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PARTII
ITEM8Financial Statements and Supplementary Data
At the time of the merger announcement, Sysco secured a fully committed bridge nancing that could be used for funding a portion of the purchase
price. In contemplation of issuing long-term nancing for this proposed merger, in January 2014, the company entered into two forward starting swap
agreements with notional amounts totaling $2 billion to reduce interest rate exposure on 10-year and 30-year debt that was anticipated to be issued. In
October 2014, Sysco obtained long-term nancing for this proposed merger by completing a six-part senior notes offering totaling $5 billion. At the same
time, (i) the bridge nancing was terminated and (ii) the forward starting interest rate swaps were terminated and cash settlement of these swaps was
made. Concurrent with the issuance of the new senior notes, Sysco entered into new interest rate swap agreements that effectively converted two series
of the senior notes totaling $1.25 billion to oating rate debt. These swaps were designated as fair value hedges. These senior notes contained mandatory
redemption features providing that, on the earlier of the merger agreement termination date or October 8, 2015, the company was 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. These notes were redeemed in July 2015.
Detailed discussion of these transactions is located in Note 9, “Derivative Financial Instruments”, and Note 11, “Debt and Other Financing Arrangements.”
NOTE5 Fair Value Measurements
Fair value is de ned as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date (i.e., an exit price). The accounting guidance includes a fair value hierarchy that prioritizes the inputs to valuation techniques used
to measure fair value. The three levels of the fair value hierarchy are as follows:
•Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets;
•
Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially
the full term of the asset or liability; and
•
Level 3 – Unobservable inputs for the asset or liability, which include management’s own assumption about the assumptions market participants would
use in pricing the asset or liability, including assumptions about risk.
Sysco’s policy is to invest in only high-quality investments. Cash equivalents primarily include time deposits, certi cates of deposit, commercial paper,
high-quality money market funds and all highly liquid instruments with original maturities of three months or less. Restricted cash consists of investments
in high-quality money market funds.
The following is a description of the valuation methodologies used for assets and liabilities measured at fair value.
•
Time deposits and commercial paper included in cash equivalents are valued at amortized cost, which approximates fair value due to the short-term
maturities of these instruments. These are included within cash equivalents as a Level 2 measurement in the tables below.
•
Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. These are included within cash
equivalents and restricted cash as Level 1 measurements in the tables below.
•
The interest rate swap agreements, discussed further in Note 9, “Derivative Financial Instruments,” are valued using a swap valuation model that utilizes
an income approach using observable market inputs including interest rates, LIBOR swap rates and credit default swap rates. These are included within
other assets and accrued expenses as Level 2 measurements in the tables below.
The following tables present the company’s assets and liabilities measured at fair value on a recurring basis as of June 27, 2015 and June 28, 2014:
(Inthousands)
Assets and Liabilities Measured at Fair Value as of June 27, 2015
Level1 Level2 Level3 Total
Assets:
Cash and cash equivalents
Cash equivalents $ 4,677,735 $ 63,689 $ - $ 4,741,424
Restricted cash 168,274 - - 168,274
Other assets
Interest rate swap agreement - 12,597 - 12,597
TOTAL ASSETS AT FAIR VALUE $ 4,846,009 $ 76,286 $ - $ 4,922,295
Liabilities:
Current portion of long-term debt $ - $ 1,257,127 $ - $ 1,257,127
Long-term debt - 503,379 - 503,379
TOTAL LIABILITIES AT FAIR VALUE $ - $ 1,760,506 $ - $ 1,760,506