e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended June 27, 2009
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-6544
Sysco Corporation
(Exact name of registrant as specified in its charter)
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Delaware
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74-1648137 |
(State or other jurisdiction of
incorporation or organization)
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(IRS employer
identification number) |
1390 Enclave Parkway
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77077-2099 |
Houston, Texas
(Address of principal executive offices)
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(Zip Code) |
Registrants Telephone Number, Including Area Code:
(281) 584-1390
Securities Registered Pursuant to Section 12(b) of the Act:
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Name of each exchange on |
Title of Each Class |
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which registered |
Common Stock, $1.00 par value
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New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes þ No o
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13
or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See definition of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large Accelerated Filer þ
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Accelerated Filer o
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Non-accelerated Filer o
(Do not check if a smaller reporting company)
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The aggregate market value of the voting stock of the registrant held by stockholders who were
not affiliates (as defined by regulations of the Securities and Exchange Commission) of the
registrant was approximately $13,623,447,000 as of December 27, 2008 (based on the closing sales
price on the New York Stock Exchange Composite Tape on December 26, 2008, as reported by The Wall
Street Journal (Southwest Edition)). As of August 12, 2009, the registrant had issued and
outstanding an aggregate of 591,015,830 shares of its common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the companys 2009 Proxy Statement to be filed with the Securities and Exchange
Commission no later than 120 days after the end of the fiscal year covered by this Form 10-K are
incorporated by reference into Part III.
PART I
ITEM 1. Business
Unless this Form 10-K indicates otherwise or the context otherwise requires, the terms we,
our, us, Sysco, or the company as used in this Form 10-K refer to Sysco Corporation
together with its consolidated subsidiaries and divisions.
Overview
Sysco Corporation, acting through its subsidiaries and divisions, is the largest North
American distributor of food and related products primarily to the foodservice or
food-away-from-home industry. We provide products and related services to approximately 400,000
customers, including restaurants, healthcare and educational facilities, lodging establishments and
other foodservice customers.
Founded in 1969, Sysco commenced operations as a public company in March 1970 when the
stockholders of nine companies exchanged their stock for Sysco common stock. Since our formation,
we have grown from $115 million to approximately $37 billion in annual sales, both through internal
expansion of existing operations and through acquisitions.
Sysco Corporation is organized under the laws of Delaware. The address and telephone number of
our executive offices are 1390 Enclave Parkway, Houston, Texas 77077-2099, (281) 584-1390. This
annual report on Form 10-K, as well as all other reports filed or furnished by Sysco pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge on
Syscos website at www.sysco.com as soon as reasonably practicable after they are electronically
filed with or furnished to the Securities and Exchange Commission.
Operating Segments
Sysco provides food and related products to the foodservice or food-away-from-home
industry. Under the accounting provisions related to disclosures about segments of an enterprise,
we have aggregated our operating companies into a number of segments, of which only Broadline and
SYGMA are reportable segments as defined by accounting standards. Broadline operating companies
distribute a full line of food products and a wide variety of non-food products to their customers.
SYGMA operating companies distribute a full line of food products and a wide variety of non-food
products to chain restaurant customer locations. Other financial information is attributable to
our other segments, including our specialty produce, custom-cut meat and lodging industry products
segments and a company that distributes to international customers. Specialty produce companies
distribute fresh produce and, on a limited basis, other foodservice products. Specialty meat
companies distribute custom-cut fresh steaks, other meat, seafood and poultry. Our lodging industry
products company distributes personal care guest amenities, equipment, housekeeping supplies, room
accessories and textiles to the lodging industry. Selected financial data for each of our
reportable segments as well as financial information concerning geographic areas can be found in
Note 20, Business Segment Information, in the Notes to Consolidated Financial Statements in Item 8.
Customers and Products
Syscos customers in the foodservice industry include restaurants, hospitals,
schools, hotels and industrial caterers. Services to our customers are supported by similar
physical facilities, vehicles, material handling equipment and techniques, and administrative and
operating staffs.
The products we distribute include:
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a full line of frozen foods, such as meats, fully prepared entrees, fruits, vegetables
and desserts; |
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a full line of canned and dry foods; |
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fresh meats; |
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dairy products; |
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beverage products; |
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imported specialties; and |
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fresh produce. |
We also supply a wide variety of non-food items, including:
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paper products such as disposable napkins, plates and cups; |
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tableware such as china and silverware; |
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cookware such as pots, pans and utensils; |
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restaurant and kitchen equipment and supplies; and |
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cleaning supplies. |
1
A comparison of the sales mix in the principal product categories during the last three years
is presented below:
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2009 |
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2008 |
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2007 |
Canned and dry products |
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19 |
% |
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18 |
% |
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18 |
% |
Fresh and frozen meats |
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17 |
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18 |
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19 |
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Frozen fruits, vegetables, bakery and other |
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14 |
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14 |
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13 |
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Dairy products |
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10 |
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11 |
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9 |
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Poultry |
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10 |
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10 |
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10 |
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Fresh produce |
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8 |
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8 |
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9 |
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Paper and disposables |
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8 |
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8 |
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8 |
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Seafood |
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5 |
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5 |
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5 |
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Beverage products |
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4 |
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3 |
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3 |
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Janitorial products |
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3 |
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3 |
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3 |
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Equipment and smallwares |
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2 |
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2 |
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2 |
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Medical supplies |
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* |
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* |
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1 |
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100 |
% |
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% |
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% |
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* Sales are less than 1% of total
Our operating companies distribute nationally-branded merchandise, as well as products
packaged under our private brands. Products packaged under our private brands have been
manufactured for Sysco according to specifications that have been developed by our quality
assurance team. In addition, our quality assurance team certifies the manufacturing and processing
plants where these products are packaged, enforces our quality control standards and identifies
supply sources that satisfy our requirements.
We believe that prompt and accurate delivery of orders, close contact with customers and the
ability to provide a full array of products and services to assist customers in their foodservice
operations are of primary importance in the marketing and distribution of foodservice products to
our customers. Our operating companies offer daily delivery to certain customer locations and have
the capability of delivering special orders on short notice. Through our more than 13,000 sales and
marketing representatives and support staff of Sysco and our operating companies, we stay informed
of the needs of our customers and acquaint them with new products and services. Our operating
companies also provide ancillary services relating to foodservice distribution, such as providing
customers with product usage reports and other data, menu-planning advice, food safety training and
assistance in inventory control, as well as access to various third party services designed to add
value to our customers businesses.
No single customer accounted for 10% or more of Syscos total sales for the fiscal year ended
June 27, 2009.
Based upon available information, we estimate that sales by type of customer during the past
three fiscal years were as follows:
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Type of Customer |
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2009 |
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2008 |
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2007 |
Restaurants |
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62 |
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63 |
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64 |
% |
Hospitals and nursing homes |
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11 |
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10 |
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10 |
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Hotels and motels |
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6 |
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6 |
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6 |
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Schools and colleges |
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5 |
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5 |
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5 |
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Other |
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16 |
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16 |
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15 |
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Totals |
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100 |
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Sources of Supply
We purchase from thousands of suppliers, both domestic and international, none of which
individually accounts for more than 10% of our purchases. These suppliers consist generally of
large corporations selling brand name and private label merchandise, as well as independent
regional brand and private label processors and packers. Generally, purchasing is carried out
through centrally developed purchasing programs and direct purchasing programs established by our
various operating companies.
Syscos Baugh Supply Chain Cooperative, Inc. (BSCC) administers a consolidated product
procurement program designed to develop, obtain and ensure consistent quality food and non-food
products. The program covers the purchasing and marketing of Sysco Brand merchandise as well as
products from a number of national brand suppliers, encompassing substantially all product lines.
Syscos operating companies purchase product from the suppliers participating in the cooperatives
programs and from other suppliers, although Sysco Brand products are only available to the
operating companies through the cooperatives programs.
2
Syscos National Supply Chain group is focused on increasing profitability by lowering
aggregate inventory levels, operating costs, and future facility expansion needs at our broadline
operating companies while providing greater value to our suppliers and customers. One of the
initiatives of this group is redistribution, which involves the construction and operation of
regional distribution centers (RDCs), which aggregate inventory demand to optimize the supply chain
activities for certain products for all Sysco broadline operating companies in the region.
Currently, we have two RDCs in operation in Virginia and Florida, and we have purchased the land
for a third RDC in Indiana.
Working Capital Practices
Our growth is funded through a combination of cash flow from operations, commercial paper
issuances and long-term borrowings. See the discussion in Liquidity and Capital Resources under
Managements Discussion and Analysis of Financial Condition and Results of Operations at Item 7
regarding our liquidity, financial position and sources and uses of funds.
Credit terms we extend to our customers can vary from cash on delivery to 30 days or more
based on our assessment of each customers credit worthiness. We monitor each customers account
and will suspend shipments if necessary.
A majority of our sales orders are filled within 24 hours of when customer orders are placed.
We generally maintain inventory on hand to be able to meet customer demand. The level of inventory
on hand will vary by product depending on shelf-life, supplier order fulfillment lead times and
customer demand. We also make purchases of additional volumes of certain products based on supply
or pricing opportunities.
We take advantage of suppliers cash discounts where appropriate and otherwise generally
receive payment terms from our suppliers ranging from weekly to 30 days or more.
Corporate Headquarters Services
Our corporate staff makes available a number of services to our operating companies.
Members of the corporate staff possess experience and expertise in, among other areas, accounting
and finance, treasury, cash management, information technology, employee benefits, engineering,
risk management and insurance, sales and marketing, payroll, human resources, training and
development, information technology and tax compliance services. The corporate office also makes
available warehousing and distribution services, which provide assistance in operational best
practices including space utilization, energy conservation, fleet management and work flow.
Capital Improvements
To maximize productivity and customer service, we continue to construct and modernize our
distribution facilities. During fiscal 2009, 2008 and 2007, approximately $464,561,000,
$515,963,000 and $603,242,000 respectively, were invested in facility expansions, fleet additions
and other capital asset enhancements. We estimate our capital expenditures in fiscal 2010 should be
in the range of $600,000,000 to $650,000,000. During the three years ended June 27, 2009, capital
expenditures were financed primarily by internally generated funds, our commercial paper program
and bank and other borrowings. We expect to finance our fiscal 2010 capital expenditures from the
same sources.
Employees
As of June 27, 2009, we had approximately 47,000 full-time employees, approximately 18%
of whom were represented by unions, primarily the International Brotherhood of Teamsters. Contract
negotiations are handled by each individual operating company. Approximately 23% of our union
employees are covered by collective bargaining agreements which have expired or will expire during
fiscal 2010 and are subject to renegotiation. Since June 27, 2009, three contracts covering 440 of
such employees have been renegotiated. We consider our labor relations to be satisfactory.
Competition
Sysco competes with numerous companies engaged in foodservice distribution. Our customers
may also choose to purchase products directly from retail outlets. While we compete primarily with
local and regional distributors, a few companies compete with us on a national basis. We believe
that the principal competitive factors in the foodservice industry are effective customer contacts,
the ability to deliver a wide range of quality products and related services on a timely and
dependable basis and competitive prices. We consider our primary market to be the foodservice
market in the United States and Canada and estimate that we serve about 17% of this approximately
$215 billion annual market. We believe, based upon industry trade data, that our sales to the
United States and Canada food-away-from-home industry were the highest of any foodservice
distributor during fiscal 2009. While adequate industry statistics are not available, we believe
that in most instances our local operations are among the leading distributors of food and related
non-food products to foodservice customers in their respective trading areas. We believe our
competitive advantages include our diversified product base, the diversity in the types of
customers we serve, our
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economies of scale and our wide geographic presence in the United States
and Canada, which allows us to minimize the impact of regional economic declines. We are the only
publicly-traded distributor in the food-away-from-home industry in the United States. While our
public company status provides us with some advantages, including access to capital, we believe it
also provides us with some disadvantages that our competitors do not have in terms of additional
costs related to complying with regulatory requirements.
Government Regulation
As a marketer and distributor of food products, we are subject to the U.S. Federal Food,
Drug and Cosmetic Act and regulations promulgated thereunder by the U.S. Food and Drug
Administration (FDA), as well as the Canadian Food and Drugs Act and the regulations thereunder.
The FDA regulates food safety through various statutory and regulatory mandates, including
manufacturing and holding requirements for foods through good manufacturing practice regulations,
hazard analysis and critical control point (HACCP) requirements for certain foods, and the food and
color additive approval process. The agency also specifies the standards of identity for certain
foods, prescribes the format and content of information required to appear on food product labels,
and regulates food contact packaging and materials. For certain product lines, we are also subject
to the Federal Meat Inspection Act, the Poultry Products Inspection Act, the Perishable
Agricultural Commodities Act, the Packers and Stockyard Act and regulations promulgated by the U.S.
Department of Agriculture (USDA) to interpret and implement these statutory provisions. The USDA
imposes standards for product safety, quality and sanitation through the federal meat and poultry
inspection program. The USDA reviews and approves the labeling of these products and also
establishes standards for the grading and commercial acceptance of produce shipments from our
suppliers. We are also subject to the Public Health Security and Bioterrorism Preparedness and
Response Act of 2002, which imposes certain registration and record keeping requirements on
facilities that manufacture, process, pack or hold food for human or animal consumption.
In Canada, the Canadian Food Inspection Agency administers and enforces the food safety and
nutritional quality standards established by Health Canada under the Canadian Food and Drugs Act
and under other related federal legislation, including the Canada Agricultural Products Act, the
Meat Inspection Act, the Fish Inspection Act and the Consumer Packaging and Labeling Act (as it
relates to food). These laws regulate the processing, storing, grading, packaging, marking,
transporting and inspection of certain Sysco product lines as well as the packaging, labeling,
sale, importation and advertising of pre-packaged and certain other products.
We and our products are also subject to state, provincial and local regulation through such
measures as the licensing of our facilities; enforcement by state, provincial and local health
agencies of state, provincial and local standards for our products; and regulation of our trade
practices in connection with the sale of our products. Our facilities are subject to inspections
and regulations issued pursuant to the U.S. Occupational Safety and Health Act by the U.S.
Department of Labor, together with similar occupational health and safety laws in each Canadian
province. These regulations require us to comply with certain manufacturing, health and safety
standards to protect our employees from accidents and to establish hazard communication programs to
transmit information on the hazards of certain chemicals present in products we distribute.
We are also subject to regulation by numerous U.S. and Canadian federal, state, provincial and
local regulatory agencies, including, but not limited to, the U.S. Department of Labor and each
Canadian provincial ministry of labour, which set employment practice standards for workers, and
the U.S. Department of Transportation and the Canadian Transportation Agency, which regulate
transportation of perishable and hazardous materials and waste, and similar state, provincial and
local agencies.
Most of our distribution facilities have ammonia-based refrigeration systems and tanks for the
storage of diesel fuel and other petroleum products which are subject to laws regulating such
systems and storage tanks. Other U.S. and Canadian federal, state, provincial and local provisions
relating to the protection of the environment or the discharge of materials do not materially
impact the use or operation of our facilities.
Compliance with these laws has not had, and is not anticipated to have, a material effect on
our capital expenditures, earnings or competitive position.
General
We have numerous trademarks which are of significant importance to the company. We
believe that the loss of the Sysco(R) trademark would have a material adverse effect on our results
of operations.
We are not engaged in material research and development activities relating to the development
of new products or the improvement of existing products.
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Our sales do not generally fluctuate significantly on a seasonal basis; therefore, the
business of the company is not deemed to be seasonal.
As of June 27, 2009, we operated 186 distribution facilities throughout the United States,
Canada and Ireland.
Item 1A. Risk Factors
Deteriorating Economic Conditions and Heightened Uncertainty in the Financial Markets are
Affecting Consumer Confidence, which is Currently Adversely Impacting our Business and We Expect
These Conditions to Continue
The foodservice distribution industry is characterized by relatively high inventory
turnover with relatively low profit margins and the foodservice industry is sensitive to national
and regional economic conditions. The deteriorating economic conditions and heightened uncertainty
in the financial markets continue to negatively affect consumer confidence and discretionary
spending. This has led to reductions in the frequency of dining out and the amount spent by
consumers for food prepared away from home. These conditions have, in turn, negatively impacted our
sales, as noted by our declining sequential sales trend each quarter from a positive 8.5% in the
first quarter of fiscal 2008 to a negative 6.6% in the fourth quarter of fiscal 2009, and have also
negatively impacted our operating results for fiscal 2009. If these conditions do not improve,
there will continue to be a negative impact on our operating results.
Increases
in Fuel Costs and Inflation Affect our Costs and We May Not Be Able to Compensate for
Increases in Such Costs
Volatile fuel prices and food costs have affected our industry during fiscal 2009. The
cost of fuel affects the price paid by us for products as well as the costs incurred by us to
deliver products to our customers. Although we have been able to pass along a portion of increased
fuel costs to our customers, there is no guarantee that we can do so again if another period of
high fuel costs occurs. In addition, prolonged periods of product cost inflation may have a
negative impact on our profit margins and earnings to the extent that we are unable to pass on such
product cost increases. Our estimate for the inflation in Syscos cost of goods was 4.7% in fiscal
2009, compared to 6.0% in fiscal 2008 and 3.4% in fiscal 2007. If fuel costs and product costs
increase again in the future, we may experience difficulties in passing all or a portion of these
costs along to our customers, which may have a negative impact on our business and our
profitability.
Conditions Beyond our Control can Interrupt our Supplies and Increase our Product Costs
We obtain substantially all of our foodservice and related products from third party
suppliers. For the most part, we do not have long-term contracts with our suppliers committing them
to provide products to us. Although our purchasing volume can provide leverage when dealing with
suppliers, suppliers may not provide the foodservice products and supplies needed by us in the
quantities and at the prices requested. We are also subject to delays caused by interruption in
production and increases in product costs based on conditions outside of our control. These
conditions include work slowdowns, work interruptions, strikes or other job actions by employees of
suppliers, weather, crop conditions, transportation interruptions, unavailability of fuel or
increases in fuel costs, competitive demands and natural disasters or other catastrophic events
(including, but not limited to food-borne illnesses). Our inability to obtain adequate supplies of
foodservice and related products as a result of any of the foregoing factors or otherwise could
mean that we could not fulfill our obligations to customers, and customers may turn to other
distributors.
We Need Access to Borrowed Funds in Order to Grow and Any Default by Us Under our Indebtedness
Could Have a Material Adverse Impact
Because a substantial part of our growth historically has been the result of acquisitions
and capital expansion, our continued growth depends, in large part, on our ability to continue this
expansion. As a result, our inability to finance acquisitions and
capital expenditures through borrowed funds could restrict our ability to expand. Moreover,
any default under the documents governing our indebtedness could have a significant adverse effect
on our cash flows, as well as the market value of our common stock.
Product Liability Claims Could Materially Impact our Business
We, like any other seller of food, face the risk of exposure to product liability claims
in the event that the use of products sold by Sysco causes injury or illness. With respect to
product liability claims, we believe we have sufficient primary or excess umbrella liability
insurance. However, this insurance may not continue to be available at a reasonable cost or, if
available, may not be adequate to cover all of our liabilities. We generally seek contractual
indemnification and insurance coverage from parties supplying our products, but this
indemnification or insurance coverage is limited, as a practical matter, to the creditworthiness of
the indemnifying party and the insured limits of any insurance provided by suppliers. If Sysco does
not have adequate insurance or contractual indemnification available, product liability relating to
defective products could materially reduce our net earnings and earnings per share.
5
Adverse Publicity about us or Lack of Confidence in our Products Could Negatively Impact our
Reputation and Reduce Earnings
Maintaining a good reputation and public confidence in the safety of the products we
distribute is critical to our business, particularly to selling Sysco Brand products. Anything that
damages that reputation or the publics confidence in our products, whether or not justified,
including adverse publicity about the quality, safety or integrity of our products, could quickly
affect our revenues and profits. Reports, whether true or not, of food-borne illnesses, such as
e-coli, avian flu, bovine spongiform encephalopathy, hepatitis A, trichinosis or salmonella, and
injuries caused by food tampering could also severely injure our reputation or negatively impact
the publics confidence in our products. If patrons of our restaurant customers become ill from
food-borne illnesses, our customers could be forced to temporarily close restaurant locations and
our sales and profitability would be correspondingly decreased. In addition, instances of
food-borne illnesses or food tampering or other health concerns, such as flu epidemics or other
pandemics, even those unrelated to the use of Sysco products, or public concern regarding the
safety of our products, can result in negative publicity about the food service distribution
industry and cause our sales and profitability to decrease dramatically.
Failure to Successfully Renegotiate Union Contracts Could Result in Work Stoppages
As of June 27, 2009, approximately 8,400 employees at 54 operating companies were members
of 57 different local unions associated with the International Brotherhood of Teamsters and other
labor organizations. In fiscal 2010, 15 agreements covering approximately 1,900 employees have
expired or will expire. Since June 27, 2009, three contracts covering 440 of the 1,900 employees
have been renegotiated. Failure of our operating companies to effectively renegotiate these
contracts could result in work stoppages. Although our operating subsidiaries have not experienced
any significant labor disputes or work stoppages to date, and we believe they have satisfactory
relationships with their unions, a work stoppage due to failure of multiple operating subsidiaries
to renegotiate union contracts could have a material adverse effect on us.
A
Shortage of Qualified Labor Could Negatively Impact our Business and Materially Reduce
Earnings
Our operations rely heavily on our employees, particularly drivers, and any shortage of
qualified labor could significantly affect our business. Our recruiting and retention efforts and
efforts to increase productivity gains may not be successful and there may be a shortage of
qualified drivers in future periods. Any such shortage would decrease Syscos ability to
effectively serve our customers. Such a shortage would also likely lead to higher wages for
employees and a corresponding reduction in our net earnings.
Our
Funding Obligations with Respect to our Company-Sponsored Qualified Pension Plan may Increase
Should Financial Markets Experience Further Declines
Our company-sponsored qualified pension plan (Retirement Plan) holds investments in both
equity and fixed income securities. The amount of our annual contribution to the plan is dependent
upon, among other things, the returns on the plans assets and discount rates used to calculate the
plans liability. As a result of the decline in the financial markets in fiscal 2009, the value of
the investments held by the Retirement Plan declined through June 27, 2009 as compared to June 28,
2008. These fluctuations in asset values have caused anticipated future contributions to the plan
to increase, have caused pension expense for fiscal 2010 to increase and have resulted in a
reduction in our shareholders equity as of June 27, 2009, which is when this plans funded status
was last measured. Also, the projected liability of the plan will be impacted by the fluctuations
of interest rates on high quality bonds in the public markets. Specifically, decreases in these
interest rates may have an adverse impact on our results of operations. To the extent financial
markets experience further declines, our future contributions, pension expense and funded status
may be negatively affected for future years which could have an adverse impact on our liquidity and
results of operations.
We may be Required to Pay Material Amounts Under Multi-Employer Defined Benefit Pension Plans
We contribute to several multi-employer defined benefit pension plans based on
obligations arising under collective bargaining agreements covering union-represented employees.
Approximately 12% of our current employees are participants in such multi-employer plans. In
fiscal 2009, our total contributions to these plans, which include payments for voluntary
withdrawals, were approximately $47,982,000.
We do 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 contributing
employers to the plan. Based upon the information available to us from plan administrators, we
believe 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, we
expect our required contributions to these plans to increase in the future.
Under current law regarding multi-employer defined benefit plans, a plans termination, our
voluntary withdrawal, or the mass withdrawal of all contributing employers from any underfunded
multi-employer defined benefit plan would require us to
6
make payments to the plan for our proportionate share of the multi-employer plans unfunded
vested liabilities. Based on the information currently available from plan administrators, we
estimate that our share of the aggregate withdrawal liability on most of the multi-employer plans
we participate in, some of which appear to be underfunded, could be as much as $80,000,000 as of
June 27, 2009 based on a voluntary withdrawal. Because the company is not provided with the
information by plan administrators on a timely basis and the company expects that many
multi-employer pension plans assets have declined due to recent financial market performance, we
believe our share of the withdrawal liability could be greater. In addition, if a multi-employer
defined benefit plan fails to satisfy certain minimum funding requirements, the Internal Revenue
Service (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 June 27, 2009, we had
approximately $17,000,000 in liabilities recorded in total related to certain multi-employer
defined benefit plans for which our voluntary withdrawal has already occurred, all of which are
expected to be paid during fiscal 2010. Requirements to pay such increased contributions,
withdrawal liability, and excise taxes could negatively impact our liquidity and results of
operations.
Product Cost Deflation May Adversely Impact Future Operations
Our business may be adversely impacted by periods of prolonged product cost deflation.
We make a significant portion of our sales at prices that are based on the cost of products we sell
plus a percentage markup. As a result, our profit levels may be negatively impacted during periods
of product cost deflation, even though our gross profit percentage may remain relatively constant.
We Must Finance and Integrate Acquired Businesses Effectively
Historically, a portion of our growth has come through acquisitions. If we are unable to
integrate acquired businesses successfully or realize anticipated economic, operational and other
benefits and synergies in a timely manner, our earnings per share may decrease. Integration of an
acquired business may be more difficult when we acquire a business in a market in which we have
limited expertise, or with a culture different from Syscos. A significant expansion of our
business and operations, in terms of geography or magnitude, could strain our administrative and
operational resources. Significant acquisitions may also require the issuance of material
additional amounts of debt or equity, which could materially alter our debt to equity ratio,
increase our interest expense and decrease earnings per share, and make it difficult for us to
obtain favorable financing for other acquisitions or capital investments.
Expanding into International Markets Presents Unique Challenges, and our Expansion Efforts and
International Operations may not be Successful
In addition to our domestic activities, an element of our strategy includes
expansion of operations into new international markets. Our ability to successfully operate in
international markets may be adversely affected by local laws and customs, legal and regulatory
constraints, including compliance with the Foreign Corrupt Practices Act, political and economic
conditions and currency regulations of the countries or regions in which we currently operate or
intend to operate in the future. Risks inherent in our existing and future international operations
also include, among others, the costs and difficulties of managing international operations,
difficulties in identifying and gaining access to local suppliers, suffering possible adverse tax
consequences, maintaining product quality and greater difficulty in enforcing intellectual property
rights. Additionally, foreign currency exchange rates and fluctuations may have an impact on our
future costs or on future sales and cash flows from our international operations.
Our Preferred Stock Provides Anti-Takeover Benefits that may not be Viewed as Beneficial to
Stockholders
Under our Restated Certificate of Incorporation, Syscos Board of Directors is authorized
to issue up to 1,500,000 shares of preferred stock without stockholder approval. Issuance of these
shares could make it more difficult for anyone to acquire Sysco without approval of the Board of
Directors, depending on the rights and preferences of the stock issued. In addition, if anyone
attempts to acquire Sysco without approval of the Board of Directors of Sysco, the existence of
this undesignated preferred stock could allow the Board of Directors to adopt a shareholder rights
plan without obtaining stockholder approval, which could result in substantial dilution to a
potential acquirer. As a result, hostile takeover attempts that might result in an acquisition of
Sysco, that could otherwise have been financially beneficial to our stockholders, could be
deterred.
Technology Dependence Could have a Material Negative Impact on our Business
Our ability to decrease costs and increase profits, as well as our ability to serve
customers most effectively, depends on the reliability of our technology network. We use software
and other technology systems, among other things, to generate and select orders, to load and route
trucks and to monitor and manage our business on a day-to-day basis. Any disruption to these
computer systems could adversely impact our customer service, decrease the volume of our business
and result in increased costs. While Sysco has invested and continues to invest in technology
security initiatives and disaster recovery plans, these measures cannot fully insulate us from
technology disruption that could result in adverse effects on operations and profits.
7
Our Design of an Enterprise-wide Software Integration Project may not be Implemented and in the
Event of Implementation may Negatively Impact our Business, Results of Operations and Liquidity
We commenced the design of an enterprise-wide project to implement an integrated software
system to support a majority of our business processes. These systems are commonly referred to as
Enterprise Resource Planning (ERP) systems. When we have completed the design phase of this
project, which we anticipate to occur by the end of calendar 2009, a decision will be made as to
whether to build the system as designed and if so, the timing of implementation. ERP
implementations are complex and time-consuming projects that involve substantial investments in
system software and implementation activities over a multi-year timeframe. ERP implementations
typically require transformation of business and financial processes in order to realize the
benefits of the project. When the design phase is complete, if we reach a decision to discontinue
the project, amounts invested will be written off which may negatively impact our results of
operations at that time. If we reach a decision to continue with the project, our business and
results of operations may be adversely affected if we experience operating problems and/or cost
overages during the ERP implementation process. In addition, because the implementation is
expected to involve a significant capital commitment, our business, results of operations and
liquidity may be adversely affected if the ERP system, and the associated process changes, do not
result in the benefits that we anticipate.
Item 1B. Unresolved Staff Comments
None.
8
Item 2. Properties
The table below shows the number of distribution facilities occupied by Sysco in each state,
province or country and the aggregate square footage devoted to cold and dry storage as of June 27,
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cold Storage |
|
Dry Storage |
|
|
|
|
Number of |
|
(Thousands |
|
(Thousands |
|
Segment |
Location |
|
Facilities |
|
Square Feet) |
|
Square Feet) |
|
Served* |
Alabama
|
|
|
2 |
|
|
|
184 |
|
|
|
228 |
|
|
BL |
Alaska
|
|
|
1 |
|
|
|
43 |
|
|
|
26 |
|
|
BL |
Arizona
|
|
|
2 |
|
|
|
125 |
|
|
|
104 |
|
|
BL, O |
Arkansas
|
|
|
2 |
|
|
|
132 |
|
|
|
87 |
|
|
BL, O |
California
|
|
|
18 |
|
|
|
1,037 |
|
|
|
1,113 |
|
|
BL, S, O |
Colorado
|
|
|
4 |
|
|
|
313 |
|
|
|
214 |
|
|
BL, S, O |
Connecticut
|
|
|
3 |
|
|
|
161 |
|
|
|
116 |
|
|
BL, O |
District of Columbia
|
|
|
1 |
|
|
|
22 |
|
|
|
3 |
|
|
O |
Florida
|
|
|
16 |
|
|
|
1,252 |
|
|
|
1,012 |
|
|
BL, S, O |
Georgia
|
|
|
6 |
|
|
|
289 |
|
|
|
511 |
|
|
BL, S, O |
Idaho
|
|
|
2 |
|
|
|
84 |
|
|
|
88 |
|
|
BL |
Illinois
|
|
|
5 |
|
|
|
373 |
|
|
|
356 |
|
|
BL, S, O |
Indiana
|
|
|
2 |
|
|
|
100 |
|
|
|
126 |
|
|
BL, O |
Iowa
|
|
|
1 |
|
|
|
93 |
|
|
|
95 |
|
|
BL |
Kansas
|
|
|
1 |
|
|
|
177 |
|
|
|
171 |
|
|
BL |
Kentucky
|
|
|
1 |
|
|
|
92 |
|
|
|
106 |
|
|
BL |
Louisiana
|
|
|
1 |
|
|
|
134 |
|
|
|
113 |
|
|
BL |
Maine
|
|
|
1 |
|
|
|
59 |
|
|
|
50 |
|
|
BL |
Maryland
|
|
|
3 |
|
|
|
290 |
|
|
|
288 |
|
|
BL, O |
Massachusetts
|
|
|
2 |
|
|
|
162 |
|
|
|
213 |
|
|
BL, S |
Michigan
|
|
|
5 |
|
|
|
265 |
|
|
|
389 |
|
|
BL, S, O |
Minnesota
|
|
|
2 |
|
|
|
163 |
|
|
|
134 |
|
|
BL |
Mississippi
|
|
|
1 |
|
|
|
95 |
|
|
|
69 |
|
|
BL |
Missouri
|
|
|
2 |
|
|
|
107 |
|
|
|
95 |
|
|
BL, S |
Montana
|
|
|
1 |
|
|
|
120 |
|
|
|
109 |
|
|
BL |
Nebraska
|
|
|
1 |
|
|
|
74 |
|
|
|
108 |
|
|
BL |
Nevada
|
|
|
3 |
|
|
|
219 |
|
|
|
125 |
|
|
BL, O |
New Jersey
|
|
|
3 |
|
|
|
159 |
|
|
|
373 |
|
|
BL, O |
New Mexico
|
|
|
1 |
|
|
|
120 |
|
|
|
108 |
|
|
BL |
New York
|
|
|
2 |
|
|
|
224 |
|
|
|
199 |
|
|
BL |
North Carolina
|
|
|
7 |
|
|
|
326 |
|
|
|
497 |
|
|
BL, S, O |
North Dakota
|
|
|
1 |
|
|
|
46 |
|
|
|
59 |
|
|
BL |
Ohio
|
|
|
10 |
|
|
|
478 |
|
|
|
561 |
|
|
BL, S, O |
Oklahoma
|
|
|
4 |
|
|
|
145 |
|
|
|
125 |
|
|
BL, S, O |
Oregon
|
|
|
3 |
|
|
|
177 |
|
|
|
161 |
|
|
BL, S, O |
Pennsylvania
|
|
|
4 |
|
|
|
363 |
|
|
|
361 |
|
|
BL, S |
South Carolina
|
|
|
1 |
|
|
|
151 |
|
|
|
98 |
|
|
BL |
Tennessee
|
|
|
5 |
|
|
|
383 |
|
|
|
460 |
|
|
BL, O |
Texas
|
|
|
19 |
|
|
|
1,057 |
|
|
|
1,048 |
|
|
BL, S, O |
Utah
|
|
|
1 |
|
|
|
120 |
|
|
|
107 |
|
|
BL |
Virginia
|
|
|
3 |
|
|
|
510 |
|
|
|
402 |
|
|
BL |
Washington
|
|
|
1 |
|
|
|
134 |
|
|
|
92 |
|
|
BL |
Wisconsin
|
|
|
2 |
|
|
|
287 |
|
|
|
243 |
|
|
BL |
Alberta, Canada
|
|
|
2 |
|
|
|
195 |
|
|
|
176 |
|
|
BL |
British Columbia, Canada
|
|
|
8 |
|
|
|
229 |
|
|
|
292 |
|
|
BL, O |
Manitoba, Canada
|
|
|
1 |
|
|
|
58 |
|
|
|
46 |
|
|
BL |
New Brunswick, Canada
|
|
|
2 |
|
|
|
48 |
|
|
|
56 |
|
|
BL |
Newfoundland, Canada
|
|
|
1 |
|
|
|
33 |
|
|
|
22 |
|
|
BL |
Nova Scotia, Canada
|
|
|
1 |
|
|
|
33 |
|
|
|
45 |
|
|
BL |
Ontario, Canada
|
|
|
10 |
|
|
|
434 |
|
|
|
347 |
|
|
BL, O |
Quebec, Canada
|
|
|
1 |
|
|
|
36 |
|
|
|
63 |
|
|
BL |
Saskatchewan, Canada
|
|
|
1 |
|
|
|
40 |
|
|
|
54 |
|
|
BL |
Ireland
|
|
|
3 |
|
|
|
84 |
|
|
|
67 |
|
|
BL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
186 |
|
|
|
12,035 |
|
|
|
12,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Segments served include Broadline (BL), SYGMA (S) and Other (O). |
9
We own approximately 19,558,000 square feet of our distribution facilities (or 81.0% of the
total square feet), and the remainder is occupied under leases expiring at various dates from
fiscal 2010 to fiscal 2029, exclusive of renewal options. Certain of the facilities owned by the
company are subject to industrial revenue bond financing arrangements totaling $13,903,000 as of
June 27, 2009. Such industrial revenue bond financing arrangements mature at various dates through
fiscal 2029.
We own our approximately 625,000 square foot headquarters office complex in Houston, Texas.
Facilities in Vancouver, British Columbia; Victoria, British Columbia; Chicago, Illinois;
Houston, Texas; and Suffolk, Virginia (which in the aggregate accounted for approximately 5.4% of
fiscal 2009 sales) are operating near capacity and we are currently constructing expansions or
replacements for these distribution facilities.
As of June 27, 2009, our fleet of approximately 8,900 delivery vehicles consisted of tractor
and trailer combinations, vans and panel trucks, most of which are either wholly or partially
refrigerated for the transportation of frozen or perishable foods. We own approximately 89% of
these vehicles and lease the remainder.
Item 3. Legal Proceedings
We are engaged in various legal proceedings which have arisen in the normal course of business
but have not been fully adjudicated. These proceedings, in our opinion, will not have a material
adverse effect upon our consolidated financial position or results of operations when ultimately
concluded.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities
The principal market for Syscos common stock (SYY) is the New York Stock Exchange. The table
below sets forth the high and low sales prices per share for our common stock as reported on the
New York Stock Exchange Composite Tape and the cash dividends declared for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends |
|
|
Common Stock Prices |
|
Declared Per |
|
|
High |
|
Low |
|
Share |
Fiscal 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
35.67 |
|
|
$ |
30.05 |
|
|
$ |
0.19 |
|
Second Quarter |
|
|
35.90 |
|
|
|
30.93 |
|
|
|
0.22 |
|
Third Quarter |
|
|
31.65 |
|
|
|
26.45 |
|
|
|
0.22 |
|
Fourth Quarter |
|
|
31.84 |
|
|
|
27.65 |
|
|
|
0.22 |
|
Fiscal 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
35.00 |
|
|
$ |
26.81 |
|
|
$ |
0.22 |
|
Second Quarter |
|
|
33.40 |
|
|
|
20.74 |
|
|
|
0.24 |
|
Third Quarter |
|
|
24.81 |
|
|
|
19.39 |
|
|
|
0.24 |
|
Fourth Quarter |
|
|
24.84 |
|
|
|
21.26 |
|
|
|
0.24 |
|
The number of record owners of Syscos common stock as of August 12, 2009 was 12,402.
10
We made the following share repurchases during the fourth quarter of fiscal 2009:
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Total Number of |
|
|
(d) Maximum Number |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
of Shares that May |
|
|
|
|
|
|
|
|
|
|
Part of Publicly |
|
|
Yet Be Purchased |
|
|
|
(a) Total Number of |
|
|
(b) Average Price |
|
|
Announced Plans or |
|
|
Under the Plans or |
|
Period |
|
Shares Purchased(1) |
|
|
Paid per Share |
|
|
Programs |
|
|
Programs |
|
Month #1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 29 April 25 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
9,386,600 |
|
Month #2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 26 May 23 |
|
|
3,079 |
|
|
|
22.82 |
|
|
|
|
|
|
|
9,386,600 |
|
Month #3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 24
June 27 |
|
|
3,116 |
|
|
|
23.76 |
|
|
|
|
|
|
|
9,386,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,195 |
|
|
$ |
23.29 |
|
|
|
|
|
|
|
9,386,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All shares purchased were shares tendered by individuals in connection with stock option
exercises. There were no shares purchased as part of our publicly announced program during
the fourth quarter of fiscal 2009. |
On September 22, 2008, we announced that the Board of Directors approved the repurchase of
20,000,000 shares. Pursuant to the repurchase program, shares may be acquired in the open market
or in privately negotiated transactions at the companys discretion, subject to market conditions
and other factors.
In July 2004, the Board of Directors authorized us to enter into agreements from time to time
to extend our ongoing repurchase program to include repurchases during company announced blackout
periods of such securities in compliance with Rule 10b5-1 promulgated under the Exchange Act.
Stock Performance Graph
The following performance graph and related information shall not be deemed soliciting
material or to be filed with the Securities and Exchange Commission, nor shall such information
be incorporated by reference into any future filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, each as amended, except to the extent that Sysco specifically
incorporates such information by reference into such filing.
The following stock performance graph compares the performance of Syscos Common Stock to
the S&P 500 Index and to the S&P 500 Food/Staple Retail Index for Syscos last five fiscal years.
The graph assumes that the value of the investment in our Common Stock, the S&P 500 Index, and
the S&P 500 Food/Staple Index was $100 on the last trading day of fiscal 2004, and that all
dividends were reinvested. Performance data for Sysco, the S&P 500 Index and the S&P 500
Food/Staple Retail Index is provided as of the last trading day of each of our last five fiscal
years.
11
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
June 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/3/04 |
|
|
7/2/05 |
|
|
7/1/06 |
|
|
6/30/07 |
|
|
6/28/08 |
|
|
6/27/09 |
|
Sysco Corporation |
|
$ |
100 |
|
|
$ |
106 |
|
|
$ |
91 |
|
|
$ |
100 |
|
|
$ |
88 |
|
|
$ |
74 |
|
S&P 500 |
|
|
100 |
|
|
|
108 |
|
|
|
117 |
|
|
|
141 |
|
|
|
122 |
|
|
|
90 |
|
S&P 500 Food/Staple Retail Index |
|
|
100 |
|
|
|
103 |
|
|
|
105 |
|
|
|
112 |
|
|
|
117 |
|
|
|
96 |
|
12
Item 6. Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006(1) |
|
|
2005 |
|
|
|
(In thousands except for share data) |
|
Sales |
|
$ |
36,853,330 |
|
|
$ |
37,522,111 |
|
|
$ |
35,042,075 |
|
|
$ |
32,628,438 |
|
|
$ |
30,281,914 |
|
Earnings before income taxes |
|
|
1,770,834 |
|
|
|
1,791,338 |
|
|
|
1,621,215 |
|
|
|
1,394,946 |
|
|
|
1,525,436 |
|
Income taxes |
|
|
714,886 |
|
|
|
685,187 |
|
|
|
620,139 |
|
|
|
548,906 |
|
|
|
563,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of
accounting change |
|
|
1,055,948 |
|
|
|
1,106,151 |
|
|
|
1,001,076 |
|
|
|
846,040 |
|
|
|
961,457 |
|
Cumulative effect of accounting change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
1,055,948 |
|
|
|
1,106,151 |
|
|
|
1,001,076 |
|
|
|
855,325 |
|
|
|
961,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of
accounting change: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
1.77 |
|
|
$ |
1.83 |
|
|
$ |
1.62 |
|
|
$ |
1.36 |
|
|
$ |
1.51 |
|
Diluted earnings per share |
|
|
1.77 |
|
|
|
1.81 |
|
|
|
1.60 |
|
|
|
1.35 |
|
|
|
1.47 |
|
Net earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
1.77 |
|
|
$ |
1.83 |
|
|
$ |
1.62 |
|
|
$ |
1.38 |
|
|
$ |
1.51 |
|
Diluted earnings per share |
|
|
1.77 |
|
|
|
1.81 |
|
|
|
1.60 |
|
|
|
1.36 |
|
|
|
1.47 |
|
Dividends declared per share |
|
|
0.94 |
|
|
|
0.85 |
|
|
|
0.74 |
|
|
|
0.66 |
|
|
|
0.58 |
|
Total assets |
|
$ |
10,216,619 |
|
|
$ |
10,082,293 |
|
|
$ |
9,518,931 |
|
|
$ |
8,992,025 |
|
|
$ |
8,267,902 |
|
Capital expenditures |
|
|
464,561 |
|
|
|
515,963 |
|
|
|
603,242 |
|
|
|
513,934 |
|
|
|
390,026 |
|
Current maturities of long-term debt |
|
$ |
9,163 |
|
|
$ |
4,896 |
|
|
$ |
3,568 |
|
|
$ |
106,265 |
|
|
$ |
410,933 |
|
Long-term debt |
|
|
2,467,486 |
|
|
|
1,975,435 |
|
|
|
1,758,227 |
|
|
|
1,627,127 |
|
|
|
956,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
2,476,649 |
|
|
|
1,980,331 |
|
|
|
1,761,795 |
|
|
|
1,733,392 |
|
|
|
1,367,110 |
|
Shareholders equity |
|
|
3,449,702 |
|
|
|
3,408,986 |
|
|
|
3,278,400 |
|
|
|
3,052,284 |
|
|
|
2,758,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
$ |
5,926,351 |
|
|
$ |
5,389,317 |
|
|
$ |
5,040,195 |
|
|
$ |
4,785,676 |
|
|
$ |
4,125,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of long-term debt to capitalization |
|
|
41.8 |
% |
|
|
36.8 |
% |
|
|
35.0 |
% |
|
|
36.2 |
% |
|
|
33.1 |
% |
|
|
|
Our financial results are impacted by accounting changes and the adoption of various accounting
standards. See Accounting Changes in Item 7 for further discussion. |
|
(1) |
|
We adopted the fair value recognition provisions in current stock compensation
accounting standards effective at the beginning of fiscal 2006. As a result, the results of
operations for fiscal 2005 do not include incremental share-based compensation cost, as that
year was covered by previous accounting standards. |
13
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
Highlights
We continued to experience a difficult economic environment in fiscal 2009. We believe
the deteriorating economic conditions and heightened uncertainty in the financial markets have
adversely impacted consumer disposable income and consumer spending patterns, which in turn is
impacting our industry. Our industry has experienced volatile fuel prices and food costs, and our
customers have experienced lower traffic from their customers. Food cost inflation, which we began
to experience at high levels in the fourth quarter of fiscal 2007 and which prevailed through the
first half of fiscal 2009, moderated in the second half of fiscal 2009. These factors negatively
impacted sales and operating income in fiscal 2008 and fiscal 2009. The decline in the financial
markets had an additional impact on our operating income because Sysco invests in life insurance
policies in order to provide for certain retirement programs. The value of our investments in
corporate-owned life insurance policies is largely based on the values of underlying investments,
which include publicly traded securities. Due to the decline in the financial markets, we have
experienced losses in the cash surrender values of these policies, which has reduced operating
income.
Sales decreased 1.8% in fiscal 2009 over the comparable prior year period to $36,853,330,000
primarily due to deteriorating economic conditions and the resulting impact on consumer spending.
Inflation, as measured by product cost increases, was an estimated 4.7% during fiscal 2009.
Operating income decreased to $1,872,211,000, or 5.1% of sales, a 0.4% decrease over the prior
year. Our operating companies have continued to manage their businesses effectively in a
difficult environment, which is demonstrated by the fact that the decrease in operating income was
less than the decrease in sales. Basic and diluted earnings per share in fiscal 2009 were both
$1.77, a decrease of 3.3% and 2.2%, respectively, from the comparable prior year period. The
effective tax rate for fiscal 2009 was negatively impacted by accruals for tax contingencies and
the non-deductibility of the losses recorded on corporate-owned life insurance.
Operating income for fiscal 2009 was negatively impacted by the combined effect of increased
losses on the adjustment of the carrying value of corporate-owned life insurance policies to their
cash surrender values and an increase in the provision for losses on receivables. The negative
impact of these additional expenses was more than offset by lower pay-related expenses related to
reduced headcount and lower incentive compensation and operating efficiencies. In addition, our
fuel costs increased in fiscal 2009, driven by higher contracted fuel prices as compared to fiscal
2008. We partially offset the impact of these higher fuel costs through fuel usage reduction
measures and fuel surcharges.
Overview
Sysco distributes food and related products to restaurants, healthcare and educational
facilities, lodging establishments and other foodservice customers. Our operations are primarily
located throughout the United States, Canada and Ireland and include broadline companies, specialty
produce companies, custom-cut meat operations, hotel supply operations, SYGMA (our chain restaurant
distribution subsidiary) and a company that distributes to international customers.
We consider our primary market to be the foodservice market in the United States and Canada
and estimate that we serve about 17% of this approximately $215 billion annual market. According
to industry sources, the foodservice, or food-away-from-home, market represents approximately 48%
of the total dollars spent on food purchases made at the consumer level in the United States. This
share grew from about 37% in 1972 to nearly 50% in 1998 and did not change materially until 2008
when it declined to the current level of 48%.
Industry sources estimate the total foodservice market in the United States experienced a real
sales decline of approximately 3.6% in calendar year 2008 and real sales growth of 0.2% in calendar
year 2007. Real sales growth and declines do not include the impact of inflation or deflation.
General economic conditions and consumer confidence can affect the frequency of purchases and
amounts spent by consumers for food-away-from-home and, in turn, can impact our customers and our
sales. We believe the current general economic conditions, including pressure on consumer
disposable income, are contributing to a decline in the foodservice market. Historically, we have
grown at a faster rate than the overall industry and have grown our market share in this fragmented
industry. We intend to continue our efforts to expand our market share and grow earnings by
focusing on sales growth, margin management, productivity gains and supply chain management.
14
Strategy
We intend to continue to expand our market share and grow earnings through strategies
which include:
|
|
|
Sales growth: We intend to grow sales by gaining an increased share of products
purchased by existing customers, development of new customers, the use of foldouts (new
operating companies created in established markets previously served by other Sysco
operating companies), investment in new technologies and a disciplined acquisition program.
Our business review program, which is designed to help our customers grow their business, and
the size and expertise of our sales force are key factors in maintaining and growing sales. |
|
|
|
|
Lowering Procurement Costs: We intend to lower our cost of goods sold by leveraging
Syscos purchasing power and procurement expertise and capitalizing on an end-to-end view
of our supply chain. Our National Supply Chain initiative is focused on lowering
inventory, inbound freight, product costs, operating costs, working capital requirements
and future facility expansion needs at our operating companies while providing greater
value to our suppliers and customers. A component of our National Supply Chain initiative
is the use of redistribution centers (RDCs) which aggregate inventory demand to optimize
the supply chain activities for certain products for all Sysco broadline operating
companies in a geographic region. We currently have two RDCs located in Virginia and
Florida and have purchased the land for a third RDC in Indiana. |
|
|
|
|
Productivity Gains: We intend to optimize warehouse and delivery activities across the
corporation and manage energy consumption to achieve a more efficient delivery of products
to our customers. |
|
|
|
|
Enhanced Technology Platform: During fiscal 2009, we commenced the design of an
enterprise-wide project to implement an integrated software system to support the majority
of our business processes. The goal of the project is to create a new technology platform
that simplifies and standardizes our business model, which we believe will improve the
efficiency and effectiveness of our operations. |
We will continue to use our strategies to leverage our market leadership position to
continuously improve how we buy, handle and market products for our customers. Our primary focus is
on growing and optimizing the core foodservice distribution business in North America; however, we
will continue to explore and identify opportunities to grow our global capabilities in other
markets. As a part of our ongoing strategic analysis, we regularly evaluate business
opportunities, including potential acquisitions and sales of assets and businesses.
Results of Operations
The following table sets forth the components of our consolidated results of operations
expressed as a percentage of sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
2007 |
Sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales |
|
|
80.9 |
|
|
|
80.8 |
|
|
|
80.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
19.1 |
|
|
|
19.2 |
|
|
|
19.3 |
|
Operating expenses |
|
|
14.0 |
|
|
|
14.2 |
|
|
|
14.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
5.1 |
|
|
|
5.0 |
|
|
|
4.9 |
|
Interest expense |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.3 |
|
Other income, net |
|
|
(0.0 |
) |
|
|
(0.1 |
) |
|
|
(0.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
4.8 |
|
|
|
4.8 |
|
|
|
4.6 |
|
Income taxes |
|
|
1.9 |
|
|
|
1.8 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
2.9 |
% |
|
|
3.0 |
% |
|
|
2.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
15
The following table sets forth the change in the components of our consolidated results of
operations expressed as a percentage increase or decrease over the prior year:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
Sales |
|
|
(1.8 |
)% |
|
|
7.1 |
% |
Cost of sales |
|
|
(1.7 |
) |
|
|
7.2 |
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
(2.2 |
) |
|
|
6.5 |
|
Operating expenses |
|
|
(2.8 |
) |
|
|
5.3 |
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
(0.4 |
) |
|
|
10.0 |
|
Interest expense |
|
|
4.3 |
|
|
|
6.2 |
|
Other income, net |
|
|
(34.8 |
) |
|
|
29.3 |
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
(1.1 |
) |
|
|
10.5 |
|
Income taxes |
|
|
4.3 |
|
|
|
10.5 |
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
(4.5 |
)% |
|
|
10.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
(3.3 |
)% |
|
|
13.0 |
% |
Diluted earnings per share |
|
|
(2.2 |
) |
|
|
13.1 |
|
|
|
|
|
|
|
|
|
|
Average shares outstanding |
|
|
(1.8 |
) |
|
|
(2.0 |
) |
Diluted shares outstanding |
|
|
(2.4 |
) |
|
|
(2.5 |
) |
Sales
Sales for fiscal 2009 were 1.8% less than fiscal 2008. Product cost inflation and the
resulting increase in selling prices had a significant impact on sales levels in fiscal 2009.
Estimated product cost increases, an internal measure of inflation, were approximately 4.7% during
fiscal 2009. The changes in the exchange rates used to translate our foreign sales into U.S.
dollars negatively impacted sales by 1.2% compared to fiscal 2008. Non-comparable acquisitions
offset the rate of sales decline by 0.2% for fiscal 2009.
Sales for fiscal 2008 were 7.1% greater than fiscal 2007. Product cost inflation and the
resulting increase in selling prices had a significant impact on sales levels in fiscal 2008.
Estimated product cost increases, an internal measure of inflation, were approximately 6.0% during
fiscal 2008. The changes in the exchange rates used to translate our foreign sales into U.S.
dollars increased sales by 1.0% compared to fiscal 2007. Non-comparable acquisitions contributed
0.1% to the overall sales growth rate for fiscal 2008.
Our sequential quarterly sales trend has demonstrated a continuing decline throughout fiscal
2008 and 2009 from a positive 8.5% in the first quarter of fiscal 2008 to a negative 6.6% in the
fourth quarter of fiscal 2009. We believe the deteriorating economic conditions, which are placing
pressure on consumer disposable income, are contributing to a decline in real volume in the
foodservice market and, in turn, have contributed to a reduction in our sales. We believe we will
continue to experience a difficult economic environment into fiscal 2010. Thus far in fiscal 2010,
we have experienced moderate deflation. Both of these conditions will make it challenging to grow
sales in fiscal 2010; however, if underlying economic conditions improve during fiscal 2010, we
believe our trend of sequential quarterly sales decline may reverse.
We believe that our continued focus on the use of business reviews and business development
activities, investment in customer contact personnel and the efforts of our marketing associates
and sales support personnel are key drivers to strengthening customer relationships and growing
sales with new and existing customers. We also believe these activities help our customers in this
difficult economic environment.
Operating Income
Cost of sales primarily includes product costs, net of vendor consideration and in-bound
freight. Operating expenses include the costs of facilities, product handling, delivery, selling
and general and administrative activities.
Operating income decreased 0.4% in fiscal 2009 from fiscal 2008 to $1,872,211,000, or 5.1% of
sales. Operating income declined primarily due to a decline in sales, partially offset by a
decline in operating expenses. Gross margin dollars decreased 2.2% in fiscal 2009 as compared to
fiscal 2008, and operating expenses decreased 2.8% in fiscal 2009.
Operating income increased 10.0% in fiscal 2008 over fiscal 2007 to $1,879,949,000, or 5.0% of
sales. Operating income increased primarily due to an increase in sales, partially offset by an
increase in operating expenses. Gross margin dollars increased 6.5% in fiscal 2008 as compared to
fiscal 2007, and operating expenses increased 5.3% in fiscal 2008.
16
Beginning in the fourth quarter of fiscal 2007, Sysco began experiencing high levels of
product cost increases in numerous product categories. These increases persisted throughout fiscal
2008 at levels approximating 6.0% and rose even higher to 7.6% in the first 26 weeks of fiscal
2009. The level of product cost increases began moderating during the third quarter of fiscal 2009
and was 0.5% in the fourth quarter of fiscal 2009. Generally, Sysco attempts to pass increased
costs to its customers; however, because of contractual and competitive reasons, we are not able to
pass along all of the product cost increases immediately. Prolonged periods of high inflation,
such as those we have recently experienced, have a negative impact on our customers, as high food
costs and fuel costs can reduce consumer spending in the food-prepared-away-from home market. As a
result, these factors may negatively impact our sales, gross margins and earnings. We may also be
negatively impacted by periods of prolonged product cost deflation because we make a significant
portion of our sales at prices that are based on the cost of products we sell plus a percentage
markup. As a result, our profit levels may be negatively impacted during periods of product cost
deflation, even though our gross profit percentage may remain relatively constant.
We believe the operating expense performance for fiscal 2009 compared to fiscal 2008 was aided
by operating efficiencies and lower payroll expense related to reduced headcount and lower
incentive compensation. The positive impact of these expense reductions was partially offset by
the combined effect of increased losses on the adjustment of the carrying value of corporate-owned
life insurance policies to their cash surrender values and an increase in the provision for losses
on receivables. In addition, our fuel costs increased during fiscal 2009 compared to fiscal 2008.
Operating expenses in fiscal 2008 compared to fiscal 2007 were negatively impacted by the
combined impact of losses on the adjustment of the carrying value of corporate-owned life insurance
policies to their cash surrender values and increased provisions related to multi-employer pension
plans. The negative impact of these expense increases was partially offset by lower share-based
compensation expense and lower company-sponsored pension expenses. In addition, our fuel costs
increased during fiscal 2008 compared to fiscal 2007. We increased our use of fuel surcharges to
offset a portion of these increased costs, thereby partially reducing the impact to operating
income.
We adjust the carrying values of our corporate-owned life insurance policies to their cash
surrender values on an ongoing basis. The cash surrender values of these policies are largely
based on the values of underlying investments, which include publicly traded securities. As a
result, the cash surrender values of these policies will fluctuate with changes in the market value
of such securities. The performance in the financial markets resulted in losses for these policies
of $43,812,000 in fiscal 2009, losses of $8,718,000 in fiscal 2008 and gains of $23,922,000 in
fiscal 2007. The performance of the financial markets will continue to influence the cash surrender
values of our corporate-owned life insurance policies, which could cause volatility in operating
income, net earnings and earnings per share.
The provision for losses on receivables included within operating expenses increased by
$42,454,000 in fiscal 2009 over fiscal 2008. The current economic conditions and related decrease
in consumer demand combined with tightening credit markets have impacted the liquidity of some of
our customers, resulting in an increase in delinquent payments on accounts receivable. Customer
accounts written off, net of recoveries, were $71,877,000, or 0.20% of sales, $32,367,000, or 0.09%
of sales, and $26,010,000 or 0.07% of sales, for fiscal 2009, 2008 and 2007, respectively. The
increase in our provision for losses on receivables is related to customer accounts across our
customer base without concentration in any specific location. We continue to monitor our customer
account balances and our credit policies and believe continued strong credit practices will be
necessary to avoid significant increases in our provision for losses on receivables. However, if
the difficult economic environment persists, we expect to continue to experience higher levels of
provision for losses on receivables and higher levels of
write-offs, such as those experienced in fiscal 2009, in fiscal 2010.
Pay-related expenses decreased by $192,086,000 in fiscal 2009 from fiscal 2008. The reduction
was due to a combination of reduced headcount and lower incentive compensation. Headcount declines
occurred due to both productivity improvements and workforce reductions commensurate with lower
sales. The criteria for paying annual bonuses to our corporate officers and certain portions of
operating company management bonuses are tied to overall company performance. The overall company
performance criteria for payment of such bonuses for fiscal 2009 were not met; therefore corporate
executive officers will not receive bonuses for fiscal 2009 and operating company management
bonuses are at lower levels for fiscal 2009 as compared to fiscal 2008.
Syscos fuel costs increased by $33,154,000 in fiscal 2009 over fiscal 2008 primarily due to
increased contracted diesel prices. Our fuel costs increased by $34,023,000 in fiscal 2008 over
fiscal 2007 due to increased market diesel prices. Syscos costs per gallon increased 18.6% in
fiscal 2009 over fiscal 2008 and 18.7% in fiscal 2008 over fiscal 2007. Syscos activities to
manage increased fuel costs include reducing miles driven by our trucks through improved routing
techniques, improving fleet utilization by adjusting idling time and maximum speeds and using fuel
surcharges. Fuel surcharges were approximately $5,000,000 higher in fiscal 2009 over fiscal 2008
and $27,000,000 higher in fiscal 2008 than in fiscal 2007. Usage of these surcharges was greater
in the second half of fiscal 2008 and first half of fiscal 2009, due to sustained, increased market
diesel prices during that period. Fuel surcharges are reflected within sales and gross margins.
17
We periodically enter into forward purchase commitments for a portion of our projected monthly
diesel fuel requirements. In fiscal 2009, the forward purchase commitments resulted in an estimated
$68,000,000 of additional fuel costs as the fixed price contracts were higher than market prices
for the contracted volumes. In fiscal 2008, the forward purchase commitments resulted in an
estimated $21,000,000 of avoided fuel costs as the fixed price contracts were generally lower than
market prices for the contracted volumes. In fiscal 2007, the forward purchase commitments
resulted in prices that were comparable to market prices.
As of June 27, 2009, we had forward diesel fuel commitments totaling approximately $64,000,000
through March 2010. In July 2009, we entered additional forward purchase commitments totaling
approximately $16,000,000 at a fixed price through June 2010. Together, these contracts will lock
in the price of approximately 40% of our fuel purchase needs for fiscal 2010. Our commitments
through August 2009 were entered into at prevailing rates from mid-July through mid-August 2008.
As a result, these contracts are at fixed prices greater than both the prices incurred during same
periods in the previous fiscal year and current market prices. The remainder of our outstanding
contracts were entered into at the prevailing rates in March, April and July 2009 and thus the
fixed price on these contracts reflects the lower current market price for diesel.
Fuel costs in fiscal 2010, exclusive of any amounts recovered through fuel surcharges, are
expected to decrease by approximately $50,000,000 to $80,000,000 as compared to fiscal 2009. Our
estimate is based upon the prevailing market prices for diesel in mid-August 2009, the cost
committed to in our forward fuel purchase agreements currently in place for fiscal 2010 and
estimates of fuel consumption. Actual fuel costs could vary from our estimates if any of these
assumptions change, in particular if future fuel prices vary significantly from our current
estimates. We continue to evaluate all opportunities to offset potential increases in fuel
expense, including the use of fuel surcharges and overall expense management. However, consistent
with the lower current market price for diesel, we expect fuel surcharge revenue to be
significantly lower in fiscal 2010 as compared to fiscal 2009, declining by as much as $60,000,000.
Share-based compensation cost in fiscal 2009 was $24,620,000 less than in fiscal 2008.
Share-based compensation expense decreased $17,335,000 in fiscal 2008 from fiscal 2007.
Contributing to the decrease in both years was a reduction in the level of option grants being
awarded compared to previous years, resulting in reduced compensation expenses being recognized.
Also affecting the decrease in fiscal 2009 was the removal of the previous stock award component
from the Management Incentive Plan annual bonus awards beginning with fiscal 2009. As a result, the
share-based compensation expense related to the stock award component of the incentive bonuses
recorded in previous years was not incurred in fiscal 2009, and overall share-based compensation
expense was reduced as compared to the prior year. Beginning in fiscal 2010, we expect to replace
the stock award component of the incentive bonuses with annual discretionary grants of restricted
equity awards subject to time-based vesting. Share-based compensation expense in fiscal 2010 is
expected to increase by $5,000,000 to $15,000,000 relative to fiscal 2009 due primarily to the
anticipated discretionary grant of restricted awards in fiscal 2010.
Net company-sponsored pension costs in fiscal 2009 were $22,877,000 higher than fiscal 2008,
due primarily to the recognition of actuarial losses from lower returns on assets of Syscos
company-sponsored qualified pension plan (Retirement Plan) during fiscal 2008 and the merging of
participants from a multi-employer pension plan the Retirement Plan (see Multi-Employer Pension
Plans at Liquidity and Capital Resources, Other Considerations), partially offset by a decrease
in expense due to an increase in the discount rates used to calculate the plans liabilities and
amendments to our Supplemental Executive Retirement Plan (SERP). Net company-sponsored pension
costs decreased $8,754,000 in fiscal 2008 over the prior year, due primarily to the funding status
and the projected asset performance of the Retirement Plan at that time. Net company-sponsored
pension costs in fiscal 2010 are expected to increase by approximately $37,000,000 over fiscal 2009
due primarily to lower returns on assets of the Retirement Plan during fiscal 2009, partially
offset by an increase in the discount rates used to calculate our projected benefit obligation and
related pension expense for fiscal 2010.
We recorded provisions related to multi-employer pension plans of $9,585,000 in fiscal 2009,
$22,284,000 in fiscal 2008 and $4,700,000 in fiscal 2007. See additional discussion of
multi-employer pension plans at Liquidity and Capital Resources, Other Considerations.
Net Earnings
Net earnings declined 4.5% in fiscal 2009 from fiscal 2008 due primarily to the impact of
changes in income taxes discussed below, as well as the factors discussed above. Net earnings
increased 10.5% in fiscal 2008 over fiscal 2007 due primarily to the factors discussed above, as
well as the impact of changes in income taxes discussed below.
The effective tax rate was 40.37% in fiscal 2009, 38.25% in fiscal 2008 and 38.25% in fiscal
2007.
The effective tax rate for fiscal 2009 was negatively impacted primarily by two factors.
First, the company recorded tax adjustments related to federal and state tax contingencies of
$31,000,000. Second, the loss of $43,812,000, which had a tax effect of $16,824,000, recorded to
adjust the carrying value of corporate-owned life insurance policies to their cash surrender values
was non-deductible for income tax purposes and had the impact of increasing the effective tax rate
for the period. The effective tax rate for fiscal 2009 was favorably impacted by the reversal of
valuation allowances of $7,800,000 previously recorded on Canadian net operating loss deferred tax
assets.
18
The effective tax rate for fiscal 2008 was favorably impacted by tax benefits of approximately
$7,700,000 resulting from the recognition of a net operating loss deferred tax asset which arose
due to a state tax law change, $8,600,000 related to the reversal of valuation allowances
previously recorded on Canadian net operating loss deferred tax assets and $5,500,000 related to
the reduction in net Canadian deferred tax liabilities due to a federal tax rate reduction. The
effective tax rate for fiscal 2008 was negatively impacted by the recording of tax and interest
related to uncertain tax positions, share-based compensation expense and the recognition of losses
of $8,718,000, which had a tax effect of $3,348,000, recorded to adjust the carrying value of
corporate-owned life insurance policies to their cash surrender values.
The effective tax rate for fiscal 2007 was favorably impacted by the recognition of gains of
$23,922,000, which had a tax effect of $9,186,000, recorded to adjust the carrying value of
corporate-owned life insurance policies to their cash surrender values. The effective tax rate for
fiscal 2007 was negatively impacted by the recognition of tax and interest for tax contingencies.
Syscos affiliate, Baugh Supply Chain Cooperative (BSCC), is a cooperative taxed under
subchapter T of the United States Internal Revenue Code the operation of which has resulted in a
deferral of tax payments. The Internal Revenue Service (IRS), in connection with its audits of our
2003 through 2006 federal income tax returns proposed adjustments that would have accelerated
amounts that we had previously deferred and would have resulted in the payment of interest on those
deferred amounts. Sysco reached a settlement with the IRS on August 21, 2009 to cease paying U.S.
federal taxes related to BSCC on a deferred basis, pay the amounts currently recorded within
deferred taxes related to BSCC over a three year period and make a one-time payment of $41,000,000,
of which approximately $39,000,000 is non-deductible. The settlement addresses the BSCC deferred
tax issue as it relates to the IRS audit of our 2003 through 2006 federal income tax returns, and
settles the matter for all subsequent periods, including the 2007 and 2008 federal income tax
returns already under audit. We had previously accrued interest during the period of appeals and
as a result of the settlement with the IRS, Sysco will record an income tax benefit of
approximately $30,000,000 in the first quarter of fiscal 2010.
Earnings Per Share
Basic earnings per share and diluted earnings per share decreased 3.3% and 2.2%,
respectively, in fiscal 2009 from the prior year. Basic earnings per share and diluted earnings
per share increased 13.0% and 13.1%, respectively, in fiscal 2008 over the prior year. These
changes were primarily the result of factors discussed above, as well as a net reduction in shares
outstanding. The net reduction in average shares outstanding was primarily due to share
repurchases. The net reduction in diluted shares outstanding was primarily due to share
repurchases and an increase in the number of anti-dilutive options excluded from the diluted shares
calculation.
As a result of the IRS settlement noted above, Sysco will record an income tax benefit of
approximately $30,000,000 in the first quarter of fiscal 2010. We expect this to positively impact
our diluted earnings per share by approximately $0.05 per share.
Segment Results
We have aggregated our operating companies into a number of segments, of which only
Broadline and SYGMA are reportable segments as defined in accounting provisions related to
disclosures about segments of an enterprise. The accounting policies for the segments are the same
as those disclosed by Sysco within the Financial Statements and Supplementary Data within Part II
Item 8 of this Form 10-K. Intersegment sales generally represent specialty produce and meat
company products distributed by the Broadline and SYGMA operating companies. The segment results
include certain centrally incurred costs for
shared services that are charged to our segments. These centrally incurred costs are charged
based upon the relative level of service used by each operating company consistent with how
management views the performance of its operating segments.
Management evaluates the performance of each of our operating segments based on its respective
operating income results, which include the allocation of certain centrally incurred costs. While
a segments operating income may be impacted in the short term by increases or decreases in
margins, expenses, or a combination thereof, over the long-term each business segment is expected
to increase its operating income at a greater rate than sales growth. This is consistent with our
long-term goal of leveraging earnings growth at a greater rate than sales growth.
19
The following table sets forth the operating income of each of our reportable segments and the
other segment expressed as a percentage of each segments sales for each period reported and should
be read in conjunction with Business Segment Information in Note 20 to the Consolidated Financial
Statements in Item 8:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Operating Income as a |
|
|
Percentage of Sales |
|
|
2009 |
|
2008 |
|
2007 |
Broadline |
|
|
6.7 |
% |
|
|
6.5 |
% |
|
|
6.4 |
% |
SYGMA |
|
|
0.6 |
|
|
|
0.2 |
|
|
|
0.3 |
|
Other |
|
|
3.1 |
|
|
|
3.8 |
|
|
|
3.8 |
|
The following table sets forth the change in the selected financial data of each of our
reportable segments and the other segment expressed as a percentage increase over the prior year
and should be read in conjunction with Business Segment Information in Note 20 to the Consolidated
Financial Statements in Item 8:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
|
|
|
|
|
Operating |
|
|
|
|
|
Operating |
|
|
Sales |
|
Income |
|
Sales |
|
Income |
Broadline |
|
|
(2.0 |
)% |
|
|
1.5 |
% |
|
|
8.1 |
% |
|
|
9.0 |
% |
SYGMA |
|
|
5.8 |
|
|
|
265.5 |
(1) |
|
|
4.4 |
|
|
|
(23.8 |
) |
Other |
|
|
(9.7 |
) |
|
|
(25.8 |
) |
|
|
1.5 |
|
|
|
3.0 |
|
|
|
|
(1) |
|
SYGMA had operating income of $30,193,000 in fiscal 2009 and $8,261,000 in fiscal
2008. |
The following table sets forth sales and operating income of each of our reportable segments,
the other segment, and intersegment sales, expressed as a percentage of aggregate segment sales,
including intersegment sales, and operating income, respectively. For purposes of this statistical
table, operating income of our segments excludes corporate expenses and consolidated adjustments of
$219,300,000 in fiscal 2009, $196,726,000 in fiscal 2008 and $207,361,000 in fiscal 2007 that are
not charged to our segments. This information should be read in conjunction with Business Segment
Information in Note 20 to the Consolidated Financial Statements in Item 8:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
2007 |
|
|
|
|
|
|
Segment |
|
|
|
|
|
Segment |
|
|
|
|
|
Segment |
|
|
|
|
|
|
Operating |
|
|
|
|
|
Operating |
|
|
|
|
|
Operating |
|
|
Sales |
|
Income |
|
Sales |
|
Income |
|
Sales |
|
Income |
Broadline |
|
|
79.4 |
% |
|
|
93.7 |
% |
|
|
79.5 |
% |
|
|
93.0 |
% |
|
|
78.7 |
% |
|
|
92.5 |
% |
SYGMA |
|
|
13.1 |
|
|
|
1.4 |
|
|
|
12.2 |
|
|
|
0.4 |
|
|
|
12.5 |
|
|
|
0.6 |
|
Other |
|
|
8.8 |
|
|
|
4.9 |
|
|
|
9.6 |
|
|
|
6.6 |
|
|
|
10.1 |
|
|
|
6.9 |
|
Intersegment sales |
|
|
(1.3 |
) |
|
|
|
|
|
|
(1.3 |
) |
|
|
|
|
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in corporate expenses and consolidated adjustments, among other items, are:
|
|
|
Gains and losses recognized to adjust corporate-owned life insurance policies to their
cash surrender values; |
|
|
|
|
Share-based compensation expense related to stock option grants, restricted stock,
issuances of stock pursuant to the Employees Stock Purchase Plan and stock grants to
non-employee directors; and |
|
|
|
|
Corporate-level depreciation and amortization expense. |
Broadline Segment
Broadline operating companies distribute a full line of food products and a wide variety
of non-food products to customers. Broadline operations have significantly higher operating
margins than the rest of Syscos operations. In fiscal 2009, the Broadline operating results
represented approximately 79% of Syscos overall sales and 94% of the aggregate operating income of
Syscos segments, which excludes corporate expenses and consolidated adjustments.
There are several factors which contribute to these higher operating results as compared to
the SYGMA and Other operating segments. We have invested substantial amounts in assets, operating
methods, technology and management expertise in this segment. The breadth of its sales force,
geographic reach of its distribution area and its purchasing power allow us to leverage this
segments earnings.
Sales
Sales for fiscal 2009 were 2.0% less than fiscal 2008. The changes in the exchange rates used
to translate our foreign sales into U.S. dollars negatively impacted sales by 1.5% compared to
fiscal 2008. Non-comparable acquisitions contributed 0.2% to the overall sales comparison for
fiscal 2009. Case volume declines attributable to the impact of the current business
20
environment caused a decline in sales in fiscal 2009 as compared to fiscal 2008. Product
cost inflation, which led to increases in selling prices, partially offset case volume declines in
fiscal 2009.
Sales for fiscal 2008 were 8.1% greater than fiscal 2007. The changes in the exchange rates
used to translate our foreign sales into U.S. dollars increased sales by 1.3% compared to fiscal
2007. Non-comparable acquisitions did not have a material impact on the overall sales growth rate
for fiscal 2008. Product cost inflation, and the resulting increases in selling prices, was the
primary contributor to sales growth. In addition, fiscal 2008 growth was realized both from
increased sales to multi-unit customers and marketing associate-served customers primarily through
continued focus on customer account penetration through the efforts of our marketing associates
and the use of business reviews with customers.
Operating Income
The increase in operating income in fiscal 2009 over fiscal 2008 was primarily due to
effective management of operations in the current economic environment. Effective management was
also evidenced by margins declining at a lower rate than our sales decline and by decreasing
expenses as compared to the comparable prior year periods. Gross margin dollars decreased 1.7%
while operating expenses decreased 3.2% in fiscal 2009 as compared to fiscal 2008. Expense
performance for fiscal 2009 was aided by lower payroll-related expenses related to reduced
headcount and lower incentive compensation and operating efficiencies, partially offset by an
increase in the provision for losses on receivables.
The increase in operating income in fiscal 2008 over fiscal 2007 was primarily due to gross
margin dollars increasing at a faster pace than expenses. We were able to manage our business
effectively in the inflationary environment that existed in fiscal 2008 by managing margins and
improving operating efficiencies. Gross margin dollars increased 7.0% while operating expenses
increased 6.0% in fiscal 2008 over fiscal 2007.
The high cost of fuel also impacted our Broadline segments results for fiscal 2009 and fiscal
2008. Fuel costs were $28,818,000 higher in fiscal 2009 over fiscal 2008. Fuel costs for fiscal
2008 were $21,575,000 higher than fiscal 2007. We attempt to mitigate increased fuel costs by
reducing miles driven, improving fleet consumption by adjusting idling time and maximum speeds and
using fuel surcharges. In the second half of fiscal 2008 and first half of fiscal 2009, our usage
of fuel surcharges increased due to sustained increased market diesel prices. Fuel surcharges were
approximately $9,000,000 higher in fiscal 2009 than in fiscal 2008 and $21,000,000 higher in fiscal
2008 than in fiscal 2007. Consistent with the lower current market price for diesel, we expect
fuel costs and fuel surcharges for our Broadline segment to be lower in fiscal 2010 as compared to
fiscal 2009.
We recorded provisions related to multi-employer pension plans of $9,585,000 in fiscal 2009,
$22,284,000 in fiscal 2008 and $4,700,000 in fiscal 2007.
SYGMA Segment
SYGMA operating companies distribute a full line of food products and a wide variety of
non-food products to certain chain restaurant customer locations. SYGMA operations have
traditionally had lower operating income as a percentage of sales than Syscos other segments.
This segment of the foodservice industry has generally been characterized by lower overall
operating margins as the volume that these customers command allows them to negotiate for reduced
margins. These operations service chain restaurants through contractual agreements that are
typically structured on a fee per case delivered basis.
Sales
Sales for fiscal 2009 were 5.8% greater than fiscal 2008 and 4.4% greater in fiscal 2008
than fiscal 2007. Although our SYGMA segment has been negatively impacted by deteriorating
economic conditions, it achieved sales growth in both fiscal 2009 and fiscal 2008, primarily due to
significant contracts with new customers and product cost increases, which led to increases in
selling prices. These increases were partially offset by lost sales due to the elimination of
unprofitable business and lower case volumes due to difficult economic conditions impacting SYGMAs
existing customer base.
One chain restaurant customer (Wendys/Arbys Group, Inc.) accounted for approximately 33% of
the SYGMA segment sales for the fiscal year ended June 27, 2009. SYGMA maintains multiple regional
contracts with varied expiration dates with this customer. While the loss of this customer would
have a material adverse effect on SYGMA, we do not believe that the loss of this customer would
have a material adverse effect on Sysco as a whole.
Operating Income
Operating income increased in fiscal 2009 as compared to fiscal 2008. Gross margin
dollars increased 0.4% while operating expenses decreased 5.1% in fiscal 2009 as compared to fiscal
2008. Expense reductions were accomplished by operational efficiencies in both delivery and
warehouse areas, as well as lower payroll expense related to headcount reductions.
21
Operating income in fiscal 2008 decreased as compared to fiscal 2007. In fiscal 2008, SYGMA
expensed $5,587,000 related to the write-off of software development costs. In addition, some of
SYGMAs customers experienced a slowdown in their business resulting in lower cases per delivery
and therefore reduced gross margin dollars per stop. Expense reductions were accomplished by
consolidating regional offices, reducing headcounts and not renewing unprofitable customer
contracts.
The high cost of fuel also impacted our SYGMA segments results for fiscal 2009 and fiscal
2008. Fuel costs were $2,028,000 higher in fiscal 2009 over fiscal 2008. Fuel costs for fiscal
2008 were $8,888,000 higher than fiscal 2007. SYGMA was able to partially offset these costs
through increases in the fees charged to customers, including fuel surcharges, and by reducing
expenses. Fuel surcharges were approximately $5,000,000 lower in fiscal 2009 than in fiscal 2008
and $6,000,000 higher in fiscal 2008 than in fiscal 2007. Consistent with the lower current market
price for diesel, we expect fuel costs and fuel surcharges for our SYGMA segment to be lower in
fiscal 2010 as compared to fiscal 2009.
Other Segment
Other financial information is attributable to our other operating segments, including
our specialty produce, custom-cut meat and lodging industry products and a company that distributes
to international customers. These operating segments are discussed on an aggregate basis as they
do not represent reportable segments under segment accounting literature.
On an aggregate basis, our Other segment has had a lower operating income as a percentage of
sales than Syscos Broadline segment. Sysco has acquired the operating companies within these
segments in relatively recent years. These operations generally operate in a niche within the
foodservice industry. These operations are also generally smaller in sales and scope than an
average Broadline operation and each of these segments is considerably smaller in sales and overall
scope than the Broadline segment. In fiscal 2009, in the aggregate, the Other segment
represented approximately 8.8% of Syscos overall sales and 4.9% of the aggregate operating income
of Syscos segments, which excludes corporate expenses and consolidated adjustments.
Operating income decreased 25.8% for fiscal 2009 over fiscal 2008. The decrease in operating
income was caused primarily by reduced sales in all segments attributable to the deteriorating
economic environment.
Operating income increased 3.0% for fiscal 2008 over fiscal 2007. The increase in operating
income was generated primarily by improved results in the specialty produce and the lodging
industry segments offset by reduced sales and operating income in the custom-cut meat segment.
Liquidity and Capital Resources
Syscos strategic objectives require continuing investment. Our resources include cash
provided by operations and access to capital from financial markets. Our operations historically
have produced significant cash flow. Cash generated from operations is first allocated to working
capital requirements; investments in facilities, systems, fleet and other equipment; cash
dividends; and acquisitions compatible with our overall growth strategy. In addition, this cash
will be used to satisfy the requirements of the IRS settlement over the next three years. Any
remaining cash generated from operations may be invested in high-quality, short-term instruments or
applied toward a portion of the cost of the share repurchase program. As a part of our on-going
strategic analysis, we regularly evaluate business opportunities, including potential acquisitions
and sales of assets and businesses, and our overall capital structure. These transactions may
materially impact our liquidity, borrowing capacity, leverage ratios and capital availability.
We believe that our cash flows from operations, the availability of additional capital under
our existing commercial paper programs and bank lines of credit and our ability to access capital
from financial markets in the future, including issuances of debt securities under our shelf
registration statement filed with the Securities and Exchange Commission (SEC), will be sufficient
to meet our anticipated cash requirements over at least the next twelve months, while maintaining
sufficient liquidity for normal operating purposes. During the recent tightening of the credit
markets, we have continued to maintain the highest credit rating available for commercial paper.
We believe that we will continue to be able to access the commercial paper market effectively. We
also issued long-term senior notes totaling $500,000,000 under our shelf registration statement
during the third quarter of fiscal 2009 in order to take advantage of the interest rates available
to us at that time and to enhance our liquidity position. We believe that we will continue to be
able to access the long-term capital market effectively.
Operating Activities
We generated $1,582,341,000 in cash flow from operations in fiscal 2009, $1,596,129,000
in fiscal 2008 and $1,402,922,000 in fiscal 2007. Cash flow from operations in fiscal 2009 was
primarily due to net income, reduced by decreases in accounts payable balances and accrued
expenses, offset by decreases in accounts receivable balances and inventory balances and an
increase in accrued income taxes. Cash flow from operations in fiscal 2008 was primarily due to
net income, reduced by decreases in accrued income taxes and increases in accounts receivable
balances and inventory balances, partially offset by a decrease in prepaid expenses and other
current assets. Cash flow from operations in fiscal 2007 was primarily due to net
22
income, reduced by decreases in accrued income taxes and increases in accounts receivable balances, inventory
balances and prepaid expenses and other current assets, partially offset by increases in accrued
expenses and accounts payable balances.
The decrease in accounts receivable and inventory balances in fiscal 2009 was primarily due to
the sales decline. The increases in accounts receivable and inventory balances in fiscal 2008 and
fiscal 2007 were primarily due to sales growth. The decrease in accounts payable balances in
fiscal 2009 was primarily from inventory decreases resulting from the sales decline. The increases
in accounts payable balances in fiscal 2008 and fiscal 2007 were primarily due to inventory
increases resulting from sales growth. Accounts payable balances are impacted by many factors,
including changes in product mix, cash discount terms and changes in payment terms with vendors.
Cash flow from operations was negatively impacted by decreases in accrued expenses of
$120,314,000 during fiscal 2009 and $22,721,000 during fiscal 2008 and positively impacted by an
increase in accrued expenses of $132,936,000 during fiscal 2007. The decrease in accrued expenses
during fiscal 2009 was primarily due to the payment of prior year annual incentive bonuses, offset
by lower accruals for current year incentive bonuses. The decrease in accrued expenses during
fiscal 2008 was primarily due to the reversal of a product liability claim which is further
explained below. This decrease was partially offset by increased accrued interest due to
fixed-rate debt issued in fiscal 2008 and an increase to a provision related to a multi-employer
pension plan. See additional discussion of multi-employer pension plans at Liquidity and Capital
Resources, Other Considerations. The increase in accrued expenses during fiscal 2007 was
primarily due to increased accruals for fiscal 2007 incentive bonuses due to improved operating
results over fiscal 2006.
In fiscal 2007, we recorded a liability for a product liability claim of $50,296,000 and the
corresponding insurance receivable of $48,296,000, included within prepaid expenses and other
current assets. In fiscal 2008, these amounts were reversed as our insurance carrier and other
parties paid the full amount of the judgment in excess of our deductible. See further discussion
of the product liability claim under Note 19, Commitments and Contingencies, in the Notes to
Consolidated Financial Statements in Item 8.
Other long-term liabilities and prepaid pension cost, net, decreased $48,380,000 during fiscal
2009, increased $13,459,000 during fiscal 2008 and decreased $14,817,000 in fiscal 2007. The
decrease in fiscal 2009 is primarily attributable to a decrease in our liability for uncertain tax
benefits. See additional discussion of an IRS settlement at Liquidity and Capital Resources,
Other Considerations. The decrease was partially offset by a combination of the recording of net
company-sponsored pension costs and incentive compensation deferrals. The increase for fiscal 2008
was primarily attributable to a combination of the recording of net company-sponsored pension
costs, incentive compensation deferrals and a net increase to our liability for unrecognized tax
benefits, partially offset by pension contributions to our company-sponsored plans. The decrease
in fiscal 2007 was due to pension contributions to our company-sponsored plans exceeding the amount
of net company-sponsored pension costs recognized during the year. We recorded net
company-sponsored pension costs of $88,714,000, $65,837,000 and $74,591,000 during fiscal 2009,
fiscal 2008 and fiscal 2007, respectively. Our contributions to our company-sponsored defined
benefit plans were $95,776,000, $92,670,000 and $91,163,000 during fiscal 2009, fiscal 2008 and
fiscal 2007, respectively. We expect to contribute approximately $160,000,000 to our
company-sponsored defined benefit plans in fiscal 2010.
Investing Activities
Fiscal 2009 capital expenditures included:
|
|
|
construction of a fold-out facility in Longview, Texas; |
|
|
|
|
replacement or significant expansion of facilities in Victoria, British Columbia;
Chicago, Illinois; Pittsburgh, Pennsylvania and Houston, Texas; |
|
|
|
|
land purchases for future fold-out facilities; and |
|
|
|
|
investments in our project to enhance our technology platform. |
Fiscal 2008 capital expenditures included:
|
|
|
construction of fold-out facilities in Knoxville, Tennessee and Longview, Texas; |
|
|
|
|
replacement or significant expansion of facilities in Atlanta, Georgia; Chicago,
Illinois; Peterborough, Ontario and Houston, Texas; |
|
|
|
|
completion of the Southeast RDC in Alachua, Florida; and |
|
|
|
|
completion of work on the corporate headquarters expansion. |
Fiscal 2007 capital expenditures included:
|
|
|
construction of a fold-out facility in Raleigh, North Carolina; |
|
|
|
|
replacement or significant expansion of facilities in Edmonton, Alberta; Los Angeles,
California; Miami, Florida; Albuquerque, New Mexico and Columbia, South Carolina; |
|
|
|
|
the Southeast RDC in Alachua, Florida; and |
|
|
|
|
continuing work on the corporate headquarters expansion. |
23
We expect total capital expenditures in fiscal 2010 to be in the range of $600,000,000 to
$650,000,000. Fiscal 2010 expenditures will include the continuation of the fold-out program;
facility, fleet and other equipment replacements and expansions; and investments in technology.
During fiscal 2009, in the aggregate, the company paid cash of $218,075,000 for operations
acquired during fiscal 2009 and for contingent consideration related to operations acquired in
previous fiscal years. During fiscal 2009, we acquired for cash broadline foodservice operations
in Ireland, Los Angeles, California and Boston, Massachusetts, as well as a produce distributor in
Toronto, Ontario.
Financing Activities
Equity
We traditionally have engaged in Board-approved share repurchase programs. The number of
shares acquired and their cost during the past three fiscal years were 16,951,200 shares for
$438,843,000 in fiscal 2009, 16,769,900 shares for $529,179,000 in fiscal 2008 and 16,231,200
shares for $550,865,000 in fiscal 2007. As of August 12, 2009, there was a remaining authorization
by our Board of Directors to repurchase up to 9,386,600 shares. We expect to repurchase
significantly fewer shares in fiscal 2010 than in previous years.
Dividends paid were $548,246,000, or $0.92 per share, in fiscal 2009, $497,467,000, or $0.82
per share, in fiscal 2008 and $445,416,000, or $0.72 per share, in fiscal 2007. In May 2009, we
declared our regular quarterly dividend for the first quarter of fiscal 2010 of $0.24 per share,
which was paid in July 2009.
In November 2000, we filed with the SEC a shelf registration statement covering 30,000,000
shares of common stock to be offered from time to time in connection with acquisitions. As of
August 12, 2009, 29,477,835 shares remained available for issuance under this registration
statement.
Short-term Borrowings
We have uncommitted bank lines of credit, which provided for unsecured borrowings for
working capital of up to $88,000,000, of which none was outstanding as of June 27, 2009 or August
12, 2009.
Our Irish subsidiary, Pallas Foods Limited, has a 20,000,000 (Euro) committed facility for
unsecured borrowings for working capital, which expires March 31, 2010. There were no borrowings
outstanding under this facility as of June 27, 2009 or August 12, 2009.
Commercial Paper
We have a Board-approved commercial paper program allowing us to issue short-term
unsecured notes in an aggregate amount not to exceed $1,300,000,000.
Sysco and one of our subsidiaries, Sysco International, Co., have a revolving credit facility
supporting our U.S. and Canadian commercial paper programs. The facility, in the amount of
$1,000,000,000, expires on November 4, 2012, but is subject to extension.
During fiscal 2009, 2008 and 2007, aggregate outstanding commercial paper issuances and
short-term bank borrowings ranged from approximately zero to $164,998,000, zero to $1,133,241,000,
$356,804,000 to $755,180,000, respectively. There were no commercial paper issuances outstanding as of June
27, 2009 or August 12, 2009.
Fixed Rate Debt
In April 2007, we repaid at maturity our 7.25% senior notes totaling $100,000,000
utilizing a combination of cash flow from operations and commercial paper issuances.
In January 2008, the SEC granted our request to terminate our then existing shelf registration
statement that was filed with the SEC in April 2005 for the issuance of debt securities. In
February 2008, we filed an automatically effective well-known seasoned issuer shelf registration
statement for the issuance of up to $1,000,000,000 in debt securities with the SEC.
In February 2008, we issued 4.20% senior notes totaling $250,000,000 due February 12, 2013
(the 2013 notes) and 5.25% senior notes totaling $500,000,000 due February 12, 2018 (the 2018
notes) under our February 2008 shelf registration. The 2013 and 2018 notes, which were priced at
99.835% and 99.310% of par, respectively, are unsecured, are not subject to any sinking fund
requirement and include a redemption provision which allows us to retire the notes at any time
prior to maturity at
24
the greater of par plus accrued interest or an amount designed to ensure that
the noteholders are not penalized by the early redemption. Proceeds from the notes were utilized
to retire commercial paper issuances outstanding as of February 2008.
In February 2009, we deregistered the securities remaining unsold under our then existing
shelf registration statement that was filed with the SEC in February 2008 for the issuance of debt
securities. In February 2009, Sysco filed with the SEC an automatically effective well-known
seasoned issuer shelf registration statement for the issuance of an indeterminate amount of debt
securities that may be issued from time to time.
In March 2009, Sysco issued 5.375% senior notes totaling $250,000,000 due March 17, 2019 (the
2019 notes) and 6.625% senior notes totaling $250,000,000 due March 17, 2039 (the 2039 notes) under
our February 2009 shelf registration. The 2019 and 2039 notes, which were priced at 99.321% and
98.061% of par, respectively, are unsecured, are not subject to any sinking fund requirement and
include a redemption provision which allows Sysco to retire the notes at any time prior to maturity
at the greater of par plus accrued interest or an amount designed to ensure that the noteholders
are not penalized by early redemption. Proceeds from the notes will be utilized over a period of
time for general corporate purposes, which may include acquisitions, refinancing of debt, working
capital, share repurchases and capital expenditures.
Total Debt
Total debt as of June 27, 2009 was $2,476,649,000, of which approximately 99% was at
fixed rates with a weighted average of 5.6% and the remainder was at floating rates with a weighted
average of 1.3%. Certain loan agreements contain typical debt covenants to protect noteholders,
including provisions to maintain our long-term debt to total capital ratio below a specified level.
We were in compliance with all debt covenants as of June 27, 2009.
Other
As part of normal business activities, we issue letters of credit through major banking
institutions as required by certain vendor and insurance agreements. As of June 27, 2009 and June
28, 2008, letters of credit outstanding were $74,679,000 and $35,785,000, respectively.
Other Considerations
Multi-Employer Pension Plans
As discussed in Note 19, Commitments and Contingencies, to the Consolidated Financial
Statements in Item 8, we contribute to several multi-employer defined benefit pension plans based
on obligations arising under collective bargaining agreements covering union-represented employees.
Under current law regarding multi-employer defined benefit plans, a plans termination, our
voluntary withdrawal or the mass withdrawal of all contributing employers from any underfunded
multi-employer defined benefit plan would require us to make payments to the plan for our
proportionate share of the multi-employer plans unfunded vested liabilities. Based on the most
recent information available from plan administrators, our share of withdrawal liability on most of
the multi-employer plans we participate in, some of which appear to be underfunded, was estimated
to be $80,000,000 as of June 27, 2009 based on a voluntary withdrawal. Because we are not provided
the information by the plan administrators on a timely basis and we expect that many multi-employer
pension plans assets have declined due to recent stock market performance, we believe our share of
the withdrawal liability could be greater.
Required contributions to multi-employer plans could increase in the future as these plans
strive to improve their funding levels. 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. We believe that any unforeseen requirements to
pay such increased contributions, withdrawal liability and excise taxes would be funded through
cash flow from operations, borrowing capacity or a combination of these items. As of June 27,
2009, we have approximately $17,000,000 in liabilities recorded in total related to certain
multi-employer defined benefit plans for which our voluntary withdrawal has already occurred, all
of which are expected to be paid in fiscal 2010.
During fiscal 2008, we obtained information that a multi-employer pension plan we 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, we recorded a liability of approximately $16,500,000 related to our
share of the minimum funding requirements and related excise tax for these periods. During the
first quarter of fiscal 2009, we effectively withdrew from this multi-employer pension plan in an
effort to secure benefits for our employees that were participants in the plan and to manage our
exposure to this under-funded plan. We agreed to pay $15,000,000 to the plan, which included the
minimum funding requirements. In connection with this withdrawal agreement, we merged active
participants from this plan into Syscos company-sponsored Retirement Plan and assumed $26,704,000
in liabilities. The payment to the plan was made in the early part of the second quarter of fiscal
2009. If this plan were to undergo a mass
25
withdrawal, as defined by the Pension Benefit Guaranty
Corporation, prior to September 2010, we could have additional liability. We do not currently
believe a mass withdrawal from this plan prior to September 2010 is probable.
We have experienced other instances triggering voluntary withdrawal from multi-employer
pension plans. Withdrawal liabilities incurred include $9,585,000 in fiscal 2009, $5,784,000 in
fiscal 2008 and $4,700,000 in fiscal 2007.
BSCC Cooperative Structure
Syscos affiliate, Baugh Supply Chain Cooperative (BSCC), is a cooperative taxed under
subchapter T of the United States Internal Revenue Code the operation of which has resulted in a
deferral of tax payments. The IRS, in connection with its audits of our 2003 through 2006 federal
income tax returns proposed adjustments that would have accelerated amounts that we had previously
deferred and would have resulted in the payment of interest on those deferred amounts. Sysco
reached a settlement with the IRS on August 21, 2009 to cease paying U.S. federal taxes related to
BSCC on a deferred basis, pay the amounts currently recorded within deferred taxes related to BSCC
over a three year period and make a one-time payment of $41,000,000, of which approximately $39,000,000 is non-deductible. The
settlement addresses the BSCC deferred tax issue as it relates to the IRS audit of our 2003 through
2006 federal income tax returns, and settles the matter for all subsequent periods, including the
2007 and 2008 federal income tax returns already under audit. As a result of the settlement, we
will pay the amounts owed in the following schedule:
|
|
|
|
|
Amounts paid annually: |
|
|
|
|
Fiscal 2010 |
|
$ |
528,000,000 |
|
Fiscal 2011 |
|
|
212,000,000 |
|
Fiscal 2012 |
|
|
212,000,000 |
|
Of
the amounts to be paid in fiscal 2010 included in the table above, $316,000,000 will be
paid in the first quarter of fiscal 2010 and the remaining payments will be paid in quarterly
installments beginning in the second quarter of fiscal 2010. Amounts to be paid in fiscal 2011 and
2012 will be paid with Syscos quarterly tax payments. We believe we have access to sufficient
cash on hand, cash flows from operations and current access to capital to make payments on all of
the amounts noted above.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Contractual Obligations
The following table sets forth, as of June 27, 2009, certain information concerning our
obligations and commitments to make contractual future payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More Than |
|
|
|
Total |
|
|
< 1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
5 Years |
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Recorded Contractual Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
2,434,859 |
|
|
$ |
250 |
|
|
$ |
200,547 |
|
|
$ |
455,065 |
|
|
$ |
1,778,997 |
|
Capital lease obligations |
|
|
41,790 |
|
|
|
8,913 |
|
|
|
10,489 |
|
|
|
4,136 |
|
|
|
18,252 |
|
Deferred compensation (1) |
|
|
139,938 |
|
|
|
56,554 |
|
|
|
18,981 |
|
|
|
12,264 |
|
|
|
52,139 |
|
SERP and other postretirement plans
(2) |
|
|
258,908 |
|
|
|
19,817 |
|
|
|
43,293 |
|
|
|
48,694 |
|
|
|
147,104 |
|
Multi-employer pension plans (3) |
|
|
16,869 |
|
|
|
16,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits and
interest (4) |
|
|
225,569 |
|
|
|
41,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
IRS deferred tax settlement (4) |
|
|
911,000 |
|
|
|
487,000 |
|
|
|
424,000 |
|
|
|
|
|
|
|
|
|
Unrecorded Contractual Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments related to commercial
paper and debt (5) |
|
|
1,598,374 |
|
|
|
133,233 |
|
|
|
266,465 |
|
|
|
231,564 |
|
|
|
967,112 |
|
Retirement plan (6) |
|
|
1,441,391 |
|
|
|
21,754 |
|
|
|
312,368 |
|
|
|
337,475 |
|
|
|
769,794 |
|
Long-term non-capitalized leases |
|
|
229,091 |
|
|
|
51,289 |
|
|
|
69,967 |
|
|
|
41,932 |
|
|
|
65,903 |
|
Purchase obligations (7) |
|
|
3,149,072 |
|
|
|
2,287,839 |
|
|
|
750,973 |
|
|
|
95,135 |
|
|
|
15,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations |
|
$ |
10,446,861 |
|
|
$ |
3,124,518 |
|
|
$ |
2,097,083 |
|
|
$ |
1,226,265 |
|
|
$ |
3,814,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The estimate of the timing of future payments under the Executive Deferred
Compensation Plan involves the use of certain assumptions, including retirement ages and
payout periods. Included in the < 1 Year amount are accelerated distributions to
participants who took advantage during calendar year 2008 of a one-time opportunity, pursuant
to certain transitional relief |
26
|
|
|
|
|
under the provisions of Section 409A of the Internal Revenue
Code, to elect to receive a distribution of all or a portion of their vested balances under
the plan in early fiscal 2010. |
|
(2) |
|
Includes estimated contributions to the unfunded SERP and other postretirement
benefit plans made in amounts needed to fund benefit payments for vested participants in these
plans through fiscal 2019, based on actuarial assumptions. |
|
(3) |
|
Represents voluntary withdrawal liabilities recorded and excludes normal
contributions required under our collective bargaining agreements. |
|
(4) |
|
Unrecognized tax benefits relate to uncertain tax positions recorded under
accounting standards related to uncertain tax positions. As of June 27, 2009, we had a
liability of $78,571,000 for unrecognized tax benefits for all tax jurisdictions and
$146,998,000 for related interest that could result in cash payment. Sysco reached a
settlement with the IRS on August 21, 2009 related to timing of tax payments. This will
result in a one-time payment of $41,000,000 as well as accelerating the payments previously
deferred. See further discussion of this settlement under Note 22, Subsequent Events, in the
Notes to Consolidated Financial Statements in Item 8. Apart from this settlement, we are not
able to reasonably estimate the timing of non-current payments or the amount by which the
liability will increase or decrease over time, the related non-current balances have not been
reflected in the Payments Due by Period section of the table. |
|
(5) |
|
Includes payments on floating rate debt based on rates as of June 27, 2009, assuming
amount remains unchanged until maturity, and payments on fixed rate debt based on maturity
dates. |
|
(6) |
|
Provides the estimated minimum contribution to the Retirement Plan through fiscal
2019 to meet ERISA minimum funding requirements. |
|
(7) |
|
For purposes of this table, purchase obligations include agreements for purchases of
product in the normal course of business, for which all significant terms have been confirmed,
including minimum quantities resulting from our sourcing initiative. Such amounts included in
the table above are based on estimates. Purchase obligations also includes amounts committed
with a third party to provide hardware and hardware hosting services over a ten year period
ending in fiscal 2015 (See discussion under Note 19, Commitments and Contingencies, in the
Notes to Consolidated Financial Statements in Item 8), fixed electricity agreements and fixed
fuel purchase commitments. Purchase obligations exclude full requirements electricity
contracts where no stated minimum purchase volume is required. |
Certain acquisitions involve contingent consideration, typically payable only in the event
that certain operating results are attained or certain outstanding contingencies are resolved.
Aggregate contingent consideration amounts outstanding as of June 27, 2009 included $78,250,000 in
cash. This amount is not included in the table above.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting
principles requires us to make estimates and assumptions that affect the reported amounts of
assets, liabilities, sales and expenses in the accompanying financial statements. Significant accounting policies
employed by Sysco are presented in the notes to the financial statements.
Critical accounting policies and estimates are those that are most important to the portrayal
of our financial condition and results of operations. These policies require our most subjective or
complex judgments, often employing the use of estimates about the effect of matters that are
inherently uncertain. We have reviewed with the Audit Committee of the Board of Directors the
development and selection of the critical accounting policies and estimates and this related
disclosure. Our most critical accounting policies and estimates pertain to the allowance for
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 customers 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.
27
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
2009 net pension costs for the Retirement Plan, which was determined as of the June 28, 2008
measurement date, increased 0.16% to 6.94%. The discount rate for determining fiscal 2009 net
pension costs for the SERP, which was determined as of the June 28, 2008 measurement date,
increased 0.39% to 7.03%. The combined effect of these discount rate changes was a decrease in our
net company-sponsored pension costs for all plans for fiscal 2009 by an estimated $8,692,000. The
discount rate for determining fiscal 2010 net pension costs for the Retirement Plan, which was
determined as of the June 27, 2009 measurement date, increased 1.08% to 8.02%. The discount rate
for determining fiscal 2010 net pension costs for the SERP, which was determined as of the June 27,
2009 measurement date, increased 0.11% to 7.14%. The combined effect of these discount rate changes
will decrease our net company-sponsored pension costs for all plans for fiscal 2010 by an estimated
$38,600,000. A 1.0% increase in the discount rates for fiscal 2010 would decrease Syscos net
company-sponsored pension cost by $34,100,000, while a 1.0% decrease in the discount rates would
increase pension cost by $40,000,000. The impact of a 1.0% increase in the discount rates differs
from the impact of a 1.0% decrease in discount rates because the liabilities are less sensitive to
change at higher discount rates. Therefore, a 1.0% increase in the discount rate will not generate
the same magnitude of change as a 1.0% decrease in the discount rate. As of June 27, 2009, our net
actuarial losses from our company-sponsored pension plans were $534,892,000, an increase of
$183,688,000. We estimate the amortization of net actuarial losses will increase our fiscal 2010
pension expense by approximately $23,000,000 as compared to fiscal 2009.
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 5.21% as of June 27, 2009 and 6.17% as of June 28, 2008. For determining the
benefit obligations as of June 27, 2009, the SERP calculations use an age-graded salary growth
assumption with reductions taken for determining fiscal 2010 pay due to base salary freezes in
effect for fiscal 2010. As of June 28, 2008, the SERP assumes various levels of base salary
increase and decrease for determining pay for fiscal 2009 depending upon the participants position
with the company and a 7% salary growth assumption for all participants for fiscal 2010 and
thereafter.
The expected long-term rate of return on plan assets of the Retirement Plan was 8.00% for
fiscal 2009 and 8.50% for fiscal 2008. In fiscal 2009, the expected long-term rate of return on
plan assets assumption was changed to a net return on assets assumption, which contributed to the 0.50% decrease in
the assumption to 8.00% in fiscal 2009. Prior to fiscal 2009, this assumption represented gross
return on assets, and plan expenses were reflected within service cost. 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 long-term bonds and the
historical returns of the major stock markets. Although not determinative of future returns, the
effective annual rate of return on plan assets, developed using geometric/compound averaging, was
approximately 7.4%, 2.0%, 0.5% and (29.4)% over the 20-year, 10-year, 5-year and 1-year periods
ended December 31, 2008, respectively. In addition, in eight of the last 15 years, the actual
return on plan assets has exceeded 10.0%. 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 8.00% for fiscal 2010. A
1.0% increase (decrease) in the assumed rate of return for fiscal 2010 would decrease (increase)
Syscos net company-sponsored pension costs for fiscal 2010 by approximately $13,100,000.
Pension accounting standards require the recognition of the funded status of our defined
benefit plans in the statement of financial position, with a corresponding adjustment to
accumulated other comprehensive income, net of tax. The amount reflected in accumulated other
comprehensive loss as of June 28, 2008 was a charge, net of tax, of $220,913,000, which
28
represented the net actuarial losses, prior service costs and transition obligation remaining from the initial
adoption of previous pension accounting standards as of that date. The amount reflected in
accumulated other comprehensive loss related to the recognition of the funded status of our defined
benefit plans as of June 27, 2009 was a charge, net of tax, of $346,107,000.
Changes in the assumptions, including changes to the discount rate discussed above, together
with the normal growth of the plans, the impact of actuarial losses from prior periods and the
timing and amount of contributions, increased net company-sponsored pension costs by approximately
$25,800,000 in fiscal 2009. Increasing the net company-sponsored pension costs by approximately
$4,300,000 in fiscal 2009 were additional costs related to the merger of participants from a
multi-employer pension plan into Syscos company-sponsored Retirement Plan (see Multi-Employer
Pension Plans under Other Considerations for further discussion). Decreasing the net
company-sponsored pension costs by approximately $7,200,000 in fiscal 2009 was a change in the SERP
design. The net impact of all of these changes was a net increase in fiscal 2009 in
company-sponsored pension costs of $22,877,000. Changes in the assumptions, including changes to
the discount rate discussed above, together with the normal growth of the plans, the impact of
actuarial losses from prior periods and the timing and amount of contributions are expected to
increase net company-sponsored pension costs in fiscal 2010 by approximately $37,000,000.
We made cash contributions to our company-sponsored pension plans of $95,776,000 and
$92,670,000 in fiscal years 2009 and 2008, respectively, including voluntary contributions to the
Retirement Plan of $80,000,000 and $80,000,000 in fiscal 2009 and fiscal 2008, respectively. Our
minimum required contribution to the Retirement Plan for the calendar 2009 plan year is estimated
at $95,000,000 to meet ERISA minimum funding requirements. Sysco will be required to pay quarterly
contributions for the calendar 2010 plan year, the first installment of which must be made in
fiscal 2010. We anticipate we will make $140,000,000 of contributions to the Retirement Plan in
fiscal 2010. The estimated fiscal 2010 contributions to fund benefit payments for the SERP and
other post-retirement plans together are approximately $19,817,000.
Income Taxes
The determination of our provision for income taxes requires significant judgment, the
use of estimates and the interpretation and application of complex tax laws. Our provision for
income taxes primarily reflects 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
benefits or valuation allowances, and our change in the mix of earnings from these taxing
jurisdictions all affect the overall effective tax rate.
Prior to fiscal 2008, in evaluating the exposures connected with the various tax filing
positions, we established an accrual when, despite our belief that our tax return positions were
supportable, we believed that certain positions may be successfully challenged and a loss was
probable. When facts and circumstances changed, these accruals were adjusted. Beginning in fiscal
2008, we adopted a new accounting standard, which changed our accounting for uncertain tax
positions. This accounting standard provides that a tax benefit from an uncertain tax position
must be recognized when it is more likely than not that the position will be sustained upon
examination, including resolutions of any related appeals or litigation processes, based on the
technical merits of the position. The amount recognized is measured as the largest amount of tax
benefit that has a greater than 50% likelihood of being realized upon settlement. (See discussion
under Note 17, Income Taxes, in the Notes to Consolidated Financial Statements in Item 8).
Our liability for unrecognized tax benefits contains uncertainties because management is
required to make assumptions and to apply judgment to estimate the exposures associated with our
various filing 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
financial 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 specified 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 the situations where the vendor consideration is not related directly to
specific 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. In certain
of these latter instances, the vendor consideration represents a reimbursement of a specific
incremental identifiable cost incurred by Sysco. In these cases, we classify the consideration as a
reduction of those costs with any excess funds classified as a reduction of cost of sales and
recognize these in the period in which the costs are incurred and related services performed.
29
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 or more frequently as needed, we assess the recoverability of goodwill
and indefinite-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 six operating segments as described in Note 20, Business Segment Information, to
the Consolidated Financial Statements in Item 8. The components within each of our six operating
segments have similar economic characteristics and therefore are aggregated into six reporting
units.
We arrive at our estimates of fair value using a combination of discounted cash flow 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 six operating segments. 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 flow 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. We update our projections used in our discounted cash flow
model based on historical performance and changing business conditions for each of our reporting
units.
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 indefinite-lived intangibles recorded in fiscal 2009, 2008 or 2007. Our
past estimates of fair value for fiscal 2009, 2008 and 2007 have not been materially different when
revised to include subsequent years actual results. Sysco has not made any material changes in
its impairment assessment methodology during the past three fiscal years. We do not believe the
estimates used in the analysis are reasonably likely to change materially in the future but we will
continue to assess the estimates in the future based on the expectations of the reporting units.
In fiscal 2009, the reporting units fair values would have had to have been lower by 16% compared
to the fair values estimated in our impairment analysis before additional analysis would have been
indicated to determine if an impairment existed for any of our reporting units.
The Other (specialty produce, custom-cut meat, lodging industry products and international
distribution operations) operating segments have a greater proportion of goodwill recorded to
estimated fair value as compared to the Broadline or SYGMA reporting units. This is primarily due
to these businesses having been recently acquired, and as a result there has been less history of
organic growth than in the Broadline and SYGMA segments. In addition, these businesses also have
lower levels of cash flow than the Broadline segment. As such, these Other operating segments have
a greater risk of future impairment if their operations were to suffer a significant downturn.
Share-Based Compensation
We provide compensation benefits to employees and non-employee directors under several
share-based payment arrangements including various employee stock incentive plans, the Employees
Stock Purchase Plan, the Management Incentive Plan and various non-employee director plans.
As of June 27, 2009, there was $63,746,000 of total unrecognized compensation cost related to
share-based compensation arrangements. That cost is expected to be recognized over a
weighted-average period of 2.97 years.
The fair value of each option award is estimated on the date of grant using a Black-Scholes
option pricing model. Expected volatility is based on historical volatility of Syscos stock,
implied volatilities from traded options on Syscos stock and other factors. We utilize historical
data to estimate option exercise and employee termination behavior within the valuation model;
separate groups of employees that have similar historical exercise behavior are considered
separately for valuation purposes. Expected dividend yield is estimated based on the historical
pattern of dividends and the average stock price for the year preceding the option grant. The
risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in
effect at the time of grant.
The fair value of the stock issued under the Employee Stock Purchase Plan is calculated as the
difference between the stock price and the employee purchase price. The fair value of restricted
stock granted to employees is based on the stock price on grant date. The application of a
discount to the fair value of a restricted stock grant is dependent upon whether or not each
individual grant contains a post-vesting restriction. The fair value of the stock issued under the
Management Incentive Plans with respect to years prior to fiscal 2009 was based on the stock price
on the last day of the fiscal year less a 12% discount for post-vesting restrictions. The discount
for post-vesting restrictions was estimated based on restricted stock studies and by calculating
the cost of a hypothetical protective put option over the restriction period. The stock award
component of the Management Incentive Plan bonus awards was removed beginning in fiscal 2009.
30
The compensation cost related to these share-based awards is recognized over the requisite
service period. The requisite service period is generally the period during which an employee is
required to provide service in exchange for the award.
The compensation cost related to stock issuances resulting from awards under the Management
Incentive Plan through fiscal 2008 was accrued over the fiscal year to which the incentive bonus
related. The compensation cost related to stock issuances resulting from employee purchases of
stock under the Employees Stock Purchase Plan is recognized during the quarter in which the
employee payroll withholdings are made.
Certain of our option awards are generally subject to graded vesting over a service period. In
those cases, we will recognize compensation cost on a straight-line basis over the requisite
service period for the entire award. In other cases, certain of our option awards provide for
graded vesting over a service period but include a performance-based provision allowing for the
vesting to accelerate. In these cases, if it is probable that the performance condition will be
met, we recognize compensation cost on a straight-line basis over the shorter performance period;
otherwise, we recognize compensation cost over the probable longer service period.
In addition, certain of our options provide that if the optionee retires at certain age and
years of service thresholds, the options continue to vest as if the optionee continued to be an
employee or director. In these cases, for awards granted prior to July 2, 2005 (our adoption date
for the fair value recognition provisions in current stock compensation accounting standards), we
will recognize the compensation cost for such awards over the remaining service period and
accelerate any remaining unrecognized compensation cost when the employee retires. For awards
granted subsequent to July 3, 2005, we will recognize compensation cost for such awards over the
period from the date of grant to the date the employee first becomes eligible to retire with his
options continuing to vest after retirement.
Our option grants include options that qualify as incentive stock options for income tax
purposes. In the period the compensation cost related to incentive stock options is recorded, a
corresponding tax benefit is not recorded as it is assumed that we will not receive a tax deduction
related to such incentive stock options. We may be eligible for tax deductions in subsequent
periods to the extent that there is a disqualifying disposition of the incentive stock option. In
such cases, we would record a tax benefit related to the tax deduction in an amount not to exceed the corresponding cumulative compensation cost
recorded in the financial statements on the particular options multiplied by the statutory tax
rate.
Accounting Changes
SFAS 165 Adoption
In May 2009, the FASB issued SFAS No. 165, Subsequent Events ( SFAS 165), which
establish general standards of accounting for and disclosure of events that occur after the balance
sheet date but before financial statements are issued or are available to be issued. Specifically,
the standard sets forth the period after the balance sheet date during which management should
evaluate events or transactions that may occur for potential recognition or disclosure in the
financial statements, the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that occurred after the balance
sheet date. This standard became effective for Sysco for its fiscal year ending June 27, 2009.
We have included the required disclosures for this standard in Note 1 to the Consolidated Financial
Statements in Item 8.
SFAS 161 Adoption
As of the third quarter of fiscal 2009, SFAS No. 161, Disclosure about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161) became
effective for Sysco. SFAS 161 requires enhanced disclosures about an entitys derivative and
hedging activities and thereby improves the transparency of financial reporting. The company has
determined that no additional disclosures were necessary upon adoption but will continue to assess
the need for additional disclosures in future periods.
SFAS 157 Adoption
As of June 29, 2008, Sysco adopted the provisions of FASB Statement No. 157, Fair Value
Measurements (SFAS 157), for financial assets and liabilities carried at fair value and
non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring
basis. SFAS 157 establishes a common definition for fair value under generally accepted accounting
principles, establishes a framework for measuring fair value and expands disclosure requirements
about such fair value measurements. The adoption of SFAS 157 for financial assets and liabilities
carried at fair value and non-financial assets and liabilities that are recognized or disclosed at
fair value on a recurring basis did not have a material impact on the companys financial
statements. See also the discussion of FASB Staff Position 157-2, Effective Date of FASB
Statement No. 157, under New Accounting Standards below.
31
FIN 48 Adoption
As of July 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes an Interpretation of FASB Statement No. 109 (FIN 48), which clarifies the
accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, Accounting
for Income Taxes (SFAS 109). FIN 48 clarifies the application of SFAS 109 by defining criteria
that an individual tax position must meet for any part of the benefit of that position to be
recognized in the financial statements. Additionally, FIN 48 provides guidance on the measurement,
derecognition, classification and disclosure of tax positions, along with accounting for the
related interest and penalties. As a result of this adoption, we recognized, as a cumulative effect
of change in accounting principle, a $91,635,000 decrease in our beginning retained earnings on our
July 1, 2007 balance sheet.
SFAS 158
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106,
and 132(R) (SFAS 158). SFAS 158 has two major provisions: the recognition and disclosure
provision and the measurement date provision. We previously adopted SFAS 158s recognition and
disclosure requirements as of June 30, 2007. The measurement date provision requires an employer to
measure a plans assets and obligations as of the end of the employers fiscal year. We elected to
early adopt the measurement date provision as of June 30, 2007 in order to adopt both provisions of
this accounting standard at the same time. As a result, beginning in fiscal 2008, the measurement
date for all plans returned to correspond with fiscal year-end. We performed measurements as of
May 31, 2007 and June 30, 2007 of the plan assets and benefit obligations. We recorded a charge to
beginning retained earnings on July 1, 2007 of $3,572,000, net of tax, for the impact of the
difference in our company-sponsored pension expense between the two measurement dates. We also
recorded a benefit to beginning accumulated other comprehensive income (loss) on July 1, 2007 of
$22,780,000, net of tax, for the impact of the difference in the recognition provision between the
two measurement dates.
New Accounting Standards
SFAS 141(R)
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)),
which establishes principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed and any
noncontrolling interest in a business combination. This statement also establishes recognition and
measurement principles for the goodwill acquired in a business combination and disclosure
requirements to enable financial statement users to evaluate the nature and financial effects of
the business combination. We will apply this statement primarily on a prospective basis for
business combinations beginning in fiscal 2010. Earlier application of the standard was
prohibited.
FSP 157-2
In February 2008, the FASB issued FASB Staff Position 157-2, Effective Date of FASB Statement
No. 157 (FSP 157-2), which partially deferred the effective date of SFAS No. 157 for one year for
non-financial assets and liabilities that are recognized or disclosed at fair value in the
financial statements on a non-recurring basis. As a result of the deferral, SFAS 157 is effective
in fiscal 2010 for non-recurring, non-financial assets and liabilities that are recognized or
disclosed at fair value. Our only non-recurring, non-financial asset fair value measurements are
those used in our annual test of recoverability of goodwill and indefinite-lived intangibles, in
which we determine whether estimated fair values of our applicable reporting units exceed their
carrying values. We will apply the provisions of SFAS 157 in fiscal 2010 to this fair value
estimation.
FSP EITF 03-06-1
In June 2008, the FASB issued FASB Staff Position No. EITF 03-06-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF
03-06-1). FSP EITF 03-06-1 addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and, therefore, need to be included in
the earnings allocation in computing earnings per share under the two-class method described in
FASB Statement No. 128, Earnings per Share. This standard will be effective for Sysco beginning
in fiscal 2010 and interim periods within that year. All prior-period earnings per share data
presented in filings subsequent to adoption must be adjusted retrospectively to conform with the
provisions of this standard. Early application of FSP EITF 03-06-1 was not permitted. We are
currently evaluating the impact the adoption of FSP EITF 03-06-1 will have on our consolidated
financial statements.
32
FSP FAS 132(R)-1
In December 2008, the FASB issued FASB Staff Position No. FAS 132(R)-1, Employers
Disclosures about Postretirement Benefit Plan Assets (FSP FAS 132(R)-1). FSP FAS 132(R)-1 amends
SFAS No. 132(R), Employers Disclosures about Pensions and Other Postretirement Benefits, to
require additional disclosures about assets held in an employers defined benefit pension or other
postretirement plan. This standard will be effective for Sysco in fiscal 2010, although early
application of the standard is permitted. Upon initial application, the information required by
FSP FAS 132(R)-1 is not required for earlier periods that are presented for comparative purposes.
We will adopt this standard in fiscal 2010 and are currently evaluating the impact the adoption of
FSP FAS 132(R)-1 will have on our annual financial statement disclosures.
FSP FAS 141(R)-1
In April 2009, the FASB issued FASB Staff Position No. FAS 141(R)-1, Accounting for Assets
and Liabilities Assumed in a Business Combination That Arise From Contingencies (FSP FAS
141(R)-1). FSP FAS 141(R)-1 amends and clarifies SFAS No. 141(R), Business Combinations, to
address application issues raised by preparers, auditors, and members of the legal profession on
initial recognition and measurement, subsequent measurement and accounting, and disclosure of
assets and liabilities arising from contingencies in a business combination. We will apply this
standard on a prospective basis for business combinations beginning in fiscal 2010.
FSP FAS 107-1 and APB 28-1
In April 2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1). FSP FAS 107-1
and APB 28-1 amend FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments,
and APB Opinion No. 28, Interim Financial Reporting, to require disclosures about the fair value
of financial instruments for interim reporting periods of publicly traded companies. Prior
disclosure requirements only applied to annual financial statements. This standard is effective
for interim reporting periods ending after June 15, 2009, which is the first quarter of fiscal 2010
for Sysco. We will provide the disclosures about the fair value of financial instruments required
by FSP FAS 107-1 and APB 28-1 in our interim financial statement disclosures beginning in fiscal
2010.
Forward-Looking Statements
Certain statements made herein that look forward in time or express managements
expectations or beliefs with respect to the occurrence of future events are forward-looking
statements under the Private Securities Litigation Reform Act of 1995. They include statements
about Syscos ability to increase its sales and market share and grow earnings, the continuing
impact of economic conditions on consumer confidence and our business, sales and expense trends,
anticipated multi-employer pension related liabilities and contributions to various multi-employer
pension plans, the estimated impact of the IRS settlement, the impact of ongoing legal proceedings,
the loss of SYGMAs largest customer not having a material adverse effect on Sysco as a whole,
compliance with laws and government regulations not having a material effect on our capital
expenditures, earnings or competitive position, anticipated capital expenditures and the sources
of financing for those capital expenditures, continued competitive advantages and positive results
from strategic initiatives, anticipated company-sponsored pension plan liabilities, the
availability and adequacy of insurance to cover liabilities, the impact of future adoption of
accounting pronouncements, predictions regarding the impact of changes in estimates used in
impairment analyses, the anticipated impact of changes in foreign currency exchange rates and
Syscos ability to meet future cash requirements and remain profitable.
These statements are based on managements current expectations and estimates; actual results
may differ materially due in part to the risk factors discussed at Item 1.A. above and elsewhere.
In addition, the success of Syscos strategic initiatives could be affected by conditions in the
economy and the industry and internal factors such as the ability to control expenses, including
fuel costs. Company-sponsored pension plan liabilities are impacted by a number of factors
including 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.
Legal proceedings are impacted by events, circumstances and individuals beyond the control of
Sysco. The need for additional borrowing or other capital is impacted by factors that include
capital expenditures or acquisitions in excess of those currently anticipated, stock repurchases at
historical levels, or other unexpected cash requirements. The diluted earnings per share impact of
the settlement is impacted by share repurchases and the number of anti-dilutive stock options
excluded from the diluted shares calculation. The diluted earnings per share impact of the IRS
settlement is impacted by share repurchases and the number of anti-dilutive stock options excluded
from the diluted shares calculation. Predictions regarding the future adoption of accounting
pronouncements involve estimates without the benefit of precedent, and if our estimates turn out to
be materially incorrect, our assessment of the impact of the pronouncement could prove incorrect,
as well. The anticipated impact of compliance with laws and regulations also involves the risk
that estimates may turn out to be materially incorrect, and laws and regulations, as well as
methods of enforcement, are subject to change.
33
|
|
|
Item 7A. |
|
Quantitative and Qualitative Disclosures About Market Risk |
Interest Rate Risk
We do not utilize financial instruments for trading purposes. Our use of debt directly
exposes us to interest rate risk. Floating rate debt, where the interest rate fluctuates
periodically, exposes us to short-term changes in market interest rates. Fixed rate debt, where the
interest rate is fixed over the life of the instrument, exposes us to changes in market interest
rates reflected in the fair value of the debt and to the risk that we may need to refinance
maturing debt with new debt at higher rates.
We manage our debt portfolio to achieve an overall desired position of fixed and floating
rates and may employ interest rate swaps as a tool to achieve that goal. The major risks from
interest rate derivatives include changes in the interest rates affecting the fair value of such
instruments, potential increases in interest expense due to market increases in floating interest
rates and the creditworthiness of the counterparties in such transactions.
Fiscal 2009
As of June 27, 2009, we had no commercial paper outstanding. Our long-term debt
obligations as of June 27, 2009 were $2,476,649,000, of which approximately 99% were at fixed rates
of interest. We had no interest rate swaps outstanding as of June 27, 2009.
The following table presents our interest rate position as of June 27, 2009. All amounts are
stated in U.S. dollar equivalents.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Position as of June 27, 2009 |
|
|
Principal Amount by Expected Maturity |
|
|
Average Interest Rate |
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
2014 |
|
Thereafter |
|
Total |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. $ Denominated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt |
|
$ |
6,311 |
|
|
$ |
5,073 |
|
|
$ |
203,428 |
|
|
$ |
251,583 |
|
|
$ |
206,097 |
|
|
$ |
1,765,629 |
|
|
$ |
2,438,121 |
|
|
$ |
2,509,602 |
|
Average Interest Rate |
|
|
4.3 |
% |
|
|
4.5 |
% |
|
|
6.1 |
% |
|
|
4.3 |
% |
|
|
4.1 |
% |
|
|
5.8 |
% |
|
|
5.5 |
% |
|
|
|
|
Floating Rate Debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
13,600 |
|
|
$ |
13,600 |
|
|
$ |
13,600 |
|
Average Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3 |
% |
|
|
1.2 |
% |
|
|
|
|
Canadian $ Denominated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt |
|
$ |
659 |
|
|
$ |
652 |
|
|
$ |
738 |
|
|
$ |
731 |
|
|
$ |
790 |
|
|
$ |
18,020 |
|
|
$ |
21,590 |
|
|
$ |
22,223 |
|
Average Interest Rate |
|
|
8.1 |
% |
|
|
8.4 |
% |
|
|
8.6 |
% |
|
|
9.6 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.7 |
% |
|
|
|
|
Euro Denominated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt |
|
$ |
2,193 |
|
|
$ |
921 |
|
|
$ |
224 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,338 |
|
|
$ |
3,436 |
|
Average Interest Rate |
|
|
7.7 |
% |
|
|
7.7 |
% |
|
|
7.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.7 |
% |
|
|
|
|
Fiscal 2008
As of June 28, 2008, we had no commercial paper outstanding. Our long-term debt
obligations as of June 28, 2008 were $1,980,331,000, of which approximately 99% were at fixed rates
of interest. We had no interest rate swaps outstanding as of June 28, 2008.
The following table presents our interest rate position as of June 28, 2008. All amounts are
stated in U.S. dollar equivalents.
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Position as of June 28, 2008 |
|
|
Principal Amount by Expected Maturity |
|
|
Average Interest Rate |
|
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
Thereafter |
|
Total |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. $ Denominated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt |
|
$ |
4,437 |
|
|
$ |
3,366 |
|
|
$ |
2,318 |
|
|
$ |
201,205 |
|
|
$ |
251,055 |
|
|
$ |
1,478,309 |
|
|
$ |
1,940,690 |
|
|
$ |
1,889,602 |
|
Average Interest Rate |
|
|
3.7 |
% |
|
|
3.8 |
% |
|
|
4.2 |
% |
|
|
6.1 |
% |
|
|
4.3 |
% |
|
|
5.5 |
% |
|
|
5.4 |
% |
|
|
|
|
Floating Rate Debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
15,000 |
|
|
$ |
15,000 |
|
|
$ |
15,000 |
|
Average Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.2 |
% |
|
|
2.2 |
% |
|
|
|
|
Canadian $ Denominated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt |
|
$ |
459 |
|
|
$ |
506 |
|
|
$ |
637 |
|
|
$ |
744 |
|
|
$ |
818 |
|
|
$ |
21,477 |
|
|
$ |
24,641 |
|
|
$ |
23,992 |
|
Average Interest Rate |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
|
|
Foreign Currency Exchange Rate Risk
The majority of our foreign subsidiaries use their local currency as their functional
currency. To the extent that business transactions are not denominated in a foreign subsidiarys
functional currency, we are exposed to foreign currency exchange rate risk. We will also incur
gains and losses within our shareholders equity due to the translation of our financial statements
from foreign currencies into U.S. dollars. Our income statement trends may be impacted by the
translation of the income statements
34
of our foreign subsidiaries into U.S. dollars. The changes in the exchange rates used to translate our foreign sales into U.S. dollars negatively impacted sales
by 1.2% in fiscal 2009 compared to fiscal 2008 and increased sales 1.0% in fiscal 2008 compared to
fiscal 2007. The impact to our operating income, net earnings and earnings per share was not
material in fiscal 2009 and fiscal 2008. A 10% unfavorable change in the fiscal 2009 year-end
exchange rate and the resulting impact on our financial statements would have negatively impacted
fiscal 2009 sales by an additional 0.8% and would not have materially impacted our operating
income, net earnings and earnings per share. We do not routinely enter into material agreements to
hedge foreign currency exchange rate risks.
Our Canadian financing subsidiary has the U.S. dollar as its functional currency and has notes
denominated in U.S. dollars. We have the potential to create taxable income in Canada when this
debt is paid due to changes in the exchange rate from the inception of the debt through the payment
date. A 10% unfavorable change in the fiscal 2009 year-end exchange rate and the resulting
increase in the tax liability associated with these notes would not have a material impact on our
results of operations.
Fuel Price Risk
The price and availability of diesel fuel fluctuates due to changes in production,
seasonality and other market factors generally outside of our control. Increased fuel costs may
have a negative impact on our results of operations in three areas. First, the high cost of fuel
can negatively impact consumer confidence and discretionary spending and thus reduce the frequency
and amount spent by consumers for food prepared away from home. Second, the high cost of fuel can
increase the price we pay for product purchases and we may not be able to pass these costs fully to
our customers. Third, increased fuel costs impact the costs we incur to deliver product to our
customers. During fiscal 2009, 2008 and 2007, fuel costs related to outbound deliveries represented
approximately 0.8%, 0.7% and 0.6% of sales, respectively. Fuel costs, excluding any amounts
recovered through fuel surcharges, incurred by Sysco increased by approximately $33,154,000 in
fiscal 2009 over fiscal 2008 and $34,023,000 in fiscal 2008 over fiscal 2007.
From time to time, we will enter into forward purchase commitments for a portion of our
projected monthly diesel fuel requirements. As of June 27, 2009, we had forward diesel fuel
commitments totaling approximately $64,000,000 through March 2010. In July 2009, we entered
additional forward purchase commitments totaling approximately $16,000,000 at a fixed price through
June 2010. Together, these contracts will lock in the price of approximately 40% of our fuel
purchase needs for fiscal 2010. Our commitments through August 2009 were entered into at
prevailing rates from mid-July through mid-August 2008. As a result, these contracts are at fixed
prices greater than both the prices incurred during same periods in the previous fiscal year and
current market prices. The remainder of our outstanding contracts were entered into at the prevailing rates in March, April and July 2009 and thus the
fixed price on these contracts reflects the lower current market price for diesel.
Fuel costs in fiscal 2010, exclusive of any amounts recovered through fuel surcharges, are
expected to decrease by approximately $50,000,000 to $80,000,000 as compared to fiscal 2009. Our
estimate is based upon the prevailing market prices for diesel in mid-August 2009, the cost
committed to in our forward fuel purchase agreements currently in place for fiscal 2010 and
estimates of fuel consumption. Actual fuel costs could vary from our estimates if any of these
assumptions change, in particular if future fuel prices vary significantly from our current
estimates. A 10% unfavorable change in diesel prices from the market price used in our estimates
above would change the range of potential decrease to $40,000,000 to $70,000,000.
Investment Risk
Sysco invests in corporate-owned life insurance policies in order to fund certain
retirement programs which are subject to market risk. The value of our investments in
corporate-owned life insurance policies is largely based on the values of underlying investments,
which include publicly traded securities. Therefore, the value of these policies will be adjusted
each period based on the performance of the underlying securities which could result in volatility
in our earnings. Due to the declines in the financial markets in fiscal 2009 and fiscal 2008, we
have experienced significant losses in adjusting the carrying value of these policies to their cash
surrender values in these periods. Should the financial markets decline, we would take charges to
adjust the carrying value of our corporate-owned life insurance, and if the market declines are
significant, these charges could reasonably be expected to have a material adverse impact on our
operating expenses, net income and earnings per share. A 10% unfavorable change in publicly traded
securities held within our investments in corporate-owned life insurance would not have a material
impact on our operating expenses, net income and earnings per share.
Our company-sponsored qualified pension plan (Retirement Plan) holds investments in both
equity and fixed income securities. The amount of our annual contribution to the plan is dependent
upon, among other things, the return on the plans assets and discount rates used to calculate the
plans liability. As a result of the declines in the financial markets in fiscal 2009, the value of
the investments held by the Retirement Plan declined as of June 27, 2009 as compared to June 28,
2008. These fluctuations in asset values have caused the amount of our anticipated future
contributions to the plan to increase, have caused pension expense for fiscal 2010 to increase and
have resulted in a reduction to shareholders equity on our balance sheet as of June 27, 2009,
which is when this plans funded status was last measured. Also, the projected liability of the
plan will be impacted by the fluctuations of interest rates on high quality bonds in the public
markets. Specifically, decreases in these interest rates may have a material impact on our results
of operations. To the extent the financial markets experience further
35
declines, our anticipated future contributions, pension expense and funded status will be affected for future years as well.
A 10% unfavorable change in the value of the investments held by our company-sponsored Retirement
Plan at the plans fiscal year end (December 31, 2008) would not have a material impact on our
anticipated future contributions for fiscal 2010; however, this unfavorable change would increase
our pension expense for fiscal 2010 by $23,700,000 and would reduce our shareholders equity on our
balance sheet as of June 27, 2009 by $76,630,000.
36
|
|
|
Item 8. |
|
Financial Statements and Supplementary Data |
SYSCO CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page |
|
Consolidated Financial Statements: |
|
|
|
|
|
|
|
38 |
|
|
|
|
39 |
|
|
|
|
40 |
|
|
|
|
41 |
|
|
|
|
42 |
|
|
|
|
43 |
|
|
|
|
44 |
|
|
|
|
45 |
|
All schedules are omitted because they are not applicable or the information is set forth in
the consolidated financial statements or notes thereto.
37
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Sysco Corporation (Sysco) is responsible for establishing and maintaining
adequate internal control over financial reporting for the company. Syscos internal control system
is designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation and fair presentation of published financial statements. All internal control
systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
Syscos management assessed the effectiveness of Syscos internal control over financial
reporting as of June 27, 2009. In making this assessment, it used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in Internal Control Integrated
Framework. Based on this assessment, management concluded that, as of June 27, 2009, Syscos
internal control over financial reporting was effective based on those criteria.
Ernst & Young LLP has issued an audit report on the effectiveness of Syscos internal control
over financial reporting as of June 27, 2009.
38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Board of Directors and Shareholders
Sysco Corporation
We have audited Sysco Corporation (a Delaware Corporation) and its subsidiaries (the
Company) internal control over financial reporting as of June 27, 2009, based on criteria
established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Sysco Corporations management is
responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Companys internal control over financial reporting based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the companys assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Sysco Corporation and its subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of June 27, 2009, based on the COSO
criteria.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets as of June 27, 2009 and June 28,
2008 and the related consolidated results of operations, shareholders equity and cash flows for
each of the three years in the period ended June 27, 2009 of Sysco Corporation and its subsidiaries
and our report dated August 25, 2009 expressed an unqualified opinion thereon.
Houston, Texas
August 25, 2009
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors and Shareholders
Sysco Corporation
We have audited the accompanying consolidated balance sheets of Sysco Corporation (a Delaware
Corporation) and subsidiaries (the Company) as of June 27, 2009 and June 28, 2008, and the
related consolidated results of operations, shareholders equity, and cash flows for each of the
three years in the period ended June 27, 2009. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company at June 27, 2009 and June 28, 2008,
and the consolidated results of their operations and their cash flows for each of the three years
in the period ended June 27, 2009, in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, the Company adopted the
recognition and disclosure provisions, effective June 30, 2007, and the change in measurement date
provision, effective July 1, 2007, of Statement of Financial Accounting Standard (SFAS) No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment
of FASB Statements No. 87, 88, 106, and 132(R). Also, discussed in Note 2 to the consolidated
financial statements, effective July 1, 2007, Sysco Corporation adopted FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109 (FIN
48), which clarifies the accounting for uncertainty in income taxes recognized in accordance with
SFAS No. 109, Accounting for Income Taxes (SFAS 109).
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Sysco Corporation and its subsidiaries internal control over
financial reporting as of June 27, 2009, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated August 25, 2009 expressed an unqualified opinion thereon.
Houston, Texas
August 25, 2009
40
SYSCO
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 27, 2009 |
|
|
June 28, 2008 |
|
|
|
(In thousands except for share data) |
|
ASSETS
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,087,084 |
|
|
$ |
551,552 |
|
Accounts and notes receivable, less allowances of $36,078
and $31,730 |
|
|
2,468,511 |
|
|
|
2,723,189 |
|
Inventories |
|
|
1,650,666 |
|
|
|
1,836,478 |
|
Prepaid expenses and other current assets |
|
|
64,418 |
|
|
|
63,814 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
5,270,679 |
|
|
|
5,175,033 |
|
Plant and equipment at cost, less depreciation |
|
|
2,979,200 |
|
|
|
2,889,790 |
|
Other assets |
|
|
|
|
|
|
|
|
Goodwill |
|
|
1,510,795 |
|
|
|
1,413,224 |
|
Intangibles, less amortization |
|
|
121,089 |
|
|
|
87,528 |
|
Restricted cash |
|
|
93,858 |
|
|
|
92,587 |
|
Prepaid pension cost |
|
|
26,746 |
|
|
|
215,159 |
|
Other assets |
|
|
214,252 |
|
|
|
208,972 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
1,966,740 |
|
|
|
2,017,470 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
10,216,619 |
|
|
$ |
10,082,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,856,887 |
|
|
$ |
2,048,759 |
|
Accrued expenses |
|
|
797,756 |
|
|
|
917,892 |
|
Accrued income taxes |
|
|
323,983 |
|
|
|
11,665 |
|
Deferred taxes |
|
|
162,365 |
|
|
|
516,131 |
|
Current maturities of long-term debt |
|
|
9,163 |
|
|
|
4,896 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
3,150,154 |
|
|
|
3,499,343 |
|
Other liabilities |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
2,467,486 |
|
|
|
1,975,435 |
|
Deferred taxes |
|
|
526,377 |
|
|
|
540,330 |
|
Other long-term liabilities |
|
|
622,900 |
|
|
|
658,199 |
|
|
|
|
|
|
|
|
Total other liabilities |
|
|
3,616,763 |
|
|
|
3,173,964 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
Preferred stock, par value $1 per share |
|
|
|
|
|
|
|
|
Authorized 1,500,000 shares, issued none |
|
|
|
|
|
|
|
|
Common stock, par value $1 per share
|
|
|
|
|
|
|
|
|
Authorized 2,000,000,000 shares, issued 765,174,900 shares |
|
|
765,175 |
|
|
|
765,175 |
|
Paid-in capital |
|
|
760,352 |
|
|
|
712,208 |
|
Retained earnings |
|
|
6,539,890 |
|
|
|
6,041,429 |
|
Accumulated other comprehensive loss |
|
|
(277,986 |
) |
|
|
(68,768 |
) |
Treasury stock, 175,148,403 and 163,942,358 shares |
|
|
(4,337,729 |
) |
|
|
(4,041,058 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
3,449,702 |
|
|
|
3,408,986 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
10,216,619 |
|
|
$ |
10,082,293 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
41
SYSCO
CONSOLIDATED RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
June 27, 2009 |
|
|
June 28, 2008 |
|
|
June 30, 2007 |
|
|
|
(In thousands except for share data) |
|
Sales |
|
$ |
36,853,330 |
|
|
$ |
37,522,111 |
|
|
$ |
35,042,075 |
|
Cost of sales |
|
|
29,816,999 |
|
|
|
30,327,254 |
|
|
|
28,284,603 |
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
7,036,331 |
|
|
|
7,194,857 |
|
|
|
6,757,472 |
|
Operating expenses |
|
|
5,164,120 |
|
|
|
5,314,908 |
|
|
|
5,048,990 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,872,211 |
|
|
|
1,879,949 |
|
|
|
1,708,482 |
|
Interest expense |
|
|
116,322 |
|
|
|
111,541 |
|
|
|
105,002 |
|
Other income, net |
|
|
(14,945 |
) |
|
|
(22,930 |
) |
|
|
(17,735 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
1,770,834 |
|
|
|
1,791,338 |
|
|
|
1,621,215 |
|
Income taxes |
|
|
714,886 |
|
|
|
685,187 |
|
|
|
620,139 |
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
1,055,948 |
|
|
$ |
1,106,151 |
|
|
$ |
1,001,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
1.77 |
|
|
$ |
1.83 |
|
|
$ |
1.62 |
|
Diluted earnings per share |
|
|
1.77 |
|
|
|
1.81 |
|
|
|
1.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
|
$ |
0.94 |
|
|
$ |
0.85 |
|
|
$ |
0.74 |
|
See Notes to Consolidated Financial Statements
42
SYSCO
CONSOLIDATED SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
Comprehensive |
|
|
Treasury Stock |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Paid-in Capital |
|
|
Retained Earnings |
|
|
Income (Loss) |
|
|
Shares |
|
|
Amounts |
|
|
Totals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands except for share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July
1, 2006 |
|
|
765,174,900 |
|
|
$ |
765,175 |
|
|
$ |
525,684 |
|
|
$ |
4,999,440 |
|
|
$ |
84,618 |
|
|
|
146,279,320 |
|
|
$ |
3,322,633 |
|
|
$ |
3,052,284 |
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,001,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,001,076 |
|
Minimum pension
liability
adjustment, net of
tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,469 |
|
|
|
|
|
|
|
|
|
|
|
3,469 |
|
Foreign currency
translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,052 |
|
|
|
|
|
|
|
|
|
|
|
25,052 |
|
Amortization of
cash flow hedge,
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
428 |
|
|
|
|
|
|
|
|
|
|
|
428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,030,025 |
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(456,438 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(456,438 |
) |
Treasury stock
purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,501,200 |
|
|
|
559,788 |
|
|
|
(559,788 |
) |
Share-based
compensation awards |
|
|
|
|
|
|
|
|
|
|
111,470 |
|
|
|
|
|
|
|
|
|
|
|
(9,445,997 |
) |
|
|
(218,475 |
) |
|
|
329,945 |
|
Adoption of SFAS
158 recognition
provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117,628 |
) |
|
|
|
|
|
|
|
|
|
|
(117,628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June
30, 2007 |
|
|
765,174,900 |
|
|
$ |
765,175 |
|
|
$ |
637,154 |
|
|
$ |
5,544,078 |
|
|
$ |
(4,061 |
) |
|
|
153,334,523 |
|
|
$ |
3,663,946 |
|
|
$ |
3,278,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,106,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,106,151 |
|
Foreign currency
translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,514 |
|
|
|
|
|
|
|
|
|
|
|
30,514 |
|
Amortization of
cash flow hedge,
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
427 |
|
|
|
|
|
|
|
|
|
|
|
427 |
|
Reclassification of
pension and other
postretirement
benefit plans
amounts to net
earnings, net of
tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,873 |
|
|
|
|
|
|
|
|
|
|
|
5,873 |
|
Pension funded
status adjustment,
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(124,301 |
) |
|
|
|
|
|
|
|
|
|
|
(124,301 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,018,664 |
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(513,593 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(513,593 |
) |
Treasury stock
purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,499,900 |
|
|
|
520,255 |
|
|
|
(520,255 |
) |
Share-based
compensation awards |
|
|
|
|
|
|
|
|
|
|
75,054 |
|
|
|
|
|
|
|
|
|
|
|
(5,892,065 |
) |
|
|
(143,143 |
) |
|
|
218,197 |
|
Adoption of FIN 48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(91,635 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(91,635 |
) |
measurement
date provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,572 |
) |
|
|
22,780 |
|
|
|
|
|
|
|
|
|
|
|
19,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June
28, 2008 |
|
|
765,174,900 |
|
|
$ |
765,175 |
|
|
$ |
712,208 |
|
|
$ |
6,041,429 |
|
|
$ |
(68,768 |
) |
|
|
163,942,358 |
|
|
$ |
4,041,058 |
|
|
$ |
3,408,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,055,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,055,948 |
|
Foreign currency
translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84,452 |
) |
|
|
|
|
|
|
|
|
|
|
(84,452 |
) |
Amortization of
cash flow hedge,
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
428 |
|
|
|
|
|
|
|
|
|
|
|
428 |
|
Reclassification of
pension and other
postretirement
benefit plans
amounts to net
earnings, net of
tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,335 |
|
|
|
|
|
|
|
|
|
|
|
13,335 |
|
Pension liability
assumption, net of
tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,450 |
) |
|
|
|
|
|
|
|
|
|
|
(16,450 |
) |
Pension funded
status adjustment,
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(122,079 |
) |
|
|
|
|
|
|
|
|
|
|
(122,079 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
846,730 |
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(557,487 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(557,487 |
) |
Treasury stock
purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,951,200 |
|
|
|
438,842 |
|
|
|
(438,842 |
) |
Share-based
compensation awards |
|
|
|
|
|
|
|
|
|
|
48,144 |
|
|
|
|
|
|
|
|
|
|
|
(5,745,155 |
) |
|
|
(142,171 |
) |
|
|
190,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June
27, 2009 |
|
|
765,174,900 |
|
|
$ |
765,175 |
|
|
$ |
760,352 |
|
|
$ |
6,539,890 |
|
|
$ |
(277,986 |
) |
|
|
175,148,403 |
|
|
$ |
4,337,729 |
|
|
$ |
3,449,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
43
SYSCO
CONSOLIDATED CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
June 27, 2009 |
|
|
June 28, 2008 |
|
|
June 30, 2007 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
1,055,948 |
|
|
$ |
1,106,151 |
|
|
$ |
1,001,076 |
|
Adjustments to reconcile net earnings to cash provided by operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
|
56,030 |
|
|
|
80,650 |
|
|
|
97,985 |
|
Depreciation and amortization |
|
|
382,339 |
|
|
|
372,529 |
|
|
|
362,559 |
|
Deferred tax (benefit) provision |
|
|
(294,162 |
) |
|
|
643,480 |
|
|
|
545,971 |
|
Provision for losses on receivables |
|
|
74,638 |
|
|
|
32,184 |
|
|
|
28,156 |
|
(Gain) on sale of assets |
|
|
(3,586 |
) |
|
|
(2,747 |
) |
|
|
(6,279 |
) |
Additional investment in certain assets and liabilities, net of effect of
businesses acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in receivables |
|
|
188,748 |
|
|
|
(128,017 |
) |
|
|
(134,153 |
) |
Decrease (increase) in inventories |
|
|
177,590 |
|
|
|
(110,925 |
) |
|
|
(95,932 |
) |
(Increase) decrease in prepaid expenses
and other current assets |
|
|
(678 |
) |
|
|
59,896 |
|
|
|
(62,773 |
) |
(Decrease) increase in accounts payable |
|
|
(192,692 |
) |
|
|
54,451 |
|
|
|
85,422 |
|
(Decrease) increase in accrued expenses |
|
|
(120,314 |
) |
|
|
(22,721 |
) |
|
|
132,936 |
|
Increase (decrease) in accrued income taxes |
|
|
325,482 |
|
|
|
(509,783 |
) |
|
|
(491,993 |
) |
(Increase) decrease in other assets |
|
|
(15,701 |
) |
|
|
11,926 |
|
|
|
(36,426 |
) |
(Decrease) increase in other long-term
liabilities and prepaid pension cost, net |
|
|
(48,380 |
) |
|
|
13,459 |
|
|
|
(14,817 |
) |
Excess tax benefits from share-based
compensation arrangements |
|
|
(2,921 |
) |
|
|
(4,404 |
) |
|
|
(8,810 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
1,582,341 |
|
|
|
1,596,129 |
|
|
|
1,402,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Additions to plant and equipment |
|
|
(464,561 |
) |
|
|
(515,963 |
) |
|
|
(603,242 |
) |
Proceeds from sales of plant and equipment |
|
|
25,244 |
|
|
|
13,320 |
|
|
|
16,008 |
|
Acquisition of businesses, net of cash acquired |
|
|
(218,075 |
) |
|
|
(55,259 |
) |
|
|
(59,322 |
) |
(Increase) decrease in restricted cash |
|
|
(1,271 |
) |
|
|
2,342 |
|
|
|
(2,155 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(658,663 |
) |
|
|
(555,560 |
) |
|
|
(648,711 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Bank and commercial paper borrowings (repayments), net |
|
|
|
|
|
|
(550,726 |
) |
|
|
121,858 |
|
Other debt borrowings |
|
|
506,611 |
|
|
|
757,972 |
|
|
|
5,290 |
|
Other debt repayments |
|
|
(10,173 |
) |
|
|
(7,628 |
) |
|
|
(109,656 |
) |
Debt issuance costs |
|
|
(3,693 |
) |
|
|
(4,192 |
) |
|
|
(7 |
) |
Common stock reissued from treasury |
|
|
111,780 |
|
|
|
128,238 |
|
|
|
221,736 |
|
Treasury stock purchases |
|
|
(438,843 |
) |
|
|
(529,179 |
) |
|
|
(550,865 |
) |
Dividends paid |
|
|
(548,246 |
) |
|
|
(497,467 |
) |
|
|
(445,416 |
) |
Excess tax benefits from share-based compensation arrangements |
|
|
2,921 |
|
|
|
4,404 |
|
|
|
8,810 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities |
|
|
(379,643 |
) |
|
|
(698,578 |
) |
|
|
(748,250 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash |
|
|
(8,503 |
) |
|
|
1,689 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
535,532 |
|
|
|
343,680 |
|
|
|
5,975 |
|
Cash and cash equivalents at beginning of period |
|
|
551,552 |
|
|
|
207,872 |
|
|
|
201,897 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
1,087,084 |
|
|
$ |
551,552 |
|
|
$ |
207,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
108,608 |
|
|
$ |
98,330 |
|
|
$ |
107,109 |
|
Income taxes |
|
|
735,772 |
|
|
|
530,169 |
|
|
|
563,968 |
|
See Notes to Consolidated Financial Statements
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
Business and Consolidation
Sysco Corporation, acting through its subsidiaries and divisions, (Sysco or the company),
is engaged in the marketing and distribution of a wide range of food and related products primarily
to the foodservice or food-away-from-home industry. These services are performed for
approximately 400,000 customers from 186 distribution facilities located throughout the United
States, Canada and Ireland.
The accompanying financial statements include the accounts of Sysco and its consolidated
subsidiaries. All significant intercompany transactions and account balances have been eliminated.
The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates that affect the reported amounts of assets,
liabilities, sales and expenses. Actual results could differ from the estimates used.
Subsequent Events
Sysco has evaluated subsequent events through the date these financial statements were
issued, August 25, 2009. See Note 22, Subsequent Events.
Cash and Cash Equivalents
For cash flow purposes, cash includes cash equivalents such as time deposits,
certificates of deposit, short-term investments and all highly liquid instruments with original
maturities of three months or less, which are recorded at fair value.
Accounts Receivable
Accounts receivable consist primarily of trade receivables from customers and receivables
from suppliers for marketing or incentive programs. Sysco determines the past due status of trade
receivables based on contractual terms with each customer. Sysco evaluates the collectability of
accounts receivable and determines the appropriate reserve for doubtful accounts based on a
combination of factors. The company utilizes specific criteria to determine uncollectible
receivables to be written off including whether a customer has filed for or 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 an analysis
of historical trends of write-offs and recoveries. In addition, in circumstances where the company
is aware of a specific customers inability to meet its financial obligation to Sysco, a specific
allowance for doubtful accounts is recorded to reduce the receivable to the net amount reasonably
expected to be collected. In addition, allowances are recorded for all other receivables based on
an analysis of historical trends of write-offs and recoveries.
Inventories
Inventories consisting primarily of finished goods include food and related products and
lodging products held for resale and are valued at the lower of cost (first-in, first-out method)
or market. Elements of costs include the purchase price of the product and freight charges to
deliver the product to the companys warehouses and are net of certain cash or non-cash
consideration received from vendors (see Vendor Consideration).
Plant and Equipment
Capital additions, improvements and major replacements are classified as plant and
equipment and are carried at cost. Depreciation is recorded using the straight-line method, which
reduces the book value of each asset in equal amounts over its estimated useful life, and is
included within operating expenses in the consolidated results of operations. Maintenance, repairs
and minor replacements are charged to earnings when they are incurred. Upon the disposition of an
asset, its accumulated depreciation is deducted from the original cost, and any gain or loss is
reflected in current earnings.
Applicable interest charges incurred during the construction of new facilities and development
of software for internal use are capitalized as one of the elements of cost and are amortized over
the assets estimated useful lives. Interest capitalized for the past three fiscal years was
$3,531,000 in 2009, $6,805,000 in 2008 and $3,955,000 in 2007.
Long-Lived Assets
Management reviews long-lived assets, including finite-lived intangibles, for indicators
of impairment whenever events or changes in circumstances indicate that the carrying value may not
be recoverable. Cash flows expected to be generated by the related assets are estimated over the
assets useful life based on updated projections. If the evaluation indicates that the carrying
45
value of the asset may not be recoverable, the potential impairment is measured based on a
projected discounted cash flow model.
Goodwill and Intangibles
Goodwill and intangibles represent the excess of cost over the fair value of tangible net
assets acquired. Goodwill and intangibles with indefinite lives are not amortized. Intangibles with
definite lives are amortized on a straight-line basis over their useful lives, which generally
range from three to ten years.
Goodwill is assigned to the reporting units that are expected to benefit from the synergies of
a business combination. The recoverability of goodwill and indefinite-lived intangibles is assessed
annually, or more frequently as needed when events or changes have occurred that would suggest an
impairment of carrying value, by determining whether the fair values of the applicable reporting
units exceed their carrying values. The reporting units used to assess goodwill impairment are the
companys six operating segments as described in Note 20, Business Segment Information. The
components within each of the six operating segments have similar economic characteristics and
therefore are aggregated into six reporting units. The evaluation of fair value requires the use of
projections, estimates and assumptions as to the future performance of the operations in performing
a discounted cash flow analysis, as well as assumptions regarding sales and earnings multiples that
would be applied in comparable acquisitions.
Derivative Financial Instruments
All derivatives are recognized as assets or liabilities within the consolidated balance
sheets at fair value. Gains or losses on derivative financial instruments designated as fair value
hedges are recognized immediately in the consolidated results of operations, along with the
offsetting gain or loss related to the underlying hedged item.
Gains or losses on derivative financial instruments designated as cash flow hedges are
recorded as a separate component of shareholders equity at their settlement, whereby gains or
losses are reclassified to the Consolidated Results of Operations in conjunction with the
recognition of the underlying hedged item.
In the normal course of business, Sysco enters into forward purchase agreements for the
procurement of fuel, electricity and product commodities related to Syscos business. These
agreements meet the definition of a derivative. However, the company elected to use the normal
purchase and sale exemption available under derivatives accounting literature; therefore, these
agreements are not recorded at fair value.
Investments in Corporate-Owned Life Insurance
Investments in corporate-owned life insurance policies are recorded at their cash
surrender values as of each balance sheet date. Changes in the cash surrender value during the
period are recorded as a gain or loss within operating expenses. The company does not record
deferred tax balances related to cash surrender value gains or losses, as Sysco has the intent to
hold these policies to maturity. The total amounts related to the companys investments in
corporate-owned life insurance policies included in other assets in the consolidated balance sheets
were $177,996,000 and $178,731,000 at June 27, 2009 and June 28, 2008, respectively.
Treasury Stock
The company records treasury stock purchases at cost. Shares removed from treasury are
valued at cost using the average cost method.
Foreign Currency Translation
The assets and liabilities of all foreign subsidiaries are translated at current exchange
rates. Related translation adjustments are recorded as a component of accumulated other
comprehensive income (loss).
Revenue Recognition
The company recognizes revenue from the sale of a product when it is considered to be
realized or realizable and earned. The company determines these requirements to be met at the point
at which the product is delivered to the customer. The company grants certain customers sales
incentives such as rebates or discounts and treats these as a reduction of sales at the time the
sale is recognized. Sales tax collected from customers is not included in revenue but rather
recorded as a liability due to the respective taxing authorities. Purchases and sales of inventory
with the same counterparty that are entered into in contemplation of one another are considered to
be a single nonmonetary transaction. As such, the company records the net effect of such
transactions in the consolidated results of operations within sales.
46
Vendor Consideration
Sysco recognizes 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 as a reduction to cost of sales. There are several types of cash consideration received from
vendors. In many instances, the vendor consideration is in the form of a specified amount per case
or per pound. In these instances, Sysco will recognize the vendor consideration as a reduction of
cost of sales when the product is sold. In the situations in which the vendor consideration is not
related directly to specific product purchases, Sysco will recognize these as a reduction of cost
of sales when the earnings process is complete, the related service is performed and the amounts
are realized. In certain of these latter instances, the vendor consideration represents a
reimbursement of a specific incremental identifiable cost incurred by Sysco. In these cases, Sysco
classifies the consideration as a reduction of those costs, with any excess funds classified as a
reduction of cost of sales and recognizes these in the period in which the costs are incurred and
related services performed.
Shipping and Handling Costs
Shipping and handling costs include costs associated with the selection of products and
delivery to customers. Included in operating expenses are shipping and handling costs of
approximately $2,136,836,000 in fiscal 2009, $2,155,794,000 in fiscal 2008, and $1,977,516,000 in
fiscal 2007.
Insurance Program
Sysco maintains a self-insurance program covering portions of workers compensation,
general and vehicle liability costs. The amounts in excess of the self-insured levels are fully
insured by third party insurers. The company also maintains 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.
Share-Based Compensation
Sysco recognizes expense for its share-based compensation based on the fair value of the
awards that are granted. The fair value of the stock options is estimated at the date of grant
using the Black-Scholes option pricing model. Option pricing methods require the input of highly
subjective assumptions, including the expected stock price volatility. The fair value of restricted
stock awards is based on the companys stock price on the date of grant. Measured compensation
cost is recognized ratably over the vesting period of the related share-based compensation award.
Cash flows resulting from tax deductions in excess of the compensation cost recognized for those
options (excess tax benefits) are classified as financing cash flows on the consolidated cash flows
statements.
Acquisitions
Acquisitions of businesses are accounted for using the purchase method of accounting, and
the financial statements include the results of the acquired operations from the respective dates
of acquisition.
The purchase price of the acquired entities is allocated to the net assets acquired and
liabilities assumed based on the estimated fair value at the dates of acquisition, with any excess
of cost over the fair value of net assets acquired, including intangibles, recognized as goodwill.
The balances included in the consolidated balance sheets related to recent acquisitions are based
upon preliminary information and are subject to change when final asset and liability valuations
are obtained. Material changes to the preliminary allocations are not anticipated by management.
2. CHANGES IN ACCOUNTING
SFAS 165 Adoption
In May 2009, the FASB issued SFAS No. 165, Subsequent Events ( SFAS 165), which
established general standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available to be issued.
Specifically, the standard sets forth the period after the balance sheet date during which
management should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that occurred after the balance
sheet date. This standard became effective for Sysco for its fiscal year ending June 27, 2009.
The company has included the required disclosures for this standard in Note 1, Summary of
Accounting Policies.
SFAS 161
As of the third quarter of fiscal 2009, SFAS No. 161, Disclosure about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161) became
effective for Sysco. SFAS 161 requires enhanced disclosures about an entitys derivative and
hedging activities and thereby improves the transparency of financial reporting. The company
47
has determined that no additional disclosures were necessary upon adoption but will continue
to assess the need for additional disclosures in future periods.
SFAS 157
As of June 29, 2008, Sysco adopted the provisions of FASB Statement No. 157, Fair Value
Measurements (SFAS 157), for financial assets and liabilities carried at fair value and
non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring
basis. SFAS 157 establishes a common definition for fair value under generally accepted accounting
principles, establishes a framework for measuring fair value and expands disclosure requirements
about such fair value measurements. The adoption of SFAS 157 for financial assets and liabilities
carried at fair value and non-financial assets and liabilities that are recognized or disclosed at
fair value on a recurring basis did not have a material impact on the companys financial
statements. See also the discussion of FASB Staff Position 157-2, Effective Date of FASB Statement
No. 157, in Note 3, New Accounting Standards.
FIN 48
Effective July 1, 2007, Sysco adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109 (FIN 48), which
clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No.
109, Accounting for Income Taxes (SFAS 109). FIN 48 clarifies the application of SFAS 109 by
defining criteria that an individual tax position must meet for any part of the benefit of that
position to be recognized in the financial statements. Additionally, FIN 48 provides guidance on
the measurement, derecognition, classification and disclosure of tax positions, along with
accounting for the related interest and penalties. The impact of adopting this standard is
discussed in Note 17, Income Taxes.
SFAS 158
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106,
and 132(R) (SFAS 158). SFAS 158 has two major provisions: the recognition and disclosure provision
and the measurement date provision. Sysco previously adopted SFAS 158s recognition and
disclosure requirements as of June 30, 2007. The measurement date provision requires an employer to
measure a plans assets and obligations as of the end of the employers fiscal year. Sysco elected
to early adopt the measurement date provision as of June 30, 2007 in order to adopt both provisions
of this accounting standard at the same time. As a result, beginning in fiscal 2008, the
measurement date for all plans returned to correspond with fiscal year-end. The company performed
measurements as of May 31, 2007 and June 30, 2007 of the plan assets and benefit obligations.
Sysco recorded a charge to beginning retained earnings on July 1, 2007 of $3,572,000, net of tax,
for the impact of the difference in our company-sponsored pension expense between the two
measurement dates. The company also recorded a benefit to beginning accumulated other
comprehensive income (loss) on July 1, 2007 of $22,780,000, net of tax, for the impact of the
difference in the recognition provision between the two measurement dates.
3. NEW ACCOUNTING STANDARDS
SFAS 141(R)
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)),
which establishes principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed and any
noncontrolling interest in a business combination. This statement also establishes recognition and
measurement principles for the goodwill acquired in a business combination and disclosure
requirements to enable financial statement users to evaluate the nature and financial effects of
the business combination. Sysco will apply this statement primarily on a prospective basis for
business combinations beginning in fiscal 2010. Earlier application of the standard was
prohibited.
FSP 157-2
In February 2008, the FASB issued FASB Staff Position 157-2, Effective Date of FASB
Statement No. 157 (FSP 157-2), which partially deferred the effective date of SFAS No. 157 for one
year for non-financial assets and liabilities that are recognized or disclosed at fair value in the
financial statements on a non-recurring basis. As a result of the deferral, SFAS 157 is effective
in fiscal 2010 for non-recurring, non-financial assets and liabilities that are recognized or
disclosed at fair value. Syscos only non-recurring, non-financial asset fair value measurements
are those used in its annual test of recoverability of goodwill and indefinite-lived intangibles,
in which it determines whether estimated fair values of the applicable reporting units exceed their
carrying values. The company will apply the provisions of SFAS 157 in fiscal 2010 to this fair
value estimation.
48
FSP EITF 03-06-1
In June 2008, the FASB issued FASB Staff Position No. EITF 03-06-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF
03-06-1). FSP EITF 03-06-1 addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and, therefore, need to be included in
the earnings allocation in computing earnings per share under the two-class method described in
FASB Statement No. 128, Earnings per Share. This standard will be effective for Sysco beginning
in fiscal 2010 and interim periods within that year. All prior-period earnings per share data
presented in filings subsequent to adoption must be adjusted retrospectively to conform with the
provisions of this standard. Early application of FSP EITF 03-06-1 was not permitted. Sysco is
currently evaluating the impact the adoption of FSP EITF 03-06-1 will have on its consolidated
financial statements.
FSP FAS 132(R)-1
In December 2008, the FASB issued FASB Staff Position No. FAS 132(R)-1, Employers
Disclosures about Postretirement Benefit Plan Assets (FSP FAS 132(R)-1). FSP FAS 132(R)-1 amends
SFAS No. 132(R), Employers Disclosures about Pensions and Other Postretirement Benefits, to
require additional disclosures about assets held in an employers defined benefit pension or other
postretirement plan. This standard will be effective for Sysco in fiscal 2010, although early
application of the standard is permitted. Upon initial application, the information required by
FSP FAS 132(R)-1 is not required for earlier periods that are presented for comparative purposes.
The company will adopt this standard in fiscal 2010 and is currently evaluating the impact the
adoption of FSP FAS 132(R)-1 will have on its annual financial statement disclosures.
FSP FAS 141(R)-1
In April 2009, the FASB issued FASB Staff Position No. FAS 141(R)-1, Accounting for
Assets and Liabilities Assumed in a Business Combination That Arise From Contingencies (FSP FAS
141(R)-1). FSP FAS 141(R)-1 amends and clarifies SFAS No. 141(R), Business Combinations, to
address application issues raised by preparers, auditors, and members of the legal profession on
initial recognition and measurement, subsequent measurement and accounting, and disclosure of
assets and liabilities arising from contingencies in a business combination. Sysco will apply this
standard on a prospective basis for business combinations beginning in fiscal 2010.
FSP FAS 107-1 and APB 28-1
In April 2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1). FSP FAS 107-1
and APB 28-1 amend FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments,
and APB Opinion No. 28, Interim Financial Reporting, to require disclosures about the fair value
of financial instruments for interim reporting periods of publicly traded companies. Prior
disclosure requirements only applied to annual financial statements. This standard is effective
for interim reporting periods ending after June 15, 2009, which is the first quarter of fiscal 2010
for Sysco. The company will provide the disclosures about the fair value of financial instruments
required by FSP FAS 107-1 and APB 28-1 in its interim financial statement disclosures beginning in
fiscal 2010.
4. FAIR VALUE MEASUREMENTS
Cash equivalents primarily include time deposits, certificates of deposit, short-term
investments and all highly liquid instruments with original maturities of three months or less.
The fair values of cash equivalents reflected in the consolidated balance sheets were $839,554,000
and $341,958,000 as of June 27, 2009 and June 28, 2008, respectively. Pursuant to SFAS 157, the
fair value of the companys cash equivalents is determined based on Level 1 inputs, which consist
of quoted prices in active markets for identical assets. As of these dates, the company held no
other assets or liabilities requiring fair value measurement or disclosure.
The fair value of Syscos total long-term debt is estimated based on the quoted market prices
for the same or similar issues or on the current rates offered to the company for debt of the same
remaining maturities. The fair value of total long-term debt approximated $2,548,861,000 as of June
27, 2009 and $1,928,595,000 as of June 28, 2008, respectively. See further discussion of the
carrying value of Syscos total-long-term debt at Note 11, Debt.
49
5. ALLOWANCE FOR DOUBTFUL ACCOUNTS
A summary of the activity in the allowance for doubtful accounts appears below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Balance at beginning of period |
|
$ |
31,730,000 |
|
|
$ |
31,841,000 |
|
|
$ |
29,100,000 |
|
Charged to costs and expenses |
|
|
74,638,000 |
|
|
|
32,184,000 |
|
|
|
28,156,000 |
|
Allowance accounts resulting from acquisitions
and other |
|
|
1,587,000 |
|
|
|
72,000 |
|
|
|
595,000 |
|
Customer accounts written off, net of recoveries |
|
|
(71,877,000 |
) |
|
|
(32,367,000 |
) |
|
|
(26,010,000 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
36,078,000 |
|
|
$ |
31,730,000 |
|
|
$ |
31,841,000 |
|
|
|
|
|
|
|
|
|
|
|
6. PLANT AND EQUIPMENT
A summary of plant and equipment, including the related accumulated depreciation, appears
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 27, 2009 |
|
|
June 28, 2008 |
|
|
Estimated Useful Lives |
|
Plant and equipment, at cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Land |
|
$ |
307,328,000 |
|
|
$ |
270,157,000 |
|
|
|
|
|
Buildings and improvements |
|
|
2,818,300,000 |
|
|
|
2,652,091,000 |
|
|
10-30 years |
Fleet and equipment |
|
|
2,072,116,000 |
|
|
|
2,029,964,000 |
|
|
3-10 years |
Computer hardware and software |
|
|
569,669,000 |
|
|
|
512,271,000 |
|
|
3-6 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,767,413,000 |
|
|
|
5,464,483,000 |
|
|
|
|
|
Accumulated depreciation |
|
|
(2,788,213,000 |
) |
|
|
(2,574,693,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net plant and equipment |
|
$ |
2,979,200,000 |
|
|
$ |
2,889,790,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense, including capital leases, for the past three years was $361,062,000 in
2009, $352,569,000 in 2008 and $341,714,000 in 2007.
7. GOODWILL AND OTHER INTANGIBLES
The changes in the carrying amount of goodwill and the amount allocated by reportable segment
for the years presented are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadline |
|
|
SYGMA |
|
|
Other |
|
|
Total |
|
Carrying amount as of June 30, 2007 |
|
$ |
740,305,000 |
|
|
$ |
32,609,000 |
|
|
$ |
582,399,000 |
|
|
$ |
1,355,313,000 |
|
Goodwill acquired during year |
|
|
11,537,000 |
|
|
|
|
|
|
|
33,861,000 |
|
|
|
45,398,000 |
|
Currency translation/Other |
|
|
12,518,000 |
|
|
|
|
|
|
|
(5,000 |
) |
|
|
12,513,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount as of June 28, 2008 |
|
|
764,360,000 |
|
|
|
32,609,000 |
|
|
|
616,255,000 |
|
|
|
1,413,224,000 |
|
Goodwill acquired during year |
|
|
109,406,000 |
|
|
|
|
|
|
|
22,107,000 |
|
|
|
131,513,000 |
|
Currency translation/Other |
|
|
(33,954,000 |
) |
|
|
|
|
|
|
12,000 |
|
|
|
(33,942,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
amount as of June 27, 2009 |
|
$ |
839,812,000 |
|
|
$ |
32,609,000 |
|
|
$ |
638,374,000 |
|
|
$ |
1,510,795,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized intangible assets acquired during fiscal 2009 were $46,380,000 with a
weighted-average amortization period of seven years. By intangible asset category, the amortized
intangible assets acquired during fiscal 2009 were: customer relationships of $44,331,000 with a
weighted-average amortization period of seven years, non-compete agreements of $958,000 with a
weighted-average amortization period of seven years, amortized trademarks of $1,091,000 with a
weighted-average amortization period of ten years. Non-amortized trademarks acquired during fiscal
2009 were $6,747,000.
50
The following table presents details of the companys other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 27, 2009 |
|
|
June 28, 2008 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
162,652,000 |
|
|
$ |
56,192,000 |
|
|
$ |
106,460,000 |
|
|
$ |
123,605,000 |
|
|
$ |
43,756,000 |
|
|
$ |
79,849,000 |
|
Non-compete agreements |
|
|
3,733,000 |
|
|
|
1,981,000 |
|
|
|
1,752,000 |
|
|
|
4,163,000 |
|
|
|
2,443,000 |
|
|
|
1,720,000 |
|
Trademarks |
|
|
1,547,000 |
|
|
|
471,000 |
|
|
|
1,076,000 |
|
|
|
500,000 |
|
|
|
220,000 |
|
|
|
280,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortized intangible
assets |
|
|
167,932,000 |
|
|
|
58,644,000 |
|
|
|
109,288,000 |
|
|
|
128,268,000 |
|
|
|
46,419,000 |
|
|
|
81,849,000 |
|
Unamortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
11,801,000 |
|
|
|
|
|
|
|
11,801,000 |
|
|
|
5,679,000 |
|
|
|
|
|
|
|
5,679,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
179,733,000 |
|
|
$ |
58,644,000 |
|
|
$ |
121,089,000 |
|
|
$ |
133,947,000 |
|
|
$ |
46,419,000 |
|
|
$ |
87,528,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets that have been fully amortized have been removed in the schedule above in
the period full amortization is reached. Amortization expense for the past three years was
$15,746,000 in 2009, $13,865,000 in 2008 and $12,711,000 in 2007. The estimated future amortization
expense for the next five fiscal years on intangible assets outstanding as of June 27, 2009 is
shown below:
|
|
|
|
|
|
|
Amount |
2010
|
|
$ |
20,055,000 |
|
2011
|
|
|
19,569,000 |
|
2012
|
|
|
19,005,000 |
|
2013
|
|
|
17,048,000 |
|
2014
|
|
|
15,994,000 |
|
8. RESTRICTED CASH
Sysco is required by its insurers to collateralize a part of the self-insured portion of its
workers compensation and liability claims. Sysco has chosen to satisfy these collateral
requirements by depositing funds in insurance trusts or by issuing letters of credit. All amounts
in restricted cash at June 27, 2009 and June 28, 2008 represented funds deposited in insurance
trusts.
9. DERIVATIVE FINANCIAL INSTRUMENTS
Sysco manages its debt portfolio by targeting an overall desired position of fixed and
floating rates and may employ interest rate swaps from time to time to achieve this goal. The
company does not use derivative financial instruments for trading or speculative purposes.
In March 2005, Sysco entered into a forward-starting interest rate swap with a notional amount
of $350,000,000. In accordance with derivatives accounting literature, the company designated this
derivative as a cash flow hedge of the variability in the cash outflows of interest payments on
$350,000,000 of the September 2005 forecasted debt issuance due to changes in the benchmark
interest rate. In September 2005, in conjunction with the issuance of the 5.375% senior notes,
Sysco settled the $350,000,000 notional amount forward-starting interest rate swap. Upon
settlement, Sysco paid cash of $21,196,000, which represented the fair value of the swap agreement
at the time of settlement. This amount is being amortized as interest expense over the 30-year term
of the debt, and the unamortized balance is reflected as a loss, net of tax, in other comprehensive
income (loss).
10. SELF-INSURED LIABILITIES
Sysco maintains a self-insurance program covering portions of workers compensation, general
and vehicle liability costs. The amounts in excess of the self-insured levels are fully insured by
third party insurers. The company also maintains a fully self-insured group medical program. A
summary of the activity in self-insured liabilities appears below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Balance at beginning of period |
|
$ |
117,725,000 |
|
|
$ |
125,844,000 |
|
|
$ |
115,557,000 |
|
Charged to costs and expenses |
|
|
353,252,000 |
|
|
|
306,571,000 |
|
|
|
302,812,000 |
|
Payments |
|
|
(338,426,000 |
) |
|
|
(314,690,000 |
) |
|
|
(292,525,000 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
132,551,000 |
|
|
$ |
117,725,000 |
|
|
$ |
125,844,000 |
|
|
|
|
|
|
|
|
|
|
|
51
11. DEBT AND OTHER FINANCING ARRANGEMENTS
Syscos debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 27, 2009 |
|
|
June 28, 2008 |
|
Senior notes, interest at 6.1%, maturing in fiscal 2012 |
|
$ |
200,279,000 |
|
|
$ |
200,372,000 |
|
Senior notes, interest at 4.2%, maturing in fiscal 2013 |
|
|
249,702,000 |
|
|
|
249,619,000 |
|
Senior notes, interest at 4.6%, maturing in fiscal 2014 |
|
|
205,219,000 |
|
|
|
206,331,000 |
|
Senior notes, interest at 5.25%, maturing in fiscal 2018 |
|
|
497,028,000 |
|
|
|
496,683,000 |
|
Senior notes, interest at 5.375%, maturing in fiscal 2019 |
|
|
248,351,000 |
|
|
|
|
|
Debentures, interest at 7.16%, maturing in fiscal 2027 |
|
|
50,000,000 |
|
|
|
50,000,000 |
|
Debentures, interest at 6.5%, maturing in fiscal 2029 |
|
|
224,546,000 |
|
|
|
224,522,000 |
|
Senior notes, interest at 5.375%, maturing in fiscal 2036 |
|
|
499,611,000 |
|
|
|
499,596,000 |
|
Senior notes, interest at 6.625%, maturing in fiscal 2039 |
|
|
245,199,000 |
|
|
|
|
|
Industrial Revenue Bonds and other debt, interest averaging
5.9% as of June 27, 2009 and 6.2% as of June 28, 2008,
maturing at various dates to fiscal 2026 |
|
|
56,714,000 |
|
|
|
53,208,000 |
|
|
|
|
|
|
|
|
Total debt |
|
|
2,476,649,000 |
|
|
|
1,980,331,000 |
|
Less current maturities and short-term debt |
|
|
(9,163,000 |
) |
|
|
(4,896,000 |
) |
|
|
|
|
|
|
|
Net long-term debt |
|
$ |
2,467,486,000 |
|
|
$ |
1,975,435,000 |
|
|
|
|
|
|
|
|
The principal payments required to be made during the next five fiscal years on debt
outstanding as of June 27, 2009 are shown below:
|
|
|
|
|
|
|
Amount |
2010
|
|
$ |
9,163,000 |
|
2011
|
|
|
6,646,000 |
|
2012
|
|
|
204,390,000 |
|
2013
|
|
|
252,314,000 |
|
2014
|
|
|
206,887,000 |
|
Short-term Borrowings
As of June 27, 2009, Sysco had uncommitted bank lines of credit, which provided for
unsecured borrowings for working capital of up to $88,000,000, of which none was outstanding. As
of June 28, 2008, Sysco had uncommitted bank lines of credit, which provided for unsecured
borrowings of working capital of up to $145,000,000, of which none was outstanding.
The companys Irish subsidiary, Pallas Foods Limited, has a 20,000,000 (Euro) committed
facility for unsecured borrowings for working capital, which expires March 31, 2010. There were no
borrowings outstanding under this facility as of June 27, 2009.
Commercial Paper
Sysco has a Board-approved commercial paper program allowing the company to issue
short-term unsecured notes in an aggregate amount not to exceed $1,300,000,000.
Sysco and one of its subsidiaries, Sysco International, Co., have a revolving credit facility
supporting the companys U.S. and Canadian commercial paper programs. The facility in the amount
of $1,000,000,000 expires on November 4, 2012, but is subject to extension.
During fiscal 2009, 2008 and 2007, aggregate outstanding commercial paper issuances and
short-term bank borrowings ranged from approximately zero to $164,998,000, zero to $1,113,241,000,
and $356,804,000 to $755,180,000, respectively. There were no commercial paper issuances
outstanding as of June 27, 2009 and June 28, 2008, respectively.
Fixed Rate Debt
In April 2007, Sysco repaid the 7.25% senior notes totaling $100,000,000 at maturity
utilizing a combination of cash flow from operations and commercial paper issuances.
In January 2008, the SEC granted our request to terminate our then existing shelf registration
statement that was filed with the SEC in April 2005 for the issuance of debt securities. In
February 2008, we filed an automatically effective well-known seasoned issuer shelf registration
statement for the issuance of up to $1,000,000,000 in debt securities with the SEC.
52
In February 2008, we issued 4.20% senior notes totaling $250,000,000 due February 12, 2013
(the 2013 notes) and 5.25% senior notes totaling $500,000,000 due February 12, 2018 (the 2018
notes) under our February 2008 shelf registration. The 2013 and 2018 notes, which were priced at
99.835% and 99.310% of par, respectively, are unsecured, are not subject to any sinking fund
requirement and include a redemption provision which allows us to retire the notes at any time
prior to maturity at the greater of par plus accrued interest or an amount designed to ensure that
the note holders are not penalized by the early redemption. Proceeds from the notes were utilized
to retire commercial paper issuances outstanding as of February 2008.
In February 2009, Sysco deregistered the securities remaining unsold under its then existing
shelf registration statement that was filed with the Securities and Exchange Commission (SEC) in
February 2008 for the issuance of debt securities. In February 2009, Sysco filed with the SEC an
automatically effective well-known seasoned issuer shelf registration statement for the issuance of
an indeterminate amount of debt securities that may be issued from time to time.
In March 2009, Sysco issued 5.375% senior notes totaling $250,000,000 due March 17, 2019 (the
2019 notes) and 6.625% senior notes totaling $250,000,000 due March 17, 2039 (the 2039 notes) under
its February 2009 shelf registration. The 2019 and 2039 notes, which were priced at 99.321% and
98.061% of par, respectively, are unsecured, are not subject to any sinking fund requirement and
include a redemption provision which allows Sysco to retire the notes at any time prior to maturity
at the greater of par plus accrued interest or an amount designed to ensure that the noteholders
are not penalized by early redemption. Proceeds from the notes will be utilized over a period of
time for general corporate purposes, which may include acquisitions, refinancing of debt, working
capital, share repurchases and capital expenditures.
The 4.60% senior notes due March 15, 2014 and the 6.5% debentures due August 1, 2028 are
unsecured, are not subject to any sinking fund requirement and include a redemption provision that
allows Sysco to retire the debentures and notes at any time prior to maturity at the greater of par
plus accrued interest or an amount designed to ensure that the debenture and note holders are not
penalized by the early redemption.
The 7.16% debentures due April 15, 2027 are unsecured, are not subject to any sinking fund
requirement and are no longer redeemable prior to maturity.
The 6.10% senior notes due June 1, 2012, issued by Sysco International, Co., a wholly-owned
subsidiary of Sysco, are fully and unconditionally guaranteed by Sysco Corporation, are not subject
to any sinking fund requirement, and include a redemption provision which allows Sysco
International, Co. to retire the notes at any time prior to maturity at the greater of par plus
accrued interest or an amount designed to ensure that the note holders are not penalized by the
early redemption.
Syscos Industrial Revenue Bonds have varying structures. Final maturities range from two to
17 years and certain of the bonds provide Sysco the right to redeem the bonds at various dates.
These redemption provisions generally provide the bondholder a premium in the early redemption
years, declining to par value as the bonds approach maturity.
Total Debt
Total debt as of June 27, 2009 was $2,476,649,000, of which approximately 99% was at
fixed rates with a weighted average of 5.6% and an average life of 15 years, and the remainder was
at floating rates with a weighted average of 1.3%. Certain loan agreements contain typical debt
covenants to protect note holders, including provisions to maintain the companys long-term debt to
total capital ratio below a specified level. Sysco was in compliance with all debt covenants as of
June 27, 2009.
Other
As of June 27, 2009 and June 28, 2008 letters of credit outstanding were $74,679,000 and
$35,785,000, respectively.
12. LEASES
Although Sysco normally purchases assets, it has obligations under capital and operating
leases for certain distribution facilities, vehicles and computers. Total rental expense under
operating leases was $83,674,000, $95,315,000, and $94,163,000 in fiscal 2009, 2008 and 2007,
respectively. Contingent rentals, subleases and assets and obligations under capital leases are not
significant.
53
Aggregate minimum lease payments by fiscal year under existing non-capitalized long-term
leases are as follows:
|
|
|
|
|
|
|
|
|
Amount |
2010
|
|
|
|
$51,289,000 |
2011
|
|
|
|
39,346,000 |
2012
|
|
|
|
30,621,000 |
2013
|
|
|
|
23,612,000 |
2014
|
|
|
|
18,320,000 |
13. EMPLOYEE BENEFIT PLANS
Sysco has defined benefit and defined contribution retirement plans for its employees. Also,
the company contributes to various multi-employer plans under collective bargaining agreements and
provides certain health care benefits to eligible retirees and their dependents.
Sysco maintains a qualified pension plan (Retirement Plan) that pays benefits to employees at
retirement, using formulas based on a participants years of service and compensation.
The companys defined contribution 401(k) plan provides that under certain circumstances the
company may make matching contributions of up to 50% of the first 6% of a participants
compensation. Syscos expense related to this plan was $30,240,000 in fiscal 2009, $36,212,000 in
fiscal 2008 and $31,901,000 in fiscal 2007.
Syscos contributions to multi-employer pension plans, which include payments for voluntary
withdrawals, were $47,982,000, $36,928,000, and $32,974,000 in fiscal 2009, 2008 and 2007,
respectively. Payments for voluntary withdrawals included in contributions were approximately
$15,000,000 and $4,300,000 in fiscal 2009 and fiscal 2008, respectively. See further discussion of
Syscos participation in multi-employer pension plans in Note 19, Commitments and Contingencies.
In addition to receiving benefits upon retirement under the companys defined benefit plan,
participants in the Management Incentive Plan (see Management Incentive Compensation in Note 16,
Share-Based Compensation Plans) will receive benefits under a Supplemental Executive Retirement
Plan (SERP). This plan is a nonqualified, unfunded supplementary retirement plan.
Funded Status
The funded status of Syscos company-sponsored defined benefit plans is presented in the
table below. The caption Pension Benefits in the tables below includes both the Retirement Plan
and the SERP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Other Postretirement Plans |
|
|
|
June 27, 2009 |
|
|
June 28, 2008 |
|
|
June 27, 2009 |
|
|
June 28, 2008 |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
|
$ |
1,634,987,000 |
|
|
$ |
1,565,327,000 |
|
|
$ |
9,155,000 |
|
|
$ |
8,675,000 |
|
Service cost |
|
|
80,899,000 |
|
|
|
90,570,000 |
|
|
|
490,000 |
|
|
|
484,000 |
|
Interest cost |
|
|
113,715,000 |
|
|
|
101,218,000 |
|
|
|
624,000 |
|
|
|
570,000 |
|
Amendments |
|
|
26,752,000 |
|
|
|
(30,048,000 |
) |
|
|
527,000 |
|
|
|
|
|
Recognized net actuarial (gain) loss |
|
|
(262,164,000 |
) |
|
|
1,205,000 |
|
|
|
(3,813,000 |
) |
|
|
(209,000 |
) |
Actual expenses |
|
|
|
|
|
|
(10,445,000 |
) |
|
|
|
|
|
|
|
|
Total disbursements |
|
|
(42,245,000 |
) |
|
|
(34,586,000 |
) |
|
|
214,000 |
|
|
|
(238,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements/Adjustments(Measurement date
change) |
|
|
|
|
|
|
(48,254,000 |
) |
|
|
|
|
|
|
(127,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year |
|
|
1,551,944,000 |
|
|
|
1,634,987,000 |
|
|
|
7,197,000 |
|
|
|
9,155,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
|
1,526,572,000 |
|
|
|
1,590,689,000 |
|
|
|
|
|
|
|
|
|
Actual return on plan assets |
|
|
(336,018,000 |
) |
|
|
(95,634,000 |
) |
|
|
|
|
|
|
|
|
Employer contribution |
|
|
95,776,000 |
|
|
|
92,670,000 |
|
|
|
(214,000 |
) |
|
|
238,000 |
|
Actual expenses |
|
|
|
|
|
|
(10,445,000 |
) |
|
|
|
|
|
|
|
|
Total disbursements |
|
|
(42,245,000 |
) |
|
|
(34,586,000 |
) |
|
|
214,000 |
|
|
|
(238,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements/Adjustments (Measurement date
change) |
|
|
|
|
|
|
(16,122,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
|
1,244,085,000 |
|
|
|
1,526,572,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year |
|
$ |
(307,859,000 |
) |
|
$ |
(108,415,000 |
) |
|
$ |
(7,197,000 |
) |
|
$ |
(9,155,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
54
In order to meet a portion of its obligations under the SERP, Sysco maintains life insurance
policies on the lives of the participants with carrying values of $130,207,000 as of June 27, 2009
and $129,480,000 as of June 28, 2008. These policies are not included as plan assets or in the
funded status amounts in the tables above and below. Sysco is the sole owner and beneficiary of
such policies. The projected benefit obligation for the SERP was $334,605,000 and $323,574,000 as
of June 27, 2009 and June 28, 2008, respectively.
During fiscal 2009, the company merged participants from an under-funded multi-employer
pension plan into its Retirement Plan and assumed $26,704,000 of liabilities as part of its
withdrawal agreement from this plan. These liabilities are due to the assumption of prior service
costs related to the participants and their accrued benefits which were previously included in this
multi-employer plan. This amount is reflected in the change in benefit obligation for Pension
Benefits as of June 27, 2009 in the table above. See further discussion of this withdrawal under
Multi-Employer Pension Plans in Note 19, Commitments and Contingencies.
The amounts recognized on Syscos consolidated balance sheets related to its company-sponsored
defined benefit plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Other Postretirement Plans |
|
|
|
June 27, 2009 |
|
|
June 28, 2008 |
|
|
June 27, 2009 |
|
|
June 28, 2008 |
|
Prepaid pension cost |
|
$ |
26,746,000 |
|
|
$ |
215,159,000 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current accrued benefit
liability (Accrued
expenses) |
|
|
(18,786,000 |
) |
|
|
(17,082,000 |
) |
|
|
(358,000 |
) |
|
|
(319,000 |
) |
Non-current accrued
benefit liability (Other
long-term liabilities) |
|
|
(315,819,000 |
) |
|
|
(306,492,000 |
) |
|
|
(6,839,000 |
) |
|
|
(8,836,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(307,859,000 |
) |
|
$ |
(108,415,000 |
) |
|
$ |
(7,197,000 |
) |
|
$ |
(9,155,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss as of June 27, 2009 consists of the following amounts
that had not, as of that date, been recognized in net benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Postretirement |
|
|
|
|
|
|
Pension Benefits |
|
|
Plans |
|
|
Total |
|
Prior service cost (credit) |
|
$ |
32,104,000 |
|
|
$ |
(6,567,000 |
) |
|
$ |
25,537,000 |
|
Net actuarial losses |
|
|
534,892,000 |
|
|
|
833,000 |
|
|
|
535,725,000 |
|
Transition obligation |
|
|
|
|
|
|
601,000 |
|
|
|
601,000 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
566,996,000 |
|
|
$ |
(5,133,000 |
) |
|
$ |
561,863,000 |
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss as of June 28, 2008 consists of the following amounts
that had not, as of that date, been recognized in net benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Postretirement |
|
|
|
|
|
|
Pension Benefits |
|
|
Plans |
|
|
Total |
|
Prior service cost |
|
$ |
9,145,000 |
|
|
$ |
436,000 |
|
|
$ |
9,581,000 |
|
Net actuarial losses (gains) |
|
|
351,204,000 |
|
|
|
(2,912,000 |
) |
|
|
348,292,000 |
|
Transition obligation |
|
|
|
|
|
|
754,000 |
|
|
|
754,000 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
360,349,000 |
|
|
$ |
(1,722,000 |
) |
|
$ |
358,627,000 |
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation for the company-sponsored defined benefit pension plans was
$1,439,584,000 and $1,467,568,000 as of June 27, 2009 and June 28, 2008, respectively.
Information for plans with accumulated benefit obligation/aggregate benefit obligation in
excess of fair value of plan assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other Postretirement Plans |
|
|
June 27, 2009 |
|
June 28, 2008 |
|
June 27, 2009 |
|
June 28, 2008 |
Accumulated benefit
obligation/aggregate benefit |
|
$ |
291,964,000 |
|
|
$ |
277,579,000 |
|
|
$ |
7,197,000 |
|
|
$ |
9,155,000 |
|
Fair value of plan assets at end of year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
Components of Net Benefit Costs and Other Comprehensive Income
The components of net company-sponsored pension costs for each fiscal year are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Service cost |
|
$ |
80,899,000 |
|
|
$ |
90,570,000 |
|
|
$ |
84,654,000 |
|
Interest cost |
|
|
113,715,000 |
|
|
|
101,218,000 |
|
|
|
91,311,000 |
|
Expected return on plan assets |
|
|
(127,422,000 |
) |
|
|
(135,345,000 |
) |
|
|
(116,744,000 |
) |
Amortization of prior service cost |
|
|
3,793,000 |
|
|
|
5,985,000 |
|
|
|
5,684,000 |
|
Amortization of net actuarial loss |
|
|
17,729,000 |
|
|
|
3,409,000 |
|
|
|
9,686,000 |
|
|
|
|
|
|
|
|
|
|
|
Net pension costs |
|
$ |
88,714,000 |
|
|
$ |
65,837,000 |
|
|
$ |
74,591,000 |
|
|
|
|
|
|
|
|
|
|
|
The components of other postretirement benefit costs for each fiscal year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Plans |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Service cost |
|
$ |
490,000 |
|
|
$ |
484,000 |
|
|
$ |
451,000 |
|
Interest cost |
|
|
624,000 |
|
|
|
570,000 |
|
|
|
531,000 |
|
Amortization of prior service cost |
|
|
130,000 |
|
|
|
143,000 |
|
|
|
201,000 |
|
Amortization of net actuarial gain |
|
|
(158,000 |
) |
|
|
(156,000 |
) |
|
|
(132,000 |
) |
Amortization of transition obligation |
|
|
153,000 |
|
|
|
153,000 |
|
|
|
154,000 |
|
|
|
|
|
|
|
|
|
|
|
Net other postretirement benefit costs |
|
$ |
1,239,000 |
|
|
$ |
1,194,000 |
|
|
$ |
1,205,000 |
|
|
|
|
|
|
|
|
|
|
|
Net company-sponsored pension costs increased $22,877,000 in fiscal 2009 due primarily to the
recognition of actuarial losses from lower returns on assets of the Retirement Plan during fiscal
2008 and the merging of participants from a multi-employer pension plan in the Retirement Plan (see
Multi-Employer Pension Plans in Note 19, Commitments and Contingencies for further discussion),
partially offset by a decrease in expense due to an increase in the discount rates used to
calculate the Retirement Plans projected benefit obligation and amendments to our SERP. Net
company-sponsored pension costs in fiscal 2010 are expected to increase by approximately
$37,000,000 over fiscal 2009 due primarily to lower returns on assets of the Retirement Plan during
fiscal 2009, partially offset by an increase in the discount rates used to calculate our projected
benefit obligation and related pension expense for fiscal 2010.
Other changes in plan assets and benefit obligations recognized in other comprehensive loss
related to company-sponsored pension plans for each fiscal year are as follows:
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
2009 |
|
|
2008 |
|
Amortization of prior service cost |
|
$ |
3,793,000 |
|
|
$ |
5,985,000 |
|
Amortization of net actuarial loss |
|
|
17,729,000 |
|
|
|
3,409,000 |
|
Pension liability assumption (prior service cost) |
|
|
(26,704,000 |
) |
|
|
|
|
Prior service (cost) credit arising in current year |
|
|
(48,000 |
) |
|
|
30,048,000 |
|
Net actuarial loss arising in current year |
|
|
(201,417,000 |
) |
|
|
(232,044,000 |
) |
|
|
|
|
|
|
|
Net pension costs |
|
$ |
(206,647,000 |
) |
|
$ |
(192,602,000 |
) |
|
|
|
|
|
|
|
Other changes in benefit obligations recognized in other comprehensive loss related to other
postretirement plans for each fiscal year are as follows:
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Plans |
|
|
|
2009 |
|
|
2008 |
|
Amortization of prior service cost |
|
$ |
130,000 |
|
|
$ |
143,000 |
|
Amortization of net actuarial gain |
|
|
(158,000 |
) |
|
|
(156,000 |
) |
Amortization of transition obligation |
|
|
153,000 |
|
|
|
153,000 |
|
Prior service cost arising in current year |
|
|
(527,000 |
) |
|
|
|
|
Net actuarial gain arising in current year |
|
|
3,813,000 |
|
|
|
208,000 |
|
|
|
|
|
|
|
|
Net pension costs |
|
$ |
3,411,000 |
|
|
$ |
348,000 |
|
|
|
|
|
|
|
|
56
Amounts included in accumulated other comprehensive loss as of June 27, 2009 that are expected
to be recognized as components of net company-sponsored benefit cost during fiscal 2010 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Postretirement |
|
|
|
|
|
|
Pension Benefits |
|
|
Plans |
|
|
Total |
|
Amortization of prior service cost |
|
$ |
4,209,000 |
|
|
$ |
185,000 |
|
|
$ |
4,394,000 |
|
Amortization of net actuarial losses (gains) |
|
|
40,526,000 |
|
|
|
(490,000 |
) |
|
|
40,036,000 |
|
Amortization of transition obligation |
|
|
|
|
|
|
153,000 |
|
|
|
153,000 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
44,735,000 |
|
|
$ |
(152,000 |
) |
|
$ |
44,583,000 |
|
|
|
|
|
|
|
|
|
|
|
Employer Contributions
The company made cash contributions to its company-sponsored pension plans of $95,776,000
and $92,670,000 in fiscal years 2009 and 2008, respectively, including $80,000,000 in voluntary
contributions to the Retirement Plan in both fiscal 2009 and 2008, respectively. Syscos minimum
required contribution to the Retirement Plan for the calendar 2009 plan year is estimated at
$95,000,000 to meet ERISA minimum funding requirements. Sysco will be required to pay quarterly
contributions for the calendar 2010 plan year, the first installment of which must be made in
fiscal 2010. The company anticipates it will make $140,000,000 of contributions to the Retirement
Plan in fiscal 2010. The companys contributions to the SERP and other post-retirement plans are
made in the amounts needed to fund current year benefit payments. The estimated fiscal 2010
contributions to fund benefit payments for the SERP and other postretirement plans are $19,445,000
and $372,000, respectively.
Estimated Future Benefit Payments
Estimated future benefit payments for vested participants, based on actuarial
assumptions, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Postretirement |
|
|
Pension Benefits |
|
Plans |
2010 |
|
$ |
50,222,000 |
|
|
$ |
372,000 |
|
2011 |
|
|
55,503,000 |
|
|
|
469,000 |
|
2012 |
|
|
61,974,000 |
|
|
|
562,000 |
|
2013 |
|
|
69,983,000 |
|
|
|
618,000 |
|
2014 |
|
|
78,548,000 |
|
|
|
715,000 |
|
Subsequent five years |
|
|
546,763,000 |
|
|
|
4,484,000 |
|
Assumptions
Weighted-average assumptions used to determine benefit obligations as of year-end were:
|
|
|
|
|
|
|
|
|
|
|
June 27, 2009 |
|
June 28, 2008 |
Discount rate Retirement Plan and Other Postretirement Plans |
|
|
8.02 |
% |
|
|
6.94 |
% |
Discount rate SERP |
|
|
7.14 |
|
|
|
7.03 |
|
Rate of compensation increase Retirement Plan |
|
|
5.21 |
|
|
|
6.17 |
|
For determining the benefit obligations as of June 27, 2009, the SERP calculations use an
age-graded salary growth assumption with reductions taken for determining fiscal 2010 pay due to
base salary freezes in effect for fiscal 2010. For determining the benefit obligations as of June
28, 2008, the SERP calculations assumed various levels of base salary increase and decrease for
determining pay for fiscal 2009 depending upon the participants position with the company and a 7%
salary growth assumption for all participants for fiscal 2010 and thereafter.
Weighted-average assumptions used to determine net company-sponsored pension costs and other
postretirement benefit costs for each fiscal year were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
2007 |
Discount rate Retirement Plan and Other
Postretirement Plans |
|
|
6.94 |
% |
|
|
6.78 |
% |
|
|
6.73 |
% |
Discount rate SERP |
|
|
7.03 |
|
|
|
6.64 |
|
|
|
6.73 |
|
Expected rate of return Retirement Plan |
|
|
8.00 |
|
|
|
8.50 |
|
|
|
9.00 |
|
Rate of compensation increase Retirement Plan |
|
|
6.17 |
|
|
|
6.17 |
|
|
|
6.17 |
|
57
For determining the net pension costs related to the SERP for fiscal 2009, the SERP
calculations assumed various levels of base salary increase and decrease for determining pay for
fiscal 2009 depending upon the participants position with the company and a 7% salary growth
assumption for all participants for fiscal 2010 and thereafter. The calculation for fiscal 2008
assumes annual salary increases of 7%. The calculation for fiscal 2007 assumed annual salary
increases of 10% through fiscal 2007 and 7% thereafter.
A healthcare cost trend rate is not used in the calculations of postretirement benefit
obligations because Sysco subsidizes the cost of postretirement medical coverage by a fixed dollar
amount, with the retiree responsible for the cost of coverage in excess of the subsidy, including
all future cost increases.
For guidance in determining the discount rate, Sysco calculates 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 company-sponsored pension plans. The
discount rate assumption is reviewed annually and revised as deemed appropriate. The discount rate
to be used for the calculation of fiscal 2010 net company-sponsored benefit costs for the
Retirement Plan and Other Postretirement Plans is 8.02%. The discount rate to be used for the
calculation of fiscal 2010 net company-sponsored benefit costs for the SERP is 7.14%.
The expected long-term rate of return on plan assets is derived from a mathematical asset
model that incorporates assumptions as to the various asset class returns, reflecting a combination
of rigorous historical performance analysis and the forward-looking views of the financial markets
regarding the yield on long-term bonds and the historical returns of the major stock markets. The
rate of return assumption is reviewed annually and revised as deemed appropriate. In fiscal 2009,
the expected long-term rate of return on plan assets assumption was changed to a net return on
assets assumption, which contributed to the 0.50% decrease in the assumption to 8.00% in fiscal
2009. Prior to fiscal 2009, this assumption represented gross return on assets, and plan expenses
were reflected within service cost. Due to this change, beginning in fiscal 2009, actual expenses
are no longer reflected in the change in benefit obligation and change in plan assets sections of
funded status table above. The expected long-term rate of return to be used in the calculation of
fiscal 2010 net company-sponsored benefit costs for the Retirement Plan is 8.00%.
Investment Policy and Assets
Syscos investment objectives target a mix of investments that can potentially achieve an
above-average rate of return. Sysco has determined that this strategy is appropriate due to the
relatively low ratio of retirees as a percentage of participants, low average years of participant
service and low average age of participants and is willing to accept the above-average level of
short-term risk and variability in returns to attempt to achieve a higher level of long-term
returns. As a result, the companys strategy targets a mix of investments that include 67.5% equity
(including a mix of large capitalization U.S. stocks, small- to mid-capitalization U.S. stocks and
international stocks), 30% fixed income investments and 2.5% real estate. Securities within fixed
income investments may include derivative securities, which were insignificant in fiscal 2009 and
2008.
The percentage of the fair value of plan assets by asset category is as follows:
|
|
|
|
|
|
|
|
|
|
|
June 27, 2009 |
|
June 28, 2008 |
Equity securities |
|
|
60.6 |
% |
|
|
68.8 |
% |
Debt securities |
|
|
38.1 |
|
|
|
31.2 |
|
Real estate |
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
14. SHAREHOLDERS EQUITY
Basic earnings per share has been computed by dividing net earnings by the weighted average
number of shares of common stock outstanding for each respective year. Diluted earnings per share
has been computed by dividing net earnings by the weighted average number of shares of common stock
outstanding during those respective years adjusted for the dilutive effect of stock options
outstanding using the treasury stock method.
58
A reconciliation of the numerators and the denominators of the basic and diluted earnings per
share computations for the periods presented follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
1,055,948,000 |
|
|
$ |
1,106,151,000 |
|
|
$ |
1,001,076,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic shares outstanding |
|
|
595,127,577 |
|
|
|
605,905,545 |
|
|
|
618,332,752 |
|
Dilutive effect of employee and director stock options |
|
|
941,627 |
|
|
|
5,065,238 |
|
|
|
8,034,046 |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average diluted shares outstanding |
|
|
596,069,204 |
|
|
|
610,970,783 |
|
|
|
626,366,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
$ |
1.77 |
|
|
$ |
1.83 |
|
|
$ |
1.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
$ |
1.77 |
|
|
$ |
1.81 |
|
|
$ |
1.60 |
|
|
|
|
|
|
|
|
|
|
|
The number of options that were not included in the diluted earnings per share calculation
because the effect would have been anti-dilutive was approximately 63,000,000, 33,400,000 and
21,900,000 for fiscal 2009, 2008 and 2007, respectively.
Dividends declared were $557,487,000, $513,593,000 and $456,438,000 in fiscal 2009, 2008 and
2007, respectively. Included in dividends declared for each year were dividends declared but not
yet paid at year-end of approximately $142,000,000, $132,000,000 and $116,000,000 in fiscal 2009,
2008 and 2007, respectively.
15. COMPREHENSIVE INCOME
Comprehensive income is net earnings plus certain other items that are recorded directly to
shareholders equity. Comprehensive income was $846,730,000, $1,018,664,000 and $1,030,025,000 in
fiscal 2009, 2008 and 2007, respectively.
A summary of the components of other comprehensive income (loss) and the related tax effects
for each of the years presented is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
Before-Tax Amount |
|
|
Income Tax |
|
|
After-Tax Amount |
|
Foreign currency translation
adjustment |
|
$ |
(84,452,000 |
) |
|
$ |
|
|
|
$ |
(84,452,000 |
) |
Amortization of cash flow hedge |
|
|
694,000 |
|
|
|
266,000 |
|
|
|
428,000 |
|
Amortization of prior service cost |
|
|
3,923,000 |
|
|
|
1,505,000 |
|
|
|
2,418,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
(gain), net |
|
|
17,571,000 |
|
|
|
6,747,000 |
|
|
|
10,824,000 |
|
Amortization of transition obligation |
|
|
153,000 |
|
|
|
60,000 |
|
|
|
93,000 |
|
Pension liability assumption |
|
|
(26,704,000 |
) |
|
|
(10,254,000 |
) |
|
|
(16,450,000 |
) |
Prior service cost arising in
current year |
|
|
(575,000 |
) |
|
|
(221,000 |
) |
|
|
(354,000 |
) |
Net actuarial (loss) gain, net
arising in current year |
|
|
(197,604,000 |
) |
|
|
(75,879,000 |
) |
|
|
(121,725,000 |
) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
$ |
(286,994,000 |
) |
|
$ |
(77,776,000 |
) |
|
$ |
(209,218,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
Before-Tax Amount |
|
|
Income Tax |
|
|
After-Tax Amount |
|
Foreign currency translation
adjustment |
|
$ |
30,514,000 |
|
|
$ |
|
|
|
$ |
30,514,000 |
|
Amortization of cash flow hedge |
|
|
693,000 |
|
|
|
266,000 |
|
|
|
427,000 |
|
Amortization of prior service cost |
|
|
6,128,000 |
|
|
|
2,351,000 |
|
|
|
3,777,000 |
|
Amortization of net actuarial loss
(gain), net |
|
|
3,253,000 |
|
|
|
1,250,000 |
|
|
|
2,003,000 |
|
Amortization of transition obligation |
|
|
153,000 |
|
|
|
60,000 |
|
|
|
93,000 |
|
Prior service credit arising in
current year |
|
|
30,048,000 |
|
|
|
11,538,000 |
|
|
|
18,510,000 |
|
Net actuarial (loss) gain, net
arising in current year |
|
|
(231,836,000 |
) |
|
|
(89,025,000 |
) |
|
|
(142,811,000 |
) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
$ |
(161,047,000 |
) |
|
$ |
(73,560,000 |
) |
|
$ |
(87,487,000 |
) |
|
|
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
Before-Tax Amount |
|
|
Income Tax |
|
|
After-Tax Amount |
|
Minimum pension liability adjustment |
|
$ |
5,633,000 |
|
|
$ |
2,164,000 |
|
|
$ |
3,469,000 |
|
Foreign currency translation adjustment |
|
|
25,052,000 |
|
|
|
|
|
|
|
25,052,000 |
|
Amortization of cash flow hedge |
|
|
694,000 |
|
|
|
266,000 |
|
|
|
428,000 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
$ |
31,379,000 |
|
|
$ |
2,430,000 |
|
|
$ |
28,949,000 |
|
|
|
|
|
|
|
|
|
|
|
The following table provides a summary of the changes in accumulated other comprehensive
income (loss) for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and Other |
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement |
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Plans, |
|
|
Foreign Currency |
|
|
Interest Rate Swap, |
|
|
|
|
|
|
net of tax |
|
|
Translation |
|
|
net of tax |
|
|
Total |
|
Balance as of July 1, 2006 |
|
$ |
(11,106,000 |
) |
|
$ |
108,448,000 |
|
|
$ |
(12,724,000 |
) |
|
$ |
84,618,000 |
|
Minimum pension liability adjustment |
|
|
3,469,000 |
|
|
|
|
|
|
|
|
|
|
|
3,469,000 |
|
Foreign currency translation
adjustment |
|
|
|
|
|
|
25,052,000 |
|
|
|
|
|
|
|
25,052,000 |
|
Amortization of cash flow hedge |
|
|
|
|
|
|
|
|
|
|
428,000 |
|
|
|
428,000 |
|
Adoption of SFAS 158 recognition
|
|
|
(117,628,000 |
) |
|
|
|
|
|
|
|
|
|
|
(117,628,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2007 |
|
|
(125,265,000 |
) |
|
|
133,500,000 |
|
|
|
(12,296,000 |
) |
|
|
(4,061,000 |
) |
Adoption of SFAS 158 measurement
date |
|
|
22,780,000 |
|
|
|
|
|
|
|
|
|
|
|
22,780,000 |
|
Foreign currency translation
adjustment |
|
|
|
|
|
|
30,514,000 |
|
|
|
|
|
|
|
30,514,000 |
|
Amortization of cash flow hedge |
|
|
|
|
|
|
|
|
|
|
427,000 |
|
|
|
427,000 |
|
Amortization of prior service cost |
|
|
3,777,000 |
|
|
|
|
|
|
|
|
|
|
|
3,777,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
(gain), net |
|
|
2,003,000 |
|
|
|
|
|
|
|
|
|
|
|
2,003,000 |
|
Amortization of transition obligation |
|
|
93,000 |
|
|
|
|
|
|
|
|
|
|
|
93,000 |
|
Prior service credit arising in
current year |
|
|
18,510,000 |
|
|
|
|
|
|
|
|
|
|
|
18,510,000 |
|
Net actuarial (loss) gain, net
arising in current year |
|
|
(142,811,000 |
) |
|
|
|
|
|
|
|
|
|
|
(142,811,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 28, 2008 |
|
|
(220,913,000 |
) |
|
|
164,014,000 |
|
|
|
(11,869,000 |
) |
|
|
(68,768,000 |
) |
Foreign currency translation
adjustment |
|
|
|
|
|
|
(84,452,000 |
) |
|
|
|
|
|
|
(84,452,000 |
) |
Amortization of cash flow hedge |
|
|
|
|
|
|
|
|
|
|
428,000 |
|
|
|
428,000 |
|
Amortization of prior service cost |
|
|
2,418,000 |
|
|
|
|
|
|
|
|
|
|
|
2,418,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
(gain), net |
|
|
10,824,000 |
|
|
|
|
|
|
|
|
|
|
|
10,824,000 |
|
Amortization of transition obligation |
|
|
93,000 |
|
|
|
|
|
|
|
|
|
|
|
93,000 |
|
Pension liability assumption |
|
|
(16,450,000 |
) |
|
|
|
|
|
|
|
|
|
|
(16,450,000 |
) |
Prior service cost arising in
current year |
|
|
(354,000 |
) |
|
|
|
|
|
|
|
|
|
|
(354,000 |
) |
Net actuarial (loss) gain, net
arising in current year |
|
|
(121,725,000 |
) |
|
|
|
|
|
|
|
|
|
|
(121,725,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 27, 2009 |
|
$ |
(346,107,000 |
) |
|
$ |
79,562,000 |
|
|
$ |
(11,441,000 |
) |
|
$ |
(277,986,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
16. SHARE-BASED COMPENSATION
Sysco provides compensation benefits to employees and non-employee directors under several
share-based payment arrangements including various employee stock option plans, the Employees
Stock Purchase Plan, the Management Incentive Plan and various non-employee director plans.
Stock Incentive Plans
Syscos 2007 Stock Incentive Plan was adopted in fiscal 2008 and provides for the
issuance of up to 30,000,000 shares of Sysco common stock for share-based awards to officers and
other employees of the company and its subsidiaries at the fair
market value (as defined in the plan) of Sysco common stock at the date of grant. Of the
30,000,000 shares authorized under the 2007 Stock Incentive Plan, up to 25,000,000 shares may be
issued as options or stock appreciation rights and up to 5,000,000 shares may be issued as
restricted stock, restricted stock units or other types of stock-based awards. The plan also
allows for the issuance of shares of restricted stock, restricted stock units or other types of
stock-based awards in excess of 5,000,000, provided that for each such share issued in excess of
the 5,000,000 share limitation, the aggregate number of shares available for issuance under the
plan is reduced by four shares. To date, Sysco has issued options and restricted stock under this
plan. Vesting requirements for awards under this plan will vary by individual grant and may include
either time-based vesting or time-based vesting subject to acceleration based on performance
criteria for fiscal periods of at least one year. The
60
contractual life of all options granted under
this plan will be no greater than seven years. As of June 27, 2009, there were 15,908,961 remaining
shares authorized and available for grant in total under the 2007 Stock Incentive Plan, 10,984,783
shares that may be issued as options or stock appreciation rights and, of the 5,000,000 shares
authorized for issuance as restricted stock, restricted stock units or other types of stock-based
awards, 4,924,178 such shares remain available. If any restricted stock, restricted stock units or
other types of stock-based awards are issued in excess of the 5,000,000 limit, they will reduce the
remaining shares available by four shares for every share issued.
Sysco has also granted employee options under several previous employee stock option plans for
which previously granted options remain outstanding as of June 27, 2009. No new options will be
issued under any of the prior plans, as future grants to employees will be made through the 2007
Stock Incentive Plan or subsequently adopted plans. Vesting requirements for awards under these
plans vary by individual grant and include either time-based vesting or time-based vesting subject
to acceleration based on performance criteria. The contractual life of all options granted under
these plans through July 3, 2004 is 10 years; options granted after July 3, 2004 have a contractual
life of seven years.
Syscos 2005 Non-Employee Directors Stock Plan was adopted in fiscal 2006 and provides for the
issuance of up to 550,000 shares of Sysco common stock for share-based awards to non-employee
directors. Of the 550,000 shares authorized under the 2005 Non-Employee Directors Stock Plan, up
to 220,000 shares may be issued as options, up to 320,000 shares may be issued as stock grants or
restricted stock units and up to 10,000 shares may be issued as dividend equivalents. In addition,
options and unvested common shares also remained outstanding as of June 27, 2009 under previous
non-employee director stock plans. No further grants will be made under these previous plans, as
all future grants to non-employee directors will be made through the 2005 Non-Employee Directors
Stock Plan or subsequently adopted plans. Vesting requirements for awards under these plans vary by
individual grant and include either time-based vesting or vesting based on performance criteria.
The contractual life of all options granted under these plans through July 3, 2004 is 10 years;
options granted after July 3, 2004 have a contractual life of seven years. As of June 27, 2009,
there were 236,794 remaining shares authorized and available for grant in total under the 2005
Non-Employee Directors Stock Plan, 153,500 shares that may be issued as options, 73,294 shares that
may be issued as stock grants or restricted stock units and 10,000 shares that may be issued as
dividend equivalents.
Stock Options
Certain of Syscos option awards are subject to graded vesting over a service period. In
those cases, Sysco recognizes compensation cost on a straight-line basis over the requisite service
period for the entire award. In other cases, certain of Syscos option awards provide for graded
vesting over a service period but include a performance-based provision allowing for accelerated
vesting. In these cases, if it is probable that the performance condition will be met, Sysco
recognizes compensation cost on a straight-line basis over the shorter performance period;
otherwise, it will recognize compensation cost over the longer service period.
In addition, certain of Syscos options provide that the options continue to vest as if the
optionee continued to be an employee or director if the optionee meets certain age and years of
service thresholds upon retirement. In these cases, for awards granted through July 2, 2005, Sysco
will recognize the compensation cost for such awards over the service period and accelerate any
remaining unrecognized compensation cost when the employee retires. Due to the adoption of SFAS
123(R), for awards granted subsequent to July 2, 2005, Sysco will recognize compensation cost for
such awards over the period from the grant date to the date the employee or director first becomes
eligible to retire with the options continuing to vest after retirement. If Sysco had recognized
compensation cost for such awards over the period from the grant date to the date the employee or
the director first became eligible to retire with the options continuing to vest after retirement
for all periods presented, recognized compensation cost would have been $3,494,000, $8,307,000 and
$11,698,000 lower for fiscal 2009, 2008 and 2007, respectively.
The fair value of each option award is estimated as of the date of grant using a Black-Scholes
option pricing model. The weighted average assumptions for the periods indicated are noted in the
following table. Expected volatility is based on historical volatility of Syscos stock, implied
volatilities from traded options on Syscos stock and other factors. Sysco utilizes historical data
to estimate option exercise and employee termination behavior within the valuation model; separate
groups of employees that have similar historical exercise behavior are considered separately for
valuation purposes. Expected dividend yield is estimated based on the historical pattern of
dividends and the average stock price for the year preceding the option grant. The risk-free rate
for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time
of grant.
The following weighted-average assumptions were used for each fiscal year presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
2007 |
Dividend yield |
|
|
3.2 |
% |
|
|
2.6 |
% |
|
|
2.2 |
% |
Expected volatility |
|
|
34.7 |
% |
|
|
23.0 |
% |
|
|
21.0 |
% |
Risk-free interest rate |
|
|
2.3 |
% |
|
|
3.8 |
% |
|
|
4.7 |
% |
Expected life |
|
4.5 years |
|
4.5 years |
|
5.1 years |
61
The following summary presents information regarding outstanding options as of June 27, 2009
and changes during the fiscal year then ended with regard to options under all stock option plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
Exercise Price Per |
|
|
Contractual Term (in |
|
|
Aggregate Intrinsic |
|
|
|
Shares Under Option |
|
|
Share |
|
|
years) |
|
|
Value |
|
Outstanding as of June 28, 2008 |
|
|
65,244,300 |
|
|
$ |
30.05 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
8,089,750 |
|
|
|
24.93 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(3,074,147 |
) |
|
|
23.91 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(723,601 |
) |
|
|
29.76 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(1,104,790 |
) |
|
|
30.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of June 27, 2009 |
|
|
68,431,512 |
|
|
$ |
29.72 |
|
|
|
3.58 |
|
|
$ |
9,236,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest
as of June 27, 2009 |
|
|
66,866,317 |
|
|
$ |
29.72 |
|
|
|
3.55 |
|
|
$ |
9,236,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of June 27, 2009 |
|
|
48,437,040 |
|
|
$ |
29.78 |
|
|
|
2.95 |
|
|
$ |
9,072,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total number of employee options granted was 8,089,750, 6,438,968 and 6,504,200 in fiscal
years 2009, 2008 and 2007, respectively. During fiscal 2009, 1,395,000 options were granted to 12
executive officers and 6,694,750 options were granted to approximately 1,700 other key employees.
During fiscal 2008, 699,000 options were granted to 12 executive officers and 5,739,968 options
were granted to approximately 1,500 other key employees. During fiscal 2007, 594,000 options were
granted to 9 executive officers and 5,910,200 options were granted to approximately 1,600 other key
employees.
The weighted average grant-date fair value of options granted in fiscal 2009, 2008 and 2007
was $5.88, $6.50 and $6.85, respectively. The total intrinsic value of options exercised during
fiscal 2009, 2008 and 2007 was $24,418,000, $33,601,000 and $73,124,000, respectively.
Restricted Stock
In fiscal 2009, 75,822 shares of restricted stock were granted to an executive officer
from the 2007 Stock Incentive Plan. The fair value of these shares was $23.74 per share, which was
based on the stock price on the grant date. These shares will vest one-third each year over a
three-year period. All of these shares remain unvested at June 27, 2009.
Employees Stock Purchase Plan
Sysco has an Employees Stock Purchase Plan that permits employees to invest in Sysco
common stock by means of periodic payroll deductions at 85% of the closing price on the last
business day of each calendar quarter. In November 2007, the Employees Stock Purchase Plan was
amended to reserve an additional 6,000,000 shares of Sysco common stock for issuance under the
plan. Including the additional 6,000,000 shares reserved in fiscal 2008, the total number of
shares which may be sold pursuant to the plan may not exceed 74,000,000 shares, of which 5,384,982
remained available as of June 27, 2009.
During fiscal 2009, 2,031,695 shares of Sysco common stock were purchased by the participants
as compared to 1,769,421 shares purchased in fiscal 2008 and 1,708,250 shares purchased in fiscal
2007. In July 2009, 540,517 shares were purchased by participants.
The weighted average fair value of employee stock purchase rights issued pursuant to the
Employees Stock Purchase Plan was $3.85, $4.81 and $5.02 per share during fiscal 2009, 2008 and
2007, respectively. The fair value of the stock purchase rights was calculated as the difference
between the stock price at date of issuance and the employee purchase price.
Management Incentive Compensation
Syscos Management Incentive Plan compensates key management personnel for specific
performance achievements. With respect to bonuses for fiscal 2008 and earlier years, the bonuses
earned and expensed under this plan were paid in the following fiscal year in both cash and stock
or deferred for payment in future years at the election of each participant. The stock awards under
this plan immediately vested upon issuance; however, participants are restricted from selling,
transferring, giving or otherwise conveying the shares for a period of two years from the date of
issuance of such shares. The fair value of the stock issued under the Management Incentive Plan was
based on the stock price less a 12% discount for post-vesting restrictions. The discount for
post-vesting restrictions is estimated based on restricted stock studies and by calculating the
cost of a hypothetical protective put option over the restriction period. In May 2008, the
Management Incentive Plan was amended to remove the stock component of the bonus structure.
Therefore, there will be no stock award component for the fiscal 2009 bonus or any future bonuses
under this plan.
A total of 672,087 shares, 588,143 shares and 323,822 shares at a fair value of $28.22, $32.99
and $30.56, respectively, were issued pursuant to this plan in fiscal 2009, 2008 and 2007,
respectively, for bonuses earned in the preceding fiscal years.
62
Non-Employee Director Stock Grants
Prior to fiscal 2008, one-time retainer awards were granted to newly elected directors
under the 2005 Non-Employee Directors Stock Plan. These awards were of 6,000 shares of Sysco
common stock that vest one-third every year over a three-year period. In fiscal 2007, 12,000
shares in the aggregate of restricted stock were granted to two non-employee directors as one-time
retainer awards under the 2005 Non-Employee Directors Stock Plan. The 2005 Non-Employee Directors
Stock Plan was amended during fiscal 2008 to discontinue the issuance of one-time retainer awards
under the plan.
In addition, there are one-time retainer awards outstanding under the Non-Employee Directors
Stock Plan, which was replaced by the 2005 Non-Employee Directors Stock Plan. The remaining
outstanding unvested awards under this plan vest over a six-year period if certain earnings goals
are met.
The 2005 Non-Employee Directors Stock Plan provides for the issuance of restricted stock to
current non-employee directors. During fiscal 2009, 2008 and 2007, 65,631, 52,430 and 30,000
shares, respectively, of restricted stock were granted to non-employee directors. These shares will
vest ratably over a three-year period.
The total amount of unvested shares related to the one-time retainer awards and other
restricted stock awards as of June 27, 2009 was not significant.
Under the 2005 Non-Employee Directors Stock Plan, non-employee directors may also elect to
receive up to 50% of their annual directors fees in Sysco common stock. Sysco provides a matching
grant of 50% of the number of shares received for the stock election. As a result of such
elections, a total of 21,966, 13,051 and 11,721 shares with a weighted-average grant date fair
value of $27.49, $33.33 and $33.80 per share were issued in fiscal 2009, 2008 and 2007,
respectively
All Share-Based Payment Arrangements
The total share-based compensation cost that has been recognized in results of operations
was $56,030,000, $80,650,000 and $97,985,000 for fiscal 2009, 2008 and 2007, respectively, and is
included within operating expenses in the consolidated results of operations. The total income tax
benefit recognized in results of operations for share-based compensation arrangements was
$9,907,000, $15,722,000, and $21,549,000 for fiscal 2009, 2008 and 2007, respectively.
As of June 27, 2009, there was $63,746,000 of total unrecognized compensation cost related to
share-based compensation arrangements. That cost is expected to be recognized over a
weighted-average period of 2.97 years.
Cash received from option exercises and purchases of shares under the Employees Stock
Purchase Plan was $111,779,000, $128,238,000 and $221,338,000 during fiscal 2009, 2008 and 2007,
respectively. The actual tax benefit realized for the tax deductions from option exercises totaled
$7,382,000, $9,371,000, and $22,575,000 during fiscal 2009, 2008 and 2007, respectively.
17. INCOME TAXES
Income Tax Provisions
The income tax provision for each fiscal year consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
United States federal income taxes |
|
$ |
602,595,000 |
|
|
$ |
584,584,000 |
|
|
$ |
539,997,000 |
|
State and local income taxes |
|
|
87,223,000 |
|
|
|
79,587,000 |
|
|
|
63,139,000 |
|
Foreign income taxes |
|
|
25,068,000 |
|
|
|
21,016,000 |
|
|
|
17,003,000 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
714,886,000 |
|
|
$ |
685,187,000 |
|
|
$ |
620,139,000 |
|
|
|
|
|
|
|
|
|
|
|
The current and deferred components of the income tax provisions for each fiscal year are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Current |
|
$ |
1,010,595,000 |
|
|
$ |
42,830,000 |
|
|
$ |
53,805,000 |
|
Deferred |
|
|
(295,709,000 |
) |
|
|
642,357,000 |
|
|
|
566,334,000 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
714,886,000 |
|
|
$ |
685,187,000 |
|
|
$ |
620,139,000 |
|
|
|
|
|
|
|
|
|
|
|
The deferred tax provisions result from the effects of net changes during the year in deferred
tax assets and liabilities arising from temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. In addition to the deferred tax provision, changes in the deferred tax liability balances
in fiscal 2009 are impacted by an Internal Revenue Service (IRS) settlement, see Note 22,
Subsequent Events. Fiscal 2008 and 2007 deferred tax liability balances were also impacted by the
reclassification of deferred supply chain distributions from current deferred tax liabilities to
accrued income taxes based on the timing of when payments related to these items became
63
payable. This reclassification was $575,248,000 in fiscal 2008. In fiscal 2008, deferred supply chain
distributions were classified as current or deferred tax liabilities based on when the related
income tax payments were payable.
Deferred Tax Assets and Liabilities
Significant components of Syscos deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 27, 2009 |
|
|
June 28, 2008 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Deferred supply chain distributions |
|
$ |
750,755,000 |
|
|
$ |
1,054,190,000 |
|
Excess tax depreciation and basis
differences of assets |
|
|
395,656,000 |
|
|
|
369,203,000 |
|
Other |
|
|
14,190,000 |
|
|
|
20,601,000 |
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
1,160,601,000 |
|
|
|
1,443,994,000 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating tax loss
carryforwards |
|
|
75,079,000 |
|
|
|
73,481,000 |
|
Benefit on unrecognized tax
benefits |
|
|
55,609,000 |
|
|
|
73,837,000 |
|
Pension |
|
|
156,809,000 |
|
|
|
76,500,000 |
|
Deferred compensation |
|
|
54,485,000 |
|
|
|
54,805,000 |
|
Self-insured liabilities |
|
|
40,912,000 |
|
|
|
41,390,000 |
|
Receivables |
|
|
44,799,000 |
|
|
|
30,650,000 |
|
Inventory |
|
|
39,491,000 |
|
|
|
40,355,000 |
|
Other |
|
|
29,669,000 |
|
|
|
35,535,000 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
496,853,000 |
|
|
|
426,553,000 |
|
|
|
|
|
|
|
|
Valuation allowances |
|
|
24,994,000 |
|
|
|
39,020,000 |
|
|
|
|
|
|
|
|
Total net deferred tax liabilities |
|
$ |
688,742,000 |
|
|
$ |
1,056,461,000 |
|
|
|
|
|
|
|
|
The company had state and Canadian net operating tax losses as of June 27, 2009 and June 28,
2008. The net operating tax losses outstanding as of June 27, 2009 expire in fiscal years 2010
through 2029. A valuation allowance of $24,994,000 was recorded for the state tax loss
carryforwards as of June 27, 2009, as management believes that it is more likely than not that a
portion of the benefits of these state tax loss carryforwards will not be realized. As of June 28,
2008, valuation allowances recorded were $39,020,000 for both state and Canadian tax loss
carryforwards. Both the net operating tax loss carryforwards and the valuation allowances were
impacted by the companys adoption of FIN 48 by a reduction of $14,705,000 at the date of adoption
on July 1, 2008.
Effective Tax Rates
Reconciliations of the statutory federal income tax rate to the effective income tax
rates for each fiscal year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
United States statutory federal income tax rate |
|
|
35.00 |
% |
|
|
35.00 |
% |
|
|
35.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
State, local and foreign income taxes, net of any
applicable federal income tax benefit |
|
|
1.63 |
|
|
|
1.14 |
|
|
|
2.15 |
|
Impact of provisions for uncertain tax benefits |
|
|
1.75 |
|
|
|
0.64 |
|
|
|
|
|
Impact of adjusting carrying value of
corporate-owned life insurance policies to their
cash surrender values |
|
|
0.95 |
|
|
|
0.19 |
|
|
|
(0.52 |
) |
Impact of share-based compensation |
|
|
0.59 |
|
|
|
0.85 |
|
|
|
0.93 |
|
Other |
|
|
0.45 |
|
|
|
0.43 |
|
|
|
0.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40.37 |
% |
|
|
38.25 |
% |
|
|
38.25 |
% |
|
|
|
|
|
|
|
|
|
|
The effective tax rate for fiscal 2009 was negatively impacted primarily by two factors.
First, the company recorded tax adjustments related to federal and state uncertain tax positions of
$31,000,000. Second, the loss of $43,812,000, which had a tax effect of $16,824,000, recorded to
adjust the carrying value of corporate-owned life insurance to their cash surrender values was
non-deductible for income tax purposes and had the impact of increasing the effective tax rate for
the period. The effective tax rate for fiscal 2009 was favorably impacted by the reversal of
valuation allowances of $7,800,000 previously recorded on Canadian net operating loss deferred tax
assets.
64
The effective tax rate for fiscal 2008 was favorably impacted by tax benefits of approximately
$7,700,000 resulting from the recognition of a net operating loss deferred tax asset which arose
due to a state tax law change, $8,600,000 related to the reversal of valuation allowances
previously recorded on Canadian net operating loss deferred tax assets and $5,500,000 related to
the reduction in net Canadian deferred tax liabilities due to a federal tax rate reduction. The
effective tax rate for fiscal 2008 was negatively impacted by the recording of tax and interest
related to uncertain tax positions, share-based compensation expense and the recognition of losses
of $8,718,000, which had a tax effect of $3,348,000, recorded to adjust the carrying value of
corporate-owned life insurance policies to their cash surrender values.
The effective tax rate for fiscal 2007 was favorably impacted by the recognition of gains of
$23,922,000, which had a tax effect of $9,186,000, recorded to adjust the carrying value of
corporate-owned life insurance policies to their cash surrender values. The effective tax rate for
fiscal 2007 was negatively impacted by the recognition of tax and interest for tax contingencies.
Syscos option grants include options that qualify as incentive stock options for income tax
purposes. The treatment of the potential tax deduction, if any, related to incentive stock may
cause variability in the companys effective tax rate. In the period the compensation cost related
to incentive stock options is recorded, a corresponding tax benefit is not recorded as it is
assumed that the company will not receive a tax deduction related to such incentive stock options.
The company may be eligible for tax deductions in subsequent periods to the extent that there is a
disqualifying disposition of the incentive stock option. In such cases, the company would record a
tax benefit related to the tax deduction in an amount not to exceed the corresponding cumulative
compensation cost recorded in the financial statements on the particular options multiplied by the
statutory tax rate.
Sysco recorded a tax benefit of $9,907,000 or 17.7% of the $56,030,000 in share-based
compensation expense recorded in fiscal 2009. Sysco recorded a tax benefit of $15,722,000 or 19.5%
of the $80,650,000 in share-based compensation expense recorded in fiscal 2008. Sysco recorded a
tax benefit of $21,549,000 or 22.0% of the $97,985,000 in share-based compensation expense recorded
in fiscal 2007.
Uncertain Tax Positions
Prior to fiscal 2008, in evaluating the exposures connected with the various tax filing
positions, the company established an accrual when, despite managements belief that the companys
tax return positions are supportable, management believed that certain positions may be
successfully challenged and a loss was probable. When facts and circumstances changed, these
accruals were adjusted.
As discussed in Note 2, Changes in Accounting, the company adopted FIN 48 effective July 1,
2007. FIN 48 provides that a tax benefit from an uncertain tax position is recognized when it is
more likely than not that the position will be sustained upon examination, including resolutions of
any related appeals or litigation processes, based on the technical merits of the position. The
amount recognized is measured as the largest amount of tax benefit that has a greater than 50%
likelihood of being realized upon settlement. As a result of this adoption, the company
recognized, as a cumulative effect of change in accounting principle, a $91,635,000 decrease in its
beginning retained earnings on its July 1, 2007 balance sheet. A reconciliation of the beginning
and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Unrecognized tax benefits at beginning of year |
|
$ |
87,929,000 |
|
|
$ |
82,639,000 |
|
Additions for tax positions related to prior years |
|
|
21,645,000 |
|
|
|
|
|
Reductions for tax positions related to prior years |
|
|
(1,959,000 |
) |
|
|
(138,000 |
) |
Additions for tax positions related to the current year |
|
|
10,935,000 |
|
|
|
7,912,000 |
|
Reductions for tax positions related to the current year |
|
|
|
|
|
|
|
|
Reductions due to settlements with taxing authorities |
|
|
(24,817,000 |
) |
|
|
(223,000 |
) |
Reductions due to lapse of applicable statute of
limitations |
|
|
(1,588,000 |
) |
|
|
(2,261,000 |
) |
|
|
|
|
|
|
|
Unrecognized tax benefits at end of year |
|
$ |
92,145,000 |
|
|
$ |
87,929,000 |
|
|
|
|
|
|
|
|
As of June 27, 2009, the gross amount of accrued interest liabilities related to unrecognized
tax benefits was $146,998,000, of which $41,000,000 is classified within accrued income taxes as
payment is anticipated during fiscal 2010. See further discussion in Note 22, Subsequent Events.
The amount of recorded interest expense related to unrecognized tax benefits in fiscal 2009 was
$18,693,000. The company does not have any accrued liabilities for penalties related to
unrecognized tax benefits and did not record any expense related to penalties in fiscal 2009. As of
June 28, 2008, the gross amount of accrued interest liabilities was $138,207,000 related to
unrecognized tax benefits and recorded interest expense of $12,287,000 in fiscal 2008. The company
does not have any accrued liabilities for penalties related to unrecognized tax benefits and did
not record any expense related to penalties in fiscal 2008. To the extent interest and penalties
may be assessed by taxing authorities on any underpayment of income tax, estimated amounts required
under FIN 48 have been accrued and are classified as a
65
component of income taxes in the consolidated results of operations. This was the companys accounting policy prior to the adoption
of FIN 48, and Sysco elected to continue this accounting policy post-adoption.
If Sysco were to recognize all unrecognized tax benefits recorded as of June 27, 2009,
approximately $54,096,000 of the $92,145,000 reserve would reduce the effective tax rate. It is
reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the
companys unrecognized tax positions will increase or decrease in the next twelve months either
because Syscos positions are sustained on audit or because the company agrees to their
disallowance. Items that may cause changes to unrecognized tax benefits primarily include the
consideration of various filing requirements in various states and the allocation of income and
expense between tax jurisdictions. In addition, the amount of unrecognized tax benefits recognized
within the next twelve months may decrease due to the expiration of the statute of limitations for
certain years in various jurisdictions; however, it is possible that a jurisdiction may open an
audit on one of these years prior to the statute of limitations expiring. At this time, an
estimate of the range of the reasonably possible change cannot be made.
Sysco recently settled all matters that were in the appeals process that related to certain
adjustments from the Internal Revenue Service (IRS) in relation to its audit of the companys 2003
through 2006 federal income tax returns. See further discussion in Note 22, Subsequent Events.
The IRS is auditing Syscos 2007 and 2008 federal income tax returns. As of June 27, 2009, Syscos
tax returns in the majority of the state and local jurisdictions and Canada are no longer subject
to audit for the years before 2005. However, some jurisdictions have audits open prior to 2005,
with the earliest dating back to 1996. Although the outcome of tax audits is generally uncertain,
the company believes that adequate amounts of tax, including interest and penalties, have been
accrued for any adjustments that may result from those open years.
Other
The company intends to permanently reinvest the undistributed earnings of its foreign
subsidiaries in those businesses outside of the United States and, therefore, has not provided for
U.S. deferred income taxes on such undistributed foreign earnings. The determination of the amount
of the unrecognized deferred tax liability related to the undistributed earnings is not
practicable.
The determination of the companys provision for income taxes requires significant judgment,
the use of estimates and the interpretation and application of complex tax laws. The companys
provision for income taxes primarily reflects a combination of income earned and taxed in the
various U.S. federal and state, as well as various foreign jurisdictions. Jurisdictional tax law
changes, increases or decreases in permanent differences between book and tax items, accruals or
adjustments of accruals for tax contingencies or valuation allowances, and the companys change in
the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.
18. ACQUISITIONS
During fiscal 2009, in the aggregate, the company paid cash of $218,075,000 for operations
acquired during fiscal 2009 and for contingent consideration related to operations acquired in
previous fiscal years. During fiscal 2009, Sysco acquired for cash broadline foodservice
operations in Ireland, Los Angeles, California and Boston, Massachusetts, as well as a produce
distributor in Toronto, Ontario. The acquisitions were immaterial, individually and in the
aggregate, to the consolidated financial statements.
Certain acquisitions involve contingent consideration typically payable only in the event that
certain operating results are attained or certain outstanding contingencies are resolved. Aggregate
contingent consideration amounts outstanding as of June 27, 2009 included $78,250,000 in cash,
which, if distributed, could result in the recording of additional goodwill. Such amounts are to be
paid out over periods of up to four years from the date of acquisition if the contingent criteria
are met.
19. 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.
Product Liability Claim
In October 2007, an arbitration judgment against the company was issued related to a
product liability claim from one of Syscos former customers, which formalized a preliminary award
by the arbitrator in July 2007. As of the year ended June 30, 2007, the company had recorded
$50,296,000 on its consolidated balance sheet within accrued expenses related to the accrual of
this loss and a corresponding receivable of $48,296,000 within prepaid expenses and other current
assets, which represented the estimate of the loss less the $2,000,000 deductible on Syscos
insurance policy, as the company anticipated recovery from various parties. In December 2007, the
company paid its deductible on its insurance policy and made arrangements with its insurance
carrier and other parties, who paid the remaining amount of the judgment in excess of the companys
deductible. The company no longer has any remaining contingent liabilities related to this claim.
66
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 12% of Syscos current employees are participants in such multi-employer plans. In
fiscal 2009, total contributions to these plans were approximately $47,982,000.
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 plans termination,
Syscos 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 Syscos proportionate share of the multi-employer plans unfunded vested liabilities. Based on
the information available from plan administrators, Sysco estimates that its share of withdrawal
liability on most of the multi-employer plans it participates in could be as much as $80,000,000 as
of June 27, 2009 based on a voluntary withdrawal. Because the company is not provided with the
information by plan administrators on a timely basis and the company expects that many
multi-employer pension plans assets have declined due to recent financial market performance,
management believes our share of the withdrawal liability could be greater. 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 June 27, 2009, Sysco had approximately $17,000,000
in liabilities recorded in total related to certain multi-employer defined benefit plans for which
Syscos voluntary withdrawal has already occurred, all of which are expected to be paid during
fiscal 2010.
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 $16,500,000
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 Syscos employees that were participants in the
plan and to manage the companys exposure to this under-funded plan. Sysco agreed to pay
$15,000,000 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 $26,704,000 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. Withdrawal liabilities incurred include $9,585,000 in fiscal 2009, $5,784,000 in
fiscal 2008 and $4,700,000 in fiscal 2007.
Fuel Commitments
From time to time, Sysco may enter into forward purchase commitments for a portion of its
projected diesel fuel requirements. As of June 27, 2009, we had forward diesel fuel commitments
totaling approximately $64,000,000 through March 2010. In July 2009, we entered additional forward
purchase commitments totaling approximately $16,000,000 at a fixed price through June 2010.
Other Commitments
Sysco has committed to product purchases for resale in order to leverage the companys
purchasing power. A majority of these agreements expire within one year, however certain
agreements have terms through fiscal 2012. 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 June 27, 2009 totaled approximately $2,074,738,000. Minimum
amounts committed to by year are as follows: $1,434,622,000 in fiscal 2010, $535,978,000 in fiscal
2011 and $104,138,000 in fiscal 2012.
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 $510,000,000. 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
67
over time. If Sysco were to terminate all of the services in fiscal 2010, the estimated termination fee incurred in fiscal 2010 would be
approximately $9,700,000.
20. BUSINESS SEGMENT INFORMATION
The company has aggregated its operating companies into a number of segments, of which only
Broadline and SYGMA are reportable segments as defined in SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. Broadline operating companies distribute a full line of
food products and a wide variety of non-food products to its customers. SYGMA operating companies
distribute a full line of food products and a wide variety of non-food products to certain chain
restaurant customer locations. Other financial information is attributable to the companys
other operating segments, including the companys specialty produce, custom-cut meat and lodging
industry segments and a company that distributes to international customers.
The accounting policies for the segments are the same as those disclosed by Sysco.
Intersegment sales represent specialty produce and meat company products distributed by the
Broadline and SYGMA operating companies. The segment results include certain centrally incurred
costs for shared services that are charged to our segments. These centrally incurred costs are
charged based upon the relative level of service used by each operating company consistent with how
Syscos management views the performance of its operating segments. Management evaluates the
performance of each of our operating segments based on its respective operating income results,
which include the allocation of certain centrally incurred costs.
Included in corporate expenses and consolidated adjustments, among other items, are:
|
|
|
Gains and losses recognized to adjust corporate-owned life insurance policies to their
cash surrender values; |
|
|
|
|
Share-based compensation expense related to stock option grants, restricted stock,
issuances of stock pursuant to the Employees Stock Purchase Plan and stock grants to
non-employee directors; and |
|
|
|
|
Corporate-level depreciation and amortization expense. |
68
The following table sets forth the financial information for Syscos business segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Broadline |
|
$ |
29,234,199 |
|
|
$ |
29,824,553 |
|
|
$ |
27,593,723 |
|
SYGMA |
|
|
4,839,036 |
|
|
|
4,574,880 |
|
|
|
4,380,955 |
|
Other |
|
|
3,242,115 |
|
|
|
3,590,738 |
|
|
|
3,537,865 |
|
Intersegment sales |
|
|
(462,020 |
) |
|
|
(468,060 |
) |
|
|
(470,468 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
36,853,330 |
|
|
$ |
37,522,111 |
|
|
$ |
35,042,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
Broadline |
|
$ |
1,959,963 |
|
|
$ |
1,931,881 |
|
|
$ |
1,772,493 |
|
SYGMA |
|
|
30,193 |
|
|
|
8,261 |
|
|
|
10,842 |
|
Other |
|
|
101,355 |
|
|
|
136,533 |
|
|
|
132,508 |
|
|
|
|
|
|
|
|
|
|
|
Total segments |
|
|
2,091,511 |
|
|
|
2,076,675 |
|
|
|
1,915,843 |
|
Corporate expenses and consolidated adjustments |
|
|
(219,300 |
) |
|
|
(196,726 |
) |
|
|
(207,361 |
) |
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
|
1,872,211 |
|
|
|
1,879,949 |
|
|
|
1,708,482 |
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
116,322 |
|
|
|
111,541 |
|
|
|
105,002 |
|
Other income, net |
|
|
(14,945 |
) |
|
|
(22,930 |
) |
|
|
(17,735 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
$ |
1,770,834 |
|
|
$ |
1,791,338 |
|
|
$ |
1,621,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
Broadline |
|
$ |
265,526 |
|
|
$ |
258,171 |
|
|
$ |
249,409 |
|
SYGMA |
|
|
26,753 |
|
|
|
30,467 |
|
|
|
29,740 |
|
Other |
|
|
37,629 |
|
|
|
36,692 |
|
|
|
30,368 |
|
|
|
|
|
|
|
|
|
|
|
Total segments |
|
|
329,908 |
|
|
|
325,330 |
|
|
|
309,517 |
|
Corporate |
|
|
52,431 |
|
|
|
47,199 |
|
|
|
53,042 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
382,339 |
|
|
$ |
372,529 |
|
|
$ |
362,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
Broadline |
|
$ |
342,550 |
|
|
$ |
393,067 |
|
|
$ |
405,015 |
|
SYGMA |
|
|
5,053 |
|
|
|
4,977 |
|
|
|
41,596 |
|
Other |
|
|
40,857 |
|
|
|
36,565 |
|
|
|
55,750 |
|
|
|
|
|
|
|
|
|
|
|
Total segments |
|
|
388,460 |
|
|
|
434,609 |
|
|
|
502,361 |
|
Corporate |
|
|
76,101 |
|
|
|
81,354 |
|
|
|
100,881 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
464,561 |
|
|
$ |
515,963 |
|
|
$ |
603,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Broadline |
|
$ |
5,706,431 |
|
|
$ |
5,880,738 |
|
|
$ |
5,584,626 |
|
SYGMA |
|
|
366,539 |
|
|
|
414,044 |
|
|
|
385,470 |
|
Other |
|
|
914,764 |
|
|
|
1,005,740 |
|
|
|
918,025 |
|
|
|
|
|
|
|
|
|
|
|
Total segments |
|
|
6,987,734 |
|
|
|
7,300,522 |
|
|
|
6,888,121 |
|
Corporate |
|
|
3,228,885 |
|
|
|
2,781,771 |
|
|
|
2,630,810 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
10,216,619 |
|
|
$ |
10,082,293 |
|
|
$ |
9,518,931 |
|
|
|
|
|
|
|
|
|
|
|
69
The sales mix for the principal product categories for each fiscal year is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Canned and dry products |
|
$ |
7,091,420 |
|
|
$ |
6,820,363 |
|
|
$ |
6,161,946 |
|
Fresh and frozen meats |
|
|
6,394,447 |
|
|
|
6,606,347 |
|
|
|
6,548,127 |
|
Frozen fruits, vegetables, bakery and
other |
|
|
5,122,415 |
|
|
|
5,105,353 |
|
|
|
4,691,114 |
|
Dairy products |
|
|
3,750,684 |
|
|
|
4,000,780 |
|
|
|
3,245,488 |
|
Poultry |
|
|
3,709,553 |
|
|
|
3,808,844 |
|
|
|
3,585,462 |
|
Fresh produce |
|
|
3,017,018 |
|
|
|
3,183,540 |
|
|
|
3,118,122 |
|
Paper and disposables |
|
|
2,911,029 |
|
|
|
2,964,006 |
|
|
|
2,825,505 |
|
Seafood |
|
|
1,740,292 |
|
|
|
1,878,830 |
|
|
|
1,840,149 |
|
Beverage products |
|
|
1,322,300 |
|
|
|
1,297,543 |
|
|
|
1,200,263 |
|
Janitorial products |
|
|
940,097 |
|
|
|
988,781 |
|
|
|
857,339 |
|
Equipment and smallwares |
|
|
661,309 |
|
|
|
704,050 |
|
|
|
763,179 |
|
Medical supplies |
|
|
192,766 |
|
|
|
163,674 |
|
|
|
205,381 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
36,853,330 |
|
|
$ |
37,522,111 |
|
|
$ |
35,042,075 |
|
|
|
|
|
|
|
|
|
|
|
Information concerning geographic areas is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Sales: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
33,378,485 |
|
|
$ |
33,842,824 |
|
|
$ |
31,891,186 |
|
Canada |
|
|
3,134,989 |
|
|
|
3,380,159 |
|
|
|
2,923,106 |
|
Other |
|
|
339,856 |
|
|
|
299,128 |
|
|
|
227,783 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
36,853,330 |
|
|
$ |
37,522,111 |
|
|
$ |
35,042,075 |
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets:(2) |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
2,725,200 |
|
|
$ |
2,655,714 |
|
|
$ |
2,531,980 |
|
Canada |
|
|
223,320 |
|
|
|
233,879 |
|
|
|
189,154 |
|
Other |
|
|
30,680 |
|
|
|
197 |
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,979,200 |
|
|
$ |
2,889,790 |
|
|
$ |
2,721,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents sales to external customers from businesses operating in these countries. |
|
(2) |
|
Long-lived assets represents net property, plant and equipment reported in the
country in which they are held. |
70
21. SUPPLEMENTAL GUARANTOR INFORMATION
Sysco International, Co. is an unlimited liability company organized under the laws of the
Province of Nova Scotia, Canada and is a wholly-owned subsidiary of Sysco. In May 2002, Sysco
International, Co. issued, in a private offering, $200,000,000 of 6.10% notes due in 2012 (see Note
11, Debt). In December 2002, these notes were exchanged for substantially identical notes in an
exchange offer registered under the Securities Act of 1933. These notes are fully and
unconditionally guaranteed by Sysco. Sysco International, Co. is a holding company with no
significant sources of income or assets, other than its equity interests in its subsidiaries and
interest income from loans made to its subsidiaries. The proceeds from the issuance of the 6.10%
notes were used to repay commercial paper issued to fund the fiscal 2002 acquisition of a Canadian
broadline foodservice operation.
The following condensed consolidating financial statements present separately the financial
position, results of operations and cash flows of the parent guarantor (Sysco), the subsidiary
issuer (Sysco International) and all other non-guarantor subsidiaries of Sysco (Other Non-Guarantor
Subsidiaries) on a combined basis and eliminating entries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet |
|
|
|
June 27, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Sysco |
|
|
Sysco International |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated Totals |
|
|
|
(In thousands) |
|
Current assets |
|
$ |
937,335 |
|
|
$ |
36 |
|
|
$ |
4,333,308 |
|
|
$ |
|
|
|
$ |
5,270,679 |
|
Investment in subsidiaries |
|
|
13,293,437 |
|
|
|
403,363 |
|
|
|
165,197 |
|
|
|
(13,861,997 |
) |
|
|
|
|
Plant and equipment, net |
|
|
264,657 |
|
|
|
|
|
|
|
2,714,543 |
|
|
|
|
|
|
|
2,979,200 |
|
Other assets |
|
|
421,371 |
|
|
|
830 |
|
|
|
1,544,539 |
|
|
|
|
|
|
|
1,966,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
14,916,800 |
|
|
$ |
404,229 |
|
|
$ |
8,757,587 |
|
|
$ |
(13,861,997 |
) |
|
$ |
10,216,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
380,195 |
|
|
$ |
954 |
|
|
$ |
2,769,005 |
|
|
$ |
|
|
|
$ |
3,150,154 |
|
Intercompany payables (receivables) |
|
|
8,533,159 |
|
|
|
54,785 |
|
|
|
(8,587,944 |
) |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
2,219,655 |
|
|
|
199,816 |
|
|
|
48,015 |
|
|
|
|
|
|
|
2,467,486 |
|
Other liabilities |
|
|
413,651 |
|
|
|
|
|
|
|
735,626 |
|
|
|
|
|
|
|
1,149,277 |
|
Shareholders equity |
|
|
3,370,140 |
|
|
|
148,674 |
|
|
|
13,792,885 |
|
|
|
(13,861,997 |
) |
|
|
3,449,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
14,916,800 |
|
|
$ |
404,229 |
|
|
$ |
8,757,587 |
|
|
$ |
(13,861,997 |
) |
|
$ |
10,216,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet |
|
|
|
June 28, 2008 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Sysco |
|
|
Sysco International |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated Totals |
|
|
|
(In thousands) |
|
Current assets |
|
$ |
526,109 |
|
|
$ |
|
|
|
$ |
4,648,924 |
|
|
$ |
|
|
|
$ |
5,175,033 |
|
Investment in subsidiaries |
|
|
14,202,506 |
|
|
|
398,065 |
|
|
|
118,041 |
|
|
|
(14,718,612 |
) |
|
|
|
|
Plant and equipment, net |
|
|
202,778 |
|
|
|
|
|
|
|
2,687,012 |
|
|
|
|
|
|
|
2,889,790 |
|
Other assets |
|
|
593,699 |
|
|
|
1,262 |
|
|
|
1,422,509 |
|
|
|
|
|
|
|
2,017,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
15,525,092 |
|
|
$ |
399,327 |
|
|
$ |
8,876,486 |
|
|
$ |
(14,718,612 |
) |
|
$ |
10,082,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
412,042 |
|
|
$ |
986 |
|
|
$ |
3,086,315 |
|
|
$ |
|
|
|
$ |
3,499,343 |
|
Intercompany payables (receivables) |
|
|
9,670,465 |
|
|
|
100,027 |
|
|
|
(9,770,492 |
) |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
1,729,401 |
|
|
|
199,752 |
|
|
|
46,282 |
|
|
|
|
|
|
|
1,975,435 |
|
Other liabilities |
|
|
468,213 |
|
|
|
|
|
|
|
730,316 |
|
|
|
|
|
|
|
1,198,529 |
|
Shareholders equity |
|
|
3,244,971 |
|
|
|
98,562 |
|
|
|
14,784,065 |
|
|
|
(14,718,612 |
) |
|
|
3,408,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
15,525,092 |
|
|
$ |
399,327 |
|
|
$ |
8,876,486 |
|
|
$ |
(14,718,612 |
) |
|
$ |
10,082,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Results of Operations |
|
|
|
Year Ended June 27, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sysco |
|
|
Non-Guarantor |
|
|
|
|
|
Consolidated |
|
|
|
Sysco |
|
|
International |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Totals |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
36,853,330 |
|
|
$ |
|
|
|
$ |
36,853,330 |
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
29,816,999 |
|
|
|
|
|
|
|
29,816,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
|
|
|
|
7,036,331 |
|
|
|
|
|
|
|
7,036,331 |
|
Operating expenses |
|
|
218,241 |
|
|
|
117 |
|
|
|
4,945,762 |
|
|
|
|
|
|
|
5,164,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
(218,241 |
) |
|
|
(117 |
) |
|
|
2,090,569 |
|
|
|
|
|
|
|
1,872,211 |
|
Interest expense (income) |
|
|
476,238 |
|
|
|
11,142 |
|
|
|
(371,058 |
) |
|
|
|
|
|
|
116,322 |
|
Other income, net |
|
|
(3,273 |
) |
|
|
|
|
|
|
(11,672 |
) |
|
|
|
|
|
|
(14,945 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income
taxes |
|
|
(691,206 |
) |
|
|
(11,259 |
) |
|
|
2,473,299 |
|
|
|
|
|
|
|
1,770,834 |
|
Income tax (benefit) provision |
|
|
(279,041 |
) |
|
|
(4,545 |
) |
|
|
998,472 |
|
|
|
|
|
|
|
714,886 |
|
Equity in earnings of subsidiaries |
|
|
1,468,113 |
|
|
|
44,626 |
|
|
|
|
|
|
|
(1,512,739 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
1,055,948 |
|
|
$ |
37,912 |
|
|
$ |
1,474,827 |
|
|
$ |
(1,512,739 |
) |
|
$ |
1,055,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Results of Operations |
|
|
|
Year Ended June 28, 2008 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sysco |
|
|
Non-Guarantor |
|
|
|
|
|
Consolidated |
|
|
|
Sysco |
|
|
International |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Totals |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
37,522,111 |
|
|
$ |
|
|
|
$ |
37,522,111 |
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
30,327,254 |
|
|
|
|
|
|
|
30,327,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
|
|
|
|
7,194,857 |
|
|
|
|
|
|
|
7,194,857 |
|
Operating expenses |
|
|
206,338 |
|
|
|
142 |
|
|
|
5,108,428 |
|
|
|
|
|
|
|
5,314,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
(206,338 |
) |
|
|
(142 |
) |
|
|
2,086,429 |
|
|
|
|
|
|
|
1,879,949 |
|
Interest expense (income) |
|
|
462,554 |
|
|
|
11,736 |
|
|
|
(362,749 |
) |
|
|
|
|
|
|
111,541 |
|
Other income, net |
|
|
(7,373 |
) |
|
|
|
|
|
|
(15,557 |
) |
|
|
|
|
|
|
(22,930 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income
taxes |
|
|
(661,519 |
) |
|
|
(11,878 |
) |
|
|
2,464,735 |
|
|
|
|
|
|
|
1,791,338 |
|
Income tax (benefit) provision |
|
|
(253,031 |
) |
|
|
(4,543 |
) |
|
|
942,761 |
|
|
|
|
|
|
|
685,187 |
|
Equity in earnings of subsidiaries |
|
|
1,514,639 |
|
|
|
33,907 |
|
|
|
|
|
|
|
(1,548,546 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
1,106,151 |
|
|
$ |
26,572 |
|
|
$ |
1,521,974 |
|
|
$ |
(1,548,546 |
) |
|
$ |
1,106,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Results of Operations |
|
|
|
Year Ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sysco |
|
|
Non-Guarantor |
|
|
|
|
|
Consolidated |
|
|
|
Sysco |
|
|
International |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Totals |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
35,042,075 |
|
|
$ |
|
|
|
$ |
35,042,075 |
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
28,284,603 |
|
|
|
|
|
|
|
28,284,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
|
|
|
|
6,757,472 |
|
|
|
|
|
|
|
6,757,472 |
|
Operating expenses |
|
|
213,915 |
|
|
|
127 |
|
|
|
4,834,948 |
|
|
|
|
|
|
|
5,048,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
(213,915 |
) |
|
|
(127 |
) |
|
|
1,922,524 |
|
|
|
|
|
|
|
1,708,482 |
|
Interest expense (income) |
|
|
410,190 |
|
|
|
11,813 |
|
|
|
(317,001 |
) |
|
|
|
|
|
|
105,002 |
|
Other income, net |
|
|
(8,984 |
) |
|
|
|
|
|
|
(8,751 |
) |
|
|
|
|
|
|
(17,735 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income
taxes |
|
|
(615,121 |
) |
|
|
(11,940 |
) |
|
|
2,248,276 |
|
|
|
|
|
|
|
1,621,215 |
|
Income tax (benefit) provision |
|
|
(235,260 |
) |
|
|
(4,567 |
) |
|
|
859,966 |
|
|
|
|
|
|
|
620,139 |
|
Equity in earnings of subsidiaries |
|
|
1,380,937 |
|
|
|
18,075 |
|
|
|
|
|
|
|
(1,399,012 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
1,001,076 |
|
|
$ |
10,702 |
|
|
$ |
1,388,310 |
|
|
$ |
(1,399,012 |
) |
|
$ |
1,001,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Cash Flows |
|
|
|
Year Ended June 27, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Sysco |
|
|
Non-Guarantor |
|
|
Consolidated |
|
|
|
Sysco |
|
|
International |
|
|
Subsidiaries |
|
|
Totals |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Net cash provided by (used for): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(354,022 |
) |
|
$ |
38,340 |
|
|
$ |
1,898,023 |
|
|
$ |
1,582,341 |
|
Investing activities |
|
|
(82,684 |
) |
|
|
|
|
|
|
(575,979 |
) |
|
|
(658,663 |
) |
Financing activities |
|
|
(380,564 |
) |
|
|
|
|
|
|
921 |
|
|
|
(379,643 |
) |
Effect of exchange rate on cash |
|
|
|
|
|
|
|
|
|
|
(8,503 |
) |
|
|
(8,503 |
) |
Intercompany activity |
|
|
1,229,820 |
|
|
|
(38,340 |
) |
|
|
(1,191,480 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash |
|
|
412,550 |
|
|
|
|
|
|
|
122,982 |
|
|
|
535,532 |
|
Cash at the beginning of the period |
|
|
486,646 |
|
|
|
|
|
|
|
64,906 |
|
|
|
551,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at the end of the period |
|
$ |
899,196 |
|
|
$ |
|
|
|
$ |
187,888 |
|
|
$ |
1,087,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Cash Flows |
|
|
|
Year Ended June 28, 2008 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Sysco |
|
|
Non-Guarantor |
|
|
Consolidated |
|
|
|
Sysco |
|
|
International |
|
|
Subsidiaries |
|
|
Totals |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Net cash provided by (used for): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(266,597 |
) |
|
$ |
25,261 |
|
|
$ |
1,837,465 |
|
|
$ |
1,596,129 |
|
Investing activities |
|
|
(64,561 |
) |
|
|
|
|
|
|
(490,999 |
) |
|
|
(555,560 |
) |
Financing activities |
|
|
(659,760 |
) |
|
|
(44,035 |
) |
|
|
5,217 |
|
|
|
(698,578 |
) |
Effect of exchange rate on cash |
|
|
|
|
|
|
|
|
|
|
1,689 |
|
|
|
1,689 |
|
Intercompany activity |
|
|
1,341,687 |
|
|
|
18,774 |
|
|
|
(1,360,461 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
|
350,769 |
|
|
|
|
|
|
|
(7,089 |
) |
|
|
343,680 |
|
Cash at the beginning of the period |
|
|
135,877 |
|
|
|
|
|
|
|
71,995 |
|
|
|
207,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at the end of the period |
|
$ |
486,646 |
|
|
$ |
|
|
|
$ |
64,906 |
|
|
$ |
551,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Cash Flows |
|
|
|
Year Ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Sysco |
|
|
Non-Guarantor |
|
|
Consolidated |
|
|
|
Sysco |
|
|
International |
|
|
Subsidiaries |
|
|
Totals |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Net cash provided by (used for): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(238,228 |
) |
|
$ |
(7,326 |
) |
|
$ |
1,648,476 |
|
|
$ |
1,402,922 |
|
Investing activities |
|
|
(28,970 |
) |
|
|
|
|
|
|
(619,741 |
) |
|
|
(648,711 |
) |
Financing activities |
|
|
(764,350 |
) |
|
|
19,540 |
|
|
|
(3,440 |
) |
|
|
(748,250 |
) |
Effect of exchange rate on cash |
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
14 |
|
Intercompany activity |
|
|
1,036,150 |
|
|
|
(12,214 |
) |
|
|
(1,023,936 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
|
4,602 |
|
|
|
|
|
|
|
1,373 |
|
|
|
5,975 |
|
Cash at the beginning of the period |
|
|
131,275 |
|
|
|
|
|
|
|
70,622 |
|
|
|
201,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at the end of the period |
|
$ |
135,877 |
|
|
$ |
|
|
|
$ |
71,995 |
|
|
$ |
207,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
22. SUBSEQUENT EVENTS
Syscos affiliate, Baugh Supply Chain Cooperative (BSCC), is a cooperative taxed under
subchapter T of the United States Internal Revenue Code the operation of which has resulted in a
deferral of tax payments. The IRS, in connection with its audits of the companys 2003 through
2006 federal income tax returns proposed adjustments that would have accelerated amounts that the
company had previously deferred and would have resulted in the payment of interest on those
deferred amounts. Sysco reached a settlement with the IRS on August 21, 2009 to cease paying U.S.
federal taxes related to BSCC on a deferred basis, pay the amounts currently recorded within
deferred taxes related to BSCC over a three year period and make a one-time payment of $41,000,000,
of which approximately $39,000,000 is non-deductible. The settlement addresses the BSCC deferred
tax issue as it relates to the IRS audit of the companys 2003 through 2006 federal income tax
returns, and settles the matter for all subsequent periods, including the 2007 and 2008 federal
income tax returns already under audit. As a result of the settlement, the company will pay the
amounts owed in the following schedule:
|
|
|
|
|
Amounts paid annually: |
Fiscal 2010 |
|
$ |
528,000,000 |
|
Fiscal 2011 |
|
|
212,000,000 |
|
Fiscal 2012 |
|
|
212,000,000 |
|
Of
the amounts to be paid in fiscal 2010 included in the table above, $316,000,000 will be
paid in the first quarter of fiscal 2010 and the remaining payments will be paid in quarterly
installments beginning in the second quarter of fiscal 2010. Amounts to be paid in fiscal 2011 and
2012 will be paid with Syscos quarterly tax payments. The company believes it has access to
sufficient cash on hand, cash flow from operations and current access to capital to make payments
on all of the amounts noted above. As of June 27, 2009, Sysco has recorded deferred income tax
liabilities of $750,755,000, net of federal benefit, and $429,189,000 within accrued income taxes
related to the BSCC supply chain distributions. The company had previously accrued interest during
the period of appeals and as a result of the settlement with the IRS, Sysco will record an income
tax benefit of approximately $30,000,000 in the first quarter of fiscal 2010.
23. QUARTERLY RESULTS (UNAUDITED)
Financial information for each quarter in the years ended June 27, 2009 and June 28, 2008 is
set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009 Quarter Ended |
|
|
|
|
|
|
September 27 |
|
|
December 27 |
|
|
March 28 |
|
|
June 27 |
|
|
Fiscal Year |
|
|
|
|
|
|
|
(In thousands except for share data) |
|
|
|
|
|
Sales |
|
$ |
9,877,429 |
|
|
$ |
9,149,803 |
|
|
$ |
8,739,350 |
|
|
$ |
9,086,748 |
|
|
$ |
36,853,330 |
|
Cost of sales |
|
|
7,990,873 |
|
|
|
7,399,690 |
|
|
|
7,102,274 |
|
|
|
7,324,162 |
|
|
|
29,816,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
1,886,556 |
|
|
|
1,750,113 |
|
|
|
1,637,076 |
|
|
|
1,762,586 |
|
|
|
7,036,331 |
|
Operating expenses |
|
|
1,381,804 |
|
|
|
1,328,249 |
|
|
|
1,231,753 |
|
|
|
1,222,314 |
|
|
|
5,164,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
504,752 |
|
|
|
421,864 |
|
|
|
405,323 |
|
|
|
540,272 |
|
|
|
1,872,211 |
|
Interest expense |
|
|
26,410 |
|
|
|
28,400 |
|
|
|
28,233 |
|
|
|
33,279 |
|
|
|
116,322 |
|
Other income, net |
|
|
(2,813 |
) |
|
|
(5,223 |
) |
|
|
(3,514 |
) |
|
|
(3,395 |
) |
|
|
(14,945 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
481,155 |
|
|
|
398,687 |
|
|
|
380,604 |
|
|
|
510,388 |
|
|
|
1,770,834 |
|
Income taxes |
|
|
204,341 |
|
|
|
161,033 |
|
|
|
154,438 |
|
|
|
195,074 |
|
|
|
714,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
276,814 |
|
|
$ |
237,654 |
|
|
$ |
226,166 |
|
|
$ |
315,314 |
|
|
$ |
1,055,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings |
|
$ |
0.46 |
|
|
$ |
0.40 |
|
|
$ |
0.38 |
|
|
$ |
0.53 |
|
|
$ |
1.77 |
|
Diluted net earnings |
|
|
0.46 |
|
|
|
0.40 |
|
|
|
0.38 |
|
|
|
0.53 |
|
|
|
1.77 |
|
Dividends declared |
|
|
0.22 |
|
|
|
0.24 |
|
|
|
0.24 |
|
|
|
0.24 |
|
|
|
0.94 |
|
Market price high/low |
|
|
35-27 |
|
|
|
33-21 |
|
|
|
25-19 |
|
|
|
25-21 |
|
|
|
35-19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008 Quarter Ended |
|
|
|
|
|
|
September 29 |
|
|
December 29 |
|
|
March 29 |
|
|
June 28 |
|
|
Fiscal Year |
|
|
|
|
|
|
|
(In thousands except for share data) |
|
|
|
|
|
Sales |
|
$ |
9,405,844 |
|
|
$ |
9,239,505 |
|
|
$ |
9,146,557 |
|
|
$ |
9,730,205 |
|
|
$ |
37,522,111 |
|
Cost of sales |
|
|
7,614,702 |
|
|
|
7,471,725 |
|
|
|
7,412,036 |
|
|
|
7,828,791 |
|
|
|
30,327,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
1,791,142 |
|
|
|
1,767,780 |
|
|
|
1,734,521 |
|
|
|
1,901,414 |
|
|
|
7,194,857 |
|
Operating expenses |
|
|
1,336,509 |
|
|
|
1,318,768 |
|
|
|
1,316,877 |
|
|
|
1,342,754 |
|
|
|
5,314,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
454,633 |
|
|
|
449,012 |
|
|
|
417,644 |
|
|
|
558,660 |
|
|
|
1,879,949 |
|
Interest expense |
|
|
26,371 |
|
|
|
28,915 |
|
|
|
28,744 |
|
|
|
27,511 |
|
|
|
111,541 |
|
Other income, net |
|
|
(3,032 |
) |
|
|
(8,343 |
) |
|
|
(7,285 |
) |
|
|
(4,270 |
) |
|
|
(22,930 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
431,294 |
|
|
|
428,440 |
|
|
|
396,185 |
|
|
|
535,419 |
|
|
|
1,791,338 |
|
Income taxes |
|
|
164,305 |
|
|
|
164,292 |
|
|
|
155,284 |
|
|
|
201,306 |
|
|
|
685,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
266,989 |
|
|
$ |
264,148 |
|
|
$ |
240,901 |
|
|
$ |
334,113 |
|
|
$ |
1,106,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings |
|
$ |
0.44 |
|
|
$ |
0.43 |
|
|
$ |
0.40 |
|
|
$ |
0.56 |
|
|
$ |
1.83 |
|
Diluted net earnings |
|
|
0.43 |
|
|
|
0.43 |
|
|
|
0.40 |
|
|
|
0.55 |
|
|
|
1.81 |
|
Dividends declared |
|
|
0.19 |
|
|
|
0.22 |
|
|
|
0.22 |
|
|
|
0.22 |
|
|
|
0.85 |
|
Market price high/low |
|
|
36-30 |
|
|
|
36-31 |
|
|
|
32-26 |
|
|
|
32-27 |
|
|
|
36-26 |
|
Percentage increases 2009 vs. 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
5 |
% |
|
|
(1 |
)% |
|
|
(4 |
)% |
|
|
(7 |
)% |
|
|
(2 |
)% |
Operating income |
|
|
11 |
|
|
|
(6 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(0 |
) |
Net earnings |
|
|
4 |
|
|
|
(10 |
) |
|
|
(6 |
) |
|
|
(6 |
) |
|
|
(5 |
) |
Basic net earnings per share |
|
|
5 |
|
|
|
(7 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(3 |
) |
Diluted net earnings per share |
|
|
7 |
|
|
|
(7 |
) |
|
|
(5 |
) |
|
|
(4 |
) |
|
|
(2 |
) |
|
|
|
Financial results are impacted by accounting changes and the adoption of various accounting
standards. See Note 2, Changes in Accounting. |
75
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Syscos management, with the participation of our chief executive officer and chief financial
officer, evaluated the effectiveness of our disclosure controls and procedures as of June 27, 2009.
The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act, means controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in
the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act is accumulated and communicated to the
companys management, including its principal executive and principal financial officers, as
appropriate to allow timely decisions regarding the required disclosure. Management recognizes that
any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. Based on the
evaluation of our disclosure controls and procedures as of June 27, 2009, our chief executive
officer and chief financial officer concluded that, as of such date, Syscos disclosure controls
and procedures were effective at the reasonable assurance level.
Managements report on internal control over financial reporting is included in the financial
statement pages at page 38.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 27, 2009 that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item will be included in our proxy statement for the 2009
Annual Meeting of Stockholders under the following captions, and is incorporated herein by
reference thereto: Election of Directors, Executive Officers, Section 16(a) Beneficial
Ownership Reporting Compliance, Report of the Audit Committee and Corporate Governance and
Board of Directors Matters.
Item 11. Executive Compensation
The information required by this item will be included in our proxy statement for the 2009
Annual Meeting of Stockholders under the following captions, and is incorporated herein by
reference thereto: Compensation Discussion and Analysis, Compensation Committee Report,
Director Compensation and Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be included in our proxy statement for the 2009
Annual Meeting of Stockholders under the following captions, and is incorporated herein by
reference thereto: Stock Ownership and Equity Compensation Plan Information.
Item 13. Certain Relationships and Related Transactions
The information required by this item will be included in our proxy statement for the 2009
Annual Meeting of Stockholders under the following caption, and is incorporated herein by reference
thereto: Certain Relationships and Related Transactions and Director Independence.
Item 14. Principal Accountant Fees and Services
The information required by this item will be included in our proxy statement for the 2009
Annual Meeting of Stockholders under the following caption, and is incorporated herein by reference
thereto: Fees Paid to Independent Registered Public Accounting Firm.
76
PART IV
Item 15. Exhibits
(a) The following documents are filed, or incorporated by reference, as part of this Form
10-K:
All financial statements.
See index to Consolidated Financial Statements on page 37 of this
Form 10-K.
All financial statement schedules are omitted because they are not applicable or the information
is set forth in the consolidated financial statements or notes thereto within Item 8. Financial
Statements and Supplementary Data.
3. Exhibits.
|
|
|
|
|
3.1
|
|
|
|
Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(a) to
Form 10-K for the year ended June 28, 1997 (File No. 1-6544). |
|
|
|
|
|
3.2
|
|
|
|
Certificate of Amendment of Certificate of Incorporation increasing authorized
shares, incorporated by reference to Exhibit 3(d) to Form 10-Q for the quarter
ended January 1, 2000 (File No. 1-6544). |
|
|
|
|
|
3.3
|
|
|
|
Certificate of Amendment to Restated Certificate of Incorporation increasing
authorized shares, incorporated by reference to Exhibit 3(e) to Form 10-Q for the
quarter ended December 27, 2003 (File No. 1-6544). |
|
|
|
|
|
3.4
|
|
|
|
Form of Amended Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock, incorporated by reference to Exhibit 3(c) to
Form 10-K for the year ended June 29, 1996 (File No. 1-6544). |
|
|
|
|
|
3.5
|
|
|
|
Amended and Restated Bylaws of Sysco Corporation dated July 18, 2008, incorporated
by reference to Exhibit 3.5 to Form 8-K filed on July 23, 2008 (File No. 1-6544). |
|
|
|
|
|
4.1
|
|
|
|
Senior Debt Indenture, dated as of June 15, 1995, between Sysco Corporation and
First Union National Bank of North Carolina, Trustee, incorporated by reference to
Exhibit 4(a) to Registration Statement on Form S-3 filed June
6, 1995 (File No. 33-60023). |
|
|
|
|
|
4.2
|
|
|
|
Fifth Supplemental Indenture, dated as of July 27, 1998 between Sysco Corporation
and First Union National Bank, Trustee, incorporated by reference to Exhibit 4(h)
to Form 10-K for the year ended June 27, 1998 (File No. 1-6544). |
|
|
|
|
|
4.3
|
|
|
|
Seventh Supplemental Indenture, including form of Note, dated March 5, 2004 between
Sysco Corporation, as Issuer, and Wachovia Bank, National Association (formerly
First Union National Bank of North Carolina), as Trustee, incorporated by reference
to Exhibit 4(j) to Form 10-Q for the quarter ended March 27, 2004 (File No.
1-6544). |
|
|
|
|
|
4.4
|
|
|
|
Eighth Supplemental Indenture, including form of Note, dated September 22, 2005
between Sysco Corporation, as Issuer, and Wachovia Bank, National Association, as
Trustee, incorporated by reference to Exhibits 4.1 and 4.2 to Form 8-K filed on
September 20, 2005 (File No. 1-6544). |
|
|
|
|
|
4.5
|
|
|
|
Ninth Supplemental Indenture, including form of Note, dated February 12, 2008
between Sysco Corporation, as Issuer, and the Trustee, incorporated by reference to
Exhibit 4.1 to Form 8-K filed on February 12, 2008 (File No. 1-6544). |
|
|
|
|
|
4.6
|
|
|
|
Tenth Supplemental Indenture, including form of Note, dated February 12, 2008
between Sysco Corporation, as Issuer, and the Trustee, incorporated by reference to
Exhibit 4.3 to Form 8-K filed on February 12, 2008 (File No. 1-6544). |
|
|
|
|
|
4.7
|
|
|
|
Form of Eleventh Supplemental Indenture, including form of Note, dated March 17,
2009 between Sysco Corporation, as Issuer, and the Trustee, incorporated by
reference to Exhibit 4.1 to Form 8-K filed on March 13, 2009 (File No. 1-6544). |
|
|
|
|
|
4.8
|
|
|
|
Form of Twelfth Supplemental Indenture, including form of Note, dated March 17,
2009 between Sysco Corporation, as Issuer, and the Trustee, incorporated by
reference to Exhibit 4.3 to Form 8-K filed on March 13, 2009 (File No. 1-6544). |
|
|
|
|
|
4.9
|
|
|
|
Agreement of Resignation, Appointment and Acceptance, dated February 13, 2007, by
and among Sysco Corporation and Sysco International Co., a wholly-owned subsidiary
of Sysco Corporation, U.S. Bank National Association and The Bank of New York Trust
Company, N.A., incorporated by reference to Exhibit 4(h) to Registration Statement
on Form S-3 filed on February 6, 2008 (File No. 333-149086). |
77
|
|
|
|
|
4.10
|
|
|
|
Indenture dated May 23, 2002 between Sysco International, Co., Sysco Corporation
and Wachovia Bank, National Association, incorporated by reference to Exhibit 4.1
to Registration Statement on Form S-4 filed August 21, 2002 (File No. 333-98489). |
|
|
|
|
|
4.11
|
|
|
|
Letter Regarding Appointment of New Trustee from Sysco Corporation to U.S. Bank
National Association, incorporated by reference to Exhibit 4.7 to Form 10-Q for the
quarter ended December 29, 2007 filed on February 5, 2008 (File No. 1-6544). |
|
|
|
|
|
10.1
|
|
|
|
Credit Agreement dated November 4, 2005 between Sysco Corporation, Sysco
International, Co., JP Morgan Chase Bank, N.A., and certain Lenders party thereto,
incorporated by reference to Exhibit 99.1 to Form 8-K filed on November 10, 2005
(File No. 1-6544). |
|
|
|
|
|
10.2
|
|
|
|
Form of Commitment Increase Agreement dated September 25, 2007 by and among Sysco
Corporation, JPMorgan Chas Bank, individually and as Administrative Agent, the
Co-Syndication Agents named therein and the other financial institutions party
thereto relating to the Credit Agreement dated November 4, 2005, incorporated by
reference to Exhibit 10.1 to Form 10-Q for the quarter ended September 29, 2007
filed on November 8, 2007 (File No. 1-6544). |
|
|
|
|
|
10.3
|
|
|
|
Form of Extension Agreement effective September 21, 2007 by and among Sysco
Corporation, JPMorgan Chase Bank, individually and as Administrative Agent, the
Co-Syndication Agents named therein and the other financial institutions party
thereto relating to the Credit Agreement dated November 4, 2005, incorporated by
reference to Exhibit 10.2 to Form 10-Q for the quarter ended September 29, 2007
filed on November 8, 2007 (File No. 1-6544). |
|
|
|
|
|
10.4
|
|
|
|
Amended and Restated Issuing and Paying Agency Agreement, dated as of April 13,
2006, between Sysco Corporation and JPMorgan Chase Bank, National Association,
incorporated by reference to Exhibit 10.1 to Form 8-K filed on April 19, 2006 (File
No. 1-6544). |
|
|
|
|
|
10.5
|
|
|
|
Commercial Paper Dealer Agreement, dated as of April 13, 2006, between Sysco
Corporation and J.P. Morgan Securities Inc., incorporated by reference to Exhibit
10.2 to Form 8-K filed on April 19, 2006 (File No. 1-6544). |
|
|
|
|
|
10.6
|
|
|
|
Commercial Paper Dealer Agreement, dated as of April 13, 2006, between Sysco
Corporation and Goldman, Sachs & Co., incorporated by reference to Exhibit 10.3 to
Form 8-K filed on April 19, 2006 (File No. 1-6544). |
|
|
|
|
|
10.7
|
|
|
|
Fifth Amended and Restated Sysco Corporation Executive Deferred Compensation Plan,
incorporated by reference to Exhibit 10.8 to Form 10-K for the year ended July 28,
2008 filed on August 26, 2008 (File No. 1-6544). |
|
|
|
|
|
10.8
|
|
|
|
First Amendment to the Fifth Amended and Restated Sysco Corporation Executive
Deferred Compensation Plan, incorporated by reference to Exhibit 10.1 to Form 10-Q
for the quarter ended December 27, 2008 filed on February 3, 2009 (File No.
1-6544). |
|
|
|
|
|
10.9
|
|
|
|
Eighth Amended and Restated Sysco Corporation Supplemental Executive Retirement
Plan, incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended
December 27, 2008 filed on February 3, 2009 (File No. 1-6544). |
|
|
|
|
|
10.10
|
|
|
|
Sysco Corporation 1991 Stock Option Plan, incorporated by reference to Exhibit
10(e) to Form 10-K for the year ended July 3, 1999 (File No. 1-6544). |
|
|
|
|
|
10.11
|
|
|
|
Amendments to Sysco Corporation 1991 Stock Option Plan dated effective September 4,
1997, incorporated by reference to Exhibit 10(f) to Form 10-K for the year ended
June 28, 1997 (File No. 1-6544). |
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|
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|
|
10.12
|
|
|
|
Amendments to Sysco Corporation 1991 Stock Option Plan dated effective November 5,
1998, incorporated by reference to Exhibit 10(g) to Form 10-K for the year ended
July 3, 1999 (File No. 1-6544). |
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|
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|
10.13
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on September 2,
1999 under the 1991 Stock Option Plan, incorporated by reference to Exhibit 10(tt)
to Form 10-K for the year ended July 3, 2004 filed on September 16, 2004 (File No.
1-6544). |
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|
|
|
|
10.14
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on September 7,
2000 under the 1991 Stock Option Plan, incorporated by reference to Exhibit 10(uu)
to Form 10-K for the year ended July 3, 2004 filed on September 16, 2004 (File No.
1-6544). |
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|
|
10.15
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|
|
|
2000 Stock Incentive Plan, incorporated by reference to Appendix B to Proxy
Statement filed on September 25, 2000 (File No. 1-6544). |
|
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|
10.16
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|
|
|
Form of Stock Option Grant Agreement issued to executive officers on September 11,
2001 under the 2000 Stock Incentive Plan, incorporated by reference to Exhibit
10(vv) to Form 10-K for the year ended July 3, 2004 filed on September 16, 2004
(File No. 1-6544). |
78
|
|
|
|
|
10.17
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on September 11,
2001 under the 2000 Stock Incentive Plan, incorporated by reference to Exhibit
10(ww) to Form 10-K for the year ended July 3, 2004 filed on September 16, 2004
(File No. 1-6544). |
|
|
|
|
|
10.18
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on September 12,
2002 under the 2000 Stock Incentive Plan, incorporated by reference to Exhibit
10(xx) to Form 10-K for the year ended July 3, 2004 filed on September 16, 2004
(File No. 1-6544). |
|
|
|
|
|
10.19
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on September 11,
2003 under the 2000 Stock Incentive Plan, incorporated by reference to Exhibit
10(yy) to Form 10-K for the year ended July 3, 2004 filed on September 16, 2004
(File No. 1-6544). |
|
|
|
|
|
10.20
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on September 2,
2004 under the 2000 Stock Incentive Plan, incorporated by reference to Exhibit
10(a) to Form 8-K filed on September 9, 2004 (File No. 1-6544). |
|
10.21
|
|
|
|
2004 Stock Option Plan, incorporated by reference to Appendix B to the Sysco
Corporation Proxy Statement filed September 24, 2004 (File No. 1-6544). |
|
|
|
|
|
10.22
|
|
|
|
First Amendment to the 2004 Stock Option Plan, incorporated by reference to Exhibit
10.2 to Form 10-Q for the quarter ended March 29, 2008 filed on May 6, 2008 (File
No. 1-6544). |
|
|
|
|
|
10.23
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on September 8,
2005 and September 7, 2006 under the 2004 Stock Option Plan, incorporated by
reference to Exhibit 99.1 to Form 8-K filed on September 14, 2005 (File No.
1-6544). |
|
|
|
|
|
10.24
|
|
|
|
2007 Stock Incentive Plan, incorporated by reference to Annex A to the Sysco
Corporation Proxy Statement filed on September 26, 2007 (File No. 1-6544). |
|
|
|
|
|
10.25
|
|
|
|
First Amendment to the 2007 Stock Incentive Plan dated January 17, 2009,
incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended March
28, 2009 filed on May 5, 2009 (File No. 1-6544). |
|