Derivative Financial Instruments

3 Months Ended

Sep. 28, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

Sysco uses derivative financial instruments to enact hedging strategies for risk mitigation purposes; however, the company does not use derivative financial instruments for trading or speculative purposes. Hedging strategies are used to manage interest rate risk, foreign currency risk and fuel price risk.

Hedging of interest rate risk

Sysco manages its debt portfolio with interest rate swaps from time to time to achieve an overall desired position of fixed and floating rates.

Hedging of foreign currency risk

Sysco enters into cross-currency swap contracts to hedge the foreign currency transaction risk of certain intercompany loans. There are no credit-risk related contingent features associated with these swaps, which have been designated as cash flow hedges. The company also uses cross-currency swap contracts and euro-bond denominated debt to hedge the foreign currency exposure of our net investment in certain foreign operations. Additionally, Sysco’s operations in Europe have inventory purchases denominated in currencies other than their functional currency, such as the euro, U.S. dollar, Polish zloty and Danish krone. These inventory purchases give rise to foreign currency exposure between the functional currency of each entity and these currencies. The company enters into foreign currency forward swap contracts to sell the applicable entity’s functional currency and buy currencies matching the inventory purchase, which operate as cash flow hedges of the company’s foreign currency-denominated inventory purchases.

Hedging of fuel price risk

Sysco uses fuel commodity swap contracts to hedge against the risk of the change in the price of diesel on anticipated future purchases. These swaps have been designated as cash flow hedges.

None of the company’s hedging instruments contain credit-risk-related contingent features. Details of outstanding hedging instruments as of September 28, 2019 are presented below:



Maturity Date of the Hedging Instrument	Currency / Unit of Measure	Notional Value
		(In millions)
Hedging of interest rate risk
October 2020	U.S. Dollar	750
July 2021	U.S. Dollar	500
June 2023	Euro	500
March 2025	U.S. Dollar	500

Hedging of foreign currency risk
Various (September 30, 2019 to January 2020)	Swedish Krona	280
Various (October 2019 to June 2020)	British Pound Sterling	23
June 2021	Canadian Dollar	187
July 2021	British Pound Sterling	234
August 2021	British Pound Sterling	466
June 2023	Euro	500

Hedging of fuel risk
Various (September 30, 2019 to September 2020)	Gallons	55

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of September 28, 2019 and June 29, 2019 are as follows:



		Derivative Fair Value
	Balance Sheet location	Sep. 28, 2019		Jun. 29, 2019
		(In thousands)
Fair Value Hedges:
Interest rate swaps	Other assets	$	44,407	$	37,396
Interest rate swaps	Other long-term liabilities	6,061		9,285

Cash Flow Hedges:
Fuel Swaps	Other current assets	$	16	$	154
Foreign currency forwards	Other current assets	275		624
Fuel swaps	Other assets	—		136
Cross currency swaps	Other assets	21,046		8,592
Fuel Swaps	Other current liabilities	6,262		6,537
Foreign currency forwards	Other current liabilities	591		162
Fuel swaps	Other long-term liabilities	28		239

Net Investment Hedges:
Foreign currency swaps	Other assets	$	28,171	$	18,614
Foreign currency swaps	Other long-term liabilities	—		9,973

Gains or losses recognized in the consolidated results of operations for cash flow hedging relationships are not significant for each of the periods presented. The location and amount of gains or losses recognized in the consolidated results of operations for fair value hedging relationships for each of the periods, presented on a pretax basis, are as follows:



	13-Week Period Ended Sep. 28, 2019
	Cost of Sales		Operating Expense		Interest Expense
	(In thousands)
Total amounts of income and expense line items presented in the consolidated results of operations in which the effects of fair value or cash flow hedges are recorded	$	12,359,635	$	2,275,052	$	83,335
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items ⁽¹⁾	$	—	$	—	$	(24,736	)
Derivatives designated as hedging instruments	—		—		8,857


⁽¹⁾	The hedged total includes interest expense of $14.6 million and change in fair value of debt of $10.2 million.



	13-Week Period Ended Sep. 29, 2018
	Cost of Sales		Operating Expense		Interest Expense
	(In thousands)
Total amounts of income and expense line items presented in the consolidated results of operations in which the effects of fair value or cash flow hedges are recorded	$	12,311,494	$	2,275,645	$	89,016
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items ⁽¹⁾	$	—	$	—	$	(8,588	)
Derivatives designated as hedging instruments	—		—		(10,859		)


⁽¹⁾	The hedged total includes interest expense of $15.1 million and change in fair value of debt of $6.5 million.

The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 13-week periods ended September 28, 2019 and September 29, 2018, presented on a pretax basis, are as follows:



	13-Week Period Ended Sep. 28, 2019
	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives			Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
	(In thousands)				(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps	$	344		Operating expense	$	(3,406	)
Foreign currency contracts	12,307			Cost of sales	2
Total	$	12,651			$	(3,404	)

Derivatives in net investment hedging relationships:
Foreign currency contracts	$	20,852		N/A	$	—
Foreign denominated debt	21,450			N/A	—
Total	$	42,302			$	—

	13-Week Period Ended Sep. 29, 2018
	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives			Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
	(In thousands)				(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps	$	1,026		Operating expense	$	4,353
Foreign currency contracts	(4,803		)	Cost of sales	483
Total	$	(3,777	)		$	4,836

Derivatives in net investment hedging relationships:
Foreign currency contracts	$	7,228		N/A	$	—
Foreign denominated debt	3,950			N/A	—
Total	$	11,178			$	—

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of September 28, 2019 are as follows:



	Sep. 28, 2019
	Carrying Amount of Hedged Assets (Liabilities)			Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities)
	(In thousands)
Balance sheet location:
Long-term debt	$	(2,312,113	)	$	(38,795	)

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of June 29, 2019 are as follows:



	Jun. 29, 2019
	Carrying Amount of Hedged Assets (Liabilities)			Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities)
	(In thousands)
Balance sheet location:
Long-term debt	$	(2,311,636	)	$	(28,616	)