Sysco 2007 Annual Report Download - page 69

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as a liability due to the respective taxing authorities. Purchases and sales of inventory with the same counterparty that
are entered into in contemplation of one another are considered to be a single nonmonetary transaction. Beginning in
the fourth quarter of fiscal 2006, the company recorded the net effect of such transactions in the consolidated results
of operations within sales as a result of a new accounting standard, EITF Issue No. 04-13, “Accounting for Purchases and
Sales of Inventory With the Same Counterparty,” (EITF 04-13). See further discussion in Note 2, Changes in Accounting.
Vendor Consideration
SYSCO recognizes consideration received from vendors when the services performed in connection with the monies
received are completed and when the related product has been sold by SYSCO as a reduction to cost of sales. There are
several types of cash consideration received from vendors. In many instances, the vendor consideration is in the form of a
specified amount per case or per pound. In these instances, SYSCO will recognize the vendor consideration as a reduction
of cost of sales when the product is sold. In the situations where the vendor consideration is not related directly to specific
product purchases, SYSCO will recognize these as a reduction of cost of sales when the earnings process is complete,
the related service is performed and the amounts realized. In certain of these latter instances, the vendor consideration
represents a reimbursement of a specific incremental identifiable cost incurred by SYSCO. In these cases, SYSCO classifies
the consideration as a reduction of those costs with any excess funds classified as a reduction of cost of sales and
recognizes these in the period in which the costs are incurred and related services performed.
Shipping and Handling Costs
Shipping and handling costs include costs associated with the selection of products and delivery to customers. Included in
operating expenses are shipping and handling costs of approximately $1,977,516,000 in fiscal 2007, $1,857,093,000 in fiscal
2006, and $1,718,485,000 in fiscal 2005.
Insurance Program
SYSCO maintains a self-insurance program covering portions of workers’ compensation, general and vehicle liability costs.
The amounts in excess of the self-insured levels are fully insured by third party insurers. The company also maintains a
fully self-insured group medical program. Liabilities associated with these risks are estimated in part by considering
historical claims experience, medical cost trends, demographic factors, severity factors and other actuarial assumptions.
Amounts accrued for self-insured liabilities were $125,844,000 and $115,557,000 as of June 30, 2007 and July 1, 2006,
respectively.
Share-Based Compensation
SYSCO recognizes expense for its share-based compensation based on the fair value of the awards that are granted.
The fair value of the stock options is estimated at the date of grant using the Black-Scholes option pricing model.
Option pricing methods require the input of highly subjective assumptions, including the expected stock price volatility.
Measured compensation cost is recognized ratably over the vesting period of the related share-based compensation award.
Cash flows resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax
benefits) are classified as financing cash flows on the consolidated cash flows statements.
Acquisitions
Acquisitions of businesses are accounted for using the purchase method of accounting and the financial statements
include the results of the acquired operations from the respective dates they joined SYSCO.
The purchase price of the acquired entities is allocated to the net assets acquired and liabilities assumed based on
the estimated fair value at the dates of acquisition, with any excess of cost over the fair value of net assets acquired,
including intangibles, recognized as goodwill. The balances included in the consolidated balance sheets related to recent
acquisitions are based upon preliminary information and are subject to change when final asset and liability valuations
are obtained. Material changes to the preliminary allocations are not anticipated by management.
2. CHANGES IN ACCOUNTING
Pension Measurement Date Change and SFAS 158 Adoption
Beginning in fiscal 2006, SYSCO changed the measurement date for the pension and other postretirement benefit plans
SYSCO Corporation ][ page 43