Sysco 2010 Annual Report Download - page 88
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Please find page 88 of the 2010 Sysco annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.18. COMMITMENTS AND CONTINGENCIES
Sysco is engaged in various legal proceedings which have arisen but have not been fully adjudicated. These proceedings, in the opinion of management,
will not have a material adverse effect upon the consolidated financial position or results of operations of the company when ultimately concluded.
Multi-Employer Pension Plans
Sysco contributes to several multi-employer defined benefit pension plans based on obligations arising under collective bargaining agreements
covering union-represented employees. Approximately 11% of Sysco’s current employees are participants in such multi-employer plans. In fiscal
2010, total contributions to these plans were approximately $51.5 million.
Sysco does not directly manage these multi-employer plans, which are generally managed by boards of trustees, half of whom are appointed by
the unions and the other half by other employers contributing to the plan. Based upon the information available from plan administrators,
management believes that several of these multi-employer plans are underfunded. In addition, the Pension Protection Act, enacted in August 2006,
requires underfunded pension plans to improve their funding ratios within prescribed intervals based on the level of their underfunding. As a result,
Sysco expects its contributions to these plans to increase in the future.
Under current law regarding multi-employer defined benefit plans, a plan’s termination, Sysco’s voluntary withdrawal, or the mass withdrawal of
all contributing employers from any underfunded multi-employer defined benefit plan would require Sysco to make payments to the plan for Sysco’s
proportionate share of the multi-employer plan’s unfunded vested liabilities. Generally, Sysco does not have the greatest share of liability among the
participants in any of these plans. Based on the information available from plan administrators, which has valuation dates ranging from January 31,
2008 to June 30, 2009, Sysco estimates its share of withdrawal liability on most of the multi-employer plans in which it participates could have been
as much as $183.0 million as of July 3, 2010, based on a voluntary withdrawal. The majority of the plans we participate in have a valuation date of
calendar year-end. As such, the majority of the estimated withdrawal liability results from plans for which the valuation date was December 31,
2008; therefore, the company’s estimated liability reflects the asset losses incurred by the financial markets as of that date. In general, the financial
markets have improved since December 31, 2008; therefore, management believes Sysco’s current share of the withdrawal liability could differ from
this estimate. In addition, if a multi-employer defined benefit plan fails to satisfy certain minimum funding requirements, the IRS may impose a
nondeductible excise tax of 5% on the amount of the accumulated funding deficiency for those employers contributing to the fund. As of July 3,
2010, Sysco had approximately $0.9 million in liabilities recorded in total related to certain multi-employer defined benefit plans for which Sysco’s
voluntary withdrawal had already occurred.
During fiscal 2008, the company obtained information that a multi-employer pension plan it participated in failed to satisfy minimum funding
requirements for certain periods and concluded that it was probable that additional funding would be required as well as the payment of excise tax.
As a result, during fiscal 2008, Sysco recorded a liability of approximately $16.5 million related to its share of the minimum funding requirements and
related excise tax for these periods. During the first quarter of fiscal 2009, Sysco effectively withdrew from this multi-employer pension plan in an
effort to secure benefits for Sysco’s employees that were participants in the plan and to manage the company’s exposure to this under-funded plan.
Sysco agreed to pay $15.0 million to the plan, which included the minimum funding requirements. In connection with this withdrawal agreement,
Sysco merged participants from this plan into its company-sponsored Retirement Plan and assumed $26.7 million in liabilities. The payment to the
plan was made in the second quarter of fiscal 2009. If this plan were to undergo a mass withdrawal, as defined by the Pension Benefit Guaranty
Corporation, prior to September 2010, the company could have additional liability. The company does not currently believe a mass withdrawal from
this plan prior to September 2010 is probable.
Sysco has experienced other instances triggering voluntary withdrawal from multi-employer pension plans. Total withdrawal liability provisions
recorded include $2.9 million in fiscal 2010, $9.6 million in fiscal 2009 and $22.3 million in fiscal 2008.
Fuel Commitments
From time to time, Sysco may enter into forward purchase commitments for a portion of its projected diesel fuel requirements. As of July 3,
2010, we had forward diesel fuel commitments totaling approximately $93.0 million through September 2011.
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 2013. 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 July 3, 2010 totaled
approximately $891.4 million. Minimum amounts committed to by year are as follows: $704.1 million in fiscal 2011, $182.5 million in fiscal 2012 and
$4.8 million in fiscal 2013.
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 $534.0 million. 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. If Sysco were to terminate all of the services in fiscal 2011, the estimated termination
fee incurred in fiscal 2011 would be approximately $16.4 million.
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