Derivative Financial Instruments

12 Months Ended

Jun. 28, 2014

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

9. 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 fiscal 2010, the company entered into an interest rate swap agreement that effectively converted $200.0 million of fixed rate debt maturing in fiscal 2014 to floating rate debt; this swap was settled upon maturity of the senior notes in March 2014.  In addition, 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.  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 May 2012, the company entered into a treasury lock agreement with a notional amount of $200.0 million.  The company designated this derivative as a cash flow hedge of the variability in the cash outflows of interest payments on a portion of the then forecasted June 2012 debt issuance due to changes in the benchmark interest rate.  In June 2012, in conjunction with the issuance of the $450.0 million senior notes maturing in fiscal 2022, the company settled the treasury lock, locking in the effective yields on the related debt.  Upon settlement, the company received cash of $0.7 million, which represented the fair value of the swap agreement at the time of settlement.  This amount is being amortized as an offset to interest expense over the 10-year term of the debt, and the unamortized balance is reflected as a gain, net of tax, in accumulated other comprehensive loss.

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 each fiscal year-end are as follows:

	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location		Fair Value
	(In thousands)
Interest rate swap agreements:
June 28, 2014	Other assets	$	4,828	Accrued expenses	$	133,466
June 29, 2013	Prepaid expenses and other current assets		2,988	N/A		N/A

The location and effect of derivative instruments and related hedged items on consolidated comprehensive income for each fiscal year presented on a pre-tax basis are as follows:

			Amount of (Gain) or Loss
		Recognized in Comprehensive Income
	Location of (Gain) or Loss Recognized in  Comprehensive Income	2014		2013		2012
		(In thousands)
Fair Value Hedge Relationships:
Interest rate swap agreements	Interest expense	$	(10,879)	$	(4,492)	$	(7,900)
Cash Flow Hedge Relationships:
Interest rate swap agreements	Other comprehensive income		133,466		N/A		N/A
Treasury lock agreement	Other comprehensive income		N/A		N/A		(722)
Interest rate contracts	Interest expense		625		626		692

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 fiscal 2014, fiscal 2013 and fiscal 2012.  The interest rate swaps do not contain credit-risk-related contingent features.