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 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 currencies other than the U.S. dollar 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 on a consolidated basis 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 sales 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 offset largely by gains and losses on the original underlying asset or liability. The Company does not use derivative financial instruments for speculative purposes.

All of the Company's designated derivatives were classified as cash flow hedges as of March 28, 2015 and June 28, 2014. Designated derivatives meet hedge accounting criteria, which means the fair value of the hedge is recorded in shareholders’ equity as a component of Other comprehensive income ("OCI"), net of tax. The deferred gains and losses are recognized in income in the period in which the hedged item affects earnings. Any ineffective portion of the change in fair value of the derivative is immediately recognized in earnings. All of the Company's designated derivatives are assessed for hedge effectiveness quarterly.

The Company also has economic non-designated derivatives that do not meet hedge accounting criteria. These derivative instruments are adjusted to current market value at the end of each period through earnings. Gains or losses on these instruments are offset substantially by the remeasurement adjustment on the hedged item.

Interest Rate Swaps and Treasury Locks

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. All of the Company's interest rate swaps qualify for hedge accounting.

The Company has term loans with floating interest rates priced off the LIBOR yield curve, as described in Note 8. To hedge the change in the LIBOR rate, the Company has outstanding forward interest rate swap agreements with a notional amount totaling $240.0 million. The effective portion of the hedge remains in AOCI and is being amortized to earnings over the life of the debt.

During the second quarter of fiscal 2015, the Company entered into forward interest rate swaps and treasury locks (together "Rate Locks") to hedge against changes in the interest rates between the date the Rate Locks were entered into and the date of the issuance of the Company's 2014 Bonds, discussed in Note 8. These Rate Locks were designated as cash flow hedges of expected future debt issuances with a notional amount totaling $750.0 million. The Rate Locks were settled upon the issuance of an aggregate of $1.6 billion principal amount on December 2, 2014 for a cumulative after-tax loss of $5.8 million after recording $1.1 million of ineffectiveness.

During the first quarter of fiscal 2014, the Company entered into forward interest rate swap agreements to hedge against changes in the benchmark interest rate between the date the swap agreements were entered into and the date of the issuance of the 2013 Bonds, discussed in Note 8. These swaps were designated as cash flow hedges of expected future debt issuances with a notional amount totaling $725.0 million. 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 loss of $12.8 million after recording $0.5 million of ineffectiveness.

In addition, due to the retirement of the underlying private placement senior notes (described in Note 8 as "the Notes") on December 23, 2013, the Company wrote off the amounts remaining in OCI associated with the cash flow hedges related to the Notes, resulting in a loss of $2.6 million recorded against earnings.

Foreign Currency Derivatives

The Company enters into foreign currency forward contracts, both designated and non-designated, in order to manage the impact of foreign exchange fluctuations on expected future purchases and related payables denominated in a foreign currency, and to hedge the impact of foreign exchange fluctuations 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. The total notional amount for these contracts was $329.8 million and $228.5 million as of March 28, 2015 and June 28, 2014, respectively.

In November 2014, in order to economically hedge the foreign currency exposure associated with the planned payment of the euro-denominated purchase price of Omega, the Company entered into non-designated option contracts with a total notional amount of €2.0 billion. The option contracts settled in December 2014, resulting in a loss of $26.4 million recorded against earnings. The option contracts were replaced with non-designated forward contracts that matured during third quarter of fiscal year 2015. The Company recorded losses of $259.8 million and $298.1 million during the three and nine months ended March 28, 2015, respectively, in other expense, net related to the settlement of the forward contracts. The losses on the derivatives due to changes in the EUR/USD exchange rates were economically offset at closing in the final settlement of the euro-denominated Omega purchase price. Because these derivatives were economically hedging a future acquisition, the cash outflow associated with their settlement is shown as an investing activity on the Condensed Consolidated Statements of Cash Flows.

Fair Value Hedges

During the first quarter of 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, net. The hedge was terminated in the second quarter of fiscal year 2014 due to the retirement of the underlying senior notes.

Effects of Derivatives on the Financial Statements

The below tables indicate the effects of all of the Company's derivative instruments on its consolidated financial statements. All amounts exclude income tax effects and are presented in millions.

The balance sheet location and gross fair value of the Company's outstanding derivative instruments at March 28, 2015 and June 28, 2014 were as follows:



	Asset Derivatives
	Balance Sheet Location	Fair Value
		March 28, 2015		June 28, 2014
Designated derivatives:
Foreign currency forward contracts	Other current assets	$	3.1	$	2.8
Total designated derivatives		$	3.1	$	2.8
Non-designated derivatives:
Foreign currency forward contracts	Other current assets	$	1.8	$	0.3
Total non-designated derivatives		$	1.8	$	0.3



	Liability Derivatives
	Balance Sheet Location	Fair Value
		March 28, 2015		June 28, 2014
Designated derivatives:
Foreign currency forward contracts	Accrued liabilities	$	2.0	$	0.7
Interest rate swap agreements	Other non-current liabilities	5.0		8.3
Total designated derivatives		$	7.0	$	9.0
Non-designated derivatives:
Foreign currency forward contracts	Accrued liabilities	$	6.1	$	0.1
Total non-designated derivatives		$	6.1	$	0.1

The gains (losses) recognized in OCI for the effective portion of the Company's designated cash flow hedges were as follows:



	Amount of Gain/(Loss) Recorded in OCI (Effective Portion)
	Three Months Ended						Nine Months Ended
Designated Cash Flow Hedges	March 28, 2015			March 29, 2014			March 28, 2015			March 29, 2014
Treasury locks	$	—		$	—		$	(2.7	)	$	—
Interest rate swap agreements	2.0			(2.1		)	3.9			9.0
Foreign currency forward contracts	(3.8		)	1.0			(10.4		)	6.6
	$	(1.8	)	$	(1.1	)	$	(9.2	)	$	15.6

The gains (losses) reclassified from AOCI into earnings for the effective portion of the Company's designated cash flow hedges were as follows:



Designated Cash Flow Hedges	Income Statement Location	Amount of Gain/(Loss) Reclassified from AOCI to Income (Effective Portion)
		Three Months Ended					Nine Months Ended
		March 28, 2015			March 29, 2014		March 28, 2015			March 29, 2014
Treasury locks	Interest expense, net	$	—		$	—	$	—		$	0.2
Interest rate swap agreements	Interest expense, net	0.8			0.9		2.7			3.0
Foreign currency forward contracts	Net sales	(0.1		)	0.8		—			2.0
	Cost of sales	(2.8		)	2.7		(2.4		)	5.5
	Interest expense, net	—			—		—			0.1
	Other expense, net	(0.4		)	0.2		(4.3		)	1.9
		$	(2.5	)	$	4.6	$	(4.0	)	$	12.7

The amount expected to be reclassified out of AOCI into earnings during the next 12 months is a$5.6 million loss.

The gains (losses) recognized against earnings for the ineffective portion of the Company's designated cash flow hedges were as follows:



Designated Cash Flow Hedges	Income Statement Location	Amount of Gain/(Loss) Recognized in Income (Ineffective Portion)
		Three Months Ended						Nine Months Ended
		March 28, 2015			March 29, 2014			March 28, 2015			March 29, 2014
Treasury locks	Other expense, net	$	—		$	—		$	(0.4	)	$	2.3
Interest rate swap agreements	Other expense, net	—			—			(0.7		)	(5.4		)
Foreign currency forward contracts	Net sales	—			0.2			(0.1		)	0.1
	Cost of sales	(0.1		)	(0.2		)	0.1			(0.3		)
Total		$	(0.1	)	$	—		$	(1.1	)	$	(3.3	)

The effects of the Company's fair value hedges on the Condensed Consolidated Statements of Operations were as follows:



Designated Fair Value Hedges	Income Statement Location	Amount of Gain/(Loss) Recognized in Income
		Three Months Ended				Nine Months Ended
		March 28, 2015		March 29, 2014		March 28, 2015		March 29, 2014
Interest rate swap agreements	Other expense, net	$	—	$	—	$	—	$	0.9
Fixed-rate debt	Other expense, net	—		—		—		(4.1		)
Net hedge		$	—	$	—	$	—	$	(3.2	)

The effects of the Company's non-designated derivatives on the Condensed Consolidated Statements of Operations were as follows:



Non-Designated Derivatives	Income Statement Location	Amount of Gain/(Loss) Recognized in Income
		Three Months Ended						Nine Months Ended
		March 28, 2015			March 29, 2014			March 28, 2015			March 29, 2014
Foreign currency forward contracts	Other expense, net	$	(255.7	)	$	(0.8	)	$	(300.6	)	$	(0.4	)
	Interest expense, net	(2.5		)	(0.1		)	(2.4		)	0.1
Foreign exchange option contracts	Other expense, net	—			—			(26.4		)	—
Total		$	(258.2	)	$	(0.9	)	$	(329.4	)	$	(0.3	)