DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Jun. 29, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 utilizes 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 June 29, 2019 are 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 (July 2019 to October 2019)	Swedish Krona	229
Various (July 2019 to December 2019)	British Pound Sterling	13
June 2021	Canadian Dollar	235
July 2021	British Pound Sterling	234
August 2021	British Pound Sterling	466
June 2023	Euro	500

Hedging of fuel risk
Various (June 30, 2019 to June 2020)	Gallons	51

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of June 29, 2019 and June 30, 2018 are as follows:



		Derivative Fair Value
	Balance Sheet Location	Jun. 29, 2019		Jun. 30, 2018
		(In thousands)
Fair Value Hedges:
Interest rate swaps	Other assets	$	37,396	$	—
Interest rate swaps	Other current liabilities	—		6,820
Interest rate swaps	Other long-term liabilities	9,285		49,734

Cash Flow Hedges:
Fuel Swaps	Other current assets	$	154	$	15,316
Foreign currency forwards	Other current assets	624		693
Cross currency swaps	Other current assets	—		4,284
Fuel swaps	Other assets	136		—
Cross currency swaps	Other assets	8,592		3,454
Fuel Swaps	Other current liabilities	6,537		—
Foreign currency forwards	Other current liabilities	162		71
Fuel swaps	Other long-term liabilities	239		—
Cross currency swaps	Other long-term liabilities	—		14,201

Net Investment Hedges:
Foreign currency swaps	Other assets	$	18,614	$	10,709
Foreign currency swaps	Other long-term liabilities	9,973		39,690

The location and amount of gains or losses recognized in the consolidated results of operations for fair value and cash flow hedging relationships for each of the periods, presented on a pretax basis, are as follows:



	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	$	48,704,935	$	9,078,837	$	360,423
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items ⁽¹⁾	$	—	$	—	$	(143,711	)
Derivatives designated as hedging instruments	—		—		68,689


⁽¹⁾	The hedged total includes interest expense of $62.4 million and change in fair value of debt of $81.3 million.



	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	$	47,641,933	$	8,771,335	$	395,483
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items ⁽¹⁾	$	—	$	—	$	(30,418	)
Derivatives designated as hedging instruments	—		—		(39,540		)


⁽¹⁾	The hedged total includes interest expense of $63.5 million and change in fair value of debt of $33.1 million.

The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the fiscal years ended June 29, 2019 and June 30, 2018, presented on a pretax basis, are as follows:



	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	$	(22,100	)	Operating expense	$	8,180
Foreign currency contracts	16,706			Cost of goods sold	509
Total	$	(5,394	)		$	8,689

Derivatives in net investment hedging relationships:
Foreign currency contracts	$	42,488		N/A	$	—
Foreign denominated debt	15,650			N/A	—
Total	$	58,138			$	—



	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	$	21,878		Operating expense	$	13,983
Foreign currency contracts	1,118			Cost of goods sold	1,776
Total	$	22,996			$	15,759

Derivatives in net investment hedging relationships:
Foreign currency contracts	$	(20,584	)	N/A	$	—
Foreign denominated debt	(12,700		)	N/A	—
Total	$	(33,284	)		$	—

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	)

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