e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
|
|
|
(Mark One)
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the fiscal year ended June 28, 2008
|
OR
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
Commission File
Number 1-6544
Sysco
Corporation
(Exact name of
registrant as specified in its
charter)
|
|
|
Delaware
|
|
74-1648137
|
(State or other jurisdiction of
incorporation or organization)
|
|
(IRS employer
identification number)
|
1390 Enclave Parkway
Houston, Texas
(Address of principal executive offices)
|
|
77077-2099
(Zip Code)
|
Registrants
Telephone Number, Including Area
Code:
(281) 584-1390
Securities
Registered Pursuant to Section 12(b) of the
Act:
|
|
|
|
|
Name of each exchange on
|
Title of Each Class
|
|
which registered
|
|
Common Stock, $1.00 par value
|
|
New York Stock Exchange
|
Securities
Registered Pursuant to Section 12(g) of the
Act:
None
Indicate by checkmark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by checkmark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark 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. o
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 the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
|
|
|
Large accelerated
filer þ
|
|
Accelerated
filer o
|
Non-accelerated
filer o (Do
not check if a smaller reporting company)
|
|
Smaller reporting
Company o
|
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting stock of the registrant
held by stockholders who were not affiliates (as defined by
regulations of the Securities and Exchange Commission) of the
registrant was approximately $19,180,086,000 as of
December 28, 2007 (based on the closing sales price on the
New York Stock Exchange Composite Tape on December 28,
2007, as reported by The Wall Street Journal (Southwest
Edition)). As of August 13, 2008, the registrant had issued
and outstanding an aggregate of 601,993,798 shares of its
common stock.
DOCUMENTS
INCORPORATED BY REFERENCE:
Portions of the companys 2008 Proxy Statement to be filed
with the Securities and Exchange Commission no later than
120 days after the end of the fiscal year covered by this
Form 10-K
are incorporated by reference into Part III.
PART I
ITEM 1. Business
Unless this
Form 10-K
indicates otherwise or the context otherwise requires, the terms
we, our, us,
SYSCO, or the company as used in this
Form 10-K
refer to Sysco Corporation together with its consolidated
subsidiaries and divisions.
Overview
Sysco Corporation, acting through its subsidiaries and
divisions, is the largest North American distributor of food and
related products primarily to the foodservice or
food-prepared-away-from-home industry. We provide
products and related services to over 400,000 customers,
including restaurants, healthcare and educational facilities,
lodging establishments and other foodservice customers.
Founded in 1969, SYSCO commenced operations as a public company
in March 1970 when the stockholders of nine companies exchanged
their stock for SYSCO common stock. Since our formation, we have
grown from $115 million to over $37 billion in annual
sales, both through internal expansion of existing operations
and through acquisitions. Through the end of fiscal 2008, we
have acquired 145 companies or divisions of companies.
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-prepared-away-from-home industry. Under the
provisions of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information
(SFAS 131), we have aggregated our operating companies into
a number of segments, of which only Broadline and SYGMA are
reportable segments as defined in SFAS 131. Broadline
operating companies distribute a full line of food products and
a wide variety of non-food products to both our traditional and
chain restaurant customers. SYGMA operating companies distribute
a full line of food products and a wide variety of non-food
products to chain restaurant customer locations.
Other financial information is attributable to our
other segments, including our specialty produce, custom-cut meat
and lodging industry products segments and a company that
distributes to international customers. Specialty produce
companies distribute fresh produce and, on a limited basis,
other foodservice products. Specialty meat companies distribute
custom-cut fresh steaks, other meat, seafood and poultry. Our
lodging industry products company distributes personal care
guest amenities, equipment, housekeeping supplies, room
accessories and textiles to the lodging industry. Selected
financial data for each of our reportable segments as well as
financial information concerning geographic areas can be found
in Note 19, Business Segment Information, in the Notes to
Consolidated Financial Statements in Item 8.
Customers
and Products
The foodservice industry consists of two major customer
types traditional and chain
restaurant. Traditional foodservice customers include
restaurants, hospitals, schools, hotels and industrial caterers.
Our chain restaurant customers include regional and national
hamburger, sandwich, pizza, chicken, steak, ethnic and other
chain operations.
Services to our traditional foodservice and chain restaurant
customers are supported by similar physical facilities,
vehicles, material handling equipment and techniques, and
administrative and operating staffs.
The products we distribute include:
|
|
|
|
|
a full line of frozen foods, such as meats, fully prepared
entrees, fruits, vegetables and desserts;
|
|
|
a full line of canned and dry foods;
|
|
|
fresh meats;
|
|
|
dairy products;
|
|
|
beverage products;
|
|
|
imported specialties; and
|
|
|
fresh produce.
|
We also supply a wide variety of non-food items, including:
|
|
|
|
|
paper products such as disposable napkins, plates and cups;
|
|
|
tableware such as china and silverware;
|
|
|
cookware such as pots, pans and utensils;
|
|
|
restaurant and kitchen equipment and supplies; and
|
|
|
cleaning supplies.
|
1
A comparison of the sales mix in the principal product
categories during the last three years is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Canned and dry products
|
|
|
18
|
%
|
|
|
18
|
%
|
|
|
18
|
%
|
Fresh and frozen meats
|
|
|
18
|
|
|
|
19
|
|
|
|
19
|
|
Frozen fruits, vegetables, bakery and other
|
|
|
14
|
|
|
|
13
|
|
|
|
14
|
|
Dairy products
|
|
|
11
|
|
|
|
9
|
|
|
|
9
|
|
Poultry
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
Fresh produce
|
|
|
8
|
|
|
|
9
|
|
|
|
9
|
|
Paper and disposables
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
Seafood
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
Beverage products
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Janitorial products
|
|
|
3
|
|
|
|
3
|
|
|
|
2
|
|
Equipment and smallwares
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
Medical supplies
|
|
|
*
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Sales are less than 1% of total |
Our operating companies distribute nationally-branded
merchandise, as well as products packaged under our private
brands. Products packaged under our private brands have been
manufactured for SYSCO according to specifications that have
been developed by our quality assurance team. In addition, our
quality assurance team certifies the manufacturing and
processing plants where these products are packaged, enforces
our quality control standards and identifies supply sources that
satisfy our requirements.
We believe that prompt and accurate delivery of orders, close
contact with customers and the ability to provide a full array
of products and services to assist customers in their
foodservice operations are of primary importance in the
marketing and distribution of products to traditional customers.
Our operating companies offer daily delivery to certain customer
locations and have the capability of delivering special orders
on short notice. Through our more than 14,000 sales and
marketing representatives and support staff of SYSCO and our
operating companies, we stay informed of the needs of our
customers and acquaint them with new products and services. Our
operating companies also provide ancillary services relating to
foodservice distribution, such as providing customers with
product usage reports and other data, menu-planning advice, food
safety training and assistance in inventory control, as well as
access to various third party services designed to add value to
our customers businesses.
No single customer accounted for 10% or more of our total sales
for the fiscal year ended June 28, 2008.
Our sales to chain restaurant customers consist of a variety of
food products. We believe that consistent product quality and
timely and accurate service are important factors when a chain
restaurant selects a foodservice supplier. One chain restaurant
customer (Wendys International, Inc.) accounted for 5% of
our sales for the fiscal year ended June 28, 2008. Although
this customer represents approximately 34% of the SYGMA segment
sales, we do not believe that the loss of this customer would
have a material adverse effect on SYSCO as a whole.
Based upon available information, we estimate that sales by type
of customer during the past three fiscal years were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Customer
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Restaurants
|
|
|
63
|
%
|
|
|
64
|
%
|
|
|
63
|
%
|
Hospitals and nursing homes
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
Schools and colleges
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
Hotels and motels
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
Other
|
|
|
16
|
|
|
|
15
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources
of Supply
We purchase from thousands of suppliers, both domestic and
international, none of which individually accounts for more than
10% of our purchases. These suppliers consist generally of large
corporations selling brand name and private label merchandise,
as well as independent regional brand and private label
processors and packers. Generally, purchasing is carried out
through centrally developed purchasing programs and direct
purchasing programs established by our various operating
companies. We continually develop relationships with our
suppliers.
SYSCOs Baugh Supply Chain Cooperative, Inc. (BSCC)
administers a consolidated product procurement program designed
to develop, obtain and ensure consistent quality food and
non-food products. The program covers the purchasing and
marketing of SYSCO Brand merchandise as well as products from a
number of national brand suppliers, encompassing substantially
all product lines. SYSCOs operating companies purchase
product from the suppliers participating in the
cooperatives programs and from other suppliers, although
SYSCO Brand products are only available to the operating
companies through the cooperatives programs.
SYSCOs National Supply Chain group is focused on
increasing profitability by lowering aggregate inventory levels,
operating costs, and future facility expansion needs at our
broadline operating companies while providing greater value to
our suppliers and customers.
The National Supply Chain group has three major supply chain
initiatives. The first initiative involves the construction and
operation of regional distribution centers which aggregate
inventory demand to optimize the supply chain activities for
certain products for all SYSCO broadline operating companies in
the region. We currently expect to build five to seven
redistribution centers (RDCs). The first of these centers, the
Northeast RDC located in Front Royal, Virginia, has been
operational since the third quarter of fiscal 2005. A second RDC
located in Alachua, Florida became operational in the fourth
quarter of fiscal 2008. In fiscal 2009, we intend to service
additional broadline companies from our existing RDCs. The
2
second initiative is the national transportation management
initiative, which provides the capability to view and manage all
of SYSCOs inbound freight, both to RDCs and the operating
companies, as a network and not as individual locations. This
allows us to better consolidate inbound freight. Fiscal 2008 was
the first full year we operated under this initiative, and we
will continue to refine our execution in the future. The third
initiative is the national implementation of demand planning and
inventory management software. This initiative is strategically
important in that it creates the foundation to effectively
execute new supply chain processes, including redistribution, as
well as efficiently manage our inventory assets. In fiscal 2008,
we continued to improve this software and implemented it at
additional broadline companies.
Working
Capital Practices
Our growth is funded through a combination of cash flow from
operations, commercial paper issuances and long-term borrowings.
See the discussion in Liquidity and Capital Resources under
Managements Discussion and Analysis of Financial Condition
and Results of Operations at Item 7 regarding our
liquidity, financial position and sources and uses of funds.
Credit terms we extend to our customers can vary from cash on
delivery to 30 days or more based on our assessment of the
customers credit risk. We monitor the customers
accounts and will suspend shipments to customers if necessary.
A majority of our sales orders are filled within 24 hours
of when the customers orders are placed. We generally
maintain inventory on hand to be able to meet customer demand.
The level of inventory on hand will vary by product depending on
shelf-life, supplier order fulfillment lead times and customer
demand. We also make purchases of additional volumes of certain
products based on supply or pricing opportunities.
We take advantage of suppliers cash discounts where
appropriate and otherwise generally receive payment terms from
our suppliers ranging from weekly to 30 days or more.
Corporate
Headquarters Services
Our corporate staff makes available a number of services to our
operating companies. Members of the corporate staff possess
experience and expertise in, among other areas, accounting and
finance, treasury, cash management, information technology,
employee benefits, engineering, risk management and insurance,
sales and marketing, payroll, human resources, training and
development, information technology and tax compliance services.
The corporate office also makes available warehousing and
distribution services, which provide assistance in operational
best practices including space utilization, energy conservation,
fleet management and work flow.
Capital
Improvements
To maximize productivity and customer service, we continue to
construct and modernize our distribution facilities. During
fiscal 2008, 2007 and 2006, approximately $515,963,000,
$603,242,000 and $513,934,000 respectively, were invested in
facility expansions, fleet additions and other capital asset
enhancements. The lower amount spent in fiscal 2008 was
primarily due to delays on certain projects that will shift
significant expenditures to fiscal 2009. As a result, we
estimate our capital expenditures in fiscal 2009 should be in
the range of $675,000,000 to $725,000,000. During the three
years ended June 28, 2008, capital expenditures were
financed primarily by internally generated funds, our commercial
paper program and bank and other borrowings. We expect to
finance our fiscal 2009 capital expenditures from the same
sources.
Employees
As of June 28, 2008, we had approximately
50,000 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 21% of our union
employees are covered by collective bargaining agreements which
have expired or will expire during fiscal 2009. We consider our
labor relations to be satisfactory.
Competition
SYSCOs business environment is competitive with numerous
companies engaged in foodservice distribution. Our customers may
also choose to purchase products directly from retail outlets.
While competition is encountered primarily from local and
regional distributors, a few companies compete with us on a
national basis. We believe that the principal competitive
factors in the foodservice industry are effective customer
contacts, the ability to deliver a wide range of quality
products and related services on a timely and dependable basis
and competitive prices. We estimate that we serve about 16% of
an approximately $231 billion annual market that includes
the foodservice market in the United States and Canada and the
hotel amenity, furniture and textile markets in the United
States, Canada, Europe and Asia. We believe, based upon industry
trade data, that our sales to the United States and Canada
food-prepared-away-from-home industry were the
highest of any foodservice distributor during fiscal 2008. While
adequate industry statistics are not available, we believe that
in most instances our local operations are among the leading
distributors of food and related non-food products to
foodservice customers in their respective trading areas. We
believe our competitive advantages include our diversified
product base, the diversity in the types of customers we serve,
our economies of scale and our wide geographic presence in the
United States and Canada, which allows us to minimize the impact
of regional economic declines. We are the only publicly-traded
distributor in the food-prepared-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 a number of statutes governing the manufacture, storage,
transport, and sale of food products in the United States and
Canada. The principal statutes are 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 manufacturing and holding requirements for
foods through its manufacturing practice regulations, specifies
the standards of identity for certain foods and prescribes the
format and content of certain information required to appear on
food product labels. 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 thereunder
by the U.S. Department of Agriculture (USDA). The USDA
imposes standards for product quality and sanitation including
the inspection and labeling of meat and poultry products and the
grading and commercial acceptance of produce shipments from our
suppliers. We are also subject to the Federal Trade Commission
Act, which governs food advertising and the Public Health
Security and Bioterrorism Preparedness and Response Act of 2002
and the regulations promulgated thereunder, which establish
certain registration, import notification 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 by FDA and USDA, as well as 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. Equal
Employment Opportunity Commission, 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, as well as laws
regulating the handling and release of these substances. Our
facilities also have large areas of impermeable surface for
parking and staging of vehicles and therefore are potentially
subject to federal, state, provincial and local laws and
regulations covering storm water run-off. Other U.S. and
Canadian federal, state, provincial and local provisions
relating to the protection of the environment or the discharge
of materials do not materially impact the use or operation of
our facilities.
Compliance with these laws has not had, and is not anticipated
to have, a material effect on our capital expenditures, earnings
or competitive position.
General
We have numerous trademarks which are of significant importance
to the company. We believe that the loss of the
SYSCO(R)
trademark would have a material adverse effect on our results of
operations.
We are not engaged in material research and development
activities relating to the development of new products or the
improvement of existing products.
Our sales do not generally fluctuate significantly on a seasonal
basis; therefore, the business of the company is not deemed to
be seasonal.
As of June 28, 2008, we operated 180 distribution
facilities throughout the United States and Canada.
4
Item 1A. Risk
Factors
Increased
Fuel Costs and Increased Inflation Have Increased our Costs and
We May Not Be Able to Compensate for Such Increased
Costs
Increased fuel costs have had a negative impact on our fiscal
2008 results of operations. The high cost of fuel has increased
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 our increased fuel costs to
our customers, there is no guarantee that we can continue to do
so. In addition, prolonged periods of product cost inflation may
have a negative impact on our profit margins and earnings to the
extent that we are unable to pass on such product cost
increases. Our estimate for the inflation in SYSCOs cost
of goods was 6.0% in fiscal 2008, compared to 3.4% in fiscal
2007 and 0.6% in fiscal 2006. If fuel costs and product costs
continue to increase, 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.
Inflation,
Rising Fuel Costs and Other Economic Conditions are Affecting
Consumer Confidence, which is Currently Adversely Impacting our
Business and We Currently Expect These Conditions to Continue
into Fiscal 2009
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. Inflation, increases in fuel
costs and other general economic conditions have negatively
affected consumer confidence and discretionary spending in
fiscal 2008. This has led to reductions in the frequency of
dining out and the amount spent by consumers for food prepared
away from home and can also result in reduction of sales
volumes, competitive price pressures, difficulties in collecting
accounts receivable, increases in our product costs and
increases in delivery costs. These conditions have, in turn,
negatively impacted our sales, as noted by declining rate of
sales growth from 8.5% in the first quarter of fiscal 2008 to
5.4% in the fourth quarter of fiscal 2008, and have also
negatively impacted our operating results for fiscal 2008. These
conditions are expected to continue to negatively impact our
results for the foreseeable future.
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. Because we do not
control the actual production of the products we sell, we are
also subject to delays caused by interruption in production and
increases in product costs based on conditions outside of our
control. These conditions include work slowdowns, work
interruptions, strikes or other job actions by employees of
suppliers, weather, crop conditions, transportation
interruptions, unavailability of fuel or increases in fuel
costs, competitive demands and natural disasters or other
catastrophic events (including, but not limited to food-borne
illnesses in the United States and Canada). Our inability to
obtain adequate supplies of our 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.
Taxing
Authorities May Successfully Challenge our Baugh Supply Chain
Cooperative Structure
The Baugh Supply Chain Cooperative (BSCC) administers a
consolidated product procurement program to develop, obtain and
ensure consistent quality food and non-food products. BSCC is a
cooperative taxed under subchapter T of the United States
Internal Revenue Code. We believe that the deferred tax
liabilities resulting from the business operations and legal
ownership of BSCC are appropriate under the tax laws. However,
if the application of the tax laws to the cooperative structure
of BSCC were to be successfully challenged by any federal, state
or local tax authority, we could be required to accelerate the
payment of all or a portion of our income tax liabilities
associated with BSCC that we otherwise had deferred until future
periods. In that event, we would be liable for interest on such
amounts. As of June 28, 2008, we have recorded deferred
income tax liabilities of $1,054,190,000 related to the BSCC
supply chain distributions. This amount represents the income
tax liabilities related to BSCC that were accrued, but the
payment had been deferred as of June 28, 2008. In addition,
if the IRS or any other taxing authority determines that all
amounts since the inception of BSCC were inappropriately
deferred or that BSCC should have been a taxable entity, we
estimate that in addition to making a current payment for
amounts previously deferred, as discussed above, we may have
additional liability, representing interest that would be
payable on the cumulative deferred balances ranging from
$290,000,000 to $320,000,000, prior to federal and state income
tax benefit, as of June 28, 2008. We calculated this amount
based upon the amounts deferred since the inception of BSCC
applying the applicable jurisdictions interest rates in
effect each period. The IRS, in connection with its audit of our
2003 and 2004 federal income tax returns, proposed adjustments
related to the taxability of the cooperative structure. We are
vigorously protesting these adjustments. We have reviewed the
merits of the issues raised by the IRS and concluded the
measurement model of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109 required us
to provide an accrual for a portion of the interest exposure. If
a taxing authority requires us to accelerate the payment of
these deferred tax liabilities and to pay related interest, if
any, we may be required to raise additional capital through debt
financing or the issuance of equity or we may have to forego
share repurchases or defer planned capital expenditures or a
combination of these items.
We
Need Access to Borrowed Funds in Order to Grow, but Our
Leveraged Position Could Increase Our Vulnerability to
Competitive Pressures
Because a substantial part of our growth historically has been
the result of acquisitions and capital expansion, our continued
growth depends, in large part, on our ability to continue this
expansion. As a result, our inability to finance acquisitions
and capital expenditures through borrowed funds
5
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. Further, our leveraged
position may also increase our vulnerability to competitive
pressures.
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.
Adverse
Publicity Could Negatively Impact our Reputation and Reduce
Earnings
Maintaining a good reputation is critical to our business,
particularly to selling SYSCO Brand products. Anything that
damages that reputation, 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. 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 would be correspondingly decreased. In
addition, instances of food-borne illnesses or food tampering or
other health concerns, even those unrelated to the use of SYSCO
products, can result in negative publicity about the food
service distribution industry and cause our sales to decrease
dramatically.
Failure
to Successfully Renegotiate Union Contracts Could Result in Work
Stoppages
As of June 28, 2008, approximately 8,700 employees at
54 operating companies were members of 57 different local unions
associated with the International Brotherhood of Teamsters and
other labor organizations. In fiscal 2009, 14 agreements
covering approximately 1,900 employees have expired or will
expire. Failure of the 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.
We
may be Required to Pay Material Amounts Under Multi-Employer
Defined Benefit Pension Plans
We contribute to several multi-employer defined benefit pension
plans based on obligations arising under collective bargaining
agreements covering union-represented employees. Approximately
12% of our current employees are participants in such
multi-employer plans. In fiscal 2008, our total contributions to
these plans were approximately $35,040,000.
We do not directly manage these multi-employer plans, which are
generally managed by boards of trustees, half of whom are
appointed by the unions and the other half by other contributing
employers to the plan. Based upon the information available to
us from plan administrators, we believe that some of these
multi-employer plans are underfunded due partially to a decline
in the value of the assets supporting these plans, a reduction
in the number of actively participating members for whom
employer contributions are required, and the level of benefits
provided by the plans. 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, our required
contributions to these plans may 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 available from plan administrators, we estimate
that our share of withdrawal liability on most of the
multi-employer plans we participate in, some of which appear to
be underfunded, could be as much as $140,000,000, of which only
approximately $22,000,000 has been accrued as of June 28,
2008. In addition, if a multi-employer defined benefit plan
fails to satisfy certain minimum funding requirements, the IRS
may impose a nondeductible excise tax of 5% on the amount of the
accumulated funding deficiency for those employers contributing
to the fund. Requirements to pay such increased contributions,
withdrawal liability, and excise taxes could negatively impact
our liquidity and results of operations.
6
Product
Cost Deflation May also Adversely Impact Future
Operations
Although we are currently experiencing a period of product cost
inflation, our business may also be adversely impacted by
periods of prolonged product cost deflation. We make a
significant portion of our sales at prices that are based on the
cost of products we sell plus a percentage markup. As a result,
our profit levels may be negatively impacted during periods of
product cost deflation, even though our gross profit percentage
may remain relatively constant.
We
Must Finance and Integrate Acquired Businesses
Wisely
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 or no expertise, or with a culture
different from SYSCOs. A significant expansion of our
business and operations, in terms of geography or magnitude,
could strain our administrative and operational resources.
Significant acquisitions may also require the issuance of
material additional amounts of debt or equity, which could
materially alter our debt to equity ratio, increase our interest
expense and decrease earnings per share, and make it difficult
for us to obtain favorable financing for other acquisitions or
capital investments.
Expanding
into International Markets Presents Unique Challenges, and our
Expansion Efforts and International Operations may not be
Successful
In addition to our domestic activities, an element of our
strategy includes expansion of operations into new international
markets. Our ability to successfully operate in international
markets may be adversely affected by local laws and customs,
legal and regulatory constraints, including compliance with the
Foreign Corrupt Practices Act, political and economic conditions
and currency regulations of the countries or regions in which we
currently operate or intend to operate in the future. Risks
inherent in our existing and future international operations
also include, among others, the costs and difficulties of
managing international operations, difficulties in identifying
and gaining access to local suppliers, suffering possible
adverse tax consequences, maintaining product quality and
greater difficulty in enforcing intellectual property rights.
Additionally, foreign currency exchange rates and fluctuations
may have an impact on our future costs or on future cash flows
from our international operations.
Our
Preferred Stock Provides Anti-Takeover Benefits that may not be
Beneficial to Stockholders
Under our Restated Certificate of Incorporation, SYSCOs
Board of Directors is authorized to issue up to
1,500,000 shares of preferred stock without stockholder
approval. Issuance of these shares could make it more difficult
for anyone to acquire SYSCO without approval of the Board of
Directors, depending on the rights and preferences of the stock
issued. In addition, if anyone attempts to acquire SYSCO without
approval of the Board of Directors of SYSCO, the existence of
this undesignated preferred stock could allow the Board of
Directors to adopt a shareholder rights plan without obtaining
stockholder approval, which could result in substantial dilution
to a potential acquirer. As a result, hostile takeover attempts
that might result in an acquisition of SYSCO, that could
otherwise have been financially beneficial to our stockholders,
could be deterred.
Technology
Dependence Could have a Material Negative Impact on our
Business
Our ability to decrease costs and increase profits, as well as
our ability to serve customers most effectively, depends on the
reliability of our technology network. We use software and other
technology systems, among other things, to load trucks in the
most efficient manner to optimize the use of storage space and
minimize the time spent at each stop. Any disruption to these
computer systems could adversely impact our customer service,
decrease the volume of our business and result in increased
costs. While SYSCO has invested and continues to invest in
technology security initiatives and disaster recovery plans,
these measures cannot fully insulate us from technology
disruption that could result in adverse effects on operations
and profits.
Item 1B. Unresolved
Staff Comments
None.
7
The table below shows the number of distribution facilities
occupied by SYSCO in each state or province and the aggregate
square footage devoted to cold and dry storage as of
June 28, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cold Storage
|
|
|
Dry Storage
|
|
|
|
|
|
Number of
|
|
|
(Thousands
|
|
|
(Thousands
|
|
|
Segments
|
Location
|
|
Facilities
|
|
|
Square Feet)
|
|
|
Square Feet)
|
|
|
Served*
|
|
Alabama
|
|
|
2
|
|
|
|
184
|
|
|
|
228
|
|
|
BL
|
Alaska
|
|
|
1
|
|
|
|
43
|
|
|
|
26
|
|
|
BL
|
Arizona
|
|
|
2
|
|
|
|
125
|
|
|
|
104
|
|
|
BL,O
|
Arkansas
|
|
|
2
|
|
|
|
132
|
|
|
|
87
|
|
|
BL,O
|
California
|
|
|
17
|
|
|
|
1,037
|
|
|
|
1,081
|
|
|
BL,S,O
|
Colorado
|
|
|
4
|
|
|
|
313
|
|
|
|
214
|
|
|
BL,S,O
|
Connecticut
|
|
|
2
|
|
|
|
155
|
|
|
|
112
|
|
|
BL,O
|
District of Columbia
|
|
|
1
|
|
|
|
22
|
|
|
|
3
|
|
|
O
|
Florida
|
|
|
16
|
|
|
|
1,283
|
|
|
|
1,049
|
|
|
BL,S,O
|
Georgia
|
|
|
6
|
|
|
|
289
|
|
|
|
511
|
|
|
BL,S,O
|
Hawaii
|
|
|
1
|
|
|
|
|
|
|
|
11
|
|
|
O
|
Idaho
|
|
|
2
|
|
|
|
84
|
|
|
|
88
|
|
|
BL
|
Illinois
|
|
|
6
|
|
|
|
302
|
|
|
|
404
|
|
|
BL,S,O
|
Indiana
|
|
|
2
|
|
|
|
100
|
|
|
|
126
|
|
|
BL,O
|
Iowa
|
|
|
1
|
|
|
|
93
|
|
|
|
95
|
|
|
BL
|
Kansas
|
|
|
1
|
|
|
|
177
|
|
|
|
171
|
|
|
BL
|
Kentucky
|
|
|
1
|
|
|
|
92
|
|
|
|
106
|
|
|
BL
|
Louisiana
|
|
|
1
|
|
|
|
134
|
|
|
|
113
|
|
|
BL
|
Maine
|
|
|
1
|
|
|
|
59
|
|
|
|
50
|
|
|
BL
|
Maryland
|
|
|
3
|
|
|
|
290
|
|
|
|
288
|
|
|
BL,O
|
Massachusetts
|
|
|
2
|
|
|
|
162
|
|
|
|
213
|
|
|
BL,S
|
Michigan
|
|
|
5
|
|
|
|
265
|
|
|
|
389
|
|
|
BL,S,O
|
Minnesota
|
|
|
2
|
|
|
|
163
|
|
|
|
134
|
|
|
BL
|
Mississippi
|
|
|
1
|
|
|
|
95
|
|
|
|
69
|
|
|
BL
|
Missouri
|
|
|
2
|
|
|
|
107
|
|
|
|
95
|
|
|
BL,S
|
Montana
|
|
|
1
|
|
|
|
120
|
|
|
|
109
|
|
|
BL
|
Nebraska
|
|
|
1
|
|
|
|
74
|
|
|
|
108
|
|
|
BL
|
Nevada
|
|
|
3
|
|
|
|
219
|
|
|
|
125
|
|
|
BL,O
|
New Jersey
|
|
|
3
|
|
|
|
159
|
|
|
|
373
|
|
|
BL,O
|
New Mexico
|
|
|
1
|
|
|
|
120
|
|
|
|
108
|
|
|
BL
|
New York
|
|
|
3
|
|
|
|
284
|
|
|
|
352
|
|
|
BL
|
North Carolina
|
|
|
7
|
|
|
|
326
|
|
|
|
497
|
|
|
BL,S,O
|
North Dakota
|
|
|
1
|
|
|
|
37
|
|
|
|
63
|
|
|
BL
|
Ohio
|
|
|
10
|
|
|
|
488
|
|
|
|
559
|
|
|
BL,S,O
|
Oklahoma
|
|
|
4
|
|
|
|
145
|
|
|
|
125
|
|
|
BL,S,O
|
Oregon
|
|
|
3
|
|
|
|
143
|
|
|
|
141
|
|
|
BL,S,O
|
Pennsylvania
|
|
|
4
|
|
|
|
287
|
|
|
|
314
|
|
|
BL,S
|
South Carolina
|
|
|
1
|
|
|
|
151
|
|
|
|
98
|
|
|
BL
|
Tennessee
|
|
|
5
|
|
|
|
383
|
|
|
|
460
|
|
|
BL,O
|
Texas
|
|
|
18
|
|
|
|
932
|
|
|
|
947
|
|
|
BL,S,O
|
Utah
|
|
|
1
|
|
|
|
120
|
|
|
|
107
|
|
|
BL
|
Virginia
|
|
|
3
|
|
|
|
510
|
|
|
|
402
|
|
|
BL,O
|
Washington
|
|
|
1
|
|
|
|
134
|
|
|
|
92
|
|
|
BL
|
Wisconsin
|
|
|
2
|
|
|
|
284
|
|
|
|
254
|
|
|
BL
|
Alberta, Canada
|
|
|
2
|
|
|
|
195
|
|
|
|
176
|
|
|
BL
|
British Columbia, Canada
|
|
|
6
|
|
|
|
214
|
|
|
|
266
|
|
|
BL,O
|
Manitoba, Canada
|
|
|
1
|
|
|
|
58
|
|
|
|
46
|
|
|
BL
|
New Brunswick, Canada
|
|
|
2
|
|
|
|
48
|
|
|
|
56
|
|
|
BL
|
Newfoundland, Canada
|
|
|
1
|
|
|
|
33
|
|
|
|
22
|
|
|
BL
|
Nova Scotia, Canada
|
|
|
1
|
|
|
|
33
|
|
|
|
45
|
|
|
BL
|
Ontario, Canada
|
|
|
9
|
|
|
|
430
|
|
|
|
347
|
|
|
BL,O
|
Quebec, Canada
|
|
|
1
|
|
|
|
36
|
|
|
|
63
|
|
|
BL
|
Saskatchewan, Canada
|
|
|
1
|
|
|
|
39
|
|
|
|
45
|
|
|
BL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
180
|
|
|
|
11,708
|
|
|
|
12,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Segments served include Broadline (BL), SYGMA (S) and Other
(O). |
We own approximately 19,318,000 square feet of our
distribution facilities (or 81.3% of the total square feet), and
the remainder is occupied under leases expiring at various dates
from fiscal 2009 to fiscal 2023, exclusive of renewal options.
Certain of the facilities owned by the company are subject to
industrial revenue bond financing arrangements totaling
$15,473,000 as of June 28, 2008. 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.
8
Facilities in Victoria, British Columbia; Chicago, Illinois;
Portland, Oregon; Pittsburgh, Pennsylvania; and Houston, Texas
(which in the aggregate accounted for approximately 5.3% of
fiscal 2008 sales) are operating near capacity and we are
currently constructing expansions or replacements for these
distribution facilities.
As of June 28, 2008, our fleet of approximately 9,100
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 87% of these vehicles and
lease the remainder.
|
|
Item 3.
|
Legal
Proceedings
|
We are engaged in various legal proceedings which have arisen in
the normal course of business but have not been fully
adjudicated. These proceedings, in our opinion, will not have a
material adverse effect upon our consolidated financial position
or results of operations when ultimately concluded.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security
Holders
|
None.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Repurchases of Equity
Securities
|
The principal market for SYSCOs common stock (SYY) is the
New York Stock Exchange. The table below sets forth the high and
low sales prices per share for our common stock as reported on
the New York Stock Exchange Composite Tape and the cash
dividends declared for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
Common Stock Prices
|
|
|
Declared
|
|
|
|
High
|
|
|
Low
|
|
|
Per Share
|
|
|
Fiscal 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
34.15
|
|
|
$
|
26.50
|
|
|
$
|
0.17
|
|
Second Quarter
|
|
|
37.04
|
|
|
|
32.35
|
|
|
|
0.19
|
|
Third Quarter
|
|
|
36.74
|
|
|
|
31.34
|
|
|
|
0.19
|
|
Fourth Quarter
|
|
|
34.95
|
|
|
|
31.64
|
|
|
|
0.19
|
|
Fiscal 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
35.67
|
|
|
$
|
30.05
|
|
|
$
|
0.19
|
|
Second Quarter
|
|
|
35.90
|
|
|
|
30.93
|
|
|
|
0.22
|
|
Third Quarter
|
|
|
31.65
|
|
|
|
26.45
|
|
|
|
0.22
|
|
Fourth Quarter
|
|
|
31.84
|
|
|
|
27.65
|
|
|
|
0.22
|
|
The number of record owners of SYSCOs common stock as of
August 13, 2008 was 12,961.
We made the following share repurchases during the fourth
quarter of fiscal 2008:
ISSUER
PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Total Number
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
(d) Maximum Number
|
|
|
|
|
|
|
|
|
|
as Part of
|
|
|
of Shares That May Yet
|
|
|
|
(a) Total Number
|
|
|
(b) Average Price
|
|
|
Publicly Announced
|
|
|
be Purchased Under
|
|
Period
|
|
of Shares Purchased(1)
|
|
|
Paid Per Share
|
|
|
Plans or Programs
|
|
|
the Plans or Programs
|
|
|
Month #1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 30 April 26
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
6,337,800
|
|
Month #2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 27 May 24
|
|
|
17,042
|
|
|
|
31.12
|
|
|
|
|
|
|
|
6,337,800
|
|
Month #3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 25 June 28
|
|
|
22,010
|
|
|
|
31.51
|
|
|
|
|
|
|
|
6,337,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
39,052
|
|
|
$
|
31.34
|
|
|
|
|
|
|
|
6,337,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The total number of shares purchased includes zero, 17,042 and
22,010 shares tendered by individuals in connection with
stock option exercises in Month #1, Month #2 and Month #3,
respectively. |
On November 10, 2005, we announced that the Board of
Directors approved the repurchase of 20,000,000 shares.
Pursuant to the repurchase program, shares may be acquired in
the open market or in privately negotiated transactions at the
companys discretion, subject to market conditions and
other factors.
In July 2004, the Board of Directors authorized us to enter into
agreements from time to time to extend our ongoing repurchase
program to include repurchases during company announced
blackout periods of such securities in compliance
with
Rule 10b5-1
promulgated under the Exchange Act.
9
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
the Company 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, to the
S&P 500 Food/Staple Retail Index and to a peer group, the
old peer group, for SYSCOs last five fiscal
years. The members of the old peer group were Nash Finch
Company, Supervalu, Inc. and Performance Food Group Company.
Each of these companies was chosen because it was a publicly
held corporation with food distribution operations similar in
some respects to our operations; however, Performance Food Group
Company ceased to be a public company in May 2008 and Nash Finch
is not comparable in size and scope of operations to SYSCO. As a
result, for future comparisons, SYSCO intends to replace this
peer group with the S&P 500 Food/Staple Retail Index, which
is maintained by Standard & Poors Corporation
and is composed of Costco Wholesale Corp., CVS Caremark
Corporation, The Kroger Co., Safeway Inc., Supervalu, Inc.,
SYSCO Corporation, Wal-Mart Stores, Inc., Walgreen Company and
Whole Foods Market, Inc. This index was chosen to more closely
match SYSCOs revenue size, market capitalization and
markets served.
The returns of each member of the old peer group are weighted
according to each members stock market capitalization as
of the beginning of each period measured. Performance Food Group
Company ceased to be a public company during May 2008. As a
result, we used the closing price of this companys common
stock on its last day as a publicly traded company as its
June 28, 2008 per share value in the graph below. The graph
assumes that the value of the investment in our Common Stock,
the S&P 500 Index, the S&P 500 Food/Staple Index and
the old peer group was $100 on the last trading day of fiscal
2003, and that all dividends were reinvested. Except as provided
above with respect to Performance Food Group, performance data
for SYSCO, the S&P 500 Index, the S&P 500 Food/Staple
Retail Index and for the old peer group is provided as of the
last trading day of each of our last five fiscal years.
|
|
|
* |
|
Peer Group includes Supervalu, Nash Finch and Performance Food
Group (As of June 28, 2008, Performance Food Group is
valued at its last closing common stock price prior to the date) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/28/03
|
|
|
7/3/04
|
|
|
7/2/05
|
|
|
7/1/06
|
|
|
6/30/07
|
|
|
6/28/08
|
SYSCO Corporation
|
|
|
|
100
|
|
|
|
|
120
|
|
|
|
|
127
|
|
|
|
|
109
|
|
|
|
|
120
|
|
|
|
|
105
|
|
S&P 500
|
|
|
|
100
|
|
|
|
|
117
|
|
|
|
|
127
|
|
|
|
|
137
|
|
|
|
|
165
|
|
|
|
|
143
|
|
S&P 500 Food/Staple Retail Index
|
|
|
|
100
|
|
|
|
|
105
|
|
|
|
|
107
|
|
|
|
|
110
|
|
|
|
|
117
|
|
|
|
|
122
|
|
Old Peer Group
|
|
|
|
100
|
|
|
|
|
109
|
|
|
|
|
124
|
|
|
|
|
117
|
|
|
|
|
170
|
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Item 6.
|
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
2008
|
|
|
2007
|
|
|
2006(1)
|
|
|
2005
|
|
|
(53 Weeks)
|
|
|
|
(In thousands except for share data)
|
|
|
Sales
|
|
$
|
37,522,111
|
|
|
$
|
35,042,075
|
|
|
$
|
32,628,438
|
|
|
$
|
30,281,914
|
|
|
$
|
29,335,403
|
|
Earnings before income taxes
|
|
|
1,791,338
|
|
|
|
1,621,215
|
|
|
|
1,394,946
|
|
|
|
1,525,436
|
|
|
|
1,475,144
|
|
Income taxes
|
|
|
685,187
|
|
|
|
620,139
|
|
|
|
548,906
|
|
|
|
563,979
|
|
|
|
567,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change
|
|
|
1,106,151
|
|
|
|
1,001,076
|
|
|
|
846,040
|
|
|
|
961,457
|
|
|
|
907,214
|
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
9,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
1,106,151
|
|
|
$
|
1,001,076
|
|
|
$
|
855,325
|
|
|
$
|
961,457
|
|
|
$
|
907,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.83
|
|
|
$
|
1.62
|
|
|
$
|
1.36
|
|
|
$
|
1.51
|
|
|
$
|
1.41
|
|
Diluted earnings per share
|
|
|
1.81
|
|
|
|
1.60
|
|
|
|
1.35
|
|
|
|
1.47
|
|
|
|
1.37
|
|
Net earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.83
|
|
|
$
|
1.62
|
|
|
$
|
1.38
|
|
|
$
|
1.51
|
|
|
$
|
1.41
|
|
Diluted earnings per share
|
|
|
1.81
|
|
|
|
1.60
|
|
|
|
1.36
|
|
|
|
1.47
|
|
|
|
1.37
|
|
Dividends declared per share
|
|
|
0.85
|
|
|
|
0.74
|
|
|
|
0.66
|
|
|
|
0.58
|
|
|
|
0.50
|
|
Total assets
|
|
$
|
10,082,293
|
|
|
$
|
9,518,931
|
|
|
$
|
8,992,025
|
|
|
$
|
8,267,902
|
|
|
$
|
7,847,632
|
|
Capital expenditures
|
|
|
515,963
|
|
|
|
603,242
|
|
|
|
513,934
|
|
|
|
390,026
|
|
|
|
530,086
|
|
Current maturities of long-term debt
|
|
$
|
4,896
|
|
|
$
|
3,568
|
|
|
$
|
106,265
|
|
|
$
|
410,933
|
|
|
$
|
162,833
|
|
Long-term debt
|
|
|
1,975,435
|
|
|
|
1,758,227
|
|
|
|
1,627,127
|
|
|
|
956,177
|
|
|
|
1,231,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
1,980,331
|
|
|
|
1,761,795
|
|
|
|
1,733,392
|
|
|
|
1,367,110
|
|
|
|
1,394,326
|
|
Shareholders equity
|
|
|
3,408,986
|
|
|
|
3,278,400
|
|
|
|
3,052,284
|
|
|
|
2,758,839
|
|
|
|
2,564,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
5,389,317
|
|
|
$
|
5,040,195
|
|
|
$
|
4,785,676
|
|
|
$
|
4,125,949
|
|
|
$
|
3,958,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of long-term debt to capitalization
|
|
|
36.8
|
%
|
|
|
35.0
|
%
|
|
|
36.2
|
%
|
|
|
33.1
|
%
|
|
|
35.2
|
%
|
Our financial results are impacted by accounting changes and the
adoption of various accounting standards. See Accounting
Changes in Item 7 for further discussion.
|
|
|
(1) |
|
We adopted the provisions of SFAS 123(R), Share-Based
Payment effective at the beginning of fiscal 2006. As a
result, the results of operations for fiscal 2006 and later
years include incremental share-based compensation cost over
what would have been recorded had we continued to account for
share-based compensation under APB No. 25, Accounting
for Stock Issued to Employees. |
11
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Highlights
Sales increased 7.1% in fiscal 2008 over the prior year. Product
costs increased an estimated 6.0% during fiscal 2008 over the
prior year. Operating income increased to $1,879,949,000 and
5.0% of sales, a 10.0% increase over the prior year. Net
earnings and diluted earnings per share increased 10.5% and
13.1%, respectively, over the prior year.
Fiscal 2008 provided a challenging economic environment. Our
industry is experiencing various macro-economic pressures,
including high fuel costs, rising food prices and general
economic conditions which are pressuring consumer disposable
income. These factors restricted growth in fiscal 2008 and are
continuing into fiscal 2009. High food cost inflation, which we
began to experience in the fourth quarter of fiscal 2007,
prevailed throughout fiscal 2008. In spite of these conditions,
our operating companies managed margins and expenses
effectively. Gross profit dollars increased 6.5% in fiscal 2008,
while operating expenses grew only 5.3% over the prior year.
Operating income was negatively impacted by additional expenses
from the combined impact of losses on the adjustment of the
carrying value of corporate-owned life insurance policies to
their cash surrender values as compared to gains in fiscal 2007
and increased provisions related to multi-employer pension
plans. The negative impact of these additional expenses was
partially offset by lower share-based compensation expense and
lower company-sponsored pension expenses. In addition, fuel
costs increased in fiscal 2008, driven by higher fuel prices. We
partially offset the impact of the higher fuel costs through
fuel usage reduction measures as well as fuel surcharges. We
expect fuel costs in fiscal 2009 to be greater than in fiscal
2008.
Overview
SYSCO distributes food and related products to restaurants,
healthcare and educational facilities, lodging establishments
and other foodservice customers. Our operations are located
throughout the United States and Canada and include broadline
companies, specialty produce companies, custom-cut meat
operations, hotel supply operations, SYGMA (our chain restaurant
distribution subsidiary) and a company that distributes to
international customers.
We estimate that we serve about 16% of an approximately
$231 billion annual market. This market includes
i) the foodservice market in the United States and Canada
and ii) the hotel amenity and hotel furniture and textile
market in the United States, Canada, Europe and Asia. According
to industry sources, the foodservice, or
food-prepared-away-from-home, market represents approximately
one-half of the total dollars spent on food purchases made at
the consumer level. This share grew from about 37% in 1972 to
about 50% in 1998 and has not changed materially since that time.
Industry sources estimate the total foodservice market
experienced real sales growth of approximately 1.3% in calendar
year 2007 and 1.9% in calendar year 2006.
General economic conditions and consumer confidence can affect
the frequency of purchases and amounts spent by consumers for
food-prepared-away-from-home and, in turn, can impact our
customers and our sales. We believe the current general economic
conditions, including pressure on consumer disposable income,
are contributing to a decline in the foodservice market.
Historically, we have grown at a faster rate than the overall
industry and have grown our market share in this fragmented
industry. We intend to continue our efforts to expand our market
share and grow earnings by focusing on sales growth, margin
management, productivity gains and supply chain management.
Strategic
Business Initiatives
SYSCO maintains strategic focus areas which aim to help us
achieve our long-term vision of becoming the global leader of
the efficient, multi-temperature food product value chain. The
following areas generally comprise the initiatives that are
currently serving as the foundation of our efforts to ensure a
sustainable future.
|
|
|
|
|
Sourcing and National Supply Chain focuses on lowering
our cost of goods sold by leveraging SYSCOs purchasing
power and procurement expertise and capitalizing on an
end-to-end view of our supply chain. Our National Supply Chain
initiative is focused on lowering inventory, inbound freight,
product costs, operating costs, working capital requirements and
future facility expansion needs at our operating companies while
providing greater value to our suppliers and customers.
|
|
|
|
Integrated Delivery focuses on standardized processes to
optimize warehouse and delivery activities across the
corporation and manage energy consumption to achieve a more
efficient delivery of products to our customers.
|
|
|
|
Demand explores and implements practices to better
understand and more profitably sell to and service SYSCOs
customers, including better tools and processes for selling.
|
|
|
|
Organizational Capabilities works to align management
reporting, information technology systems and performance
measures with the business initiatives.
|
A major component of our National Supply Chain is the use of
redistribution centers (RDCs). The first RDC, the Northeast RDC
located in Front Royal, Virginia, opened during the third
quarter of fiscal 2005. Construction of our second RDC in
Alachua, Florida was completed in fiscal 2008, and
12
operations to service our five broadline operating companies in
Florida began in April 2008. In fiscal 2009, we intend to
service additional broadline companies from our existing RDCs.
We will continue to use our strategic business initiatives to
leverage our market leadership position to continuously improve
how we buy, handle and market products for our customers. Our
primary focus is on growing and optimizing the core foodservice
distribution business in North America, however we will also
continue to explore and identify opportunities to grow our
global capabilities and stay abreast of international
acquisition opportunities.
As a part of our on going strategic analysis, we regularly
evaluate business opportunities, including potential
acquisitions and sales of assets and businesses.
Accounting
Changes
FIN 48
Adoption
As of July 1, 2007, we adopted FASB Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes an Interpretation of FASB Statement
No. 109 (FIN 48), which clarifies the accounting
for uncertainty in income taxes recognized in accordance with
SFAS No. 109, Accounting for Income Taxes
(SFAS 109). FIN 48 clarifies the application of
SFAS 109 by defining criteria that an individual tax
position must meet for any part of the benefit of that position
to be recognized in the financial statements. Additionally,
FIN 48 provides guidance on the measurement, derecognition,
classification and disclosure of tax positions, along with
accounting for the related interest and penalties. As a result
of this adoption, we recognized, as a cumulative effect of
change in accounting principle, a $91,635,000 decrease in our
beginning retained earnings on our July 1, 2007 balance
sheet.
Pension
Measurement Date Change and SFAS 158
Adoption
As of June 30, 2007, we adopted the recognition and
disclosure provisions of SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106, and 132(R)
(SFAS 158). The recognition provision requires an employer
to recognize a plans funded status in its statement of
financial position and recognize the changes in a postretirement
benefit plans funded status in comprehensive income in the
year in which the changes occur. The effect of adoption on our
consolidated balance sheet as of June 30, 2007 was a
decrease in prepaid pension cost of $83,846,000, a decrease in
other assets of $43,854,000, an increase in accrued expenses of
$10,967,000, a decrease in long-term deferred taxes of
$73,328,000, an increase in other long-term liabilities of
$52,289,000, and a charge to accumulated other comprehensive
loss of $117,628,000. The adoption of SFAS 158s
recognition provision did not have an effect on our consolidated
balance sheet as of July 1, 2006. The adoption has no
effect on our consolidated results of operations for any period
presented, and it will not affect our consolidated results of
operations in future periods.
SFAS 158 also has a measurement date provision, which is a
requirement to measure plan assets and benefit obligations as of
the date of the employers fiscal year-end statement of
financial position, effective for fiscal years ending after
December 15, 2008. In the first quarter of fiscal 2006, we
changed the measurement date for company-sponsored pension and
other postretirement benefit plans from fiscal year-end to
May 31st to assist us in meeting accelerated SEC
filing dates. As a result of this change, we recorded a
cumulative effect of a change in accounting, which increased net
earnings for fiscal 2006 by $9,285,000, net of tax. With the
issuance of SFAS 158, we have elected to early adopt the
measurement date provision in order to adopt both provisions of
this accounting standard at the same time. As a result,
beginning with fiscal 2008, the measurement date again
corresponded with our fiscal year-end. We performed measurements
as of May 31, 2007 and June 30, 2007 of our plan
assets and benefit obligations. We recorded a charge to
beginning retained earnings on July 1, 2007 of $3,572,000,
net of tax, for the impact of the cumulative difference in our
pension expense between the two measurement dates. We also
recorded a benefit to beginning accumulated other comprehensive
income (loss) on July 1, 2007 of $22,780,000, net of tax,
for the impact of the difference in our balance sheet
recognition provision between the two measurement dates.
EITF
04-13
Adoption
In the beginning of the fourth quarter of fiscal 2006, we
adopted accounting pronouncement
EITF 04-13
Accounting for Purchases and Sales of Inventory with the
Same Counterparty,
(EITF 04-13).
The accounting standard requires certain transactions, where
inventory is purchased by us from a customer and then resold at
a later date to the same customer (as defined), to be presented
in the income statement on a net basis. This situation primarily
arises for SYSCO when a customer has a proprietary item which
they have either manufactured or sourced, but they require our
distribution and logistics capabilities to get the product to
their locations. The application of this standard requires sales
and cost of sales to be reduced by the same amount for these
transactions and thus net earnings are unaffected by the
application of this standard. We adopted this accounting
pronouncement beginning in the fourth quarter of fiscal 2006 and
have applied it to similar transactions prospectively. Prior
period sales and cost of sales have not been restated.
Therefore, the calculation of sales growth and the comparison of
gross margins, operating expenses and earnings as a percentage
of sales between the non-comparable periods is affected. The
impact of adopting this standard resulted in sales being reduced
by $99,803,000 for the fourth quarter of fiscal 2006, and
$253,724,000 for the first 39 weeks of fiscal 2007, without
a reduction in sales for the comparable prior year periods.
Beginning with the fourth quarter of fiscal 2007, sales are
reported on a comparable accounting basis with the comparable
prior year period.
13
SFAS 123(R)
Adoption
In fiscal 2006, we adopted the provisions of FASB Statement
No. 123(R), Share-Based Payment,
(SFAS 123(R)) utilizing the modified-prospective transition
method under which prior period results have not been restated.
Our consolidated results of operations for all periods presented
include share-based compensation cost recorded in accordance
with SFAS 123(R).
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
80.8
|
|
|
|
80.7
|
|
|
|
80.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
19.2
|
|
|
|
19.3
|
|
|
|
19.3
|
|
Operating expenses
|
|
|
14.2
|
|
|
|
14.4
|
|
|
|
14.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
5.0
|
|
|
|
4.9
|
|
|
|
4.6
|
|
Interest expense
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
0.3
|
|
Other income, net
|
|
|
(0.1
|
)
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and cumulative effect of accounting
change
|
|
|
4.8
|
|
|
|
4.6
|
|
|
|
4.3
|
|
Income taxes
|
|
|
1.8
|
|
|
|
1.7
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change
|
|
|
3.0
|
|
|
|
2.9
|
|
|
|
2.6
|
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
3.0
|
%
|
|
|
2.9
|
%
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Sales
|
|
|
7.1
|
%
|
|
|
7.4
|
%
|
Cost of sales
|
|
|
7.2
|
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
6.5
|
|
|
|
7.4
|
|
Operating expenses
|
|
|
5.3
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
10.0
|
|
|
|
14.3
|
|
Interest expense
|
|
|
6.2
|
|
|
|
(3.8
|
)
|
Other income, net
|
|
|
29.3
|
|
|
|
96.7
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and cumulative effect of accounting
change
|
|
|
10.5
|
|
|
|
16.2
|
|
Income taxes
|
|
|
10.5
|
|
|
|
13.0
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change
|
|
|
10.5
|
|
|
|
18.3
|
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
10.5
|
%
|
|
|
17.0
|
%
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change:
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
13.0
|
%
|
|
|
19.1
|
%
|
Diluted earnings per share
|
|
|
13.1
|
|
|
|
18.5
|
|
Net earnings:
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
13.0
|
|
|
|
17.4
|
|
Diluted earnings per share
|
|
|
13.1
|
|
|
|
17.6
|
|
Average shares outstanding
|
|
|
(2.0
|
)
|
|
|
(0.5
|
)
|
Diluted shares outstanding
|
|
|
(2.5
|
)
|
|
|
(0.4
|
)
|
14
Sales
Sales for fiscal 2008 were 7.1% greater than fiscal 2007.
Non-comparable acquisitions contributed 0.1% to the overall
sales growth rate for fiscal 2008.
Sales for fiscal 2007 were 7.4% greater than fiscal 2006.
Non-comparable acquisitions contributed 0.7% to the overall
sales growth rate for fiscal 2007. The impact of
EITF 04-13
reduced sales growth by 0.7%, or $334,002,000 for fiscal 2007,
compared to a $99,803,000 reduction for fiscal 2006. Sales are
reported on a comparable basis beginning in the fourth quarter
of fiscal 2007, which is the one-year anniversary of the
adoption of
EITF 04-13.
Product cost inflation and the resulting increase in selling
prices was a significant contributor to sales growth in fiscal
2008 and to a lesser extent in fiscal 2007. Estimated product
cost increases, an internal measure of inflation, were
approximately 6.0% during fiscal 2008, as compared to 3.4%
during fiscal 2007.
The rate of sales growth declined throughout fiscal 2008 from
8.5% in the first quarter of fiscal 2008 to 5.4% in the fourth
quarter of fiscal 2008. We believe the current general economic
conditions, which are placing pressure on consumer disposable
income, are contributing to a decline in real volume growth in
the foodservice market and in turn, have contributed to a
slow-down in our sales growth. To the extent that these
conditions persist, we believe that sales growth in fiscal 2009
will be lower than what was achieved in fiscal 2008.
We believe that our continued focus on the use of business
reviews and business development activities, investment in
customer contact personnel and the efforts of our marketing
associates and sales support personnel are key drivers to
strengthen customer relationships and growing sales with new and
existing customers.
Operating
Income
Cost of sales primarily includes product costs, net of vendor
consideration, as well as in-bound freight. Operating expenses
include the costs of facilities, product handling, delivery,
selling and general and administrative activities.
Operating income increased 10.0% in fiscal 2008 over fiscal
2007, increasing to 5.0% of sales. Gross margin dollars
increased 6.5% in fiscal 2008 as compared to fiscal 2007, and
operating expenses increased 5.3% in fiscal 2008. Operating
income increased 14.3% in fiscal 2007 over fiscal 2006,
increasing to 4.9% of sales. Gross margin dollars increased 7.4%
in fiscal 2007, and operating expenses increased 5.3% in fiscal
2007.
Beginning in the fourth quarter of fiscal 2007, SYSCO began
experiencing product cost increases in numerous product
categories. These increases have persisted throughout fiscal
2008 at levels approximating 6.0%. Generally, SYSCO attempts to
pass increased costs to its customers; however, because of
contractual and competitive reasons, we are not able to pass
along all of the product cost increases immediately.
SYSCOs goal is to obtain the lowest total procurement cost
for our customers. We believe that we have managed the
inflationary environment well, as evidenced by gross margin
dollars increasing in both fiscal 2008 and 2007 at rates greater
than expense increases. The high rate of product cost inflation
has continued into fiscal 2009. We believe that prolonged
periods of high inflation, such as the current rate, have a
negative impact on our customers as rising food costs and fuel
costs can reduce consumer spending in the
food-prepared-away-from home market. As a result, these factors
may negatively impact our sales, gross margins and earnings.
Fiscal 2008 operating expenses were negatively impacted by a net
$24,135,000 in additional expenses as compared to fiscal 2007
from the combined impact of losses on the adjustment of the
carrying value of corporate-owned life insurance policies to
their cash surrender values and increased provisions related to
multi-employer pension plans, partially offset by lower
share-based compensation expense and lower company-sponsored
pension expenses. In addition, fuel costs increased during
fiscal 2008. We increased our use of fuel surcharges to offset a
portion of these increased costs, thereby partially reducing the
impact to operating income.
In fiscal 2007, the positive impact on operating expenses from
decreases in company-sponsored pension expenses, share-based
compensation expenses and higher gains related to the cash
surrender value of corporate-owned life insurance policies, was
largely offset by increased management incentive bonus accruals
and investments in strategic business initiatives.
The carrying value of our corporate-owned life insurance
policies is adjusted to their cash surrender values. This
resulted in a loss of $8,718,000 in fiscal 2008, a gain of
$23,922,000 in fiscal 2007 and a gain of $9,702,000 in fiscal
2006.
In fiscal 2008, we recorded a provision of $22,284,000 related
to additional amounts that we expect to be required to
contribute to an underfunded multi-employer pension plan and our
withdrawal from a multi-employer pension plan. In fiscal 2007,
we recorded a provision of $4,700,000 related to our withdrawal
from a multi-employer pension plan. See additional discussion of
multi-employer pension plans at Liquidity and Capital
Resources, Other Considerations.
Share-based compensation cost in fiscal 2008 was $17,335,000
less than fiscal 2007. Share-based compensation expense
decreased $28,852,000 in fiscal 2007 over fiscal 2006. These
decreases were primarily due to lower levels of stock option
grants in recent years as compared to previous years.
Net company-sponsored pension costs in fiscal 2008 were
$8,754,000 less than fiscal 2007, due primarily to the funding
status and the projected asset performance of the qualified
pension plan. Net company-sponsored pension costs decreased
$56,001,000 in fiscal 2007 over the prior year, due primarily to
the increase in the discount rate used to determine fiscal 2007
pension costs.
15
Also affecting the comparison of fiscal 2007 and fiscal 2006
were increased management incentive bonus accruals and
investments in strategic business initiatives. Due primarily to
improved operating results, the non-stock portion of management
incentive bonus accruals increased $64,770,000 in fiscal 2007
compared to fiscal 2006 when our performance did not satisfy the
criteria for paying bonuses to our corporate officers.
Investments in strategic business initiatives increased
$22,410,000 in fiscal 2007 over the prior year.
In addition, SYSCOs fuel costs increased by $34,023,000 in
fiscal 2008 over fiscal 2007 primarily due to increased diesel
prices. Our fuel costs increased by $21,225,000 in fiscal 2007
over fiscal 2006 due to increased diesel prices and increased
volume usage. SYSCOs costs per gallon have increased 18.7%
in fiscal 2008 over fiscal 2007 and 7.1% in fiscal 2007 over
fiscal 2006. During fiscal 2008, 2007 and 2006, fuel costs,
excluding any amounts recovered through fuel surcharges,
represented approximately 0.6%, 0.6% and 0.5% of sales,
respectively. SYSCOs activities to manage increased fuel
costs include reducing miles driven by our trucks through
improved routing techniques, improving fleet utilization by
adjusting idling time and maximum speeds, entering into forward
fuel purchase commitments and the use of fuel surcharges.
We periodically enter into forward purchase commitments for a
portion of our projected monthly diesel fuel requirements. In
fiscal 2008, the forward purchase commitments resulted in an
estimated $21,000,000 of avoided fuel costs as the fixed price
contracts were lower than market prices for the contracted
volumes. In fiscal 2007, the forward purchase commitments
resulted in prices that were comparable to market prices. In
fiscal 2006, the forward purchase commitments resulted in an
estimated $9,000,000 of avoided fuel costs as the fixed price
contracts were lower than market prices for the contracted
volumes. In July and August 2008, we entered into forward diesel
fuel purchase commitments totaling approximately $195,000,000
through July 2009, which will lock in the price on approximately
50% of our fuel purchases through the first 26 weeks of
fiscal 2009 and approximately 70% of our fuel purchases needs
for the last 26 weeks of fiscal 2009.
In fiscal 2008, due to sustained, increased diesel prices, SYSCO
increased its use of fuel surcharges. Fuel surcharges were
approximately $27,000,000 higher in fiscal 2008 than in fiscal
2007. The change in fuel surcharges in fiscal 2007 over fiscal
2006 was not significant. Fuel surcharges are reflected within
sales and gross margins.
If fuel prices continue at current levels, fuel costs in the
first 26 weeks of fiscal 2009, exclusive of any amounts
recovered through fuel surcharges, are expected to increase by
approximately $55,000,000 to $65,000,000 as compared to the
first 26 weeks of fiscal 2008. Our estimate is based upon
the prevailing market prices for diesel in mid-August 2008, the
cost committed to in our forward fuel purchase agreements
currently in place 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 this increase in fuel
expense in fiscal 2009, including the continued use of fuel
surcharges and overall expense management. If fuel surcharges
continue in fiscal 2009 at the same levels as the end of fiscal
2008, we estimate that we can recover about half of the
anticipated increase in fuel costs noted above through increased
fuel surcharges, which is less than the approximate 75% we were
able to recover in fiscal 2008.
Customer accounts written off, net of recoveries, were
$32,367,000, or 0.09% of sales, $26,010,000 or 0.07% of sales,
and $21,128,000 or 0.06% of sales, for fiscal 2008, 2007 and
2006, respectively. We continue to monitor our customer account
balances and believe continued strong credit practices will be
necessary to avoid significant increases in write-offs in fiscal
2009. However, if the challenging economic environment persists,
we could experience increased levels of write-offs and a higher
provision for losses on receivables in fiscal 2009.
Net company-sponsored pension costs in fiscal 2009 are expected
to increase by approximately $20,000,000 due primarily to lower
returns on assets of the qualified pension plan during fiscal
2008, partially offset by a decrease in expense due to
amendments to our Supplemental Executive Retirement Plan.
Share-based compensation expense in fiscal 2009 is expected to
decrease $20,000,000 to $25,000,000. The expected decrease is
due primarily to two factors. First, option grants in prior
years were at greater levels than recent years, resulting in
reduced compensation expense being recognized. Secondly, the
Management Incentive Plan annual bonus awards have been modified
beginning with fiscal 2009, to exclude the previous stock award
component. As a result, the share-based compensation expense
related to the stock award component of the incentive bonuses
recorded in previous years will not be incurred in fiscal 2009,
and as a result fiscal 2009 will reflect reduced overall
share-based based compensation expenses. Beginning in fiscal
2010, we expect to replace the stock award component of the
incentive bonuses with annual discretionary restricted stock
grants subject to time-based vesting which may result in
increased share-based compensation expense in fiscal 2010.
Net
Earnings
Net earnings increased 10.5% in fiscal 2008 over fiscal 2007.
Net earnings increased 17.0% in fiscal 2007 over fiscal 2006.
The changes in net earnings for these periods were due primarily
to the factors discussed above, as well as the impact of changes
in interest expense, other income and income taxes discussed
below. Additionally, fiscal 2007 over fiscal 2006 was impacted
by a fiscal 2006 accounting change. In the first quarter of
fiscal 2006, SYSCO recorded a cumulative effect of a change in
accounting due to a change in the measurement date for
company-sponsored pension and other postretirement benefits
plans, which increased net earnings for fiscal 2006 by
$9,285,000, net of tax.
The increase in interest expense of $6,539,000 in fiscal 2008 as
compared to fiscal 2007 was primarily due to increased borrowing
levels partially offset by lower interest rates on our floating
rate debt. The decrease in interest expense of $4,098,000 in
fiscal 2007 over fiscal 2006 was primarily due to decreased
borrowing levels.
Other income, net increased $5,195,000 in fiscal 2008 over
fiscal 2007 and $8,719,000 in fiscal 2007 over fiscal 2006.
Changes between the years resulted from fluctuations in
miscellaneous activities, primarily gains and losses on the sale
of surplus facilities. The increase in fiscal 2008 over fiscal
2007 was primarily due to gains from the sale of land and
facilities as well as the sale of a minority interest in a
business. The increase in fiscal 2007 over the prior year is
primarily due to a gain on the sale of land.
16
The effective tax rate was 38.25% in fiscal 2008, 38.25% in
fiscal 2007 and 39.35% in fiscal 2006.
The effective tax rate for fiscal 2008 was favorably impacted by
tax benefits of approximately $7,700,000 resulting from the
recognition of a net operating loss deferred tax asset which
arose due to a state tax law change, $8,600,000 related to the
reversal of valuation allowances previously recorded on Canadian
net operating loss deferred tax assets and $5,500,000 related to
the reduction in net Canadian deferred tax liabilities due
to a federal tax rate reduction. The effective tax rate for
fiscal 2008 was negatively impacted by the recording of tax and
interest related to uncertain tax positions, share-based
compensation expense and the recognition of losses to adjust the
carrying value of corporate-owned life insurance policies to
their cash surrender values.
The decrease in the effective tax rate for fiscal 2007 over
fiscal 2006 was primarily due to lower share-based compensation
expense in fiscal 2007 as compared to fiscal 2006 and increased
gains recorded related to the cash surrender value of
corporate-owned life insurance policies.
Earnings
Per Share
Basic earnings per share and diluted earnings per share
increased 13.0% and 13.1%, respectively, in fiscal 2008 over the
prior year. Basic earnings per share and diluted earnings per
share increased 17.4% and 17.6%, respectively, in fiscal 2007
over the prior year. These increases were primarily the result
of factors discussed above, as well as a net reduction in shares
outstanding. The net reduction in average shares outstanding was
primarily due to share repurchases. The net reduction in diluted
shares outstanding was primarily due to share repurchases and,
with regard to fiscal 2008, an increase in the number of
anti-dilutive options excluded from the diluted shares
calculation.
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 SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information.
(SFAS No. 131) The accounting policies for the
segments are the same as those disclosed by SYSCO within the
Financial Statements and Supplementary Data within Part II
Item 8 of this
Form 10-K.
Intersegment sales generally represent specialty produce and
meat company products distributed by the Broadline and SYGMA
operating companies. The segment results include certain
centrally incurred costs for shared services that are charged to
our segments. These centrally incurred costs are charged based
upon the relative level of service used by each operating
company consistent with how management views the performance of
its operating segments.
Prior to fiscal 2008, SYSCOs management evaluated
performance of each of our operating segments based on its
respective earnings before income taxes. This measure included
an allocation of certain corporate expenses to each operating
segment in addition to the centrally incurred costs for shared
services that were charged to our segments. During fiscal 2008,
SYSCOs management increased its focus on the performance
of each of our operating segments based on its respective
operating income results which excludes the allocation of
additional corporate expenses. As a result, the segment
reporting for fiscal 2007 and 2006 has been revised to conform
to the fiscal 2008 presentation. While a segments
operating income may be impacted in the short term by increases
or decreases in margins, expenses, or a combination thereof,
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.
The following table sets forth the operating income of each of
our reportable segments and the other segment expressed as a
percentage of each segments sales for each period reported
and should be read in conjunction with Business Segment
Information in Note 19 to the Consolidated Financial
Statements in Item 8:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income as a Percentage of Sales
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Broadline
|
|
|
6.5
|
%
|
|
|
6.5
|
%
|
|
|
6.3
|
%
|
SYGMA
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
(1
|
)
|
Other
|
|
|
3.8
|
|
|
|
3.7
|
|
|
|
4.0
|
|
|
|
|
(1) |
|
SYGMA had an operating loss of $371,000 in fiscal 2006. |
The following table sets forth the change in the selected
financial data of each of our reportable segments and the other
segment expressed as a percentage increase over the prior year
and should be read in conjunction with Business Segment
Information in Note 19 to the Consolidated Financial
Statements in Item 8:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
|
Sales
|
|
|
Income
|
|
|
Sales
|
|
|
Income
|
|
|
Broadline
|
|
|
8.1
|
%
|
|
|
9.1
|
%
|
|
|
7.0
|
%
|
|
|
9.4
|
%
|
SYGMA
|
|
|
4.4
|
|
|
|
(23.8
|
)
|
|
|
6.0
|
|
|
|
|
(1)
|
Other
|
|
|
1.4
|
|
|
|
3.3
|
|
|
|
13.8
|
|
|
|
6.2
|
|
|
|
|
(1) |
|
SYGMA had operating income of $10,842,000 in fiscal 2007 and an
operating loss of $371,000 in fiscal 2006. |
17
The following table sets forth sales and operating income of
each of our reportable segments, the other segment, intersegment
sales and corporate expenses and consolidated adjustments,
including certain centrally incurred costs for shared services
that are charged to our segments of which intercompany amounts
are eliminated upon consolidation, expressed as a percentage of
the respective consolidated total and should be read in
conjunction with Business Segment Information in Note 19 to
the Consolidated Financial Statements in Item 8:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
|
Sales
|
|
|
Income
|
|
|
Sales
|
|
|
Income
|
|
|
Sales
|
|
|
Income
|
|
|
Broadline
|
|
|
79.4
|
%
|
|
|
103.1
|
%
|
|
|
78.6
|
%
|
|
|
104.0
|
%
|
|
|
78.9
|
%
|
|
|
108.6
|
%
|
SYGMA
|
|
|
12.2
|
|
|
|
0.4
|
|
|
|
12.5
|
|
|
|
0.6
|
|
|
|
12.7
|
|
|
|
0.0
|
|
Other
|
|
|
9.7
|
|
|
|
7.3
|
|
|
|
10.2
|
|
|
|
7.8
|
|
|
|
9.6
|
|
|
|
8.4
|
|
Intersegment sales
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
|
|
Corporate expenses and consolidated adjustments
|
|
|
|
|
|
|
(10.8
|
)
|
|
|
|
|
|
|
(12.4
|
)
|
|
|
|
|
|
|
(17.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in corporate expenses and consolidated adjustments,
among other items, are:
|
|
|
|
|
Gains and losses recognized to adjust corporate-owned life
insurance policies to their cash surrender values;
|
|
|
Share-based compensation expense related to stock option grants,
issuances of stock pursuant to the Employees Stock
Purchase Plan and stock grants to non-employee
directors; and
|
|
|
Corporate-level depreciation and amortization expense.
|
Broadline
Segment
Broadline operating companies distribute a full line of food
products and a wide variety of non-food products to both
traditional and chain restaurant customers. Broadline operations
have significantly higher operating margins than the rest of
SYSCOs operations. In fiscal 2008, the Broadline operating
results represent approximately 80% of SYSCOs overall
sales and greater than 100% of SYSCOs overall operating
income prior to 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 purchasing power allow us to leverage this
segments earnings.
Sales
Sales for fiscal 2008 were 8.1% greater than fiscal 2007.
Non-comparable acquisitions did not have a material impact on
the overall sales growth rate for fiscal 2008. Fiscal 2008
growth was realized both from increased sales to
multi-unit
customers and marketing associate-served customers primarily
through continued focus on customer account penetration through
the use of business reviews with customers and efforts of our
marketing associates. Product cost inflation and the resulting
increases in selling prices was the primary contributor to sales
growth.
Sales for fiscal 2007 were 7.0% greater than fiscal 2006. The
impact of
EITF 04-13
reduced sales growth by 0.4%, or $173,171,000, for fiscal 2007
compared to a $57,211,000 reduction for fiscal 2006. Sales are
reported on a comparable basis beginning in the fourth quarter
of fiscal 2007, which is the one-year anniversary of the
adoption of
EITF 04-13.
Non-comparable acquisitions did not have an impact on the
overall sales growth rate for fiscal 2007. Fiscal 2007 growth
was primarily due to increased sales to marketing
associate-served customers and
multi-unit
customers primarily through continued focus on customer account
penetration through the use of business reviews with customers,
increases in the number of customer contact personnel and
efforts of our marketing associates.
Operating
Income
The increases in operating income in fiscal 2008 over fiscal
2007 were primarily due to gross margin dollars increasing at a
faster pace than expenses. We were able to manage our business
effectively in the current inflationary environment by managing
margins and improving operating efficiencies. Gross margin
dollars increased 7.0% while operating expenses increased 6.1%
in fiscal 2008 over fiscal 2007. The high cost of fuel also
impacted our results. Fuel costs in fiscal 2008 were $21,575,000
higher than fiscal 2007. We attempt to mitigate increased fuel
costs by reducing miles driven, improving fleet consumption by
adjusting idling time and maximum speeds, entering into fixed
price fuel purchase commitments and the use of fuel surcharges.
In fiscal 2008, due to sustained increased diesel prices, our
use of fuel surcharges increased. Fuel surcharges were
approximately $21,000,000 higher in fiscal 2008 over fiscal 2007.
In fiscal 2008, we recorded a provision of $22,284,000 related
to additional amounts that we expect to be required to
contribute to an underfunded multi-employer pension plan and our
withdrawal from a multi-employer pension plan. In fiscal 2007,
we recorded a provision of $4,700,000 related to our withdrawal
from a multi-employer pension plan.
The increases in operating income in fiscal 2007 over fiscal
2006 were primarily due to gross margin dollars increasing at a
faster pace than expenses. Gross margin dollars increased 6.6%
while operating expenses increased 5.4% in fiscal 2007 over
fiscal 2006.
18
SYGMA
Segment
SYGMA operating companies distribute a full line of food
products and a wide variety of non-food products to certain
chain restaurant customer locations. SYGMA operations have
traditionally had lower operating income as a percentage of
sales than SYSCOs other segments. This segment of the
foodservice industry has generally been characterized by lower
overall operating margins as the volume that these customers
command allows them to negotiate for reduced margins. These
operations service chain restaurants through contractual
agreements that are typically structured on a fee per case
delivered basis.
Sales
Sales for fiscal 2008 were 4.4% greater than fiscal 2007.
Non-comparable acquisitions contributed 0.3% to the overall
sales growth rate for fiscal 2008. Fiscal 2008 growth was
generally due to product cost increases and sales to new
customers. These increases were partially offset by lost sales
due to non-renewed customer agreements and lower case volumes
due to difficult economic conditions impacting SYGMAs
customer base.
Sales for fiscal 2007 were 6.0% greater than fiscal 2006. The
impact of
EITF 04-13
reduced sales growth by 2.7%, or $159,236,000, for fiscal 2007
compared to a $42,560,000 reduction for fiscal 2006. Sales are
reported on a comparable basis beginning in the fourth quarter
of fiscal 2007, which is the one-year anniversary of the
adoption of
EITF 04-13.
Non-comparable acquisitions contributed 2.1% to the overall
sales growth rate for fiscal 2007. The remaining fiscal 2007
growth was due to sales to new customers and sales growth in
SYGMAs existing customer base related to increased sales
at existing locations as well as new locations added by those
customers. In addition, certain customers were transferred from
Broadline operations to be serviced by SYGMA operations,
contributing to the sales increase.
Operating
Income
Operating income in fiscal 2008 decreased as compared to fiscal
2007. In fiscal 2008, SYGMA expensed $5,587,000 related to the
write-off of software development costs . In addition, some of
SYGMAs customers have experienced a slowdown in their
business resulting in lower cases per delivery and therefore
reduced gross margin dollars per stop. SYGMA also experienced
increased fuel costs of $8,888,000 although it was able to
partially offset these costs through increases in the fees
charged to customers including fuel surcharges and reducing
expenses. Fuel surcharges were approximately $6,000,000 higher
in fiscal 2008 over fiscal 2007. Expense reductions were
accomplished by consolidating regional offices, reducing
headcounts and not renewing unprofitable customer contracts.
The increase in operating income in fiscal 2007 was due to
several factors, including sales growth, increased margins and
improved operating efficiencies, partially offset by costs of
labor increases and auto liability related expenses. In
addition, the transfer of customers from Broadline operations
referred to above also contributed to the increase in operating
income.
Other
Segment
Other financial information is attributable to our
other operating segments, including our specialty produce,
custom-cut meat and lodging industry products and a company that
distributes to international customers. These operating segments
are discussed on an aggregate basis as they do not represent
reportable segments under SFAS No. 131.
On an aggregate basis, our Other segments have a
lower operating income as a percentage of sales than
SYSCOs Broadline segment. SYSCO has acquired the operating
companies within these segments in relatively recent years.
These operations generally operate in a niche within the
foodservice industry. These operations are also generally
smaller in sales and scope than an average Broadline operation
and each of these segments is considerably smaller in sales and
overall scope than the Broadline segment. In the aggregate, the
Other segment represented approximately 9.7% and
7.3% of SYSCOs overall sales and operating income in
fiscal 2008, respectively.
Operating income increased 3.3% for fiscal 2008 over fiscal
2007. The increase in operating income was generated primarily
by improved results in the specialty produce and the lodging
industry segments offset by reduced sales and operating income
in the custom-cut meat segment.
Operating income increased 6.2% for fiscal 2007 over fiscal
2006. The increase in operating income was generated by improved
results in each of the other segments and acquisitions.
Liquidity
and Capital Resources
SYSCO provides marketing and distribution services to
foodservice customers primarily throughout the United States and
Canada. We intend to continue to expand our market share through
profitable sales growth, foldouts and acquisitions. We also
strive to increase the effectiveness of our operations through
the use of technology and our supply chain and other strategic
initiatives. These objectives require continuing investment. Our
resources include cash provided by operations and access to
capital from financial markets.
Our operations historically have produced significant cash flow.
Cash generated from operations is first allocated to working
capital requirements; investments in facilities, systems, fleet
and other equipment; cash dividends; and acquisitions compatible
with our overall growth strategy. Any remaining cash generated
from operations may be applied toward a portion of the cost of
the share repurchase program, while the remainder of the cost
may be financed with additional debt. Our share repurchase
program is used primarily to offset shares issued under various
employee benefit and compensation plans, to reduce shares
outstanding (which may have the net effect of increasing
earnings per share) and to aid in managing the ratio of
long-term debt to total capitalization. Historically, our
long-term debt to total capitalization ratio has generally been
in the
19
range of 35% and 40%. This ratio was 36.8% and 35.0% as of
June 28, 2008 and June 30, 2007, respectively. For
purposes of calculating this ratio, long-term debt includes both
the current maturities and long-term portion. We continue to
assess and review the most appropriate capital structure as well
as the appropriate leverage ratios with which to measure that
capital structure. As a part of our on-going strategic analysis,
we regularly evaluate business opportunities, including
potential acquisitions and sales of assets and businesses, and
our overall capital structure. These transactions may materially
impact our liquidity, borrowing capacity, leverage ratios and
capital availability.
We believe that our cash flows from operations, the availability
of additional capital under our existing commercial paper
programs and bank lines of credit and our ability to access
capital from financial markets in the future, including
issuances of debt securities under our shelf registration
statement filed with the Securities and Exchange Commission
(SEC), will be sufficient to meet our anticipated cash
requirements over at least the next twelve months, while
maintaining sufficient liquidity for normal operating purposes.
Operating
Activities
We generated $1,596,129,000 in cash flow from operations in
fiscal 2008, $1,402,922,000 in fiscal 2007 and $1,124,679,000 in
fiscal 2006. Cash flow from operations in fiscal 2008, fiscal
2007 and fiscal 2006 was primarily due to net income in these
years, reduced by increases in inventory balances and increases
in accounts receivable balances, partially offset by an increase
in accounts payable balances. The increases in accounts
receivable and inventory balances were primarily due to sales
growth. The accounts payable balances did not increase at the
same rate as inventory increases. Accounts payable balances are
impacted by many factors, including changes in product mix, cash
discount terms and changes in payment terms with vendors.
Cash flow from operations was negatively impacted by a decrease
in accrued expenses of $22,721,000 during fiscal 2008, and was
positively impacted by increases in accrued expenses of
$132,936,000 during fiscal 2007 and $29,161,000 during fiscal
2006. The decrease in accrued expenses during fiscal 2008 was
primarily due to the reversal of a product liability claim which
is further explained below. This decrease was partially offset
by increased accrued interest due to fixed-rate debt issued in
fiscal 2008 and an increase to a provision related to a
multi-employer pension plan. See additional discussion of
multi-employer pension plans at Liquidity and Capital
Resources, Other Considerations. The increase in accrued
expenses during fiscal 2007 was primarily due to increased
accruals for fiscal 2007 incentive bonuses due to improved
operating results over fiscal 2006. The increase in accrued
expenses during fiscal 2006 was related to various miscellaneous
accruals.
In fiscal 2007, we recorded a liability for a product liability
claim of $50,296,000 and the corresponding insurance receivable
of $48,296,000, included within prepaid expenses and other
current assets. In fiscal 2008, these amounts were reversed as
our insurance carrier and other parties paid the full amount of
the judgment in excess of our deductible. See further discussion
of the product liability claim under Note 18, Commitments
and Contingencies, in the Notes to Consolidated Financial
Statements in Item 8.
Other long-term liabilities and prepaid pension cost, net,
increased $13,459,000 during fiscal 2008, decreased $14,817,000
in fiscal 2007 and increased $75,382,000 in fiscal 2006. The
increase in fiscal 2008 was primarily attributable to an
increase in deferred compensation from incentive compensation
deferrals of prior-year annual incentive bonuses and the accrual
of interest on our liability for unrecognized tax benefits.
These increases were partially offset by the recording of net
company-sponsored pension costs and the timing of pension
contributions to our company-sponsored plans. In fiscal 2007 and
2006, the change in these accounts was primarily attributable to
the recording of net company-sponsored pension costs and the
timing and amount of pension contributions to our
company-sponsored plans. In fiscal 2007, our pension
contributions exceeded the amount of net pension costs
recognized during the year resulting in a net cash outflow. In
fiscal 2006, the net pension costs recorded exceeded the amount
of pension contributions during the year resulting in a net cash
inflow. We recorded net company-sponsored pension costs of
$65,837,000, $74,591,000 and $130,592,000 during fiscal 2008,
fiscal 2007 and fiscal 2006, respectively. Our contributions to
our company-sponsored defined benefit plans were $92,670,000,
$91,163,000 and $73,764,000 during fiscal 2008, fiscal 2007 and
fiscal 2006, respectively. We expect to contribute approximately
$97,000,000 to our company-sponsored defined benefit plans in
fiscal 2009.
Investing
Activities
Fiscal 2008 capital expenditures included:
|
|
|
|
|
construction of fold-out facilities in Knoxville, Tennessee and
Longview, Texas;
|
|
|
replacement or significant expansion of facilities in Atlanta,
Georgia; Chicago, Illinois; Peterborough, Ontario and Houston,
Texas;
|
|
|
completion of the Southeast RDC in Alachua, Florida; and
|
|
|
completion of work on the corporate headquarters expansion.
|
Fiscal 2007 capital expenditures included:
|
|
|
|
|
construction of a fold-out facility in Raleigh, North Carolina;
|
|
|
replacement or significant expansion of facilities in Edmonton,
Alberta; Los Angeles, California; Miami, Florida; Albuquerque,
New Mexico and Columbia, South Carolina;
|
|
|
the Southeast RDC in Alachua, Florida; and
|
|
|
continuing work on the corporate headquarters expansion.
|
Fiscal 2006 capital expenditures included:
|
|
|
|
|
construction of fold-out facilities in Geneva, Alabama;
Springfield, Illinois and Raleigh, North Carolina;
|
|
|
replacement or significant expansion of facilities in Miami,
Florida and Denver, Colorado; and
|
|
|
continuing work on the corporate headquarters expansion.
|
20
The lower amount spent in fiscal 2008 was primarily due to
delays on certain projects that will shift significant
expenditures to fiscal 2009. As a result, we expect total
capital expenditures in fiscal 2009 to be in the range of
$675,000,000 to $725,000,000. Fiscal 2009 expenditures will
include the continuation of the fold-out program; facility,
fleet and other equipment replacements and expansions; the
companys National Supply Chain initiative; and investments
in technology.
Financing
Activities
Equity
We routinely engage in Board-approved share repurchase programs.
The number of shares acquired and their cost during the past
three fiscal years were 16,769,900 shares for $529,179,000
in fiscal 2008, 16,231,200 shares for $550,865,000 in
fiscal 2007 and 16,479,800 shares for $544,131,000 in
fiscal 2006. An additional 125,000 shares have been
purchased at a cost of $3,933,000 through August 13, 2008,
resulting in a remaining authorization by our Board of Directors
to repurchase up to 6,212,800 shares, based on the trades
made through that date.
Dividends paid were $497,467,000, or $0.82 per share, in fiscal
2008, $445,416,000, or $0.72 per share, in fiscal 2007 and
$397,537,000, or $0.64 per share, in fiscal 2006. In May 2008,
we declared our regular quarterly dividend for the first quarter
of fiscal 2009 of $0.22 per share, which was paid in July 2008.
In November 2000, we filed with the Securities and Exchange
Commission 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 13,
2008, 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 $145,000,000,
of which none was outstanding as of June 28, 2008 or
August 13, 2008.
Commercial
Paper
We have a commercial paper program allowing us to issue
short-term unsecured notes in an aggregate amount not to exceed
$1,300,000,000. The current program was entered into in April
2006 and replaced notes that were issued under our previous
commercial paper program as they matured and became due and
payable.
SYSCO and one of our subsidiaries, SYSCO International, Co., has
a revolving credit facility supporting our U.S. and
Canadian commercial paper programs. The facility, in the amount
of $1,000,000,000, terminates on November 4, 2012, subject
to extension.
This facility was originally entered into in November 2005 in
the amount of $500,000,000 and was increased to $750,000,000 in
March 2006. In September 2006, the termination date on the
facility was extended to November 4, 2011, in accordance
with the terms of the agreement. In September 2007, the amount
of the facility was increased to $1,000,000,000 and the
termination date on the facility was extended to
November 4, 2012. This facility replaced the previous
$450,000,000 (U.S. dollar) and $100,000,000 (Canadian
dollar) revolving credit agreements in the U.S. and Canada,
respectively, both of which were terminated in November 2005.
During fiscal 2008, 2007 and 2006, aggregate outstanding
commercial paper issuances and short-term bank borrowings ranged
from approximately zero to $1,133,241,000, $356,804,000 to
$755,180,000, $126,846,000 to $774,530,000, respectively. There
were no commercial paper issuances outstanding as of
June 28, 2008 or August 13, 2008.
Fixed
Rate Debt
In July 2005, we repaid the 4.75% senior notes totaling
$200,000,000 at maturity also utilizing a combination of cash
flow from operations and commercial paper issuances.
In September 2005, we issued 5.375% senior notes totaling
$500,000,000 due on September 21, 2035, under the April
2005 shelf registration. These notes, which were priced at
99.911% of par, are unsecured, are not subject to any sinking
fund requirement and include a redemption provision which allows
us to retire the notes at any time prior to maturity at the
greater of par plus accrued interest or an amount designed to
ensure that the noteholders are not penalized by the early
redemption. Proceeds from the notes were utilized to retire
commercial paper issuances outstanding as of September 2005.
In September 2005, in conjunction with the issuance of the
5.375% senior notes described above, we settled a
$350,000,000 notional amount forward-starting interest rate swap
we had entered into in March 2005. Upon termination, we paid
cash of $21,196,000, which represented the fair value liability
associated with the swap agreement at the time of termination.
This amount is being amortized as interest expense over the
30-year
term of the debt, and the unamortized balance is reflected as a
loss, net of tax, in Other comprehensive income (loss).
In May 2006, we repaid at maturity the 7.0% senior notes
totaling $200,000,000 utilizing a combination of cash flow from
operations and commercial paper issuances.
In April 2007, we repaid at maturity the 7.25% senior notes
totaling $100,000,000 utilizing a combination of cash flow from
operations and commercial paper issuances.
21
In January 2008, the SEC granted our request to terminate our
then existing shelf registration statement that was filed with
the SEC in April 2005 for the issuance of debt securities. In
February 2008, we filed an automatically effective well-known
seasoned issuer shelf registration statement for the issuance of
up to $1,000,000,000 in debt securities with the SEC.
In February 2008, we issued 4.20% senior notes totaling
$250,000,000 due February 12, 2013 (the 2013
notes) and 5.25% senior notes totaling $500,000,000
due February 12, 2018 (the 2018 notes) under
our February 2008 shelf registration. The 2013 and 2018 notes,
which were priced at 99.835% and 99.310% of par, respectively,
are unsecured, are not subject to any sinking fund requirement
and include a redemption provision which allows us to retire the
notes at any time prior to maturity at the greater of par plus
accrued interest or an amount designed to ensure that the
noteholders are not penalized by the early redemption. Proceeds
from the notes were utilized to retire commercial paper
issuances outstanding as of February 2008.
Total
Debt
Total debt as of June 28, 2008 was $1,980,331,000, of which
approximately 99% was at fixed rates averaging 5.4% and the
remainder was at floating rates averaging 2.2%. Certain loan
agreements contain typical debt covenants to protect
noteholders, including provisions to maintain our long-term debt
to total capital ratio below a specified level. We were in
compliance with all debt covenants as of June 28, 2008.
Other
As part of normal business activities, we issue letters of
credit through major banking institutions as required by certain
vendor and insurance agreements. As of June 28, 2008 and
June 30, 2007, letters of credit outstanding were
$35,785,000 and $62,645,000, 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. Based on
the information available from plan administrators, we estimate
that our share of withdrawal liability on most of the
multi-employer plans we participate in, some of which appear to
be underfunded, could be as much as $140,000,000 based on a
voluntary withdrawal.
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. Of the plans
in which SYSCO participates, one plan is more critically
underfunded than the others. During fiscal 2008, we obtained
information that this plan failed to satisfy minimum funding
requirements for certain periods and believe it is probable that
additional funding will be required as well as the payment of
excise tax. As a result, we recorded a liability of
approximately $16,500,000 related to our share of the minimum
funding requirements and related excise tax for these periods.
Currently, we believe that a majority of this amount will be
paid in fiscal 2009 and are continuing to explore our
alternatives as it relates to this plan. As of June 28,
2008, we have approximately $22,000,000 in liabilities recorded
in total related to certain underfunded multi-employer defined
benefit plans.
BSCC
Cooperative Structure
Our affiliate, BSCC, is a cooperative taxed under subchapter T
of the United States Internal Revenue Code. We believe that the
deferred tax liabilities resulting from the business operations
and legal ownership of BSCC are appropriate under the tax laws.
However, if the application of the tax laws to the cooperative
structure of BSCC were to be successfully challenged by any
federal, state or local tax authority, we could be required to
accelerate the payment of all or a portion of our income tax
liabilities associated with BSCC that we otherwise have deferred
until future periods. In that event, we would be liable for
interest on such amounts. As of June 28, 2008, SYSCO has
recorded deferred income tax liabilities of $1,054,190,000, net
of federal benefit, related to the BSCC supply chain
distributions. If the IRS and any other relevant taxing
authorities determine that all amounts since the inception of
BSCC were inappropriately deferred, and the determination is
upheld, we estimate that in addition to making a current payment
for amounts previously deferred, as discussed above, we may be
required to pay interest on the cumulative deferred balances.
These interest amounts could range from $290,000,000 to
$320,000,000, prior to federal and state income tax benefit, as
of June 28, 2008. SYSCO calculated this amount based upon
the amounts deferred since the inception of BSCC applying the
applicable jurisdictions interest rates in effect in each
period. The IRS, in connection with its audit of our 2003 and
2004 federal income tax returns, proposed adjustments related to
the taxability of the cooperative structure. We are vigorously
protesting these adjustments. We have reviewed the merits of the
issues raised by the IRS, and while management believes it is
probable we will prevail, we concluded the measurement model of
FIN 48 required us to provide an accrual for a portion of
the interest exposure. If a taxing authority requires us to
accelerate the payment of these deferred tax liabilities and to
pay related interest,
22
if any, we may be required to raise additional capital through
debt financing or we may have to forego share repurchases or
defer planned capital expenditures or a combination of these
items.
Off-Balance
Sheet Arrangements
We have no off-balance sheet arrangements.
Contractual
Obligations
The following table sets forth, as of June 28, 2008,
certain information concerning our obligations and commitments
to make contractual future payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Recorded Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
1,943,711
|
|
|
$
|
262
|
|
|
$
|
447
|
|
|
$
|
450,135
|
|
|
$
|
1,492,867
|
|
Capital lease obligations
|
|
|
36,620
|
|
|
|
4,634
|
|
|
|
6,380
|
|
|
|
3,687
|
|
|
|
21,919
|
|
Deferred
compensation(1)
|
|
|
128,752
|
|
|
|
8,885
|
|
|
|
17,455
|
|
|
|
14,067
|
|
|
|
88,345
|
|
SERP and other postretirement
plans(2)
|
|
|
243,464
|
|
|
|
17,401
|
|
|
|
39,899
|
|
|
|
45,406
|
|
|
|
140,758
|
|
Multi-employer pension
plans(3)
|
|
|
22,000
|
|
|
|
16,200
|
|
|
|
5,800
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits (including
interest)(4)
|
|
|
208,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecorded Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments related to
debt(5)
|
|
|
1,453,853
|
|
|
|
103,233
|
|
|
|
206,465
|
|
|
|
190,185
|
|
|
|
953,970
|
|
Long-term non-capitalized leases
|
|
|
290,843
|
|
|
|
64,000
|
|
|
|
97,916
|
|
|
|
54,356
|
|
|
|
74,571
|
|
Purchase
obligations(6)
|
|
|
2,560,268
|
|
|
|
1,852,621
|
|
|
|
540,937
|
|
|
|
107,462
|
|
|
|
59,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
6,887,548
|
|
|
$
|
2,067,236
|
|
|
$
|
915,299
|
|
|
$
|
865,298
|
|
|
$
|
2,831,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 Supplemental
Executive Retirement Plan (SERP) and other postretirement
benefit plans made in amounts needed to fund benefit payments
for vested participants in these plans through fiscal 2017,
based on actuarial assumptions. |
|
(3) |
|
Excludes normal contributions required under our collective
bargaining agreements. |
|
(4) |
|
Unrecognized tax benefits relate to uncertain tax positions
recorded under FIN 48, which we adopted as of July 1,
2007. As of June 28, 2008, we had a liability of
$69,830,000 for unrecognized tax benefits for all tax
jurisdictions and $138,207,000 for related interest that could
result in cash payment. As we are not able to reasonably
estimate the timing of non-current payments or the amount by
which the liability will increase or decrease over time, the
related non-current balances have not been reflected in the
Payments Due by Period section of the table. For
further discussion of the impact of adopting FIN 48, see
Note 16, Income Taxes, in the Notes to Consolidated
Financial Statements in Item 8. |
|
(5) |
|
Includes payments on floating rate debt based on rates as of
June 28, 2008, assuming amount remains unchanged until
maturity, and payments on fixed rate debt based on maturity
dates. |
|
(6) |
|
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, in the Notes to Consolidated Financial Statements
in Item 8), fixed electricity agreements and fixed fuel
purchase commitments. Purchase obligations exclude full
requirements electricity contracts where no stated minimum
purchase volume is required. |
Certain acquisitions involve contingent consideration, typically
payable only in the event that certain operating results are
attained or certain outstanding contingencies are resolved.
Aggregate contingent consideration amounts outstanding as of
June 28, 2008 included $55,469,000 in cash. This amount is
not included in the table above.
No obligations were included in the table above for the
qualified retirement plan because as of June 28, 2008, we
do not have a minimum funding requirement under ERISA guidelines
for this plan due to our previous voluntary contributions.
However, we intend to make voluntary contributions to the
qualified retirement plan totaling $80,000,000 during fiscal
2009.
Critical
Accounting Policies and Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires us to make
estimates and assumptions that affect the reported amounts of
assets, liabilities, sales and expenses in the accompanying
financial statements. Significant accounting policies employed
by SYSCO are presented in the notes to the financial statements.
Critical accounting policies and estimates are those that are
most important to the portrayal of our financial condition and
results of operations. These policies require our most
subjective or complex judgments, often employing the use of
estimates about the effect of matters that are inherently
uncertain. We have reviewed with the Audit Committee of the
Board of Directors the development and selection of the critical
accounting policies and estimates and this related disclosure.
Our most critical accounting policies and estimates pertain to
the allowance for doubtful accounts
23
receivable, self-insurance programs, company-sponsored pension
plans, income taxes, vendor consideration, accounting for
business combinations 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 receivables. If the financial condition of our
customers were to deteriorate, additional allowances may be
required.
Self-Insurance
Program
We maintain a self-insurance program covering portions of
workers compensation, general liability and vehicle
liability costs. The amounts in excess of the self-insured
levels are fully insured by third party insurers. We also
maintain a fully self-insured group medical program. Liabilities
associated with these risks are estimated in part by considering
historical claims experience, medical cost trends, demographic
factors, severity factors and other actuarial assumptions.
Projections of future loss expenses are inherently uncertain
because of the random nature of insurance claims occurrences and
could be 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 2008 net pension costs for the
company-sponsored qualified pension plan (Retirement Plan),
which was determined as of the June 30, 2007 measurement
date, increased 0.05% to 6.78%. The discount rate for
determining fiscal 2008 net pension costs for the SERP,
which was determined as of the June 30, 2007 measurement
date, decreased 0.09% to 6.64%. The combined effect of these
discount rate changes was a decrease in our net
company-sponsored pension costs for all plans for fiscal 2008 by
an estimated $480,000. The discount rate for determining fiscal
2009 net pension costs for the Retirement Plan, which was
determined as of the June 28, 2008 measurement date,
increased 0.16% to 6.94%. The discount rate for determining
fiscal 2009 net pension costs for the SERP, which was
determined as of the June 28, 2008 measurement date,
increased 0.39% to 7.03%. The combined effect of these discount
rate changes will decrease our net company-sponsored pension
costs for all plans for fiscal 2009 by an estimated $8,692,000.
A 1.0% increase in the discount rates for fiscal 2009 would
decrease SYSCOs net company-sponsored pension cost by
$32,000,000, while a 1.0% decrease in the discount rates would
increase pension cost by $49,000,000. The impact of a 1.0%
increase in the discount rates differs from the impact of a 1.0%
decrease in discount rates because a 1.0% decrease in discount
rates would require additional amounts of amortization from net
actuarial losses which would not be required with a 1.0%
increase in this rate. As of June 28, 2008, our net
actuarial losses from our company-sponsored pension plans were
$351,344,000, an increase of $192,438,000. We estimate the
amortization of net actuarial losses will increase our fiscal
2009 pension expense by approximately $14,000,000 as compared to
fiscal 2008.
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 6.17% as of June 28, 2008
and June 30, 2007. As of June 28, 2008, the SERP
assumes various levels of base salary increase and decrease for
determining pay for fiscal 2009 depending upon the
participants position with the company and a 7% salary
growth assumption for all participants for fiscal 2010 and
thereafter. As of June 30, 2007, the SERP assumed salary
rate increases of 10% through fiscal 2007 and 7% thereafter.
The expected long-term rate of return on plan assets of the
Retirement Plan was 8.50% for fiscal 2008 and 9.00% for fiscal
2007. The expectations of future returns are derived from a
mathematical asset model that incorporates assumptions as to the
various asset class returns, reflecting a combination of
historical performance analysis and the forward-looking views of
the financial markets regarding the yield on long-term bonds and
the historical returns of the major stock markets. Although not
determinative of future returns, the effective annual rate of
return on plan assets, developed using geometric/compound
averaging, was approximately 9.0%, 7.3%, 12.1% and 8.3% over the
20-year,
10-year,
5-year
and
1-year
periods ended December 31, 2007, respectively. In addition,
in nine of the last 15 years, the actual return on plan
assets has exceeded 10.0%. The rate of return assumption is
reviewed annually and revised as deemed appropriate.
The expected return on plan assets impacts the recorded amount
of net pension costs. The expected long-term rate of return on
plan assets of the Retirement Plan is 8.00% for fiscal 2009. A
1.0% increase (decrease) in the assumed rate of return for
fiscal 2009 would decrease (increase) SYSCOs net
company-sponsored pension costs for fiscal 2009 by approximately
$15,900,000.
24
The adoption of the recognition and disclosure provisions of
SFAS 158 as of June 30, 2007 resulted in the
recognition of the funded status of our defined benefit plans in
the statement of financial position, with a corresponding
adjustment to accumulated other comprehensive income, net of
tax. The amount reflected in accumulated other comprehensive
loss as of June 30, 2007 after adoption of SFAS 158
was a charge, net of tax, of $125,265,000, which represented the
net actuarial losses, prior service costs and transition
obligation remaining from the initial adoption of
SFAS 87/106 as of that date. The amount reflected in
accumulated other comprehensive loss related to the recognition
of the funded status of our defined benefit plans as of
June 28, 2008 was a charge, net of tax, of $220,913,000.
Changes in the assumptions, including changes to the discount
rate discussed above, together with the normal growth of the
plans, the impact of actuarial losses from prior periods and the
timing and amount of contributions, decreased net
company-sponsored pension costs by $8,754,000 in fiscal 2008 and
are expected to increase net company-sponsored pension costs in
fiscal 2009 by approximately $27,200,000. However, a change in
the SERP design is expected to decrease net company-sponsored
pension costs in fiscal 2009 by $7,200,000, for a net increase
of approximately $20,000,000.
We made cash contributions to our company-sponsored pension
plans of $92,670,000 and $91,163,000 in fiscal years 2008 and
2007, respectively, including voluntary contributions to the
Retirement Plan of $80,000,000 and $80,000,000 in fiscal 2008
and fiscal 2007, respectively. In fiscal 2009, as in the
previous years, contributions to the Retirement Plan will not be
required to meet ERISA minimum funding requirements but we
anticipate that we will make voluntary contributions of
$80,000,000, which is not greater than the estimated maximum
amount that will be tax deductible in fiscal 2009. The estimated
fiscal 2009 contributions to fund benefit payments for the SERP
and other post-retirement plans together are approximately
$17,401,000.
Income
Taxes
The determination of our provision for income taxes requires
significant judgment, the use of estimates and the
interpretation and application of complex tax laws. Our
provision for income taxes reflects a combination of income
earned and taxed in the various U.S. federal and state, as
well as Canadian federal and provincial jurisdictions.
Jurisdictional tax law changes, increases or decreases in
permanent differences between book and tax items, accruals or
adjustments of accruals for unrecognized tax benefits or
valuation allowances, and our change in the mix of earnings from
these taxing jurisdictions all affect the overall effective tax
rate.
Prior to fiscal 2008, in evaluating the exposures connected with
the various tax filing positions, we established an accrual
when, despite our belief that our tax return positions were
supportable, we believed that certain positions may be
successfully challenged and a loss was probable. When facts and
circumstances changed, these accruals were adjusted. Beginning
in fiscal 2008, we adopted FIN 48, which changed the
accounting for uncertain tax positions. FIN 48 provides
that a tax benefit from an uncertain tax position may be
recognized when it is more likely than not that the position
will be sustained upon examination, including resolutions of any
related appeals or litigation processes, based on the technical
merits of the position. The amount recognized is measured as the
largest amount of tax benefit that is greater than 50%
likelihood of being realized upon settlement. (See discussion
under Note 16, Income Taxes, in the Notes to Consolidated
Financial Statements in Item 8).
Our liability for unrecognized tax benefits contains
uncertainties because management is required to make assumptions
and to apply judgment to estimate the exposures associated with
our various filing positions. We believe that the judgments and
estimates discussed herein are reasonable; however, actual
results could differ, and we may be exposed to losses or gains
that could be material. To the extent we prevail in matters for
which a liability has been established, or pay amounts in excess
of recorded liabilities, our effective income tax rate in a
given financial statement period could be materially affected.
An unfavorable tax settlement generally would require use of our
cash and may result in an increase in our effective income tax
rate in the period of resolution. A favorable tax settlement may
be recognized as a reduction in our effective income tax rate in
the period of resolution.
Vendor
Consideration
We recognize consideration received from vendors when the
services performed in connection with the monies received are
completed and when the related product has been sold by SYSCO.
There are several types of cash consideration received from
vendors. In many instances, the vendor consideration is in the
form of a specified amount per case or per pound. In these
instances, we will recognize the vendor consideration as a
reduction of cost of sales when the product is sold. In the
situations where the vendor consideration is not related
directly to specific product purchases, we will recognize these
as a reduction of cost of sales when the earnings process is
complete, the related service is performed and the amounts
realized. In certain of these latter instances, the vendor
consideration represents a reimbursement of a specific
incremental identifiable cost incurred by SYSCO. In these cases,
we classify the consideration as a reduction of those costs with
any excess funds classified as a reduction of cost of sales and
recognize these in the period in which the costs are incurred
and related services performed.
Accounting
for Business Combinations
Goodwill and intangible assets represent the excess of
consideration paid over the fair value of tangible net assets
acquired. Certain assumptions and estimates are employed in
determining the fair value of assets acquired, including
goodwill and other intangible assets, as well as determining the
allocation of goodwill to the appropriate reporting unit.
In addition, annually or more frequently as needed, we assess
the recoverability of goodwill and indefinite-lived intangibles
by determining whether the fair values of the applicable
reporting units exceed the carrying values of these assets. The
reporting units used in assessing goodwill
25
impairment are our six operating segments as described in
Note 19, Business Segment Information, to the Consolidated
Financial Statements in Item 8. The components within each
of our six operating segments have similar economic
characteristics and therefore are aggregated into six reporting
units.
We arrive at our estimates of fair value using a combination of
discounted cash flow and earnings multiple models. The results
from each of these models are then weighted and combined into a
single estimate of fair value for each of our six operating
segments. The primary assumptions used in these various models
include estimated average sales and earnings multiples of
comparable acquisitions in the industry, average sales and
earnings multiples on acquisitions completed by SYSCO in the
past, future cash flow estimates of the reporting units and
weighted average cost of capital, along with working capital and
capital expenditure requirements.
Actual results could differ from these assumptions and
projections, resulting in the company revising its assumptions
and, if required, recognizing an impairment loss. Our past
estimates of fair value for fiscal 2007, 2006 and 2005 have not
been materially different when revised to include subsequent
years actual results. SYSCO has not made any material
changes in its impairment assessment methodology during the past
three fiscal years. We do not believe the estimates used in the
analysis are reasonably likely to change materially in the
future but we will continue to assess the estimates in the
future based on the expectations of the reporting units. In
fiscal 2008, the reporting units fair values would have
had to have been lower by 20% compared to the fair values
estimated in our impairment analysis before additional analysis
would have been indicated to determine if an impairment existed
for any of our reporting units.
The Other (specialty produce, custom-cut meat, lodging industry
products and international distribution operations) operating
segments have a greater proportion of goodwill recorded to
estimated fair value as compared to the Broadline or SYGMA
reporting units. This is primarily due to these businesses
having been recently acquired, and as a result there has been
less history of organic growth than in the Broadline and SYGMA
segments. In addition, these businesses also have lower levels
of cash flow than the Broadline segment. As such, these Other
operating segments have a greater risk of future impairment if
their operations were to suffer a significant downturn.
Share-Based
Compensation
We provide compensation benefits to employees and non-employee
directors under several share-based payment arrangements
including various employee stock incentive plans, the
Employees Stock Purchase Plan, the Management Incentive
Plan and various non-employee director plans.
Effective July 3, 2005, we adopted the fair value
recognition provisions of SFAS 123(R) using the
modified-prospective transition method. Under this transition
method, compensation cost recognized in fiscal 2006 and later
years includes: a) compensation cost for all share-based
payments granted through July 2, 2005, but for which the
requisite service period had not been completed as of
July 2, 2005, based on the grant date fair value estimated
in accordance with the original provisions of SFAS 123, and
b) compensation cost for all share-based payments granted
subsequent to July 2, 2005, based on the grant date fair
value estimated in accordance with the provisions of
SFAS 123(R). Results for periods prior to fiscal 2006 have
not been restated.
As of June 28, 2008, there was $66,432,000 of total
unrecognized compensation cost related to share-based
compensation arrangements. That cost is expected to be
recognized over a weighted-average period of 2.88 years.
The fair value of each option award is estimated on the date of
grant using a Black-Scholes option pricing model. Expected
volatility is based on historical volatility of SYSCOs
stock, implied volatilities from traded options on SYSCOs
stock and other factors. We utilize historical data to estimate
option exercise and employee termination behavior within the
valuation model; separate groups of employees that have similar
historical exercise behavior are considered separately for
valuation purposes. Expected dividend yield is estimated based
on the historical pattern of dividends and the average stock
price for the year preceding the option grant. The risk-free
rate for the expected term of the option is based on the
U.S. Treasury yield curve in effect at the time of grant.
The fair value of the stock issued under the Employee Stock
Purchase Plan is calculated as the difference between the stock
price and the employee purchase price. The fair value of the
stock issued under the Management Incentive Plans is based on
the stock price less a 12% discount for post-vesting
restrictions. The discount for post-vesting restrictions is
estimated based on restricted stock studies and by calculating
the cost of a hypothetical protective put option over the
restriction period.
The compensation cost related to these share-based awards is
recognized over the requisite service period. The requisite
service period is generally the period during which an employee
is required to provide service in exchange for the award.
The compensation cost related to stock issuances resulting from
awards under the Management Incentive Plan was accrued over the
fiscal year to which the incentive bonus relates. The
compensation cost related to stock issuances resulting from
employee purchases of stock under the Employees Stock
Purchase Plan is recognized during the quarter in which the
employee payroll withholdings are made.
Certain of our option awards are generally subject to graded
vesting over a service period. In those cases, we will recognize
compensation cost on a straight-line basis over the requisite
service period for the entire award. In other cases, certain of
our option awards provide for graded vesting over a service
period but include a performance-based provision allowing for
the vesting to accelerate. In these cases, if it is probable
that the performance condition will be met, we recognize
compensation cost on a straight-line basis over the shorter
performance period; otherwise, we recognize compensation cost
over the probable longer service period.
26
In addition, certain of our options provide that if the optionee
retires at certain age and years of service thresholds, the
options continue to vest as if the optionee continued to be an
employee or director. In these cases, for awards granted prior
to July 2, 2005, 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.
New
Accounting Standards
SFAS 159
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Liabilities (SFAS 159). SFAS 159 permits
entities to choose to measure many financial instruments and
certain other items at fair value that are not currently
required to be measured at fair value. SFAS 159 also
establishes presentation and disclosure requirements designed to
facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and
liabilities. SFAS 159 is effective as of the beginning of
an entitys first fiscal year that begins after
November 15, 2007. We have decided not to adopt
SFAS 159 for our existing financial assets and liabilities
at the date of option. Thus, there will be no one-time impact
from adoption of this standard to our consolidated financial
statements.
SFAS 141(R)
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (SFAS 141(R)), which
establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed and any
noncontrolling interest in a business combination. This
statement also establishes recognition and measurement
principles for the goodwill acquired in a business combination
and disclosure requirements to enable financial statement users
to evaluate the nature and financial effects of the business
combination. We will apply this statement primarily on a
prospective basis for business combinations beginning in fiscal
2010. Earlier application of the standard is prohibited.
FSP
157-2
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157), which
establishes a common definition for fair value under generally
accepted accounting principles, establishes a framework for
measuring fair value and expands disclosure requirements about
such fair value measurements. In February 2008, the FASB issued
FASB Staff Position
157-2,
Effective Date of FASB Statement No. 157
(FSP 157-2),
which partially defers the effective date of
SFAS No. 157 for one year for non-financial assets and
liabilities that are recognized or disclosed at fair value in
the financial statements on a non-recurring basis. Consequently,
SFAS 157 will be effective for SYSCO in fiscal 2009 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. As a result of the
deferral, SFAS 157 will be effective in fiscal 2010 for
non-recurring, non-financial assets and liabilities that are
recognized or disclosed at fair value. We believe the adoption
of SFAS 157 in fiscal 2009 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 will not have a material impact on our
consolidated financial statements. We are continuing to evaluate
the impact of adopting the provisions of SFAS 157 in fiscal
2010 for non-recurring, non-financial assets and liabilities
that are recognized or disclosed at fair value.
SFAS 161
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133
(SFAS 161). SFAS 161 requires enhanced disclosures
about an entitys derivative and hedging activities and
thereby improves the transparency of financial reporting. This
statement will be effective for SYSCOs financial
statements beginning with the third quarter of fiscal 2009. We
are currently evaluating the impact the adoption of
SFAS 161 may have on its financial statement disclosures.
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, expense trends, anticipated multi-employer
pension related liabilities and contributions to various
multi-employer pension plans, the outcome of ongoing tax audits,
the impact of ongoing legal proceedings, the loss of
SYSCOs 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, long-term debt
to capitalization ratios, anticipated capital expenditures and
the sources of financing for those capital expenditures,
continued competitive advantages and positive results from
strategic business initiatives, anticipated company-sponsored
pension
27
plan liabilities, the availability and adequacy of insurance to
cover liabilities, the impact of future adoption of accounting
pronouncements, predictions regarding the impact of changes in
estimates used in impairment analyses, the anticipated impact of
changes in foreign currency exchange rates and SYSCOs
ability to meet future cash requirements and remain profitable.
These statements are based on managements current
expectations and estimates; actual results may differ materially
due in part to the risk factors discussed at Item 1.A.
above and elsewhere. In addition, the success of SYSCOs
strategic business 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. The ability
to meet long-term debt to capitalization ratios also may be
affected by cash flow including amounts spent on share
repurchases and acquisitions and internal growth.
Company-sponsored pension plan liabilities are impacted by a
number of factors including the discount rate for determining
the current value of plan benefits, the assumption for the rate
of increase in future compensation levels and the expected rate
of return on plan assets. Legal proceedings are impacted by
events, circumstances and individuals beyond the control of
SYSCO. 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.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Interest
Rate Risk
We do not utilize financial instruments for trading purposes.
Our use of debt directly exposes us to interest rate risk.
Floating rate debt, where the interest rate fluctuates
periodically, exposes us to short-term changes in market
interest rates. Fixed rate debt, where the interest rate is
fixed over the life of the instrument, exposes us to changes in
market interest rates reflected in the fair value of the debt
and to the risk that we may need to refinance maturing debt with
new debt at higher rates.
We manage our debt portfolio to achieve an overall desired
position of fixed and floating rates and may employ interest
rate swaps as a tool to achieve that goal. The major risks from
interest rate derivatives include changes in the interest rates
affecting the fair value of such instruments, potential
increases in interest expense due to market increases in
floating interest rates and the creditworthiness of the
counterparties in such transactions.
Fiscal
2008
As of June 28, 2008, we had no commercial paper
outstanding. Our long-term debt obligations as of June 28,
2008 were $1,980,331,000, of which approximately 99% were at
fixed rates of interest. We had no interest rate swaps
outstanding as of June 28, 2008.
The following table presents our interest rate position as of
June 28, 2008. All amounts are stated in U.S. dollar
equivalents.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Position as of June 28, 2008
|
|
|
|
Principal Amount by Expected Maturity
|
|
|
|
Average Interest Rate
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
U.S. $ Denominated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt
|
|
$
|
4,437
|
|
|
$
|
3,366
|
|
|
$
|
2,318
|
|
|
$
|
201,205
|
|
|
$
|
251,055
|
|
|
$
|
1,478,309
|
|
|
$
|
1,940,690
|
|
|
$
|
1,889,602
|
|
Average Interest Rate
|
|
|
3.7
|
%
|
|
|
3.8
|
%
|
|
|
4.2
|
%
|
|
|
6.1
|
%
|
|
|
4.3
|
%
|
|
|
5.5
|
%
|
|
|
5.4
|
%
|
|
|
|
|
Floating Rate Debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
Average Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.2
|
%
|
|
|
2.2
|
%
|
|
|
|
|
Canadian $ Denominated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt
|
|
$
|
459
|
|
|
$
|
506
|
|
|
$
|
637
|
|
|
$
|
744
|
|
|
$
|
818
|
|
|
$
|
21,477
|
|
|
$
|
24,641
|
|
|
$
|
23,992
|
|
Average Interest Rate
|
|
|
9.8
|
%
|
|
|
9.8
|
%
|
|
|
9.8
|
%
|
|
|
9.8
|
%
|
|
|
9.8
|
%
|
|
|
9.8
|
%
|
|
|
9.8
|
%
|
|
|
|
|
Floating Rate Debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Average Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2007
As of June 30, 2007, we had outstanding $531,826,000 of
commercial paper at variable rates of interest with maturities
through September 24, 2007. Excluding commercial paper
issuances, our long-term debt obligations as of June 30,
2007 were $1,229,969,000, of which approximately 99% were at
fixed rates of interest. We had no interest rate swaps
outstanding as of June 30, 2007.
28
In the following table as of June 30, 2007, commercial
paper issuances are reflected as floating rate debt and both the
U.S. and Canadian commercial paper issuances outstanding
are classified as long-term based on the maturity date of our
revolving loan agreement which supports our U.S. and
Canadian commercial paper programs and our intent to continue to
refinance this facility on a long-term basis.
The following table presents our interest rate position as of
June 30, 2007. All amounts are stated in U.S. dollar
equivalents.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Position as of June 30, 2007
|
|
|
|
Principal Amount by Expected Maturity
|
|
|
|
Average Interest Rate
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
U.S. $ Denominated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt
|
|
$
|
3,149
|
|
|
$
|
3,525
|
|
|
$
|
976
|
|
|
$
|
679
|
|
|
$
|
200,641
|
|
|
$
|
982,214
|
|
|
$
|
1,191,184
|
|
|
$
|
1,124,343
|
|
Average Interest Rate
|
|
|
5.1
|
%
|
|
|
5.9
|
%
|
|
|
2.1
|
%
|
|
|
1.5
|
%
|
|
|
6.1
|
%
|
|
|
5.6
|
%
|
|
|
5.7
|
%
|
|
|
|
|
Floating Rate Debt
|
|
$
|
18,900
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
487,727
|
|
|
$
|
15,000
|
|
|
$
|
521,627
|
|
|
$
|
521,627
|
|
Average Interest Rate
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.3
|
%
|
|
|
4.4
|
%
|
|
|
5.3
|
%
|
|
|
|
|
Canadian $ Denominated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt
|
|
$
|
419
|
|
|
$
|
434
|
|
|
$
|
478
|
|
|
$
|
602
|
|
|
$
|
704
|
|
|
$
|
21,148
|
|
|
$
|
23,785
|
|
|
$
|
22,450
|
|
Average Interest Rate
|
|
|
9.5
|
%
|
|
|
9.8
|
%
|
|
|
9.8
|
%
|
|
|
9.8
|
%
|
|
|
9.8
|
%
|
|
|
9.8
|
%
|
|
|
9.8
|
%
|
|
|
|
|
Floating Rate Debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
44,099
|
|
|
$
|
|
|
|
$
|
44,099
|
|
|
$
|
44,099
|
|
Average Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.4
|
%
|
|
|
|
|
|
|
4.4
|
%
|
|
|
|
|
Foreign
Currency Exchange Rate Risk
We have Canadian subsidiaries, all of which use the Canadian
dollar as their functional currency with the exception of a
financing subsidiary. To the extent that business transactions
are not denominated in Canadian dollars, we are exposed to
foreign currency exchange rate risk. We will also incur gains
and losses within shareholders equity due to translation
of the financial statements from Canadian dollars to
U.S. dollars. Our Canadian financing subsidiary has notes
denominated in U.S. dollars, which has the potential to
create taxable income in Canada when the 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
2008 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. We do not
routinely enter into material agreements to hedge foreign
currency risks.
Fuel
Price Risk
The price and availability of diesel fuel fluctuates due to
changes in production, seasonality and other market factors
generally outside of our control. Increased fuel costs may have
a negative impact on our results of operations in three areas.
First, the high cost of fuel can negatively impact consumer
confidence and discretionary spending and thus reduce the
frequency and amount spent by consumers for food prepared away
from home. Second, the high cost of fuel can increase the price
we pay for product purchases and we may not be able to pass
these costs fully to our customers. Third, increased fuel costs
impact the costs we incur to deliver product to our customers.
During fiscal 2008, 2007 and 2006, fuel costs related to
outbound deliveries represented approximately 0.6%, 0.6% and
0.5% of sales, respectively. Fuel costs, excluding any amounts
recovered through fuel surcharges, incurred by SYSCO increased
by approximately $34,023,000 in fiscal 2008 over fiscal 2007 and
$21,225,000 in fiscal 2007 over fiscal 2006.
From time to time, we will enter into forward purchase
commitments for a portion of our projected monthly diesel fuel
requirements. As of June 28, 2008, we had no outstanding
forward diesel fuel purchase commitments. In July and August
2008, we entered into forward diesel fuel purchase commitments
totaling approximately $195,000,000 through July 2009, which
will lock in the price on approximately 50% of our fuel
purchases through the first 26 weeks of fiscal 2009 and
approximately 70% of our fuel purchases needs for the last
26 weeks of fiscal 2009.
If fuel prices continue at current levels, fuel costs in the
first 26 weeks of fiscal 2009, exclusive of any amounts
recovered through fuel surcharges, are expected to increase by
approximately $55,000,000 to $65,000,000 as compared to the
first 26 weeks of fiscal 2008. Our estimate is based upon
the prevailing market prices for diesel mid-August 2008, the
cost committed to in our forward fuel purchase agreements
currently in place 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 or
favorable change in diesel prices from the market price used in
our estimates above would change the range of potential increase
to $50,000,000 to $70,000,000.
29
|
|
Item 8.
|
Financial
Statements and Supplementary
Data
|
SYSCO
CORPORATION AND SUBSIDIARIES
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
Consolidated Financial Statements:
|
|
|
|
|
|
|
|
31
|
|
|
|
|
32
|
|
|
|
|
33
|
|
|
|
|
34
|
|
|
|
|
35
|
|
|
|
|
36
|
|
|
|
|
37
|
|
|
|
|
38
|
|
All schedules are omitted because they are not applicable or the
information is set forth in the consolidated financial
statements or notes thereto.
30
REPORT
OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
The management of SYSCO Corporation (SYSCO) is
responsible for establishing and maintaining adequate internal
control over financial reporting for the company. SYSCOs
internal control system is designed to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation and fair presentation of published financial
statements. All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and
presentation.
SYSCOs management assessed the effectiveness of
SYSCOs internal control over financial reporting as of
June 28, 2008. In making this assessment, it used the
criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission in Internal Control
Integrated Framework. Based on this assessment, management
concluded that, as of June 28, 2008, SYSCOs internal
control over financial reporting was effective based on those
criteria.
Ernst & Young LLP has issued an audit report on the
effectiveness of SYSCOs internal control over financial
reporting as of June 28, 2008.
31
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
To the Board of Directors and Shareholders
SYSCO Corporation
We have audited SYSCO Corporation (a Delaware Corporation) and
its subsidiaries (the Company) internal control over
financial reporting as of June 28, 2008, based on criteria
established in Internal ControlIntegrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). SYSCO Corporations
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Report of Management on Internal
Control Over Financial Reporting. Our responsibility is to
express an opinion on the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, SYSCO Corporation and its subsidiaries
maintained, in all material respects, effective internal control
over financial reporting as of June 28, 2008, based on the
COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets as of June 28, 2008 and
June 30, 2007 and the related consolidated results of
operations, shareholders equity and cash flows for each of
the three years in the period ended June 28, 2008 of SYSCO
Corporation and its subsidiaries and our report dated
August 26, 2008 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Houston, Texas
August 26, 2008
32
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors and Shareholders
SYSCO Corporation
We have audited the accompanying consolidated balance sheets of
SYSCO Corporation (a Delaware Corporation) and subsidiaries (the
Company) as of June 28, 2008 and June 30,
2007, and the related consolidated results of operations,
shareholders equity, and cash flows for each of the three
years in the period ended June 28, 2008. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of the Company at June 28, 2008 and
June 30, 2007, and the consolidated results of their
operations and their cash flows for each of the three years in
the period ended June 28, 2008, in conformity with
U.S. generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial
statements, the Company adopted the recognition and disclosure
provisions, effective June 30, 2007, and the change in
measurement date provision, effective July 1, 2007, of
Statement of Financial Accounting Standard (SFAS) No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106, and 132(R). Also,
discussed in Note 2 to the consolidated financial
statements, effective July 1, 2007, SYSCO Corporation
adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an Interpretation of
FASB Statement No. 109 (FIN 48), which clarifies
the accounting for uncertainty in income taxes recognized in
accordance with SFAS No. 109, Accounting for
Income Taxes (SFAS 109).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of SYSCO Corporation and subsidiaries internal
control over financial reporting as of June 28, 2008, 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 26, 2008
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Houston, Texas
August 26, 2008
33
SYSCO
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 28, 2008
|
|
|
June 30, 2007
|
|
|
|
(In thousands except for
|
|
|
|
share data)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
551,552
|
|
|
$
|
207,872
|
|
Accounts and notes receivable, less allowances of $31,730 and
$31,841
|
|
|
2,723,189
|
|
|
|
2,610,885
|
|
Inventories
|
|
|
1,836,478
|
|
|
|
1,714,187
|
|
Prepaid expenses and other current assets
|
|
|
63,814
|
|
|
|
123,284
|
|
Prepaid income taxes
|
|
|
|
|
|
|
19,318
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
5,175,033
|
|
|
|
4,675,546
|
|
Plant and equipment at cost, less depreciation
|
|
|
2,889,790
|
|
|
|
2,721,233
|
|
Other assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,413,224
|
|
|
|
1,355,313
|
|
Intangibles, less amortization
|
|
|
87,528
|
|
|
|
91,366
|
|
Restricted cash
|
|
|
92,587
|
|
|
|
101,929
|
|
Prepaid pension cost
|
|
|
215,159
|
|
|
|
352,390
|
|
Other
|
|
|
208,972
|
|
|
|
221,154
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
2,017,470
|
|
|
|
2,122,152
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,082,293
|
|
|
$
|
9,518,931
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
|
|
|
$
|
18,900
|
|
Accounts payable
|
|
|
2,048,759
|
|
|
|
1,981,190
|
|
Accrued expenses
|
|
|
917,892
|
|
|
|
922,582
|
|
Accrued income taxes
|
|
|
11,665
|
|
|
|
|
|
Deferred taxes
|
|
|
516,131
|
|
|
|
488,849
|
|
Current maturities of long-term debt
|
|
|
4,896
|
|
|
|
3,568
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,499,343
|
|
|
|
3,415,089
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,975,435
|
|
|
|
1,758,227
|
|
Deferred taxes
|
|
|
540,330
|
|
|
|
626,695
|
|
Other long-term liabilities
|
|
|
658,199
|
|
|
|
440,520
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
|
3,173,964
|
|
|
|
2,825,442
|
|
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
|
|
|
712,208
|
|
|
|
637,154
|
|
Retained earnings
|
|
|
6,041,429
|
|
|
|
5,544,078
|
|
Accumulated other comprehensive loss
|
|
|
(68,768
|
)
|
|
|
(4,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
7,450,044
|
|
|
|
6,942,346
|
|
Less cost of treasury stock 163,942,358 and
153,334,523 shares
|
|
|
4,041,058
|
|
|
|
3,663,946
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
3,408,986
|
|
|
|
3,278,400
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
10,082,293
|
|
|
$
|
9,518,931
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
34
SYSCO
CONSOLIDATED
RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 28, 2008
|
|
|
June 30, 2007
|
|
|
July 1, 2006
|
|
|
|
(In thousands except for share data)
|
|
|
Sales
|
|
$
|
37,522,111
|
|
|
$
|
35,042,075
|
|
|
$
|
32,628,438
|
|
Cost of sales
|
|
|
30,327,254
|
|
|
|
28,284,603
|
|
|
|
26,337,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
7,194,857
|
|
|
|
6,757,472
|
|
|
|
6,291,331
|
|
Operating expenses
|
|
|
5,314,908
|
|
|
|
5,048,990
|
|
|
|
4,796,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,879,949
|
|
|
|
1,708,482
|
|
|
|
1,495,030
|
|
Interest expense
|
|
|
111,541
|
|
|
|
105,002
|
|
|
|
109,100
|
|
Other income, net
|
|
|
(22,930
|
)
|
|
|
(17,735
|
)
|
|
|
(9,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and cumulative effect of accounting
change
|
|
|
1,791,338
|
|
|
|
1,621,215
|
|
|
|
1,394,946
|
|
Income taxes
|
|
|
685,187
|
|
|
|
620,139
|
|
|
|
548,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change
|
|
|
1,106,151
|
|
|
|
1,001,076
|
|
|
|
846,040
|
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
9,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
1,106,151
|
|
|
$
|
1,001,076
|
|
|
$
|
855,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.83
|
|
|
$
|
1.62
|
|
|
$
|
1.36
|
|
Diluted earnings per share
|
|
|
1.81
|
|
|
|
1.60
|
|
|
|
1.35
|
|
Net earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.83
|
|
|
|
1.62
|
|
|
|
1.38
|
|
Diluted earnings per share
|
|
|
1.81
|
|
|
|
1.60
|
|
|
|
1.36
|
|
See Notes to Consolidated Financial Statements
35
SYSCO
CONSOLIDATED
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Total
|
|
|
|
(In thousands except for share data)
|
|
|
Balance as of July 2, 2005
|
|
|
765,174,900
|
|
|
$
|
765,175
|
|
|
$
|
389,053
|
|
|
$
|
4,552,379
|
|
|
$
|
(13,677
|
)
|
|
|
136,607,370
|
|
|
$
|
2,934,091
|
|
|
$
|
2,758,839
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
855,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
855,325
|
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,180
|
|
|
|
|
|
|
|
|
|
|
|
43,180
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,718
|
|
|
|
|
|
|
|
|
|
|
|
47,718
|
|
Change in fair value of interest rate swap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,064
|
|
|
|
|
|
|
|
|
|
|
|
7,064
|
|
Amortization of cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
953,620
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(408,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(408,264
|
)
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,104,800
|
|
|
|
530,563
|
|
|
|
(530,563
|
)
|
Treasury stock issued for acquisitions
|
|
|
|
|
|
|
|
|
|
|
1,750
|
|
|
|
|
|
|
|
|
|
|
|
(126,027
|
)
|
|
|
(1,305
|
)
|
|
|
3,055
|
|
Share-based compensation awards
|
|
|
|
|
|
|
|
|
|
|
134,881
|
|
|
|
|
|
|
|
|
|
|
|
(6,306,823
|
)
|
|
|
(140,716
|
)
|
|
|
275,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 1, 2006
|
|
|
765,174,900
|
|
|
$
|
765,175
|
|
|
$
|
525,684
|
|
|
$
|
4,999,440
|
|
|
$
|
84,618
|
|
|
|
146,279,320
|
|
|
$
|
3,322,633
|
|
|
$
|
3,052,284
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,001,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,001,076
|
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,469
|
|
|
|
|
|
|
|
|
|
|
|
3,469
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,052
|
|
|
|
|
|
|
|
|
|
|
|
25,052
|
|
Amortization of cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
428
|
|
|
|
|
|
|
|
|
|
|
|
428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,030,025
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(456,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(456,438
|
)
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,501,200
|
|
|
|
559,788
|
|
|
|
(559,788
|
)
|
Share-based compensation awards
|
|
|
|
|
|
|
|
|
|
|
111,470
|
|
|
|
|
|
|
|
|
|
|
|
(9,445,997
|
)
|
|
|
(218,475
|
)
|
|
|
329,945
|
|
Adoption of SFAS 158 recognition provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117,628
|
)
|
|
|
|
|
|
|
|
|
|
|
(117,628
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2007
|
|
|
765,174,900
|
|
|
$
|
765,175
|
|
|
$
|
637,154
|
|
|
$
|
5,544,078
|
|
|
$
|
(4,061
|
)
|
|
|
153,334,523
|
|
|
$
|
3,663,946
|
|
|
$
|
3,278,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,106,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,106,151
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,514
|
|
|
|
|
|
|
|
|
|
|
|
30,514
|
|
Amortization of cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
427
|
|
|
|
|
|
|
|
|
|
|
|
427
|
|
Amortization of prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,777
|
|
|
|
|
|
|
|
|
|
|
|
3,777
|
|
Amortization of net actuarial losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,003
|
|
|
|
|
|
|
|
|
|
|
|
2,003
|
|
Amortization of transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
Pension funded status adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(124,301
|
)
|
|
|
|
|
|
|
|
|
|
|
(124,301
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,018,664
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(513,593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(513,593
|
)
|
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,499,900
|
|
|
|
520,255
|
|
|
|
(520,255
|
)
|
Share-based compensation awards
|
|
|
|
|
|
|
|
|
|
|
75,054
|
|
|
|
|
|
|
|
|
|
|
|
(5,892,065
|
)
|
|
|
(143,143
|
)
|
|
|
218,197
|
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(91,635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(91,635
|
)
|
Adoption of SFAS 158 measurement date provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,572
|
)
|
|
|
22,780
|
|
|
|
|
|
|
|
|
|
|
|
19,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 28, 2008
|
|
|
765,174,900
|
|
|
$
|
765,175
|
|
|
$
|
712,208
|
|
|
$
|
6,041,429
|
|
|
$
|
(68,768
|
)
|
|
|
163,942,358
|
|
|
$
|
4,041,058
|
|
|
$
|
3,408,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
36
SYSCO
CONSOLIDATED
CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 28, 2008
|
|
|
June 30, 2007
|
|
|
July 1, 2006
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
1,106,151
|
|
|
$
|
1,001,076
|
|
|
$
|
855,325
|
|
Adjustments to reconcile net earnings to cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting change, net of tax
|
|
|
|
|
|
|
|
|
|
|
(9,285
|
)
|
Share-based compensation expense
|
|
|
80,650
|
|
|
|
97,985
|
|
|
|
126,837
|
|
Depreciation and amortization
|
|
|
372,529
|
|
|
|
362,559
|
|
|
|
345,062
|
|
Deferred tax provision
|
|
|
643,480
|
|
|
|
545,971
|
|
|
|
482,111
|
|
Provision for losses on receivables
|
|
|
32,184
|
|
|
|
28,156
|
|
|
|
19,841
|
|
(Gain) loss on sale of assets
|
|
|
(2,747
|
)
|
|
|
(6,279
|
)
|
|
|
847
|
|
Additional investment in certain assets and liabilities, net of
effect of businesses acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) in receivables
|
|
|
(128,017
|
)
|
|
|
(134,153
|
)
|
|
|
(162,586
|
)
|
(Increase) in inventories
|
|
|
(110,925
|
)
|
|
|
(95,932
|
)
|
|
|
(119,392
|
)
|
Decrease (increase) in prepaid expenses and other current assets
|
|
|
59,896
|
|
|
|
(62,773
|
)
|
|
|
1,741
|
|
Increase in accounts payable
|
|
|
54,451
|
|
|
|
85,422
|
|
|
|
49,775
|
|
(Decrease) increase in accrued expenses
|
|
|
(22,721
|
)
|
|
|
132,936
|
|
|
|
29,161
|
|
(Decrease) in accrued income taxes
|
|
|
(509,783
|
)
|
|
|
(491,993
|
)
|
|
|
(545,634
|
)
|
Decrease (increase) in other assets
|
|
|
11,926
|
|
|
|
(36,426
|
)
|
|
|
(17,937
|
)
|
Increase (decrease) in other long-term liabilities and prepaid
pension cost, net
|
|
|
13,459
|
|
|
|
(14,817
|
)
|
|
|
75,382
|
|
Excess tax benefits from share-based compensation arrangements
|
|
|
(4,404
|
)
|
|
|
(8,810
|
)
|
|
|
(6,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,596,129
|
|
|
|
1,402,922
|
|
|
|
1,124,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to plant and equipment
|
|
|
(515,963
|
)
|
|
|
(603,242
|
)
|
|
|
(513,934
|
)
|
Proceeds from sales of plant and equipment
|
|
|
13,320
|
|
|
|
16,008
|
|
|
|
21,037
|
|
Acquisition of businesses, net of cash acquired
|
|
|
(55,259
|
)
|
|
|
(59,322
|
)
|
|
|
(114,378
|
)
|
Decrease (increase) in restricted cash
|
|
|
2,342
|
|
|
|
(2,155
|
)
|
|
|
(2,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(555,560
|
)
|
|
|
(648,711
|
)
|
|
|
(609,518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank and commercial paper borrowings (repayments), net
|
|
|
(550,726
|
)
|
|
|
121,858
|
|
|
|
240,017
|
|
Other debt borrowings
|
|
|
757,972
|
|
|
|
5,290
|
|
|
|
500,987
|
|
Other debt repayments
|
|
|
(7,628
|
)
|
|
|
(109,656
|
)
|
|
|
(413,383
|
)
|
Debt issuance costs
|
|
|
(4,192
|
)
|
|
|
(7
|
)
|
|
|
(3,998
|
)
|
Cash (paid for) received from termination of interest rate swap
|
|
|
|
|
|
|
|
|
|
|
(21,196
|
)
|
Common stock reissued from treasury
|
|
|
128,238
|
|
|
|
221,736
|
|
|
|
128,055
|
|
Treasury stock purchases
|
|
|
(529,179
|
)
|
|
|
(550,865
|
)
|
|
|
(544,131
|
)
|
Dividends paid
|
|
|
(497,467
|
)
|
|
|
(445,416
|
)
|
|
|
(397,537
|
)
|
Excess tax benefits from share-based compensation arrangements
|
|
|
4,404
|
|
|
|
8,810
|
|
|
|
6,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(698,578
|
)
|
|
|
(748,250
|
)
|
|
|
(504,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
1,689
|
|
|
|
14
|
|
|
|
(325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
343,680
|
|
|
|
5,975
|
|
|
|
10,219
|
|
Cash at beginning of year
|
|
|
207,872
|
|
|
|
201,897
|
|
|
|
191,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
551,552
|
|
|
$
|
207,872
|
|
|
$
|
201,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
98,330
|
|
|
$
|
107,109
|
|
|
$
|
107,242
|
|
Income taxes
|
|
|
530,169
|
|
|
|
563,968
|
|
|
|
619,442
|
|
See Notes to Consolidated Financial Statements
37
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
SUMMARY
OF ACCOUNTING POLICIES
|
Business
and Consolidation
Sysco Corporation, (SYSCO or the company), acting through its
subsidiaries and divisions, is engaged in the marketing and
distribution of a wide range of food and related products
primarily to the foodservice or
food-prepared-away-from-home industry. These
services are performed for over 400,000 customers from 180
distribution facilities located throughout the United States and
Canada.
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.
Accounts
Receivable
Accounts receivable consist primarily of trade receivables from
customers and receivables from suppliers for marketing or
incentive programs. SYSCO determines the past due status of
trade receivables based on contractual terms with each customer.
SYSCO evaluates the collectability of accounts receivable and
determines the appropriate reserve for doubtful accounts based
on a combination of factors. The company utilizes specific
criteria to determine uncollectible receivables to be written
off including whether a customer has filed for or been placed in
bankruptcy, has had accounts referred to outside parties for
collection or has had accounts past due over specified periods.
Allowances are recorded for all other receivables based on an
analysis of historical trends of write-offs and recoveries. In
addition, in circumstances where the company is aware of a
specific customers inability to meet its financial
obligation to SYSCO, a specific allowance for doubtful accounts
is recorded to reduce the receivable to the net amount
reasonably expected to be collected. In addition, allowances are
recorded for all other receivables based on an analysis of
historical trends of write-offs and recoveries.
Inventories
Inventories consisting primarily of finished goods include food
and related products and lodging products held for resale and
are valued at the lower of cost
(first-in,
first-out method) or market. Elements of costs include the
purchase price of the product and freight charges to deliver the
product to the companys warehouses and are net of certain
cash or non-cash consideration received from vendors (see
Vendor Consideration).
Plant
and Equipment
Capital additions, improvements and major replacements are
classified as plant and equipment and are carried at cost.
Depreciation is recorded using the straight-line method, which
reduces the book value of each asset in equal amounts over its
estimated useful life, and is included within operating expenses
in the consolidated results of operations. Maintenance, repairs
and minor replacements are charged to earnings when they are
incurred. Upon the disposition of an asset, its accumulated
depreciation is deducted from the original cost, and any gain or
loss is reflected in current earnings.
Applicable interest charges incurred during the construction of
new facilities and development of software for internal use are
capitalized as one of the elements of cost and are amortized
over the assets estimated useful lives. Interest
capitalized for the past three years was $6,805,000 in 2008,
$3,955,000 in 2007 and $2,853,000 in 2006.
Long-Lived
Assets
Management reviews long-lived assets, including finite-lived
intangibles, for indicators of impairment whenever events or
changes in circumstances indicate that the carrying value may
not be recoverable. Cash flows expected to be generated by the
related assets are estimated over the assets useful life
based on updated projections. If the evaluation indicates that
the carrying amount of the asset may not be recoverable, the
potential impairment is measured based on a projected discounted
cash flow model.
Goodwill
and Intangibles
Goodwill and intangibles represent the excess of cost over the
fair value of tangible net assets acquired. Goodwill and
intangibles with indefinite lives are not amortized. Intangibles
with definite lives are amortized on a straight-line basis over
their useful lives, which generally range from three to ten
years.
Goodwill is assigned to the reporting units that are expected to
benefit from the synergies of the 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
38
impairment of carrying value, by determining whether the fair
values of the applicable reporting units exceed their carrying
values. The reporting units used to assess goodwill impairment
are the companys six operating segments as described in
Note 19, Business Segment Information. The components
within each of the six operating segments have similar economic
characteristics and therefore are aggregated into six reporting
units. The evaluation of fair value requires the use of
projections, estimates and assumptions as to the future
performance of the operations in performing a discounted cash
flow analysis, as well as assumptions regarding sales and
earnings multiples that would be applied in comparable
acquisitions.
Derivative
Financial Instruments
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133),
requires the recognition of all derivatives as assets or
liabilities within the consolidated balance sheets at fair
value. Gains or losses on derivative financial instruments
designated as fair value hedges have been 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 have been recorded as a separate component
of shareholders equity at their settlement, whereby gains
or losses are reclassified to the Consolidated Results of
Operations in conjunction with the recognition of the underlying
hedged item.
In the normal course of business, SYSCO enters into forward
purchase agreements for the procurement of fuel, electricity and
product commodities related to SYSCOs business. These
agreements meet the definition of a derivative. However, the
company elected to use the normal purchase and sale exemption
available under SFAS 133 (as amended and interpreted);
therefore, these agreements are not recorded at fair value.
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. Beginning in the fourth quarter of
fiscal 2006, the company recorded the net effect of such
transactions in the consolidated results of operations within
sales as a result of a new accounting standard, EITF Issue
No. 04-13,
Accounting for Purchases and Sales of Inventory With the
Same Counterparty,
(EITF 04-13).
See further discussion in Note 2, Changes in Accounting.
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 where 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 realized. In certain of these
latter instances, the vendor consideration represents a
reimbursement of a specific incremental identifiable cost
incurred by SYSCO. In these cases, SYSCO classifies the
consideration as a reduction of those costs, with any excess
funds classified as a reduction of cost of sales and recognizes
these in the period in which the costs are incurred and related
services performed.
Shipping
and Handling Costs
Shipping and handling costs include costs associated with the
selection of products and delivery to customers. Included in
operating expenses are shipping and handling costs of
approximately $2,155,794,000 in fiscal 2008, $1,977,516,000 in
fiscal 2007, and $1,857,093,000 in fiscal 2006.
Insurance
Program
SYSCO maintains a self-insurance program covering portions of
workers compensation, general and vehicle liability costs.
The amounts in excess of the self-insured levels are fully
insured by third party insurers. The company also maintains a
fully self-insured group medical program. Liabilities associated
with these risks are estimated in part by considering historical
claims experience, medical cost trends, demographic factors,
severity factors and other actuarial assumptions.
39
Share-Based
Compensation
SYSCO recognizes expense for its share-based compensation based
on the fair value of the awards that are granted. The fair value
of the stock options is estimated at the date of grant using the
Black-Scholes option pricing model. Option pricing methods
require the input of highly subjective assumptions, including
the expected stock price volatility. Measured compensation cost
is recognized ratably over the vesting period of the related
share-based compensation award. Cash flows resulting from tax
deductions in excess of the compensation cost recognized for
those options (excess tax benefits) are classified as financing
cash flows on the consolidated cash flows statements.
Acquisitions
Acquisitions of businesses are accounted for using the purchase
method of accounting, and the financial statements include the
results of the acquired operations from the respective dates
they joined SYSCO.
The purchase price of the acquired entities is allocated to the
net assets acquired and liabilities assumed based on the
estimated fair value at the dates of acquisition, with any
excess of cost over the fair value of net assets acquired,
including intangibles, recognized as goodwill. The balances
included in the consolidated balance sheets related to recent
acquisitions are based upon preliminary information and are
subject to change when final asset and liability valuations are
obtained. Material changes to the preliminary allocations are
not anticipated by management.
FIN 48
Effective July 1, 2007, SYSCO adopted FASB Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes an Interpretation of FASB Statement
No. 109 (FIN 48), which clarifies the accounting
for uncertainty in income taxes recognized in accordance with
SFAS No. 109, Accounting for Income Taxes
(SFAS 109). FIN 48 clarifies the application of
SFAS 109 by defining criteria that an individual tax
position must meet for any part of the benefit of that position
to be recognized in the financial statements. Additionally,
FIN 48 provides guidance on the measurement, derecognition,
classification and disclosure of tax positions, along with
accounting for the related interest and penalties. The impact of
adopting this standard is discussed in Note 16, Income
Taxes.
Pension
Measurement Date Change and SFAS 158
Adoption
Beginning in fiscal 2006, SYSCO changed the measurement date for
the company-sponsored pension and other postretirement benefit
plans from fiscal year-end to May 31st, which represented a
change in accounting. Management believes this accounting change
was preferable, as the one-month acceleration of the measurement
date allowed additional time for management to evaluate and
report the actuarial pension measurements in the year-end
financial statements and disclosures within the accelerated
filing deadlines of the Securities and Exchange Commission. The
cumulative effect of this change in accounting resulted in an
increase to earnings in the first quarter of fiscal 2006 of
$9,285,000, net of tax. The impact to pro forma net earnings and
earnings per share adjusted for the effect of retroactive
application of the change in measurement date on net
company-sponsored pension costs for fiscal 2005 was not material.
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106, and 132(R)
(SFAS 158). SFAS 158 has two major provisions. The
recognition and disclosure provision requires an employer to
recognize a plans funded status in its statement of
financial position and recognize the changes in a defined
benefit postretirement plans funded status in
comprehensive income in the year in which the changes occur. The
measurement date provision requires an employer to measure a
plans assets and obligations as of the end of the
employers fiscal year. SYSCO adopted SFAS 158s
recognition and disclosure requirements as of June 30,
2007. In addition, SYSCO elected to early adopt the measurement
date provision in order to adopt both provisions of this
accounting standard at the same time. See discussion of the
impact of adoption in Note 12, Employee Benefit Plans.
EITF
04-13
Adoption
In September 2005, the Emerging Issues Task Force reached a
consensus on
EITF 04-13
which requires that two or more inventory transactions with the
same counterparty (as defined) should be viewed as a single
nonmonetary transaction if the transactions were entered into in
contemplation of one another. Exchanges of inventory between
entities in the same line of business should be accounted for at
fair value or recorded at carrying amounts, depending on the
classification of such inventory. This guidance was effective
for the fourth quarter of fiscal 2006 for SYSCO. SYSCO has
certain transactions where finished goods are purchased from a
customer or sourced by that customer for warehousing and
distribution and resold to the same customer. These transactions
are evidenced by title transfer and are separately invoiced.
Historically, the company has recorded such transactions in the
consolidated results of operations within cost of sales for the
purchase amount and within sales for the sales amount. In fiscal
2008 and 2007, the company recorded the net effect of such
transactions in the consolidated results of operations within
sales by reducing sales and cost of sales in the amount of
$338,907,000 and $334,002,000, respectively. In the fourth
quarter of fiscal 2006, the company recorded the net effect of
such transactions in the consolidated results of operations
within sales by reducing sales and cost of sales in the amount
of $99,803,000. The amount included in the consolidated results
of operations within cost of sales for the 39 week period
ended April 1, 2006 that were recorded on a gross basis
prior to the adoption of
EITF 04-13
was $279,746,000. This amount was not restated when the new
standard was adopted because only prospective treatment was
allowed.
40
SFAS 123(R)
Adoption
In December 2004, the FASB issued SFAS No. 123(R),
Share-Based Payment, (SFAS 123(R)), which is a
revision of SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS 123). SFAS 123(R)
supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees (APB Opinion 25), and amends
SFAS No. 95, Statement of Cash Flows. In
fiscal 2006, SYSCO adopted the provisions of SFAS 123(R)
utilizing the modified-prospective transition method under which
prior period results have not been restated. See discussion of
the impact of adoption in Note 15, Share-Based Compensation.
|
|
3.
|
NEW
ACCOUNTING STANDARDS
|
SFAS 159
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Liabilities (SFAS 159). SFAS 159 permits
entities to choose to measure many financial instruments and
certain other items at fair value that are not currently
required to be measured at fair value. SFAS 159 also
establishes presentation and disclosure requirements designed to
facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and
liabilities. SFAS 159 is effective as of the beginning of
an entitys first fiscal year that begins after
November 15, 2007. The company decided not to adopt
SFAS 159 for its existing financial assets and liabilities
at the date of option. Thus, there will be no one-time impact
from adoption of this standard to its consolidated financial
statements.
SFAS 141(R)
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (SFAS 141(R)), which
establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed and any
noncontrolling interest in a business combination. This
statement also establishes recognition and measurement
principles for the goodwill acquired in a business combination
and disclosure requirements to enable financial statement users
to evaluate the nature and financial effects of the business
combination. SYSCO will apply this statement primarily on a
prospective basis for business combinations beginning in fiscal
2010. Earlier application of the standard is prohibited.
FSP
157-2
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157), which
establishes a common definition for fair value under generally
accepted accounting principles, establishes a framework for
measuring fair value and expands disclosure requirements about
such fair value measurements. In February 2008, the FASB issued
FASB Staff Position
157-2,
Effective Date of FASB Statement No. 157
(FSP 157-2),
which partially defers the effective date of
SFAS No. 157 for one year for non-financial assets and
liabilities that are recognized or disclosed at fair value in
the financial statements on a non-recurring basis. Consequently,
SFAS 157 will be effective for SYSCO in fiscal 2009 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. As a result of the
deferral, SFAS 157 will be effective in fiscal 2010 for
non-recurring, non-financial assets and liabilities that are
recognized or disclosed at fair value. The adoption of
SFAS 157 in fiscal 2009 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 will not have a material impact on the
companys consolidated financial statements. The company is
continuing to evaluate the impact of adopting the provisions of
SFAS 157 in fiscal 2010 for non-recurring, non-financial
assets and liabilities that are recognized or disclosed at fair
value.
SFAS 161
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133
(SFAS 161). SFAS 161 requires enhanced disclosures
about an entitys derivative and hedging activities and
thereby improves the transparency of financial reporting. This
Statement will be effective for SYSCOs financial
statements beginning with the third quarter of fiscal 2009. The
company is currently evaluating the impact the adoption of
SFAS 161 may have on its financial statement disclosures.
|
|
4.
|
ALLOWANCE
FOR DOUBTFUL ACCOUNTS
|
A summary of the activity in the allowance for doubtful accounts
appears below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Balance at beginning of period
|
|
$
|
31,841,000
|
|
|
$
|
29,100,000
|
|
|
$
|
29,604,000
|
|
Charged to costs and expenses
|
|
|
32,185,000
|
|
|
|
28,156,000
|
|
|
|
19,895,000
|
|
Allowance accounts resulting from acquisitions and other
adjustments
|
|
|
71,000
|
|
|
|
595,000
|
|
|
|
729,000
|
|
Customer accounts written off, net of recoveries
|
|
|
(32,367,000
|
)
|
|
|
(26,010,000
|
)
|
|
|
(21,128,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
31,730,000
|
|
|
$
|
31,841,000
|
|
|
$
|
29,100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
A summary of plant and equipment, including the related
accumulated depreciation, appears below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Useful
|
|
|
|
June 28, 2008
|
|
|
June 30, 2007
|
|
|
Lives
|
|
|
Plant and equipment, at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
270,157,000
|
|
|
$
|
239,206,000
|
|
|
|
|
|
Buildings and improvements
|
|
|
2,652,091,000
|
|
|
|
2,428,184,000
|
|
|
|
10-40 years
|
|
Fleet, equipment and software
|
|
|
2,542,235,000
|
|
|
|
2,416,948,000
|
|
|
|
3-20 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,464,483,000
|
|
|
|
5,084,338,000
|
|
|
|
|
|
Accumulated depreciation
|
|
|
(2,574,693,000
|
)
|
|
|
(2,363,105,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net plant and equipment
|
|
$
|
2,889,790,000
|
|
|
$
|
2,721,233,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense, including capital leases, for the past
three years was $352,569,000 in 2008, $341,714,000 in 2007 and
$320,669,000 in 2006.
|
|
6.
|
GOODWILL
AND OTHER INTANGIBLES
|
The changes in the carrying amount of goodwill and the amount
allocated by reportable segment for the years presented are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadline
|
|
|
SYGMA
|
|
|
Other
|
|
|
Total
|
|
|
Carrying amount as of July 1, 2006
|
|
$
|
709,414,000
|
|
|
$
|
32,610,000
|
|
|
$
|
560,567,000
|
|
|
$
|
1,302,591,000
|
|
Goodwill acquired during year
|
|
|
13,017,000
|
|
|
|
|
|
|
|
29,168,000
|
|
|
|
42,185,000
|
|
Currency translation/Other
|
|
|
10,253,000
|
|
|
|
(1,000
|
)
|
|
|
285,000
|
|
|
|
10,537,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount as of June 30 2007
|
|
|
732,684,000
|
|
|
|
32,609,000
|
|
|
|
590,020,000
|
|
|
|
1,355,313,000
|
|
Goodwill acquired during year
|
|
|
11,537,000
|
|
|
|
|
|
|
|
33,861,000
|
|
|
|
45,398,000
|
|
Currency translation/Other
|
|
|
12,199,000
|
|
|
|
|
|
|
|
314,000
|
|
|
|
12,513,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount as of June 28, 2008
|
|
$
|
756,420,000
|
|
|
$
|
32,609,000
|
|
|
$
|
624,195,000
|
|
|
$
|
1,413,224,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents details of the companys other
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, 2008
|
|
|
June 30, 2007
|
|
|
|
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
123,605,000
|
|
|
$
|
43,756,000
|
|
|
$
|
79,849,000
|
|
|
$
|
114,844,000
|
|
|
$
|
31,721,000
|
|
|
$
|
83,123,000
|
|
Non-compete agreements
|
|
|
4,163,000
|
|
|
|
2,443,000
|
|
|
|
1,720,000
|
|
|
|
5,027,000
|
|
|
|
2,841,000
|
|
|
|
2,186,000
|
|
Trademarks
|
|
|
500,000
|
|
|
|
220,000
|
|
|
|
280,000
|
|
|
|
700,000
|
|
|
|
175,000
|
|
|
|
525,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortized intangible assets
|
|
|
128,268,000
|
|
|
|
46,419,000
|
|
|
|
81,849,000
|
|
|
|
120,571,000
|
|
|
|
34,737,000
|
|
|
|
85,834,000
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
5,679,000
|
|
|
|
|
|
|
|
5,679,000
|
|
|
|
5,532,000
|
|
|
|
|
|
|
|
5,532,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
133,947,000
|
|
|
$
|
46,419,000
|
|
|
$
|
87,528,000
|
|
|
$
|
126,103,000
|
|
|
$
|
34,737,000
|
|
|
$
|
91,366,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the past three years was $13,865,000 in
2008, $12,711,000 in 2007 and $10,773,000 in 2006. Amortization
expense for each year includes expense related to assets that
have been fully amortized and whose balances have been removed
in the schedule above in the period full amortization is
reached. The estimated future amortization expense for the next
five fiscal years on intangible assets outstanding as of
June 28, 2008 is shown below:
|
|
|
|
|
|
|
Amount
|
|
|
2009
|
|
$
|
14,138,000
|
|
2010
|
|
|
13,726,000
|
|
2011
|
|
|
13,227,000
|
|
2012
|
|
|
12,942,000
|
|
2013
|
|
|
10,410,000
|
|
42
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.
In addition, for certain acquisitions, SYSCO has placed funds
into escrow to be disbursed to the sellers in the event that
specified operating results are attained or contingencies are
resolved. During fiscal 2008, escrowed funds in the amount of
$7,000,000 were released to sellers of acquired businesses. In
addition, escrowed funds of $2,000,000 were released from escrow
related to an acquisition for which the contingent consideration
period expired without the additional consideration being earned.
A summary of restricted cash balances appears below:
|
|
|
|
|
|
|
|
|
|
|
June 28, 2008
|
|
|
June 30, 2007
|
|
|
Funds deposited in insurance trusts
|
|
$
|
92,587,000
|
|
|
$
|
92,929,000
|
|
Escrow funds related to acquisitions
|
|
|
|
|
|
|
9,000,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
92,587,000
|
|
|
$
|
101,929,000
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
DERIVATIVE
FINANCIAL INSTRUMENTS
|
SYSCO manages its debt portfolio by targeting an overall desired
position of fixed and floating rates and may employ interest
rate swaps from time to time to achieve this goal. The company
does not use derivative financial instruments for trading or
speculative purposes.
In March 2005, SYSCO entered into a forward-starting interest
rate swap with a notional amount of $350,000,000. In accordance
with SFAS No. 133, the company designated this
derivative as a cash flow hedge of the variability in the cash
outflows of interest payments on $350,000,000 of the September
2005 forecasted debt issuance due to changes in the benchmark
interest rate. In September 2005, in conjunction with the
issuance of the 5.375% senior notes, SYSCO settled the
$350,000,000 notional amount forward-starting interest rate
swap. Upon settlement, SYSCO paid cash of $21,196,000, which
represented the fair value of the swap agreement at the time of
settlement. This amount is being amortized as interest expense
over the
30-year
term of the debt, and the unamortized balance is reflected as a
loss, net of tax, in other comprehensive income (loss).
|
|
9.
|
SELF-INSURED
LIABILITIES
|
SYSCO maintains a self-insurance program covering portions of
workers compensation, general and vehicle liability costs.
The amounts in excess of the self-insured levels are fully
insured by third party insurers. The company also maintains a
fully self-insured group medical program. A summary of the
activity in self-insured liabilities appears below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Balance at beginning of period
|
|
$
|
125,844,000
|
|
|
$
|
115,557,000
|
|
|
$
|
105,593,000
|
|
Charged to costs and expenses
|
|
|
306,571,000
|
|
|
|
302,812,000
|
|
|
|
274,061,000
|
|
Payments
|
|
|
(314,690,000
|
)
|
|
|
(292,525,000
|
)
|
|
|
(264,097,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
117,725,000
|
|
|
$
|
125,844,000
|
|
|
$
|
115,557,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
DEBT
AND OTHER FINANCING ARRANGEMENTS
|
SYSCOs debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 28, 2008
|
|
|
June 30, 2007
|
|
|
Short-term borrowings, interest at 5.7% as of June 30, 2007
|
|
$
|
|
|
|
$
|
18,900,000
|
|
Commercial paper, interest averaging 5.2% as of June 30,
2007
|
|
|
|
|
|
|
531,826,000
|
|
Senior notes, interest at 6.1%, maturing in fiscal 2012
|
|
|
200,372,000
|
|
|
|
200,467,000
|
|
Senior notes, interest at 4.2%, maturing in fiscal 2013
|
|
|
249,619,000
|
|
|
|
|
|
Senior notes, interest at 4.6%, maturing in fiscal 2014
|
|
|
206,331,000
|
|
|
|
207,435,000
|
|
Senior notes, interest at 5.25%, maturing in fiscal 2018
|
|
|
496,683,000
|
|
|
|
|
|
Debentures, interest at 7.16%, maturing in fiscal 2027
|
|
|
50,000,000
|
|
|
|
50,000,000
|
|
Debentures, interest at 6.5%, maturing in fiscal 2029
|
|
|
224,522,000
|
|
|
|
224,498,000
|
|
Senior notes, interest at 5.375%, maturing in fiscal 2036
|
|
|
499,596,000
|
|
|
|
499,581,000
|
|
Industrial Revenue Bonds, mortgages and other debt, interest
averaging 6.2% as of June 28, 2008 and 7.1% as of
June 30, 2007, maturing at various dates to fiscal 2026
|
|
|
53,208,000
|
|
|
|
47,988,000
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,980,331,000
|
|
|
|
1,780,695,000
|
|
Less current maturities and short-term debt
|
|
|
(4,896,000
|
)
|
|
|
(22,468,000
|
)
|
|
|
|
|
|
|
|
|
|
Net long-term debt
|
|
$
|
1,975,435,000
|
|
|
$
|
1,758,227,000
|
|
|
|
|
|
|
|
|
|
|
The principal payments required to be made during the next five
fiscal years on debt outstanding as of June 28, 2008 are
shown below:
|
|
|
|
|
|
|
Amount
|
|
|
2009
|
|
$
|
4,896,000
|
|
2010
|
|
|
3,872,000
|
|
2011
|
|
|
2,955,000
|
|
2012
|
|
|
201,949,000
|
|
2013
|
|
|
251,873,000
|
|
43
Short-term
Borrowings
SYSCO has uncommitted bank lines of credit, which as of
June 28, 2008 provided for unsecured borrowings for working
capital of up to $145,000,000. Borrowings outstanding under
these lines of credit were zero and $18,900,000, as of
June 28, 2008 and June 30, 2007, respectively.
Commercial
Paper
SYSCO has a commercial paper program allowing the company to
issue short-term unsecured notes in an aggregate amount not to
exceed $1,300,000,000.
SYSCO and one of its subsidiaries, SYSCO International, Co.,
have a revolving credit facility supporting the companys
U.S. and Canadian commercial paper programs. The facility
in the amount of $1,000,000,000 terminates on November 4,
2012, subject to extension. Since this long-term facility
supports the companys commercial paper programs, the
$531,826,000 of outstanding commercial paper issuances as of
June 30, 2007 was classified as long-term debt. There were
no commercial paper issuances outstanding as of June 28,
2008.
This facility was originally entered into in November 2005 in
the amount of $500,000,000 and was increased to $750,000,000 in
March 2006. In September 2006, the termination date on the
facility was extended to November 4, 2011, in accordance
with the terms of the agreement. In September 2007, the amount
of the facility was increased to $1,000,000,000 and the
termination date on the facility was extended to
November 4, 2012. This facility replaced the previous
$450,000,000 (U.S. dollar) and $100,000,000 (Canadian
dollar) revolving credit agreements in the U.S. and Canada,
respectively, both of which were terminated in November 2005.
During fiscal 2008, 2007 and 2006, aggregate outstanding
commercial paper issuances and short-term bank borrowings ranged
from approximately zero to $1,113,241,000, $356,804,000 to
$755,180,000, and $126,846,000 to $774,530,000 respectively.
Fixed
Rate Debt
In July 2005, SYSCO repaid the 4.75% senior notes totaling
$200,000,000 at maturity also utilizing a combination of cash
flow from operations and commercial paper issuances.
In September 2005, SYSCO issued 5.375% senior notes
totaling $500,000,000 due on September 21, 2035, under its
April 2005 shelf registration. These notes, which were priced at
99.911% of par, 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 the early
redemption. Proceeds from the notes were utilized to retire
commercial paper issuances outstanding as of September 2005.
In September 2005, in conjunction with the issuance of the
5.375% senior notes, SYSCO settled a $350,000,000 notional
amount forward-starting interest rate swap which was designated
as a cash flow hedge of the variability in the cash outflows of
interest payments on the debt issuance due to changes in the
benchmark interest rate. See Note 8, Derivative Financial
Instruments, for further discussion.
In May 2006, SYSCO repaid the 7.0% senior notes totaling
$200,000,000 at maturity utilizing a combination of cash flow
from operations and commercial paper issuances.
In April 2007, SYSCO repaid the 7.25% senior notes totaling
$100,000,000 at maturity utilizing a combination of cash flow
from operations and commercial paper issuances.
In January 2008, the SEC granted our request to terminate our
then existing shelf registration statement that was filed with
the SEC in April 2005 for the issuance of debt securities. In
February 2008, we filed an automatically effective well-known
seasoned issuer shelf registration statement for the issuance of
up to $1,000,000,000 in debt securities with the SEC.
In February 2008, we issued 4.20% senior notes totaling
$250,000,000 due February 12, 2013 (the 2013
notes) and 5.25% senior notes totaling $500,000,000
due February 12, 2018 (the 2018 notes) under
our February 2008 shelf registration. The 2013 and 2018 notes,
which were priced at 99.835% and 99.310% of par, respectively,
are unsecured, are not subject to any sinking fund requirement
and include a redemption provision which allows us to retire the
notes at any time prior to maturity at the greater of par plus
accrued interest or an amount designed to ensure that the note
holders are not penalized by the early redemption. Proceeds from
the notes were utilized to retire commercial paper issuances
outstanding as of February 2008.
The 4.60% senior notes due March 15, 2014 and the
6.5% debentures due August 1, 2028 are unsecured, are
not subject to any sinking fund requirement and include a
redemption provision that allows SYSCO to retire the debentures
and notes at any time prior to maturity at the greater of par
plus accrued interest or an amount designed to ensure that the
debenture and note holders are not penalized by the early
redemption.
The 7.16% debentures due April 15, 2027 are unsecured,
are not subject to any sinking fund requirement and are no
longer redeemable prior to maturity.
The 6.10% senior notes due June 1, 2012 , issued by
SYSCO International, Co., a wholly-owned subsidiary of SYSCO,
are fully and unconditionally guaranteed by Sysco Corporation,
are not subject to any sinking fund requirement, and include a
redemption provision which
44
allows SYSCO International, Co. to retire the notes at any time
prior to maturity at the greater of par plus accrued interest or
an amount designed to ensure that the note holders are not
penalized by the early redemption.
SYSCOs Industrial Revenue Bonds have varying structures.
Final maturities range from three to 18 years and certain
of the bonds provide SYSCO the right to redeem the bonds at
various dates. These redemption provisions generally provide the
bondholder a premium in the early redemption years, declining to
par value as the bonds approach maturity.
Total
Debt
Total debt as of June 28, 2008 was $1,980,331,000, of which
approximately 99% was at fixed rates averaging 5.4% with an
average life of 14 years, and the remainder was at floating
rates averaging 2.2%. Certain loan agreements contain typical
debt covenants to protect note holders, including provisions to
maintain the companys long-term debt to total capital
ratio below a specified level. SYSCO was in compliance with all
debt covenants as of June 28, 2008.
The fair value of SYSCOs total long-term debt is estimated
based on the quoted market prices for the same or similar issues
or on the current rates offered to the company for debt of the
same remaining maturities. The fair value of total long-term
debt approximated $1,928,595,000 as of June 28, 2008 and
$1,693,619,000 as of June 30, 2007, respectively.
Other
As of June 28, 2008 and June 30, 2007 letters of
credit outstanding were $35,785,000 and $62,645,000,
respectively.
Although SYSCO normally purchases assets, it has obligations
under capital and operating leases for certain distribution
facilities, vehicles and computers. Total rental expense under
operating leases was $95,315,000, $94,163,000, and $100,690,000,
in fiscal 2008, 2007 and 2006, respectively. Contingent rentals,
subleases and assets and obligations under capital leases are
not significant.
Aggregate minimum lease payments by fiscal year under existing
non-capitalized long-term leases are as follows:
|
|
|
|
|
|
|
Amount
|
|
|
2009
|
|
$
|
64,000,000
|
|
2010
|
|
|
55,292,000
|
|
2011
|
|
|
42,624,000
|
|
2012
|
|
|
30,699,000
|
|
2013
|
|
|
23,657,000
|
|
Thereafter
|
|
|
74,571,000
|
|
|
|
12.
|
EMPLOYEE
BENEFIT PLANS
|
SYSCO has defined benefit and defined contribution retirement
plans for its employees. Also, the company contributes to
various multi-employer plans under collective bargaining
agreements and provides certain health care benefits to eligible
retirees and their dependents.
SYSCO maintains a qualified retirement plan (Retirement Plan)
that pays benefits to employees at retirement, using formulas
based on a participants years of service and compensation.
The defined contribution 401(k) plan provides that under certain
circumstances the company may make matching contributions of up
to 50% of the first 6% of a participants compensation.
SYSCOs contributions to this plan were $31,901,000 in
2008, $26,032,000 in 2007, and $21,898,000 in 2006.
SYSCOs contributions to multi-employer pension plans were
$35,040,000, $32,974,000, and $29,796,000 in fiscal 2008, 2007
and 2006, respectively. See further discussion of SYSCOs
participation in multi-employer pension plans in Note 18,
Commitments and Contingencies.
In addition to receiving benefits upon retirement under the
companys defined benefit plan, participants in the
Management Incentive Plan (see Management Incentive
Compensation in Note 15, Share-Based Compensation
Plans) will receive benefits under a Supplemental Executive
Retirement Plan (SERP). This plan is a nonqualified, unfunded
supplementary retirement plan.
Adoption
of SFAS 158
On June 30, 2007, SYSCO adopted the recognition and
disclosure provisions of SFAS 158. SFAS 158 requires
the company to recognize the funded status of its
company-sponsored defined benefit plans in its statement of
financial position, with a corresponding adjustment to
accumulated other comprehensive income, net of tax. The
adjustment to accumulated other comprehensive income at adoption
represents the net actuarial losses, prior service costs, and
transition obligation remaining from the initial adoption of
SFAS 87/106, all of which were previously netted against
the funded status of the plans in the companys statement
of financial position pursuant to the provisions of
SFAS 87/106. These amounts will subsequently be recognized
as net benefit cost consistent with the companys
historical accounting policy for amortizing such amounts. In
addition, actuarial gains and losses that arise in subsequent
periods and are not recognized as net periodic benefit cost in
the same periods will be recognized as a component of other
comprehensive income. Those amounts will subsequently be
recognized as a component of net periodic benefit cost on the
same basis as the amounts recognized in accumulated other
comprehensive income at the adoption of SFAS 158.
45
The effects of the adoption of the recognition and disclosure
provisions of SFAS 158 on the companys consolidated
balance sheet as of June 30, 2007 are presented in the
following table. The adoption of SFAS 158 had no effect on
the companys consolidated results of operations for the
fiscal year ended June 30, 2007, or for any prior period
presented, and it will not affect the companys
consolidated results of operations in future periods. Prior to
the adoption of SFAS 158 on June 30, 2007, the company
recognized an additional minimum pension liability pursuant to
the provisions of SFAS 87/106. The effect of recognizing
the additional minimum pension liability is included in the
table below in the column labeled Prior to Adopting
SFAS 158.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007
|
|
|
|
Prior to Adopting
|
|
|
Effect of Adopting
|
|
|
As Reported at
|
|
|
|
SFAS 158
|
|
|
SFAS 158
|
|
|
June 30, 2007
|
|
|
Prepaid pension cost
|
|
$
|
436,236,000
|
|
|
$
|
(83,846,000
|
)
|
|
$
|
352,390,000
|
|
Intangible asset (Other assets)
|
|
|
43,854,000
|
|
|
|
(43,854,000
|
)
|
|
|
|
|
Current accrued benefit liability (Accrued expenses)
|
|
|
|
|
|
|
(10,967,000
|
)
|
|
|
(10,967,000
|
)
|
Long-term deferred tax liability
|
|
|
(38,196,000
|
)
|
|
|
73,328,000
|
|
|
|
35,132,000
|
|
Non-current accrued benefit liability (Other long-term
liabilities)
|
|
|
(271,369,000
|
)
|
|
|
(52,289,000
|
)
|
|
|
(323,658,000
|
)
|
Accumulated other comprehensive loss
|
|
|
7,637,000
|
|
|
|
117,628,000
|
|
|
|
125,265,000
|
|
SFAS 158 also has a measurement date provision, which is a
requirement to measure plan assets and benefit obligations as of
the date of the employers fiscal year-end statement of
financial position, effective for fiscal years ending after
December 15, 2008. In the first quarter of fiscal 2006,
SYSCO changed the measurement date for company-sponsored pension
and other postretirement benefit plans from fiscal year-end to
May 31st to allow additional time for management to
evaluate and report the actuarial pension measurements in the
year-end financial statements and disclosures within the
accelerated filing deadlines of the Securities and Exchange
Commission. The cumulative effect of this change in accounting
resulted in an increase to earnings in the first quarter of
fiscal 2006 of $9,285,000, net of tax. With the issuance of
SFAS 158, SYSCO elected to early adopt the measurement date
provision in order to adopt both provisions of this accounting
standard at the same time. As a result, beginning in fiscal
2008, the measurement date for all plans returned to correspond
with fiscal year-end. The company performed measurements as of
May 31, 2007 and June 30, 2007 of the plan assets and
benefit obligations. SYSCO recorded a charge to beginning
retained earnings on July 1, 2007 of $3,572,000, net of
tax, for the impact of the difference in our company-sponsored
pension expense between the two measurement dates. The company
also recorded a benefit to beginning accumulated other
comprehensive income (loss) on July 1, 2007 of $22,780,000,
net of tax, for the impact of the difference in the recognition
provision between the two measurement dates.
Funded
Status
The funded status of SYSCOs company-sponsored defined
benefit plans is presented in the table below. The caption
Pension Benefits in the tables below includes both
the Retirement Plan and the SERP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Postretirement Plans
|
|
|
|
June 28, 2008
|
|
|
June 30, 2007
|
|
|
June 28, 2008
|
|
|
June 30, 2007
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
1,565,327,000
|
|
|
$
|
1,381,409,000
|
|
|
$
|
8,675,000
|
|
|
$
|
8,045,000
|
|
Service cost
|
|
|
90,570,000
|
|
|
|
84,654,000
|
|
|
|
484,000
|
|
|
|
451,000
|
|
Interest cost
|
|
|
101,218,000
|
|
|
|
91,311,000
|
|
|
|
570,000
|
|
|
|
531,000
|
|
Amendments
|
|
|
(30,048,000
|
)
|
|
|
3,410,000
|
|
|
|
|
|
|
|
|
|
Actuarial loss (gain)
|
|
|
1,205,000
|
|
|
|
46,463,000
|
|
|
|
(209,000
|
)
|
|
|
(359,000
|
)
|
Actual expenses
|
|
|
(10,445,000
|
)
|
|
|
(10,814,000
|
)
|
|
|
|
|
|
|
|
|
Total disbursements
|
|
|
(34,586,000
|
)
|
|
|
(31,106,000
|
)
|
|
|
(238,000
|
)
|
|
|
7,000
|
|
Settlements/Adjustments (Measurement date change)
|
|
|
(48,254,000
|
)
|
|
|
|
|
|
|
(127,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
1,634,987,000
|
|
|
|
1,565,327,000
|
|
|
|
9,155,000
|
|
|
|
8,675,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
1,590,689,000
|
|
|
|
1,282,302,000
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
|
(95,634,000
|
)
|
|
|
259,471,000
|
|
|
|
|
|
|
|
|
|
Employer contribution
|
|
|
92,670,000
|
|
|
|
90,836,000
|
|
|
|
238,000
|
|
|
|
(7,000
|
)
|
Actual expenses
|
|
|
(10,445,000
|
)
|
|
|
(10,814,000
|
)
|
|
|
|
|
|
|
|
|
Total disbursements
|
|
|
(34,586,000
|
)
|
|
|
(31,106,000
|
)
|
|
|
(238,000
|
)
|
|
|
7,000
|
|
Settlements/Adjustments (Measurement date change)
|
|
|
(16,122,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
1,526,572,000
|
|
|
|
1,590,689,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at measurement date
|
|
|
(108,415,000
|
)
|
|
|
25,362,000
|
|
|
|
(9,155,000
|
)
|
|
|
(8,675,000
|
)
|
Contributions after measurement date, before end of year
|
|
|
N/A
|
|
|
|
993,000
|
|
|
|
N/A
|
|
|
|
85,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(108,415,000
|
)
|
|
$
|
26,355,000
|
|
|
$
|
(9,155,000
|
)
|
|
$
|
(8,590,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In order to meet a portion of its obligations under the SERP,
SYSCO maintains life insurance policies on the lives of the
participants with carrying values of $129,480,000 as of
June 28, 2008 and $131,011,000 as of June 30, 2007.
These policies are not included as plan assets or in the funded
status amounts in the tables above and below. SYSCO is the sole
owner and beneficiary of such policies. The projected benefit
obligation for the SERP was $323,574,000 and $327,028,000 as of
June 28, 2008 and June 30, 2007, respectively.
46
The amounts recognized on SYSCOs consolidated balance
sheet related to its company-sponsored defined benefit plans are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Postretirement Plans
|
|
|
|
June 28, 2008
|
|
|
June 30, 2007
|
|
|
June 28, 2008
|
|
|
June 30, 2007
|
|
|
Prepaid pension cost
|
|
$
|
215,159,000
|
|
|
$
|
352,390,000
|
|
|
$
|
|
|
|
$
|
|
|
Current accrued benefit liability (Accrued expenses)
|
|
|
(17,082,000
|
)
|
|
|
(10,784,000
|
)
|
|
|
(319,000
|
)
|
|
|
(183,000
|
)
|
Non-current accrued benefit liability (Other long-term
liabilities)
|
|
|
(306,492,000
|
)
|
|
|
(315,251,000
|
)
|
|
|
(8,836,000
|
)
|
|
|
(8,407,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(108,415,000
|
)
|
|
$
|
26,355,000
|
|
|
$
|
(9,155,000
|
)
|
|
$
|
(8,590,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss as of June 28, 2008
consists of the following amounts that had not, as of that date,
been recognized in net benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Plans
|
|
|
Total
|
|
|
Prior service cost
|
|
$
|
9,145,000
|
|
|
$
|
436,000
|
|
|
$
|
9,581,000
|
|
Net actuarial losses (gains)
|
|
|
351,344,000
|
|
|
|
(2,912,000
|
)
|
|
|
348,432,000
|
|
Transition obligation
|
|
|
|
|
|
|
754,000
|
|
|
|
754,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
360,489,000
|
|
|
$
|
(1,722,000
|
)
|
|
$
|
358,767,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss as of June 30, 2007
consists of the following amounts that had not, as of that date,
been recognized in net benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Plans
|
|
|
Total
|
|
|
Prior service cost
|
|
$
|
45,678,000
|
|
|
$
|
591,000
|
|
|
$
|
46,269,000
|
|
Net actuarial losses (gains)
|
|
|
158,906,000
|
|
|
|
(2,741,000
|
)
|
|
|
156,165,000
|
|
Transition obligation
|
|
|
|
|
|
|
920,000
|
|
|
|
920,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
204,584,000
|
|
|
$
|
(1,230,000
|
)
|
|
$
|
203,354,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation for the company-sponsored
defined benefit pension plans was $1,467,568,000 and
$1,377,832,000 as of June 28, 2008 and June 30, 2007,
respectively.
Information for plans with accumulated benefit
obligation/aggregate benefit obligation in excess of fair value
of plan assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
Postretirement
|
|
|
Pension Benefits
|
|
Plans
|
|
|
June 28, 2008
|
|
June 30, 2007
|
|
June 28, 2008
|
|
June 30, 2007
|
|
Accumulated benefit obligation/aggregate benefit obligation
|
|
$
|
277,579,000
|
|
|
$
|
262,541,000
|
|
|
$
|
9,155,000
|
|
|
$
|
8,675,000
|
|
Fair value of plan assets at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components
of Net Benefit Costs
The components of net company-sponsored pension costs for each
fiscal year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Service cost
|
|
$
|
90,570,000
|
|
|
$
|
84,654,000
|
|
|
$
|
100,028,000
|
|
Interest cost
|
|
|
101,218,000
|
|
|
|
91,311,000
|
|
|
|
83,600,000
|
|
Expected return on plan assets
|
|
|
(135,345,000
|
)
|
|
|
(116,744,000
|
)
|
|
|
(104,174,000
|
)
|
Amortization of prior service cost
|
|
|
5,985,000
|
|
|
|
5,684,000
|
|
|
|
4,934,000
|
|
Amortization of net actuarial loss
|
|
|
3,409,000
|
|
|
|
9,686,000
|
|
|
|
46,204,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension costs
|
|
$
|
65,837,000
|
|
|
$
|
74,591,000
|
|
|
$
|
130,592,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of other postretirement benefit costs for each
fiscal year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Plans
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Service cost
|
|
$
|
484,000
|
|
|
$
|
451,000
|
|
|
$
|
510,000
|
|
Interest cost
|
|
|
570,000
|
|
|
|
531,000
|
|
|
|
472,000
|
|
Expected return on plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
143,000
|
|
|
|
201,000
|
|
|
|
202,000
|
|
Amortization of net actuarial gain
|
|
|
(156,000
|
)
|
|
|
(132,000
|
)
|
|
|
(15,000
|
)
|
Amortization of transition obligation
|
|
|
153,000
|
|
|
|
154,000
|
|
|
|
153,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other postretirement benefit costs
|
|
$
|
1,194,000
|
|
|
$
|
1,205,000
|
|
|
$
|
1,322,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primarily as a result of the funded status and expected asset
performance of the Retirement Plan, net company-sponsored
pension costs decreased $8,754,000 in fiscal 2008. Net
company-sponsored pension costs in fiscal 2009 are expected to
increase by approximately $20,000,000 due primarily to lower
returns on assets of the Retirement Plan.
47
Amounts included in accumulated other comprehensive loss as of
June 28, 2008 that are expected to be recognized as
components of net company-sponsored benefit cost during fiscal
2009 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Plans
|
|
|
Total
|
|
|
Amortization of prior service cost
|
|
$
|
1,376,000
|
|
|
$
|
130,000
|
|
|
$
|
1,506,000
|
|
Amortization of net actuarial losses (gains)
|
|
|
17,728,000
|
|
|
|
(158,000
|
)
|
|
|
17,570,000
|
|
Amortization of transition obligation
|
|
|
|
|
|
|
153,000
|
|
|
|
153,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,104,000
|
|
|
$
|
|