Sysco 2007 Annual Report Download - page 70

from fiscal year-end to May 31st, which represented a change in accounting. Management believes this accounting change
was preferable, as the one-month acceleration of the measurement date allowed additional time for management to
evaluate and report the actuarial pension measurements in the year-end financial statements and disclosures within
the accelerated filing deadlines of the Securities and Exchange Commission. The cumulative effect of this change in
accounting resulted in an increase to earnings in the first quarter of fiscal 2006 of $9,285,000, net of tax. The impact
to pro forma net earnings and earnings per share adjusted for the effect of retroactive application of the change in
measurement date on net pension costs for fiscal 2005 was not material.
In September 2006, the FASB issued 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). SFAS 158 has two
major provisions. The recognition and disclosure provision requires an employer to recognize a plan’s funded status in
its statement of financial position and recognize the changes in a defined benefit postretirement plan’s funded status in
comprehensive income in the year in which the changes occur. The measurement date provision requires an employer to
measure a plan’s assets and obligations as of the end of the employer’s fiscal year. SYSCO adopted SFAS 158’s recognition
and disclosure requirements as of June 30, 2007. In addition, SYSCO has elected to early adopt the measurement date
provision in order to adopt both provisions of this accounting standard at the same time. See discussion of the impact
of adoption in Note 10, Employee Benefit Plans.
EITF 04-13 Adoption
In September 2005, the Emerging Issues Task Force reached a consensus on EITF 04-13 which requires that two or more
inventory transactions with the same counterparty (as defined) should be viewed as a single nonmonetary transaction if
the transactions were entered into in contemplation of one another. Exchanges of inventory between entities in the same
line of business should be accounted for at fair value or recorded at carrying amounts, depending on the classification of
such inventory. This guidance was effective for the fourth quarter of fiscal 2006 for SYSCO. SYSCO has certain transactions
where finished goods are purchased from a customer or sourced by that customer for warehousing and distribution and
resold to the same customer. These transactions are evidenced by title transfer and are separately invoiced. Historically,
the company has recorded such transactions in the consolidated results of operations within cost of sales for the purchase
amount and within sales for the sales amount. In fiscal 2007, the company recorded the net effect of such transactions in
the consolidated results of operations within sales by reducing sales and cost of sales in the amount of $334,002,000. In
the fourth quarter of fiscal 2006, the company recorded the net effect of such transactions in the consolidated results of
operations within sales by reducing sales and cost of sales in the amount of $99,803,000. The amounts included in the
consolidated results of operations within cost of sales for the 39 week period ended April 1, 2006 and fiscal 2005 that
were recorded on a gross basis prior to the adoption of EITF 04-13 were $279,746,000 and $347,018,000, respectively.
Such amounts were not restated when the new standard was adopted because only prospective treatment was allowed.
3. NEW ACCOUNTING STANDARDS
FIN 48
In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an
Interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting for uncertainty in income taxes
recognized in accordance with FASB Statement No. 109 (SFAS 109). FIN 48 clarifies the application of SFAS 109 by defining
criteria that an individual tax position must meet for any part of the benefit of that position to be recognized in the
financial statements. Additionally, FIN 48 provides guidance on the measurement, derecognition, classification and
disclosure of tax positions, along with accounting for the related interest and penalties. The provisions of FIN 48 are
effective for fiscal years beginning after December 15, 2006; therefore, these provisions became effective for SYSCO
on July 1, 2007. While the company continues to analyze the financial statement impact resulting from the adoption
of FIN 48, SYSCO estimates that the cumulative effect adjustment may result in an increase to tax liabilities of $70,000,000
to $100,000,000, with an offsetting charge to beginning retained earnings.
SFAS 157
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value,
establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and
expands disclosures about fair value measurements. The statement is effective for fiscal years beginning after
November 15, 2007. The company is currently evaluating the impact of the provisions of SFAS 157.
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