Sysco 2014 Annual Report Download - page 76

SYSCO CORPORATION-Form10-K64
PARTII
ITEM8Financial Statements and Supplementary Data
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  ow hedge of the variability in the cash out ows 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  scal 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 re ected 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  ow hedges of the variability in the expected cash out ows 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  scal 2015. Prior to issuance of the debt, the effective portion of gains and losses
on these cash  ow 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  scal year-end are as follows:
(Inthousands)
Asset Derivatives Liability Derivatives
Balance Sheet Location Fair Value Balance Sheet Location Fair Value
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  scal year presented on a
pre-tax basis are as follows:
(Inthousands)
Location of (Gain) or
Loss Recognized in
Comprehensive Income
Amount of (Gain) or Loss
Recognized in Comprehensive Income
2014 2013 2012
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
 xed rate debt attributable to changes in the benchmark interest rate. Hedge ineffectiveness is recorded directly in earnings within interest expense and
was immaterial for  scal 2014,  scal 2013 and  scal 2012. The interest rate swaps do not contain credit-risk-related contingent features.
NOTE10 Self-Insured Liabilities
Sysco maintains a self-insurance program covering portions of workers’ compensation, general and vehicle liability and property insurance 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:
(Inthousands) 2014 2013 2012
Balance at beginning of period $ 147,598 $ 129,749 $ 129,671
Charged to costs and expenses 375,267 352,374 318,828
Payments (328,389) (334,525) (318,750)
BALANCE AT END OF PERIOD $ 194,476 $ 147,598 $ 129,749