Derivative Financial Instruments

9 Months Ended

Mar. 29, 2014

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

4.  DERIVATIVE FINANCIAL INSTRUMENTS 

Sysco manages its debt portfolio to achieve an overall desired position of fixed and floating rates and may employ interest rate swaps from time to time to achieve this position. The company does not use derivative financial instruments for trading or speculative purposes. 

In August 2013, the company entered into an interest rate swap agreement that effectively converted $500.0 million of fixed rate debt maturing in fiscal 2018 to floating rate debt.  In addition, in fiscal 2010, the company entered into an interest rate swap agreement that effectively converted $200.0 million of fixed rate debt maturing in fiscal 2014to floating rate debt; this swap was settled upon maturity of the senior notes in March 2014.  These transactions were entered into with the goal of reducing overall borrowing cost and increasing floating interest rate exposure.  These transactions were designated as fair value hedges against the changes in fair value of fixed rate debt resulting from changes in interest rates.

In January 2014, the company entered into two forward starting swap agreements with notional amounts totaling $2.0 billion. The company designated these derivatives as cash flow hedges of the variability in the expected cash outflows of interest payments on 10-year and 30-year debt due to changes in the benchmark interest rates for debt the company expects to issue in fiscal 2015.  Prior to issuance of the debt, the effective portion of gains and losses on these cash flow hedges is recorded to Other comprehensive income (loss).  Once the interest rate swap agreements are settled upon issuance of the debt, the cumulative gain or loss recorded in Accumulated other comprehensive (loss) income will be amortized through interest expense over the term of the issued debt.

The location and the fair value of derivative instruments in the consolidated balance sheet as of March 29, 2014,  June 29, 2013 and March 30, 2013are as follows:

	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location		Fair Value
	(In thousands)
Interest rate swap agreements:
Mar. 29, 2014	Other assets	$	1,673	Accrued expenses	$	64,025
Jun. 29, 2013	Prepaid expenses and other current assets		2,988	N/A		N/A
Mar. 30, 2013	Prepaid expenses and other current assets		3,990	N/A		N/A

The location and effect of derivative instruments and related hedged items on the consolidated results of operations for the third quarter of fiscal 2014 and fiscal 2013 presented on a pre-tax basis are as follows:

	Location of (Gain) or Loss Recognized in Comprehensive Income	Amount of (Gain) or Loss Recognized in Comprehensive Income
		13-Week Period Ended
		Mar. 29, 2014		Mar. 30, 2013
		(In thousands)
Fair Value Hedge Relationships:
Interest rate swap agreements	Interest expense	$	(1,815)	$	832
Cash Flow  Hedge Relationships:
Interest rate swap agreements	Other comprehensive income		64,025		-
Interest rate contracts	Interest expense		157		156

The location and effect of derivative instruments and related hedged items on the consolidated results of operations for the 39-week periods ended March 29, 2014 and March 30, 2013 presented on a pre-tax basis are as follows:

	Location of (Gain) or Loss Recognized in Comprehensive Income	Amount of (Gain) or Loss Recognized in Comprehensive Income
		39-Week Period Ended
		Mar. 29, 2014		Mar. 30, 2013
		(In thousands)
Fair Value Hedge Relationships:
Interest rate swap agreements	Interest expense	$	(9,065)	$	(3,492)
Cash Flow  Hedge Relationships:
Interest rate swap agreements	Other comprehensive income		64,025		-
Interest rate contracts	Interest expense		469		469

Hedge ineffectiveness represents the difference between the changes in the fair value of the derivative instruments and the changes in fair value of the fixed rate debt attributable to changes in the benchmark interest rate.  Hedge ineffectiveness is recorded directly in earnings within interest expense and was immaterial for the third quarter of fiscal 2014 and 2013 and the 39-week periods ended March 29, 2014 and March 30, 2013.  The interest rate swaps do not contain credit-risk-related contingent features.