Derivative Financial Instruments

3 Months Ended

Sep. 26, 2020

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. In the first quarter of fiscal 2021, Sysco settled some of its previously held interest rate swap contracts, which had a notional value of $750 million, due to the redemption of Sysco’s 2.60% senior notes.

Hedging of foreign currency risk

Sysco previously entered into cross-currency swap contracts to hedge the foreign currency transaction risk of certain intercompany loans. There were no credit-risk related contingent features associated with these swaps, which had been designated as cash flow hedges. In the first quarter of 2021, Sysco settled its cross-currency swaps, which had a notional value of £234 million. The company also previously used 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 26, 2020 are presented below:

Maturity Date of the Hedging Instrument

Currency / Unit of Measure

Notional Value

(In millions)

Hedging of interest rate risk

July 2021

U.S. Dollar

500

June 2023

Euro

500

March 2025

U.S. Dollar

500

Hedging of foreign currency risk

Various (September 28, 2020 to October 2020)

Swedish Krona

Various (October 2020 to February 2021)

British Pound Sterling

June 2023

Euro

500

Hedging of fuel risk

Various (September 30, 2020 to December 2021)

Gallons

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of September 26, 2020 and June 27, 2020 are as follows:


		Derivative Fair Value
	Balance Sheet location	Sep. 26, 2020		Jun. 27, 2020
		(In thousands)
Fair Value Hedges:
Interest rate swaps	Other current assets	$	4,013	$	1,388
Interest rate swaps	Other assets	62,594		69,782



Cash Flow Hedges:
Fuel swaps	Other current assets	$	455	$	233
Foreign currency forwards	Other current assets	753		1,063

Fuel swaps	Other assets	385		1,173
Cross currency swaps	Other assets	—		19,614
Fuel swaps	Other current liabilities	21,160		28,242
Foreign currency forwards	Other current liabilities	—		222

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. 26, 2020		Sep. 28, 2019
	(In thousands)
Total amounts of income and expense line items presented in the consolidated results of operations in which the effects of fair value hedges are recorded	$	146,717	$	83,335
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items	$	(9,998)	$	(24,736)
Derivatives designated as hedging instruments	3,457		8,857

The losses on the fair value hedging relationships associated with the hedged items as disclosed in the table above are comprised of the following components for each of the periods presented:


	13-Week Period Ended
	Sep. 26, 2020		Sep. 28, 2019
	(In thousands)
Interest expense	$	(14,834)	$	(14,557)
Increase (decrease) in fair value of debt	(4,836)		10,179
Hedged items	$	(9,998)	$	(24,736)

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 26, 2020 and September 28, 2019, presented on a pretax basis, are as follows:


	13-Week Period Ended Sep. 26, 2020
	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	$	2,891	Operating expense	$	(8,652)
Foreign currency contracts	(19,732)		Cost of sales / Other income	(2,692)

Total	$	(16,841)		$	(11,344)

Derivatives in net investment hedging relationships:

Foreign denominated debt	(36,550)		N/A	—
Total	$	(36,550)		$	—

	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 / Other income	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		$	—

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of September 26, 2020 are as follows:


	Sep. 26, 2020
	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:
Current maturities of long-term debt	$	(499,678)	$	(4,198)
Long-term debt	(1,064,374)		(62,594)

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of June 27, 2020 are as follows:


	Jun. 27, 2020
	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:
Current maturities of long-term debt	$	(749,924)	$	(1,388)
Long-term debt	(1,563,636)		(70,239)