Sysco 2014 Annual Report Download - page 54

SYSCO CORPORATION-Form10-K42
PARTII
ITEM7Management’s Discussion and Analysis ofFinancial Condition and Results of Operations
We made cash contributions to our company-sponsored pension plans of $24.8 million and $93.6 million in  scal years 2014 and 2013, respectively. There
was no contribution to the Retirement Plan in  scal 2014, as there was no minimum required contribution for the calendar 2013 plan year to meet ERISA
minimum funding requirements. The $70.0 million contribution to the Retirement Plan in  scal 2013 was voluntary, as there was no minimum required
contribution for the calendar 2012 plan year to meet ERISA minimum funding requirements. There are no required contributions to the Retirement Plan
to meet ERISA minimum funding requirements in  scal 2015. The estimated  scal 2015 contributions to fund bene t payments for the SERP plan are
approximately $26 million.
Income Taxes
The determination of our provision for income taxes requires signi cant judgment, the use of estimates and the interpretation and application of complex
tax laws. Our provision for income taxes primarily re ects a combination of income earned and taxed in the various U.S. federal and state, as well as foreign
jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of
accruals for unrecognized tax bene ts or valuation allowances, and our change in the mix of earnings from these taxing jurisdictions all affect the overall
effective tax rate.
Our liability for unrecognized tax bene ts contains uncertainties because management is required to make assumptions and to apply judgment to estimate
the exposures associated with our various  ling positions. We believe that the judgments and estimates discussed herein are reasonable; however, actual
results could differ, and we may be exposed to losses or gains that could be material. To the extent we prevail in matters for which a liability has been
established, or pay amounts in excess of recorded liabilities, our effective income tax rate in a given  nancial statement period could be materially affected.
An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective income tax rate in the period of resolution.
A favorable tax settlement may be recognized as a reduction in our effective income tax rate in the period of resolution.
Vendor Consideration
We recognize consideration received from vendors when the services performed in connection with the monies received are completed and when the
related product has been sold by Sysco. There are several types of cash consideration received from vendors. In many instances, the vendor consideration
is in the form of a speci ed amount per case or per pound. In these instances, we will recognize the vendor consideration as a reduction of cost of sales
when the product is sold. In some instances, vendor consideration is received upon receipt of inventory in our distribution facilities. We estimate the
amount needed to reduce our inventory based on inventory turns until the product is sold. Our inventory turnover is usually less than one month; therefore,
amounts deferred against inventory do not require long-term estimation. In the situations where the vendor consideration is not related directly to speci c
product purchases, we will recognize these as a reduction of cost of sales when the earnings process is complete, the related service is performed and
the amounts realized. Historically, adjustments to our estimates related to vendor consideration have not been signi cant.
Goodwill and Intangible Assets
Goodwill and intangible assets represent the excess of consideration paid over the fair value of tangible net assets acquired. Certain assumptions and
estimates are employed in determining the fair value of assets acquired, including goodwill and other intangible assets, as well as determining the allocation
of goodwill to the appropriate reporting unit.
In addition, annually in our fourth quarter or more frequently as needed, we assess the recoverability of goodwill and inde nite-lived intangibles by determining
whether the fair values of the applicable reporting units exceed the carrying values of these assets. The reporting units used in assessing goodwill
impairment are our 12 operating segments as described in Note 21, “Business Segment Information,” to the Consolidated Financial Statements in Item
8. The components within each of our 12 operating segments have similar economic characteristics and therefore are aggregated into 12 reporting units.
We arrive at our estimates of fair value using a combination of discounted cash  ow and earnings multiple models. The results from each of these models
are then weighted and combined into a single estimate of fair value for each of our 12 operating segments. We primarily use a 60% weighting for our
discounted cash  ow valuation and 40% for the earnings multiple models giving greater emphasis to our discounted cash  ow model because the forecasted
operating results that serve as a basis for the analysis incorporate management’s outlook and anticipated changes for the businesses consistent with a
market participant. The primary assumptions used in these various models include estimated earnings multiples of comparable acquisitions in the industry
including control premiums, earnings multiples on acquisitions completed by Sysco in the past, future cash  ow estimates of the reporting units, which
are dependent on internal forecasts and projected growth rates, and weighted average cost of capital, along with working capital and capital expenditure
requirements. When possible, we use observable market inputs in our models to arrive at the fair values of our reporting units. We update our projections
used in our discounted cash  ow model based on historical performance and changing business conditions for each of our reporting units.
Our estimates of fair value contain uncertainties requiring management to make assumptions and to apply judgment to estimate industry economic factors
and the pro tability of future business strategies. Actual results could differ from these assumptions and projections, resulting in the company revising its
assumptions and, if required, recognizing an impairment loss. There were no impairments of goodwill or inde nite-lived intangibles recorded as a result