Sysco 2008 Annual Report Download - page 83

adjustments related to the taxability of the cooperative structure. The company is vigorously protesting these adjustments. The company
has reviewed the merits of the issues raised by the IRS, and, while management believes it is probable the company will prevail, the company
concluded the measurement model of FIN 48 (adopted in fiscal 2008) required an accrual for a portion of the interest exposure.
Fuel Commitments
From time to time, SYSCO may enter into forward purchase commitments for a portion of its projected diesel fuel requirements. There
were no amounts outstanding as of June 28, 2008, however in July and August 2008, SYSCO entered into forward diesel fuel purchase
commitments total approximately $195,000,000 at a fixed price through the end of July 2009.
Other Commitments
SYSCO has committed to product purchases for resale in order to leverage the company’s purchasing power. A majority of these
agreements expire within one year, however certain agreements have terms through fiscal 2012.These agreements commit the company to
a minimum volume at various pricing terms, including fixed pricing, variable pricing or a combination thereof. Minimum amounts committed
to as of June 28, 2008 totaled approximately $1,335,561,000.
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 $500,000,000.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 2009, the estimated termination fee incurred in fiscal 2009 would be approximately $11,500,000.
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.
19. 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 operating segments, including the company’s
specialty produce, custom-cut meat and lodging industry segments and a company that distributes to international customers.
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 certain centrally
incurred costs for shared services that are charged to our segments. These centrally incurred costs are charged based upon the relative level
of service used by each operating company consistent with how SYSCO’s management views the performance of its operating segments.
Prior to fiscal 2008, SYSCO’s management evaluated performance of each of its operating segments based on its respective earnings before
income taxes. This measure included an allocation of certain corporate expenses to each operating segment in addition to the centrally
incurred costs for shared services that were charged to its segments. During fiscal 2008, SYSCO’s management increased its focus on the
results of each of its operating segments based on its respective operating income performance which excludes the allocation of additional
corporate expenses. As a result, the segment reporting for fiscal 2007 and 2006 has been revised to conform to the fiscal 2008
presentation.
Included in corporate expenses and consolidated adjustments, among other items, are:
• Gains and losses recognized to adjust corporate-owned life insurance policies to their cash surrender values;
• Share-based compensation expense related to stock option grants, issuances of stock pursuant to the Employees’ Stock Purchase
Plan and stock grants to non-employee directors; and
• Corporate-level depreciation and amortization expense.
59