DERIVATIVE FINANCIAL INSTRUMENTS

3 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTSSysco 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.

Hedging of foreign currency risk

Sysco’s operations in Europe have inventory purchases denominated in currencies other than their functional currency, such as the euro, U.S. dollar, British pound sterling, 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.

Additionally, Sysco has cross-currency swaps designated as fair value hedges for the purpose of hedging foreign currency risk associated with changes in spot rates on foreign denominated intercompany loans. Sysco has elected to exclude the changes in fair value of the forward points from the assessments of hedge effectiveness. Gains or losses from fair value hedges impact the same category on the consolidated statements of income as the item being hedged, including the earnings impact of the excluded components. Unrealized gains or losses on components excluded from hedge effectiveness are recorded as a component of accumulated other comprehensive income and recognized into earnings over the life of the hedged instrument. Except for the excluded components, changes in the fair value of the derivative instrument designated as a fair value hedge are offset against changes in fair value of the hedged assets or liabilities through earnings.

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 30, 2023 are presented below:

Maturity Date of the Hedging Instrument

Currency / Unit of Measure

Notional Value

(In millions)

Hedging of foreign currency risk

Various (October 2023)

Swedish Krona

Various (October 2023 to April 2024)

British Pound Sterling

May 2024

Mexican Peso

439

April 2025

Canadian Dollar

180

Hedging of fuel risk

Various (October 2023 to December 2025)

Gallons

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of September 30, 2023 and July 1, 2023 are as follows:


		Derivative Fair Value
	Balance Sheet location	Sep. 30, 2023		Jul. 1, 2023
		(In thousands)
Fair Value Hedges:




Cross currency swaps	Other current liabilities	$	785	$	1,262
Cross currency swaps	Other long-term liabilities	2,237		—

Cash Flow Hedges:
Fuel swaps	Other current assets	9,509		102
Foreign currency forwards	Other current assets	178		624

Fuel swaps	Other assets	2,290		40

Fuel swaps	Other current liabilities	725		17,932
Foreign currency forwards	Other current liabilities	225		404
Fuel swaps	Other long-term liabilities	1		5,637

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. 30, 2023		Oct. 1, 2022
	(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	$	6,640	$	124,150
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items	$	—	$	2,376
Derivatives designated as hedging instruments	—		(4,759)
Cross currency swaps:
Hedged items	$	2,996	$	—
Derivatives designated as hedging instruments	(2,996)		—

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


	13-Week Period Ended
	Sep. 30, 2023		Oct. 1, 2022
	(In thousands)
Interest expense	$	—	$	(1,939)
Decrease in fair value of debt	—		(4,315)
Foreign currency gain (loss)	(2,996)		—
Hedged items	$	2,996	$	2,376

The location and effect of cash flow, net investment, and excluded components of fair value hedges on the consolidated statements of comprehensive income for the 13-week periods ended September 30, 2023 and October 1, 2022, presented on a pretax basis, are as follows:


	13-Week Period Ended Sep. 30, 2023
	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	$	34,499	Operating expense	$	2,334
Foreign currency contracts	(284)		Cost of sales / Other income	—

Total	$	34,215		$	2,334

Derivatives in net investment hedging relationships:

Foreign denominated debt	$	—	N/A	$	—


Derivatives in fair value hedging relationships:
Change in excluded component of fair value hedge	$	(26)	Other expense (income)	$	—

	13-Week Period Ended Oct. 1, 2022
	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	$	(36,295)	Operating expense	$	12,985
Foreign currency contracts	286		Cost of sales / Other income	—

Total	$	(36,009)		$	12,985

Derivatives in net investment hedging relationships:

Foreign denominated debt	$	31,346	N/A	$	—