Sysco 2015 Annual Report Download - page 47
Download and view the complete annual report
Please find page 47 of the 2015 Sysco annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.SYSCO CORPORATION-Form10-K 39
PARTII
ITEM 7AQuantitative and Qualitative Disclosures About Market Risk
ITEM 7A Quantitative and Qualitative Disclosures
About Market Risk
Interest Rate Risk
We do not utilize nancial instruments for trading purposes. Our use of debt directly exposes us to interest rate risk. Floating rate debt, where the interest
rate uctuates periodically, exposes us to short-term changes in market interest rates. Fixed rate debt, where the interest rate is xed over the life of the
instrument, exposes us to changes in market interest rates re ected in the fair value of the debt and to the risk that we may need to re nance maturing
debt with new debt at higher rates.
We manage our debt portfolio to achieve an overall desired position of xed and oating rates and may employ interest rate swaps as a tool to achieve that
position. The major risks from interest rate derivatives include changes in the interest rates affecting the fair value of such instruments, potential increases
in interest expense due to market increases in oating interest rates and the creditworthiness of the counterparties in such transactions.
Fiscal 2015
As of June 27, 2015, we had no commercial paper outstanding. Total debt as of June 27, 2015 was $7.3 billion, of which approximately 74% was at xed
rates of interest, including the impact of our interest rate swap agreement. Included in the total debt amount is $5.0 billion in senior notes that were issued
in October 2014, for the proposed merger with US Foods. The October 2014 senior notes contained mandatory redemption features providing that, on
the earlier of the merger agreement termination date or October 8, 2015, we were required to redeem all of the senior notes at a redemption price equal
to 101% of the principal of the senior notes plus accrued interest. In June 2015, we terminated the merger agreement and redeemed the senior notes in
July 2015 using cash on hand and the proceeds from borrowings under our commercial paper facility.
In August 2013, we entered into an interest rate swap agreement that effectively converted $500.0 million of xed rate debt maturing in scal 2018 to oating
rate debt. In October 2014, we also entered into interest rate swap agreements that effectively converted $500.0 million of the new senior notes maturing
on October 2, 2017 and $750.0 million of the new senior notes maturing on October 2, 2019 to oating rate debt (2014 swaps). These transactions were
entered into with the goal of reducing overall borrowing cost. The major risks from interest rate derivatives include changes in interest rates affecting the
fair value of such instruments, potential increases in interest expense due to market increases in oating interest rates and the creditworthiness of the
counterparties in such transactions. These transactions were designated as fair value hedges since the swaps hedge against the change in fair value of
xed rate debt resulting from changes in interest rates.
Our 2014 swaps were terminated in July 2015. Details of our outstanding swap agreements at June 27, 2015, are below:
Maturity Date of Swap
Notional
Value
(in millions)
Fixed Coupon
Rate on
Hedged Debt
Floating Interest
Rateon Swap Floating Rate Reset Terms
Location of
FairValue on
Balance Sheet
Fair Value of
Asset (Liability)
(in thousands)
October 2, 2017 $ 500 1.45% Three-month LIBOR Every three months in arrears Other assets $ 2,419
February 12, 2018 500 5.25% Six-month LIBOR Every six months in advance Other assets 4,275
October 2, 2019 750 2.35% Three-month LIBOR Every three months in advance Other assets 5,903
In January 2014, in contemplation of securing nancing and hedging interest rate risk relating to our assumption or re nancing of the net debt of US
Foods that was scheduled to occur upon closing of the proposed merger (discussed in Note 4, “Acquisitions”), we entered into two forward starting swap
agreements with notional amounts totaling $2.0 billion. We designated these derivatives as cash ow hedges of the variability in the cash out ows of interest
payments on 10-year and 30-year debt issued in scal 2015. In September 2014, in conjunction with the pricing of the $1.25 billion senior notes maturing on
October 2, 2024 and $1 billion senior notes maturing October 2, 2044, we 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.