4. FAIR VALUE MEASUREMENTS
Fair value is defined 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:
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Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets; |
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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 |
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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, certificates 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 measured at fair value.
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Time deposits and commercial paper included in cash equivalents are valued at amortized cost, which approximates fair value. These are included within cash equivalents as a Level 2 measurement in the tables below. |
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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. |
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The interest rate swap agreements, discussed further in Note 8, “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 prepaid expenses and other current assets and other assets as Level 2 measurements in the tables below. |
The following tables present the company’s assets measured at fair value on a recurring basis as of June 29, 2013 and June 30, 2012:
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Assets Measured at Fair Value as of June 29, 2013 |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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(In thousands) |
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Assets: |
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Cash and cash equivalents |
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Cash equivalents |
$ |
1,160 |
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$ |
132,731 |
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$ |
- |
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$ |
133,891 |
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Prepaid expenses and other current assets |
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Interest rate swap agreement |
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- |
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2,988 |
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- |
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2,988 |
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Restricted cash |
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145,328 |
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- |
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- |
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145,328 |
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Total assets at fair value |
$ |
146,488 |
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$ |
135,719 |
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$ |
- |
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$ |
282,207 |
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Assets Measured at Fair Value as of June 30, 2012 |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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(In thousands) |
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Assets: |
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Cash and cash equivalents |
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Cash equivalents |
$ |
228,310 |
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$ |
248,714 |
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$ |
- |
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$ |
477,024 |
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Prepaid expenses and other current assets |
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Interest rate swap agreement |
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- |
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2,475 |
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- |
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2,475 |
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Restricted cash |
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127,228 |
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- |
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- |
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127,228 |
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Other assets |
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Interest rate swap agreements |
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- |
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6,219 |
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- |
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6,219 |
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Total assets at fair value |
$ |
355,538 |
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$ |
257,408 |
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$ |
- |
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$ |
612,946 |
The carrying values of accounts receivable and accounts payable approximated their respective fair values due to the short-term maturities of these instruments. The fair value of Sysco’s total debt is estimated based on the quoted market prices for the same or similar issue or on the current rates offered to the company for debt of the same remaining maturities and is considered a Level 2 measurement. The fair value of total debt approximated $3,207.6 million and $3,539.3 million as of June 29, 2013 and June 30, 2012, respectively. The carrying value of total debt was $2,888.9 million and $3,018.3 million as of June 29, 2013 and June 30, 2012, respectively.