Sysco 2007 Annual Report Download - page 90

liabilities of $988,000,000 related to the BSCC supply chain distributions. This amount represents the income tax liabilities
related to BSCC that were accrued, but the payment had been deferred as of June 30, 2007. In addition, if the IRS or any
other taxing authority determines that all amounts since the inception of BSCC were inappropriately deferred or that BSCC
should have been a taxable entity, SYSCO estimates that in addition to making a current payment for amounts previously
deferred, as discussed above, the company may have additional liability, representing interest that would be payable on
the cumulative deferred balances ranging from $185,000,000 to $205,000,000, prior to federal and state income tax
benefit, as of June 30, 2007. SYSCO calculated this amount based upon the amounts deferred since the inception of BSCC
applying the applicable jurisdictions’ interest rates in effect in each period. During the third quarter of fiscal 2007, the IRS,
in connection with its audit of our 2003 and 2004 federal income tax returns, the IRS proposed adjustments related to the
taxability of BSCC. The company is vigorously protesting these adjustments. The company has reviewed the merits of the
issues raised by the IRS and based upon such review, SYSCO believes that the resulting interest is not a probable liability
and accordingly, has not recorded any related amount in any period.
Fuel Commitments
From time to time, SYSCO may enter into forward purchase commitments for a portion of its projected diesel fuel
requirements. As of June 30, 2007, outstanding forward diesel fuel purchase commitments total approximately
$44,500,000 at a fixed price through the end of calendar year 2007.
Other Commitments
SYSCO has committed with a third party service provider to provide hardware and hardware hosting services. The services
are to be provided over a ten year period beginning in fiscal 2005 and ending in fiscal 2015. The total cost of the services
over that period is expected to be approximately $450,000,000. This amount may be reduced by SYSCO utilizing less than
estimated resources and can be increased by SYSCO utilizing more than estimated resources and the adjustments for
inflation provided for in the agreements. SYSCO may also cancel a portion or all of the services provided subject to
termination fees which decrease over time. Although it does not expect to, if SYSCO were to terminate all of the services
in fiscal 2008, the estimated termination fee incurred in fiscal 2008 would be approximately $13,400,000. SYSCO believes
that these agreements will provide a more secure and reliable environment for its data processing as well as reduce
overall operating costs over the ten year period.
17. BUSINESS SEGMENT INFORMATION
The company has aggregated its operating companies into a number of segments, of which only Broadline and SYGMA are
reportable segments as defined in SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.”
Broadline operating companies distribute a full line of food products and a wide variety of non-food products to both
traditional and chain restaurant customers. SYGMA operating companies distribute a full line of food products and a wide
variety of non-food products to certain chain restaurant customer locations. “Other” financial information is attributable to
the company’s other segments, including the company’s specialty produce, custom-cut meat and lodging industry products
segments and a company that distributes to internationally located chain restaurants.
The accounting policies for the segments are the same as those disclosed by SYSCO. Intersegment sales represent
specialty produce and meat company products distributed by the Broadline and SYGMA operating companies.
The segment results include allocation of centrally incurred costs for shared services that eliminate upon consolidation.
Centrally incurred costs are allocated based upon the relative level of service used by each operating company.
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