Sysco 2015 Annual Report Download - page 43
Download and view the complete annual report
Please find page 43 of the 2015 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.SYSCO CORPORATION-Form10-K 35
PARTII
ITEM7Management’s Discussion and Analysis ofFinancial Condition and Results of Operations
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 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 increased our net company-sponsored pension costs for all plans for scal 2015 by an estimated $7 million. The discount rate for determining
scal 2016 net pension costs for the Retirement Plan, which was determined as of the June 27, 2015 measurement date, increased 10 basis points to
4.84%. The discount rate for determining scal 2016 net pension costs for the SERP, which was determined as of the June 27, 2015 measurement date,
increased 4 basis points to 4.63%. The combined effect of these discount rate changes will decrease our net company-sponsored pension costs for all
plans for scal 2016 by an estimated $1 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 2015 and scal 2014. 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 8.3%, 6.3%, 11.1%, and 7.7%, over the 20-year, 10-year, 5-year and 1-year periods ended
December31, 2014, respectively. In addition, in seven 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 7.25% for scal 2016. 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 $30 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 27, 2015 was a charge, net of tax, of $705.3 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 28, 2014 was a charge,
net of tax, of $686.0 million.
We made cash contributions to our company-sponsored pension plans of $75.1 million and $24.8 million in scal years 2015 and 2014, respectively. Our
contributions in scal 2015 include a $50.0 million contribution to the Retirement Plan that was voluntary, as there was no minimum required contribution
for the calendar 2014 plan year to meet ERISA minimum funding requirements. 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. There are no required contributions
to the Retirement Plan to meet ERISA minimum funding requirements in scal 2016. The estimated scal 2016 contributions to fund bene t payments for
the SERP plan are approximately $28 million.