DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company enters into certain derivative financial instruments, when available on a cost-effective basis, to mitigate its risk associated with changes in interest rates and foreign currency exchange rates as follows:

Interest rate risk management - The Company is exposed to the impact of interest rate changes. The Company's objective is to manage the impact of interest rate changes on cash flows and the market value of the Company's borrowings. The Company utilizes a mix of debt maturities along with both fixed-rate and variable-rate debt to manage changes in interest rates. In addition, the Company may enter into treasury-lock agreements ("T-Locks") and interest rate swap agreements on certain investing and borrowing transactions to manage its interest rate changes and to reduce its overall cost of borrowing.

Foreign currency exchange risk management - The Company conducts business in several major international currencies and is subject to risks associated with changing foreign exchange rates. The Company's objective is to reduce cash flow volatility associated with foreign exchange rate changes to allow management to focus its attention on business operations. Accordingly, the Company enters into various contracts that change in value as foreign exchange rates change to protect the value of existing foreign currency assets and liabilities, commitments and anticipated foreign currency revenue and expenses.

All derivative instruments are managed on a consolidated basis to efficiently net exposures and thus take advantage of any natural offsets. Gains and losses related to the derivative instruments are expected to be largely offset by gains and losses on the original underlying asset or liability. The Company does not use derivative financial instruments for speculative purposes. The notional amount of all derivatives outstanding was $468.5 million and $494.9 million at June 28, 2014 and June 29, 2013, respectively.

Derivatives Instruments Designated as Hedges

As of June 28, 2014 and June 29, 2013, all of the Company's designated hedging instruments were classified as cash flow hedges. As noted in Note 1, for cash flow hedges that meet hedge accounting criteria, the fair value is recorded in shareholders’ equity as a component of OCI, net of tax. These deferred gains and losses are recognized in income in the period in which the hedged item and hedging instrument affect earnings. Any ineffective portion of the change in fair value is immediately recognized in earnings.

Interest rate swaps

Interest rate swap agreements are contracts to exchange floating rate for fixed rate payments (or vice versa) over the life of the agreement without the exchange of the underlying notional amounts. The notional amounts of the interest rate swap agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The differential paid or received on the interest rate swap agreements is recognized as an adjustment to interest expense.

During fiscal 2014, the Company entered into a $1.0 billion Term Loan Agreement with floating interest rates priced off the LIBOR yield curve (see Note 7 for further information). The Company had preexisting forward interest rate swap agreements with a notional amount totaling $240.0 million to hedge the change in the LIBOR rate of its previous term loans, that were used to hedge the new Term Loan. At June 28, 2014 the after-tax loss for the effective portion of the hedge remaining in OCI totaled $5.0 million and is being amortized to earnings over the life of the debt.

During fiscal 2014, the Company entered into forward interest rate swap agreements to hedge against changes in interest rates that could impact the Company's new senior notes (discussed collectively in Note 7 as the "Bonds"). These swaps were designated as cash flow hedges of expected future debt issuances with a notional amount totaling $725.0 million. The agreements hedged the variability in future probable interest payments due to changes in the benchmark interest rate between the date the swap agreements were entered into and the date of future debt issuances. The interest rate swaps were settled upon the issuance of an aggregate of $2.3 billion principal amount on December 18, 2013 for a cumulative after-tax gain of $12.8 million, which was recorded in OCI and is being amortized to earnings over the life of the debt. Additionally, $0.5 million for the ineffective portion of the hedge was recorded to other expense (income), net. The effective portion remains in OCI at June 28, 2014 and is being amortized to earnings over the life of the debt.

During fiscal 2013, the Company entered into forward interest rate swap agreements with a notional amount totaling $300.0 million to hedge the exposure to the possible rise in the benchmark interest rate prior to the issuance of the 2.95% Unsecured Senior Notes due May 15, 2023 discussed in Note 7. The interest rate swaps were settled upon the issuance of an aggregate of $600.0 million principal amount for a cumulative after-tax loss of $2.6 million, which was recorded in OCI and was amortized to earnings to interest expense until its termination discussed further below.

During fiscal 2012, the Company entered into interest rate swap agreements with a notional value of $175.0 million to hedge the exposure to the possible rise in the benchmark interest rate prior to the issuance of the 4.52% Unsecured Senior Notes due December 15, 2023. The interest rate swaps were settled upon the issuance of an aggregate of $175.0 million principal amount for a cumulative after-tax loss of $0.8 million, which was recorded in OCI and was amortized to earnings as a reduction in interest expense until its termination discussed further below.

As further discussed in Note 7, the Company retired its private placement senior notes and redeemed its public bonds. Upon repayment of the underlying debt, the Company terminated the cash flow hedges related to the debt, resulting in a loss of $2.6 million recorded to other expense (income), net during fiscal 2014.

Foreign currency forward contracts

The Company enters into foreign currency forward contracts in order to hedge the impact of fluctuations of foreign exchange on expected future purchases and related payables denominated in a foreign currency and to hedge the impact of fluctuations of foreign exchange on expected future sales and related receivables denominated in a foreign currency. Both types of forward contracts have a maximum maturity date of 15 months.

During fiscal 2014, the Company reclassified $0.1 million from AOCI to earnings related to the discontinuance of certain cash flow hedges, as the Company no longer considered it probable that the original forecasted transactions would occur.

Derivative Instruments Not Designated as Hedges

The Company also has forward foreign currency contracts that are not designated as hedging instruments. Accordingly, these derivative instruments are adjusted to current market value at the end of each period through earnings. The gains or losses on these instruments are substantially offset by the remeasurement adjustment on the foreign currency denominated asset or liability. The settlement of the derivative instrument and the remeasurement adjustment on the foreign currency denominated asset or liability are both recorded in other expense (income), net at the end of each period. The Company recorded a loss of $0.1 million, a gain of $4.7 million, and a loss of $2.7 million related to these contracts during fiscal 2014, 2013, and 2012, respectively.

Fair Value Hedges

During fiscal 2014, the Company entered into three pay-floating interest rate swaps with a total notional amount of $425.0 million to hedge changes in the fair value of the Company's senior notes from fluctuations in interest rates. These swaps were designated and qualified as fair value hedges of the Company's fixed rate debt. Accordingly, the gain or loss recorded on the pay-floating interest rate swaps was directly offset by the change in fair value of the underlying debt. Both the derivative instrument and the underlying debt were adjusted to market value at the end of each period with any resulting gain or loss recorded in other expense (income), net. As a result, the Company recorded a net hedge loss of $3.2 million in other expense (income), net during fiscal 2014.

Due to the retirement of the underlying senior notes described in Note 7, the Company terminated its fair value hedges by settling the swap contracts, resulting in net proceeds of $0.9 million. In addition, a loss of $4.1 million was recognized on the change in the fair value of the underlying debt and was recorded in other expense (income), net, during fiscal 2014.

The balance sheet location and gross fair value of the Company's derivative instruments at June 28, 2014 and June 29, 2013 were as follows (in millions):



	Asset Derivatives
	Balance Sheet Location	Fair Value
		June 28, 2014		June 29, 2013
Hedging derivatives:
Foreign currency forward contracts	Other current assets	$	2.8	$	7.2
Total hedging derivatives		$	2.8	$	7.2
Non-hedging derivatives:
Foreign currency forward contracts	Other current assets	$	0.3	$	0.8
Total non-hedging derivatives		$	0.3	$	0.8



	Liability Derivatives
	Balance Sheet Location	Fair Value
		June 28, 2014		June 29, 2013
Hedging derivatives:
Foreign currency forward contracts	Accrued liabilities	$	0.7	$	0.2
Interest rate swap agreements	Other non-current liabilities	8.3		10.8
Total hedging derivatives		$	9.0	$	11.0
Non-hedging derivatives:
Foreign currency forward contracts	Accrued liabilities	$	0.1	$	0.2
Total non-hedging derivatives		$	0.1	$	0.2

The effects (gross of tax) of the Company's cash flow hedges on the Statements of Operations and Statements of Other Comprehensive Income (Loss) at June 28, 2014 and June 29, 2013 were as follows (in millions):



Derivatives Qualifying for Cash Flow Hedging	Amount of (Gain)/ Loss Recognized in OCI on Derivative (Effective Portion)					Location and Amount of (Gain)/Loss Reclassified from Accumulated OCI into Income (Effective Portion)							Location and Amount of (Gain)/Loss Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	June 28, 2014			June 29, 2013			June 28, 2014			June 29, 2013				June 28, 2014			June 29, 2013
T-Locks	$	—		$	—	Interest, net	$	(0.2	)	$	0.4		Interest, net	$	(2.3	)	$	—
Interest rate swap agreements	(7.2		)	1.3		Interest, net	(3.9		)	(5.0		)	Interest, net	5.4			—
Foreign currency forward contracts	(15.1		)	10.6		Net sales	2.5			2.9			Net sales	0.1			—
						Cost of sales	6.3			(4.3		)	Cost of sales	(0.3		)	(0.2		)
						Interest, net	0.2			0.1
						Other (income)expense, net	2.2			3.2
Total	$	(22.3	)	$	11.9		$	7.1		$	(2.7	)		$	2.9		$	(0.2	)

The Company expects $5.1 million to be reclassified from AOCI into earnings over the next 12 months. This reclassification is due to the sale of inventory that includes previously hedged purchases and the amortization of the gain or loss recognized on the settlement of the Company's interest rate swaps.

The effects (gross of tax) of the Company's fair value hedges on the Statements of Operations at June 28, 2014 and June 29, 2013 were as follows (in millions):



Fair Value Hedges	Location and Amount of (Gain)/Loss Recognized into Income						Related Hedged Item	Location and Amount of (Gain)/Loss Recognized in Income on Related Hedged Item
		June 28, 2014			June 29, 2013				June 28, 2014		June 29, 2013
Interest rate swap agreements	Other expense (income), net	$	(0.9	)	$	—	Fixed-rate debt	Other expense (income), net	$	4.1	$	—