Derivative Financial Instruments

9 Months Ended

Mar. 30, 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. In December 2018, the company entered into an interest rate swap agreement that effectively converted €500.0 million of fixed rate debt maturing in 2023 to floating rate debt.

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 March 30, 2019 are below:



Maturity Date of the Hedging Instrument	Currency / Unit of Measure	Notional Value
		(In millions)
Hedging of interest rate risk
April 2019	U.S. Dollar	500
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 (April 2019 to August 2019)	Swedish Krona	321
Various (April 2019 to December 2019)	British Pound Sterling	21
Various (April 2019 to December 2019)	U.S. Dollar	1
June 2021	Canadian Dollar	300
July 2021	British Pound Sterling	234
August 2021	British Pound Sterling	466
June 2023	Euro	500

Hedging of fuel risk
Various (March 31, 2019 to May 2020)	Gallons	57

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of March 30, 2019, June 30, 2018 and March 31, 2018 are as follows:



		Derivative Fair Value
	Balance Sheet location	Mar. 30, 2019		Jun. 30, 2018		Mar. 31, 2018
		(In thousands)
Fair Value Hedges:
Interest rate swaps	Other assets	$	18,627	$	—	$	1,800
Interest rate swaps	Other current liabilities	50		6,820		—
Interest rate swaps	Other long-term liabilities	22,461		49,734		49,256

Cash Flow Hedges:
Fuel Swaps	Other current assets	$	1,025	$	15,316	$	12,381
Foreign currency forwards	Other current assets	192		693		533
Fuel swaps	Other assets	397		—		—
Cross currency swaps	Other current assets	—		4,284		—
Cross currency swaps	Other assets	5,464		3,454		—
Fuel Swaps	Other current liabilities	5,352		—		—
Foreign currency forwards	Other current liabilities	945		71		88
Fuel swaps	Other long-term liabilities	85		—		—
Cross currency swaps	Other long-term liabilities	5,465		14,201		34,690

Net Investment Hedges:
Foreign currency swaps	Other assets	$	—	$	10,709	$	7,946
Foreign currency swaps	Other long-term liabilities	13,592		39,690		71,784

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 Mar. 30, 2019
	Cost of Goods Sold		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	$	11,903,776	$	2,224,713	$	94,514
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items ⁽¹⁾	$	—	$	—	$	(41,657	)
Derivatives designated as hedging instruments	—		—		18,865


⁽¹⁾	The hedged total includes interest expense of $17.1 million and change in fair value of debt of $24.6 million.



	13-Week Period Ended Mar. 31, 2018
	Cost of Goods Sold		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	$	11,673,876	$	2,193,425	$	136,145
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items ⁽¹⁾	$	—	$	—	$	419
Derivatives designated as hedging instruments	—		—		(15,740		)


⁽¹⁾	The hedged total includes interest expense of $13.6 million and change in fair value of debt of $14.1 million.



	39-Week Period Ended Mar. 30, 2019
	Cost of Goods Sold		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	$	36,209,265	$	6,820,175	$	270,643
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items ⁽¹⁾	$	—	$	—	$	(97,164	)
Derivatives designated as hedging instruments	—		—		39,556


⁽¹⁾	The hedged total includes interest expense of $47.8 million and change in fair value of debt of $49.3 million.



	39-Week Period Ended Mar. 31, 2018
	Cost of Goods Sold		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	$	35,242,736	$	6,538,562	$	303,015
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items ⁽¹⁾	$	—	$	—	$	(22,325	)
Derivatives designated as hedging instruments	—		—		(26,729		)


⁽¹⁾	The hedged total includes interest expense of $47.8 million and change in fair value of debt of $25.5 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 March 30, 2019 and March 31, 2018, presented on a pretax basis, are as follows:



	13-Week Period Ended Mar. 30, 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	$	16,276		Operating expense	$	(961	)
Foreign currency contracts	(14,244		)	Cost of goods sold	14
Total	$	2,032			$	(947	)

Derivatives in net investment hedging relationships:
Foreign currency contracts	$	(15,387	)	N/A	$	—
Foreign denominated debt	10,550			N/A	—
Total	$	(4,837	)		$	—

	13-Week Period Ended Mar. 31, 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	$	(1,195	)	Operating expense	$	4,438
Foreign currency contracts	(12,875		)	Cost of goods sold	348
Total	$	(14,070	)		$	4,786

Derivatives in net investment hedging relationships:
Foreign currency contracts	$	(24,420	)	N/A	$	—
Foreign denominated debt	(16,400		)	N/A	—
Total	$	(40,820	)		$	—

The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 39-week periods ended March 30, 2019 and March 31, 2018, presented on a pretax basis, are as follows:



	39-Week Period Ended Mar. 30, 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	$	(19,541	)	Operating expense	$	8,432
Foreign currency contracts	6,416			Cost of goods sold	505
Total	$	(13,125	)		$	8,937

Derivatives in net investment hedging relationships:
Foreign currency contracts	$	18,984		N/A	$	—
Foreign denominated debt	22,650			N/A	—
Total	$	41,634			$	—

	39-Week Period Ended Mar. 31, 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	$	18,855		Operating expense	$	5,679
Foreign currency contracts	(27,450		)	Cost of goods sold	1,178
Total	$	(8,595	)		$	6,857

Derivatives in net investment hedging relationships:
Foreign currency contracts	$	(56,580	)	N/A	$	—
Foreign denominated debt	(45,000		)	N/A	—
Total	$	(101,580	)		$	—

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of March 30, 2019 are as follows:



	Mar. 30, 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:
Current maturities of long-term debt	$	(499,997	)	$	58
Long-term debt	(2,311,161		)	3,264

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of June 30, 2018 are as follows:



	Jun. 30, 2018
	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	$	(499,610	)	$	5,097
Long-term debt	(1,743,732		)	47,555

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of March 31, 2018 are as follows:



	Mar. 31, 2018
	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	$	(2,242,904	)	$	45,030