rate swap	$	(2,863	)	$	(1,791	)	$	—		AOCI
Net (losses) gains recognized from AOCI to earnings - Interest rate swap	$	(383	)	$	45		$	—		Interest Expense
Net losses reclassified from AOCI to earnings for partial unwind of interest swap - Interest rate swap (1)	$	(407	)	$	—		$	—		Interest Expense
Net losses recognized in AOCI - Coffee-related	$	(4,655	)	$	(7,407	)	$	(8,420	)	AOCI
Net losses recognized in earnings - Coffee-related	$	(8,073	)	$	(9,242	)	$	(1,179	)	Costs of goods sold
Net gains (losses) recognized in earnings (ineffective portion)	$	—		$	—		$	48		Other, net

________________

(1) The 407 thousand of realized loss was due to partial unwinding of interest rate swap resulting from the amendment of the notional amount from $80.0 million to $65.0 million.

For the fiscal years ended June 30, 2020, 2019 and 2018, there were no gains or losses recognized in earnings as a result of excluding amounts from the assessment of hedge effectiveness.

Net losses (gains) on derivative instruments in the Company's consolidated statements of cash flows also includes net losses (gains) on coffee-related derivative instruments designated as cash flow hedges reclassified to cost of goods sold from AOCI in the fiscal years ended June 30, 2020, 2019 and 2018. Gains and losses on derivative instruments not designated as accounting

hedges are included in “Other, net” in the Company'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:

	Year Ended June 30,
(In thousands)	2020			2019			2018
Net losses on coffee-related derivative instruments	$	(1,362	)	$	(2,252	)	$	(469	)
Net gains on investments	—			—			7
Net losses on derivative instruments and investments(1)	(1,362		)	(2,252		)	(462		)
Non-operating pension and other postretirement benefit plans cost(2)	11,651			6,315			6,651
Other gains, net	154			103			1,533
Other, net	$	10,443		$	4,166		$	7,722

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(1) Excludes net losses and net gains on coffee-related derivative instruments designated as cash flow hedges recorded in cost of goods sold in the fiscal years ended June 30, 2020, 2019 and 2018.

(2) Presented in accordance with implementation of ASU 2017-07. Includes amortized gains on postretirement medical benefit plan due to the curtailment announced in March 2020.

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 counterparty as of the reporting dates indicated:

(In thousands)		Gross Amount Reported on Balance Sheet		Netting Adjustments			Cash Collateral Posted		Net Exposure
As of June 30, 2020	Derivative Assets	$	175	$	(175	)	$	—	$	—
	Derivative Liabilities	$	8,115	$	(176	)	$	—	$	7,939
As of 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 June 30, 2020, $2.6 million of net losses on coffee-related derivative instruments designated as 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 June 30, 2020.

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 June 30, 2020, $1.2 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.