Leases

3 Months Ended

Sep. 28, 2019

Leases [Abstract]

Leases

LEASES

Sysco leases certain of its distribution and warehouse facilities, office facilities, fleet vehicles, and office and warehouse equipment. The company determines if an arrangement is a lease at inception and recognizes a finance or operating lease liability and ROU asset in the consolidated balance sheets if a lease exists. Lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at the commencement date. If the borrowing rate implicit in the lease is not readily determinable, Sysco uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments.

The lease term is defined as the noncancelable period of the lease plus any options to extend or terminate the lease when it is reasonably certain that the company will exercise one of these options. Leases with an initial term of 12 months or less are not recorded in Sysco’s consolidated balance sheets, and the company recognizes expense for these leases on a straight-line basis over the lease term. Variable lease payments that do not depend on an index or a rate, such as insurance and property taxes, are excluded from the measurement of the lease liability and are recognized as variable lease cost when the obligation for that payment is incurred. For leases in which the lease and non-lease components have been combined, the variable lease expense includes expenses such as common area maintenance, utilities, and repairs and maintenance. Sysco’s leases do not contain significant residual value guarantees and do not impose significant restrictions or covenants.

The following table presents the location of the finance lease ROU assets and lease liabilities in the company’s Consolidated Balance Sheet at September 28, 2019:

	Consolidated Balance Sheet Location	September 28, 2019
		(In thousands)
Finance lease right-of-use assets	Plant and equipment at cost, less accumulated depreciation	$	92,052
Current finance lease liabilities	Current maturities of long-term debt	27,300
Long-term finance lease liabilities	Long-term debt	69,213

The following table presents lease costs for the 13-week period ended September 28, 2019:

	Consolidated Results of Operations Location	13-Week Period Ended Sep. 28, 2019
		(In thousands)
Operating lease cost	Operating expenses	$	30,425
Financing lease cost:
Amortization of right-of-use assets	Operating expenses	8,613
Interest on lease obligations	Interest expense	1,182
Variable lease cost	Operating expenses	468
Short-term lease cost	Operating expenses	2,896
Net lease cost		$	43,584

Future minimum lease obligations under existing noncancelable operating and finance lease agreements by fiscal year as of September 28, 2019 are as follows:

	Operating Leases			Finance Leases
	(In thousands)
Remainder of fiscal 2020	$	88,622		$	24,112
2021	109,589			27,829
2022	84,288			20,370
2023	68,088			14,046
2024	46,874			8,912
2025	43,721			5,742
Thereafter	322,335			6,378
Total undiscounted lease obligations	763,517			107,389
Less imputed interest	(115,407		)	(10,876		)
Present value of lease obligations	$	648,110		$	96,513

Other information related to lease agreements was as follows:

	13-Week Period Ended Sep. 28, 2019
Cash Paid For Amounts Included In Measurement of Liabilities:	(Dollars in thousands)
Operating cash flows for operating leases	$	30,597
Operating cash flows for financing leases	1,182
Financing cash flows for financing leases	7,232
Supplemental Non-cash Information on Lease Liabilities:
Assets obtained in exchange for operating lease obligations	$	5,781
Assets obtained in exchange for finance lease obligations	1,553
Lease Term and Discount Rate:
Weighted-average remaining lease term (years):
Operating leases	11.35 years
Financing leases	4.34 years
Weighted-average discount rate:
Operating leases	2.39		%
Financing leases	4.96		%

Leases

LEASES

Sysco leases certain of its distribution and warehouse facilities, office facilities, fleet vehicles, and office and warehouse equipment. The company determines if an arrangement is a lease at inception and recognizes a finance or operating lease liability and ROU asset in the consolidated balance sheets if a lease exists. Lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at the commencement date. If the borrowing rate implicit in the lease is not readily determinable, Sysco uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments.

The lease term is defined as the noncancelable period of the lease plus any options to extend or terminate the lease when it is reasonably certain that the company will exercise one of these options. Leases with an initial term of 12 months or less are not recorded in Sysco’s consolidated balance sheets, and the company recognizes expense for these leases on a straight-line basis over the lease term. Variable lease payments that do not depend on an index or a rate, such as insurance and property taxes, are excluded from the measurement of the lease liability and are recognized as variable lease cost when the obligation for that payment is incurred. For leases in which the lease and non-lease components have been combined, the variable lease expense includes expenses such as common area maintenance, utilities, and repairs and maintenance. Sysco’s leases do not contain significant residual value guarantees and do not impose significant restrictions or covenants.

The following table presents the location of the finance lease ROU assets and lease liabilities in the company’s Consolidated Balance Sheet at September 28, 2019:

	Consolidated Balance Sheet Location	September 28, 2019
		(In thousands)
Finance lease right-of-use assets	Plant and equipment at cost, less accumulated depreciation	$	92,052
Current finance lease liabilities	Current maturities of long-term debt	27,300
Long-term finance lease liabilities	Long-term debt	69,213

The following table presents lease costs for the 13-week period ended September 28, 2019:

	Consolidated Results of Operations Location	13-Week Period Ended Sep. 28, 2019
		(In thousands)
Operating lease cost	Operating expenses	$	30,425
Financing lease cost:
Amortization of right-of-use assets	Operating expenses	8,613
Interest on lease obligations	Interest expense	1,182
Variable lease cost	Operating expenses	468
Short-term lease cost	Operating expenses	2,896
Net lease cost		$	43,584

Future minimum lease obligations under existing noncancelable operating and finance lease agreements by fiscal year as of September 28, 2019 are as follows:

	Operating Leases			Finance Leases
	(In thousands)
Remainder of fiscal 2020	$	88,622		$	24,112
2021	109,589			27,829
2022	84,288			20,370
2023	68,088			14,046
2024	46,874			8,912
2025	43,721			5,742
Thereafter	322,335			6,378
Total undiscounted lease obligations	763,517			107,389
Less imputed interest	(115,407		)	(10,876		)
Present value of lease obligations	$	648,110		$	96,513

Other information related to lease agreements was as follows:

	13-Week Period Ended Sep. 28, 2019
Cash Paid For Amounts Included In Measurement of Liabilities:	(Dollars in thousands)
Operating cash flows for operating leases	$	30,597
Operating cash flows for financing leases	1,182
Financing cash flows for financing leases	7,232
Supplemental Non-cash Information on Lease Liabilities:
Assets obtained in exchange for operating lease obligations	$	5,781
Assets obtained in exchange for finance lease obligations	1,553
Lease Term and Discount Rate:
Weighted-average remaining lease term (years):
Operating leases	11.35 years
Financing leases	4.34 years
Weighted-average discount rate:
Operating leases	2.39		%
Financing leases	4.96		%