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DERIVATIVE FINANCIAL INSTRUMENTS
9 Months Ended
Mar. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS DERIVATIVE FINANCIAL INSTRUMENTS
Sysco uses derivative financial instruments to enact hedging strategies for risk mitigation purposes; however, we do 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 second quarter of fiscal 2024, we entered into forward swap agreements to trade the fixed interest rate on $500 million of 6.00% senior notes with variable rates, starting in November 2024. The interest rate swap agreements are designated as fair value hedges and valued based on an income approach using observable market inputs including Secured Overnight Financing Rate (SOFR) yield curves. The company has incorporated credit valuation adjustments to appropriately reflect the risk of default in the fair value measurements. Changes in the fair value of the hedge and the carrying value of the hedged item attributable to changes in the benchmark interest rates being hedged are recognized in interest expense.

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.

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 (loss) and recognized into earnings over the life of the hedged instrument. Except for the excluded components, changes in the fair value of the hedge are offset against changes in the fair value of the hedged assets or liabilities through earnings.

In the second quarter of fiscal 2024, we entered into a cross-currency swap to hedge the foreign currency exposure of our net investment in certain foreign operations. This cross-currency swap is designated as a net investment hedge with gains and losses recognized within accumulated other comprehensive income (loss).

Cross-currency swaps are valued based on an income approach using observable market inputs including foreign currency rates and interest rates in both countries subject to the swap.

Hedging of fuel price risk

Sysco uses fuel commodity swap contracts to hedge against the risk of the change in the price of diesel fuel on anticipated future purchases. These swaps have been designated as cash flow hedges.
None of our hedging instruments contain credit-risk-related contingent features. Details of outstanding hedging instruments as of March 30, 2024 are presented below:
Maturity Date of the Hedging InstrumentCurrency / Unit of MeasureNotional Value
(In millions)
Hedging of interest rate risk
January 2034U.S. Dollar500
Hedging of foreign currency risk
Various (April 2024 to August 2024)Swedish Krona405
Various (April 2024 to October 2024)British Pound Sterling28
May 2024Mexican Peso439
April 2025Canadian Dollar180
January 2029Euro470
Hedging of fuel risk
Various (April 2024 to March 2026)Gallons53

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of March 30, 2024 and July 1, 2023 are as follows:
 Derivative Fair Value
 Balance Sheet locationMar. 30, 2024Jul. 1, 2023
(In thousands)
Fair Value Hedges:
Interest rate swapsOther assets$12,115 $— 
Interest rate swapsOther current liabilities543 — 
Cross currency swapsOther current liabilities1,986 1,262 
Cross currency swapsOther long-term liabilities2,134 — 
Cash Flow Hedges:
Fuel swapsOther current assets$1,914 $102 
Foreign currency forwardsOther current assets953 624 
Fuel swapsOther assets870 40 
Fuel swapsOther current liabilities1,898 17,932 
Foreign currency forwardsOther current liabilities121 404 
Fuel swapsOther long-term liabilities383 5,637 
Net Investment Hedges:
Cross currency swapsOther current assets$5,238 $— 
Cross currency swapsOther long-term liabilities18,557 — 

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 Ended39-Week Period Ended
Mar. 30, 2024Apr. 1, 2023Mar. 30, 2024Apr. 1, 2023
(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$168,233 $134,931 $464,132 $391,123 
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items$7,760 $(4,888)$(22,538)$(5,197)
Derivatives designated as hedging instruments(10,711)(394)11,355 (5,008)
Cross currency swaps:
Hedged items$3,070 $— $3,355 $— 
Derivatives designated as hedging instruments(3,070)— (3,355)— 

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 Ended39-Week Period Ended
Mar. 30, 2024Apr. 1, 2023Mar. 30, 2024Apr. 1, 2023
(In thousands)
Interest expense$(7,500)$(1,940)$(10,750)$(5,819)
Increase (decrease) in fair value of debt(15,260)2,948 11,788 (622)
Foreign currency gain3,070 — 3,355 — 
Hedged items$10,830 $(4,888)$(19,183)$(5,197)

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 March 30, 2024 and April 1, 2023, presented on a pretax basis, are as follows:
13-Week Period Ended Mar. 30, 2024
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on DerivativesLocation of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into IncomeAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps$13,980 Operating expense$(423)
Foreign currency contracts1,192 Cost of sales / Other income— 
Total$15,172 $(423)
Derivatives in net investment hedging relationships:
Cross currency contracts$9,042 N/A$— 
Derivatives in fair value hedging relationships:
Change in excluded component of fair value hedge$313 Other expense (income)$— 
13-Week Period Ended Apr. 1, 2023
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on DerivativesLocation of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into IncomeAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps$(27,031)Operating expense$(969)
Foreign currency contracts(878)Cost of sales / Other income— 
Total$(27,909)$(969)
Derivatives in net investment hedging relationships:
Foreign denominated debt$(7,201)N/A$— 
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 39-week periods ended March 30, 2024 and April 1, 2023, presented on a pretax basis, are as follows:

39-Week Period Ended Mar. 30, 2024
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on DerivativesLocation of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into IncomeAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps$23,955 Operating expense$2,580 
Foreign currency contracts401 Cost of sales / Other income— 
Total$24,356 $2,580 
Derivatives in net investment hedging relationships:
Cross currency contracts$(13,319)N/A$— 
Derivatives in fair value hedging relationships:
Change in excluded component of fair value hedge$497 Other expense (income)$— 
39-Week Period Ended Apr. 1, 2023
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on DerivativesLocation of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into IncomeAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps$(62,186)Operating expense$24,393 
Foreign currency contracts(543)Cost of sales / Other income— 
Total$(62,729)$24,393 
Derivatives in net investment hedging relationships:
Foreign denominated debt$(20,854)N/A$— 
The location and carrying amount of hedged liabilities in the consolidated balance sheet as of March 30, 2024 are as follows:
Mar. 30, 2024
Carrying Amount of Hedged Assets (Liabilities)Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities)
(In thousands)
Balance sheet location:
Long-term debt$(503,431)$(11,788)

The carrying amount of hedged liabilities in the consolidated balance sheet as of July 1, 2023 is zero.