e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended July 2,
2011
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number
1-6544
Sysco Corporation
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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74-1648137
(IRS employer
identification number)
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1390 Enclave Parkway
Houston, Texas
(Address of principal executive offices)
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77077-2099
(Zip Code)
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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
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Title of Each Class
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which registered
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Common Stock, $1.00 par value
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New York Stock Exchange
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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 þ 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
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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 $16,371,221,000 as of
January 1, 2011 (based on the closing sales price on the
New York Stock Exchange Composite Tape on December 31,
2010, as reported by The Wall Street Journal (Southwest
Edition)). As of August 17, 2011, the registrant had issued
and outstanding an aggregate of 592,697,484 shares of its
common stock.
DOCUMENTS
INCORPORATED BY REFERENCE:
Portions of the companys 2011 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
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 $115.0 million to $39.3 billion in annual
sales, both through internal expansion of existing operations
and through acquisitions.
Syscos fiscal year ends on the Saturday nearest to June
30th. This resulted in a 52-week year ending July 2, 2011
for fiscal 2011, a 53-week year ending July 3, 2010 for
fiscal 2010 and a 52-week year ending June 27, 2009 for
2009.
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. Our
other segments include our specialty produce 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. 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 19, 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, industrial caterers and
other similar venues where foodservice products are served.
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.
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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.
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1
A comparison of the sales mix in the principal product
categories during the last three years is presented below:
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2011
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2010
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2009
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Canned and dry products
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19
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%
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19
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%
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19
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%
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Fresh and frozen meats
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18
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17
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17
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Frozen fruits, vegetables, bakery and other
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14
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14
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14
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Dairy products
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11
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10
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10
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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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9
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8
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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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4
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4
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Janitorial products
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2
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2
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3
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Equipment and smallwares
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1
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2
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2
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Medical
supplies(1)
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100
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%
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100
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%
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100
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%
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(1) |
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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,
competitive pricing, 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
approximately 13,500 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 July 2, 2011.
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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2011
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2010
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2009
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Restaurants
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62
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%
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62
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%
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62
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%
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Hospitals and nursing homes
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11
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11
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11
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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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16
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Totals
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100
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%
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100
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%
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100
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%
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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. Purchasing is generally carried out
through both centrally developed purchasing programs and direct
purchasing programs established by our various operating
companies.
We administer 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 these consolidated
programs and from other suppliers, although Sysco Brand products
are only available to the operating companies through these
consolidated programs. We also focus on increasing profitability
by lowering operating costs and by lowering aggregate inventory
levels, which reduces future facility expansion needs at our
broadline operating companies, while providing greater value to
our suppliers and customers. This includes 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 will begin construction
on a third RDC in fiscal 2012 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 Managements Discussion and
Analysis of Financial Condition and Results of Operations,
Liquidity and Capital Resources at Item 7 regarding
our liquidity, financial position and sources and uses of funds.
2
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 And Shared Services Center
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, legal, cash management, information
technology, employee benefits, engineering, real estate and
construction, risk management and insurance, sales and
marketing, payroll, human resources, training and development,
strategy, 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.
We are in the early stages of implementing a shared services
center that will perform support services for employees,
suppliers and customers, payroll administration, human
resources, customer and vendor contract administration,
financial services such as vendor payments, invoicing, cash
application, certain credit services, accounting and sales and
use tax administration, procurement and maintenance support and
sales support for our operating companies.
Capital
Improvements
To maximize productivity and customer service, we continue to
modernize, expand and construct new distribution facilities.
During fiscal 2011, 2010 and 2009, approximately
$636.4 million, $594.6 million and $464.6 million
respectively, were invested in technology, facilities, delivery
fleet and other capital asset enhancements. We estimate our
capital expenditures in fiscal 2012 should be in the range of
$750 million to $800 million. During the three years
ended July 2, 2011, capital expenditures were financed
primarily by internally generated funds, our commercial paper
program and bank and other borrowings. We expect to finance our
fiscal 2012 capital expenditures from the same sources.
We are undertaking a multi-year Business Transformation Project,
pursuant to which we are developing and implementing an
integrated software system to support a majority of our
businesses and further streamline our operations. These systems
are commonly referred to as Enterprise Resource Planning (ERP)
systems. Approximately $100 million to $120 million of
the fiscal 2012 estimated capital expenditures are related to
the Business Transformation Project.
Employees
As of July 2, 2011, we had approximately
46,000 full-time employees, approximately 17% of whom were
represented by unions, primarily the International Brotherhood
of Teamsters. Contract negotiations are handled by each
individual operating company. Approximately 25% of our union
employees are covered by collective bargaining agreements which
have expired or will expire during fiscal 2012 and are subject
to renegotiation. Since July 2, 2011, two contracts
covering 85 of such employees have been renegotiated. We
consider our labor relations to be satisfactory.
Competition
Industry sources estimate that there are more than
15,000 companies engaged in foodservice distribution in the
United States. Our customers may also choose to purchase
products directly from retail outlets or negotiate prices
directly with our suppliers. While we compete primarily with
local and regional distributors, a few organizations 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. An additional competitive factor
for our larger chain restaurant customers is the ability to
provide a national distribution network. 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 $220 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 2011. 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 more than 8,000
marketing associates, our diversified product base, which
includes a differentiated group of high quality Sysco brand
products, the diversity in the types of customers we serve, our
economies of scale and our wide geographic presence in the
United States and Canada, which mitigates some of the impact of
regional economic declines that may occur over time and provides
a national distribution network for larger chain restaurant
customers. We believe our liquidity and access to capital
provides us the ability to continuously invest in business
improvements. 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.
3
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, regulates
food contact packaging and materials, and maintains a Reportable
Food Registry for the industry to report when there is a
reasonable probability that an article of food will cause
serious adverse health consequences. 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. Although we are
subject to other U.S. and Canadian federal, state,
provincial and local provisions relating to the protection of
the environment or the discharge of materials, these provisions
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 that are of significant importance,
including the
SYSCO®
trademark and our privately-branded product trademarks that
include the
SYSCO®
trademark. These trademarks and the private brands on which they
are used are widely recognized within the foodservice industry.
Approximately half of our privately-branded sales are from
products labeled with our
SYSCO®
trademark without any other trademark. We believe the loss of
the
SYSCO®
trademark would have a material adverse effect on our results of
operations. Our U.S. trademarks are effective for a ten
year period and the company generally renews its trademarks
before their expiration dates unless a particular trademark is
no longer in use. The company does not have any material patents
or licenses.
We are not engaged in material research and development
activities relating to the development of new products or the
improvement of existing products.
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 July 2, 2011, we operated 177 distribution facilities
throughout the United States, Canada and Ireland.
4
Periods of
Difficult Economic Conditions and Heightened Uncertainty in the
Financial Markets Affect Consumer Confidence, which Can
Adversely Impact our Business
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. Difficult economic conditions,
such as the slow economic recovery experienced in fiscal 2011
which included food and fuel cost inflation experienced by the
consumer, and heightened uncertainty in the financial markets
negatively affect consumer confidence and discretionary
spending. This can lead to reductions in the frequency of dining
out and the amount spent by consumers for food-away-from-home
purchases. These conditions, in turn, can negatively impacted
our sales. The development of worsening economic conditions in
the future or permanent changes in consumer dining habits as a
result of such conditions would likely negatively impact our
operating results.
Periods of
Significant or Prolonged Inflation or Deflation Affect our
Product Costs and Profitability
Volatile food costs have a direct impact on our industry.
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 all or a portion of such product cost increases to
our customers, which may have a negative impact on our business
and our profitability. In addition, product cost inflation may
negatively impact consumer spending decisions, which could
adversely impact our sales. Conversely, our business may be
adversely impacted by periods of 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. Our estimate for the
inflation in Syscos cost of goods was 4.6% in fiscal 2011,
compared to deflation of 1.5% in fiscal 2010 and inflation of
4.7% in fiscal 2009.
Our Business
Transformation Project Could Experience Implementation Problems,
Scheduling Delays or Cost Overages and May Not Prove to Be Cost
Effective or Result in the Benefits We Anticipate, Negatively
Impacting our Business, Results of Operations and
Liquidity
In fiscal 2009, we commenced the design of an enterprise-wide
project to implement an integrated software system, commonly
referred to as an Enterprise Resource Planning (ERP) system, to
support a majority of our business processes and further
streamline our operations. We have substantially completed the
design and build phases of our Business Transformation Project
and we are testing the underlying ERP system and processes
through a pilot implementation. During the fourth quarter of
fiscal 2011, our pilot operating company implemented the project
and our shared services center became active in its support
role. ERP implementations are complex and time-consuming
projects that involve substantial investments in system software
and implementation activities over a multi-year timeframe. As is
the case in most ERP implementations, we expect that the
implementation of our ERP system will require transformation of
business and financial processes in order to realize the full
benefits of the project. Although we expect the investment in
the Business Transformation Project to provide meaningful
benefits to the company over the long-term, the costs will
exceed the benefits during the testing and deployment stages of
implementation, including fiscal 2012. The expected costs of the
project in fiscal 2012 may be greater or less than
currently expected because as we continue implementation of the
project, we may encounter the need for changes in design or
revisions of the project calendar and budget, including
incurring expenses at an earlier or later time than currently
anticipated. In fiscal 2011, we took more time to test the
underlying ERP system and processes. We are also taking
additional time in fiscal 2012 to improve the underlying systems
prior to larger scale deployment. These actions have caused a
delay in the project of approximately six to twelve months and
until we reach the point where the underlying system functions
as intended, our deployment timeline is still being determined.
Our business and results of operations may be adversely affected
if we experience operating problems, scheduling delays, cost
overages or limitations on the extent of the business
transformation 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 also be adversely affected if the
ERP system, and the associated process changes, do not prove to
be cost effective or do not result in the cost savings and other
benefits that we anticipate.
We May Not Be
Able to Fully Compensate for Increases in Fuel Costs
Volatile fuel prices have a direct impact on our industry. 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 in the past, there is no
guarantee that we can do so again if another period of high fuel
costs occurs. If fuel 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. We routinely enter into
forward purchase commitments for a portion of our projected
monthly diesel fuel requirements at prices equal to the
then-current market price for diesel. If fuel prices decrease
significantly, these forward purchases may prove ineffective and
result in us paying higher than market costs for a portion of
our diesel fuel.
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
5
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, short-term weather conditions or more prolonged
climate change, crop conditions, product recalls, water
shortages, 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.
If we Fail to
Comply with Requirements Imposed by Applicable Law or Other
Governmental Regulations, we Could Become Subject to Lawsuits,
Investigations and Other Liabilities and Restrictions on our
Operations that Could Significantly and Adversely Affect our
Business
We are subject to governmental regulation at the federal, state,
international, national, provincial and local levels in many
areas of our business, such as food safety and sanitation,
minimum wage, overtime, wage payment, wage and hour and
employment discrimination, immigration, human health and safety,
including regulations of the FDA, USDA, U.S. Occupational
Safety and Health Administration, federal motor carrier safety,
data privacy, environmental protection, the import and export of
goods and customs regulations, the False Claims Act, the Foreign
Corrupt Practices Act and the services we provide in connection
with governmentally funded entitlement programs. From time to
time, both federal and state governmental agencies have
conducted audits of our billing practices as part of
investigations of providers of services under governmental
contracts, or otherwise. We also receive requests for
information from governmental agencies in connection with these
audits. While we attempt to comply with all applicable laws and
regulations, we cannot assure you that we are in full compliance
with all applicable laws and regulations or interpretations of
these laws and regulations at all times or that we will be able
to comply with any future laws, regulations or interpretations
of these laws and regulations. If we fail to comply with
applicable laws and regulations or encounter disagreements with
respect to our contracts subject to governmental regulations,
including those referred to above, we may be subject to
investigations, criminal sanctions or civil remedies, including
fines, injunctions, prohibitions on exporting, seizures or
debarments from contracting with the government. The cost of
compliance or the consequences of non-compliance, including
debarments, could have a material adverse effect on our business
and results of operations. In addition, governmental units may
make changes in the regulatory frameworks within which we
operate that may require either the corporation as a whole or
individual businesses to incur substantial increases in costs in
order to comply with such laws and regulations.
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.
Competition in
our Industry may Adversely Impact our Margins and our Ability to
Retain Customers
The foodservice industry is highly competitive and numerous
regional and local competitors exist. Additionally, new
competition could arise from non-traditional sources or
consolidation among competitors. New competitive sources may
result in increased focus on pricing and on limiting price
increases, or may require increased discounting. Such
competition may result in margin erosion
and/or make
it difficult for us to attract and retain customers.
Increased competition within the industry and general economic
conditions have served to further increase pressure on the
industrys profit margins, and continued margin pressure
within the industry may have a material adverse impact on our
operating results and profitability. If we are unable to
effectively differentiate ourselves from our competitors, our
market share, sales and profitability, through increased
expenditures or decreased prices, could be adversely impacted.
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.
6
Expanding into
International Markets and Complimentary Lines of Business
Presents Unique Challenges, and our Expansion Efforts with
respect to International Operations and Complimentary Lines of
Business may not be Successful
In addition to our domestic activities, an element of our
strategy includes the possibility of further expansion of
operations into 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.
Another element of our strategy includes the possibility of
expansion into businesses that are closely related or
complimentary to, but not currently part of, our core
foodservice distribution business. Our ability to successfully
operate in these complimentary business markets may be adversely
affected by legal and regulatory constraints, including
compliance with regulatory programs to which we become subject.
Risks inherent in branching out into such complimentary markets
also include the costs and difficulties of managing operations
outside of our core business, which may require additional
skills and competencies, as well as difficulties in identifying
and gaining access to suppliers or customers in new markets.
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.
We Need Access to
Borrowed Funds in Order to Grow and Any Default by Us Under our
Indebtedness Could Have a Material Adverse Impact
A substantial part of our growth historically has been the
result of acquisitions and capital expansion. We anticipate
additional acquisitions and capital expansion in the future. 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.
Our Level of
Indebtedness and the Terms of our Indebtedness Could Adversely
Affect our Business and Liquidity Position
As of July 2, 2011, we had approximately $2.7 billion
of total indebtedness. We have a Board-approved commercial paper
program allowing us to issue short-term unsecured notes in an
aggregate amount not to exceed $1.3 billion; a revolving
credit facility supporting our U.S. and Canadian commercial
paper programs in the amount of $1.0 billion set to expire
on November 4, 2012; and certain uncommitted bank lines of
credit providing for unsecured borrowings for working capital of
up to $95.0 million. Our indebtedness may increase from
time to time for various reasons, including fluctuations in
operating results, working capital needs, capital expenditures
and potential acquisitions or joint ventures. Prior to maturity
of our revolving credit facility, we plan to renew or extend
this credit facility. The amount of credit capacity we are able
to obtain, if not sufficient for our needs, and the ultimate
cost of such credit could have a negative impact on our
liquidity, cost of capital and financial results. In addition,
to the extent that we decrease the amount of capacity under our
revolver when it is renewed, there is a risk that such liquidity
levels may not be adequate in the future to the extent that our
access to capital markets is restricted.
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. Furthermore, process changes may
be required as we continue to use our existing warehousing,
delivery, and payroll systems to support operations as we
implement the ERP system. 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.
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
10% of our current employees are participants in such
multi-employer plans. In fiscal 2011, our total contributions to
these plans were approximately $32.8 million.
7
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 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,
which has valuation dates ranging from January 31, 2009 to
December 31, 2009, Sysco estimates its share of the
aggregate withdrawal liability on most of the multi-employer
plans in which it participates could have been as much as
$200.0 million as of July 2, 2011 based on a voluntary
withdrawal. This estimate excludes plans for which Sysco has
recorded withdrawal liabilities. The majority of the plans we
participate in have a valuation date of calendar year-end. As
such, the majority of our estimated withdrawal liability results
from plans for which the valuation date was December 31,
2009; therefore, our estimated liability reflects the effects of
the fair value of the plans assets and projected benefit
obligations as of that date. Due to the lack of current
information, we believe our current share of the withdrawal
liability could materially differ from this estimate. 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 July 2, 2011,
Sysco had approximately $42.4 million in liabilities
recorded in total related to certain multi-employer defined
benefit plans for which our voluntary withdrawal has already
occurred. If any of these plans were to undergo a mass
withdrawal, as defined by the Pension Benefit Guaranty
Corporation, within a two year time frame from the point of our
withdrawal, we could have additional liability. Requirements to
pay such increased contributions, withdrawal liability, and
excise taxes could negatively impact our liquidity and results
of operations.
Our Funding of
our Company-Sponsored Qualified Pension Plan may Increase and
our Earnings May Decrease Should Financial Markets Experience
Future 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.
Our expense is also impacted by these items. Fluctuations in
asset values can cause the amount of our anticipated future
contributions to the plan to increase and pension expense to
increase and can result in a reduction to shareholders
equity on our balance sheet at fiscal year-end, which is when
this plans funded status is 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 as
these are inputs in determining our discount rate at fiscal
year-end. Specifically, decreases in these interest rates may
have an adverse impact on our results of operations. To the
extent financial markets experience future declines similar to
those experienced in fiscal 2008 through the beginning of fiscal
2010, and/or
interest rates on high quality bonds in the public markets
decline, our contributions and pension expense may increase for
future years as our funded status decreases, which could have an
adverse impact on our liquidity and results of operations.
Failure to
Successfully Renegotiate Union Contracts Could Result in Work
Stoppages
As of July 2, 2011, approximately 7,800 employees at
52 operating companies were members of 55 different local unions
associated with the International Brotherhood of Teamsters and
other labor organizations. In fiscal 2012, 21 agreements
covering approximately 2,000 employees have expired or will
expire. Since July 2, 2011, two contracts covering 85 of
the approximately 2,000 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 Authorized
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.
8
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
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
July 2, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cold Storage
|
|
|
Dry Storage
|
|
|
|
Location
|
|
Number of Facilities
|
|
|
(Square Feet in thousands)
|
|
|
(Square Feet in thousands)
|
|
|
Segment Served*
|
|
Alabama
|
|
|
2
|
|
|
|
184
|
|
|
|
228
|
|
|
BL
|
Alaska
|
|
|
1
|
|
|
|
43
|
|
|
|
26
|
|
|
BL
|
Arizona
|
|
|
2
|
|
|
|
130
|
|
|
|
104
|
|
|
BL, O
|
Arkansas
|
|
|
2
|
|
|
|
130
|
|
|
|
88
|
|
|
BL, O
|
California
|
|
|
18
|
|
|
|
1,009
|
|
|
|
1,074
|
|
|
BL, S, O
|
Colorado
|
|
|
4
|
|
|
|
283
|
|
|
|
208
|
|
|
BL, S, O
|
Connecticut
|
|
|
3
|
|
|
|
165
|
|
|
|
109
|
|
|
BL, O
|
District of Columbia
|
|
|
1
|
|
|
|
22
|
|
|
|
3
|
|
|
BL
|
Florida
|
|
|
15
|
|
|
|
1,253
|
|
|
|
926
|
|
|
BL, S, O
|
Georgia
|
|
|
6
|
|
|
|
314
|
|
|
|
420
|
|
|
BL, S, O
|
Idaho
|
|
|
2
|
|
|
|
84
|
|
|
|
88
|
|
|
BL
|
Illinois
|
|
|
5
|
|
|
|
371
|
|
|
|
387
|
|
|
BL, S, O
|
Indiana
|
|
|
1
|
|
|
|
100
|
|
|
|
109
|
|
|
BL
|
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
|
|
|
|
291
|
|
|
|
316
|
|
|
BL, O
|
Massachusetts
|
|
|
2
|
|
|
|
166
|
|
|
|
207
|
|
|
BL, S
|
Michigan
|
|
|
4
|
|
|
|
320
|
|
|
|
363
|
|
|
BL, S
|
Minnesota
|
|
|
2
|
|
|
|
150
|
|
|
|
135
|
|
|
BL
|
Mississippi
|
|
|
1
|
|
|
|
95
|
|
|
|
69
|
|
|
BL
|
Missouri
|
|
|
2
|
|
|
|
107
|
|
|
|
95
|
|
|
BL, S
|
Montana
|
|
|
1
|
|
|
|
120
|
|
|
|
121
|
|
|
BL
|
Nebraska
|
|
|
2
|
|
|
|
217
|
|
|
|
231
|
|
|
BL
|
Nevada
|
|
|
3
|
|
|
|
194
|
|
|
|
107
|
|
|
BL, O
|
New Jersey
|
|
|
4
|
|
|
|
140
|
|
|
|
453
|
|
|
BL, O
|
New Mexico
|
|
|
1
|
|
|
|
120
|
|
|
|
108
|
|
|
BL
|
New York
|
|
|
2
|
|
|
|
224
|
|
|
|
199
|
|
|
BL
|
North Carolina
|
|
|
6
|
|
|
|
330
|
|
|
|
421
|
|
|
BL, S, O
|
North Dakota
|
|
|
1
|
|
|
|
46
|
|
|
|
59
|
|
|
BL
|
Ohio
|
|
|
6
|
|
|
|
414
|
|
|
|
417
|
|
|
BL, S, O
|
Oklahoma
|
|
|
4
|
|
|
|
132
|
|
|
|
119
|
|
|
BL, S, O
|
Oregon
|
|
|
3
|
|
|
|
177
|
|
|
|
160
|
|
|
BL, S
|
Pennsylvania
|
|
|
4
|
|
|
|
460
|
|
|
|
356
|
|
|
BL, S
|
South Carolina
|
|
|
1
|
|
|
|
151
|
|
|
|
98
|
|
|
BL
|
Tennessee
|
|
|
5
|
|
|
|
411
|
|
|
|
427
|
|
|
BL, O
|
Texas
|
|
|
17
|
|
|
|
1,057
|
|
|
|
1,055
|
|
|
BL, S, O
|
Utah
|
|
|
1
|
|
|
|
161
|
|
|
|
107
|
|
|
BL
|
Virginia
|
|
|
3
|
|
|
|
564
|
|
|
|
410
|
|
|
BL
|
Washington
|
|
|
1
|
|
|
|
134
|
|
|
|
92
|
|
|
BL
|
Wisconsin
|
|
|
2
|
|
|
|
287
|
|
|
|
242
|
|
|
BL
|
Alberta, Canada
|
|
|
3
|
|
|
|
221
|
|
|
|
223
|
|
|
BL
|
British Columbia, Canada
|
|
|
8
|
|
|
|
296
|
|
|
|
275
|
|
|
BL, O
|
Manitoba, Canada
|
|
|
1
|
|
|
|
78
|
|
|
|
74
|
|
|
BL
|
New Brunswick, Canada
|
|
|
2
|
|
|
|
48
|
|
|
|
45
|
|
|
BL
|
Newfoundland, Canada
|
|
|
1
|
|
|
|
40
|
|
|
|
25
|
|
|
BL
|
Nova Scotia, Canada
|
|
|
1
|
|
|
|
31
|
|
|
|
42
|
|
|
BL
|
Ontario, Canada
|
|
|
10
|
|
|
|
452
|
|
|
|
393
|
|
|
BL, O
|
Quebec, Canada
|
|
|
1
|
|
|
|
33
|
|
|
|
58
|
|
|
BL
|
Saskatchewan, Canada
|
|
|
1
|
|
|
|
46
|
|
|
|
63
|
|
|
BL
|
Ireland
|
|
|
1
|
|
|
|
44
|
|
|
|
40
|
|
|
BL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
177
|
|
|
|
12,400
|
|
|
|
11,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Segments served include Broadline (BL), SYGMA (S) and Other
(O). |
We own approximately 20,132,000 square feet of our
distribution facilities (or 83.0% of the total square feet), and
the remainder is occupied under leases expiring at various dates
from fiscal 2012 to fiscal 2032, exclusive of renewal options.
Certain of the facilities owned by the company are subject to
industrial revenue bond financing arrangements totaling
$13.6 million as of July 2, 2011. Such industrial
revenue bond financing arrangements mature at various dates
through fiscal 2026.
We own our approximately 625,000 square foot headquarters
office complex in Houston, Texas. In addition, we own our
approximately 669,000 square foot shared services complex
in Cypress, Texas, which became operational in fiscal 2011.
9
We are currently constructing expansions, replacement or
fold-out facilities for our distribution facilities in Toronto,
Ontario, Canada; Hartford, Connecticut; Boston, Massachusetts;
Lincoln, Nebraska; Jersey City, New Jersey; Syracuse, New York;
Philadelphia, Pennsylvania; Austin, Texas; and San Antonio,
Texas. These operating companies, in the aggregate, accounted
for approximately 9.3% of fiscal 2011 sales.
As of July 2, 2011, our fleet of approximately 8,700
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 90% of these vehicles and
lease the remainder.
|
|
Item 3.
|
Legal
Proceedings
|
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
|
|
|
|
High
|
|
|
Low
|
|
|
Per Share
|
|
|
Fiscal 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
26.10
|
|
|
$
|
21.38
|
|
|
$
|
0.24
|
|
Second Quarter
|
|
|
29.48
|
|
|
|
24.24
|
|
|
|
0.25
|
|
Third Quarter
|
|
|
29.58
|
|
|
|
26.99
|
|
|
|
0.25
|
|
Fourth Quarter
|
|
|
31.99
|
|
|
|
28.13
|
|
|
|
0.25
|
|
Fiscal 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
31.55
|
|
|
$
|
27.13
|
|
|
$
|
0.25
|
|
Second Quarter
|
|
|
30.18
|
|
|
|
28.22
|
|
|
|
0.26
|
|
Third Quarter
|
|
|
30.54
|
|
|
|
27.31
|
|
|
|
0.26
|
|
Fourth Quarter
|
|
|
32.76
|
|
|
|
27.81
|
|
|
|
0.26
|
|
The number of record owners of Syscos common stock as of
August 17, 2011 was 14,210.
In May 2011, 52,070 shares were issued to the former
shareholders of HRI Supply Ltd. (HRI) upon the conversion of
dividend access shares issued in connection with Syscos
acquisition of HRI in May 2001.
In May 2011, 370,062 shares were issued to the former
shareholders of North Douglas Distributors Ltd. (North Douglas)
upon the conversion of dividend access shares issued in
connection with Syscos acquisition of North Douglas in
December 2000.
The foregoing shares were issued pursuant to the exemption from
registration contained in Section 4(2) of the Securities
Act of 1933, as amended.
We made the following share repurchases during the fourth
quarter of fiscal 2011:
ISSUER PURCHASES
OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Total Number
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
(d) Maximum Number
|
|
|
|
|
|
|
|
|
|
as Part of
|
|
|
of Shares that May
|
|
|
|
(a) Total Number
|
|
|
(b) Average Price
|
|
|
Publicly Announced
|
|
|
Yet Be Purchased Under
|
|
Period
|
|
of Shares
Purchased(1)
|
|
|
Paid per Share
|
|
|
Plans or Programs
|
|
|
the Plans or Programs
|
|
|
Month #1
April 3 April 30
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
13,386,600
|
|
Month #2
May 1 May 28
|
|
|
313,772
|
|
|
|
31.99
|
|
|
|
|
|
|
|
13,386,600
|
|
Month #3
May 29 July 02
|
|
|
46,820
|
|
|
|
31.20
|
|
|
|
|
|
|
|
13,386,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
360,592
|
|
|
$
|
31.88
|
|
|
|
|
|
|
|
13,386,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The total number of shares purchased includes zero, 313,772 and
46,820 shares tendered by individuals in connection with
stock option exercises in Month #1, Month #2 and Month #3,
respectively. During the period, no other shares were purchased
pursuant to the publicly announced program described below. |
On August 27, 2010, 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.
10
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 2006, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/1/06
|
|
|
6/30/07
|
|
|
6/28/08
|
|
|
6/27/09
|
|
|
7/3/10
|
|
|
7/2/11
|
Sysco Corporation
|
|
|
$
|
100
|
|
|
|
$
|
110
|
|
|
|
$
|
97
|
|
|
|
$
|
82
|
|
|
|
$
|
105
|
|
|
|
$
|
120
|
|
S&P 500
|
|
|
|
100
|
|
|
|
|
120
|
|
|
|
|
105
|
|
|
|
|
77
|
|
|
|
|
88
|
|
|
|
|
117
|
|
S&P 500 Food/Staple Retail Index
|
|
|
|
100
|
|
|
|
|
107
|
|
|
|
|
111
|
|
|
|
|
92
|
|
|
|
|
93
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
Item 6.
|
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
(53 Weeks)
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands except for per share data)
|
|
|
Sales
|
|
$
|
39,323,489
|
|
|
$
|
37,243,495
|
|
|
$
|
36,853,330
|
|
|
$
|
37,522,111
|
|
|
$
|
35,042,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,931,502
|
|
|
|
1,975,868
|
|
|
|
1,872,211
|
|
|
|
1,879,949
|
|
|
|
1,708,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
1,827,454
|
|
|
|
1,849,589
|
|
|
|
1,770,834
|
|
|
|
1,791,338
|
|
|
|
1,621,215
|
|
Income taxes
|
|
|
675,424
|
|
|
|
669,606
|
|
|
|
714,886
|
|
|
|
685,187
|
|
|
|
620,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
1,152,030
|
|
|
$
|
1,179,983
|
|
|
$
|
1,055,948
|
|
|
$
|
1,106,151
|
|
|
$
|
1,001,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.96
|
|
|
$
|
1.99
|
|
|
$
|
1.77
|
|
|
$
|
1.83
|
|
|
$
|
1.62
|
|
Diluted earnings per share
|
|
|
1.96
|
|
|
|
1.99
|
|
|
|
1.77
|
|
|
|
1.81
|
|
|
|
1.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share
|
|
$
|
1.03
|
|
|
$
|
0.99
|
|
|
$
|
0.94
|
|
|
$
|
0.85
|
|
|
$
|
0.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
11,385,555
|
|
|
$
|
10,313,701
|
|
|
$
|
10,148,186
|
|
|
$
|
10,010,615
|
|
|
$
|
9,475,365
|
|
Capital expenditures
|
|
|
636,442
|
|
|
|
594,604
|
|
|
|
464,561
|
|
|
|
515,963
|
|
|
|
603,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
207,031
|
|
|
$
|
7,970
|
|
|
$
|
9,163
|
|
|
$
|
4,896
|
|
|
$
|
3,568
|
|
Long-term debt
|
|
|
2,279,517
|
|
|
|
2,472,662
|
|
|
|
2,467,486
|
|
|
|
1,975,435
|
|
|
|
1,758,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
2,486,548
|
|
|
|
2,480,632
|
|
|
|
2,476,649
|
|
|
|
1,980,331
|
|
|
|
1,761,795
|
|
Shareholders equity
|
|
|
4,705,242
|
|
|
|
3,827,526
|
|
|
|
3,449,702
|
|
|
|
3,408,986
|
|
|
|
3,278,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
7,191,790
|
|
|
$
|
6,308,158
|
|
|
$
|
5,926,351
|
|
|
$
|
5,389,317
|
|
|
$
|
5,040,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of long-term debt to capitalization
|
|
|
34.6
|
%
|
|
|
39.3
|
%
|
|
|
41.8
|
%
|
|
|
36.8
|
%
|
|
|
35.0
|
%
|
Our financial results are impacted by accounting changes and the
adoption of various accounting standards. See Note 2,
Accounting Changes, to the Consolidated Financial
Statements in Item 8 for further discussion.
12
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
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, custom-cut meat operations,
specialty produce companies, 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 $220 billion annual market.
According to industry sources, the foodservice, or
food-away-from-home, market represents approximately 47% 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 2009 when
it declined to the current level of 47%.
Industry sources estimate the total foodservice market in the
United States experienced a real sales decline of approximately
0.8% in calendar year 2010 and 6.9% in calendar year 2009. Real
sales 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, have
contributed 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.
Highlights
A slow economic recovery in the United States, combined with
rising product cost inflation and continued low levels of
consumer confidence, contributed to a challenging business
environment in fiscal 2011. Sales increased during fiscal 2011
as compared to fiscal 2010; however, gross profit dollars grew
at a slower rate than sales and operating expenses increased
faster than gross profit partially due to a significant charge
of $36.1 million from a withdrawal from a multi-employer
pension plan. This resulted in a decline in operating income for
fiscal 2011 as compared to fiscal 2010. Comparisons between
fiscal 2011 and fiscal 2010 are impacted by the presence of a
53rd week
in fiscal 2010. Syscos fiscal year ends on the Saturday
nearest to June 30th. This resulted in a 52-week year ending
July 2, 2011, a 53-week year ending July 3, 2010 for
fiscal 2010 and a 52-week year ending June 27, 2009. Our
Results of Operations discussion includes reconciliations of the
actual results for fiscal 2010 to the adjusted results for
fiscal 2010 based on a 52-week fiscal year due to the impact of
the 53-week year in fiscal 2010.
The following table sets forth the change in certain components
of our consolidated results of operations expressed as a
percentage increase or decrease over Fiscal 2010 on both a
53-week basis, or GAAP basis, and an adjusted 52-week basis:
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
Increase /
|
|
|
(Decrease)
|
|
(Decrease) on an
|
|
|
on a GAAP Basis
|
|
Adjusted Basis
|
|
Sales
|
|
|
5.6
|
%
|
|
|
7.7
|
%
|
Operating income
|
|
|
(2.2
|
)
|
|
|
(0.1
|
)
|
Net earnings
|
|
|
(2.4
|
)
|
|
|
(0.3
|
)
|
Basic earnings per share
|
|
|
(1.5
|
)
|
|
|
0.5
|
|
Diluted earnings per share
|
|
|
(1.5
|
)
|
|
|
0.5
|
|
|
|
|
|
|
Sales were $39.3 billion in fiscal 2011, an increase of
5.6% from the comparable prior year period. After adjusting for
the estimated impact of the
53rd
week, the increase would have been 7.7%. This adjusted increase
was primarily due to increased prices from inflation and
improving case volumes. Inflation, as measured by changes in our
product costs, was an estimated 4.6% during fiscal 2011. The
exchange rates used to translate our foreign sales into
U.S. dollars positively impacted sales by 0.5% and sales
from acquisitions within the last 12 months favorably
impacted sales by 0.7%.
|
|
|
|
Operating income was $1.9 billion, a 2.2% decrease from the
prior year. After adjusting for the estimated impact of the
53rd week
in fiscal 2010, this decrease would have been 0.1%. This
adjusted decrease was primarily driven by gross profit dollars
growing at a slower rate than sales and operating expenses
increasing faster than gross profit partially due to a
significant charge of $36.1 million from a withdrawal from
a multi-employer pension plan. Gross profit dollars increased
3.0% in fiscal 2011 from the comparable prior year period but
declined as a percentage of sales. This result was primarily due
to the impact of significant inflation in certain product
categories and strategic pricing initiatives. Operating expenses
increased 5.0% primarily due to higher pay-related expense, an
increase in net company-sponsored pension costs, provisions for
withdrawal from multi-employer pension plans and higher fuel
costs as compared to the prior year period. The impact of these
factors on operating expenses was partially offset by a decrease
in operating expenses resulting from the absence of the
53rd week
in fiscal 2011.
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|
|
|
Net earnings were $1.2 billion, an 2.4% decrease from the
prior year. After adjusting for the estimated impact of the
53rd week
in fiscal 2010, the decrease would have been 0.3%. This adjusted
decrease was primarily due to the factors discussed above and an
increase in the effective tax rate. The effective tax rate for
fiscal 2011 was 36.96%, compared to an effective tax rate of
36.20% for fiscal 2010. The difference between the tax rates for
the two periods resulted largely from the one-time reversal of
interest accruals for tax contingencies related to our
settlement with the Internal Revenue Service (IRS) in the first
quarter of fiscal 2010.
|
13
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|
|
|
|
Basic and diluted earnings per share in fiscal 2011 were $1.96,
a decrease of 1.5% from the comparable prior year period. After
adjusting for the estimated impact of the
53rd week
in fiscal 2010, this would have been an increase of 0.5%. This
adjusted increase is primarily a result of the factors discussed
above. Basic and diluted earnings per share for fiscal 2011 were
favorably impacted by two items. First, we recognized a
favorable impact of $0.05 per share due to the gains recorded on
the adjustment of the carrying value of corporate-owned life
insurance (COLI) policies to their cash surrender values.
Second, a favorable impact of $0.02 per share was recognized
related to the recognition of deferred tax assets from the
reversal of valuation allowances previously recorded on state
net operating loss carryforwards. These favorable impacts were
partially offset by $0.04 per share relating to the charge
recorded upon withdrawal from a multi-employer pension plan in
the third quarter. Basic and diluted earnings per share for
fiscal 2010 were favorably impacted by $0.05 per share due to
the one-time reversal of a previously accrued liability related
to the settlement of an outstanding tax matter with the IRS and
$0.04 per share due to gains recorded on the adjustment of the
carrying value of COLI policies to their cash surrender values.
|
Trends and
Strategy
Trends
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, have
contributed to a slow rate of recovery in the foodservice market.
We have experienced higher levels of product cost inflation this
fiscal year as compared to fiscal 2010. While we are generally
able to pass on modest levels of inflation to our customers, we
were unable to pass through fully these higher levels of product
cost inflation with the same gross profit percentage without
negatively impacting our customers business and therefore
our business. While we cannot predict whether inflation will
continue at current levels, periods of high inflation, either
overall or in certain product categories, can have a negative
impact on us and our customers, as high food costs can reduce
consumer spending in the food-away-from-home market, and may
negatively impact our sales, gross profit, operating income and
earnings.
We have also experienced higher operating costs this fiscal year
from increased pay-related expense due to increased sales and
gross profit as well as higher pension and fuel costs. We
believe pay-related expense could continue to increase if sales
and gross profit increase, as a portion of these costs is
variable in nature. Pension costs will decrease in fiscal 2012
primarily due to higher returns on assets of Syscos
company-sponsored qualified pension plan (Retirement Plan)
during fiscal 2011. Fuel costs are expected to increase in
fiscal 2012 as a result of anticipated higher fuel prices. Our
Business Transformation Project is a key part of our strategy to
control costs and continue to grow our business. We believe
expenses related to the project will increase in fiscal 2012 as
compared to fiscal 2011 as we prepare to begin deployment of the
project to our operating companies and increase our headcount in
our shared services center.
Strategy
We are focused on optimizing our core broadline business in the
U.S. and Canada, while continuing to explore appropriate
opportunities to profitably grow our market share and create
shareholder value through adjacent and international businesses.
Day-to-day,
our business decisions are driven by our mission to market and
deliver great products to our customers with exceptional
service, with the aspiration of becoming each of our
customers most valued business partner. We have identified
five strategies to help us achieve our mission and vision:
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|
Profoundly enriching the experience of doing business with
Sysco: Our primary focus is to help our customers
succeed. We believe that by building on our current competitive
advantages, we will be able to further differentiate our
offering to customers. Our competitive advantages include our
sales force of over 8,000 marketing associates; our diversified
product base, which includes quality-assured Sysco brand
products; the suite of services we provide to our customers such
as business reviews and menu analysis; and our wide geographic
presence in the United States and Canada. In addition, we have a
portfolio of businesses spanning broadline, specialty meat,
chain restaurant distribution, specialty produce, hotel
amenities and export which serves our customers needs
across a wide array of business segments. We believe this
strategy of enriching the experience of doing business with
Sysco will increase customer retention and profitably accelerate
sales growth with both existing and new customers.
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|
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|
Continuously improving productivity in all areas of our
business: This includes removing costs from our
operations through improved productivity without impacting our
service to our customers. In particular, we continue to optimize
warehouse and delivery activities across the corporation to
achieve a more efficient delivery of products to our customers.
Our multi-year Business Transformation Project is designed to
help further improve productivity. In this project, we are
developing and implementing an integrated software system to
support a majority of our business processes to further
streamline our operations and reduce costs. These systems are
commonly referred to as Enterprise Resource Planning (ERP)
systems. We view the technology as an important enabler of this
project; however the larger outcome of this project will be from
transformed processes that standardize portions of our
operations. This includes a shared business service center to
centrally manage certain back-office functions that are
currently performed at each operating company location.
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Expanding our portfolio of products and services by
initiating a customer-centric innovation
program: We continually explore opportunities to
provide new and improved products, technologies and services to
our customers.
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|
Exploring, assessing and pursuing new businesses and
markets: This strategy is focused on identifying
opportunities to expand the core business through growth in new
international markets and in adjacent areas that complement our
core foodservice distribution business.
|
14
|
|
|
|
|
As a part of our ongoing strategic analysis, we regularly
evaluate business opportunities, including potential
acquisitions and sales of assets and businesses.
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|
|
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|
Developing and effectively integrating a comprehensive,
enterprise-wide talent management process: Our
ability to drive results and grow our business is directly
linked to having the best talent in the industry. We are
committed to the continued enhancement of our talent management
programs in terms of how we recruit, select, train and develop
our associates throughout Sysco as well as succession planning.
Our ultimate objective is to provide our associates with
outstanding opportunities for professional growth and career
development.
|
Business
Transformation Project
In fiscal 2011, we substantially completed the design and build
phases of our multi-year Business Transformation Project and we
are testing the underlying ERP system and processes through a
pilot implementation. We took more time to test the underlying
ERP system and processes in fiscal 2011 than we originally
anticipated. Our pilot operating company implemented the project
and our shared services center became active in its support role
in the fourth quarter of fiscal 2011. We are also taking
additional time in fiscal 2012 to improve the underlying systems
prior to larger scale deployment. These actions have caused a
delay in the project of approximately six to twelve months and
until we reach the point where the underlying system functions
as intended, our deployment timeline is still being determined.
Although we expect the investment in the Business Transformation
Project to provide meaningful benefits to the company over the
long-term, the costs will exceed the benefits during the testing
and deployment stages of implementation, including fiscal 2012.
Gross project expenses related to the Business Transformation
Project were $102.0 million in fiscal 2011 or $0.11 per
share, $81.1 million in fiscal 2010 or $0.09 per share and
$35.7 million in fiscal 2009 or $0.04 per share. Our cash
outlay for fiscal 2011 was $278.8 million, of which
approximately $196 million was capitalized. Provided the
improvements needed in the underlying systems are obtained in
the first half of fiscal 2012, we anticipate the software will
be ready for its intended use in the second half of fiscal 2012,
which will result in reduced capitalization as compared to
fiscal 2011 and increased expense from both software
amortization and deployment costs. We will also incur increased
costs from the ramp up of our shared services center, continuing
costs for additional phases of our Business Transformation
Project and information technology support costs. Some of these
increased costs will be partially offset by benefits obtained
from the project, primarily in reduced headcount, however the
costs will not exceed the benefits in fiscal 2012. We expect our
gross project expenses related to the Business Transformation
Project for fiscal 2012 to be approximately $280 million to
$300 million and capital expenditures to be approximately
$100 million to $120 million.
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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
2011
|
|
|
(53 Weeks)
|
|
|
2009
|
|
|
Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
81.4
|
|
|
|
80.9
|
|
|
|
80.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
18.6
|
|
|
|
19.1
|
|
|
|
19.1
|
|
Operating expenses
|
|
|
13.7
|
|
|
|
13.8
|
|
|
|
14.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
4.9
|
|
|
|
5.3
|
|
|
|
5.1
|
|
Interest expense
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
0.3
|
|
Other expense (income), net
|
|
|
(0.0
|
)
|
|
|
0.0
|
|
|
|
(0.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
4.6
|
|
|
|
5.0
|
|
|
|
4.8
|
|
Income taxes
|
|
|
1.7
|
|
|
|
1.8
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
2.9
|
%
|
|
|
3.2
|
%
|
|
|
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:
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|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
2011
|
|
|
(53 Weeks)
|
|
|
Sales
|
|
|
5.6
|
%
|
|
|
1.1
|
%
|
Cost of sales
|
|
|
6.2
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3.0
|
|
|
|
1.0
|
|
Operating expenses
|
|
|
5.0
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
(2.2
|
)
|
|
|
5.5
|
|
Interest expense
|
|
|
(5.7
|
)
|
|
|
7.9
|
|
Other expense (income), net
|
|
|
|
(1)
|
|
|
|
(1)
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|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
(1.2
|
)
|
|
|
4.4
|
|
Income taxes
|
|
|
0.9
|
|
|
|
(6.3
|
)
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
(2.4
|
)%
|
|
|
11.7
|
%
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
(1.5
|
)%
|
|
|
12.4
|
%
|
Diluted earnings per share
|
|
|
(1.5
|
)
|
|
|
12.4
|
|
Average shares outstanding
|
|
|
(1.0
|
)
|
|
|
(0.5
|
)
|
Diluted shares outstanding
|
|
|
(0.8
|
)
|
|
|
(0.4
|
)
|
|
|
|
(1) |
|
Other expense (income), net was income of $14.2 million in
fiscal 2011, expense of $0.8 million in fiscal 2010 and
income of $14.9 million in fiscal 2009. |
Impact of 53-week
fiscal year in Fiscal 2010
Syscos fiscal year ends on the Saturday nearest to June
30th. This resulted in a 52-week year ending July 2, 2011,
a 53-week year ending July 3, 2010 for fiscal 2010 and a
52-week year June 27, 2009 for 2009. Because the fourth
quarter of fiscal 2010 contained an additional week as compared
to fiscal 2011, our Results of Operations for fiscal 2010 are
not directly comparable to the current or prior year. Management
believes that adjusting the fiscal 2010 Results of Operations
for the estimated impact of the additional week provides more
comparable financial results on a
year-over-year
basis. As a result, the Results of Operations discussion for
fiscal 2010 presented below in certain instances discusses
operating items that have been adjusted by one-fourteenth of the
total metric for the fourth quarter, except as otherwise noted
with respect to adjusted diluted earnings per share. Failure to
make these adjustments would cause the
year-over-year
changes in certain metrics such as sales, operating income, net
earnings and diluted earnings per share to be overstated,
whereas in certain cases, a metric may actually have increased
rather than declined or declined rather than increased on a more
comparable
year-over-year
basis. Our Results of Operations discussion includes
reconciliations of the actual results for fiscal 2010 to the
adjusted results for fiscal 2010 based on a 52-week fiscal year.
Sales
Sales for fiscal 2011 were 5.6% higher in fiscal 2011 than
fiscal 2010. After adjusting for the estimated impact of the
53rd week
in fiscal 2010, the increase in sales in fiscal 2011 would have
been 7.7%. Sales for fiscal 2010 were 1.1% higher than fiscal
2009. After adjusting for the estimated impact of the
53rd week
in fiscal 2010, fiscal 2010 would have had a sales decrease of
0.9%. Set forth below is a reconciliation of actual sales growth
to adjusted sales growth/decline for the periods presented (see
further discussion at Impact of 53-week fiscal year in
Fiscal 2010 above):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
2011
|
|
|
(53 Weeks)
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Sales for the 53/52 week periods
|
|
$
|
39,323,489
|
|
|
$
|
37,243,495
|
|
|
$
|
36,853,330
|
|
Estimated sales for the additional week in fiscal 2010
|
|
|
|
|
|
|
739,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Sales
|
|
$
|
39,323,489
|
|
|
$
|
36,504,318
|
|
|
$
|
36,853,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual percentage increase
|
|
|
5.6
|
%
|
|
|
1.1
|
%
|
|
|
|
|
Adjusted percentage increase (decrease)
|
|
|
7.7
|
%
|
|
|
(0.9
|
)%
|
|
|
|
|
Sales for fiscal 2011, excluding the negative impact of the
extra week in fiscal 2010, increased as a result of product cost
inflation and the resulting increase in selling prices along
with improving case volumes. Estimated product cost increases,
an internal measure of inflation, were approximately 4.6% during
fiscal 2011. Sales from acquisitions in the last 12 months
favorably impacted sales by 0.7% for fiscal 2011. The changes in
the exchange rates used to translate our foreign sales into
U.S. dollars positively impacted sales by 0.5% compared to
fiscal 2010.
Sales for fiscal 2010, in addition to the positive impact of the
extra week in fiscal 2010, were increased by improving case
volumes. The changes in the exchange rates used to translate our
foreign sales into U.S. dollars positively impacted sales
by 0.9% compared to fiscal 2009. Sales from acquisitions within
the last 12 months favorably impacted sales by 0.5% for
fiscal 2010. Product cost deflation and the resulting decrease
in selling prices had a significant impact on sales levels in
fiscal 2010. Estimated changes in product costs, an internal
measure of deflation or inflation, were estimated as deflation
of 1.5% during fiscal 2010. A change in customer sales mix as
compared to fiscal 2009 also negatively impacted fiscal 2010
sales. Case volumes increased at a greater rate within our
contract based customer group which generally receives lower
pricing for higher volume.
16
Operating
Income
Cost of sales primarily includes our product costs, net of
vendor consideration, and includes in-bound freight. Operating
expenses include the costs of facilities, product handling,
delivery, selling and general and administrative activities.
Fuel surcharges are reflected within sales and gross profit;
fuel costs are reflected within operating expenses.
Operating income decreased 2.2% in fiscal 2011 over fiscal 2010
to $1.9 billion, and as a percentage of sales, declined to
4.9% of sales. After adjusting for the estimated impact of the
53rd week
in fiscal 2010, the decrease in operating income in fiscal 2011
over fiscal 2010 would have been 0.1%. This adjusted decrease
was primarily driven by gross profit dollars growing at a slower
rate than sales and operating expenses increasing faster than
gross profit partially due to a significant charge of
$36.1 million from a withdrawal from a multi-employer
pension plan. Gross profit dollars increased 3.0% in fiscal 2011
as compared to fiscal 2010, and operating expenses increased
5.0% in fiscal 2011.
Operating income increased 5.5% in fiscal 2010 from fiscal 2009
to $2.0 billion, and as a percentage of sales, increased to
5.3% of sales. After adjusting for the estimated impact of the
53rd week
in fiscal 2010, the increase in operating income in fiscal 2010
over fiscal 2009 would have been 3.3%. This adjusted increase in
operating income was primarily driven by a decrease in operating
expenses. Gross profit dollars increased 1.0% in fiscal 2010 as
compared to fiscal 2009, while operating expenses decreased 0.6%
in fiscal 2010.
Set forth below is a reconciliation of actual operating income
to adjusted operating income for the periods presented (see
further discussion at Impact of 53-week fiscal year in
Fiscal 2010 above):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
2011
|
|
|
(53 Weeks)
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Operating income for the 53/52 week periods
|
|
$
|
1,931,502
|
|
|
$
|
1,975,868
|
|
|
$
|
1,872,211
|
|
Estimated operating income for the additional week in fiscal 2010
|
|
|
|
|
|
|
41,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income
|
|
$
|
1,931,502
|
|
|
$
|
1,934,148
|
|
|
$
|
1,872,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual percentage (decrease) increase
|
|
|
(2.2
|
)%
|
|
|
5.5
|
%
|
|
|
|
|
Adjusted percentage (decrease) increase
|
|
|
(0.1
|
)%
|
|
|
3.3
|
%
|
|
|
|
|
Gross profit dollars increased in fiscal 2011 as compared to
fiscal 2010 primarily due to increased sales, partially offset
by the negative comparison of the additional week included in
fiscal 2010. Gross profit, as a percentage of sales, was 18.62%
in fiscal 2011, a decline of 47 basis points from the gross
profit as a percentage of sales of 19.08% in fiscal 2010. This
decline in gross profit percentage was primarily the result of
the following factors described in the paragraphs below.
First, Syscos product cost inflation was estimated as
inflation of 4.6% during fiscal 2011. Based on our product sales
mix for fiscal 2011, we were most impacted by higher levels of
inflation in the dairy, meat and seafood product categories in
the range of 10% to 12%. Our largest selling product category,
canned and dry, experienced inflation of 4%. While we are
generally able to pass through modest levels of inflation to our
customers, we were unable to pass through fully these higher
levels of product cost inflation with the same gross profit
percentage in these product categories without negatively
impacting our customers business and therefore our
business. While we cannot predict whether inflation will
continue at these levels, prolonged periods of high inflation,
either overall or in certain product categories, can have a
negative impact on us and our customers, as high food costs can
reduce consumer spending in the food-away-from-home market, and
may negatively impact our sales, gross profit and earnings.
Second, ongoing strategic pricing initiatives in fiscal 2011
lowered our prices to our customers in certain product
categories in order to increase sales volumes. These initiatives
are being phased in over time and resulted in short-term gross
profit declines as a percentage of sales, but we believe will
result in long-term gross profit dollar growth due to higher
sales volumes and increased market share. We have experienced
meaningful year over year volume growth with those items
included in the early phases of these programs in the
geographies where this program has been implemented. We believe
the long-term benefits of these strategic initiatives will
result in profitable market share growth.
Third, gross profit dollars for fiscal 2011 increased as a
result of higher fuel surcharges. Fuel surcharges were
approximately $26.0 million higher in fiscal 2011 than in
the comparable prior year period due to higher fuel prices
incurred during fiscal 2011 and the application of fuel
surcharges to a broader customer base for a small portion of the
third quarter and the entire fourth quarter. Assuming that fuel
prices do not greatly vary from recent levels experienced in the
second half of fiscal 2011, we expect fuel surcharges to largely
offset our increased fuel costs expected in fiscal 2012.
Gross profit dollars increased in fiscal 2010 as compared to
fiscal 2009 primarily due to the additional week included in
fiscal 2010. In addition, gross profit reflected product cost
deflation in fiscal 2010 as compared to product cost inflation
in fiscal 2009. We may be negatively impacted by prolonged
periods of product cost deflation because a significant portion
of our sales are at prices based on the cost of products sold
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. Gross profit dollars for fiscal 2010 were also
impacted by lower fuel surcharges. Fuel surcharges were
approximately $49.6 million lower in fiscal 2010 than
fiscal 2009.
Operating expenses for fiscal 2011 increased 5.0% primarily due
to higher pay-related expense, an increase in net
company-sponsored pension costs, provisions for withdrawal from
multi-employer pension plans and higher fuel costs as compared
to the prior year period. The
17
impact of these operating expense increases was partially offset
by a decrease in operating expenses of approximately
$99.8 million resulting from the absence of the
53rd week in fiscal 2011.
Operating expenses for fiscal 2010 were lower than in fiscal
2009 primarily due to reduced fuel costs and a favorable
comparison on the amounts recorded to adjust the carrying value
of COLI policies to their cash surrender values in both periods.
Partially offsetting these operating expense declines were
increases in pay-related expenses, net company-sponsored pension
costs and approximately $99.8 million of expense associated
with the additional week included in fiscal 2010.
Pay-related expenses, excluding labor costs associated with our
Business Transformation Project, increased by $62.8 million
in fiscal 2011 over fiscal 2010. The increase was primarily due
to increased sales and gross profit, which resulted in increased
delivery personnel costs and sales compensation. Portions of our
pay-related expense are variable in nature and are expected to
increase when sales and gross profit increase. Pay-related
expenses from acquired companies and changes in the exchange
rates used to translate our foreign sales into U.S. dollars
also contributed to the increase. Partially offsetting these
increases were lower provisions for current management incentive
bonuses of $12.1 million.
Pay-related expenses, excluding labor costs associated with our
Business Transformation Project, increased by $43.9 million
in fiscal 2010 over fiscal 2009. The fiscal 2010 increase was
primarily due to increased provisions for management incentive
accruals and cost associated with the additional week included
in fiscal 2010. Partially offsetting these increases were lower
pay-related expenses due to reduced headcount. The criteria for
paying annual bonuses to our corporate officers and certain
portions of operating company management bonuses are tied to
overall company performance. In fiscal 2010, the overall company
performance criteria for payment of such bonuses was met;
therefore, the provision for current management incentive
bonuses was higher in fiscal 2010 than in fiscal 2009 when the
company assessed it did not meet the criteria for paying certain
annual bonuses. Headcount declines occurred in fiscal 2010 due
to both productivity improvements and workforce reductions
commensurate with lower sales. Headcount was 2.2% lower at the
end of fiscal 2010 as compared to fiscal 2009.
Net company-sponsored pension costs in fiscal 2011 were
$60.3 million higher than in fiscal 2010. The increase in
fiscal 2011 was due primarily to a decrease in discount rates
used to calculate our projected benefit obligation and related
pension expense at the end of fiscal 2010, partially offset by
reduced amortization of our net actuarial loss resulting from
actuarial gains from higher returns on assets of Syscos
Retirement Plan during fiscal 2010. Net company-sponsored
pension costs in fiscal 2012 have been determined as of the
fiscal 2011 year-end measurement date and will decrease by
approximately $27 million from fiscal 2011 due primarily to
higher returns on assets of Syscos Retirement Plan during
fiscal 2011.
Net company-sponsored pension costs were $37.4 million
higher in fiscal 2010 than in fiscal 2009. The increase in
fiscal 2010 was due primarily to lower returns on assets of
Syscos company-sponsored qualified pension plan
(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.
From time to time, we may voluntarily withdraw from
multi-employer pension plans to minimize or limit our future
exposure to these plans. We recorded provisions related to
multi-employer pension plans of $41.5 million in fiscal
2011, $2.9 million in fiscal 2010 and $9.6 million in
fiscal 2009. See additional discussion of multi-employer pension
plans at Liquidity and Capital Resources, Other
Considerations, Multi-Employer Pension Plans.
Syscos fuel costs increased by $33.0 million in
fiscal 2011 over fiscal 2010 primarily due to increased
contracted and market diesel prices. Our fuel costs decreased by
$71.8 million in fiscal 2010 over fiscal 2009 primarily due
to decreased contracted diesel prices. Syscos costs per
gallon increased 14.3% in fiscal 2011 over fiscal 2010, as
compared to a decrease of 26.1% in fiscal 2010 over fiscal 2009.
Syscos activities to mitigate 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. We routinely enter into
forward purchase commitments for a portion of our projected
monthly diesel fuel requirements with a goal of mitigating a
portion of the volatility in fuel prices.
Our fuel commitments will result in either additional fuel costs
or avoided fuel costs based on the comparison of the prices on
the fixed price contracts and market prices for the respective
periods. In fiscal 2011, the forward purchase commitments
resulted in an estimated $16.4 million of avoided fuel
costs as the fixed price contracts were generally lower than
market prices for the contracted volumes. In fiscal 2010, the
forward purchase commitments resulted in an estimated
$1.5 million of additional fuel costs as the fixed price
contracts were higher than market prices for the contracted
volumes for a portion of the fiscal year. In fiscal 2009, the
forward purchase commitments resulted in an estimated
$67.7 million of additional fuel costs as the fixed price
contracts were higher than market prices for the contracted
volumes.
As of July 2, 2011, we had forward diesel fuel commitments
totaling approximately $86 million through June 2012. These
contracts will lock in the price of approximately 30% to 35% of
our fuel purchase needs for the contracted periods at prices
lower than the current market price for diesel for the first
26 weeks of fiscal 2012 and near the current market price
for diesel for the remainder of the fiscal year. Subsequent to
July 2, 2011, we entered into forward diesel fuel
commitments totaling approximately $17 million for July and
August 2012. Assuming that fuel prices do not rise significantly
over recent levels during fiscal 2012, fuel costs exclusive of
any amounts recovered through fuel surcharges, are expected to
increase by approximately $35 million to $45 million
as compared to fiscal 2011. Our estimate is based upon current,
published quarterly market price projections for diesel, the
cost committed to in our forward fuel purchase agreements
currently in place for fiscal 2012 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. Based on our current
projections, we anticipate that the increase in fuel surcharges
will offset the majority of our projected fuel cost increase in
fiscal 2012 as compared to fiscal 2011.
18
Gross project expenses related to our Business Transformation
Project, inclusive of pay-related expense, increased by
$20.8 million in fiscal 2011 from fiscal 2010 and by
$41.6 million in fiscal 2010 from fiscal 2009. The increase
in fiscal 2011 resulted from increased project spend including
the initial stages of ramping up of our shared services center
and a provision for severance resulting from the implementation
of an involuntary severance plan. The increase in fiscal 2010
resulted from only six months of activity being included in
fiscal 2009, as the Business Transformation Project began in
January 2009. Provided the improvements needed in the underlying
systems are obtained in the first half of fiscal 2012, we
anticipate the software will be ready for its intended use in
the second half of fiscal 2012, which will result in increased
expense from both software amortization and deployment costs. We
will also incur increased costs from the ramp up of our shared
services center, continuing costs for additional phases of our
Business Transformation Project and information technology
support costs. We believe the increase in gross project
expenses, including all pay-related expenses, related to the
Business Transformation Project in fiscal 2012 as compared to
fiscal 2011 will be approximately $175 million to
$195 million.
We adjust the carrying values of our COLI 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 through fiscal 2011 included publicly traded
securities. As a result, the cash surrender values of these
policies fluctuated with changes in the market value of such
securities. The changes in the financial markets resulted in
gains for these policies of $28.2 million in fiscal 2011,
compared to gains for these policies of $21.6 million in
fiscal 2010 and losses of $43.8 million in fiscal 2009.
Near the end of fiscal 2011, we reallocated all of our policies
into low-risk, fixed-income securities and therefore we no
longer expect significant volatility in operating income, net
earnings and earnings per share in future periods related to
these policies.
The provision for losses on receivables included within
operating expenses decreased by $39.7 million in fiscal
2010 over fiscal 2009. The decrease in our provision for losses
on receivables in fiscal 2010 reflects fewer customer accounts
exceeding our threshold for write-off in fiscal 2010 as compared
to fiscal 2009. Customer accounts written off, net of
recoveries, were $37.8 million, or 0.10% of sales,
$34.3 million, or 0.10% of sales, and $71.9 million,
or 0.20% of sales, for fiscal 2011, 2010 and 2009, respectively.
Our provision for losses on receivables will fluctuate with
general market conditions, as well as the circumstances of our
customers.
Net
Earnings
Net earnings for fiscal 2011 decreased 2.4% over the comparable
prior year period. After adjusting for the estimated impact of
the 53rd
week in fiscal 2010, the decrease would have been 0.3%. This
adjusted decrease was primarily due to the factors discussed
above and an increase in the effective tax rate. The effective
tax rate for fiscal 2011 was 36.96%, compared to an effective
tax rate of 36.20% for fiscal 2010. The difference between the
tax rates for the two periods resulted largely from the one-time
reversal of interest accruals for tax contingencies related to
our settlement with the Internal Revenue Service (IRS) in the
first quarter of fiscal 2010.
Net earnings increased 11.7% in fiscal 2010 from fiscal 2009.
After adjusting for the estimated impact of the
53rd week
in fiscal 2010, the increase would have been 9.5%. This adjusted
increase was primarily due to a reduction in the effective
income tax rate, as well as the factors discussed above. The
effective tax rate for fiscal 2010 was 36.20%, compared to an
effective tax rate of 40.37% for fiscal 2009. The difference
between the tax rates for the two periods resulted largely from
the one-time reversal of interest accruals for tax contingencies
related to our settlement with the Internal Revenue Service
(IRS) in the first quarter of fiscal 2010.
Set forth below is a reconciliation of actual net earnings to
adjusted net earnings for the periods presented (see further
discussion at Impact of 53-week fiscal year in Fiscal
2010 above):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
2011
|
|
|
(53 Weeks)
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Net earnings for the 53/52 week periods
|
|
$
|
1,152,030
|
|
|
$
|
1,179,983
|
|
|
$
|
1,055,948
|
|
Estimated net earnings for the additional week in fiscal 2010
|
|
|
|
|
|
|
24,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net earnings
|
|
$
|
1,152,030
|
|
|
$
|
1,155,856
|
|
|
$
|
1,055,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual percentage (decrease) increase
|
|
|
(2.4
|
)%
|
|
|
11.7
|
%
|
|
|
|
|
Adjusted percentage (decrease) increase
|
|
|
(0.3
|
)%
|
|
|
9.5
|
%
|
|
|
|
|
The effective tax rate of 36.96% for fiscal 2011 was favorably
impacted primarily by two items. First, we recorded a tax
benefit of approximately $17.0 million for the reversal of
valuation allowances previously recorded on state net operating
loss carryforwards. Second, we adjust the carrying values of our
COLI policies to their cash surrender values. The gain of
$28.2 million recorded in fiscal 2011 was primarily
non-taxable for income tax purposes, and had the impact of
decreasing income tax expense for the period by
$11.1 million. Partially offsetting these favorable impacts
was the recording of $9.3 million in tax and interest
related to various federal, foreign and state uncertain tax
positions.
The effective tax rate of 36.20% for fiscal 2010 was favorably
impacted primarily by two items. First, we recorded an income
tax benefit of approximately $29.0 million resulting from
the one-time reversal of a previously accrued liability related
to the settlement with the IRS (See Liquidity and Capital
Resources, Other Considerations, BSCC Cooperative
Structure for additional discussion). Second, the gain of
$21.6 million recorded to adjust the carrying value of COLI
policies to their cash surrender values in fiscal 2010 was
non-taxable for income tax purposes, and had the impact of
decreasing income tax expense for the period by
$8.3 million.
The effective tax rate of 40.37% for fiscal 2009 was unfavorably
impacted primarily by two factors. First, we recorded tax
adjustments related to federal and state uncertain tax positions
of $31.0 million. Second, the loss of $43.8 million
recorded to adjust the carrying value of COLI policies to their
cash surrender values in fiscal 2009 was non-deductible for
income tax purposes, and had the impact of increasing income tax
expense for
19
the period by $16.8 million. The effective tax rate for
fiscal 2009 was favorably impacted by the reversal of valuation
allowances of $7.8 million previously recorded on Canadian
net operating loss deferred tax assets.
Earnings Per
Share
Basic and diluted earnings per share decreased 1.5% in fiscal
2011 from the prior year. After adjusting for the estimated
impact of the
53rd week
in fiscal 2010, earnings per share increased 0.5%. This adjusted
increase was primarily the result of factors discussed above, as
well as a net reduction in shares outstanding. The net reduction
in both average and diluted shares outstanding was primarily due
to share repurchases which occurred during the first
26 weeks of fiscal 2011.
Basic earnings per share and diluted earnings per share
increased 12.4% in fiscal 2010 from the prior year. After
adjusting for the estimated impact of the
53rd week
in fiscal 2010, this increase would have been 10.2%. This
adjusted increase was 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.
Set forth below is a reconciliation of actual diluted earnings
per share to adjusted diluted earnings per share for the periods
presented (see further discussion at Impact of 53-week
fiscal year in Fiscal 2010 above):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
2011
|
|
|
(53 Weeks)
|
|
|
2009
|
|
|
|
(In thousands, except for share and per share data)
|
|
|
Calculation of diluted earnings per share impact for 53rd week:
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated net earnings for the additional week in fiscal 2010
|
|
|
|
|
|
$
|
24,127
|
|
|
|
|
|
Diluted shares outstanding
|
|
|
|
|
|
|
593,590,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated diluted earnings per share for the additional week
|
|
|
|
|
|
$
|
0.04
|
|
|
|
|
|
Diluted earnings per share for the 53/52 week periods
|
|
$
|
1.96
|
|
|
$
|
1.99
|
|
|
$
|
1.77
|
|
Estimated diluted earnings per share for the additional week in
fiscal 2010
|
|
|
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted diluted earnings per share
|
|
$
|
1.96
|
|
|
$
|
1.95
|
|
|
$
|
1.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share for fiscal 2011 were
favorably impacted by two items. First, we recognized a
favorable impact of $0.05 per share due to the gains recorded on
the adjustment of the carrying value of COLI policies to their
cash surrender values. Second, a favorable impact of $0.02 per
share was recognized related to the recognition of deferred tax
assets from the reversal of valuation allowances previously
recorded on state net operating loss carryforwards. These
favorable impacts were partially offset by $0.04 per share
relating to the charge recorded upon withdrawal from a
multi-employer pension plan in the third quarter.
Basic and diluted earnings per share for fiscal 2010 were
favorably impacted by $0.05 per share due to the one-time
reversal of a previously accrued liability related to the
settlement of an outstanding tax matter with the IRS and $0.04
per share due to gains recorded on the adjustment of the
carrying value of COLI policies to their cash surrender values.
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. Beginning in the
third quarter of fiscal 2011, the companys custom-cut meat
operations were reorganized to function as part of the United
States Broadline segment. As a result, the results of the
custom-cut meat operations are included in the Broadline
reportable segment in the segment discussion below. Previously,
these operations were an independent segment and were presented
with the Other financial information relating to
non-reportable segments. Segment reporting for the comparable
prior year periods has been revised to conform to the new
classification of the custom-cut meat operations as part of the
Broadline reportable segment.
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
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 gross profits, 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.
Included in corporate expenses, among other items, are:
|
|
|
|
|
Gains and losses recognized to adjust COLI policies to their
cash surrender values;
|
|
|
Share-based compensation expense;
|
|
|
Expenses related to the companys Business Transformation
Project; and
|
|
|
Corporate-level depreciation and amortization expense.
|
20
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 Note 19,
Business Segment Information to the Consolidated
Financial Statements in Item 8:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income as a
|
|
|
|
Percentage of Sales
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
2011
|
|
|
(53 Weeks)
|
|
|
2009
|
|
|
Broadline
|
|
|
6.6
|
%
|
|
|
7.0
|
%
|
|
|
6.7
|
%
|
SYGMA
|
|
|
1.1
|
|
|
|
1.0
|
|
|
|
0.6
|
|
Other
|
|
|
4.2
|
|
|
|
4.0
|
|
|
|
3.0
|
|
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 Note 19,
Business Segment Information to the Consolidated
Financial Statements in Item 8:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
2011
|
|
|
(53 Weeks)
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
|
Sales
|
|
|
Income
|
|
|
Sales
|
|
|
Income
|
|
|
Broadline
|
|
|
5.1
|
%
|
|
|
0.1
|
%
|
|
|
1.4
|
%
|
|
|
5.9
|
%
|
SYGMA
|
|
|
9.2
|
|
|
|
27.3
|
(1)
|
|
|
1.1
|
|
|
|
56.7
|
(1)
|
Other
|
|
|
5.1
|
|
|
|
9.6
|
|
|
|
(2.1
|
)
|
|
|
29.7
|
|
|
|
|
(1) |
|
SYGMA had operating income of $60.2 million in fiscal 2011,
$47.3 million in fiscal 2010 and $30.2 million in
fiscal 2009. |
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 of
$337.1 million in fiscal 2011, $269.6 million in
fiscal 2010 and $219.3 million in fiscal 2009 that are not
charged to our segments. This information should be read in
conjunction with Note 19, Business Segment
Information to the Consolidated Financial Statements in
Item 8:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
2011
|
|
|
(53 Weeks)
|
|
|
2009
|
|
|
|
|
|
|
Segment
|
|
|
|
|
|
Segment
|
|
|
|
|
|
Segment
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
|
Sales
|
|
|
Income
|
|
|
Sales
|
|
|
Income
|
|
|
Sales
|
|
|
Income
|
|
|
Broadline
|
|
|
81.2
|
%
|
|
|
93.3
|
%
|
|
|
81.6
|
%
|
|
|
94.1
|
%
|
|
|
81.4
|
%
|
|
|
95.5
|
%
|
SYGMA
|
|
|
13.6
|
|
|
|
2.6
|
|
|
|
13.1
|
|
|
|
2.1
|
|
|
|
13.1
|
|
|
|
1.4
|
|
Other
|
|
|
5.6
|
|
|
|
4.1
|
|
|
|
5.6
|
|
|
|
3.8
|
|
|
|
5.8
|
|
|
|
3.1
|
|
Intersegment sales
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadline
Segment
The Broadline reportable segment consists of the aggregated
results of the United States, Canadian and European Broadline
segments, as well as the custom-cut meat operations. 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 2011, the Broadline
operating results represented approximately 81% of Syscos
overall sales and 93% 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 2011 were 5.1% greater than fiscal 2010.
Negatively affecting the sales comparison of fiscal 2011 to
fiscal 2010 was the additional week in fiscal 2010. Product cost
inflation and the resulting increase in selling prices, combined
with case volume improvement, contributed to the increase in
sales in fiscal 2011. Changes in product costs, an internal
measure of inflation or deflation, were estimated as inflation
of 4.9% in fiscal 2011. Non-comparable acquisitions contributed
0.8% to the overall sales comparison for fiscal 2011. The
changes in the exchange rates used to translate our foreign
sales into U.S. dollars positively impacted sales by 0.6%
compared to fiscal 2010.
Sales for fiscal 2010 were 1.4% greater than fiscal 2009. Case
volume improvement caused an increase in sales in fiscal 2010 as
compared to fiscal 2009. The changes in the exchange rates used
to translate our foreign sales into U.S. dollars positively
impacted sales by 1.0% compared to fiscal 2009. Non-comparable
acquisitions contributed 0.6% to the overall sales comparison
for fiscal 2010. Changes in product costs were estimated as
deflation of 1.5% in fiscal 2010. This product cost deflation,
which led to decreases in selling prices, and a change in
customer sales mix partially offset case volume improvement in
fiscal 2010. The additional week also contributed to the sales
growth in fiscal 2010.
21
Operating
Income
Operating income increased by 0.1% in fiscal 2011 over fiscal
2010 as gross profit dollars increased slightly above the rate
that operating expenses increased. However, it is important to
note that operating expenses included a significant charge of
$36.1 million from a withdrawal from a multi-employer
pension plan. Additionally, negatively affecting the operating
income comparison of fiscal 2011 to fiscal 2010 was the
additional week in fiscal 2010.
Gross profit dollars increased in fiscal 2011 primarily due to
increased sales; however, gross profit dollars increased at a
lower rate than sales. This slower growth in gross profit
dollars was primarily the result of two factors. Based on
Broadlines product sales mix for fiscal 2011, it was most
impacted by higher levels of inflation in the dairy, meat and
seafood product categories in the range of 10% to 12%.
Broadlines largest selling product category, canned and
dry, experienced inflation of 4%. While we are generally able to
pass through modest levels of inflation to our customers, we
were unable pass through fully these higher levels of product
cost inflation with the same gross profit percentage in these
product categories without negatively impacting our
customers business and therefore our business. While we
cannot predict whether inflation will continue at these levels,
prolonged periods of high inflation, either overall or in
certain product categories, can have a negative impact on our
customers, as high food costs can reduce consumer spending in
the food-away-from-home market, and may negatively impact the
Broadline segments sales, gross profit and earnings.
Second, ongoing strategic pricing initiatives largely lowered
our prices to our customers in certain product categories in
order to increase sales volumes. These initiatives are being
phased in over time and resulted in short-term gross profit
declines as a percentage of sales, but we believe will result in
long-term gross profit dollar growth due to higher sales volumes
and increased market share. We have experienced meaningful year
over year volume growth with those items included in the early
phases of these programs in the geographies where this program
has been implemented. We believe the long-term benefits of these
strategic initiatives will result in profitable market share
growth.
In addition, gross profit dollars for fiscal 2011 increased as a
result of higher fuel surcharges. Fuel surcharges were
approximately $19.4 million higher in fiscal 2011 than the
prior year due to the application of fuel surcharges to a
broader customer base for a small portion of the third quarter
and the entire fourth quarter due to higher fuel prices incurred
during these periods. Assuming that fuel prices do not greatly
rise above recent levels during fiscal 2012, we expect fuel
surcharges to largely offset our increased fuel costs expected
in fiscal 2012.
The expense increases in fiscal 2011 were driven largely by
provisions for withdrawal from a multi-employer pension plan and
an increase in pay-related expenses. In fiscal 2011, we recorded
provisions of $41.5 million for withdrawal liabilities from
multi-employer pension plans from which union members elected to
withdraw. The increase in pay-related expenses related to the
sales and gross profit increase, including both delivery
personnel costs and sales. Portions of our pay-related expense
are variable in nature and are expected to increase when sales
and gross profit increase. Pay-related expenses from acquired
companies and changes in the exchange rates used to translate
our foreign sales into U.S. dollars also contributed to the
increase.
Fuel costs were $22.0 million higher in fiscal 2011 than
the prior year. Assuming that fuel prices do not rise
significantly over recent levels during fiscal 2012, fuel costs
for fiscal 2012 not including any amounts recovered through fuel
surcharges, are expected to increase by approximately
$25 million to $35 million as compared to fiscal 2011.
Our estimate is based upon current, published quarterly market
price projections for diesel, the cost committed to in our
forward fuel purchase agreements currently in place for fiscal
2012 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.
Operating income increased by 5.9% in fiscal 2010 over fiscal
2009 primarily due to effective management of operations in the
current economic environment by decreasing expenses as compared
to the comparable prior year periods. Operating expenses
decreased 1.2% in fiscal 2010 as compared to fiscal 2009. The
additional week in fiscal 2010 contributed to the gross profit
increase, partially offset by a decrease of approximately
$37.4 million in the fuel surcharges charged to customers
in fiscal 2010 as compared to fiscal 2009 due to less usage of
these surcharges in fiscal 2010. Expense performance for fiscal
2010 was primarily due to reduced fuel cost and lower provision
for losses on receivables and operating efficiencies, such as
reduced pay related expense due to reduced
headcount. Fuel costs were $51.8 million lower in fiscal
2010 than in the prior year. Partially offsetting these expense
declines were increases in expenses related to the additional
week in fiscal 2010.
From time to time, we may voluntarily withdraw from
multi-employer pension plans to minimize or limit our future
exposure to these plans. We recorded provisions related to
multi-employer pension plans of $41.5 million in fiscal
2011, $2.9 million in fiscal 2010 and $9.6 million in
fiscal 2009.
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.
22
Sales
Sales were 9.2% greater in fiscal 2011 than in fiscal 2010.
Negatively affecting the sales comparison of fiscal 2011 to
fiscal 2010 was the additional week in fiscal 2010. The increase
in sales was primarily due to case volume improvement largely
attributable to new customers and, to a lesser extent, from an
increase in volume from certain existing customers.
Sales were 1.1% greater in fiscal 2010 than in fiscal 2009. The
additional week contributed to the sales growth in fiscal 2010.
Case volume improvement caused an increase in sales in fiscal
2010 as compared to fiscal 2009. This case growth was largely
attributable to new customers added largely in the latter part
of the fiscal year and the additional week in fiscal 2010.
Partially offsetting these case volume improvements was a
decline in volume from existing customers due to the weak
economic environment which applied continued pressure to
consumer discretionary spending and negatively impacted overall
restaurant traffic counts. Product cost deflation, which led to
decreases in selling prices also impacted fiscal 2010 sales
growth.
One chain restaurant customer (The Wendys Company)
accounted for approximately 31% of the SYGMA segment sales for
the fiscal year ended July 2, 2011. 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 $12.9 million in 2011 over the
prior year due to increased sales and improved productivity.
Gross profit dollars increased 9.5% while operating expenses
increased 7.3% in fiscal 2011 from fiscal 2010. Contributing to
the gross profit increase in fiscal 2011 were increased sales
and an increase of approximately $6.6 million in the fuel
surcharges charged to customers in fiscal 2011 from prior year
due to higher fuel prices in fiscal 2011. The increase in
operating expenses for fiscal 2011 was largely driven by
increased delivery and warehouse personnel payroll costs
resulting from increased sales as well as increased fuel cost.
Productivity improvements occurred within our warehouse and
delivery functions in fiscal 2011 and expense reductions
occurred within our administrative functions in fiscal 2011 as
compared to the prior year. Fuel costs in fiscal 2011 were
$12.9 million greater than the prior year. Assuming that
fuel prices do not significantly rise above recent levels during
fiscal 2012, we expect fuel costs and fuel surcharges for our
SYGMA segment to increase as compared to fiscal 2011.
Operating income increased by $17.1 million in fiscal 2010
as compared to fiscal 2009. Gross profit dollars increased 0.7%
while operating expenses decreased 3.7% in fiscal 2010 as
compared to fiscal 2009. The additional week in fiscal 2010
contributed to the gross profit increase, partially offset by a
decrease of approximately $11.4 million in the fuel
surcharges charged to customers in fiscal 2010 compared to
fiscal 2009 due to lower fuel prices in fiscal 2010. Expense
reductions were accomplished by operational efficiencies in both
delivery and warehouse areas, as well as lower payroll expense
related to headcount reductions. Also contributing to the
decrease in operating expenses was a decrease of
$10.1 million in fuel costs in fiscal 2010 from the prior
year due to lower fuel prices.
Other
Segment
Other financial information is attributable to our
other operating segments, including our specialty produce 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. Each individual operation is also
generally smaller in sales and scope than an average Broadline
operation and each of these operating segments is considerably
smaller in sales and overall scope than the Broadline segment.
In fiscal 2011, in the aggregate, the Other segment
represented approximately 5.6% of Syscos overall sales and
4.1% of the aggregate operating income of Syscos segments,
which excludes corporate expenses and consolidated adjustments.
Operating income increased 9.6% for fiscal 2011 from fiscal
2010. The operating income comparison was negatively affected by
the additional week in fiscal 2010. The increase in operating
income was caused primarily by increased sales in the specialty
produce segment and favorable expense management in the
specialty produce and lodging industry products segments.
Operating income increased 29.7% for fiscal 2010 from fiscal
2009. The increase in operating income was caused primarily by
increased sales in our specialty produce segment and increased
operating income in all segments due to favorable expense
management. The additional week in fiscal 2010 also contributed
to the increase in operating income.
Liquidity and
Capital Resources
Syscos strategic objectives require continuing investment
and our financial 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 generally allocated to working capital
requirements; investments in facilities, systems, fleet, other
equipment and technology; acquisitions compatible with our
overall growth strategy; and cash dividends. Any remaining cash
generated from operations may be invested in high-quality,
short-term instruments or applied toward the cost of the share
repurchase program. As a part of our ongoing strategic analysis,
we regularly evaluate
23
business opportunities, including potential acquisitions and
sales of assets and businesses, and our overall capital
structure. Any transactions resulting from these evaluations may
materially impact our liquidity, borrowing capacity, leverage
ratios and capital availability.
Our liquidity and capital resources can be influenced by
economic trends and conditions primarily due to their impact on
our cash flows from operations. Weak economic conditions and low
levels of consumer confidence and the resulting pressure on
consumer disposable income can lower our sales growth and
potentially our cash flows from operations. While these factors
were present in fiscal 2010 and fiscal 2011, they had only a
modest impact on our cash flows from operations in these periods
due in large part to effective working capital management. We do
not believe current economic conditions will significantly
impact our cash flows from operations in fiscal 2012, as we can
respond to reduced consumer demand, if it were to occur, by
lowering our working capital requirements. Additionally,
approximately one-third of our customers are not impacted by
general economic conditions to the same extent as restaurants
and other food retailers. These customers include hospitals,
nursing homes, schools and colleges. Product cost inflation can
potentially lower our gross profit and cash flow from operations
if we are unable to pass through all of the increased product
costs with the same gross profit percentage to our customers.
This occurred in fiscal 2011, as we were able to pass some, but
not all, of our product cost increases on to our customers.
However; we believe our mechanisms to manage product cost
inflation, some of which are contractual, are sufficient to
limit the impact on our cash flows from operations.
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, including issuances of debt
securities, either privately or under our shelf registration
statement filed with the Securities and Exchange Commission
(SEC), will be sufficient to meet our anticipated cash
requirements for the next twelve months and beyond, while
maintaining sufficient liquidity for normal operating purposes.
We believe that we will continue to be able to access the
commercial paper market effectively as well as the long-term
capital markets, if necessary. To further maintain and enhance
our credit ratings on current and future debt, on
January 19, 2011, the wholly-owned U.S. Broadline
subsidiaries of Sysco Corporation entered into full and
unconditional guarantees of all outstanding senior notes and
debentures of Sysco Corporation. As of July 2, 2011, Sysco
had a total of approximately $2.2 billion in senior notes
and debentures outstanding that are covered by this guarantee.
Operating
Activities
We generated $1.1 billion in cash flow from operations in
fiscal 2011, $0.9 billion in fiscal 2010 and
$1.6 billion in fiscal 2009. The increase of
$206.1 million between fiscal 2011 and fiscal 2010 was
driven largely by a reduction in the amount of payments made in
relation to the IRS settlement of $316.0 million and
reduced pension contributions in the amount of
$136.2 million in fiscal 2011 as compared to fiscal 2010.
These increases were partially offset by changes in working
capital discussed in more detail below. The decrease of
$691.3 million between fiscal 2010 and fiscal 2009 was
driven largely by $528.0 million of payments related to the
IRS settlement and $140.0 million of pension contributions
made in advance for fiscal 2011. Additionally, several less
significant items had offsetting impacts when comparing the cash
flow from operations between fiscal 2010 and fiscal 2009. As
described under Other Considerations, BSCC Cooperative
Structure, we will make the final payments under the IRS
settlement in fiscal 2012 in the amount of $212 million.
Cash flow from operations in fiscal 2011 was primarily generated
by net income, reduced by increases in receivables and inventory
balances and changes in deferred tax assets and liabilities,
partially offset by non-cash depreciation and amortization
expense and increases in accounts payable. Cash flow from
operations in fiscal 2010 was primarily due to net income and
non-cash depreciation and amortization expense, offset by
decreases in accrued income taxes and other long-term
liabilities and prepaid pension cost, net, increases in accounts
receivable and inventory balances and changes in deferred tax
assets and liabilities. Cash flow from operations in fiscal 2009
was primarily due to net income, non-cash depreciation and
amortization expense, an increase in accrued income taxes, and
increases in accounts receivable and inventory balances. The
increases in fiscal 2009 were partially offset by decreases in
accounts payable balances and accrued expenses.
The increases in accounts receivable and inventory balances in
fiscal 2011 and fiscal 2010 were primarily due to sales growth.
An increase in daily sales outstanding also contributed to the
increase in accounts receivable and inventory balances in fiscal
2011. The decrease in accounts receivable and inventory balances
in fiscal 2009 was primarily due to the sales decline. The
increase in accounts payable balances in fiscal 2011 and fiscal
2010 was primarily from the growth in inventory resulting from
sales growth. The decrease in accounts payable balances in
fiscal 2009 was primarily from inventory decreases resulting
from the sales decline. 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 impacted by a decrease in accrued
expenses of $43.3 million during fiscal 2011, an increase
in accrued expenses of $58.0 million during fiscal 2010 and
a decrease in accrued expenses of $120.3 million during
fiscal 2009. The decrease in accrued expenses in the fiscal 2011
was primarily due to the payment of the respective prior year
annual incentive bonuses, partially offset by lower accruals for
current year compensation incentives. The remainder of the
decrease was driven by multiple changes in various other
accruals, of which no item was individually significant. The
increase in accrued expenses during fiscal 2010 was primarily
due to increases in incentive compensation accruals resulting
from improved operating performance in fiscal 2010. The
remainder of the increase was driven by multiple changes in
various other accruals, of which no item was individually
significant. 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.
Cash flow from operations for fiscal 2011 was negatively
impacted by changes in deferred tax assets and liabilities of
$165.2 million and a decrease in accrued income taxes of
$44.2 million. Cash flow from operations for fiscal 2010
was negatively impacted by changes in deferred tax assets and
liabilities of $121.9 million and a decrease in accrued
income taxes of $296.5 million. The main factor affecting
both of these changes in fiscal 2011 and fiscal 2010, as well as
cash taxes paid, was the IRS settlement (discussed below in
Other Considerations, BSCC Cooperative
24
Structure), which resulted in the payment of taxes of
$212.0 million in fiscal 2011 and $528.0 million in
fiscal 2010 for the settlement agreement. Partially offsetting
the negative impact described above, the change in deferred tax
assets and liabilities was impacted by the contribution of an
additional $140.0 million to our company-sponsored
qualified pension plan in fiscal 2010 for contributions that
would normally have been made in fiscal 2011. Cash flow from
operations for fiscal 2009 was positively impacted by an
increase in accrued income taxes of $325.5 million,
partially offset by changes in deferred tax assets and
liabilities of $294.2 million. Total cash taxes paid were
$907.7 million, $1,142.0 million and
$735.8 million in fiscal 2011, 2010 and 2009, respectively.
The changes in all periods were also impacted by the current tax
provision and current year estimated tax payments.
Other long-term liabilities increased $44.3 million during
fiscal 2011. The increase for 2011 was primarily attributable to
three items. First, we recorded withdrawal liabilities from
multi-employer pension plans from which union members elected to
withdraw during the period. Second, net company sponsored
pension costs exceeded contributions to our company-sponsored
pension plans during the period. Third, we recognized a
provision for severance resulting from the implementation of an
involuntary severance plan. Partially offsetting these
increases, our liability for uncertain tax positions decreased
as a result of settlements with various taxing authorities
during the period.
Other long-term liabilities and prepaid pension cost, net,
decreased $271.7 million during fiscal 2010. The decrease
in fiscal 2010 is primarily attributable to three items. First,
pension contributions to our company-sponsored plans exceeded
net company-sponsored pension costs. Second, our liability for
deferred incentive compensation decreased due to accelerated
distributions taken by plan participants of all or a portion of
their vested balances pursuant to certain transitional relief
under the provisions of Section 409A of the Internal
Revenue Code and other regular distributions. Third, our
liability for uncertain tax positions decreased as a result of
the settlement with the IRS, as well as a reclass to accrued
income taxes for amounts expected to be paid in fiscal 2011.
Other long-term liabilities and prepaid pension cost, net,
decreased $48.4 million during fiscal 2009. The decrease in
fiscal 2009 is primarily attributable to a decrease in our
liability for uncertain tax benefits related to our settlement
with the IRS. See additional discussion of an IRS settlement at
Other Considerations, BSCC Cooperative Structure.
The decrease was partially offset by a combination of the
recording of net company-sponsored pension costs and incentive
compensation deferrals.
We recorded net company-sponsored pension costs of
$186.4 million, $126.1 million and $88.7 million
during fiscal 2011, fiscal 2010 and fiscal 2009, respectively.
Our contributions to our company-sponsored defined benefit plans
were $161.7 million, $297.9 million and
$95.8 million during fiscal 2011, fiscal 2010 and fiscal
2009, respectively. Included in the $161.7 million of
contributions in fiscal 2011 was a $140.0 million
contribution to our Retirement Plan that would normally have
been made in fiscal 2012. Included in the $297.9 million of
contributions in fiscal 2010 was a $140.0 million
contribution to our Retirement Plan that would normally have
been made in fiscal 2011 and quarterly contributions totaling
$140.0 million for fiscal 2010. Additional contributions to
our Retirement Plan are not currently anticipated in fiscal
2012, however we will evaluate our funding position at the end
of fiscal 2012 and select the timing for a contribution at that
time.
Investing
Activities
Fiscal 2011 capital expenditures included:
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investments in technology including our Business Transformation
Project;
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fleet replacements;
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replacement or significant expansion of facilities in
Philadelphia, Pennsylvania and central Texas;
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the purchase of land for a fold-out facility in southern
California; and
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the remodeling of our shared services facility purchased in
fiscal 2010.
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Fiscal 2010 capital expenditures included:
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investments in technology including our Business Transformation
Project;
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fleet replacements;
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replacement or significant expansion of facilities in Vancouver,
British Columbia, Canada; Winnipeg, Manitoba, Canada; Billings,
Montana; Plainfield, New Jersey; Philadelphia, Pennsylvania and
Houston, Texas;
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the purchase of a facility for our future shared services
operations in connection with our Business Transformation
Project; and
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the purchase of land for a fold-out facility in Long Island, New
York.
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Fiscal 2009 capital expenditures included:
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construction of a fold-out facility in Longview, Texas;
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replacement or significant expansion of facilities in Victoria,
British Columbia, Canada; Chicago, Illinois; Pittsburgh,
Pennsylvania and Houston, Texas;
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land purchases for future fold-out facilities; and
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investments in technology for our Business Transformation
Project.
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25
We expect total capital expenditures in fiscal 2012 to be in the
range of $750 million to $800 million. Fiscal 2012
expenditures will include facility, fleet and other equipment
replacements and expansions; new facility construction,
including fold-out facilities; and investments in technology
including our Business Transformation Project.
During fiscal 2011, in the aggregate, the company paid cash of
$101.1 million for operations acquired during fiscal 2011
and for contingent consideration related to operations acquired
in previous fiscal years. During fiscal 2011, we acquired for
cash broadline foodservice operations in central California; Los
Angeles, California; Ontario, Canada; Lincoln, Nebraska; and
Trenton, New Jersey.
During fiscal 2010, in the aggregate, the company paid cash of
$29.3 million for operations acquired during fiscal 2010
and for contingent consideration related to operations acquired
in previous fiscal years. During fiscal 2010, we acquired for
cash a broadline foodservice operation in Syracuse, New York, a
produce distributor in Atlanta, Georgia and a seafood
distributor in Edmonton, Alberta, Canada.
During fiscal 2009, in the aggregate the company paid cash of
$218.1 million 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, Canada.
Financing
Activities
Equity
Proceeds from common stock reissued from treasury for
share-based compensation awards were $332.7 million in
fiscal 2011, $94.8 million in fiscal 2010 and
$111.8 million in fiscal 2009. The increase in proceeds in
fiscal 2011 was due to an increase in the number of options
exercised in fiscal 2011, as compared to fiscal 2010 and 2009.
The level of option exercises, and thus proceeds, will vary from
period to period and is largely dependent on movements in our
stock price.
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 10,000,000 shares for
$291.6 million in fiscal 2011, 6,000,000 shares for
$179.2 million in fiscal 2010 and 16,951,200 shares
for $438.8 million in fiscal 2009. There were no additional
shares repurchased through August 17, 2011, resulting in a
remaining authorization by our Board of Directors to repurchase
up to 13,386,600 shares, based on the trades made through
that date. Our current share repurchase strategy is to purchase
enough shares to keep our diluted average shares outstanding
relatively constant. Based on forecasted and past share
exercises pursuant to our option plans, we expect to repurchase
slightly more shares in fiscal 2012 than in fiscal 2011.
Dividends paid were $597.1 million, or $1.02 per share, in
fiscal 2011, $579.8 million, or $0.98 per share, in fiscal
2010 and $548.2 million, or $0.92 per share, in fiscal
2009. In May 2011, we declared our regular quarterly dividend
for the first quarter of fiscal 2012 of $0.26 per share, which
was paid in July 2011.
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 17, 2011, 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
$95.0 million, of which none was outstanding as of
July 2, 2011 or August 17, 2011.
Our Irish subsidiary, Pallas Foods Limited, has a
10.0 million (Euro) committed facility for unsecured
borrowings for working capital. There were no borrowings
outstanding under this facility as of July 2, 2011 or
August 17, 2011.
On June 30, 2011, a Canadian subsidiary of Sysco entered
into a short-term demand loan facility for the purpose of
facilitating a distribution from the Canadian subsidiary to
Sysco, and Sysco concurrently entered into an agreement with the
bank to guarantee the loan. The amount borrowed was
$182.0 million and was repaid in full on July 4, 2011.
Commercial Paper
and Revolving Credit Facility
We have a Board-approved commercial paper program allowing us to
issue short-term unsecured notes in an aggregate amount not to
exceed $1.3 billion.
Sysco and one of our subsidiaries, Sysco International, ULC.,
have a revolving credit facility supporting our U.S. and
Canadian commercial paper programs. The facility, in the amount
of $1.0 billion, expires on November 4, 2012, but is
subject to extension.
During fiscal 2011, 2010 and 2009, aggregate outstanding
commercial paper issuances and short-term bank borrowings ranged
from approximately zero to $330.3 million, zero to
$1.8 million, and zero to $165.0 million,
respectively. There were no commercial paper issuances
outstanding as of July 2, 2011 and $300.0 million of
commercial paper issuances outstanding as of August 17,
2011.
During fiscal 2011, 2010 and 2009, our aggregate commercial
paper issuances and short-term bank borrowings had a weighted
average interest rate of 0.25%, 0.80% and 0.88%, respectively.
26
Fixed Rate
Debt
Included in current maturities of long-term debt as July 2,
2011 are the 6.10% senior notes totaling
$200.0 million, which mature in June 2012. These notes were
issued by Sysco International, Co., a wholly-owned subsidiary of
Sysco now known as Sysco International, ULC. It is our intention
to fund the repayment of these notes at maturity through
issuances of commercial paper, senior notes or a combination
thereof.
In February 2009, Sysco deregistered the securities remaining
unsold under its 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
$250.0 million due March 17, 2019 (the 2019 notes) and
6.625% senior notes totaling $250.0 million 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 note holders
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.
In September 2009, we entered into an interest rate swap
agreement that effectively converted $200.0 million of
fixed rate debt maturing in fiscal 2014 to floating rate debt.
In October 2009, we entered into an interest rate swap agreement
that effectively converted $250.0 million of fixed rate
debt maturing in fiscal 2013 to floating rate debt. Both
transactions were entered into with the goal of reducing overall
borrowing cost and increasing floating interest rate exposure.
These transactions were designated as fair value hedges since
the swaps hedge against the changes in fair value of fixed rate
debt resulting from changes in interest rates.
Total
Debt
Total debt as of July 2, 2011 was $2.7 billion of
which approximately 75% was at fixed rates with a weighted
average of 5.9% and an average life of 15 years, and the
remainder was at floating rates with a weighted average of 2.1%
and an average life of one year. 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 is currently
in compliance will all debt covenants.
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 July 2, 2011 and
July 3, 2010, letters of credit outstanding were
$23.0 million and $28.4 million, respectively.
Other
Considerations
Multi-Employer
Pension Plans
As discussed in Note 18, 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.
Generally, Sysco does not have the greatest share of liability
among the participants in any of the plans in which we
participate. Based on the information available from plan
administrators, which has valuation dates ranging from
January 31, 2009 to December 31, 2009, we estimate our
share of withdrawal liability on most of the multi-employer
plans in which we participate could have been as much as
$200.0 million as of July 2, 2011 based on a voluntary
withdrawal. This estimate excludes plans for which Sysco has
recorded withdrawal liabilities. The majority of the plans we
participate in have a valuation date of calendar year-end. As
such, the majority of our estimated withdrawal liability results
from plans for which the valuation date was December 31,
2009; therefore, our estimated liability reflects the asset
losses incurred by the financial markets as of that date. Due to
the lack of current information, we believe our current share of
the withdrawal liability could materially differ from this
estimate. In addition, if a multi-employer defined benefit plan
fails to satisfy certain minimum funding requirements, the IRS
may impose a non-deductible excise tax of 5% on the amount of
the accumulated funding deficiency for those employers
contributing to the fund.
From time to time, we may voluntarily withdraw from
multi-employer pension plans to minimize or limit our future
exposure to these plans. In the third quarter of fiscal 2011,
the union members of one of our subsidiaries voted to withdraw
from the unions multi-employer pension plan and join
Syscos company-sponsored Retirement Plan. This action
triggered a partial withdrawal from the multi-employer pension
plan. As a result, during the third quarter of fiscal 2011, we
recorded a withdrawal liability provision of approximately
$36.1 million related to this plan. We have experienced
other instances triggering voluntary withdrawal from
multi-employer pension plans. Total withdrawal liability
provisions recorded include $41.5 million in fiscal 2011,
$2.9 million in fiscal 2010 and $9.6 million in fiscal
2009. As of July 2, 2011, we had approximately
$42.4 million in liabilities recorded related to certain
multi-employer defined benefit plans for which our voluntary
withdrawal had already occurred, which includes the liability
recorded in the third quarter of fiscal 2011. Recorded
withdrawal liabilities are estimated at the time of withdrawal
based on
27
the most recently available valuation and participant data for
the respective plans; amounts are adjusted up to the period of
payment to reflect any changes to these estimates. If any of
these plans were to undergo a mass withdrawal, as defined by the
Pension Benefit Guaranty Corporation, within a two year time
frame from the point of our withdrawal, we could have additional
liability. We do not currently believe any mass withdrawals are
probable to occur in the applicable two year time frame relating
to the plans from which we have voluntarily withdrawn.
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.
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
$16.5 million 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
$15.0 million 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
$26.7 million in liabilities. The payment to the plan was
made in the early part of the second quarter of fiscal 2009.
BSCC Cooperative
Structure
Syscos affiliate, Baugh Supply Chain Cooperative (BSCC),
was a cooperative taxed under subchapter T of the United States
Internal Revenue Code, the operation of which had 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 in the first quarter of fiscal 2010 to cease paying
U.S. federal taxes related to BSCC on a deferred basis, pay
the amounts that were recorded within deferred taxes related to
BSCC over a three-year period and make a one-time payment of
$41.0 million, of which approximately $39.0 million
was non-deductible. The settlement addressed 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 agreed to pay the amounts owed in the following schedule:
|
|
|
|
|
|
|
(In thousands)
|
|
Fiscal 2010
|
|
$
|
528,000
|
|
Fiscal 2011
|
|
|
212,000
|
|
Fiscal 2012
|
|
|
212,000
|
|
As noted in the table above, payments related to the settlement
were $212.0 million and $528.0 million in fiscal 2011
and fiscal 2010, respectively. Remaining amounts to be paid in
2012 will be paid in connection with our quarterly tax payments,
two of which fall in the second quarter, one in the third
quarter and one in the fourth quarter. We believe we have access
to sufficient cash on hand, cash flows from operations and
current access to capital to make payments required in fiscal
2012.
Off-Balance Sheet
Arrangements
We have no off-balance sheet arrangements.
28
Contractual
Obligations
The following table sets forth, as of July 2, 2011, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term bank borrowings
|
|
$
|
181,975
|
|
|
$
|
181,975
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Long-term debt
|
|
|
2,442,839
|
|
|
|
200,164
|
|
|
|
462,239
|
|
|
|
1,245
|
|
|
|
1,779,191
|
|
Capital lease obligations
|
|
|
43,709
|
|
|
|
6,867
|
|
|
|
7,840
|
|
|
|
4,132
|
|
|
|
24,870
|
|
Deferred
compensation(1)
|
|
|
90,985
|
|
|
|
11,010
|
|
|
|
15,793
|
|
|
|
11,005
|
|
|
|
53,177
|
|
SERP and other postretirement
plans(2)
|
|
|
287,247
|
|
|
|
23,427
|
|
|
|
49,592
|
|
|
|
54,655
|
|
|
|
159,573
|
|
Multi-employer pension
plans(3)
|
|
|
42,442
|
|
|
|
5,426
|
|
|
|
37,016
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits and
interest(4)
|
|
|
80,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRS deferred tax
settlement(4)
|
|
|
212,000
|
|
|
|
212,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecorded Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments related to commercial paper and
debt(5)
|
|
|
1,347,640
|
|
|
|
126,093
|
|
|
|
221,305
|
|
|
|
202,664
|
|
|
|
797,578
|
|
Retirement
plan(6)
|
|
|
972,090
|
|
|
|
|
|
|
|
285,780
|
|
|
|
229,090
|
|
|
|
457,220
|
|
Long-term non-capitalized leases
|
|
|
221,457
|
|
|
|
50,962
|
|
|
|
69,590
|
|
|
|
43,479
|
|
|
|
57,426
|
|
Purchase
obligations(7)
|
|
|
2,186,350
|
|
|
|
1,882,961
|
|
|
|
242,436
|
|
|
|
60,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
8,109,366
|
|
|
$
|
2,700,885
|
|
|
$
|
1,391,591
|
|
|
$
|
607,223
|
|
|
$
|
3,329,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
|
(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 2021, 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 July 2, 2011, we had a liability of
$56.2 million for unrecognized tax benefits for all tax
jurisdictions and $24.5 million for related interest that
could result in cash payment. Sysco reached a settlement with
the IRS in the first quarter of fiscal 2010 related to timing of
tax payments. Apart from this item, 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. Accordingly, 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
July 2, 2011, assuming amount remains unchanged until
maturity, and payments on fixed rate debt based on maturity
dates. The impact of our outstanding
fixed-to-floating
interest rate swaps on the fixed rate debt interest payments is
included as well based on the floating rates in effect as of
July 2, 2011. |
|
(6) |
|
Provides the estimated minimum contribution to the Retirement
Plan through fiscal 2021 to meet ERISA minimum funding
requirements under the assumption that we only make minimum
funding requirement contributions each year, based on actuarial
assumptions. |
|
(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 18, Commitments and
Contingencies, to 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
July 2, 2011 included $56.6 million. 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
29
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.
Self-Insurance
Program
We maintain a self-insurance program covering portions of
workers compensation, general liability and vehicle
liability costs. The amounts in excess of the self-insured
levels are fully insured by third party insurers. We also
maintain a fully self-insured group medical program. Liabilities
associated with these risks are estimated in part by considering
historical claims experience, medical cost trends, demographic
factors, severity factors and other actuarial assumptions.
Projections of future loss expenses are inherently uncertain
because of the random nature of insurance claims occurrences and
could be significantly affected if future occurrences and claims
differ from these assumptions and historical trends. In an
attempt to mitigate the risks of workers compensation,
vehicle and general liability claims, safety procedures and
awareness programs have been implemented.
Company-Sponsored
Pension Plans
Amounts related to defined benefit plans recognized in the
financial statements are determined on an actuarial basis. Three
of the more critical assumptions in the actuarial calculations
are the discount rate for determining the current value of plan
benefits, the assumption for the rate of increase in future
compensation levels and the expected rate of return on plan
assets.
For guidance in determining the discount rates, we calculate the
implied rate of return on a hypothetical portfolio of
high-quality fixed-income investments for which the timing and
amount of cash outflows approximates the estimated payouts of
the pension plan. The discount rate assumption is reviewed
annually and revised as deemed appropriate. The discount rate
for determining fiscal 2011 net pension costs for the
Retirement Plan, which was determined as of the July 3,
2010 measurement date, decreased 187 basis points to 6.15%.
The discount rate for determining fiscal 2011 net pension
costs for the SERP, which was determined as of the July 3,
2010 measurement date, decreased 79 basis points to 6.35%.
The combined effect of these discount rate changes increased our
net company-sponsored pension costs for all plans for fiscal
2011 by an estimated $85.6 million. The discount rate for
determining fiscal 2012 net pension costs for the
Retirement Plan, which was determined as of the July 2,
2011 measurement date, decreased 21 basis points to 5.94%.
The discount rate for determining fiscal 2012 net pension
costs for the SERP, which was determined as of the July 2,
2011 measurement date, decreased 42 basis points to 5.93%.
The combined effect of these discount rate changes will increase
our net company-sponsored pension costs for all plans for fiscal
2012 by an estimated $14.3 million. A 100 basis point
increase in the discount rates for fiscal 2012 would decrease
Syscos net company-sponsored pension cost by
$59.0 million, while a 100 basis point decrease in the
discount rates would increase pension cost by
$68.7 million. The impact of a 100 basis point
increase in the discount rates differs from the impact of a
100 basis point decrease in discount rates because the
liabilities are less sensitive to change at higher discount
rates. Therefore, a 100 basis point increase in the
discount rate will not generate the same magnitude of change as
a 100 basis point decrease in the discount rate.
We look to actual plan experience in determining the rates of
increase in compensation levels. We used a plan specific
age-related set of rates for the Retirement Plan, which are
equivalent to a single rate of 5.30% as of July 2, 2011 and
July 3, 2010. For determining the benefit obligations as of
July 2, 2011 and July 3, 2010, the SERP calculations
use an age-graded salary growth assumption.
The expected long-term rate of return on plan assets of the
Retirement Plan was 8.00% for fiscal 2011 and fiscal 2010. The
expectations of future returns are derived from a mathematical
asset model that incorporates assumptions as to the various
asset class returns, reflecting a combination of historical
performance analysis and the forward-looking views of the
financial markets regarding the yield on bonds, historical
returns of the major stock markets and returns on alternative
investments. Although not determinative of future returns, the
effective annual rate of return on plan assets, developed using
geometric/compound averaging, was approximately 8.1%, 4.0%,
4.1%, and 18.5%, over the
20-year,
10-year,
5-year and
1-year
periods ended December 31, 2010, respectively. In addition,
in nine of the last 15 years, the actual return on plan
assets has exceeded 10%. The rate of return assumption is
reviewed annually and revised as deemed appropriate.
The expected return on plan assets impacts the recorded amount
of net pension costs. The expected long-term rate of return on
plan assets of the Retirement Plan is 7.75% for fiscal 2012. A
100 basis point increase (decrease) in the assumed rate of
return for fiscal 2012 would decrease (increase) Syscos
net company-sponsored pension costs for fiscal 2012 by
approximately $20.9 million.
30
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 related to the
recognition of the funded status of our defined benefit plans as
of July 2, 2011 was a charge, net of tax, of
$501.1 million. The amount reflected in accumulated other
comprehensive loss related to the recognition of the funded
status of our defined benefit plans as of July 3, 2010 was
a charge, net of tax, of $598.8 million.
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
$60 million in fiscal 2011. 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, the impact of plan amendments and the
timing and amount of contributions are expected to decrease net
company-sponsored pension costs in fiscal 2012 by approximately
$27 million.
We made cash contributions to our company-sponsored pension
plans of $161.7 million and $297.9 million in fiscal
years 2011 and 2010, respectively. Included in the
$161.7 million of contributions in fiscal 2011 was a
$140.0 million contribution to our Retirement Plan that
would normally have been made in fiscal 2012. We did not have a
minimum required contribution to the Retirement Plan for the
calendar 2010 plan year to meet ERISA minimum funding
requirements. Included in the $297.9 million of
contributions in fiscal 2010 the minimum required contribution
for the calendar 2009 plan year to meet ERISA minimum funding
requirements, as well as a $140.0 million contribution to
our Retirement Plan that would normally have been made in fiscal
2011. We do not have a minimum required contribution to the
Retirement Plan for the calendar 2011 plan year to meet ERISA
minimum funding requirements that must be made in fiscal 2012.
Additional contributions to our Retirement Plan are not
currently anticipated in fiscal 2012, however we will evaluate
our funding position at the end of fiscal 2012 and select the
timing for a contribution at that time. The estimated fiscal
2012 contributions to fund benefit payments for the SERP plan
are approximately $23 million.
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.
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 some
instances, vendor consideration is received upon receipt of
inventory in our distribution facilities. We estimate the amount
needed to reduce our inventory based on inventory turns until
the product is sold. Our inventory turnover is usually less than
one month; therefore, amounts deferred against inventory do not
require long-term estimation. In the situations where the vendor
consideration is not related directly to 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. Historically, adjustments
to our estimates related to vendor consideration have not been
significant.
Goodwill and
Intangible Assets
Goodwill and intangible assets represent the excess of
consideration paid over the fair value of tangible net assets
acquired. Certain assumptions and estimates are employed in
determining the fair value of assets acquired, including
goodwill and other intangible assets, as well as determining the
allocation of goodwill to the appropriate reporting unit.
In addition, annually in our fourth quarter or more frequently
as needed, we assess the recoverability of goodwill and
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 eight operating segments as
described in Note 19, Business Segment
Information, to the Consolidated Financial Statements in
Item 8. The components within each of our eight operating
segments have similar economic characteristics and therefore are
aggregated into eight reporting units.
31
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 eight operating
segments. We use a 60% weighting for our discounted cash flow
valuation and 40% for the earnings multiple models giving
greater emphasis to our discounted cash flow model because the
forecasted operating results that serve as a basis for the
analysis incorporate managements outlook and anticipated
changes for the businesses. 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. When possible, we
use observable market inputs in our models to arrive at the fair
values of our reporting units. We update our projections used in
our discounted cash flow model based on historical performance
and changing business conditions for each of our reporting units.
Our estimates of fair value contain uncertainties requiring
management to make assumptions and to apply judgment to estimate
industry economic factors and the profitability of future
business strategies. Actual results could differ from these
assumptions and projections, resulting in the company revising
its assumptions and, if required, recognizing an impairment
loss. There were no impairments of goodwill or indefinite-lived
intangibles recorded as a result of assessment in fiscal 2011,
2010 and 2009. Our past estimates of fair value for fiscal 2010
and 2009 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 the fiscal 2011 analysis our estimates
of fair value did not require additional analysis; however, we
would have performed additional analysis to determine if an
impairment existed for the following reporting units if our
estimates of fair value were decreased by the following amounts.
First, our reporting unit that distributes to international
customers would have required additional analysis if the
estimated fair value had been 26% lower. Second, our European
Broadline company would have required additional analysis if the
estimated fair value had been 27% lower. Third, our lodging
industry products reporting unit would have required additional
analysis if the estimated fair value had been 29% lower. Lastly,
our specialty produce operations would have required additional
analysis if the estimated fair value had been 34% lower. At
July 2, 2011, these four reporting units had goodwill
aggregating $498.3 million. For the remainder of our
reporting units which at July 2, 2011 had goodwill
aggregating $1.1 billion, we would have performed
additional analysis to determine if an impairment existed for a
reporting unit if the estimated fair value for any of these
reporting units had declined by greater than 50%.
Certain reporting units (European Broadline, specialty produce,
custom-cut meat, lodging industry products and international
distribution operations) have a greater proportion of goodwill
recorded to estimated fair value as compared to the United
States Broadline, Canadian 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 United States Broadline, Canadian Broadline
and SYGMA reporting units. In addition, these businesses also
have lower levels of cash flow than the United States Broadline
reporting units. As such, these reporting units 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 July 2, 2011, there was $61.3 million of total
unrecognized compensation cost related to share-based
compensation arrangements. That cost is expected to be
recognized over a weighted-average period of 2.62 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 each restricted stock unit award granted with
a dividend equivalent is based on the companys stock price
as of the date of grant. For restricted stock units granted
without dividend equivalents, the fair value is reduced by the
present value of expected dividends during the vesting period.
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 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
32
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 share-based awards provide that if
the award holder retires at certain age and years of service
thresholds, the options continue to vest as if the award holder
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.
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, including
expectations regarding pay-related expense and pension costs,
anticipated multi-employer pension related liabilities and
contributions to various multi-employer pension plans,
expectations regarding potential payments of unrecognized tax
benefits and interest, expectations regarding share repurchases,
expected trends in fuel pricing, usage costs and surcharges, our
expectation regarding the provision for losses on accounts
receivable, expected implementation, costs and benefits of the
ERP system, estimated expenses and capital expenditures related
to our Business Transformation Project in fiscal 2012, our plan
to continue to explore and identify opportunities to grow in
international markets and adjacent areas that complement our
core business, 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
acquisitions and capital expenditures and the sources of
financing for them, continued competitive advantages and
positive results from strategic initiatives, anticipated
company-sponsored pension plan liabilities, our expectations
regarding cash flow from operations, 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. Expected
trends related to fuel costs and usage are impacted by
fluctuations in the economy generally and numerous factors
affecting the oil industry that are beyond our control. Our
efforts to lower our cost of goods sold may be impacted by
factors beyond our control, including actions by our competitors
and/or
customers. We have experienced delays in the implementation of
our Business Transformation Project and the expected costs of
our Business Transformation Project may be greater or less than
currently expected, as we may encounter the need for changes in
design or revisions of the project calendar and budget. Our
business and results of operations may be adversely affected if
we experience operating problems, scheduling delays, cost
overages, or limitations on the extent of the business
transformation during the ERP implementation process. As
implementation of the ERP system and the Business Transformation
Project begins, there may be changes in design or timing that
impact near-term expense and cause us to revise the project
calendar and budget, and additional hiring and training of
employees and consultants may be required, which could also
impact project expense and timing. 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. The amount of shares repurchased in a given period is
subject to a number of factors, including available cash and our
general working capital needs at the time. Our plans with
respect to growth in international markets and adjacent areas
that complement our core business are subject to the
companys other strategic initiatives and plans and
economic conditions generally. 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. 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 position. 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
2011
As of July 2, 2011, we had no commercial paper outstanding.
Total debt as of July 2, 2011 was $2.7 billion, of
which approximately 75% was at fixed rates of interest,
including the impact of our interest rate swap agreements.
In fiscal 2010, we entered into two interest rate swap
agreements that effectively converted $200 million of fixed
rate debt maturing in fiscal 2014 (the fiscal 2014 swap) and
$250 million of fixed rate debt maturing in fiscal 2013
(the fiscal 2013 swap) to floating rate debt. Both transactions
were entered into with the goal of reducing overall borrowing
cost. These transactions were designated as fair value hedges
since the swaps hedge against the changes in fair value of fixed
rate debt resulting from changes in interest rates.
As of July 2, 2011, the fiscal 2014 swap was recognized as
an asset within the consolidated balance sheet at fair value
within other assets of $7.4 million. The fixed interest
rate on the hedged debt is 4.6% and the floating interest rate
on the swap is three-month LIBOR which resets quarterly. As of
July 2, 2011, the fiscal 2013 swap was recognized as an
asset within the consolidated balance sheet at fair value within
other assets of $6.1 million. The fixed interest rate on
the hedged debt is 4.2% and the floating interest rate on the
swap is three-month LIBOR which resets quarterly.
The following tables present our interest rate position as of
July 2, 2011. All amounts are stated in U.S. dollar
equivalents.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Position as of July 2, 2011
|
|
|
|
Principal Amount by Expected Maturity
|
|
|
|
Average Interest Rate
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
U.S. $ Denominated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt
|
|
$
|
205,616
|
|
|
$
|
3,682
|
|
|
$
|
1,910
|
|
|
$
|
1,117
|
|
|
$
|
632
|
|
|
$
|
1,772,072
|
|
|
$
|
1,985,029
|
|
|
$
|
2,214,529
|
|
Average Interest Rate
|
|
|
6.0
|
%
|
|
|
4.1
|
%
|
|
|
4.4
|
%
|
|
|
4.4
|
%
|
|
|
4.6
|
%
|
|
|
5.8
|
%
|
|
|
5.9
|
%
|
|
|
|
|
Floating Rate
Debt(1)
|
|
$
|
181,975
|
|
|
$
|
253,316
|
|
|
$
|
208,779
|
|
|
$
|
1,100
|
|
|
$
|
|
|
|
$
|
12,500
|
|
|
$
|
657,670
|
|
|
$
|
676,075
|
|
Average Interest Rate
|
|
|
2.0
|
%
|
|
|
2.4
|
%
|
|
|
1.9
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
0.5
|
%
|
|
|
2.0
|
%
|
|
|
|
|
Canadian $ Denominated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt
|
|
$
|
1,178
|
|
|
$
|
1,173
|
|
|
$
|
1,219
|
|
|
$
|
1,264
|
|
|
$
|
1,264
|
|
|
$
|
19,492
|
|
|
$
|
25,590
|
|
|
$
|
28,549
|
|
Average Interest Rate
|
|
|
7.7
|
%
|
|
|
8.4
|
%
|
|
|
8.7
|
%
|
|
|
8.8
|
%
|
|
|
9.3
|
%
|
|
|
9.8
|
%
|
|
|
9.5
|
%
|
|
|
|
|
Euro Denominated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt
|
|
$
|
234
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
234
|
|
|
$
|
261
|
|
Average Interest Rate
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
(1) |
|
Includes fixed rate debt that has been converted to floating
rate debt through interest rate swap agreements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Position as of July 2, 2011
|
|
|
|
Notional Amount by Expected Maturity
|
|
|
|
Average Interest Swap Rate
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Interest Rate Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related To Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay Variable/Receive Fixed
|
|
$
|
|
|
|
$
|
250,000
|
|
|
$
|
200,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
450,000
|
|
|
$
|
13,482
|
|
Average Variable Rate Paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate A Plus
|
|
|
|
|
|
|
2.1
|
%
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
%
|
|
|
|
|
Fixed Rate Received
|
|
|
|
|
|
|
4.2
|
%
|
|
|
4.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.4
|
%
|
|
|
|
|
Rate A three-month LIBOR
34
Fiscal
2010
As of July 3, 2010, we had no commercial paper outstanding.
Total debt as of July 3, 2010 was $2.5 billion, of
which approximately 81% was at fixed rates of interest including
the impact of our interest rate swap agreements.
As of July 3, 2010, the 2014 swap was recognized as an
asset within the consolidated balance sheet at fair value within
other assets of $5.5 million. The fixed interest rate on
the hedged debt is 4.6% and the floating interest rate on the
swap is three-month LIBOR which resets quarterly. As of
July 3, 2010, the 2013 swap was recognized as an asset
within the consolidated balance sheet at fair value within other
assets of $5.5 million. The fixed interest rate on the
hedged debt is 4.2% and the floating interest rate on the swap
is three-month LIBOR which resets quarterly.
The following tables present our interest rate positions as of
July 3, 2010. All amounts are stated in U.S. dollar
equivalents.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Position as of July 3, 2010
|
|
|
|
Principal Amount by Expected Maturity
|
|
|
|
Average Interest Rate
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
U.S. $ Denominated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt
|
|
$
|
6,250
|
|
|
$
|
204,658
|
|
|
$
|
2,471
|
|
|
$
|
1,275
|
|
|
$
|
552
|
|
|
$
|
1,766,234
|
|
|
$
|
1,981,440
|
|
|
$
|
2,262,961
|
|
Average Interest Rate
|
|
|
4.5
|
%
|
|
|
6.1
|
%
|
|
|
4.7
|
%
|
|
|
4.0
|
%
|
|
|
3.5
|
%
|
|
|
5.8
|
%
|
|
|
5.9
|
%
|
|
|
|
|
Floating Rate
Debt(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
252,801
|
|
|
$
|
208,249
|
|
|
$
|
1,100
|
|
|
$
|
12,500
|
|
|
$
|
474,650
|
|
|
$
|
483,872
|
|
Average Interest Rate
|
|
|
|
|
|
|
|
|
|
|
2.5
|
%
|
|
|
2.2
|
%
|
|
|
0.3
|
%
|
|
|
0.6
|
%
|
|
|
2.3
|
%
|
|
|
|
|
Canadian $ Denominated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt
|
|
$
|
894
|
|
|
$
|
957
|
|
|
$
|
944
|
|
|
$
|
979
|
|
|
$
|
1,061
|
|
|
$
|
18,676
|
|
|
$
|
23,511
|
|
|
$
|
26,851
|
|
Average Interest Rate
|
|
|
7.6
|
%
|
|
|
8.0
|
%
|
|
|
8.8
|
%
|
|
|
9.1
|
%
|
|
|
9.2
|
%
|
|
|
9.8
|
%
|
|
|
9.5
|
%
|
|
|
|
|
Euro Denominated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt
|
|
$
|
826
|
|
|
$
|
205
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,031
|
|
|
$
|
1,177
|
|
Average Interest Rate
|
|
|
8.9
|
%
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Position as of July 3, 2010
|
|
|
|
Notional Amount by Expected Maturity
|
|
|
|
Average Interest Swap Rate
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Interest Rate Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related To Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay Variable/Receive Fixed
|
|
$
|
|
|
|
$
|
|
|
|
$
|
250,000
|
|
|
$
|
200,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
450,000
|
|
|
$
|
11,045
|
|
Average Variable Rate Paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate A Plus
|
|
|
|
|
|
|
|
|
|
|
2.1
|
%
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
2.1
|
%
|
|
|
|
|
Fixed Rate Received
|
|
|
|
|
|
|
|
|
|
|
4.2
|
%
|
|
|
4.6
|
%
|
|
|
|
|
|
|
|
|
|
|
4.4
|
%
|
|
|
|
|
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 of our foreign
subsidiaries into U.S. dollars. The changes in the exchange
rates used to translate our foreign sales into U.S. dollars
positively impacted sales by 0.5% in fiscal 2011 compared to
fiscal 2010 and 0.9% in fiscal 2010 compared to fiscal 2009. The
impact to our operating income, net earnings and earnings per
share was not material in fiscal 2011 and fiscal 2010. A 10%
unfavorable change in the fiscal 2011 weighted
year-to-date
exchange rate and the resulting impact on our financial
statements would have negatively impacted fiscal 2011 sales by
0.6% 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 2011 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
Due to the nature of our distribution business, we are exposed
to potential volatility in fuel prices. 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-away-from-home purchases. 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
35
fuel costs impact the costs we incur to deliver product to our
customers. During fiscal 2011, 2010 and 2009, fuel costs related
to outbound deliveries represented approximately 0.6%, 0.6% and
0.8% of sales, respectively. Fuel costs, excluding any amounts
recovered through fuel surcharges, incurred by Sysco increased
by approximately $33.0 million in fiscal 2011 from fiscal
2010 and decreased by $71.8 million in fiscal 2010 over
fiscal 2009.
We routinely enter into forward purchase commitments for a
portion of our projected monthly diesel fuel requirements. As of
July 2, 2011, we had forward diesel fuel commitments
totaling approximately $86 million through June 2012. These
contracts will lock in the price of approximately 30% to 35% of
our fuel purchase needs for the contracted periods at prices
lower than the current market price for diesel for the first
26 weeks of fiscal 2012 and near the current market price
for diesel for the remainder of the fiscal year.
Fuel costs in fiscal 2012, exclusive of any amounts recovered
through fuel surcharges, are expected to increase by
approximately $35 million to $45 million as compared
to fiscal 2011. Our estimate is based upon current, published
quarterly market price projections for diesel, the cost
committed to in our forward fuel purchase agreements currently
in place for fiscal 2012 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 increase to
$55 million to $65 million.
Investment
Risk
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.
Fluctuations in asset values can cause the amount of our
anticipated future contributions to the plan to increase and
pension expense to increase and can result in a reduction to
shareholders equity on our balance sheet as of fiscal
year-end, which is when this plans funded status is
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
declines, our anticipated future contributions, pension expense
and funded status will be affected for future years. 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, 2010) would not have a material
impact on our anticipated future contributions for fiscal 2012;
however, this unfavorable change would increase our pension
expense for fiscal 2012 by $39.8 million and would reduce
our shareholders equity on our balance sheet as of
July 2, 2011 by $129.7 million.
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
July 2, 2011. 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 July 2, 2011, 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 July 2, 2011.
38
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Shareholders
Sysco Corporation
We have audited Sysco Corporation (a Delaware Corporation) and
its subsidiaries internal control over financial reporting
as of July 2, 2011, based on criteria established in
Internal Control Integrated 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 maintained, in all material
respects, effective internal control over financial reporting as
of July 2, 2011, 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 of the Company as of July 2,
2011 and July 3, 2010 and the related consolidated results
of operations, shareholders equity and cash flows for each
of the three years in the period ended July 2, 2011 of
Sysco Corporation and subsidiaries and our report dated
August 30, 2011 expressed an unqualified opinion thereon.
Houston, Texas
August 30, 2011
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 July 2, 2011 and July 3,
2010, and the related consolidated results of operations,
shareholders equity, and cash flows for each of the three
years in the period ended July 2, 2011. 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 July 2, 2011 and
July 3, 2010, and the consolidated results of their
operations and their cash flows for each of the three years in
the period ended July 2, 2011, in conformity with
U.S. generally accepted accounting principles.
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 July 2, 2011, 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 30, 2011 expressed
an unqualified opinion thereon.
Houston, Texas
August 30, 2011
40
SYSCO
|
|
|
|
|
|
|
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
|
(In thousands except for
|
|
|
|
share data)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
639,765
|
|
|
$
|
585,443
|
|
Short-term investments
|
|
|
|
|
|
|
23,511
|
|
Accounts and notes receivable, less allowances of $42,436 and
$36,573
|
|
|
2,898,283
|
|
|
|
2,617,352
|
|
Inventories
|
|
|
2,073,766
|
|
|
|
1,771,539
|
|
Prepaid expenses and other current assets
|
|
|
72,496
|
|
|
|
70,992
|
|
Prepaid income taxes
|
|
|
48,572
|
|
|
|
7,421
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
5,732,882
|
|
|
|
5,076,258
|
|
Plant and equipment at cost, less depreciation
|
|
|
3,512,389
|
|
|
|
3,203,823
|
|
Other assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,633,289
|
|
|
|
1,549,815
|
|
Intangibles, less amortization
|
|
|
109,938
|
|
|
|
106,398
|
|
Restricted cash
|
|
|
110,516
|
|
|
|
124,488
|
|
Prepaid pension cost
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
286,541
|
|
|
|
252,919
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
2,140,284
|
|
|
|
2,033,620
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
11,385,555
|
|
|
$
|
10,313,701
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
181,975
|
|
|
$
|
|
|
Accounts payable
|
|
|
2,183,417
|
|
|
|
1,953,092
|
|
Accrued expenses
|
|
|
856,569
|
|
|
|
870,114
|
|
Deferred income taxes
|
|
|
146,083
|
|
|
|
178,022
|
|
Current maturities of long-term debt
|
|
|
207,031
|
|
|
|
7,970
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,575,075
|
|
|
|
3,009,198
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
2,279,517
|
|
|
|
2,472,662
|
|
Deferred income taxes
|
|
|
204,223
|
|
|
|
271,512
|
|
Other long-term liabilities
|
|
|
621,498
|
|
|
|
732,803
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
|
3,105,238
|
|
|
|
3,476,977
|
|
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
|
|
|
887,754
|
|
|
|
816,833
|
|
Retained earnings
|
|
|
7,681,669
|
|
|
|
7,134,139
|
|
Accumulated other comprehensive loss
|
|
|
(259,958
|
)
|
|
|
(480,251
|
)
|
Treasury stock, 173,597,346 and 176,768,795 shares, at cost
|
|
|
(4,369,398
|
)
|
|
|
(4,408,370
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
4,705,242
|
|
|
|
3,827,526
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
11,385,555
|
|
|
$
|
10,313,701
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
41
SYSCO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
July 3, 2010
|
|
|
|
|
|
|
July 2, 2011
|
|
|
(53 Weeks)
|
|
|
June 27, 2009
|
|
|
|
(In thousands except for share and per share data)
|
|
|
Sales
|
|
$
|
39,323,489
|
|
|
$
|
37,243,495
|
|
|
$
|
36,853,330
|
|
Cost of sales
|
|
|
32,002,341
|
|
|
|
30,136,009
|
|
|
|
29,816,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
7,321,148
|
|
|
|
7,107,486
|
|
|
|
7,036,331
|
|
Operating expenses
|
|
|
5,389,646
|
|
|
|
5,131,618
|
|
|
|
5,164,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,931,502
|
|
|
|
1,975,868
|
|
|
|
1,872,211
|
|
Interest expense
|
|
|
118,267
|
|
|
|
125,477
|
|
|
|
116,322
|
|
Other expense (income), net
|
|
|
(14,219
|
)
|
|
|
802
|
|
|
|
(14,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
1,827,454
|
|
|
|
1,849,589
|
|
|
|
1,770,834
|
|
Income taxes
|
|
|
675,424
|
|
|
|
669,606
|
|
|
|
714,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
1,152,030
|
|
|
$
|
1,179,983
|
|
|
$
|
1,055,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.96
|
|
|
$
|
1.99
|
|
|
$
|
1.77
|
|
Diluted earnings per share
|
|
|
1.96
|
|
|
|
1.99
|
|
|
|
1.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding
|
|
|
586,526,142
|
|
|
|
592,157,221
|
|
|
|
595,127,577
|
|
Diluted shares outstanding
|
|
|
588,691,546
|
|
|
|
593,590,042
|
|
|
|
596,069,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
1.03
|
|
|
$
|
0.99
|
|
|
$
|
0.94
|
|
See Notes to Consolidated Financial Statements
42
SYSCO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Loss
|
|
|
Shares
|
|
|
Amounts
|
|
|
Totals
|
|
|
|
(In thousands except for share data)
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,179,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,179,983
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,973
|
|
|
|
|
|
|
|
|
|
|
|
49,973
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,464
|
|
|
|
|
|
|
|
|
|
|
|
27,464
|
|
Pension funded status adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(280,130
|
)
|
|
|
|
|
|
|
|
|
|
|
(280,130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
977,718
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(585,734
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(585,734
|
)
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000,000
|
|
|
|
179,174
|
|
|
|
(179,174
|
)
|
Share-based compensation awards
|
|
|
|
|
|
|
|
|
|
|
56,481
|
|
|
|
|
|
|
|
|
|
|
|
(4,379,608
|
)
|
|
|
(108,533
|
)
|
|
|
165,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 3, 2010
|
|
|
765,174,900
|
|
|
$
|
765,175
|
|
|
$
|
816,833
|
|
|
$
|
7,134,139
|
|
|
$
|
(480,251
|
)
|
|
|
176,768,795
|
|
|
$
|
4,408,370
|
|
|
$
|
3,827,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,152,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,152,030
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122,217
|
|
|
|
|
|
|
|
|
|
|
|
122,217
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,659
|
|
|
|
|
|
|
|
|
|
|
|
51,659
|
|
Pension funded status adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,989
|
|
|
|
|
|
|
|
|
|
|
|
45,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,372,323
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(604,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(604,500
|
)
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000,000
|
|
|
|
291,600
|
|
|
|
(291,600
|
)
|
Treasury stock issued for acquisitions
|
|
|
|
|
|
|
|
|
|
|
(10,625
|
)
|
|
|
|
|
|
|
|
|
|
|
(422,132
|
)
|
|
|
(10,625
|
)
|
|
|
|
|
Share-based compensation awards
|
|
|
|
|
|
|
|
|
|
|
81,546
|
|
|
|
|
|
|
|
|
|
|
|
(12,749,317
|
)
|
|
|
(319,947
|
)
|
|
|
401,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 2, 2011
|
|
|
765,174,900
|
|
|
$
|
765,175
|
|
|
$
|
887,754
|
|
|
$
|
7,681,669
|
|
|
$
|
(259,958
|
)
|
|
|
173,597,346
|
|
|
$
|
4,369,398
|
|
|
$
|
4,705,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
43
SYSCO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
July 3, 2010
|
|
|
|
|
|
|
July 2, 2011
|
|
|
(53 Weeks)
|
|
|
June 27, 2009
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
1,152,030
|
|
|
$
|
1,179,983
|
|
|
$
|
1,055,948
|
|
Adjustments to reconcile net earnings to cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
59,235
|
|
|
|
66,358
|
|
|
|
56,030
|
|
Depreciation and amortization
|
|
|
402,588
|
|
|
|
389,976
|
|
|
|
382,339
|
|
Deferred income taxes
|
|
|
(165,239
|
)
|
|
|
(121,865
|
)
|
|
|
(294,162
|
)
|
Provision for losses on receivables
|
|
|
42,623
|
|
|
|
34,931
|
|
|
|
74,638
|
|
Other non-cash items
|
|
|
(9,454
|
)
|
|
|
2,550
|
|
|
|
(3,586
|
)
|
Additional investment in certain assets and liabilities, net of
effect of businesses acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in receivables
|
|
|
(252,641
|
)
|
|
|
(166,426
|
)
|
|
|
188,748
|
|
(Increase) decrease in inventories
|
|
|
(254,738
|
)
|
|
|
(106,172
|
)
|
|
|
177,590
|
|
Decrease (increase) in prepaid expenses and other current assets
|
|
|
341
|
|
|
|
(6,271
|
)
|
|
|
(678
|
)
|
Increase (decrease) in accounts payable
|
|
|
187,410
|
|
|
|
154,811
|
|
|
|
(198,284
|
)
|
(Decrease) increase in accrued expenses
|
|
|
(43,348
|
)
|
|
|
58,002
|
|
|
|
(120,314
|
)
|
(Decrease) increase in accrued income taxes
|
|
|
(44,202
|
)
|
|
|
(296,475
|
)
|
|
|
325,482
|
|
(Increase) in other assets
|
|
|
(26,966
|
)
|
|
|
(31,514
|
)
|
|
|
(15,701
|
)
|
Increase (decrease) in other long-term liabilities and prepaid
pension cost, net
|
|
|
44,308
|
|
|
|
(271,692
|
)
|
|
|
(48,380
|
)
|
Excess tax benefits from share-based compensation arrangements
|
|
|
(429
|
)
|
|
|
(768
|
)
|
|
|
(2,921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,091,518
|
|
|
|
885,428
|
|
|
|
1,576,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to plant and equipment
|
|
|
(636,442
|
)
|
|
|
(594,604
|
)
|
|
|
(464,561
|
)
|
Proceeds from sales of plant and equipment
|
|
|
19,069
|
|
|
|
21,710
|
|
|
|
25,244
|
|
Acquisition of businesses, net of cash acquired
|
|
|
(101,148
|
)
|
|
|
(29,293
|
)
|
|
|
(218,075
|
)
|
Purchases of short-term investments
|
|
|
|
|
|
|
(85,071
|
)
|
|
|
|
|
Maturities of short-term investments
|
|
|
24,993
|
|
|
|
61,568
|
|
|
|
|
|
Decrease (increase) in restricted cash
|
|
|
13,972
|
|
|
|
(30,630
|
)
|
|
|
(1,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(679,556
|
)
|
|
|
(656,320
|
)
|
|
|
(658,663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank and commercial paper borrowings (repayments), net
|
|
|
181,975
|
|
|
|
|
|
|
|
|
|
Other debt borrowings
|
|
|
4,411
|
|
|
|
7,091
|
|
|
|
506,611
|
|
Other debt repayments
|
|
|
(8,732
|
)
|
|
|
(10,695
|
)
|
|
|
(10,173
|
)
|
Debt issuance costs
|
|
|
(7
|
)
|
|
|
(7
|
)
|
|
|
(3,693
|
)
|
Proceeds from common stock reissued from treasury for
share-based compensation awards
|
|
|
332,688
|
|
|
|
94,750
|
|
|
|
111,780
|
|
Treasury stock purchases
|
|
|
(291,600
|
)
|
|
|
(179,174
|
)
|
|
|
(438,843
|
)
|
Dividends paid
|
|
|
(597,071
|
)
|
|
|
(579,763
|
)
|
|
|
(548,246
|
)
|
Excess tax benefits from share-based compensation arrangements
|
|
|
429
|
|
|
|
768
|
|
|
|
2,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(377,907
|
)
|
|
|
(667,030
|
)
|
|
|
(379,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
20,267
|
|
|
|
4,714
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
54,322
|
|
|
|
(433,208
|
)
|
|
|
538,777
|
|
Cash and cash equivalents at beginning of period
|
|
|
585,443
|
|
|
|
1,018,651
|
|
|
|
479,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
639,765
|
|
|
$
|
585,443
|
|
|
$
|
1,018,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
119,050
|
|
|
$
|
127,411
|
|
|
$
|
108,608
|
|
Income taxes
|
|
|
907,720
|
|
|
|
1,141,963
|
|
|
|
735,772
|
|
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 177 distribution facilities located throughout the United
States, Canada and Ireland.
Syscos fiscal year ends on the Saturday nearest to June
30th. This resulted in a 52-week year ending July 2, 2011,
a 53-week year ending July 3, 2010 for fiscal 2010 and a
52-week year ending June 27, 2009 for 2009.
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.
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.
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.
Certain internal and external costs related to the acquisition
and development of internal use software being built within our
Business Transformation Project are capitalized within plant and
equipment during the application development stages of the
project. This project is primarily in the development stage as
of July 2, 2011 and no material depreciation has occurred.
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
$13.9 million in fiscal 2011, $10.0 million in fiscal
2010 and $3.5 million in fiscal 2009.
Long-Lived
Assets
Management reviews long-lived assets 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
on an undiscounted basis. If the evaluation indicates that the
carrying value of the asset may not be recoverable, the
potential impairment is measured at fair value.
45
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. 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
eight operating segments as described in Note 19,
Business Segment Information. The components within
each of the eight operating segments have similar economic
characteristics and therefore are aggregated into eight
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.
Intangibles with definite lives are amortized on a straight-line
basis over their useful lives, which generally range from three
to ten years. Management reviews 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
finite-lived intangibles are estimated over the intangible
assets useful life based on updated projections on an
undiscounted basis. If the evaluation indicates that the
carrying value of the finite-lived intangible asset may not be
recoverable, the potential impairment is measured at fair value.
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
July 2, 2011 and July 3, 2010 represented funds
deposited in insurance trusts.
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 and electricity.
Certain of 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 (COLI) 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 for the policies that Sysco
has the intent to hold these policies to maturity. Deferred tax
balances are recorded for those policies that Sysco intends to
redeem prior to maturity. The total amounts related to the
companys investments in COLI policies included in other
assets in the consolidated balance sheets were
$231.3 million and $203.2 million at July 2, 2011
and July 3, 2010, 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.
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 $2,222.1 million in fiscal 2011,
$2,103.3 million in fiscal 2010, and $2,136.8 million
in fiscal 2009.
Insurance
Program
Sysco maintains a self-insurance program covering portions of
workers compensation, general and vehicle liability and
property insurance 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 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 and restricted stock unit awards are 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.
Income
Taxes
Sysco recognizes deferred tax assets and liabilities based on
the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured pursuant to tax
laws using rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The impact on deferred tax assets and
liabilities of a change in tax rate is recognized in income in
the period that includes the enactment date. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount more likely than not to be realized.
Sysco recognizes a tax benefit from an uncertain tax position
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 greater than a 50%
likelihood of being realized upon settlement. To the extent
interest and penalties may be assessed by taxing authorities on
any underpayment of income tax, estimated amounts required by
the accounting guidance related to uncertain tax positions have
been accrued and are classified as a component of income taxes
in the consolidated results of operations.
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.
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. Subsequent changes to the preliminary balances are
reflected retrospectively, if material. Material changes to the
preliminary allocations are not anticipated by management.
47
Fair Value
Measurements
In September 2006, the Financial Accounting Standards Board
(FASB) issued FASB Statement No. 157, Fair Value
Measurements, which was subsequently codified within
Accounting Standards Codification (ASC) 820, Fair Value
Measurements. This standard established a common
definition for fair value under generally accepted accounting
principles, established a framework for measuring fair value and
expanded disclosure requirements about such fair value
measurements. As of June 29, 2008, Sysco adopted the
provisions of this fair value measurement guidance 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. The adoption of the fair value
measurement provisions 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. As of June 28, 2009, Sysco adopted
the provisions of this fair value measurements guidance 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 fair value measurements guidance was
applied beginning in fiscal 2010 to this fair value estimation.
Disclosure About
Derivative Instruments and Hedging Activities
In March 2008, the FASB issued FASB Statement No. 161,
Disclosure about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133,
which was subsequently codified within ASC 815,
Derivatives and Hedging. Effective for Sysco in the
third quarter of fiscal 2009, this standard requires enhanced
disclosures about an entitys derivative and hedging
activities and thereby improves the transparency of financial
reporting. Sysco has provided the required disclosures for this
standard in Note 8, Derivative Financial
Instruments.
Business
Combinations
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations, which was subsequently
codified as ASC 805, Business Combinations.
This standard 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 standard
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. 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. This standard amended the previously issued
business combinations guidance 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 adopted the provisions of these standards on
a prospective basis for business combinations beginning in
fiscal 2010.
Determining
Whether Instruments Granted in Share-Based Payment Transactions
Are Participating Securities
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, which
was subsequently codified within ASC 260, Earnings
Per Share. This standard 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. This standard was 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 to the provisions of this standard. Early application of
this standard was not permitted. The adoption of this standard
did not have a material impact on the companys
consolidated financial statements.
Measuring
Liabilities at Fair Value
In August 2009, the FASB issued Accounting Standards Update
2009-05,
Measuring Liabilities at Fair Value. This update
provides additional guidance, including illustrative examples,
clarifying the measurement of liabilities at fair value. This
update is effective for the first reporting period beginning
after its issuance. The company adopted the provisions of this
update in the second quarter of fiscal 2010. The adoption of
this update did not have a material impact on the companys
consolidated financial statements.
Improving
Disclosures about Fair Value Measurements
In January 2010, the FASB issued Accounting Standards Update
2010-06,
Improving Disclosures about Fair Value Measurements.
This update requires some new disclosures and clarifies some
existing disclosure requirements about fair value measurements
codified within ASC 820, Fair Value Measurements and
Disclosures. The majority of the provisions of this
update, including those applicable to Sysco, were effective for
interim and annual reporting periods beginning after
December 15, 2009. Early application of the provisions of
this update was permitted. The company adopted the applicable
provisions of this update in the third quarter of fiscal 2010.
The adoption of this update did not have a material impact on
the companys consolidated financial statement disclosures.
48
Subsequent
Events
In February 2010, the FASB issued Accounting Standard Update
2010-09,
Amendments to Certain Recognition and Disclosure
Requirements. This update amends ASC 855,
Subsequent Events to remove the requirement for SEC
filers to disclose the date through which subsequent events have
been evaluated. In addition, the update clarifies the reissuance
disclosure provision related to subsequent events. The update is
effective immediately for financial statements that are issued
or revised. The company adopted the provisions of this update in
the third quarter of fiscal 2010. Because this update affects
the disclosure and not the accounting treatment for subsequent
events, the adoption of this provision did not have a material
impact on the companys consolidated financial statements.
Employers
Disclosures about Postretirement Benefit Plan Assets
In December 2008, the FASB issued FASB Staff Position
No. FAS 132(R)-1, Employers Disclosures
about Postretirement Benefit Plan Assets, which was
subsequently codified within ASC 715,
Compensation Retirement Benefits. This
standard requires additional disclosures about assets held in an
employers defined benefit pension or other postretirement
plan and became effective for Sysco in fiscal 2010. Sysco has
provided the required disclosures for this standard in
Note 12, Employee Benefit Plans.
|
|
3.
|
NEW ACCOUNTING
STANDARDS
|
Amendments to
Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs
In May 2011, the FASB issued Accounting Standard Update
2011-04,
Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRSs. This
update amends ASC 820, Fair Value Measurement
to improve the comparability of fair value measurements
presented and disclosed in financial statements prepared in
accordance with U.S. GAAP and IFRSs. In addition, the
update explains how to measure fair value, but does not require
additional fair value measurements and is not intended to
establish valuation standards or affect valuation practices
outside of financial reporting. This update is effective for
interim reporting periods ending after December 15, 2011,
which is the third quarter of fiscal 2012 for Sysco. The
amendments in this update are to be applied prospectively and
early application of this standard is not permitted. Sysco is
currently evaluating the impact the adoption of ASU
2011-04 will
have on its consolidated financial statements.
Presentation of
Comprehensive Income
In June 2011, the FASB issued Accounting Standard Update
2011-05,
Presentation of Comprehensive Income. This update
amends ASC 220, Comprehensive Income to
eliminate the option to present components of other
comprehensive income as part of the statement of changes in
stockholders equity. The amendments require that all
nonowner changes in stockholders equity be presented
either in a single continuous statement of comprehensive income
or in two separate but consecutive statements. The amendments in
this update do not change the items that must be reported in
other comprehensive income or when an item of other
comprehensive income must be reclassified to net income. The
amendments in this update are effective for fiscal years, and
interim periods within those years, beginning after
December 15, 2011, which will be fiscal 2013 for Sysco. The
amendments in this update should be applied retrospectively and
early application is permitted. Sysco is currently evaluating
which presentation option it will utilize for comprehensive
income in its consolidated financial statements.
|
|
4.
|
FAIR VALUE
MEASUREMENTS
|
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date
(i.e. an exit price). The accounting guidance includes a fair
value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The three levels of the
fair value hierarchy are as follows:
|
|
|
|
|
Level 1 Unadjusted quoted prices for
identical assets or liabilities in active markets;
|
|
|
|
Level 2 Inputs other than quoted prices
in active markets for identical assets and liabilities that are
observable either directly or indirectly for substantially the
full term of the asset or liability; and
|
|
|
|
Level 3 Unobservable inputs for the
asset or liability, which include managements own
assumption about the assumptions market participants would use
in pricing the asset or liability, including assumptions about
risk.
|
Syscos policy is to invest in only high-quality
investments. Cash equivalents primarily include time deposits,
certificates of deposit, commercial paper, high-quality money
market funds and all highly liquid instruments with original
maturities of three months or less. Short-term investments
consist of commercial paper with original maturities of greater
than three months but less than one year. These investments are
considered
available-for-sale
and are recorded at fair value. As of July 3, 2010, the
difference between the fair value of the short-term investments
and the original cost was not material. There were no short-term
investments as of July 2, 2011. Restricted cash consists of
investments in high-quality money market funds.
The following is a description of the valuation methodologies
used for assets and liabilities measured at fair value.
|
|
|
|
|
Time deposits, certificates of deposit and commercial paper
included in cash equivalents are valued at amortized cost, which
approximates fair value. These are included within cash
equivalents as a Level 2 measurement in the tables below.
|
49
|
|
|
|
|
Commercial paper included in short-term investments is valued
using broker quotes that utilize observable market inputs. These
are included as a Level 2 measurement in the tables below.
|
|
|
|
Money market funds are valued at the closing price reported by
the fund sponsor from an actively traded exchange. These are
included within cash equivalents and restricted cash as
Level 1 measurements in the tables below.
|
|
|
|
The interest rate swap agreements, discussed further in
Note 8, Derivative Financial Instruments, are
valued using a swap valuation model that utilizes an income
approach using observable market inputs including interest
rates, LIBOR swap rates and credit default swap rates. These are
included as a Level 2 measurement in the tables below.
|
The following tables present the companys assets measured
at fair value on a recurring basis as of July 2, 2011 and
July 3, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Measured at Fair Value as of July 2, 2011
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
141,350
|
|
|
$
|
163,465
|
|
|
$
|
|
|
|
$
|
304,815
|
|
Restricted cash
|
|
|
110,516
|
|
|
|
|
|
|
|
|
|
|
|
110,516
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
|
|
|
|
13,482
|
|
|
|
|
|
|
|
13,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
251,866
|
|
|
$
|
176,947
|
|
|
$
|
|
|
|
$
|
428,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Measured at Fair Value as of July 3, 2010
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
225,400
|
|
|
$
|
199,047
|
|
|
$
|
|
|
|
$
|
424,447
|
|
Short-term investments
|
|
|
|
|
|
|
23,511
|
|
|
|
|
|
|
|
23,511
|
|
Restricted cash
|
|
|
124,488
|
|
|
|
|
|
|
|
|
|
|
|
124,488
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
|
|
|
|
11,045
|
|
|
|
|
|
|
|
11,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
349,888
|
|
|
$
|
233,603
|
|
|
$
|
|
|
|
$
|
583,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying values of accounts receivable and accounts payable
approximated their respective fair values due to the short-term
maturities of these instruments. The fair value of Syscos
total debt is estimated based on the quoted market prices for
the same or similar issue or on the current rates offered to the
company for debt of the same remaining maturities. The fair
value of total debt approximated $2,919.4 million and
$2,774.9 million as of July 2, 2011 and July 3,
2010, respectively. The carrying value of total debt was
$2,668.5 million and $2,480.6 million as of
July 2, 2011 and July 3, 2010, respectively.
|
|
5.
|
ALLOWANCE FOR
DOUBTFUL ACCOUNTS
|
A summary of the activity in the allowance for doubtful accounts
appears below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of period
|
|
$
|
36,573
|
|
|
$
|
36,078
|
|
|
$
|
31,730
|
|
Charged to costs and expenses
|
|
|
42,623
|
|
|
|
34,931
|
|
|
|
74,638
|
|
Allowance accounts resulting from acquisitions and other
adjustments
|
|
|
1,063
|
|
|
|
(139
|
)
|
|
|
1,587
|
|
Customer accounts written off, net of recoveries
|
|
|
(37,823
|
)
|
|
|
(34,297
|
)
|
|
|
(71,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
42,436
|
|
|
$
|
36,573
|
|
|
$
|
36,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of plant and equipment, including the related
accumulated depreciation, appears below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2,
|
|
|
July 3,
|
|
|
Estimated Useful
|
|
|
|
2011
|
|
|
2010
|
|
|
Lives
|
|
|
|
(In thousands)
|
|
|
Plant and equipment, at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
348,168
|
|
|
$
|
322,626
|
|
|
|
|
|
Buildings and improvements
|
|
|
3,227,340
|
|
|
|
2,982,524
|
|
|
|
10-30 years
|
|
Fleet and equipment
|
|
|
2,275,007
|
|
|
|
2,153,531
|
|
|
|
3-10 years
|
|
Computer hardware and software
|
|
|
897,712
|
|
|
|
701,305
|
|
|
|
3-7 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,748,227
|
|
|
|
6,159,986
|
|
|
|
|
|
Accumulated depreciation
|
|
|
(3,235,838
|
)
|
|
|
(2,956,163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net plant and equipment
|
|
$
|
3,512,389
|
|
|
$
|
3,203,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
The capitalized direct costs for the internal use software
portion of the companys Business Transformation Project
are included within computer hardware and software
in the table above in the amount of $356.2 million and
$181.5 million as of July 2, 2011 and July 3,
2010, respectively.
Depreciation expense, including capital leases, for the past
three years was $374.0 million in 2011, $361.7 million
in 2010 and $361.1 million in 2009.
|
|
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
|
|
|
|
(In thousands)
|
|
|
Carrying amount as of June 27, 2009
|
|
$
|
1,087,467
|
|
|
$
|
32,609
|
|
|
$
|
390,719
|
|
|
$
|
1,510,795
|
|
Goodwill acquired during year
|
|
|
18,350
|
|
|
|
|
|
|
|
6,829
|
|
|
|
25,179
|
|
Currency translation/Other
|
|
|
15,651
|
|
|
|
|
|
|
|
(1,810
|
)
|
|
|
13,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount as of July 3, 2010
|
|
|
1,121,468
|
|
|
|
32,609
|
|
|
|
395,738
|
|
|
|
1,549,815
|
|
Goodwill acquired during year
|
|
|
44,047
|
|
|
|
|
|
|
|
|
|
|
|
44,047
|
|
Currency translation/Other
|
|
|
39,442
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
39,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount as of July 2, 2011
|
|
$
|
1,204,957
|
|
|
$
|
32,609
|
|
|
$
|
395,723
|
|
|
$
|
1,633,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized intangible assets acquired during fiscal 2011 were
$19.2 million with a weighted-average amortization period
of eight years. By intangible asset category, the amortized
intangible assets acquired during fiscal 2011 were customer
relationships of $15.6 million with a weighted-average
amortization period of eight years, non-compete agreements of
$3.1 million with a weighted-average amortization period of
five years and amortized trademarks of $0.5 million with a
weighted-average amortization period of five years. The
following table presents details of the companys amortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
|
(In thousands)
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
190,112
|
|
|
$
|
(97,846
|
)
|
|
$
|
92,266
|
|
|
$
|
169,913
|
|
|
$
|
(77,394
|
)
|
|
$
|
92,519
|
|
Non-compete agreements
|
|
|
4,574
|
|
|
|
(1,269
|
)
|
|
|
3,305
|
|
|
|
2,320
|
|
|
|
(1,306
|
)
|
|
|
1,014
|
|
Trademarks
|
|
|
1,623
|
|
|
|
(282
|
)
|
|
|
1,341
|
|
|
|
1,038
|
|
|
|
(136
|
)
|
|
|
902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortized intangible assets
|
|
$
|
196,309
|
|
|
$
|
(99,397
|
)
|
|
$
|
96,912
|
|
|
$
|
173,271
|
|
|
$
|
(78,836
|
)
|
|
$
|
94,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets that have been fully amortized have been
removed in the schedule above in the period full amortization is
reached. Indefinite-lived intangible assets consisted of
trademarks of $13.0 million and $12.0 million as of
July 2, 2011 and July 3, 2010, respectively.
Amortization expense for the past three years was
$21.9 million in 2011, $20.9 million in 2010 and
$15.7 million in 2009. The estimated future amortization
expense for the next five fiscal years on intangible assets
outstanding as of July 2, 2011 is shown below:
|
|
|
|
|
|
|
Amount
|
|
|
(In thousands)
|
|
2012
|
|
$
|
22,513
|
|
2013
|
|
|
20,518
|
|
2014
|
|
|
19,126
|
|
2015
|
|
|
14,501
|
|
2016
|
|
|
7,668
|
|
|
|
8.
|
DERIVATIVE
FINANCIAL INSTRUMENTS
|
Sysco manages its debt portfolio to achieve an overall desired
position of fixed and floating rates and may employ interest
rate swaps from time to time to achieve this position. The
company does not use derivative financial instruments for
trading or speculative purposes.
In September 2009, the company entered into an interest rate
swap agreement that effectively converted $200.0 million of
fixed rate debt maturing in fiscal 2014 to floating rate debt.
In October 2009, the company entered into an interest rate swap
agreement that effectively converted $250.0 million of
fixed rate debt maturing in fiscal 2013 to floating rate debt.
Both transactions were entered into with the goal of reducing
overall borrowing cost and increasing floating interest rate
exposure. These transactions were designated as fair value
hedges since the swaps hedge against the changes in fair value
of fixed rate debt resulting from changes in interest rates.
The location and the fair value of derivative instruments in the
consolidated balance sheet as of each fiscal year-end are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
Location
|
|
|
Fair Value
|
|
|
Location
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Fair Value Hedge Relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2, 2011
|
|
|
Other assets
|
|
|
$
|
13,482
|
|
|
|
N/A
|
|
|
|
N/A
|
|
July 3, 2010
|
|
|
Other assets
|
|
|
$
|
11,045
|
|
|
|
N/A
|
|
|
|
N/A
|
|
51
The location and effect of derivative instruments and related
hedged items on the consolidated results of operations for each
fiscal year presented on a pre-tax basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Gain) or Loss
|
|
|
|
Location of (Gain)
|
|
|
Recognized in Income
|
|
|
|
or Loss Recognized
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
in Income
|
|
|
2011
|
|
|
(53 Weeks)
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Fair Value Hedge Relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
Interest expense
|
|
|
$
|
(9,026
|
)
|
|
$
|
(10,557
|
)
|
|
|
N/A
|
|
Hedge ineffectiveness represents the difference between the
changes in the fair value of the derivative instruments and the
changes in fair value of the fixed rate debt attributable to
changes in the benchmark interest rate. Hedge ineffectiveness is
recorded directly in earnings within interest expense and was
immaterial for fiscal 2011 and fiscal 2010. The interest rate
swaps do not contain a credit-risk-related contingent feature.
|
|
9.
|
SELF-INSURED
LIABILITIES
|
Sysco maintains a self-insurance program covering portions of
workers compensation, general and vehicle liability and
property insurance 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of period
|
|
$
|
128,997
|
|
|
$
|
132,551
|
|
|
$
|
117,725
|
|
Charged to costs and expenses
|
|
|
325,540
|
|
|
|
321,373
|
|
|
|
328,830
|
|
Payments
|
|
|
(324,866
|
)
|
|
|
(324,927
|
)
|
|
|
(314,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
129,671
|
|
|
$
|
128,997
|
|
|
$
|
132,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
DEBT AND OTHER
FINANCING ARRANGEMENTS
|
Syscos debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
July 2, 2011
|
|
|
July 3, 2010
|
|
|
|
(In thousands)
|
|
|
Short-term bank borrowings, interest at 2.0% as of July 2,
2011
|
|
$
|
181,975
|
|
|
$
|
|
|
Senior notes, interest at 6.1%, maturing in fiscal 2012
|
|
|
200,092
|
|
|
|
200,186
|
|
Senior notes, interest at 4.2%, maturing in fiscal 2013
|
|
|
253,316
|
|
|
|
252,801
|
|
Senior notes, interest at 4.6%, maturing in fiscal 2014
|
|
|
208,779
|
|
|
|
208,249
|
|
Senior notes, interest at 5.25%, maturing in fiscal 2018
|
|
|
497,724
|
|
|
|
497,379
|
|
Senior notes, interest at 5.375%, maturing in fiscal 2019
|
|
|
248,693
|
|
|
|
248,524
|
|
Debentures, interest at 7.16%, maturing in fiscal 2027
|
|
|
50,000
|
|
|
|
50,000
|
|
Debentures, interest at 6.5%, maturing in fiscal 2029
|
|
|
224,593
|
|
|
|
224,570
|
|
Senior notes, interest at 5.375%, maturing in fiscal 2036
|
|
|
499,639
|
|
|
|
499,625
|
|
Senior notes, interest at 6.625%, maturing in fiscal 2039
|
|
|
245,524
|
|
|
|
245,364
|
|
Industrial Revenue Bonds and other debt, interest averaging 5.9%
as of July 2, 2011 and 5.7% as of July 3, 2010,
maturing at various dates to fiscal 2026
|
|
|
58,188
|
|
|
|
53,934
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
2,668,523
|
|
|
|
2,480,632
|
|
Less current maturities of long-term debt
|
|
|
(207,031
|
)
|
|
|
(7,970
|
)
|
Less short-term bank borrowings
|
|
|
(181,975
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net long-term debt
|
|
$
|
2,279,517
|
|
|
$
|
2,472,662
|
|
|
|
|
|
|
|
|
|
|
The principal payments required to be made during the next five
fiscal years on debt outstanding as of July 2, 2011 are
shown below:
|
|
|
|
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
2012
|
|
$
|
207,031
|
|
2013
|
|
|
258,171
|
|
2014
|
|
|
211,908
|
|
2015
|
|
|
3,481
|
|
2016
|
|
|
1,896
|
|
Short-term
Borrowings
As of July 2, 2011, Sysco had uncommitted bank lines of
credit, which provided for unsecured borrowings for working
capital of up to $95.0 million. As of July 3, 2010,
Sysco had uncommitted bank lines of credit, which provided for
unsecured borrowings for working capital of up to
$88.0 million. There were no borrowings outstanding under
these lines of credit as of July 2, 2011 or July 3,
2010, respectively.
As of July 2, 2011 and July 3, 2010, the
companys Irish subsidiary, Pallas Foods Limited, had a
10.0 million (Euro) committed facility for unsecured
borrowings for working capital. There were no borrowings
outstanding under this facility as of July 2, 2011 or
July 3, 2010.
On June 30, 2011, a Canadian subsidiary of Sysco entered
into a short-term demand loan facility for the purpose of
facilitating a distribution from the Canadian subsidiary to
Sysco, and Sysco concurrently entered into an agreement with the
bank to guarantee the loan. As of July 2, 2011,
52
the amount outstanding under the facility was
$182.0 million. The interest rate under the facility was
2.0% and payable on the due date. The loan was repaid in full on
July 4, 2011.
Commercial Paper
and Revolving Credit Facili