Sysco 2008 Annual Report Download - page 68

7. RESTRICTED CASH
SYSCO is required by its insurers to collateralize a part of the self-insured portion of its workers’ compensation and liability claims.
SYSCO has chosen to satisfy these collateral requirements by depositing funds in insurance trusts or by issuing letters of credit.
In addition, for certain acquisitions, SYSCO has placed funds into escrow to be disbursed to the sellers in the event that specified
operating results are attained or contingencies are resolved. During fiscal 2008, escrowed funds in the amount of $7,000,000 were
released to sellers of acquired businesses. In addition, escrowed funds of $2,000,000 were released from escrow related to an acquisition
for which the contingent consideration period expired without the additional consideration being earned.
A summary of restricted cash balances appears below:
June 28, 2008 June 30, 2007
Funds deposited in insurance trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,587,000 $ 92,929,000
Escrow funds related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 9,000,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,587,000 $ 101,929,000
8. DERIVATIVE FINANCIAL INSTRUMENTS
SYSCO manages its debt portfolio by targeting an overall desired position of fixed and floating rates and may employ interest rate
swaps from time to time to achieve this goal. The company does not use derivative financial instruments for trading or speculative purposes.
In March 2005, SYSCO entered into a forward-starting interest rate swap with a notional amount of $350,000,000. In accordance
with SFAS No. 133, the company designated this derivative as a cash flow hedge of the variability in the cash outflows of interest payments
on $350,000,000 of the September 2005 forecasted debt issuance due to changes in the benchmark interest rate. In September 2005, in
conjunction with the issuance of the 5.375% senior notes, SYSCO settled the $350,000,000 notional amount forward-starting interest rate
swap. Upon settlement, SYSCO paid cash of $21,196,000, which represented the fair value of the swap agreement at the time of settlement.
This amount is being amortized as interest expense over the 30-year term of the debt, and the unamortized balance is reflected as a loss, net
of tax, in other comprehensive income (loss).
9. SELF-INSURED LIABILITIES
SYSCO maintains a self-insurance program covering portions of workers’ compensation, general and vehicle liability costs. The
amounts in excess of the self-insured levels are fully insured by third party insurers. The company also maintains a fully self-insured group
medical program. A summary of the activity in self-insured liabilities appears below:
2008 2007 2006
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 125,844,000 $ 115,557,000 $ 105,593,000
Charged to costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 306,571,000 302,812,000 274,061,000
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (314,690,000) (292,525,000) (264,097,000)
Balance at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 117,725,000 $ 125,844,000 $ 115,557,000
10. DEBT AND OTHER FINANCING ARRANGEMENTS
SYSCO’s debt consists of the following:
June 28, 2008 June 30, 2007
Short-term borrowings, interest at 5.7% as of June 30, 2007 . . . . . . . . . . . . . . . . . . . . $ — $ 18,900,000
Commercial paper, interest averaging 5.2% as of June 30, 2007 . . . . . . . . . . . . . . . . . — 531,826,000
Senior notes, interest at 6.1%, maturing in fiscal 2012. . . . . . . . . . . . . . . . . . . . . . . . . 200,372,000 200,467,000
Senior notes, interest at 4.2%, maturing in fiscal 2013. . . . . . . . . . . . . . . . . . . . . . . . . 249,619,000 —
Senior notes, interest at 4.6%, maturing in fiscal 2014. . . . . . . . . . . . . . . . . . . . . . . . . 206,331,000 207,435,000
Senior notes, interest at 5.25%, maturing in fiscal 2018 . . . . . . . . . . . . . . . . . . . . . . . . 496,683,000 —
Debentures, interest at 7.16%, maturing in fiscal 2027 . . . . . . . . . . . . . . . . . . . . . . . . 50,000,000 50,000,000
Debentures, interest at 6.5%, maturing in fiscal 2029 . . . . . . . . . . . . . . . . . . . . . . . . . 224,522,000 224,498,000
Senior notes, interest at 5.375%, maturing in fiscal 2036 . . . . . . . . . . . . . . . . . . . . . . . 499,596,000 499,581,000
Industrial Revenue Bonds, mortgages and other debt, interest averaging 6.2% as of
June 28, 2008 and 7.1% as of June 30, 2007, maturing at various dates to fiscal
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,208,000 47,988,000
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,980,331,000 1,780,695,000
Less current maturities and short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,896,000) (22,468,000)
Net long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,975,435,000 $ 1,758,227,000
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