Derivative Instruments

9 Months Ended

Jul. 02, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS:

The Company enters into contractual derivative arrangements to manage changes in market conditions related to interest on debt obligations, foreign currency exposures and exposure to fluctuating gasoline and diesel fuel prices. Derivative instruments utilized during the period include interest rate swap agreements, foreign currency forward exchange contracts and gasoline and diesel fuel agreements. All derivative instruments are recognized as either assets or liabilities on the balance sheet at fair value at the end of each quarter. The counterparties to the Company's contractual derivative agreements are all major international financial institutions. The Company is exposed to credit loss in the event of nonperformance by these counterparties. The Company continually monitors its positions and the credit ratings of its counterparties and does not anticipate nonperformance by the counterparties. For designated hedging relationships, the Company formally documents the hedging relationship and its risk management objective and strategy for undertaking the hedge, the hedging instrument, the hedged item, the nature of the risk being hedged and how the hedging instrument's effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively for designated hedges. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting cash flows of hedged items.

Cash Flow Hedges

The Company has approximately $3.1 billion notional amount of outstanding interest rate swap agreements as of July 2, 2021, which fix the rate on a like amount of variable rate borrowings through December of fiscal 2028. During the nine months ended July 2, 2021, the Company entered into approximately $500.0 million notional amount of forward starting interest rate swap agreements to hedge the cash flow risk of variability in interest payments on variable rate borrowings. During the nine months ended July 2, 2021, interest rate swaps with notional amounts of $250.0 million matured.

Changes in the fair value of a derivative that is designated as and meets all the required criteria for a cash flow hedge are recorded in accumulated other comprehensive income (loss) and reclassified into earnings as the underlying hedged item affects earnings. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. As of July 2, 2021 and October 2, 2020, approximately ($57.6) million and ($87.6) million, respectively, of unrealized net of tax losses related to the interest rate swaps were included in "Accumulated other comprehensive loss."

The following table summarizes the effect of the Company's derivatives designated as cash flow hedging instruments on Other comprehensive income (loss) (in thousands):


	Three Months Ended
	July 2, 2021		June 26, 2020
Interest rate swap agreements1	$	(8,604)	$	(22,688)

	Nine Months Ended
	July 2, 2021		June 26, 2020
Interest rate swap agreements1	$	2,323	$	(108,018)


(1)			The nine month period of fiscal 2020 was impacted by changes in interest rates due to actions taken by the federal government in response to COVID-19.

Derivatives not Designated in Hedging Relationships

The Company entered into a series of pay fixed/receive floating gasoline and diesel fuel agreements based on the Department of Energy weekly retail on-highway index in order to limit its exposure to price fluctuations for gasoline and diesel fuel. As of July 2, 2021, the Company has contracts for approximately 6.0 million gallons outstanding through March of fiscal 2022. The Company does not record its gasoline and diesel fuel agreements as hedges for accounting purposes. The impact on earnings related to the change in fair value of these unsettled contracts was a loss of approximately $0.7 million and a gain of approximately $5.1 million for the three and nine months ended July 2, 2021, respectively. The impact on earnings related to the change in fair value of these unsettled contracts was a gain of approximately $5.0 million and a loss of approximately $4.0 million for the three and nine months ended June 26, 2020, respectively. The change in fair value for unsettled contracts is included in "Selling and general corporate expenses" on the Condensed Consolidated Statements of Income (Loss). When the contracts settle, the gain or loss is recorded to "Cost of services provided (exclusive of depreciation and amortization)" on the Condensed Consolidated Statements of Income (Loss).

As of July 2, 2021, the Company had foreign currency forward exchange contracts outstanding with nominal notional amounts to mitigate the risk of changes in foreign currency exchange rates on short-term intercompany loans to certain international subsidiaries. Gains and losses on foreign currency exchange contracts are recognized in earnings as the contracts were not designated as hedging instruments, substantially offsetting currency transaction gains and losses on short-term intercompany loans.

The following table summarizes the location and fair value, using Level 2 inputs (see Note 14 for a description of the fair value levels), of the Company's derivatives designated and not designated as hedging instruments in the Condensed Consolidated Balance Sheets (in thousands):


	Balance Sheet Location	July 2, 2021		October 2, 2020
ASSETS




Not designated as hedging instruments:

Gasoline and diesel fuel agreements	Prepayments and other current assets	$	3,343	$	—


LIABILITIES
Designated as hedging instruments:
Interest rate swap agreements	Accounts payable	3,070		1,494
Interest rate swap agreements	Other Noncurrent Liabilities	74,822		116,882
		77,892		118,376

Not designated as hedging instruments:
Foreign currency forward exchange contracts	Accounts payable	78		121
Gasoline and diesel fuel agreements	Accounts payable	—		1,805
		$	77,970	$	120,302

The following table summarizes the location of the (gain) loss reclassified from "Accumulated other comprehensive loss" into earnings for derivatives designated as hedging instruments and the location of the (gain) loss for the Company's derivatives not designated as hedging instruments in the Condensed Consolidated Statements of Income (Loss) (in thousands):


		Three Months Ended
	Income Statement Location	July 2, 2021		June 26, 2020
Designated as hedging instruments:
Interest rate swap agreements	Interest and Other Financing Costs, net	$	12,362	$	12,319
Not designated as hedging instruments:
Gasoline and diesel fuel agreements	Cost of services provided (exclusive of depreciation and amortization) / Selling and general corporate expenses	(1,208)		(2,013)
Foreign currency forward exchange contracts	Interest and Other Financing Costs, net	60		45
		(1,148)		(1,968)
		$	11,214	$	10,351

		Nine Months Ended
	Income Statement Location	July 2, 2021		June 26, 2020
Designated as hedging instruments:
Interest rate swap agreements	Interest and Other Financing Costs, net	$	38,161	$	17,692
Not designated as hedging instruments:
Gasoline and diesel fuel agreements	Cost of services provided (exclusive of depreciation and amortization) / Selling and general corporate expenses	(7,235)		6,892
Foreign currency forward exchange contracts	Interest and Other Financing Costs, net	(43)		113
		(7,278)		7,005
		$	30,883	$	24,697

At July 2, 2021, the net of tax loss expected to be reclassified from "Accumulated other comprehensive loss" into earnings over the next twelve months based on current market rates is approximately $33.8 million.