Derivative Financial Instruments

3 Months Ended

Sep. 26, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

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 2015, the company entered into forward starting swap agreements with a notional amount totaling $500 million. The company designated these derivatives as cash flow hedges to reduce interest rate exposure on forecasted 10-year debt due to changes in the benchmark interest rates for debt the company expected to issue in fiscal 2016. Sysco priced this debt offering in September 2015 and terminated these hedges, resulting in a liability of $6.1 million at September 26, 2015. The loss was recorded in Accumulated other comprehensive income (loss) and will be amortized to interest expense over the term of the issued debt. See Note 16, "Subsequent Events" for additional information on these hedges.

In October 2014, Sysco obtained long-term financing for its proposed merger with US Foods by completing a six-part senior notes offering totaling $5 billion. At the same time of these note issuances, the company entered into interest rate swap agreements that effectively converted $500 million of senior notes maturing in fiscal 2018 and $750 million of senior notes maturing in fiscal 2020 to floating rate debt. These are collectively referred to as the 2015 swaps.  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 the first quarter of 2016, we terminated the 2015 swaps for proceeds of $14.5 million in connection with the redemption of these senior notes.

In January 2014, the company entered into two forward starting swap agreements with notional amounts totaling $2 billion in contemplation of securing long-term financing for the proposed US Foods merger or for other long-term financing purposes in the event the merger did not occur.  The company designated these derivatives as cash flow hedges to reduce interest rate exposure on forecasted 10-year and 30-year debt due to changes in the benchmark interest rates for debt the company issued in fiscal 2015.  In September 2014, in conjunction with the pricing of the $1.25 billion senior notes maturing in fiscal 2025 and the $1 billion senior notes maturing in fiscal 2045, the company terminated these swaps, locking in the effective yields on the related debt.  Cash of $58.9 million was paid to settle the 10-year swap in September 2014, and cash of $129.9 million was paid to settle the 30-year swap in October 2014.  The cash payments are located within the line Cash paid for settlement of cash flow hedge within financing activities in the statement of consolidated cash flows.  The cumulative losses recorded in Accumulated other comprehensive (loss) income related to these swaps will continue to be amortized through interest expense over the term of the originally issued debt as the amount hedged is anticipated to remain within our capital structure.

In August 2013, the company entered into an interest rate swap agreement that effectively converted $500 million of fixed rate debt maturing in fiscal 2018 to floating rate debt.

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of September 26, 2015, June 27, 2015 and September 27, 2014 are as follows:

	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(In thousands)
Interest rate swap agreements:
Sep. 26, 2015	Other assets	$	8,219	Other liabilities	$	—
Sep. 27, 2014	Other assets	264		Other long-term liabilities	3,496

The location and effect of derivative instruments and related hedged items on the consolidated results of operations for the 13-Week Period EndedSeptember 26, 2015 and September 27, 2014 presented on a pre-tax basis are as follows:

	Location of (Gain) or Loss Recognized	Amount of (Gain) or Loss Recognized
		13-Week Period Ended
		Sep. 26, 2015			Sep. 27, 2014
		(In thousands)
Fair Value Hedge Relationships:
Interest rate swap agreements	Interest expense	$	(1,997	)	$	(3,269	)
Cash Flow  Hedge Relationships:
Interest rate swap agreements	Other comprehensive income	6,134			55,374
Interest rate contracts	Interest expense	2,720			205

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 rates.  Hedge ineffectiveness is recorded directly in earnings within interest expense and was immaterial for the first quarter of fiscal 2016 and 2015.  The interest rate swaps do not contain credit-risk-related contingent features.