DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Jul. 03, 2021

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 fiscal 2021, Sysco settled some of its previously held interest rate swap contracts, which had notional values of $750 million and $500 million, due to the redemption of Sysco’s 2.60% senior notes and 2.50% senior notes, respectively.

Hedging of foreign currency risk

Sysco previously entered into cross-currency swap contracts to hedge the foreign currency transaction risk of certain intercompany loans. There were no credit-risk related contingent features associated with these swaps, which had been designated as cash flow hedges. In the first quarter of 2021, Sysco settled its cross-currency swaps, which had a notional value of £234 million. The company also uses 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 July 3, 2021 are presented below:

Maturity Date of the Hedging Instrument

Currency / Unit of Measure

Notional Value

(In millions)

Hedging of interest rate risk

June 2023

Euro

500

March 2025

U.S. Dollar

500

Hedging of foreign currency risk

Various (July 2021 to August 2021)

Swedish Krona

Various (July 2021 to December 2021)

British Pound Sterling

June 2023

Euro

500

Hedging of fuel risk

Various (July 2021 to June 2022)

Gallons

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of July 3, 2021 and June 27, 2020 are as follows:


		Derivative Fair Value
	Balance Sheet location	Jul. 3, 2021		Jun. 27, 2020
		(In thousands)
Fair Value Hedges:
Interest rate swaps	Other current assets	$	—	$	1,388
Interest rate swaps	Other assets	43,217		69,782



Cash Flow Hedges:
Fuel swaps	Other current assets	$	16,732	$	233
Foreign currency forwards	Other current assets	42		1,063

Fuel swaps	Other assets	—		1,173
Cross currency swaps	Other assets	—		19,614
Fuel swaps	Other current liabilities	—		28,242
Foreign currency forwards	Other current liabilities	46		222

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:


	Jul. 3, 2021		Jun. 27, 2020
	(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	$	880,137	$	408,220
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items	$	(15,749)	$	(101,255)
Derivatives designated as hedging instruments	(53,701)		44,489

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


	Jul. 3, 2021		Jun. 27, 2020
	(In thousands)
Interest expense	$	(44,159)	$	(58,244)
Increase (decrease) in fair value of debt	(28,410)		43,011
Hedged items	$	(15,749)	$	(101,255)

The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the fiscal years ended July 3, 2021 and June 27, 2020, presented on a pretax basis, are as follows:


	2021
	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	$	39,644	Operating expense	$	(17,470)
Foreign currency contracts	(20,578)		Cost of sales / Other income	(2,692)
Total	$	19,066		$	(20,162)

Derivatives in net investment hedging relationships:

Foreign denominated debt	(32,206)		N/A	—
Total	$	(32,206)		$	—


	2020
	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	$	(16,586)	Operating expense	$	(22,058)
Foreign currency contracts	6,755		Cost of sales / Other income	3,626
Total	$	(9,831)		$	(18,432)

Derivatives in net investment hedging relationships:
Foreign currency contracts	$	51,354	N/A	$	—
Foreign denominated debt	7,402		N/A	—
Total	$	58,756		$	—

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of July 3, 2021 are as follows:


	Jul. 3, 2021
	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	$	(1,065,364)	$	(43,217)

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of June 27, 2020 are as follows:


	Jun. 27, 2020
	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	$	(749,924)	$	(1,388)
Long-term debt	(1,563,636)		(70,239)