Sysco 2011 Annual Report Download - page 54

doubtful accounts receivable, self-insurance programs, company-sponsored pension plans, income taxes, vendor consideration, goodwill and
intangible assets and share-based compensation.
Allowance for Doubtful Accounts
We evaluate the collectability of accounts receivable and determine the appropriate reserve for doubtful accounts based on a combination of
factors. We utilize specific criteria to determine uncollectible receivables to be written off, including whether a customer has filed for or has been
placed in bankruptcy, has had accounts referred to outside parties for collection or has had accounts past due over specified periods. Allowances
are recorded for all other receivables based on analysis of historical trends of write-offs and recoveries. In addition, in circumstances where we are
aware of a specific customer’s inability to meet its financial obligation, a specific allowance for doubtful accounts is recorded to reduce the
receivable to the net amount reasonably expected to be collected. Our judgment is required as to the impact of certain of these items and other
factors as to ultimate realization of our accounts receivable. If the financial condition of our customers were to deteriorate, as was the case in fiscal
2009, additional allowances may be required.
Self-Insurance Program
We maintain a self-insurance program covering portions of workers’ compensation, general liability and vehicle liability costs. The amounts in
excess of the self-insured levels are fully insured by third party insurers. We also maintain 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. Projections of future loss expenses are inherently uncertain because of the random nature of insurance
claims occurrences and could be significantly affected if future occurrences and claims differ from these assumptions and historical trends. In an
attempt to mitigate the risks of workers’ compensation, vehicle and general liability claims, safety procedures and awareness programs have been
implemented.
Company-Sponsored Pension Plans
Amounts related to defined benefit plans recognized in the financial statements are determined on an actuarial basis. Three of the more
critical assumptions in the actuarial calculations are the discount rate for determining the current value of plan benefits, the assumption for the
rate of increase in future compensation levels and the expected rate of return on plan assets.
For guidance in determining the discount rates, we calculate the implied rate of return on a hypothetical portfolio of high-quality fixed-
income investments for which the timing and amount of cash outflows approximates the estimated payouts of the pension plan. The discount
rate assumption is reviewed annually and revised as deemed appropriate. The discount rate for determining fiscal 2011 net pension costs for the
Retirement Plan, which was determined as of the July 3, 2010 measurement date, decreased 187 basis points to 6.15%. The discount rate for
determining fiscal 2011 net pension costs for the SERP, which was determined as of the July 3, 2010 measurement date, decreased 79 basis points
to 6.35%. The combined effect of these discount rate changes increased our net company-sponsored pension costs for all plans for fiscal 2011 by
an estimated $85.6 million. The discount rate for determining fiscal 2012 net pension costs for the Retirement Plan, which was determined as of
the July 2, 2011 measurement date, decreased 21 basis points to 5.94%. The discount rate for determining fiscal 2012 net pension costs for the
SERP, which was determined as of the July 2, 2011 measurement date, decreased 42 basis points to 5.93%. The combined effect of these discount
rate changes will increase our net company-sponsored pension costs for all plans for fiscal 2012 by an estimated $14.3 million. A 100 basis point
increase in the discount rates for fiscal 2012 would decrease Sysco’s net company-sponsored pension cost by $59.0 million, while a 100 basis point
decrease in the discount rates would increase pension cost by $68.7 million. The impact of a 100 basis point increase in the discount rates differs
from the impact of a 100 basis point decrease in discount rates because the liabilities are less sensitive to change at higher discount rates.
Therefore, a 100 basis point increase in the discount rate will not generate the same magnitude of change as a 100 basis point decrease in the
discount rate.
We look to actual plan experience in determining the rates of increase in compensation levels. We used a plan specific age-related set of rates
for the Retirement Plan, which are equivalent to a single rate of 5.30% as of July 2, 2011 and July 3, 2010. For determining the benefit obligations as
of July 2, 2011 and July 3, 2010, the SERP calculations use an age-graded salary growth assumption.
The expected long-term rate of return on plan assets of the Retirement Plan was 8.00% for fiscal 2011 and fiscal 2010. The expectations of
future returns are derived from a mathematical asset model that incorporates assumptions as to the various asset class returns, reflecting a
combination of historical performance analysis and the forward-looking views of the financial markets regarding the yield on bonds, historical
returns of the major stock markets and returns on alternative investments. Although not determinative of future returns, the effective annual rate
of return on plan assets, developed using geometric/compound averaging, was approximately 8.1%, 4.0%, 4.1%, and 18.5%, over the 20-year,
10-year, 5-year and 1-year periods ended December 31, 2010, respectively. In addition, in nine of the last 15 years, the actual return on plan assets
has exceeded 10%. The rate of return assumption is reviewed annually and revised as deemed appropriate.
The expected return on plan assets impacts the recorded amount of net pension costs. The expected long-term rate of return on plan assets
of the Retirement Plan is 7.75% for fiscal 2012. A 100 basis point increase (decrease) in the assumed rate of return for fiscal 2012 would decrease
(increase) Sysco’s net company-sponsored pension costs for fiscal 2012 by approximately $20.9 million.
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