Sysco 2014 Annual Report Download - page 53

SYSCO CORPORATION-Form10-K 41
PARTII
ITEM7Management’s Discussion and Analysis ofFinancial Condition and Results of Operations
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 speci c criteria to determine uncollectible receivables to be written off, including whether a customer has  led for or has been placed in bankruptcy,
has had accounts referred to outside parties for collection or has had accounts past due over speci ed 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 speci c customer’s
inability to meet its  nancial obligation, a speci c 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  nancial condition of our customers were to deteriorate, 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
signi cantly 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 de ned bene t plans recognized in the  nancial statements are determined on an actuarial basis. Two of the more critical assumptions
in the actuarial calculations are the discount rate for determining the current value of plan bene ts and the expected rate of return on plan assets. Our
Retirement Plan was frozen in  scal 2013 and is only open to a small number of employees. Our SERP was frozen in  scal 2013. Due to these plan freezes,
our assumption for the rate of increase in future compensation is no longer a critical assumption.
For guidance in determining the discount rates, we calculate the implied rate of return on a hypothetical portfolio of high-quality  xed-income investments
for which the timing and amount of cash out ows 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  scal 2014 net pension costs for the Retirement Plan, which was determined
as of the June 29, 2013 measurement date, increased 51 basis points to 5.32%. The discount rate for determining  scal 2014 net pension costs for the
SERP, which was determined as of the June 29, 2013 measurement date, increased 98 basis points to 4.94%, as compared to the discount rate upon the
remeasurement of the plan during  scal 2013. The combined effect of these discount rate changes decreased our net company-sponsored pension costs
for all plans for  scal 2014 by an estimated $5 million. The discount rate for determining  scal 2015 net pension costs for the Retirement Plan, which was
determined as of the June 28, 2014 measurement date, decreased 58 basis points to 4.74%. The discount rate for determining  scal 2015 net pension
costs for the SERP, which was determined as of the June 28, 2014 measurement date, decreased 35 basis points to 4.59%. The combined effect of these
discount rate changes will increase our net company-sponsored pension costs for all plans for  scal 2015 by an estimated $7 million. A100 basis point
increase (or decrease) in the discount rates for  scal 2015 would decrease (or increase) Sysco’s net company-sponsored pension cost by approximately
$11 million. Now that Sysco’s pension plans are frozen, net company-sponsored pension cost is not as sensitive to discount rate changes as compared
to when these plans were active.
The expected long-term rate of return on plan assets of the Retirement Plan was 7.75% for  scal 2014 and  scal 2013. The expectations of future returns
are derived from a mathematical asset model that incorporates assumptions as to the various asset class returns, re ecting a combination of historical
performance analysis and the forward-looking views of the  nancial 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 7.6%, 6.8%, 13.4%, and 15.0%, over the 20-year, 10-year, 5-year and 1-year periods ended December 31,
2013, respectively. In addition, in eight 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  scal 2015. A 100 basis point increase (decrease) in the assumed rate of return for  scal 2015 would decrease (increase)
Sysco’s net company-sponsored pension costs for  scal 2015 by approximately $29 million.
Pension accounting standards require the recognition of the funded status of our de ned bene t plans in the statement of  nancial position, with a
corresponding adjustment to accumulated other comprehensive income, net of tax. The amount re ected in accumulated other comprehensive loss related
to the recognition of the funded status of our de ned bene t plans as of June 28, 2014 was a charge, net of tax, of $686.0 million. The amount re ected
in accumulated other comprehensive loss related to the recognition of the funded status of our de ned bene t plans as of June 29, 2013 was a charge,
net of tax, of $575.2 million.