Sysco 2007 Annual Report Download - page 40

A major component of our National Supply Chain project entails the use of redistribution centers (RDCs). The first RDC,
the Northeast RDC located in Front Royal, Virginia, opened during the third quarter of fiscal 2005. In January 2006, we
completed the purchase of land in Alachua, Florida for the future site of our second RDC, which will service our five
broadline operating companies in Florida. Construction of the building site is in progress and this facility is expected
to be operational in fiscal 2008. In March 2007, we purchased the site for construction of a third RDC in Hamlet, Indiana.
We will continue to use our strategic business initiatives to help us grow by leveraging our market leadership position
to continuously improve how our associates buy, handle and market products for our customers. Our primary focus
is on growing and optimizing the core foodservice distribution business in North America.
We are currently working to expand our import and export business. We will also continue to explore and identify
opportunities to grow our global capabilities and stay abreast of international acquisition opportunities.
ACCOUNTING CHANGES
As of June 30, 2007, we adopted the recognition and disclosure provisions of SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and
132(R)” (SFAS 158). The recognition provision requires an employer to recognize a plan’s funded status in its statement
of financial position and recognize the changes in a postretirement benefit plan’s funded status in comprehensive income
in the year in which the changes occur. The effect of adoption on our consolidated balance sheet as of June 30, 2007 was
a decrease in prepaid pension cost of $83,846,000, a decrease in other assets of $43,854,000, an increase in accrued
expenses of $10,967,000, a decrease in long-term deferred taxes of $73,328,000, an increase in other long-term liabilities
of $52,289,000, and a charge to accumulated other comprehensive loss of $117,268,000. The adoption of SFAS 158’s
recognition provision did not have an effect on our consolidated balance sheet as of July 1, 2006. The adoption has no
effect on our consolidated results of operations for fiscal 2007, or for any prior year presented, and it will not affect our
consolidated results of operations in future periods.
SFAS 158 also has a measurement date provision, which is a requirement to measure plan assets and benefit obligations
as of the date of the employer’s fiscal year-end statement of financial position, effective for fiscal years ending after
December 15, 2008. In the first quarter of fiscal 2006, we changed the measurement date for pension and other
postretirement benefit plans from fiscal year-end to May 31st to assist us in meeting accelerated SEC filing dates. As a
result of this change, we recorded a cumulative effect of a change in accounting, which increased net earnings for fiscal
2006 by $9,285,000, net of tax. With the issuance of SFAS 158, we have elected to early adopt the measurement date
provision in order to adopt both provisions of this accounting standard at the same time. As a result, beginning in fiscal
2008, the measurement date will return to correspond with our fiscal year-end. We have performed measurements as of
May 31, 2007 and June 30, 2007 of our plan assets and benefit obligations. We will record a charge to beginning retained
earnings in the first quarter of fiscal 2008 of approximately $4,000,000, net of tax, for the impact of the cumulative
difference in our pension expense between the two measurement dates. We will also record a benefit to beginning
accumulated other comprehensive loss in the first quarter of fiscal 2008 of approximately $23,000,000, net of tax, for
the impact of the difference in our balance sheet recognition provision between the two measurement dates.
In the beginning of the fourth quarter of fiscal 2006, we adopted accounting pronouncement EITF 04-13 “Accounting for
Purchases and Sales of Inventory with the Same Counterparty,” (EITF 04-13). The accounting standard requires certain
transactions, where inventory is purchased by us from a customer and then resold at a later date to the same customer
(as defined), to be presented in the income statement on a net basis. This situation primarily arises for SYSCO when a
customer has a proprietary item which they have either manufactured or sourced, but they require our distribution and
logistics capabilities to get the product to their locations. The application of this standard requires sales and cost of sales
to be reduced by the same amount for these transactions and thus net earnings are unaffected by the application of this
standard. We adopted this accounting pronouncement beginning in the fourth quarter of fiscal 2006 and have applied it to
similar transactions prospectively. Prior period sales and cost of sales have not been restated. Therefore, the calculation
of sales growth and the comparison of gross margins, operating expenses and earnings as a percentage of sales between
the non-comparable periods is affected. The impact of adopting this standard resulted in sales being reduced by
$99,803,000 for the fourth quarter of fiscal 2006 and $253,724,000 for the first 39 weeks of fiscal 2007, without a reduction
in sales for the comparable prior year periods. Beginning with the fourth quarter of fiscal 2007, sales are reported on
a comparable accounting basis with the comparable prior year period.
In fiscal 2006, we adopted the provisions of FASB Statement No. 123(R), “Share-Based Payment,” (SFAS 123(R)) utilizing
the modified-prospective transition method under which prior period results have not been restated. Our consolidated
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