Sysco 2007 Annual Report Download - page 53

rates because a 1.0% decrease in discount rates would require additional amortization of unrecognized actuarial losses
which would not be required at our current discount rates or with a 1.0% increase in these rates.
We look to actual plan experience in determining the rates of increase in compensation levels. We used a plan specific
age-related set of rates for the Retirement Plan, which are equivalent to a single rate of 6.17% as of June 30, 2007 and
July 1, 2006. The SERP assumes annual salary increases of 10% through fiscal 2007 and 7% thereafter as of June 30, 2007
and July 1, 2006.
The expected long-term rate of return on plan assets of the Retirement Plan was 9.00% for fiscal 2007 and 2006. The
expectations of future returns are 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 long-term bonds and the historical returns of the major stock
markets. Although not determinative of future returns, the effective annual rate of return on plan assets, developed using
geometric/compound averaging, was approximately 9.5%, 8.1%, 7.0% and 12.9% over the 20-year, 10-year, 5-year and
1-year periods ended December 31, 2006, respectively. In addition, in nine of the last 15 years, the actual return on plan
assets has exceeded 10.00%. The rate of return assumption is reviewed annually and revised as deemed appropriate.
The expected return on plan assets impacts the recorded amount of net pension costs. The expected long-term rate of
return on plan assets of the Retirement Plan is 8.50% for fiscal 2008. A 1.0% increase (decrease) in the assumed rate of
return for fiscal 2008 would decrease (increase) SYSCO’s net pension costs for fiscal 2008 by approximately $15,900,000.
Prior to the adoption of the recognition and disclosure provisions of SFAS 158, minimum pension liability adjustments
resulted when the accumulated benefit obligation exceeds the fair value of plan assets and were recorded so that the
recorded pension liability is at a minimum equal to the unfunded accumulated benefit obligation. Minimum pension liability
adjustments were non-cash adjustments that are reflected as an increase (or decrease) in the pension liability and an
offsetting charge (or benefit) to shareholders’ equity, net of tax, through accumulated other comprehensive loss (or
income). The amounts reflected in accumulated other comprehensive income related to minimum pension liability,
was a charge, net of tax, of $11,106,000 as of July 1, 2006.
The adoption of the recognition and disclosure provisions of SFAS 158 as of June 30, 2007 resulted in the recognition
of the funded status of our defined benefit plans in the statement of financial position, with a corresponding adjustment
to accumulated other comprehensive income, net of tax. The amount reflected in accumulated other comprehensive loss
as of June 30, 2007 after adoption of SFAS 158 was a charge, net of tax, of $125,265,000, which represented the net
unrecognized actuarial losses, unrecognized prior service costs and unrecognized transition obligation remaining from
the initial adoption of SFAS 87/106 as of that date.
Changes in the assumptions, including changes to the discount rate discussed above, together with the normal growth
of the plan, the impact of actuarial losses from prior periods and the timing and amount of contributions, decreased net
pension costs $56,001,000 in fiscal 2007 and is expected to decrease net pension costs in fiscal 2008 by approximately
$9,000,000.
We made cash contributions to our pension plans of $91,163,000 and $73,764,000 in fiscal years 2007 and 2006,
respectively, including voluntary contributions to the Retirement Plan of $80,000,000 and $66,000,000 in fiscal 2007 and
fiscal 2006, respectively. In fiscal 2008, as in the previous years, contributions to the Retirement Plan will not be required
to meet ERISA minimum funding requirements but we anticipate that we will make voluntary contributions of $80,000,000,
which is not greater than the estimated maximum amount that will be tax deductible in fiscal 2008. The estimated fiscal
2008 contributions to fund benefit payments for the SERP and other post-retirement plans together are approximately
$12,000,000.
Income Taxes
The determination of our provision for income taxes requires significant judgment, the use of estimates and the
interpretation and application of complex tax laws. Our provision for income taxes reflects a combination of income
earned and taxed in the various U.S. federal and state, as well as Canadian federal and provincial jurisdictions.
Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals
or adjustments of accruals for tax contingencies or valuation allowances, and our change in the mix of earnings from
these taxing jurisdictions all affect the overall effective tax rate.
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