13. COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS
Sysco has company-sponsored defined benefit and defined contribution retirement plans for its employees. Also, the company provides certain health care benefits to eligible retirees and their dependents.
Defined Contribution Plan
In December 2012, the company amended its defined contribution 401(k) Plan to be a Safe Harbor plan, a plan that treats all employees’ benefits equally within the plan, under Sections 401(k) and 401(m) of the Internal Revenue Code with respect to non-union employees and those union employees whose unions adopted the Safe Harbor Plan provisions. Effective January 1, 2013, the new Safe Harbor plan provides that the Company will make a non-elective contribution each pay period equal to 3% of a participant’s compensation. Additionally, the Company will make matching contributions of 50% of a participant’s pre-tax contribution on the first 5% of the participant’s compensation. Certain employees are also eligible for a transition contribution, and the Company may also make discretionary contributions. For union employees who are members of unions that did not adopt the Safe Harbor Plan provisions, the plan provides that under certain circumstances the company may make matching contributions of up to 50% of the first 6% of a participant’s compensation.
Prior to the adoption of the Safe Harbor Plan in January 2013, the company’s defined contribution 401(k) plan provided that under certain circumstances the company may make matching contributions of up to 50% of the first 6% of a participant’s compensation.
Sysco’s expense related to its defined contribution 401(k) plan was $65.3 million in fiscal 2013, $17.2 million in fiscal 2012, and $19.8 million in fiscal 2011.
Defined Benefit Plans
Sysco maintains a qualified pension plan (Retirement Plan) that pays benefits to employees at retirement, using formulas based on a participant’s years of service and compensation. At the end of fiscal 2012, Sysco approved a plan to freeze future benefit accruals under the Retirement Plan as of December 31, 2012 for all United States-based salaried and non-union hourly employees. Effective January 1, 2013, these employees were eligible for additional contributions under the company’s defined contribution 401(k) plan.
In addition to receiving benefits upon retirement under the company’s Retirement Plan, key management personnel who are participants in the Management Incentive Plan will receive benefits under a Supplemental Executive Retirement Plan (SERP). This plan is a nonqualified, unfunded supplementary retirement plan. In November 2012, Sysco approved a plan to restructure its executive nonqualified retirement program including the SERP. Future benefit accruals have been frozen under this plan as of June 29, 2013 for all participants.
Also, the company provides certain health care benefits to eligible retirees and their dependents.
Funded Status
Accumulated pension assets measured against the obligation for pension benefits represents the funded status of a given plan. The funded status of Sysco’s company-sponsored defined benefit plans is presented in the table below. The caption “Pension Benefits” in the tables below includes both the Retirement Plan and the SERP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other Postretirement Plans |
||||||||
|
|
June 29, 2013 |
|
June 30, 2012 |
|
June 29, 2013 |
|
June 30, 2012 |
||||
|
|
(In thousands) |
||||||||||
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
|
$ |
3,164,974 |
|
$ |
2,516,660 |
|
$ |
12,954 |
|
$ |
10,812 |
Service cost |
|
|
70,166 |
|
|
108,223 |
|
|
541 |
|
|
457 |
Interest cost |
|
|
148,561 |
|
|
147,512 |
|
|
614 |
|
|
632 |
Amendments |
|
|
53,902 |
|
|
8,705 |
|
|
- |
|
|
- |
Curtailments |
|
|
(72,967) |
|
|
(176,531) |
|
|
- |
|
|
- |
Actuarial (gain) loss, net |
|
|
(201,517) |
|
|
625,890 |
|
|
188 |
|
|
925 |
Total disbursements |
|
|
(74,097) |
|
|
(65,485) |
|
|
(49) |
|
|
128 |
Benefit obligation at end of year |
|
|
3,089,022 |
|
|
3,164,974 |
|
|
14,248 |
|
|
12,954 |
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
|
2,234,869 |
|
|
2,106,313 |
|
|
- |
|
|
- |
Actual return on plan assets |
|
|
263,675 |
|
|
31,597 |
|
|
- |
|
|
- |
Employer contribution |
|
|
93,562 |
|
|
162,444 |
|
|
49 |
|
|
(128) |
Total disbursements |
|
|
(74,097) |
|
|
(65,485) |
|
|
(49) |
|
|
128 |
Fair value of plan assets at end of year |
|
|
2,518,009 |
|
|
2,234,869 |
|
|
- |
|
|
- |
Funded status at end of year |
|
$ |
(571,013) |
|
$ |
(930,105) |
|
$ |
(14,248) |
|
$ |
(12,954) |
The measurements for the Retirement Plan at June 30, 2012 included the impact of the freeze discussed above. This resulted in the recognition of a curtailment gain as a component of actuarial loss arising in fiscal 2012 in other comprehensive loss.
As a result of the SERP freeze discussed above in November 2012, the liabilities of this plan were remeasured using a discount rate of 3.96%. A curtailment gain of $73.0 million was recognized as a component of actuarial losses (net of tax) within other comprehensive income with an offsetting reduction to benefits obligations to accumulated benefits. Further, an $8.3 million loss was recognized in the income statement arising from the write-off of prior service costs. In addition to the plan freeze, participants will be fully vested in their frozen benefits on their date of freeze. This resulted in an increase in the benefit obligation of $48.6 million which was reflected as unrecognized prior service cost in other comprehensive income. This amount will amortize into pension expense over the next seven years. The SERP benefit obligation resulting after these changes on the date of the approved plan was $486.6 million.
In order to meet a portion of its obligations under the SERP, Sysco maintains life insurance policies on the lives of the participants with carrying values of $95.0 million as of June 29, 2013 and $97.6 million as of June 30, 2012. In the second quarter of fiscal 2012, approximately $75.0 million of these policies were redeemed and corporate-owned real estate assets were substituted for these policies. These policies are not included as plan assets or in the funded status amounts in the tables above and below; rather, the assets are held in a rabbi trust and are therefore available to satisfy the claims of the company’s creditors in the event of bankruptcy or insolvency of the company. Sysco is the sole owner and beneficiary of such policies.
The amounts recognized on Sysco’s consolidated balance sheets related to its company-sponsored defined benefit plans are as follows:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other Postretirement Plans |
||||||||
|
|
June 29, 2013 |
|
June 30, 2012 |
|
June 29, 2013 |
|
June 30, 2012 |
||||
|
|
(In thousands) |
||||||||||
Current accrued benefit liability (Accrued expenses) |
|
$ |
(25,181) |
|
$ |
(22,810) |
|
$ |
(380) |
|
$ |
(369) |
Non-current accrued benefit liability (Other long-term liabilities) |
|
|
(545,832) |
|
|
(907,295) |
|
|
(13,868) |
|
|
(12,585) |
Net amount recognized |
|
$ |
(571,013) |
|
$ |
(930,105) |
|
$ |
(14,248) |
|
$ |
(12,954) |
Accumulated other comprehensive loss (income) as of June 29, 2013 consists of the following amounts that had not, as of that date, been recognized in net benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other |
|
Total |
|||
|
|
|
|
|
(In thousands) |
|||||||
Prior service cost |
|
|
|
|
$ |
71,798 |
|
$ |
1,067 |
|
$ |
72,865 |
Actuarial losses (gains) |
|
|
|
|
|
864,000 |
|
|
(3,151) |
|
|
860,849 |
Total |
|
|
|
|
$ |
935,798 |
|
$ |
(2,084) |
|
$ |
933,714 |
Accumulated other comprehensive loss (income) as of June 30, 2012 consists of the following amounts that had not, as of that date, been recognized in net benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other |
|
Total |
|||
|
|
|
|
|
(In thousands) |
|||||||
Prior service cost |
|
|
|
|
$ |
36,087 |
|
$ |
1,236 |
|
$ |
37,323 |
Actuarial losses (gains) |
|
|
|
|
|
1,303,582 |
|
|
(3,543) |
|
|
1,300,039 |
Transition obligation |
|
|
|
|
|
- |
|
|
141 |
|
|
141 |
Total |
|
|
|
|
$ |
1,339,669 |
|
$ |
(2,166) |
|
$ |
1,337,503 |
The accumulated benefit obligation, which does not consider any salary increases for the remaining active union employees in the Retirement Plan, for the company-sponsored defined benefit pension plans was $3,079.1 million and $3,078.5 million as of June 29, 2013 and June 30, 2012, respectively.
Information for plans with accumulated benefit obligation/aggregate benefit obligation in excess of fair value of plan assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other Postretirement Plans |
||||||||
|
|
June 29, 2013 (1) |
|
June 30, 2012 (1) |
|
June 29, 2013 |
|
June 30, 2012 |
||||
|
|
(In thousands) |
||||||||||
Accumulated benefit obligation/aggregate benefit obligation |
|
$ |
3,079,068 |
|
$ |
3,078,488 |
|
$ |
14,248 |
|
$ |
12,954 |
Fair value of plan assets at end of year |
|
|
2,518,009 |
|
|
2,234,869 |
|
|
- |
|
|
- |
(1) Information under Pension Benefits as of June 29, 2013 and June 30, 2012 includes both the Retirement Plan and the SERP.
Components of Net Benefit Costs and Other Comprehensive Income
The components of net company-sponsored pension costs for each fiscal year are as follows:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|||||||
|
|
|
|
|
2013 |
|
2012 |
|
2011 |
|||
|
|
|
|
|
(In thousands) |
|||||||
Service cost |
|
|
|
|
$ |
70,166 |
|
$ |
108,223 |
|
$ |
99,443 |
Interest cost |
|
|
|
|
|
148,561 |
|
|
147,512 |
|
|
134,973 |
Expected return on plan assets |
|
|
|
|
|
(171,201) |
|
|
(161,605) |
|
|
(131,921) |
Amortization of prior service cost |
|
|
|
|
|
9,899 |
|
|
4,806 |
|
|
3,960 |
Amortization of actuarial loss |
|
|
|
|
|
72,624 |
|
|
60,166 |
|
|
79,952 |
Curtailment loss |
|
|
|
|
|
8,293 |
|
|
- |
|
|
- |
Net pension costs |
|
|
|
|
$ |
138,342 |
|
$ |
159,102 |
|
$ |
186,407 |
The components of other postretirement benefit costs for each fiscal year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Plans |
|||||||
|
|
|
|
|
2013 |
|
2012 |
|
2011 |
|||
|
|
|
|
|
(In thousands) |
|||||||
Service cost |
|
|
|
|
$ |
541 |
|
$ |
457 |
|
$ |
396 |
Interest cost |
|
|
|
|
|
614 |
|
|
632 |
|
|
524 |
Amortization of prior service cost |
|
|
|
|
|
168 |
|
|
215 |
|
|
185 |
Amortization of actuarial gain |
|
|
|
|
|
(203) |
|
|
(331) |
|
|
(388) |
Amortization of transition obligation |
|
|
|
|
|
141 |
|
|
153 |
|
|
153 |
Net other postretirement benefit costs |
|
|
|
|
$ |
1,261 |
|
$ |
1,126 |
|
$ |
870 |
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) related to company-sponsored pension plans for each fiscal year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|||||||
|
|
|
|
|
2013 |
|
2012 |
|
2011 |
|||
|
|
|
|
|
(In thousands) |
|||||||
Amortization of prior service cost |
|
|
|
|
$ |
18,192 |
|
$ |
4,806 |
|
$ |
3,960 |
Amortization of actuarial loss |
|
|
|
|
|
72,624 |
|
|
60,166 |
|
|
79,952 |
Prior service cost arising in current year |
|
|
|
|
|
(53,902) |
|
|
(8,706) |
|
|
(8,252) |
Actuarial (loss) gain arising in current year |
|
|
|
|
|
366,957 |
|
|
(579,366) |
|
|
84,055 |
Net pension costs |
|
|
|
|
$ |
403,871 |
|
$ |
(523,100) |
|
$ |
159,715 |
Other changes in benefit obligations recognized in other comprehensive (loss) income related to other postretirement plans for each fiscal year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Plans |
|||||||
|
|
|
|
|
2013 |
|
2012 |
|
2011 |
|||
|
|
|
|
|
(In thousands) |
|||||||
Amortization of prior service cost |
|
|
|
|
$ |
168 |
|
$ |
215 |
|
$ |
185 |
Amortization of actuarial gain |
|
|
|
|
|
(203) |
|
|
(331) |
|
|
(388) |
Amortization of transition obligation |
|
|
|
|
|
141 |
|
|
153 |
|
|
153 |
Prior service cost arising in current year |
|
|
|
|
|
- |
|
|
- |
|
|
(987) |
Actuarial (loss) gain arising in current year |
|
|
|
|
|
(188) |
|
|
(925) |
|
|
(157) |
Net pension costs |
|
|
|
|
$ |
(82) |
|
$ |
(888) |
|
$ |
(1,194) |
Amounts included in accumulated other comprehensive loss (income) as of June 29, 2013 that are expected to be recognized as components of net company-sponsored benefit cost during fiscal 2014 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other |
|
Total |
|||
|
|
|
|
|
(In thousands) |
|||||||
Amortization of prior service cost |
|
|
|
|
$ |
11,145 |
|
$ |
168 |
|
$ |
11,313 |
Amortization of actuarial losses (gains) |
|
|
|
|
|
16,327 |
|
|
(143) |
|
|
16,184 |
Total |
|
|
|
|
$ |
27,472 |
|
$ |
25 |
|
$ |
27,497 |
Employer Contributions
The company made cash contributions to its company-sponsored pension plans of $93.6 million and $162.4 million in fiscal years 2013 and 2012, respectively. The $70.0 million contribution to the Retirement Plan in fiscal 2013 was voluntary, as there were no required contributions to meet ERISA minimum funding requirements in fiscal 2013. The $140.0 million contribution to the Retirement Plan in fiscal 2012 exceeded the minimum required contribution for the calendar 2011 plan year to meet ERISA minimum funding requirements. There are no required contributions to the Retirement Plan to meet ERISA minimum funding requirements in fiscal 2014. The company’s contributions to the SERP and other post-retirement plans are made in the amounts needed to fund current year benefit payments. The estimated fiscal 2014 contributions to fund benefit payments for the SERP and other postretirement plans are $25.8 million and $0.4 million, respectively.
Estimated Future Benefit Payments
Estimated future benefit payments for vested participants, based on actuarial assumptions, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other |
||
|
|
|
|
|
|
|
|
(In thousands) |
||||
2014 |
|
|
|
|
|
|
|
$ |
86,447 |
|
$ |
390 |
2015 |
|
|
|
|
|
|
|
|
95,024 |
|
|
775 |
2016 |
|
|
|
|
|
|
|
|
104,529 |
|
|
1,075 |
2017 |
|
|
|
|
|
|
|
|
115,629 |
|
|
1,271 |
2018 |
|
|
|
|
|
|
|
|
126,202 |
|
|
1,404 |
Subsequent five years |
|
|
|
|
|
|
|
|
786,838 |
|
|
7,123 |
Assumptions
Weighted-average assumptions used to determine benefit obligations as of year-end were:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2013 |
|
June 30, 2012 |
||
Discount rate — Retirement Plan |
|
|
|
5.32 |
% |
|
4.81 |
% |
Discount rate — SERP |
|
|
|
4.94 |
|
|
4.89 |
|
Discount rate — Other Postretirement Plans |
|
|
|
5.32 |
|
|
4.81 |
|
Rate of compensation increase — Retirement Plan |
|
|
|
3.89 |
|
|
5.30 |
|
As benefit accruals under the SERP were frozen as of June 29, 2013 due to the plan freeze discussed above, future pay is not projected in the determination of the benefit obligation as of that date. For determining the benefit obligations as of June 30, 2012, the SERP calculations utilized an age-graded salary growth assumption.
Weighted-average assumptions used to determine net company-sponsored pension costs and other postretirement benefit costs for each fiscal year were:
|
|
|
|
|
|
|
|
|
|
2013 |
|
2012 |
|
2011 |
|||
Discount rate — Retirement Plan |
4.81 |
% |
|
5.94 |
% |
|
6.15 |
% |
Discount rate — SERP |
3.96 |
(1) |
|
5.93 |
|
|
6.35 |
|
Discount rate — Other Postretirement Plans |
4.81 |
|
|
5.94 |
|
|
6.32 |
|
Expected rate of return — Retirement Plan |
7.75 |
|
|
7.75 |
|
|
8.00 |
|
Rate of compensation increase — Retirement Plan |
5.30 |
|
|
5.30 |
|
|
5.30 |
|
(1) The SERP was remeasured in November 2012 as a result of the plan freeze discussed above. The rate in the table above reflects the discount rate as of this remeasurement.
For determining the net pension costs related to the SERP for fiscal 2013, 2012 and 2011, the SERP calculations utilized an age-graded salary growth assumption.
A healthcare cost trend rate is not used in the calculations of postretirement benefit obligations because Sysco subsidizes the cost of postretirement medical coverage by a fixed dollar amount, with the retiree responsible for the cost of coverage in excess of the subsidy, including all future cost increases.
For guidance in determining the discount rate, Sysco calculates the implied rate of return on a hypothetical portfolio of high-quality fixed-income investments for which the timing and amount of cash outflows approximates the estimated payouts of the company-sponsored pension plans. The discount rate assumption is reviewed annually and revised as deemed appropriate. The discount rate to be used for the calculation of fiscal 2014 net company-sponsored benefit costs for the Retirement Plan is 5.32%. The discount rate to be used for the calculation of fiscal 2014 net company-sponsored benefit costs for the SERP is 4.94%. The discount rate to be used for the calculation of fiscal 2014 net company-sponsored benefit costs for the Other Postretirement Plans is 5.32%.
The expected long-term rate of return on plan assets assumption is net return on assets assumption, representing gross return on assets less plan expenses. The expected return is derived from a mathematical asset model that incorporates assumptions as to the various asset class returns, reflecting a combination of rigorous historical performance analysis and the forward-looking views of the financial markets regarding the yield on bonds, the historical returns of the major stock markets and returns on alternative investments. The rate of return assumption is reviewed annually and revised as deemed appropriate. The expected long-term rate of return to be used in the calculation of fiscal 2014 net company-sponsored benefit costs for the Retirement Plan is 7.75%.
Plan Assets
Investment Strategy
The company’s overall strategic investment objectives for the Retirement Plan are to preserve capital for future benefit payments and to balance risk and return commensurate with ongoing changes in the valuation of plan liabilities. In order to accomplish these objectives, the company oversees the Retirement Plan’s investment objectives and policy design, decides proper plan asset class strategies and structures, monitors the performance of plan investment managers and investment funds and determines the proper investment allocation of pension plan contributions and withdrawals. The company has created an investment structure for the Retirement Plan that takes into account the nature of the Retirement Plan’s liabilities. This structure ensures the Retirement Plan’s investment are diversified within each asset class, in addition to being diversified across asset classes with the intent to build asset class portfolios that are structured without strategic bias for or against any subcategories within each asset class. The company has also created a set of investment guidelines for the Retirement Plan’s investment managers to specify prohibited transactions, including borrowing of money except for real estate portfolios or private equity portfolios where leverage is a key component of the investment strategy and permitted in the investments’ governing documents, the purchase of securities on margin unless fully collateralized by cash or cash equivalents or short sales, pledging, mortgaging or hypothecating of any securities except for loans of securities that are fully collateralized, market timing transactions and the direct purchase of the securities of Sysco or the investment manager. The purchase or sale of derivatives for speculation or leverage is also prohibited; however, investment managers are allowed to use derivative securities so long as they do not increase the risk profile or leverage of the manager’s portfolio.
The company’s target and actual investment allocation as of June 29, 2013 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Asset Allocation Range |
|
Actual Asset Allocation |
||
U.S. equity |
|
|
|
|
|
|
|
23 - 31 |
% |
|
34 |
% |
International equity |
|
|
|
|
|
|
|
23 - 31 |
|
|
31 |
|
Long duration fixed income |
|
|
|
|
|
|
|
21 - 35 |
|
|
23 |
|
High yield fixed income |
|
|
|
|
|
|
|
7 - 11 |
|
|
9 |
|
Alternative investments |
|
|
|
|
|
|
|
5 - 15 |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
Sysco’s investment strategy is implemented through a combination of balanced and specialist investment managers, passive investment funds and actively-managed investment funds. U.S. equity consists of both large-cap and small-to-mid-cap securities. Core fixed income investments include intermediate range U.S. government and agency securities, corporate bonds from diversified industries, asset-backed securities, mortgage-backed securities, other debt securities and derivative securities. Long duration fixed income investments include U.S. government and agency securities, corporate bonds from diversified industries, asset-backed securities, mortgage-backed securities, other debt securities and derivative securities. High yield fixed income consists of below investment grade corporate debt securities and may include derivative securities. Alternative investments may include private equity, private real estate, timberland, and commodities investments. Investment funds are selected based on each fund’s stated investment strategy to align with Sysco’s overall target mix of investments. Actual asset allocation is regularly reviewed and periodically rebalanced to the target allocation when considered appropriate. As of June 29, 2013, actual asset allocation varied from the stated target in certain categories, as alternative investment funding, primarily in private equity funds require contributions over a multi-year period. Until such capital is required, the company has chosen to invest these amounts in U.S. and international equities.
As discussed above, the Retirement Plan’s investments in equity, fixed income and alternative investments provide a range of returns and also expose the plan to investment risk. However, the investment policies put in place by the company require diversification of plan assets across issuers, industries and countries. As such, the Retirement Plan does not have significant concentrations of risk in plan assets.
Fair Value of Plan Assets
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). See Note 4, “Fair Value Measurements,” for a description of the fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The following is a description of the valuation methodologies used for assets and liabilities measured at fair value.
Cash and cash equivalents: Valued at amortized cost, which approximates fair value. Cash and cash equivalents is included as a Level 2 measurement in the table below.
Equity securities: Valued at the closing price reported on the exchange market. If a stock is not listed on a public exchange, such as an American Depository Receipt or some preferred stocks, the stock is valued using an evaluated bid price based on a compilation of observable market information. Inputs used include yields, the underlying security “best price”, adjustments for corporate actions and exchange prices of underlying and common stock of the same issuer. Equity securities valued at the closing price reported on the exchange market are classified as a Level 1 measurement in the table below; all other equity securities are included as a Level 2 measurement.
Fixed income securities: Valued using evaluated bid prices based on a compilation of observable market information or a broker quote in a non-active market. Inputs used vary by type of security, but include spreads, yields, rate benchmarks, rate of prepayment, cash flows, rating changes and collateral performance and type. All fixed income securities are included as a Level 2 measurement in the table below.
Investment funds: Funds holding debt and equity securities are valued at the net asset value (NAV) provided by the manager of each fund. The NAV is calculated as the underlying net assets owned by the fund, divided by the number of shares outstanding. The NAV is based on the fair value of the underlying securities within the fund. The real estate funds are valued based on the proportionate interest held by the Retirement Plan, which is based on the valuations of the underlying real estate investments held by each fund. Each real estate investment is valued on the basis of a discounted cash flow approach. Inputs used include future rental receipts, expenses and residual values from a market participant view of the highest and best use of the real estate as rental property. The private equity funds are valued based on the proportionate interest held by the Retirement Plan, which is based on the valuations of the underlying private equity investments held by each fund. Indirectly-held investments are valued utilizing the latest financial reports supplied by the fund’s portfolio investments. Directly-held investments are valued initially based on transaction price and are adjusted utilizing available market data and investment-specific factors, such as estimates of liquidation value, prices of recent transactions in the same or similar issuer, current operating performance and future expectations of the particular investment, changes in market outlook and the financing environment. Investment funds holding debt and equity securities are included as a Level 2 measurement in the table below. The real estate funds and private equity funds are included as Level 3 measurements.
Derivatives: Valuation method varies by type of derivative security.
· |
Credit default and interest rate swaps: Valued using evaluated bid prices based on a compilation of observable market information. Inputs used for credit default swaps include spread curves and trade data about the credit quality of the counterparty. Inputs used for interest rate swaps include benchmark yields, swap curves, cash flow analysis, and interdealer broker rates. Credit default and interest rate swaps are included as a Level 2 measurement in the table below. |
· |
Foreign currency contracts: Valued using a standardized interpolation model that utilizes the quoted prices for standard-length forward foreign currency contracts and adjusts to the remaining term outstanding on the contract being valued. Foreign currency contracts are included as a Level 2 measurement in the table below. |
· |
Futures and option contracts: Valued at the closing price reported on the exchange market for exchange-traded futures and options. Over-the-counter options are valued using pricing models that are based on observable market information. Exchange-traded futures and options are included as a Level 1 measurement in the table below; over-the-counter options are included as a Level 2 measurement. |
The following table presents the fair value of the Retirement Plan’s assets by major asset category as of June 29, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Measured at Fair Value as of June 29, 2013 |
||||||||||
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
||||
|
(In thousands) |
||||||||||
Cash and cash equivalents 1 |
$ |
- |
|
$ |
88,812 |
|
$ |
- |
|
$ |
88,812 |
U.S. equity: |
|
|
|
|
|
|
|
|
|
|
|
U.S. large-cap 1 |
|
189,548 |
|
|
531,667 |
|
|
- |
|
|
721,215 |
U.S. small-to-mid-cap 1 |
|
99,518 |
|
|
- |
|
|
- |
|
|
99,518 |
International equity 2 |
|
- |
|
|
745,262 |
|
|
- |
|
|
745,262 |
Long duration fixed income: |
|
|
|
|
|
|
|
|
|
|
|
Diversified fixed income 2 |
|
- |
|
|
264,139 |
|
|
- |
|
|
264,139 |
U.S. government and agency securities |
|
- |
|
|
123,253 |
|
|
- |
|
|
123,253 |
Corporate bonds |
|
- |
|
|
117,565 |
|
|
- |
|
|
117,565 |
Mortgage-backed securities |
|
- |
|
|
8,316 |
|
|
- |
|
|
8,316 |
Municipal bonds |
|
- |
|
|
23,840 |
|
|
- |
|
|
23,840 |
Sovereign debt |
|
- |
|
|
16,744 |
|
|
- |
|
|
16,744 |
Other 1 |
|
- |
|
|
13,277 |
|
|
- |
|
|
13,277 |
Derivatives, net 3 |
|
(249) |
|
|
(687) |
|
|
- |
|
|
(936) |
High yield fixed income 2 |
|
- |
|
|
226,955 |
|
|
- |
|
|
226,955 |
Alternative investments: |
|
|
|
|
|
|
|
|
|
|
|
Real estate 2 |
|
- |
|
|
- |
|
|
64,845 |
|
|
64,845 |
Private equity 2 |
|
- |
|
|
- |
|
|
14,375 |
|
|
14,375 |
Total investments at fair value |
$ |
288,817 |
|
$ |
2,159,143 |
|
$ |
79,220 |
|
$ |
2,527,180 |
Other 4 |
|
|
|
|
|
|
|
|
|
|
(9,171) |
Fair value of plan assets at end of year |
|
|
|
|
|
|
|
|
|
$ |
2,518,009 |
1 Include direct investments and investment funds.
2 Include investments in investment funds only.
3 Include credit default swaps, interest rate swaps, foreign currency contracts, futures and options. The fair value of asset positions totaled $0.4 million; the fair value of liability positions totaled $1.3 million.
4 Include primarily plan receivables and payables, net.
The following table presents the fair value of the Retirement Plan’s assets by major asset category as of June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Measured at Fair Value as of June 30, 2012 |
||||||||||
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
||||
|
(In thousands) |
||||||||||
Cash and cash equivalents 1 |
$ |
- |
|
$ |
44,904 |
|
$ |
- |
|
$ |
44,904 |
U.S. equity: |
|
|
|
|
|
|
|
|
|
|
|
U.S. large-cap 1 |
|
143,544 |
|
|
414,048 |
|
|
- |
|
|
557,592 |
U.S. small-to-mid-cap |
|
133,388 |
|
|
- |
|
|
- |
|
|
133,388 |
International equity 2 |
|
- |
|
|
670,139 |
|
|
- |
|
|
670,139 |
Core fixed income: |
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities |
|
- |
|
|
43,690 |
|
|
- |
|
|
43,690 |
Corporate bonds 1 |
|
- |
|
|
85,391 |
|
|
- |
|
|
85,391 |
Asset-backed securities |
|
- |
|
|
11,937 |
|
|
- |
|
|
11,937 |
Mortgage-backed securities, net 1 |
|
- |
|
|
106,722 |
|
|
- |
|
|
106,722 |
Other 1 |
|
192 |
|
|
17,248 |
|
|
- |
|
|
17,440 |
Derivatives, net 3 |
|
(16) |
|
|
(6) |
|
|
- |
|
|
(22) |
Long duration fixed income: |
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities |
|
- |
|
|
143,825 |
|
|
- |
|
|
143,825 |
Corporate bonds |
|
- |
|
|
119,947 |
|
|
- |
|
|
119,947 |
Mortgage-backed securities |
|
- |
|
|
9,946 |
|
|
- |
|
|
9,946 |
Municipal bonds |
|
- |
|
|
22,014 |
|
|
- |
|
|
22,014 |
Sovereign debt |
|
- |
|
|
18,126 |
|
|
- |
|
|
18,126 |
Other 1 |
|
- |
|
|
12,813 |
|
|
- |
|
|
12,813 |
Derivatives, net 4 |
|
- |
|
|
(43) |
|
|
- |
|
|
(43) |
High yield fixed income 2 |
|
- |
|
|
205,984 |
|
|
- |
|
|
205,984 |
Alternative investments: |
|
|
|
|
|
|
|
|
|
|
|
Real estate 2 |
|
- |
|
|
- |
|
|
51,097 |
|
|
51,097 |
Private equity 2 |
|
- |
|
|
- |
|
|
5,295 |
|
|
5,295 |
Total investments at fair value |
$ |
277,108 |
|
$ |
1,926,685 |
|
$ |
56,392 |
|
$ |
2,260,185 |
Other 5 |
|
|
|
|
|
|
|
|
|
|
(25,316) |
Fair value of plan assets at end of year |
|
|
|
|
|
|
|
|
|
$ |
2,234,869 |
1 Include direct investments and investment funds.
2 Include investments in investment funds only.
3 Include credit default swaps, interest rate swaps and futures. The fair value of asset positions totaled $0.3 million; the fair value of liability positions totaled $0.3 million.
4 Include credit default swaps, interest rate swaps, foreign currency contracts, futures and options. The fair value of asset positions totaled $0.5 million; the fair value of liability positions totaled $0.6 million.
5 Include primarily plan receivables and payables, net.
The following table sets forth a summary of changes in the fair value of the Retirement Plan’s Level 3 assets for each fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate |
|
Private Equity Funds |
|
Total Level 3 Measurements |
|||
|
|
|
|
(In thousands) |
|||||||
Balance, July 2, 2011 |
|
|
|
$ |
30,615 |
|
$ |
1,480 |
|
$ |
32,095 |
Actual return on plan assets: |
|
|
|
|
|
|
|
|
|
|
|
Relating to assets still held at the reporting date |
|
|
|
|
2,155 |
|
|
(14) |
|
|
2,141 |
Relating to assets sold during the period |
|
|
|
|
- |
|
|
- |
|
|
- |
Purchases and sales, net |
|
|
|
|
18,327 |
|
|
3,829 |
|
|
22,156 |
Transfers in and/or out of Level 3 |
|
|
|
|
- |
|
|
- |
|
|
- |
Balance, June 30, 2012 |
|
|
|
$ |
51,097 |
|
$ |
5,295 |
|
$ |
56,392 |
Actual return on plan assets: |
|
|
|
|
|
|
|
|
|
|
|
Relating to assets still held at the reporting date |
|
|
|
|
6,696 |
|
|
1,327 |
|
|
8,023 |
Relating to assets sold during the period |
|
|
|
|
- |
|
|
- |
|
|
- |
Purchases and sales, net |
|
|
|
|
7,052 |
|
|
7,753 |
|
|
14,805 |
Transfers in and/or out of Level 3 |
|
|
|
|
- |
|
|
- |
|
|
- |
Balance, June 29, 2013 |
|
|
|
$ |
64,845 |
|
$ |
14,375 |
|
$ |
79,220 |