DERIVATIVE FINANCIAL INSTRUMENTS

3 Months Ended

Oct. 01, 2022

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

The company 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, 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.

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 October 1, 2022 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

Hedging of foreign currency risk

Various (October 2022 to January 2023)

Swedish Krona

131

Various (October 2022 to December 2022)

British Pound Sterling

June 2023

Euro

500

Hedging of fuel risk

Various October 2022 to December 2024)

Gallons

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of October 1, 2022 and July 2, 2022 are as follows:


		Derivative Fair Value
	Balance Sheet location	Oct. 1, 2022		Jul. 2, 2022
		(In thousands)
Fair Value Hedges:


Interest rate swaps	Other current liabilities	$	7,136	$	2,820


Cash Flow Hedges:
Fuel swaps	Other current assets	$	16,188	$	47,170
Foreign currency forwards	Other current assets	945		633

Fuel swaps	Other assets	3		—

Fuel swaps	Other current liabilities	1,647		—

Fuel swaps	Other long-term liabilities	3,844		209

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
	Oct. 1, 2022		Oct. 2, 2021
	(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	$	124,150	$	128,214
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items	$	2,376	$	(2,433)
Derivatives designated as hedging instruments	(4,759)		(8,390)

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
	Oct. 1, 2022		Oct. 2, 2021
	(In thousands)
Interest expense	$	(1,939)	$	(6,526)
Decrease in fair value of debt	(4,315)		(4,093)
Hedged items	$	2,376	$	(2,433)

The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 13-week periods ended October 1, 2022 and October 2, 2021, presented on a pretax basis, are as follows:


	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	$	—
Total	$	31,346		$	—

	13-Week Period Ended Oct. 2, 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	$	(485)	Operating expense	$	7,972
Foreign currency contracts	(78)		Cost of sales / Other income	—

Total	$	(563)		$	7,972

Derivatives in net investment hedging relationships:

Foreign denominated debt	$	13,553	N/A	$	—
Total	$	13,553		$	—

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of October 1, 2022 are as follows:


	Oct. 1, 2022
	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	$	(568,766)	$	7,136

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of July 2, 2022 are as follows:


	Jul. 2, 2022
	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	$	(568,601)	$	2,820