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 March 31, 2019 and June 30, 2018:



(In thousands)	March 31, 2019	June 30, 2018
Derivative instruments designated as cash flow hedges:
Long coffee pounds	35,213	40,913
Derivative instruments not designated as cash flow hedges:
Long coffee pounds	4,394	2,546
Total	39,607	43,459

Coffee-related derivative instruments designated as cash flow hedges outstanding as of March 31, 2019 will expire within 21 months.

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 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”). 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.

Interest rate swap derivative instruments designated as cash flow hedges outstanding as of March 31, 2019 will expire on October 11, 2023.

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
	March 31, 2019		June 30, 2018		March 31, 2019		June 30, 2018
(In thousands)
Financial Statement Location:
Short-term derivative assets:
Coffee-related derivative instruments(1)	$	—	$	—	$	4	$	—
Interest rate swap derivative instruments	$	144	$	—	$	—	$	—
Short-term derivative liabilities:
Coffee-related derivative instruments	$	4,428	$	3,081	$	1,069	$	219
Long-term derivative liabilities(2):
Coffee-related derivative instruments	$	493	$	386	$	—	$	—
Interest rate swap derivative instruments	$	221	$	—	$	—	$	—

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(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 and interest rate swap derivative instruments designated as cash flow hedges, as recognized in 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 March 31,						Nine Months Ended March 31,						Financial Statement Classification
(In thousands)	2019			2018			2019			2018			Financial Statement Classification
Net losses recognized in AOCI -Interest rate swap	$	(78	)	$	—		$	(78	)	$	—		AOCI
Net losses recognized in AOCI - Coffee-related	$	(3,988	)	$	(3,265	)	$	(11,176	)	$	(5,718	)	AOCI
Net (losses) gains recognized in earnings - Coffee-related	$	(2,131	)	$	(588	)	$	(6,310	)	$	573		Cost of Goods Sold

For the three and nine months ended March 31, 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 on derivative instruments 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 and nine months ended March 31, 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 March 31,						Nine Months Ended March 31,
(In thousands)	2019			2018			2019			2018
Net losses on coffee-related derivative instruments(1)	$	(893	)	$	(444	)	$	(2,918	)	$	(537	)
Net gains on investments	—			—			—			7
Non-operating pension and other postretirement benefit plans cost(2)	1,394			1,663			4,921			4,988
Other (losses) gains, net	(6		)	598			102			1,324
Other, net	$	495		$	1,817		$	2,105		$	5,782

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(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 and nine months ended March 31, 2019 and 2018.

(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, 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
March 31, 2019	Derivative Assets	$	148	$	(148	)	$	—	$	—
	Derivative Liabilities	$	6,211	$	(148	)	$	—	$	6,063
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 March 31, 2019, $11.6 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 March 31, 2019. 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 March 31, 2019 and June 30, 2018 approximately 89% and 94%, respectively, of the Company's outstanding coffee-related derivative instruments were designated as cash flow hedges.

For interest rate swap derivative instruments designated as a cash flow hedge, the change in fair value of the derivative is reported in AOCI and subsequently reclassified into interest expense in the period or periods when the hedged transaction affects earnings. As of March 31, 2019, $0.1 million of net gains on interest rate swap 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. At March 31, 2019 all of the Company's outstanding interest rate swap derivative instruments were designated as cash flow hedges.