SYSCO CORP
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 2, 2011
| 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 | (IRS employer | |
| incorporation or organization) | identification number) | |
| 1390 Enclave Parkway | 77077-2099 | |
| Houston, Texas | (Zip Code) | |
| (Address of principal executive offices) |
Registrant’s Telephone Number, Including Area Code:
(281) 584-1390
(281) 584-1390
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes
þ
No
o
Indicate by check mark 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.
| Large Accelerated Filer þ | Accelerated Filer o | Non-accelerated Filer o | Smaller Reporting Company o | |||
|
(Do not check if a smaller reporting company)
|
||||||
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
583,478,931 shares of common stock were outstanding as of April 30, 2011.
TABLE OF CONTENTS
Table of Contents
PART I — FINANCIAL INFORMATION
Item 1.
Financial Statements
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except for Share Data)
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except for Share Data)
| April 2, 2011 | July 3, 2010 | March 27, 2010 | ||||||||||
| (unaudited) | (unaudited) | |||||||||||
|
ASSETS
|
||||||||||||
|
Current assets
|
||||||||||||
|
Cash and cash equivalents
|
$ | 385,668 | $ | 585,443 | $ | 586,854 | ||||||
|
Short-term investments
|
— | 23,511 | — | |||||||||
|
Accounts and notes receivable, less
allowances of $86,668, $36,573 and $83,069
|
2,926,033 | 2,617,352 | 2,633,995 | |||||||||
|
Inventories
|
2,047,371 | 1,771,539 | 1,751,239 | |||||||||
|
Prepaid expenses and other current assets
|
79,485 | 70,992 | 71,761 | |||||||||
|
Prepaid income taxes
|
— | 7,421 | 22,008 | |||||||||
|
|
||||||||||||
|
Total current assets
|
5,438,557 | 5,076,258 | 5,065,857 | |||||||||
|
Plant and equipment at cost, less depreciation
|
3,419,862 | 3,203,823 | 3,176,220 | |||||||||
|
Other assets
|
||||||||||||
|
Goodwill
|
1,596,727 | 1,549,815 | 1,559,291 | |||||||||
|
Intangibles, less amortization
|
101,518 | 106,398 | 114,254 | |||||||||
|
Restricted cash
|
110,488 | 124,488 | 135,590 | |||||||||
|
Prepaid pension cost
|
— | — | 92,757 | |||||||||
|
Other assets
|
282,782 | 252,919 | 258,320 | |||||||||
|
|
||||||||||||
|
Total other assets
|
2,091,515 | 2,033,620 | 2,160,212 | |||||||||
|
|
||||||||||||
|
Total assets
|
$ | 10,949,934 | $ | 10,313,701 | $ | 10,402,289 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||||||
|
Current liabilities
|
||||||||||||
|
Notes payable
|
$ | 2,250 | $ | — | $ | — | ||||||
|
Accounts payable
|
2,143,219 | 1,953,092 | 1,972,984 | |||||||||
|
Accrued expenses
|
800,155 | 870,114 | 794,235 | |||||||||
|
Accrued income taxes
|
84,838 | — | — | |||||||||
|
Deferred income taxes
|
98,946 | 178,022 | 76,258 | |||||||||
|
Current maturities of long-term debt
|
7,042 | 7,970 | 7,817 | |||||||||
|
|
||||||||||||
|
Total current liabilities
|
3,136,450 | 3,009,198 | 2,851,294 | |||||||||
|
Other liabilities
|
||||||||||||
|
Long-term debt
|
2,663,470 | 2,472,662 | 2,468,517 | |||||||||
|
Deferred income taxes
|
130,453 | 271,512 | 513,211 | |||||||||
|
Other long-term liabilities
|
812,356 | 732,803 | 541,229 | |||||||||
|
|
||||||||||||
|
Total other liabilities
|
3,606,279 | 3,476,977 | 3,522,957 | |||||||||
|
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 | 765,175 | |||||||||
|
Paid-in capital
|
861,835 | 816,833 | 799,278 | |||||||||
|
Retained earnings
|
7,499,532 | 7,134,139 | 6,943,640 | |||||||||
|
Accumulated other comprehensive loss
|
(330,060 | ) | (480,251 | ) | (167,827 | ) | ||||||
|
Treasury stock at cost, 182,347,524,
176,768,795 and 173,872,949 shares
|
(4,589,277 | ) | (4,408,370 | ) | (4,312,228 | ) | ||||||
|
|
||||||||||||
|
Total shareholders’ equity
|
4,207,205 | 3,827,526 | 4,028,038 | |||||||||
|
|
||||||||||||
|
Total liabilities and shareholders’ equity
|
$ | 10,949,934 | $ | 10,313,701 | $ | 10,402,289 | ||||||
|
|
||||||||||||
Note: The July 3, 2010 balance sheet has been derived from the audited financial statements at that date.
See Notes to Consolidated Financial Statements
1
Table of Contents
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In Thousands, Except for Share and Per Share Data)
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In Thousands, Except for Share and Per Share Data)
| 39-Week Period Ended | 13-Week Period Ended | |||||||||||||||
| April 2, 2011 | March 27, 2010 | April 2, 2011 | March 27, 2010 | |||||||||||||
|
Sales
|
$ | 28,897,786 | $ | 26,895,018 | $ | 9,761,660 | $ | 8,945,093 | ||||||||
|
Cost of sales
|
23,513,565 | 21,769,400 | 7,950,800 | 7,261,721 | ||||||||||||
|
|
||||||||||||||||
|
Gross margin
|
5,384,221 | 5,125,618 | 1,810,860 | 1,683,372 | ||||||||||||
|
Operating expenses
|
4,013,469 | 3,733,836 | 1,383,373 | 1,251,269 | ||||||||||||
|
|
||||||||||||||||
|
Operating income
|
1,370,752 | 1,391,782 | 427,487 | 432,103 | ||||||||||||
|
Interest expense
|
88,133 | 92,976 | 28,972 | 27,654 | ||||||||||||
|
Other expense (income), net
|
(9,941 | ) | (2,122 | ) | (6,957 | ) | 1,028 | |||||||||
|
|
||||||||||||||||
|
Earnings before income taxes
|
1,292,560 | 1,300,928 | 405,472 | 403,421 | ||||||||||||
|
Income taxes
|
476,840 | 458,726 | 146,994 | 155,773 | ||||||||||||
|
|
||||||||||||||||
|
Net earnings
|
$ | 815,720 | $ | 842,202 | $ | 258,478 | $ | 247,648 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Net earnings:
|
||||||||||||||||
|
Basic earnings per share
|
$ | 1.39 | $ | 1.42 | $ | 0.44 | $ | 0.42 | ||||||||
|
Diluted earnings per share
|
$ | 1.39 | $ | 1.42 | $ | 0.44 | $ | 0.42 | ||||||||
|
|
||||||||||||||||
|
Average shares outstanding
|
585,792,383 | 592,450,575 | 583,722,009 | 593,129,783 | ||||||||||||
|
Diluted shares outstanding
|
587,878,509 | 593,397,235 | 585,421,864 | 594,833,736 | ||||||||||||
|
|
||||||||||||||||
|
Dividends declared per common share
|
$ | 0.77 | $ | 0.74 | $ | 0.26 | $ | 0.25 | ||||||||
See Notes to Consolidated Financial Statements
2
Table of Contents
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In Thousands)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In Thousands)
| 39-Week Period Ended | 13-Week Period Ended | |||||||||||||||
| April 2, 2011 | March 27, 2010 | April 2, 2011 | March 27, 2010 | |||||||||||||
|
Net earnings
|
$ | 815,720 | $ | 842,202 | $ | 258,478 | $ | 247,648 | ||||||||
|
|
||||||||||||||||
|
Other comprehensive income:
|
||||||||||||||||
|
Foreign currency translation
adjustment
|
111,126 | 89,241 | 44,339 | 5,295 | ||||||||||||
|
Items presented net of tax:
|
||||||||||||||||
|
Amortization of cash flow hedge
|
321 | 321 | 107 | 107 | ||||||||||||
|
Amortization of unrecognized
prior service cost
|
1,914 | 2,030 | 638 | 677 | ||||||||||||
|
Amortization of unrecognized
actuarial loss, net
|
36,760 | 18,498 | 12,253 | 6,166 | ||||||||||||
|
Amortization of unrecognized
transition obligation
|
70 | 69 | 24 | 23 | ||||||||||||
|
|
||||||||||||||||
|
Total other comprehensive income
|
150,191 | 110,159 | 57,361 | 12,268 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Comprehensive income
|
$ | 965,911 | $ | 952,361 | $ | 315,839 | $ | 259,916 | ||||||||
|
|
||||||||||||||||
See Notes to Consolidated Financial Statements
3
Table of Contents
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In Thousands)
CONSOLIDATED CASH FLOWS (Unaudited)
(In Thousands)
| 39-Week Period Ended | ||||||||
| April 2, 2011 | March 27, 2010 | |||||||
|
Cash flows from operating activities:
|
||||||||
|
Net earnings
|
$ | 815,720 | $ | 842,202 | ||||
|
Adjustments to reconcile net earnings to cash provided by operating activities:
|
||||||||
|
Share-based compensation expense
|
48,518 | 51,981 | ||||||
|
Depreciation and amortization
|
298,307 | 284,213 | ||||||
|
Deferred income taxes
|
(244,658 | ) | (152,236 | ) | ||||
|
Provision for losses on receivables
|
35,624 | 32,030 | ||||||
|
Other non-cash items
|
(7,286 | ) | (1,112 | ) | ||||
|
Additional investment in certain assets and liabilities, net of effect of businesses acquired:
|
||||||||
|
(Increase) in receivables
|
(301,932 | ) | (169,520 | ) | ||||
|
(Increase) in inventories
|
(244,636 | ) | (79,010 | ) | ||||
|
(Increase) in prepaid expenses and other current assets
|
(7,486 | ) | (6,569 | ) | ||||
|
Increase in accounts payable
|
158,488 | 167,438 | ||||||
|
(Decrease) in accrued expenses
|
(83,826 | ) | (21,468 | ) | ||||
|
Increase (decrease) in accrued income taxes
|
83,580 | (316,074 | ) | |||||
|
(Increase) in other assets
|
(26,622 | ) | (39,618 | ) | ||||
|
Increase (decrease) in other long-term liabilities and
prepaid pension cost, net
|
142,253 | (115,210 | ) | |||||
|
Excess tax benefits from share-based compensation arrangements
|
(285 | ) | (518 | ) | ||||
|
|
||||||||
|
Net cash provided by operating activities
|
665,759 | 476,529 | ||||||
|
|
||||||||
|
|
||||||||
|
Cash flows from investing activities:
|
||||||||
|
Additions to plant and equipment
|
(454,054 | ) | (438,071 | ) | ||||
|
Proceeds from sales of plant and equipment
|
15,286 | 4,106 | ||||||
|
Acquisition of businesses, net of cash acquired
|
(35,486 | ) | (20,880 | ) | ||||
|
Purchases of short-term investments
|
— | (60,876 | ) | |||||
|
Maturities of short-term investments
|
24,713 | 60,990 | ||||||
|
Decrease (increase) in restricted cash
|
14,000 | (41,732 | ) | |||||
|
|
||||||||
|
Net cash used for investing activities
|
(435,541 | ) | (496,463 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Cash flows from financing activities:
|
||||||||
|
Bank and commercial paper borrowings (repayments), net
|
188,249 | — | ||||||
|
Other debt borrowings
|
2,592 | 5,419 | ||||||
|
Other debt repayments
|
(6,516 | ) | (8,196 | ) | ||||
|
Debt issuance costs
|
(7 | ) | (7 | ) | ||||
|
Proceeds from common stock reissued from treasury for share-based compensation awards
|
103,328 | 54,068 | ||||||
|
Treasury stock purchases
|
(291,600 | ) | (41,020 | ) | ||||
|
Dividends paid
|
(445,406 | ) | (431,916 | ) | ||||
|
Excess tax benefits from share-based compensation arrangements
|
285 | 518 | ||||||
|
|
||||||||
|
Net cash used for financing activities
|
(449,075 | ) | (421,134 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Effect of exchange rates on cash
|
19,082 | 9,271 | ||||||
|
|
||||||||
|
|
||||||||
|
Net (decrease) in cash and cash equivalents
|
(199,775 | ) | (431,797 | ) | ||||
|
Cash and cash equivalents at beginning of period
|
585,443 | 1,018,651 | ||||||
|
|
||||||||
|
Cash and cash equivalents at end of period
|
$ | 385,668 | $ | 586,854 | ||||
|
|
||||||||
|
|
||||||||
|
Supplemental disclosures of cash flow information:
|
||||||||
|
Cash paid during the period for:
|
||||||||
|
Interest
|
$ | 111,924 | $ | 119,720 | ||||
|
Income taxes
|
657,961 | 973,354 | ||||||
See Notes to Consolidated Financial Statements
4
Table of Contents
Sysco Corporation and its Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Unless this Form 10-Q indicates otherwise or the context otherwise requires, the terms “we,”
“our,” “us,” “Sysco,” or “the company” as used in this Form 10-Q refer to Sysco Corporation
together with its consolidated subsidiaries and divisions.
1. BASIS OF PRESENTATION
The consolidated financial statements have been prepared by the company, without audit, with
the exception of the July 3, 2010 consolidated balance sheet which was taken from the audited
financial statements included in the company’s Fiscal 2010 Annual Report on Form 10-K. The
financial statements include consolidated balance sheets, consolidated results of operations,
consolidated statements of comprehensive income and consolidated cash flows. In the opinion of
management, all adjustments, which consist of normal recurring adjustments, necessary to present
fairly the financial position, results of operations, comprehensive income and cash flows for all
periods presented have been made.
Prior year amounts within the consolidated balance sheets and consolidated cash flows have
been reclassified to conform to the current year presentation as it relates to the presentation of
cash and accounts payable within these statements. The impact of these reclassifications was
immaterial to the prior year period.
These financial statements should be read in conjunction with the audited financial statements
and notes thereto included in the company’s Fiscal 2010 Annual Report on Form 10-K.
A review of the financial information herein has been made by Ernst & Young LLP, independent
auditors, in accordance with established professional standards and procedures for such a review.
A report from Ernst & Young LLP concerning their review is included as Exhibit 15.1 to this Form
10-Q.
2. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date (i.e. an
exit price). The accounting guidance includes a fair value hierarchy that prioritizes the inputs
to valuation techniques used to measure fair value. The three levels of the fair value hierarchy
are as follows:
| • | Level 1 — Unadjusted quoted prices for identical assets or liabilities in active markets; | |
| • | Level 2 — Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability; and | |
| • | Level 3 — Unobservable inputs for the asset or liability, which include management’s own assumption about the assumptions market participants would use in pricing the asset or liability, including assumptions about risk. |
Sysco’s policy is to invest in only high-quality investments. Cash equivalents primarily
include time deposits, certificates of deposit, commercial paper, high-quality money market funds
and all highly liquid instruments with original maturities of three months or less. Short-term
investments consist of commercial paper with original maturities of greater than three months but
less than one year. These investments are considered available-for-sale and are recorded at fair
value. As of each period presented below where short-term investments were held, the difference
between the fair value of the short-term investments and the original cost was not material.
Restricted cash consists of investments in high-quality money market funds.
The following is a description of the valuation methodologies used for assets and liabilities
measured at fair value.
| • | Time deposits, certificates of deposit and commercial paper included in cash equivalents are valued at amortized cost, which approximates fair value. These are included within cash equivalents as a Level 2 measurement in the tables below. | |
| • | Commercial paper included in short-term investments is valued using broker quotes that utilize observable market inputs. These are included as a Level 2 measurement in the tables below. | |
| • | Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. These are included within cash equivalents and restricted cash as Level 1 measurements in the tables below. |
5
Table of Contents
| • | The interest rate swap agreements, discussed further in Note 3, “Derivative Financial Instruments,” are valued using a swap valuation model that utilizes an income approach using observable market inputs including interest rates, LIBOR swap rates and credit default swap rates. These are included as a Level 2 measurement in the tables below. |
The following tables present the company’s assets measured at fair value on a recurring basis
as of April 2, 2011, July 3, 2010 and March 27, 2010:
| Assets Measured at Fair Value as of April 2, 2011 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Cash and cash equivalents
|
||||||||||||||||
|
Cash equivalents
|
$ | — | $ | 214,562 | $ | — | $ | 214,562 | ||||||||
|
Restricted cash
|
110,488 | — | — | 110,488 | ||||||||||||
|
Other assets
|
||||||||||||||||
|
Interest rate swap agreements
|
— | 10,871 | — | 10,871 | ||||||||||||
|
|
||||||||||||||||
|
Total assets at fair value
|
$ | 110,488 | $ | 225,433 | $ | — | $ | 335,921 | ||||||||
|
|
||||||||||||||||
| Assets Measured at Fair Value as of July 3, 2010 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Cash and cash equivalents
|
||||||||||||||||
|
Cash equivalents
|
$ | 225,400 | $ | 199,047 | $ | — | $ | 424,447 | ||||||||
|
Short-term investments
|
— | 23,511 | — | 23,511 | ||||||||||||
|
Restricted cash
|
124,488 | — | — | 124,488 | ||||||||||||
|
Other assets
|
||||||||||||||||
|
Interest rate swap agreements
|
— | 11,045 | — | 11,045 | ||||||||||||
|
|
||||||||||||||||
|
Total assets at fair value
|
$ | 349,888 | $ | 233,603 | $ | — | $ | 583,491 | ||||||||
|
|
||||||||||||||||
| Assets Measured at Fair Value as of March 27, 2010 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Cash and cash equivalents
|
||||||||||||||||
|
Cash equivalents
|
$ | 241,207 | $ | 202,967 | $ | — | $ | 444,174 | ||||||||
|
Restricted cash
|
135,590 | — | — | 135,590 | ||||||||||||
|
Other assets
|
||||||||||||||||
|
Interest rate swap agreements
|
— | 3,836 | — | 3,836 | ||||||||||||
|
|
||||||||||||||||
|
Total assets at fair value
|
$ | 376,797 | $ | 206,803 | $ | — | $ | 583,600 | ||||||||
|
|
||||||||||||||||
The carrying values of accounts receivable and accounts payable approximated their respective
fair values due to the short-term maturities of these instruments. The fair value of Sysco’s total
debt is estimated based on the quoted market prices for the same or similar issue or on the current
rates offered to the company for debt of the same remaining maturities. The fair value of total
debt approximated $2,874.0 million, $2,774.9 million and $2,633.2 million as of April 2, 2011, July
3, 2010 and March 27, 2010, respectively. The carrying value of total debt was $2,672.8 million,
$2,480.6 million and $2,476.3 million as of April 2, 2011, July 3, 2010 and March 27, 2010,
respectively.
6
Table of Contents
3. DERIVATIVE FINANCIAL INSTRUMENTS
Sysco manages its debt portfolio to achieve an overall desired position of fixed and floating
rates and may employ interest rate swaps from time to time to achieve this position. The company
does not use derivative financial instruments for trading or speculative purposes.
In September 2009, the company entered into an interest rate swap agreement that effectively
converted $200.0 million of fixed rate debt maturing in fiscal 2014 to floating rate debt. In
October 2009, the company entered into an interest rate swap agreement that effectively converted
$250.0 million of fixed rate debt maturing in fiscal 2013 to floating rate debt. Both transactions
were entered into with the goal of reducing overall borrowing cost and increasing floating interest
rate exposure. These transactions were designated as fair value hedges since the swaps hedge
against the changes in fair value of fixed rate debt resulting from changes in interest rates.
The location and the fair value of derivative instruments in the consolidated balance sheet as
of April 2, 2011, July 3, 2010 and March 27, 2010 are as follows:
| Asset Derivatives | Liability Derivatives | |||||||||||||||
| Balance Sheet | Balance Sheet | |||||||||||||||
| Location | Fair Value | Location | Fair Value | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Interest rate swap agreements
|
||||||||||||||||
|
April 2, 2011
|
Other assets | $ | 10,871 | N/A | N/A | |||||||||||
|
July 3, 2010
|
Other assets | 11,045 | N/A | N/A | ||||||||||||
|
March 27, 2010
|
Other assets | 3,836 | N/A | N/A | ||||||||||||
The location and effect of derivative instruments and related hedged items on the consolidated
results of operations for the 39-week periods ended April 2, 2011 and March 27, 2010 presented on a
pre-tax basis are as follows:
| Location of (Gain) | ||||||||||||
| or Loss Recognized | Amount of (Gain) or Loss | |||||||||||
| in Income | Recognized in Income | |||||||||||
| April 2, 2011 | March 27, 2010 | |||||||||||
| (In thousands) | ||||||||||||
|
Fair Value Hedge Relationships:
|
||||||||||||
|
Interest rate swap agreements
|
Interest expense | $ | (6,746 | ) | $ | (6,404 | ) | |||||
The location and effect of derivative instruments and related hedged items on the consolidated
results of operations for the 13-week periods ended April 2, 2011 and March 27, 2010 presented on a
pre-tax basis are as follows:
| Location of (Gain) | ||||||||||||
| or Loss Recognized | Amount of (Gain) or Loss | |||||||||||
| in Income | Recognized in Income | |||||||||||
| April 2, 2011 | March 27, 2010 | |||||||||||
| (In thousands) | ||||||||||||
|
Fair Value Hedge Relationships:
|
||||||||||||
|
Interest rate swap agreements
|
Interest expense | $ | (2,261 | ) | $ | (4,847 | ) | |||||
Hedge ineffectiveness represents the difference between the changes in the fair value of the
derivative instruments and the changes in fair value of the fixed rate debt attributable to changes
in the benchmark interest rate. Hedge ineffectiveness is recorded directly in earnings within
interest expense and was immaterial for the 39-week periods and 13-week periods ended April 2, 2011
and March 27, 2010. The interest rate swaps do not contain credit-risk-related contingent
features.
7
Table of Contents
4. DEBT
As of April 2, 2011, Sysco had uncommitted bank lines of credit which provided for unsecured
borrowings for working capital of up to $95.0 million, of which $2.3 million was outstanding.
Sysco has a Board-approved commercial paper program allowing the company to issue short-term
unsecured notes in an aggregate amount not to exceed $1,300.0 million.
Sysco and one of its subsidiaries, Sysco International, ULC, have a revolving credit facility
supporting the company’s U.S. and Canadian commercial paper programs. The facility in the amount
of $1,000.0 million expires on November 4, 2012, but is subject to extension.
As of April 2, 2011, commercial paper issuances outstanding were $186.0 million and were
classified as long-term debt since the company’s commercial paper programs are supported by the
long-term revolving credit facility described above.
During the 39-week period ended April 2, 2011, aggregate commercial paper issuances and
short-term bank borrowings ranged from zero to approximately $330.3 million.
5. EMPLOYEE BENEFIT PLANS
The components of net company-sponsored benefit cost for the 39-week periods presented are as
follows:
| Pension Benefits | Other Postretirement Plans | |||||||||||||||
| April 2, 2011 | March 27, 2010 | April 2, 2011 | March 27, 2010 | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Service cost
|
$ | 74,582 | $ | 49,989 | $ | 297 | $ | 246 | ||||||||
|
Interest cost
|
101,230 | 89,694 | 393 | 421 | ||||||||||||
|
Expected return on plan assets
|
(98,940 | ) | (78,645 | ) | — | — | ||||||||||
|
Amortization of prior service cost
|
2,969 | 3,157 | 139 | 139 | ||||||||||||
|
Recognized net actuarial loss (gain)
|
59,964 | 30,394 | (291 | ) | (367 | ) | ||||||||||
|
Amortization of transition obligation
|
— | — | 115 | 114 | ||||||||||||
|
|
||||||||||||||||
|
Net periodic benefit cost
|
$ | 139,805 | $ | 94,589 | $ | 653 | $ | 553 | ||||||||
|
|
||||||||||||||||
The components of net company-sponsored benefit cost for the 13-week periods presented are as
follows:
| Pension Benefits | Other Postretirement Plans | |||||||||||||||
| April 2, 2011 | March 27, 2010 | April 2, 2011 | March 27, 2010 | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Service cost
|
$ | 24,861 | $ | 16,663 | $ | 99 | $ | 82 | ||||||||
|
Interest cost
|
33,743 | 29,897 | 131 | 140 | ||||||||||||
|
Expected return on plan assets
|
(32,980 | ) | (26,215 | ) | — | — | ||||||||||
|
Amortization of prior service cost
|
990 | 1,053 | 46 | 46 | ||||||||||||
|
Recognized net actuarial loss (gain)
|
19,988 | 10,132 | (97 | ) | (122 | ) | ||||||||||
|
Amortization of transition obligation
|
— | — | 39 | 38 | ||||||||||||
|
|
||||||||||||||||
|
Net periodic benefit cost
|
$ | 46,602 | $ | 31,530 | $ | 218 | $ | 184 | ||||||||
|
|
||||||||||||||||
Sysco’s contributions to its company-sponsored defined benefit plans were $16.0 million and
$118.3 million during the 39-week periods ended April 2, 2011 and March 27, 2010, respectively.
The company made contributions of $140.0 million to its company-sponsored qualified pension
plan (Retirement Plan) in fiscal 2010 that would normally have been made in fiscal 2011. Additional
contributions to the Retirement Plan are not currently anticipated in fiscal 2011. The company’s
contributions to the Supplemental Executive Retirement Plan (SERP) and other post-retirement plans
are made in the amounts needed to fund current year benefit payments. The estimated fiscal 2011
contributions to fund benefit payments for the SERP and other post-retirement plans are $22.2
million and $0.3 million, respectively.
8
Table of Contents
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
| 39-Week Period Ended | 13-Week Period Ended | |||||||||||||||
| April 2, 2011 | March 27, 2010 | April 2, 2011 | March 27, 2010 | |||||||||||||
| (In thousands, except for share and per share data) | ||||||||||||||||
|
Numerator:
|
||||||||||||||||
|
Net earnings
|
$ | 815,720 | $ | 842,202 | $ | 258,478 | $ | 247,648 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Denominator:
|
||||||||||||||||
|
Weighted-average
basic shares
outstanding
|
585,792,383 | 592,450,575 | 583,722,009 | 593,129,783 | ||||||||||||
|
Dilutive effect of
share-based awards
|
2,086,126 | 946,660 | 1,699,855 | 1,703,953 | ||||||||||||
|
|
||||||||||||||||
|
Weighted-average
diluted shares
outstanding
|
587,878,509 | 593,397,235 | 585,421,864 | 594,833,736 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Basic earnings per share:
|
$ | 1.39 | $ | 1.42 | $ | 0.44 | $ | 0.42 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Diluted earnings per share:
|
$ | 1.39 | $ | 1.42 | $ | 0.44 | $ | 0.42 | ||||||||
|
|
||||||||||||||||
The number of options that were not included in the diluted earnings per share calculation
because the effect would have been anti-dilutive was approximately 51,300,000 and 61,500,000 for
the first 39 weeks of fiscal 2011 and 2010, respectively. The number of options that were not
included in the diluted earnings per share calculation because the effect would have been
anti-dilutive was approximately 54,400,000 and 52,800,000 for the third quarter of fiscal 2011 and
2010, respectively.
7. SHARE-BASED COMPENSATION
Sysco provides 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, and various non-employee director plans. Sysco also previously provided
share-based compensation under its Management Incentive Plans.
Stock Incentive Plans
In the first 39 weeks of fiscal 2011, options to purchase 7,190,250 shares were granted to
employees from the 2007 Stock Incentive Plan. The fair value of each option award is estimated as
of the date of grant using a Black-Scholes option pricing model. The weighted average grant-date
fair value per share of options granted during the first 39 weeks of fiscal 2011 was $3.96.
In the first 39 weeks of fiscal 2011, 656,000 restricted stock units were granted to employees
from the 2007 Stock Incentive Plan. The majority of these restricted stock units were granted with
dividend equivalents. The fair value of each restricted stock unit award granted with a dividend
equivalent is based on the company’s stock price as of the date of grant. For restricted stock unit
awards granted without dividend equivalents, the fair value was reduced by the present value of
expected dividends during the vesting period. The weighted average grant-date fair value per share
of restricted stock units granted during the first 39 weeks of fiscal 2011 was $28.72.
In the first 39 weeks of fiscal 2011, restricted awards in the amount of 60,973 shares were
granted to non-employee directors from the 2009 Non-Employee Directors Stock Plan. The
non-employee directors may elect to receive these awards in restricted stock shares that will vest
at the end of the award’s stated vesting period or as deferred units which convert into shares of
Sysco common stock upon a date selected by the non-employee director that is subsequent to the
award’s stated vesting date. The fair value of the restricted awards is based on the company’s
stock price as of the date of grant. The weighted average grant-date fair value per share of
restricted awards granted during the first 39 weeks of fiscal 2011 was $28.87.
Under the 2009 Non-Employee Directors Stock Plan, non-employee directors may elect to receive
up to 100% of their annual directors’ fees in Sysco common stock on either an annual or deferred
basis. In the first 39 weeks of fiscal 2011,
9
Table of Contents
27,979 shares with a weighted average grant date fair
value of $29.26 were issued for these elections in the form of fully vested common stock or
deferred units.
Employees’ Stock Purchase Plan
Plan participants purchased 1,252,194 shares of Sysco common stock under the Sysco Employees’
Stock Purchase Plan during the first 39 weeks of fiscal 2011.
The weighted average fair value per share of employee stock purchase rights issued pursuant to
the Employees’ Stock Purchase Plan was $4.33 during the first 39 weeks of fiscal 2011. The fair
value of the stock purchase rights is estimated as the difference between the stock price and the
employee purchase price.
All Share-Based Payment Arrangements
The total share-based compensation cost that has been recognized in results of operations was
$48.5 million and $52.0 million for the first 39 weeks of fiscal 2011 and fiscal 2010,
respectively.
As of April 2, 2011, there was $70.4 million of total unrecognized compensation cost related
to share-based compensation arrangements. This cost is expected to be recognized over a
weighted-average period of 2.76 years.
8. INCOME TAXES
Internal Revenue Service Settlement
In the first quarter of fiscal 2010, Sysco reached a settlement with the Internal Revenue
Service (IRS) in connection with its audits of the company’s 2003 through 2006 federal income tax
returns. As a result of the settlement, Sysco agreed to cease paying U.S. federal taxes related
to its affiliate Baugh Supply Chain Cooperative (BSCC) on a deferred basis and pay the amounts that
were recorded within deferred taxes related to BSCC over a three-year period as follows:
| (In thousands) | ||||
|
Fiscal 2010
|
$ | 528,000 | ||
|
Fiscal 2011
|
212,000 | |||
|
Fiscal 2012
|
212,000 | |||
In the first 39 weeks of fiscal 2011, $159.0 million of payments were made related to the
settlement. As noted in the table above, $528.0 million was paid related to the settlement in
fiscal 2010, of which $475.0 million was paid in the first 39 weeks of fiscal 2010. The remaining
amount to be paid in fiscal 2011 will be paid in connection with Sysco’s quarterly tax payment in
the fourth quarter. Remaining amounts to be paid in fiscal 2012 will be paid in connection with
Sysco’s quarterly tax payments, two of which fall in the second quarter, one in the third quarter
and one in the fourth quarter. The company believes it has access to sufficient cash on hand, cash
flow from operations and current access to capital to make payments on all of the amounts noted
above. The company had previously accrued interest for a portion of the exposure pertaining to the
IRS proposed adjustments and as a result of the settlement with the IRS, Sysco recorded an income
tax benefit of approximately $29.0 million in the first quarter of fiscal 2010.
Sysco’s deferred taxes were impacted by the timing of these installment payments. Sysco
reclassified amounts due within one year from deferred taxes to accrued income taxes at the
beginning of fiscal 2010 and at the beginning of fiscal 2011.
Uncertain Tax Positions
As of April 2, 2011, the gross amount of unrecognized tax benefits was $75.4 million and the
gross amount of accrued interest liabilities was $33.8 million. It is reasonably possible that the
amount of the unrecognized tax benefits with respect to certain of the company’s unrecognized tax
positions will increase or decrease in the next twelve months either because Sysco prevails on
positions that were being challenged upon audit or because the company agrees to their
disallowance. Items that may cause changes to unrecognized tax benefits primarily include the
consideration of various filing requirements in numerous states and the allocation of income and
expense between tax jurisdictions. At this time, an estimate of the range of the reasonably
possible change cannot be made.
10
Table of Contents
Effective Tax Rates
The effective tax rate of 36.89% for the first 39 weeks of fiscal 2011 was favorably impacted
by two items. First , the company recorded a tax benefit of approximately $11.6 million for the
reversal of valuation allowances previously recorded on state net operating loss carryforwards.
Second, the company adjusted the carrying values of the company’s corporate-owned life insurance
(COLI) policies to their cash surrender values. The gain of $29.5 million recorded in the first 39
weeks of fiscal 2011 was non-taxable for income tax purposes, and had the impact of decreasing
income tax expense for the period by $11.3 million. Partially offsetting these favorable impacts
was the recording of $7.7 million in tax and interest related to various federal and state
uncertain tax positions.
The effective tax rate of 35.26% for the first 39 weeks of fiscal 2010 was favorably impacted
by two items. First, the company recorded an income tax benefit of approximately $29.0 million
resulting from the one-time reversal of previously accrued interest related to the settlement with
the IRS. Second, the gain of $31.8 million recorded to adjust the carrying value of COLI policies
to their cash surrender values in the first 39 weeks of fiscal 2010 was non-taxable for income tax
purposes and had the impact of decreasing income tax expense for the period by $12.2 million.
The effective tax rate of 36.25% for the third quarter of fiscal 2011 was favorably impacted
by the recording of a tax benefit of approximately $10.0 million for the reversal of valuation
allowances previously recorded on state net operating loss carryforwards. This favorable impact
was partially offset by the recording of $4.1 million in tax and interest related to various
federal and state uncertain tax positions.
The effective tax rate was 38.61% for the third quarter of fiscal 2010.
Other
The determination of the company’s provision for income taxes requires significant judgment,
the use of estimates and the interpretation and application of complex tax laws. The company’s
provision for income taxes reflects a combination of income earned and taxed in the various U.S.
federal and state, as well as foreign, jurisdictions. Jurisdictional tax law changes, increases or
decreases in permanent differences between book and tax items, accruals or adjustments of accruals
for tax contingencies or valuation allowances, and the company’s change in the mix of earnings from
these taxing jurisdictions all affect the overall effective tax rate.
9. ACQUISITIONS
During the first 39 weeks of fiscal 2011, in the aggregate, the company paid cash of $35.5
million for acquisitions made during fiscal 2011 and for contingent consideration related to
operations acquired in previous fiscal years. Acquisitions in the first 39 weeks of fiscal 2011
were immaterial to the consolidated financial statements and therefore additional disclosures have
not been provided.
Certain acquisitions involve contingent consideration typically payable over periods up to
five years only in the event that certain operating results are attained or certain outstanding
contingencies are resolved. As of April 2, 2011, aggregate contingent consideration amounts
outstanding relating to acquisitions was $48.0 million, of which $46.0 million could result in the
recording of additional goodwill.
10. COMMITMENTS AND CONTINGENCIES
Sysco is engaged in various legal proceedings which have arisen but have not been fully
adjudicated. These proceedings, in the opinion of management, will not have a material adverse
effect upon the consolidated financial position or results of operations of the company when
ultimately concluded.
Multi-Employer Pension Plans
Sysco contributes to several multi-employer defined benefit pension plans based on obligations
arising under collective bargaining agreements covering union-represented employees. Sysco does
not directly manage these multi-employer plans, which are generally managed by boards of trustees,
half of whom are appointed by the unions and the other half by other employers contributing to the
plan. Based upon the information available from plan administrators, management believes that
several of these multi-employer plans are underfunded. In addition, pension-related legislation
requires underfunded pension plans to improve their funding ratios within prescribed intervals
based on the level of their underfunding. As a result, Sysco expects its contributions to these
plans to increase in the future.
11
Table of Contents
Under current law regarding multi-employer defined benefit plans, a plan’s termination,
Sysco’s voluntary withdrawal, or the mass withdrawal of all contributing employers from any
underfunded multi-employer defined benefit plan would require Sysco to make payments to the plan
for Sysco’s proportionate share of the multi-employer plan’s unfunded vested liabilities.
Generally, Sysco does not have the greatest share of liability among the participants in any of the
plans in which we participate. Based on the information available from plan administrators, which
has valuation dates ranging from January 31, 2009 to December 31, 2009, Sysco estimates its share
of withdrawal liability on most of the multi-employer plans in which it participates could have
been as much as $200.0 million as of April 2, 2011, based on a voluntary withdrawal. This estimate
excludes plans for which Sysco has recorded withdrawal liabilities. The majority of the plans we
participate in have a valuation date of calendar year-end. As such, the majority of the estimated
withdrawal liability results from plans for which the valuation date was December 31, 2009;
therefore, the company’s estimated liability reflects the effects of the fair value of the plans’
assets and projected benefit obligations as of that date. Due to the lack of current information,
management believes Sysco’s current share of the withdrawal liability could differ from this
estimate. In addition, if a multi-employer defined benefit plan fails to satisfy certain minimum
funding requirements, the IRS may impose a nondeductible excise tax of 5% on the amount of the
accumulated funding deficiency for those employers contributing to the fund.
In the third quarter of fiscal 2011, the union members of one of the company’s subsidiaries
voted to withdraw from the union’s multi-employer pension plan and join Sysco’s company-sponsored
Retirement Plan. This action triggered a partial withdrawal from the multi-employer pension plan.
As a result, during the third quarter of fiscal 2011, Sysco recorded a withdrawal liability
provision of approximately $36.1 million related to this plan. As of April 2, 2011, Sysco had
approximately $42.4 million in liabilities recorded related to certain multi-employer defined
benefit plans for which Sysco’s voluntary withdrawal had already occurred, which includes the
liability recorded in the third quarter of fiscal 2011. Recorded withdrawal liabilities are
estimated at the time of withdrawal based on the most recently available valuation and participant
data for the respective plans; amounts are adjusted up to the period of payment to reflect any
changes to these estimates.
Fuel Commitments
From time to time, Sysco may enter into forward purchase commitments for a portion of its
projected diesel fuel requirements. As of April 2, 2011, outstanding forward diesel fuel purchase
commitments totaled approximately $71.0 million at a fixed price through February 2012.
11. BUSINESS SEGMENT INFORMATION
The company has aggregated its operating companies into a number of segments, of which only
Broadline and SYGMA are reportable segments as defined in the accounting literature related to
disclosures about segments of an enterprise. The Broadline reportable segment is an aggregation of
the company’s United States, Canadian and European Broadline segments, as well as its custom-cut
meat operations. Broadline operating companies distribute a full line of food products and a wide
variety of non-food products to their customers. SYGMA operating companies distribute a full line
of food products and a wide variety of non-food products to certain chain restaurant customer
locations. “Other” financial information is attributable to the company’s other operating
segments, including the company’s specialty produce and lodging industry segments and a company
that distributes to international customers.
Beginning in the third quarter of fiscal 2011, the company’s custom-cut meat operations were
reorganized to function as part of the United States Broadline segment. As a result, the
custom-cut meat operations are included in the Broadline reportable segment in the segment
reporting presented below. Previously, these operations were an independent segment and were
presented with the “Other” financial information relating to non-reportable segments. Segment
reporting for the comparable prior year periods has been revised to conform to the new
classification of the custom-cut meat operations as part of the Broadline reportable segment.
The accounting policies for the segments are the same as those disclosed by Sysco for its
consolidated financial statements. Intersegment sales represent specialty produce and meat company
products distributed by the Broadline and SYGMA operating companies. The segment results include
certain centrally incurred costs for shared services that are charged to our segments. These
centrally incurred costs are charged based upon the relative level of service used by each
operating company consistent with how Sysco’s management views the performance of its operating
segments. Management evaluates the performance of each of our operating segments based on its
respective operating income results, which include the allocation of certain centrally incurred
costs.
12
Table of Contents
Included in corporate expenses, among other items, are:
| • | Gains and losses recorded to adjust COLI policies to their cash surrender values; |
| • | Share-based compensation expense; |
| • | Expenses related to the company’s business transformation project; and |
| • | Corporate-level depreciation and amortization expense. |
The following tables set forth certain financial information for Sysco’s business segments:
| 39-Week Period Ended | 13-Week Period Ended | |||||||||||||||
| April 2, 2011 | March 27, 2010 | April 2, 2011 | March 27, 2010 | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Sales:
|
||||||||||||||||
|
Broadline
|
$ | 23,468,341 | $ | 21,984,082 | $ | 7,915,829 | $ | 7,268,364 | ||||||||
|
SYGMA
|
3,947,705 | 3,505,710 | 1,315,439 | 1,197,536 | ||||||||||||
|
Other
|
1,597,680 | 1,504,384 | 575,716 | 515,432 | ||||||||||||
|
Intersegment sales
|
(115,940 | ) | (99,158 | ) | (45,324 | ) | (36,239 | ) | ||||||||
|
|
||||||||||||||||
|
Total
|
$ | 28,897,786 | $ | 26,895,018 | $ | 9,761,660 | $ | 8,945,093 | ||||||||
|
|
||||||||||||||||
| 39-Week Period Ended | 13-Week Period Ended | |||||||||||||||
| April 2, 2011 | March 27, 2010 | April 2, 2011 | March 27, 2010 | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Operating income:
|
||||||||||||||||
|
Broadline
|
$ | 1,506,397 | $ | 1,489,407 | $ | 477,063 | $ | 462,054 | ||||||||
|
SYGMA
|
45,244 | 31,365 | 16,852 | 13,508 | ||||||||||||
|
Other
|
64,826 | 60,478 | 27,730 | 22,108 | ||||||||||||
|
|
||||||||||||||||
|
Total segments
|
1,616,467 | 1,581,250 | 521,645 | 497,670 | ||||||||||||
|
Corporate expenses
|
(245,715 | ) | (189,468 | ) | (94,158 | ) | (65,567 | ) | ||||||||
|
|
||||||||||||||||
|
Total operating income
|
1,370,752 | 1,391,782 | 427,487 | 432,103 | ||||||||||||
|
|
||||||||||||||||
|
Interest expense
|
88,133 | 92,976 | 28,972 | 27,654 | ||||||||||||
|
Other expense (income), net
|
(9,941 | ) | (2,122 | ) | (6,957 | ) | 1,028 | |||||||||
|
|
||||||||||||||||
|
Earnings before income taxes
|
$ | 1,292,560 | $ | 1,300,928 | $ | 405,472 | $ | 403,421 | ||||||||
|
|
||||||||||||||||
| April 2, 2011 | July 3, 2010 | March 27, 2010 | ||||||||||
| (In thousands) | ||||||||||||
|
Assets:
|
||||||||||||
|
Broadline
|
$ | 7,153,837 | $ | 6,417,776 | $ | 6,382,582 | ||||||
|
SYGMA
|
424,087 | 392,883 | 380,756 | |||||||||
|
Other
|
811,720 | 738,814 | 745,976 | |||||||||
|
|
||||||||||||
|
Total segments
|
8,389,644 | 7,549,473 | 7,509,314 | |||||||||
|
Corporate
|
2,560,290 | 2,764,228 | 2,892,975 | |||||||||
|
|
||||||||||||
|
Total
|
$ | 10,949,934 | $ | 10,313,701 | $ | 10,402,289 | ||||||
|
|
||||||||||||
13
Table of Contents
12. SUPPLEMENTAL GUARANTOR INFORMATION — PARENT GUARANTEE
Sysco International, ULC is an unlimited liability company organized under the laws of the
Province of British Columbia, Canada and is a wholly-owned subsidiary of Sysco. In May 2002, Sysco
International, Co. issued, in a private offering, $200.0 million of 6.10% notes due in 2012. These
notes are fully and unconditionally guaranteed by Sysco.
The following condensed consolidating financial statements present separately the financial
position, results of operations and cash flows of the parent guarantor (Sysco), the subsidiary
issuer (Sysco International) and all other non-guarantor subsidiaries of Sysco (Other Non-Guarantor
Subsidiaries) on a combined basis with eliminating entries.
| Condensed Consolidating Balance Sheet | ||||||||||||||||||||
| April 2, 2011 | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Sysco | Non-Guarantor | Consolidated | ||||||||||||||||||
| Sysco | International | Subsidiaries | Eliminations | Totals | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Current assets
|
$ | 178,969 | $ | — | $ | 5,259,588 | $ | — | $ | 5,438,557 | ||||||||||
|
Investment in subsidiaries
|
13,496,924 | 537,424 | 114,035 | (14,148,383 | ) | — | ||||||||||||||
|
Plant and equipment, net
|
583,676 | — | 2,836,186 | — | 3,419,862 | |||||||||||||||
|
Other assets
|
378,046 | 410 | 1,713,059 | — | 2,091,515 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total assets
|
$ | 14,637,615 | $ | 537,834 | $ | 9,922,868 | $ | (14,148,383 | ) | $ | 10,949,934 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Current liabilities
|
$ | 385,558 | $ | 4,137 | $ | 2,746,755 | $ | — | $ | 3,136,450 | ||||||||||
|
Intercompany payables (receivables)
|
7,345,425 | 99,435 | (7,444,860 | ) | — | — | ||||||||||||||
|
Long-term debt
|
2,411,205 | 199,928 | 52,337 | — | 2,663,470 | |||||||||||||||
|
Other liabilities
|
528,883 | — | 413,926 | — | 942,809 | |||||||||||||||
|
Shareholders’ equity
|
3,966,544 | 234,334 | 14,154,710 | (14,148,383 | ) | 4,207,205 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total liabilities and shareholders’ equity
|
$ | 14,637,615 | $ | 537,834 | $ | 9,922,868 | $ | (14,148,383 | ) | $ | 10,949,934 | |||||||||
|
|
||||||||||||||||||||
| Condensed Consolidating Balance Sheet | ||||||||||||||||||||
| July 3, 2010 | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Sysco | Non-Guarantor | Consolidated | ||||||||||||||||||
| Sysco | International | Subsidiaries | Eliminations | Totals | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Current assets
|
$ | 417,336 | $ | 33 | $ | 4,658,889 | $ | — | $ | 5,076,258 | ||||||||||
|
Investment in subsidiaries
|
14,979,871 | 465,641 | 142,925 | (15,588,437 | ) | — | ||||||||||||||
|
Plant and equipment, net
|
425,279 | — | 2,778,544 | — | 3,203,823 | |||||||||||||||
|
Other assets
|
362,658 | 597 | 1,670,365 | — | 2,033,620 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total assets
|
$ | 16,185,144 | $ | 466,271 | $ | 9,250,723 | $ | (15,588,437 | ) | $ | 10,313,701 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Current liabilities
|
$ | 444,274 | $ | 1,114 | $ | 2,563,810 | $ | — | $ | 3,009,198 | ||||||||||
|
Intercompany payables (receivables)
|
9,405,317 | 73,124 | (9,478,441 | ) | — | — | ||||||||||||||
|
Long-term debt
|
2,225,781 | 199,881 | 47,000 | — | 2,472,662 | |||||||||||||||
|
Other liabilities
|
411,781 | — | 592,534 | — | 1,004,315 | |||||||||||||||
|
Shareholders’ equity
|
3,697,991 | 192,152 | 15,525,820 | (15,588,437 | ) | 3,827,526 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total liabilities and shareholders’ equity
|
$ | 16,185,144 | $ | 466,271 | $ | 9,250,723 | $ | (15,588,437 | ) | $ | 10,313,701 | |||||||||
|
|
||||||||||||||||||||
14
Table of Contents
| Condensed Consolidating Balance Sheet | ||||||||||||||||||||
| March 27, 2010 | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Sysco | Non-Guarantor | Consolidated | ||||||||||||||||||
| Sysco | International | Subsidiaries | Eliminations | Totals | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Current assets
|
$ | 420,468 | $ | 49 | $ | 4,645,340 | $ | — | $ | 5,065,857 | ||||||||||
|
Investment in subsidiaries
|
14,493,372 | 473,766 | 134,043 | (15,101,181 | ) | — | ||||||||||||||
|
Plant and equipment, net
|
372,716 | — | 2,803,504 | — | 3,176,220 | |||||||||||||||
|
Other assets
|
542,736 | 700 | 1,616,776 | — | 2,160,212 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total assets
|
$ | 15,829,292 | $ | 474,515 | $ | 9,199,663 | $ | (15,101,181 | ) | $ | 10,402,289 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Current liabilities
|
$ | 389,464 | $ | 3,941 | $ | 2,457,889 | $ | — | $ | 2,851,294 | ||||||||||
|
Intercompany payables (receivables)
|
8,923,960 | 84,904 | (9,008,864 | ) | — | — | ||||||||||||||
|
Long-term debt
|
2,219,676 | 199,863 | 48,978 | — | 2,468,517 | |||||||||||||||
|
Other liabilities
|
436,957 | — | 617,483 | — | 1,054,440 | |||||||||||||||
|
Shareholders’ equity
|
3,859,235 | 185,807 | 15,084,177 | (15,101,181 | ) | 4,028,038 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total liabilities and shareholders’ equity
|
$ | 15,829,292 | $ | 474,515 | $ | 9,199,663 | $ | (15,101,181 | ) | $ | 10,402,289 | |||||||||
|
|
||||||||||||||||||||
| Condensed Consolidating Results of Operations | ||||||||||||||||||||
| For the 39-Week Period Ended April 2, 2011 | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Sysco | Non-Guarantor | Consolidated | ||||||||||||||||||
| Sysco | International | Subsidiaries | Eliminations | Totals | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Sales
|
$ | — | $ | — | $ | 28,897,786 | $ | — | $ | 28,897,786 | ||||||||||
|
Cost of sales
|
— | — | 23,513,565 | — | 23,513,565 | |||||||||||||||
|
|
||||||||||||||||||||
|
Gross margin
|
— | — | 5,384,221 | — | 5,384,221 | |||||||||||||||
|
Operating expenses
|
243,259 | 101 | 3,770,109 | — | 4,013,469 | |||||||||||||||
|
|
||||||||||||||||||||
|
Operating income (loss)
|
(243,259 | ) | (101 | ) | 1,614,112 | — | 1,370,752 | |||||||||||||
|
Interest expense (income)
|
357,735 | 7,994 | (277,596 | ) | — | 88,133 | ||||||||||||||
|
Other expense (income), net
|
(3,198 | ) | — | (6,743 | ) | — | (9,941 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Earnings (losses) before income taxes
|
(597,796 | ) | (8,095 | ) | 1,898,451 | — | 1,292,560 | |||||||||||||
|
Income tax provision (benefit)
|
(220,533 | ) | (2,986 | ) | 700,359 | — | 476,840 | |||||||||||||
|
Equity in earnings of subsidiaries
|
1,192,983 | 41,191 | — | (1,234,174 | ) | — | ||||||||||||||
|
|
||||||||||||||||||||
|
Net earnings
|
$ | 815,720 | $ | 36,082 | $ | 1,198,092 | $ | (1,234,174 | ) | $ | 815,720 | |||||||||
|
|
||||||||||||||||||||
| Condensed Consolidating Results of Operations | ||||||||||||||||||||
| For the 39-Week Period Ended March 27, 2010 | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Sysco | Non-Guarantor | Consolidated | ||||||||||||||||||
| Sysco | International | Subsidiaries | Eliminations | Totals | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Sales
|
$ | — | $ | — | $ | 26,895,018 | $ | — | $ | 26,895,018 | ||||||||||
|
Cost of sales
|
— | — | 21,769,400 | — | 21,769,400 | |||||||||||||||
|
|
||||||||||||||||||||
|
Gross margin
|
— | — | 5,125,618 | — | 5,125,618 | |||||||||||||||
|
Operating expenses
|
180,871 | 77 | 3,552,888 | — | 3,733,836 | |||||||||||||||
|
|
||||||||||||||||||||
|
Operating income
|
(180,871 | ) | (77 | ) | 1,572,730 | — | 1,391,782 | |||||||||||||
|
Interest expense (income)
|
360,170 | 7,600 | (274,794 | ) | — | 92,976 | ||||||||||||||
|
Other income, net
|
2,115 | — | (4,237 | ) | — | (2,122 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Earnings (losses) before income taxes
|
(543,156 | ) | (7,677 | ) | 1,851,761 | — | 1,300,928 | |||||||||||||
|
Income tax (benefit) provision
|
(191,525 | ) | (2,707 | ) | 652,958 | — | 458,726 | |||||||||||||
|
Equity in earnings of subsidiaries
|
1,193,833 | 36,003 | — | (1,229,836 | ) | — | ||||||||||||||
|
|
||||||||||||||||||||
|
Net earnings
|
$ | 842,202 | $ | 31,033 | $ | 1,198,803 | $ | (1,229,836 | ) | $ | 842,202 | |||||||||
|
|
||||||||||||||||||||
15
Table of Contents
| Condensed Consolidating Results of Operations | ||||||||||||||||||||
| For the 13-Week Period Ended April 2, 2011 | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Sysco | Non-Guarantor | Consolidated | ||||||||||||||||||
| Sysco | International | Subsidiaries | Eliminations | Totals | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Sales
|
$ | — | $ | — | $ | 9,761,660 | $ | — | $ | 9,761,660 | ||||||||||
|
Cost of sales
|
— | — | 7,950,800 | — | 7,950,800 | |||||||||||||||
|
|
||||||||||||||||||||
|
Gross margin
|
— | — | 1,810,860 | — | 1,810,860 | |||||||||||||||
|
Operating expenses
|
89,527 | 36 | 1,293,810 | — | 1,383,373 | |||||||||||||||
|
|
||||||||||||||||||||
|
Operating income (loss)
|
(89,527 | ) | (36 | ) | 517,050 | — | 427,487 | |||||||||||||
|
Interest expense (income)
|
95,879 | 2,317 | (69,224 | ) | — | 28,972 | ||||||||||||||
|
Other expense (income), net
|
(3,106 | ) | — | (3,851 | ) | — | (6,957 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Earnings (losses) before income taxes
|
(182,300 | ) | (2,353 | ) | 590,125 | — | 405,472 | |||||||||||||
|
Income tax provision (benefit)
|
(66,039 | ) | (851 | ) | 213,884 | — | 146,994 | |||||||||||||
|
Equity in earnings of subsidiaries
|
374,739 | 9,444 | — | (384,183 | ) | — | ||||||||||||||
|
|
||||||||||||||||||||
|
Net earnings
|
$ | 258,478 | $ | 7,942 | $ | 376,241 | $ | (384,183 | ) | $ | 258,478 | |||||||||
|
|
||||||||||||||||||||
| Condensed Consolidating Results of Operations | ||||||||||||||||||||
| For the 13-Week Period Ended March 27, 2010 | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Sysco | Non-Guarantor | Consolidated | ||||||||||||||||||
| Sysco | International | Subsidiaries | Eliminations | Totals | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Sales
|
$ | — | $ | — | $ | 8,945,093 | $ | — | $ | 8,945,093 | ||||||||||
|
Cost of sales
|
— | — | 7,261,721 | — | 7,261,721 | |||||||||||||||
|
|
||||||||||||||||||||
|
Gross margin
|
— | — | 1,683,372 | — | 1,683,372 | |||||||||||||||
|
Operating expenses
|
58,061 | 8 | 1,193,200 | — | 1,251,269 | |||||||||||||||
|
|
||||||||||||||||||||
|
Operating income
|
(58,061 | ) | (8 | ) | 490,172 | — | 432,103 | |||||||||||||
|
Interest expense (income)
|
119,040 | 2,532 | (93,918 | ) | — | 27,654 | ||||||||||||||
|
Other income, net
|
2,475 | — | (1,447 | ) | — | 1,028 | ||||||||||||||
|
|
||||||||||||||||||||
|
Earnings (losses) before income taxes
|
(179,576 | ) | (2,540 | ) | 585,537 | — | 403,421 | |||||||||||||
|
Income tax (benefit) provision
|
(68,799 | ) | (973 | ) | 225,545 | — | 155,773 | |||||||||||||
|
Equity in earnings of subsidiaries
|
358,425 | 8,810 | — | (367,235 | ) | — | ||||||||||||||
|
|
||||||||||||||||||||
|
Net earnings
|
$ | 247,648 | $ | 7,243 | $ | 359,992 | $ | (367,235 | ) | $ | 247,648 | |||||||||
|
|
||||||||||||||||||||
| Condensed Consolidating Cash Flows | ||||||||||||||||
| For the 39-Week Period Ended April 2, 2011 | ||||||||||||||||
| Other | ||||||||||||||||
| Sysco | Non-Guarantor | Consolidated | ||||||||||||||
| Sysco | International | Subsidiaries | Totals | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Net cash provided by (used for):
|
||||||||||||||||
|
Operating activities
|
$ | (246,297 | ) | $ | 39,372 | $ | 872,684 | $ | 665,759 | |||||||
|
Investing activities
|
(170,172 | ) | — | (265,369 | ) | (435,541 | ) | |||||||||
|
Financing activities
|
(444,484 | ) | — | (4,591 | ) | (449,075 | ) | |||||||||
|
Effect of exchange rates on cash
|
— | — | 19,082 | 19,082 | ||||||||||||
|
Intercompany activity
|
619,954 | (39,372 | ) | (580,582 | ) | — | ||||||||||
|
|
||||||||||||||||
|
Net (decrease) in cash
|
(240,999 | ) | — | 41,224 | (199,775 | ) | ||||||||||
|
Cash at the beginning of the period
|
373,523 | — | 211,920 | 585,443 | ||||||||||||
|
|
||||||||||||||||
|
Cash at the end of the period
|
$ | 132,524 | $ | — | $ | 253,144 | $ | 385,668 | ||||||||
|
|
||||||||||||||||
16
Table of Contents
| Condensed Consolidating Cash Flows | ||||||||||||||||
| For the 39-Week Period Ended March 27, 2010 | ||||||||||||||||
| Other | ||||||||||||||||
| Sysco | Non-Guarantor | Consolidated | ||||||||||||||
| Sysco | International | Subsidiaries | Totals | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Net cash provided by (used for):
|
||||||||||||||||
|
Operating activities
|
$ | (320,225 | ) | $ | 34,184 | $ | 762,570 | $ | 476,529 | |||||||
|
Investing activities
|
(175,746 | ) | — | (320,717 | ) | (496,463 | ) | |||||||||
|
Financing activities
|
(420,338 | ) | — | (796 | ) | (421,134 | ) | |||||||||
|
Effect of exchange rates on cash
|
— | — | 9,271 | 9,271 | ||||||||||||
|
Intercompany activity
|
391,982 | (34,184 | ) | (357,798 | ) | — | ||||||||||
|
|
||||||||||||||||
|
Net (decrease) in cash
|
(524,327 | ) | — | 92,530 | (431,797 | ) | ||||||||||
|
Cash at the beginning of the period
|
899,196 | — | 119,455 | 1,018,651 | ||||||||||||
|
|
||||||||||||||||
|
Cash at the end of the period
|
$ | 374,869 | $ | — | $ | 211,985 | $ | 586,854 | ||||||||
|
|
||||||||||||||||
13. SUPPLEMENTAL GUARANTOR INFORMATION — SUBSIDIARY GUARANTEES
On January 19, 2011, the wholly-owned U.S. Broadline subsidiaries of Sysco Corporation entered
into full and unconditional guarantees of all outstanding senior notes and debentures of Sysco
Corporation. As of April 2, 2011, Sysco had a total of approximately $2,225.0 million in senior
notes and debentures outstanding.
The following condensed consolidating financial statements present separately the financial
position, results of operations and cash flows of the parent issuer (Sysco Corporation), the
guarantors (U.S. Broadline subsidiaries), and all other non-guarantor subsidiaries of Sysco (Other
Non-Guarantor Subsidiaries) on a combined basis with eliminating entries.
| Condensed Consolidating Balance Sheet | ||||||||||||||||||||
| April 2, 2011 | ||||||||||||||||||||
| U.S. | Other | |||||||||||||||||||
| Broadline | Non-Guarantor | Consolidated | ||||||||||||||||||
| Sysco | Subsidiaries | Subsidiaries | Eliminations | Totals | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Current assets
|
$ | 178,969 | $ | 3,570,059 | $ | 1,689,529 | $ | — | $ | 5,438,557 | ||||||||||
|
Investment in subsidiaries
|
13,496,924 | — | — | (13,496,924 | ) | — | ||||||||||||||
|
Plant and equipment, net
|
583,676 | 1,782,067 | 1,054,119 | — | 3,419,862 | |||||||||||||||
|
Other assets
|
378,046 | 500,882 | 1,212,587 | — | 2,091,515 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total assets
|
$ | 14,637,615 | $ | 5,853,008 | $ | 3,956,235 | $ | (13,496,924 | ) | $ | 10,949,934 | |||||||||
|
|
||||||||||||||||||||
|
Current liabilities
|
$ | 385,558 | $ | 988,065 | $ | 1,762,827 | $ | — | $ | 3,136,450 | ||||||||||
|
Intercompany payables (receivables)
|
7,345,425 | (7,248,600 | ) | (96,825 | ) | — | — | |||||||||||||
|
Long-term debt
|
2,411,205 | 24,313 | 227,952 | — | 2,663,470 | |||||||||||||||
|
Other liabilities
|
528,883 | 355,312 | 58,614 | — | 942,809 | |||||||||||||||
|
Shareholders’ equity
|
3,966,544 | 11,733,918 | 2,003,667 | (13,496,924 | ) | 4,207,205 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total liabilities and shareholders’ equity
|
$ | 14,637,615 | $ | 5,853,008 | $ | 3,956,235 | $ | (13,496,924 | ) | $ | 10,949,934 | |||||||||
|
|
||||||||||||||||||||
| Condensed Consolidating Balance Sheet | ||||||||||||||||||||
| July 3, 2010 | ||||||||||||||||||||
| U.S. | Other | |||||||||||||||||||
| Broadline | Non-Guarantor | Consolidated | ||||||||||||||||||
| Sysco | Subsidiaries | Subsidiaries | Eliminations | Totals | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Current assets
|
$ | 417,336 | $ | 3,165,121 | $ | 1,493,801 | $ | — | $ | 5,076,258 | ||||||||||
|
Investment in subsidiaries
|
14,979,871 | — | — | (14,979,871 | ) | — | ||||||||||||||
|
Plant and equipment, net
|
425,279 | 1,762,580 | 1,015,964 | — | 3,203,823 | |||||||||||||||
|
Other assets
|
362,658 | 484,887 | 1,186,075 | — | 2,033,620 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total assets
|
$ | 16,185,144 | $ | 5,412,588 | $ | 3,695,840 | $ | (14,979,871 | ) | $ | 10,313,701 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Current liabilities
|
$ | 444,274 | $ | 918,449 | $ | 1,646,475 | $ | — | $ | 3,009,198 | ||||||||||
|
Intercompany payables (receivables)
|
9,405,317 | (9,408,645 | ) | 3,328 | — | — | ||||||||||||||
|
Long-term debt
|
2,225,781 | 18,860 | 228,021 | — | 2,472,662 | |||||||||||||||
|
Other liabilities
|
411,781 | 491,528 | 101,006 | — | 1,004,315 | |||||||||||||||
|
Shareholders’ equity
|
3,697,991 | 13,392,396 | 1,717,010 | (14,979,871 | ) | 3,827,526 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total liabilities and shareholders’ equity
|
$ | 16,185,144 | $ | 5,412,588 | $ | 3,695,840 | $ | (14,979,871 | ) | $ | 10,313,701 | |||||||||
|
|
||||||||||||||||||||
17
Table of Contents
| Condensed Consolidating Balance Sheet | ||||||||||||||||||||
| March 27, 2010 | ||||||||||||||||||||
| U.S. | Other | |||||||||||||||||||
| Broadline | Non-Guarantor | Consolidated | ||||||||||||||||||
| Sysco | Subsidiaries | Subsidiaries | Eliminations | Totals | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Current assets
|
$ | 420,468 | $ | 3,190,351 | $ | 1,455,038 | $ | — | $ | 5,065,857 | ||||||||||
|
Investment in subsidiaries
|
14,493,372 | — | — | (14,493,372 | ) | — | ||||||||||||||
|
Plant and equipment, net
|
372,716 | 1,780,941 | 1,022,563 | — | 3,176,220 | |||||||||||||||
|
Other assets
|
542,736 | 429,599 | 1,187,877 | — | 2,160,212 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total assets
|
$ | 15,829,292 | $ | 5,400,891 | $ | 3,665,478 | $ | (14,493,372 | ) | $ | 10,402,289 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Current liabilities
|
$ | 389,464 | $ | 854,515 | $ | 1,607,315 | $ | — | $ | 2,851,294 | ||||||||||
|
Intercompany payables (receivables)
|
8,923,960 | (8,964,904 | ) | 40,944 | — | — | ||||||||||||||
|
Long-term debt
|
2,219,676 | 18,791 | 230,050 | — | 2,468,517 | |||||||||||||||
|
Other liabilities
|
436,957 | 517,975 | 99,508 | — | 1,054,440 | |||||||||||||||
|
Shareholders’ equity
|
3,859,235 | 12,974,514 | 1,687,661 | (14,493,372 | ) | 4,028,038 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total liabilities and shareholders’ equity
|
$ | 15,829,292 | $ | 5,400,891 | $ | 3,665,478 | $ | (14,493,372 | ) | $ | 10,402,289 | |||||||||
|
|
||||||||||||||||||||
| Condensed Consolidating Results of Operations | ||||||||||||||||||||
| For the 39-Week Period Ended April 2, 2011 | ||||||||||||||||||||
| U.S. | Other | |||||||||||||||||||
| Broadline | Non-Guarantor | Consolidated | ||||||||||||||||||
| Sysco | Subsidiaries | Subsidiaries | Eliminations | Totals | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Sales
|
$ | — | $ | 19,973,534 | $ | 9,405,806 | $ | (481,554 | ) | $ | 28,897,786 | |||||||||
|
Cost of sales
|
— | 15,933,690 | 7,995,106 | (415,231 | ) | 23,513,565 | ||||||||||||||
|
|
||||||||||||||||||||
|
Gross margin
|
— | 4,039,844 | 1,410,700 | (66,323 | ) | 5,384,221 | ||||||||||||||
|
Operating expenses
|
243,259 | 2,687,947 | 1,148,586 | (66,323 | ) | 4,013,469 | ||||||||||||||
|
|
||||||||||||||||||||
|
Operating income (loss)
|
(243,259 | ) | 1,351,897 | 262,114 | — | 1,370,752 | ||||||||||||||
|
Interest expense (income)
|
357,735 | (266,871 | ) | (2,731 | ) | — | 88,133 | |||||||||||||
|
Other expense (income), net
|
(3,198 | ) | (3,113 | ) | (3,630 | ) | — | (9,941 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Earnings (losses) before income taxes
|
(597,796 | ) | 1,621,881 | 268,475 | — | 1,292,560 | ||||||||||||||
|
Income tax provision (benefit)
|
(220,533 | ) | 598,330 | 99,043 | — | 476,840 | ||||||||||||||
|
Equity in earnings of subsidiaries
|
1,192,983 | — | — | (1,192,983 | ) | — | ||||||||||||||
|
|
||||||||||||||||||||
|
Net earnings
|
$ | 815,720 | $ | 1,023,551 | $ | 169,432 | $ | (1,192,983 | ) | $ | 815,720 | |||||||||
|
|
||||||||||||||||||||
| Condensed Consolidating Results of Operations | ||||||||||||||||||||
| For the 39-Week Period Ended March 27, 2010 | ||||||||||||||||||||
| U.S. | Other | |||||||||||||||||||
| Broadline | Non-Guarantor | Consolidated | ||||||||||||||||||
| Sysco | Subsidiaries | Subsidiaries | Eliminations | Totals | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Sales
|
$ | — | $ | 18,777,386 | $ | 8,494,808 | $ | (377,176 | ) | $ | 26,895,018 | |||||||||
|
Cost of sales
|
— | 14,889,499 | 7,196,514 | (316,613 | ) | 21,769,400 | ||||||||||||||
|
|
||||||||||||||||||||
|
Gross margin
|
— | 3,887,887 | 1,298,294 | (60,563 | ) | 5,125,618 | ||||||||||||||
|
Operating expenses
|
180,871 | 2,549,271 | 1,064,257 | (60,563 | ) | 3,733,836 | ||||||||||||||
|
|
||||||||||||||||||||
|
Operating income (loss)
|
(180,871 | ) | 1,338,616 | 234,037 | — | 1,391,782 | ||||||||||||||
|
Interest expense (income)
|
360,170 | (269,969 | ) | 2,775 | — | 92,976 | ||||||||||||||
|
Other expense (income), net
|
2,115 | (1,581 | ) | (2,656 | ) | — | (2,122 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Earnings (losses) before income taxes
|
(543,156 | ) | 1,610,166 | 233,918 | — | 1,300,928 | ||||||||||||||
|
Income tax provision (benefit)
|
(191,525 | ) | 567,769 | 82,482 | — | 458,726 | ||||||||||||||
|
Equity in earnings of subsidiaries
|
1,193,833 | — | — | (1,193,833 | ) | — | ||||||||||||||
|
|
||||||||||||||||||||
|
Net earnings
|
$ | 842,202 | $ | 1,042,397 | $ | 151,436 | $ | (1,193,833 | ) | $ | 842,202 | |||||||||
|
|
||||||||||||||||||||
18
Table of Contents
| Condensed Consolidating Results of Operations | ||||||||||||||||||||
| For the 13-Week Period Ended April 2, 2011 | ||||||||||||||||||||
| U.S. | Other | |||||||||||||||||||
| Broadline | Non-Guarantor | Consolidated | ||||||||||||||||||
| Sysco | Subsidiaries | Subsidiaries | Eliminations | Totals | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Sales
|
$ | — | $ | 6,740,097 | $ | 3,204,336 | $ | (182,773 | ) | $ | 9,761,660 | |||||||||
|
Cost of sales
|
— | 5,387,106 | 2,723,422 | (159,728 | ) | 7,950,800 | ||||||||||||||
|
|
||||||||||||||||||||
|
Gross margin
|
— | 1,352,991 | 480,914 | (23,045 | ) | 1,810,860 | ||||||||||||||
|
Operating expenses
|
89,527 | 920,463 | 396,428 | (23,045 | ) | 1,383,373 | ||||||||||||||
|
|
||||||||||||||||||||
|
Operating income (loss)
|
(89,527 | ) | 432,528 | 84,486 | — | 427,487 | ||||||||||||||
|
Interest expense (income)
|
95,879 | (65,674 | ) | (1,233 | ) | — | 28,972 | |||||||||||||
|
Other expense (income), net
|
(3,106 | ) | (2,191 | ) | (1,660 | ) | — | (6,957 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Earnings (losses) before income taxes
|
(182,300 | ) | 500,393 | 87,379 | — | 405,472 | ||||||||||||||
|
Income tax provision (benefit)
|
(66,039 | ) | 181,328 | 31,705 | — | 146,994 | ||||||||||||||
|
Equity in earnings of subsidiaries
|
374,739 | — | — | (374,739 | ) | — | ||||||||||||||
|
|
||||||||||||||||||||
|
Net earnings
|
$ | 258,478 | $ | 319,065 | $ | 55,674 | $ | (374,739 | ) | $ | 258,478 | |||||||||
|
|
||||||||||||||||||||
| Condensed Consolidating Results of Operations | ||||||||||||||||||||
| For the 13-Week Period Ended March 27, 2010 | ||||||||||||||||||||
| U.S. | Other | |||||||||||||||||||
| Broadline | Non-Guarantor | Consolidated | ||||||||||||||||||
| Sysco | Subsidiaries | Subsidiaries | Eliminations | Totals | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Sales
|
$ | — | $ | 6,234,121 | $ | 2,840,927 | $ | (129,955 | ) | $ | 8,945,093 | |||||||||
|
Cost of sales
|
— | 4,959,534 | 2,411,292 | (109,105 | ) | 7,261,721 | ||||||||||||||
|
|
||||||||||||||||||||
|
Gross margin
|
— | 1,274,587 | 429,635 | (20,850 | ) | 1,683,372 | ||||||||||||||
|
Operating expenses
|
58,061 | 852,055 | 362,003 | (20,850 | ) | 1,251,269 | ||||||||||||||
|
|
||||||||||||||||||||
|
Operating income (loss)
|
(58,061 | ) | 422,532 | 67,632 | — | 432,103 | ||||||||||||||
|
Interest expense (income)
|
119,040 | (91,986 | ) | 600 | — | 27,654 | ||||||||||||||
|
Other expense (income), net
|
2,475 | (384 | ) | (1,063 | ) | — | 1,028 | |||||||||||||
|
|
||||||||||||||||||||
|
Earnings (losses) before income taxes
|
(179,576 | ) | 514,902 | 68,095 | — | 403,421 | ||||||||||||||
|
Income tax provision (benefit)
|
(68,799 | ) | 198,064 | 26,508 | — | 155,773 | ||||||||||||||
|
Equity in earnings of subsidiaries
|
358,425 | — | — | (358,425 | ) | — | ||||||||||||||
|
|
||||||||||||||||||||
|
Net earnings
|
$ | 247,648 | $ | 316,838 | $ | 41,587 | $ | (358,425 | ) | $ | 247,648 | |||||||||
|
|
||||||||||||||||||||
| Condensed Consolidating Cash Flows | ||||||||||||||||
| For the 39-Week Period Ended April 2, 2011 | ||||||||||||||||
| U.S. | Other | |||||||||||||||
| Broadline | Non-Guarantor | Consolidated | ||||||||||||||
| Sysco | Subsidiaries | Subsidiaries | Totals | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Net cash provided by (used for):
|
||||||||||||||||
|
Operating activities
|
$ | (246,297 | ) | $ | 731,985 | $ | 180,071 | $ | 665,759 | |||||||
|
Investing activities
|
(170,172 | ) | (206,823 | ) | (58,546 | ) | (435,541 | ) | ||||||||
|
Financing activities
|
(444,484 | ) | (1,755 | ) | (2,836 | ) | (449,075 | ) | ||||||||
|
Effect of exchange rates on cash
|
— | — | 19,082 | 19,082 | ||||||||||||
|
Intercompany activity
|
619,954 | (523,122 | ) | (96,832 | ) | — | ||||||||||
|
|
||||||||||||||||
|
Net (decrease) in cash
|
(240,999 | ) | 285 | 40,939 | (199,775 | ) | ||||||||||
|
Cash at the beginning of the period
|
373,523 | 31,935 | 179,985 | 585,443 | ||||||||||||
|
|
||||||||||||||||
|
Cash at the end of the period
|
$ | 132,524 | $ | 32,220 | $ | 220,924 | $ | 385,668 | ||||||||
|
|
||||||||||||||||
19
Table of Contents
| Condensed Consolidating Cash Flows | ||||||||||||||||
| For the 39-Week Period Ended March 27, 2010 | ||||||||||||||||
| U.S. | Other | |||||||||||||||
| Broadline | Non-Guarantor | Consolidated | ||||||||||||||
| Sysco | Subsidiaries | Subsidiaries | Totals | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Net cash provided by (used for):
|
||||||||||||||||
|
Operating activities
|
$ | (320,225 | ) | $ | 612,170 | $ | 184,584 | $ | 476,529 | |||||||
|
Investing activities
|
(175,746 | ) | (189,374 | ) | (131,343 | ) | (496,463 | ) | ||||||||
|
Financing activities
|
(420,338 | ) | 209 | (1,005 | ) | (421,134 | ) | |||||||||
|
Effect of exchange rates on cash
|
— | — | 9,271 | 9,271 | ||||||||||||
|
Intercompany activity
|
391,982 | (430,328 | ) | 38,346 | — | |||||||||||
|
|
||||||||||||||||
|
Net (decrease) in cash
|
(524,327 | ) | (7,323 | ) | 99,853 | (431,797 | ) | |||||||||
|
Cash at the beginning of the period
|
899,196 | 32,216 | 87,239 | 1,018,651 | ||||||||||||
|
|
||||||||||||||||
|
Cash at the end of the period
|
$ | 374,869 | $ | 24,893 | $ | 187,092 | $ | 586,854 | ||||||||
|
|
||||||||||||||||
14. SUBSEQUENT EVENT
In April 2011, Sysco adopted the Sysco Corporation Involuntary Severance Plan, which allows
for supplemental pay to be provided to eligible covered employees in the event of an involuntary
termination from service with the company. This plan, effective April 3, 2011, will be considered
an employee welfare plan under the Employee Retirement Income
Security Act. The liability resulting from this plan will primarily relate to
the anticipated severance that will occur over the next several years
as a result of the Business Transformation Project.
20
Table of Contents
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion should be read in conjunction with our consolidated financial statements as of
July 3, 2010, and the fiscal year then ended, and Management’s Discussion and Analysis of Financial
Condition and Results of Operations, both contained in our Annual Report on Form 10-K for the
fiscal year ended July 3, 2010.
Overview
Sysco distributes food and related products to restaurants, healthcare and educational
facilities, lodging establishments and other foodservice customers. Our primary operations are
located throughout the United States, Canada and Ireland and include Broadline companies,
custom-cut meat operations, specialty produce companies, hotel supply operations, SYGMA (our chain
restaurant distribution subsidiary) and a company that distributes to international customers.
We consider our primary market to be the foodservice market in the United States and Canada
and estimate that we serve about 17% of this approximately $210 billion annual market as measured
at the end of fiscal 2010. According to industry sources, the foodservice, or food-away-from-home,
market represents approximately half of the total dollars spent on food purchases made at the
consumer level in the United States. Historically, we have grown at a faster rate than the
overall industry and have grown our market share in this industry.
Highlights
A slow economic recovery in the United States and Canada combined with rising product cost
inflation and continued low levels of consumer confidence, contributed to a challenging environment
in the first 39 weeks of fiscal 2011. Sales increased during the first 39 weeks and third quarter
of fiscal 2011; however, gross margin dollars grew at a slower rate than sales and operating
expenses increased faster than gross margins. This resulted in a decline in operating income for
both the first 39 weeks of fiscal 2011 and the third quarter of fiscal 2011 as compared to the same
periods in fiscal 2010. We incurred a $36.1 million charge in the third quarter of fiscal 2011
for a withdrawal from a multi-employer pension plan which had a significant impact on operating
income for the quarter.
First 39 Weeks
| • | Sales increased 7.4% in the first 39 weeks of fiscal 2011 from the comparable prior year period to $28.9 billion primarily due to increased prices from inflation and improving case volumes. Inflation, as measured by changes in our product costs, was an estimated 4.2% during the first 39 weeks of fiscal 2011. Sales from acquisitions within the last 12 months favorably impacted sales by 0.6%, and the exchange rates used to translate our foreign sales into U.S. dollars positively impacted sales by 0.5%. | |
| • | Operating income was $1.4 billion, a 1.5% decrease from the comparable prior year period, primarily driven by gross margin dollars growing at a slower rate than sales and operating expenses increasing faster than gross margins. Gross margin dollars increased 5.0% in the first 39 weeks of fiscal 2011 from the first 39 weeks of fiscal 2010 but declined as a percentage of sales. This was primarily due to the impact of significant inflation in certain product categories, strategic pricing initiatives and to a lesser extent, faster growth in our SYGMA segment than our Broadline segment; SYGMA is a lower margin business than our Broadline business. Operating expenses increased 7.5% primarily due to higher pay-related expense, an increase in net company-sponsored pension costs, provisions for withdrawal from multi-employer pension plans and higher fuel costs. | |
| • | Net earnings were $815.7 million, a 3.1% decrease from the comparable prior year period, primarily due to the decline in operating income and an increase in the effective tax rate, partially offset by a decrease in interest expense and an increase in other income. The effective tax rate for the first 39 weeks of fiscal 2011 was 36.89%, compared to an effective tax rate of 35.26% for the first 39 weeks of fiscal 2010. The difference between the tax rates for the two periods resulted largely from the one-time reversal of interest accruals for tax contingencies related to our settlement with the Internal Revenue Service (IRS) in the first quarter of fiscal 2010. | |
| • | Basic and diluted earnings per share in the first 39 weeks of fiscal 2011 were $1.39, a decrease of 2.1% from the comparable prior year period primarily due to the factors discussed above. Basic and diluted earnings per share for the first 39 weeks of fiscal 2011 were negatively impacted by $0.04 per share relating to the charge recorded upon withdrawal from a multi-employer pension plan in the third quarter. This negative impact was partially offset by two favorable impacts for the first 39 weeks of fiscal 2011. First, a favorable impact of $0.02 per share was recognized |
21
Table of Contents
| related to the recognition of deferred tax assets from the reversal of valuation allowances previously recorded on state net operating loss carryforwards. Second, we recognized a favorable impact of $0.05 per share due to the gains recorded on the adjustment of the carrying value of corporate-owned life insurance (COLI) policies to their cash surrender values. Basic and diluted earnings per share were favorably impacted by $0.05 per share in the first 39 weeks of fiscal 2010 from the one-time reversal of a previously accrued liability related to the settlement of an outstanding tax matter with the IRS and $0.05 per share due to the gains recorded on the adjustment of the carrying value of COLI policies to their cash surrender values. |
Third Quarter
| • | Sales increased 9.1% in the third quarter of fiscal 2011 over the comparable prior year period to $9.8 billion primarily resulting from increased prices due to inflation and improving case volumes. Inflation, as measured by changes in our product costs, was an estimated 5.1% during the third quarter of fiscal 2011. Sales from acquisitions within the last 12 months favorably impacted sales by 0.6%, and the exchange rates used to translate our foreign sales into U.S. dollars positively impacted sales by 0.6%. | |
| • | Operating income was $427.5 million, a 1.1% decrease from the comparable prior year period, primarily driven by gross margin dollars growing at a slower rate than sales and operating expenses increasing faster than gross margin dollars. Gross margin dollars increased 7.6% in the third quarter of fiscal 2011 from the third quarter of fiscal 2010 but declined as a percentage of sales primarily due to the impact of significant inflation in certain product categories and strategic pricing initiatives. Operating expenses increased 10.6% primarily due to due to higher pay-related expense, a provision for withdrawal from a multi-employer pension plan, an increase in net company-sponsored pension costs and higher fuel costs. The charge for withdrawal from a multi-employer pension plan had a significant impact on operating income for the third quarter of fiscal 2011. | |
| • | Net earnings were $258.5 million, a 4.4% increase from the comparable prior year period, primarily due to a decrease in the effective income tax rate and an increase in other income, partially offset by the decline in operating income. The effective tax rate for the third quarter of fiscal 2011 was 36.25%, compared to an effective tax rate of 38.61% for the third quarter of fiscal 2010. The difference between the tax rates for the two periods resulted largely from the reversal of valuation allowances previously recorded on state net operating loss carryforwards in the third quarter of fiscal 2011. | |
| • | Basic and diluted earnings per share in the third quarter of fiscal 2011 were $0.44, an increase of 4.8% from the comparable prior year period. Basic and diluted earnings per share for the third quarter of fiscal 2011 were negatively impacted by $0.04 per share relating to the charges recorded upon withdrawal from a multi-employer pension plan. This negative impact was partially offset by a favorable impact of $0.02 per share for the third quarter of fiscal 2011 from a tax benefit related to the recognition of deferred tax assets from the reversal of valuation allowances previously recorded on state net operating loss carryforwards. |
Trends and Strategy
Trends
General economic conditions and consumer confidence can affect the frequency of purchases and
amounts spent by consumers for food-away-from-home and, in turn, can impact our customers and our
sales. We believe the current general economic conditions, including pressure on consumer
disposable income, have contributed to a slow rate of recovery in the foodservice market.
We have experienced higher levels of product cost inflation this fiscal year as compared to
fiscal 2010. While we are generally able to pass on modest levels of inflation to our customers,
we were unable to pass through fully these higher levels of product cost inflation with the same
gross margin percentage without negatively impacting our customers’ business and therefore our
business. While we cannot predict whether inflation will continue at current levels, prolonged
periods of high inflation, either overall or in certain product categories, can have a negative
impact on us and our customers, as high food costs can reduce consumer spending in the
food-away-from-home market, and may negatively impact our sales, gross margins and earnings.
We have also experienced higher operating costs this fiscal year from increased pay-related
expense due to increased sales and gross margin as well as higher pension and fuel costs. We
believe pay-related expense could continue to increase if sales and gross margin increase, as a
portion of these costs is variable in nature. We believe increased pension and fuel costs will
continue for the remainder of the fiscal year. Our Business Transformation Project is a key part
of our strategy to control
22
Table of Contents
costs and continue to grow our business. We believe expenses related to the project will
increase in the fourth quarter of fiscal 2011 as compared to the fourth quarter of fiscal 2010 as
we prepare to begin deployment of the project to our operating companies.
Strategy
We continue to invest in our core business to expand our market share and grow earnings. We
will continue to use our strategies to leverage our market leadership position to continuously
improve how we buy, handle and market products for our customers. These strategies include: growing
our sales, completing our Business Transformation Project, achieving productivity gains and
lowering procurement costs. These strategies are described in Management’s Discussion and Analysis
of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal
year ended July 3, 2010.
Our primary focus is on growing and optimizing our core foodservice distribution business in
North America; however, we will continue to explore and identify opportunities to grow in new
international markets and in other areas of business that complement our core foodservice
distribution service. As a part of our ongoing strategic analysis, we regularly evaluate business
opportunities, including potential acquisitions and sales of assets and businesses.
Business Transformation Project
We have completed the design and building phase of our Business Transformation Project and we
have finalized our testing of the underlying Enterprise Resource Planning system and processes. In
April 2011, our pilot operating company implemented the project and our shared services center
became active in its support role. The remainder of fiscal 2011 will be used to ready the system
for broader deployment. Further implementation is anticipated to commence in fiscal 2012 and occur
across the majority of our Broadline and SYGMA operating companies by the end of fiscal 2013. We
will continue to assess our implementation plan as we progress and make appropriate adjustments as
necessary. Although we expect the investment in the Business Transformation Project to provide
meaningful benefits to the company over the long-term, the costs will exceed the benefits during
the early stages of implementation, including fiscal 2011.
We expect the total cash outlay for the Business Transformation Project to be approximately
$900 million. Approximately $210 million and $177 million of cash outlay occurred in the first 39
weeks of fiscal 2011 and fiscal 2010, respectively. Expenses related to our Business
Transformation Project, inclusive of pay-related expense, in the first 39 weeks and third quarter
of fiscal 2011 have not significantly increased as compared to the expenses in the comparable
periods of fiscal 2010. We believe these expenses will increase in the fourth quarter of fiscal
2011 as compared to the fourth quarter of fiscal 2010 in the amount of $15 million to $25 million,
as we prepare to begin deployment of the project to our operating companies. Sysco redeployed
employees to work on the Business Transformation Project and did not backfill all of these
positions; therefore, not all expenses related to this project are incremental to operating
expenses incurred by Sysco prior to the beginning of the project. Additionally, certain labor
costs, which would have been expensed absent this project, are being capitalized as software costs
as a result of this project. Our project is in the development stage and no material amortization of internal use
software has occurred in the first 39 weeks of fiscal 2011. We will leave the development
stage when the software is ready for larger scale deployment which will trigger
amortization on the majority of our capitalized costs over a seven-year period. We do not
anticipate exiting the development stage during the remainder of fiscal 2011.
23
Table of Contents
Results of Operations
The following table sets forth the components of the Results of Operations expressed as a
percentage of sales for the periods indicated:
| 39-Week Period Ended | 13-Week Period Ended | |||||||||||||||
| April 2, 2011 | March 27, 2010 | April 2, 2011 | March 27, 2010 | |||||||||||||
|
Sales
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
|
Cost of sales
|
81.4 | 80.9 | 81.4 | 81.2 | ||||||||||||
|
|
||||||||||||||||
|
Gross margin
|
18.6 | 19.1 | 18.6 | 18.8 | ||||||||||||
|
Operating expenses
|
13.9 | 13.9 | 14.2 | 14.0 | ||||||||||||
|
|
||||||||||||||||
|
Operating income
|
4.7 | 5.2 | 4.4 | 4.8 | ||||||||||||
|
Interest expense
|
0.3 | 0.4 | 0.3 | 0.3 | ||||||||||||
|
Other expense (income), net
|
(0.0 | ) | (0.0 | ) | (0.1 | ) | 0.0 | |||||||||
|
|
||||||||||||||||
|
Earnings before income
taxes
|
4.4 | 4.8 | 4.2 | 4.5 | ||||||||||||
|
Income taxes
|
1.6 | 1.7 | 1.5 | 1.7 | ||||||||||||
|
|
||||||||||||||||
|
Net earnings
|
2.8 | % | 3.1 | % | 2.7 | % | 2.8 | % | ||||||||
|
|
||||||||||||||||
The following table sets forth the change in the components of the Results of Operations
expressed as a percentage increase or decrease over the comparable period in the prior year:
| 39-Week Period | 13-Week Period | |||||||
|
Sales
|
7.4 | % | 9.1 | % | ||||
|
Cost of sales
|
8.0 | 9.5 | ||||||
|
|
||||||||
|
Gross margin
|
5.0 | 7.6 | ||||||
|
Operating expenses
|
7.5 | 10.6 | ||||||
|
|
||||||||
|
Operating income
|
(1.5 | ) | (1.1 | ) | ||||
|
Interest expense
|
(5.2 | ) | 4.8 | |||||
|
Other expense (income), net
|
368.5 | (776.8 | ) | |||||
|
|
||||||||
|
Earnings before income taxes
|
(0.6 | ) | 0.5 | |||||
|
Income taxes
|
3.9 | (5.6 | ) | |||||
|
|
||||||||
|
Net earnings
|
(3.1 | )% | 4.4 | % | ||||
|
|
||||||||
|
|
||||||||
|
Basic earnings per share
|
(2.1 | )% | 4.8 | % | ||||
|
Diluted earnings per share
|
(2.1 | ) | 4.8 | |||||
|
|
||||||||
|
Average shares outstanding
|
(1.1 | ) | (1.6 | ) | ||||
|
Diluted shares outstanding
|
(0.9 | ) | (1.6 | ) | ||||
Sales
Sales were 7.4% higher in the first 39 weeks and 9.1% higher in the third quarter of fiscal
2011 than the comparable periods of the prior year. Product cost inflation and the resulting
increase in selling prices, combined with improving case volumes, had an impact on sales in the
first 39 weeks and third quarter of fiscal 2011. Changes in product costs, an internal measure of
inflation or deflation, were estimated as inflation of 4.2% during the first 39 weeks and 5.1%
during the third quarter of fiscal 2011, as compared to deflation of 2.7% during the first 39 weeks
and 0.8% during the third quarter of fiscal 2010. Sales from acquisitions within the last 12 months
favorably impacted sales by 0.6% for both the first 39 weeks and the third quarter of fiscal 2011.
The exchange rates used to translate our foreign sales into U.S. dollars positively impacted sales
by 0.5% in the first 39 weeks and 0.6% in the third quarter of fiscal 2011 compared to the first 39
weeks and the third quarter of fiscal 2010, respectively.
We believe that our continued focus on the use of business reviews and business development
activities, commitment to quality, investment in customer contact personnel and the efforts of our
marketing associates and sales support personnel are
24
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key drivers to strengthening customer relationships and growing sales with new and existing
customers. We also believe these activities help our customers in this challenging economic
environment.
Operating Income
Cost of sales primarily includes our product costs, net of vendor consideration, and includes
in-bound freight. Operating expenses include the costs of facilities, product handling, delivery,
selling and general and administrative activities. Fuel surcharges are reflected within sales and
gross margins; fuel costs are reflected within operating expenses.
Operating income decreased 1.5% in the first 39 weeks of fiscal 2011 from the first 39 weeks
of fiscal 2010 to $1.4 billion, and as a percentage of sales, declined to 4.7% of sales. Operating
income decreased 1.1% in the third quarter of fiscal 2011 from the third quarter of fiscal 2010 to
$427.5 million, and as a percentage of sales, declined to 4.4% of sales. This decrease in operating
income for both periods was primarily due to gross margin dollars growing at a slower rate than
sales and operating expenses increasing faster than gross margin dollars. We incurred a $36.1
million charge in the third quarter of fiscal 2011 for a withdrawal from a multi-employer pension
plan which had a significant impact on operating income for the quarter.
Gross margin dollars increased in the first 39 weeks and third quarter of fiscal 2011 as
compared to the first 39 weeks and third quarter of fiscal 2010 primarily due to increased sales.
Gross margin, as a percentage of sales, was 18.63% in the first 39 weeks of fiscal 2011, a decline
of 43 basis points from the gross margin percentage of 19.06% in the first 39 weeks of fiscal 2010.
Gross margin, as a percentage of sales, was 18.55% in the third quarter of fiscal 2011, a decline
of 27 basis points from the gross margin percentage of 18.82% in the third quarter of fiscal 2010.
This decline in gross margin percentage was primarily the result of the following factors described
in the paragraphs below.
First, Sysco’s product cost inflation was estimated as inflation of 4.2% during the first 39
weeks and 5.1% during the third quarter of fiscal 2011. Based on our product sales mix for the
first 39 weeks of fiscal 2011, we were most impacted by higher levels of inflation in the dairy,
meat and seafood product categories in the range of 9% to 11%. For the third quarter of fiscal
2011, we were impacted by higher levels of inflation in the seafood, meat and canned and dry
product categories in the range of 5 to 14%. While we are generally able to pass through modest
levels of inflation to our customers, we were unable to pass through fully these higher levels of
product cost inflation with the same gross margin percentage in these product categories without
negatively impacting our customers’ business and therefore our business. While we cannot predict
whether inflation will continue at these levels, prolonged periods of high inflation, either
overall or in certain product categories, can have a negative impact on us and our customers, as
high food costs can reduce consumer spending in the food-away-from-home market, and may negatively
impact our sales, gross margins and earnings.
Second, ongoing strategic pricing initiatives lowered our prices to our customers in certain
product categories in order to increase sales volumes. These initiatives are being phased in over
time and resulted in short-term gross margin declines as a percentage of sales, but we believe will
result in long-term gross margin dollar growth due to higher sales volumes and increased market
share. Strategic pricing initiatives had less of an impact on gross margin for the third quarter
of fiscal 2011 than for the first 39 weeks of fiscal 2011. We have experienced meaningful year over
year volume growth with those items included in the early phases of these programs in the
geographies where this program has been implemented. We believe the long-term benefits of these
strategic initiatives will result in profitable market share growth.
Third, with respect to the first 39 weeks of fiscal 2011 only, case volumes increased at a
greater rate within our SYGMA segment than our Broadline segment; SYGMA is a lower margin business
than our Broadline business. SYGMA’s case growth was largely attributable to new customers. Our
strategy includes pursuing growth in our contract business within both our Broadline and SYGMA
segments. If contract business grows faster than other types of business, gross margin dollars
should increase; however, our gross margin as a percentage of sales could decline.
Fourth, gross margin dollars for the first 39 weeks and third quarter of fiscal 2011 increased
as a result of higher fuel surcharges. Fuel surcharges were approximately $8.9 million and $5.7
million higher in the first 39 weeks and third quarter of fiscal 2011, respectively, than in the
comparable prior year periods due to higher fuel prices incurred during these periods and the
application of fuel surcharges to a broader customer base for a small portion of the third quarter.
Assuming that fuel prices do not greatly rise above recent levels during the remaining portion of
fiscal 2011, we expect fuel surcharges in the fourth quarter of fiscal 2011 to be $10 million to
$15 million higher than the fourth quarter of fiscal 2010.
Operating expenses for the first 39 weeks and third quarter of fiscal 2011 were higher than in
the comparable prior year periods primarily due to higher pay-related expense related to increased
sales, an increase in net company-sponsored pension costs, provisions for withdrawal from
multi-employer pension plans and higher fuel costs. In addition, in the first 39 weeks
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and third quarter of fiscal 2011, operating expenses were also favorably impacted by gains
recorded on the adjustment of the carrying value of our COLI policies to their cash surrender
value.
Pay-related expense, excluding labor costs associated with our Business Transformation
Project, increased by $101.3 million and $38.1 million in the first 39 weeks and third quarter of
fiscal 2011, respectively, from the comparable prior year periods primarily due to our increased
sales and gross margins. These increases included both sales compensation and delivery personnel
costs. Portions of our pay-related expense are variable in nature and are expected to increase
when sales and gross margin increase. Also contributing to the increase in pay-related expenses
for the third quarter of fiscal 2011 were higher provisions for management incentive compensation
of $11.3 million as compared to the third quarter of fiscal 2010. These provisions are based on
management’s current estimates of company performance for the full fiscal year and the resulting
accruals needed for management incentive compensation as of the third quarter based on these
estimates.
In the first 39 weeks and third quarter of fiscal 2011, we recorded provisions of $41.5
million and $36.1 million, respectively, for withdrawal liabilities from multi-employer pension
plans from which union members elected to withdraw.
Net company-sponsored pension costs in the first 39 weeks and third quarter of fiscal 2011
were $45.2 million and $15.1 million higher, respectively, than in the comparable prior year
periods, due primarily to a decrease in discount rates used to calculate our projected benefit
obligation and related pension expense at the end of fiscal 2010, partially offset by reduced
amortization of our net actuarial loss resulting from actuarial gains from higher returns on assets
of Sysco’s Retirement Plan during fiscal 2010. Net company-sponsored pension costs for each
fiscal year are determined as of the previous fiscal year end’s plan measurement date and therefore
the rate of increase for each quarter is known at that time.
Sysco’s fuel costs in the first 39 weeks and third quarter of fiscal 2011 were $20.4 million
and $14.4 million higher, respectively, than in the comparable prior year periods. The increase
for the first 39 weeks and third quarter of fiscal 2011 is largely attributable to increased diesel
prices. Sysco’s costs per gallon increased 9.3% in the first 39 weeks and 28.5% in the third
quarter of fiscal 2011 over the comparable periods of fiscal 2010. Sysco’s activities to mitigate
increasing fuel costs include reducing miles driven by our trucks through improved routing
techniques, improving fleet utilization by adjusting idling time and maximum speeds and using fuel
surcharges. From time to time, we will enter into forward purchase commitments for a portion of
our projected monthly diesel fuel requirements with a goal of mitigating a portion of the
volatility in fuel prices.
Our fuel commitments will result in either additional fuel costs or avoided fuel costs based
on the comparison of the prices on the fixed price contracts and market prices for the respective
periods. In the first 39 weeks and third quarter of fiscal 2011, our forward fuel purchase
commitments resulted in an estimated $9.6 million and $4.2 million, respectively, of avoided fuel
costs as the fixed prices on the contracts were lower than market prices for the contracted
volumes. In the first 39 weeks and third quarter of fiscal 2010, our forward purchase commitments
resulted in an estimated $4.8 million of additional fuel costs and $3.3 million of avoided fuel
costs, respectively. As of April 2, 2011, we had forward diesel fuel commitments totaling
approximately $71.0 million through February 2012. These contracts will lock in the price of
approximately 30% to 35% of our fuel purchase needs for the contracted periods at prices lower than
the current market price for diesel. Subsequent to April 2, 2011, we entered into forward diesel
fuel commitments totaling approximately $10 million for the month of
March 2012.
Assuming that fuel prices do not rise significantly over recent levels during the remainder of
fiscal 2011, fuel costs for the fourth quarter of fiscal 2011, not including any amounts recovered
through fuel surcharges, are expected to increase by approximately $15 million to $20 million as
compared to the fourth quarter of fiscal 2010. Our estimate is based upon current, published
quarterly market price projections for diesel, the cost committed to in our forward fuel purchase
agreements currently in place for the remainder of fiscal 2011 and estimates of fuel consumption.
Actual fuel costs could vary from our estimates if any of these assumptions change, in particular
if future fuel prices vary significantly from our current estimates. We continue to evaluate all
opportunities to offset potential increases in fuel expense, including the use of fuel surcharges
and overall expense management. Based on our current projections, we anticipate that the increase
in fuel surcharges will offset a substantial portion of our projected fuel cost increase in the
fourth quarter of fiscal 2011 as compared to the fourth quarter of fiscal 2010.
We adjust the carrying values of our COLI policies to their cash surrender values on an
ongoing basis. The cash surrender values of these policies are partially based on the values of
underlying investments, which include equity securities. As a result, the cash surrender values of
these policies will fluctuate with changes in the market value of such securities. The changes in
the financial markets resulted in gains for these policies of $29.5 million and $5.7 million in the
first 39 weeks and third quarter of fiscal 2011, respectively. These gains compared to the
recognition of gains of $31.8 million and $5.5 million in the first 39 weeks and third quarter of
fiscal 2010, respectively. The performance of the financial markets will continue to
26
Table of Contents
influence the cash surrender values of our COLI policies, which could cause volatility in
operating income, net earnings and earnings per share.
Net Earnings
Net earnings decreased 3.1% in the first 39 weeks of fiscal 2011 from the comparable period of
the prior year primarily due to the decline in operating income and an increase in the effective
tax rate, partially offset by a decrease in interest expense and an increase in other income. The
difference between the tax rates for the two periods resulted largely from the one-time reversal of
interest accruals for tax contingencies related to our settlement with the IRS in the first quarter
of fiscal 2010.
Net earnings increased 4.4% in the third quarter of fiscal 2011 from the comparable period of
the prior year primarily due to a decrease in the effective income tax rate and an increase in
other income, partially offset by the decline in operating income. The difference between the tax
rates for the two periods resulted largely from the reversal of valuation allowances previously
recorded on state net operating loss carryforwards in the third quarter of fiscal 2011.
The effective tax rate of 36.89% for the first 39 weeks of fiscal 2011 was favorably impacted
by two items. First, we recorded a tax benefit of approximately $11.6 million for the reversal of
valuation allowances previously recorded on state net operating loss carryforwards. Second, we
adjust the carrying values of our COLI policies to their cash surrender values. The gain of $29.5
million recorded in the first 39 weeks of fiscal 2011 was non-taxable for income tax purposes, and
had the impact of decreasing income tax expense for the period by $11.3 million. Partially
offsetting these favorable impacts was the recording of $7.7 million in tax and interest related to
various federal and state uncertain tax positions.
The effective tax rate of 35.26% for the first 39 weeks of fiscal 2010 was favorably impacted
by two items. First, we recorded an income tax benefit of approximately $29.0 million resulting
from the one-time reversal of previously accrued interest related to the settlement with the IRS
(see “Other Considerations” for additional discussion). Second, the gain of $31.8 million recorded
to adjust the carrying value of COLI policies to their cash surrender values in the first 39 weeks
of fiscal 2010 was non-taxable for income tax purposes and had the impact of decreasing income tax
expense for the period by $12.2 million.
The effective tax rate of 36.25% for the third quarter of fiscal 2011 was favorably impacted
by the recording of a tax benefit of approximately $10.0 million for the reversal of valuation
allowances previously recorded on state net operating loss carryforwards. This favorable impact
was partially offset by the recording of $4.1 million in tax and interest related to various
federal and state uncertain tax positions.
The effective tax rate was 38.61% for the third quarter of fiscal 2010.
Earnings Per Share
Basic and diluted earnings per share decreased 2.1% in the first 39 weeks and increased 4.8%
in the third quarter of fiscal 2011 from the comparable periods of the prior year. These changes
were primarily the result of factors discussed above, as well as a small net reduction in shares
outstanding. The net reduction in both average and diluted shares outstanding was primarily due to
share repurchases.
Basic and diluted earnings per share for the first 39 weeks of fiscal 2011 were negatively
impacted by $0.04 per share relating to the charges recorded upon withdrawal from a multi-employer
pension plan. This negative impact was partially offset by two favorable impacts. First, a
favorable impact of $0.02 per share was recognized related to the recognition of deferred tax
assets from the reversal of valuation allowances previously recorded on state net operating loss
carryforwards. Second, we recognized a favorable impact of $0.05 per share due to the gains
recorded on the adjustment of the carrying value of COLI policies to their cash surrender values.
Basic and diluted earnings per share were favorably impacted by $0.05 per share in the first 39
weeks of fiscal 2010 from the one-time reversal of a previously accrued liability related to the
settlement of an outstanding tax matter with the IRS and $0.05 per share due to the gains recorded
on the adjustment of the carrying value of COLI policies to their cash surrender values.
Basic and diluted earnings per share for the third quarter of fiscal 2011 were negatively
impacted by $0.04 per share relating to the charges recorded upon withdrawal from a multi-employer
pension plan. This negative impact was partially offset by a favorable impact of $0.02 per share
for the third quarter of fiscal 2011 from a tax benefit related to the recognition of deferred tax
assets from the reversal of valuation allowances previously recorded on state net operating loss
carryforwards.
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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 the accounting literature related to disclosures
about segments of an enterprise. Beginning in the third quarter of fiscal 2011, the company’s
custom-cut meat operations were reorganized to function as part of the United States Broadline
segment. As a result, the results of the custom-cut meat operations are included in the Broadline
reportable segment in the segment discussion below. Previously, these operations were an
independent segment and were presented with the “Other” financial information relating to
non-reportable segments. Segment reporting for the comparable prior year periods has been revised
to conform to the new classification of the custom-cut meat operations as part of the Broadline
reportable segment.
The accounting policies for the segments are the same as those disclosed by Sysco for our
consolidated financial statements. Intersegment sales generally represent specialty produce and
meat company products distributed by the Broadline and SYGMA operating companies. The segment
results include certain centrally incurred costs for shared services that are charged to our
segments. These centrally incurred costs are charged based upon the relative level of service used
by each operating company consistent with how management views the performance of its operating
segments.
Management evaluates the performance of each of our operating segments based on its respective
operating income results, which include the allocation of certain centrally incurred costs. While a
segment’s operating income may be impacted in the short term by increases or decreases in margins,
expenses, or a combination thereof, over the long term each business segment is expected to
increase its operating income at a greater rate than sales growth. This is consistent with our
long-term goal of leveraging earnings growth at a greater rate than sales growth.
Included in corporate expenses, among other items, are:
| • | Gains and losses recorded to adjust COLI policies to their cash surrender values; | ||
| • | Share-based compensation expense; | ||
| • | Expenses related to our Business Transformation Project; and | ||
| • | Corporate-level depreciation and amortization expense. |
The following table sets forth the operating income of each of our reportable segments and the
other segment expressed as a percentage of each segment’s sales for each period reported and should
be read in conjunction with Note 11, “Business Segment Information”:
| Operating Income as a | Operating Income as a | |||||||||||||||
| Percentage of Sales | Percentage of Sales | |||||||||||||||
| 39-Week Period | 13-Week Period | |||||||||||||||
| April 2, 2011 | March 27, 2010 | April 2, 2011 | March 27, 2010 | |||||||||||||
|
Broadline
|
6.4 | % | 6.8 | % | 6.0 | % | 6.4 | % | ||||||||
|
SYGMA
|
1.1 | 0.9 | 1.3 | 1.1 | ||||||||||||
|
Other
|
4.1 | 4.0 | 4.8 | 4.3 | ||||||||||||
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 or decrease over the
comparable period in the prior year and should be read in conjunction with Note 11, “Business
Segment Information”:
| 39-Week Period | 13-Week Period | |||||||||||||||
| Operating | Operating | |||||||||||||||
| Sales | Income | Sales | Income | |||||||||||||
|
Broadline
|
6.8 | % | 1.1 | % | 8.9 | % | 3.2 | % | ||||||||
|
SYGMA
|
12.6 | 44.2 | 9.8 | 24.8 | ||||||||||||
|
Other
|
6.2 | 7.2 | 11.7 | 25.4 | ||||||||||||
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Table of Contents
The following tables set forth sales and operating income of each of our reportable segments,
the other segment, and intersegment sales, expressed as a percentage of aggregate segment sales,
including intersegment sales, and operating income, respectively. For purposes of these
statistical tables, operating income of our segments excludes corporate expenses of $245.7 million
and $94.2 million in the first 39 weeks and third quarter of fiscal 2011, as compared to $189.5
million and $65.6 million in the first 39 weeks and third quarter of fiscal 2010, that is not
charged to our segments. This information should be read in conjunction with Note 11, “Business
Segment Information”:
| 39-Week Period Ended | ||||||||||||||||
| April 2, 2011 | March 27, 2010 | |||||||||||||||
| Segment Operating | Segment Operating | |||||||||||||||
| Sales | Income | Sales | Income | |||||||||||||
|
Broadline
|
81.2 | % | 93.2 | % | 81.8 | % | 94.2 | % | ||||||||
|
SYGMA
|
13.7 | 2.8 | 13.0 | 2.0 | ||||||||||||
|
Other
|
5.5 | 4.0 | 5.6 | 3.8 | ||||||||||||
|
Intersegment sales
|
(0.4 | ) | — | (0.4 | ) | — | ||||||||||
|
|
||||||||||||||||
|
Total
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
|
|
||||||||||||||||
| 13-Week Period Ended | ||||||||||||||||
| April 2, 2011 | March 27, 2010 | |||||||||||||||
| Segment Operating | Segment Operating | |||||||||||||||
| Sales | Income | Sales | Income | |||||||||||||
|
Broadline
|
81.1 | % | 91.5 | % | 81.2 | % | 92.9 | % | ||||||||
|
SYGMA
|
13.5 | 3.2 | 13.4 | 2.7 | ||||||||||||
|
Other
|
5.9 | 5.3 | 5.8 | 4.4 | ||||||||||||
|
Intersegment sales
|
(0.5 | ) | — | (0.4 | ) | — | ||||||||||
|
|
||||||||||||||||
|
Total
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
|
|
||||||||||||||||
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 and also provide custom-cut
meat operations. In the first 39 weeks of fiscal 2011, the Broadline operating results represented
81.1% of Sysco’s overall sales and 91.5% of the aggregated operating income of Sysco’s segments,
which excludes corporate expenses and consolidated adjustments.
Sales
Sales were 6.8% greater in the first 39 weeks and 8.9% greater in the third quarter of fiscal
2011 than in the comparable periods of the prior year. Product cost inflation and the resulting
increase in selling prices, combined with case volume improvement, contributed to the increase in
sales in the first 39 weeks and third quarter of fiscal 2011. Changes in product costs, an
internal measure of inflation or deflation, were estimated as inflation of 4.6% and 5.4% during the
first 39 weeks and third quarter of fiscal 2011, respectively, as compared to deflation of 2.7%
during the first 39 weeks and 0.6% during the third quarter of fiscal 2010. Sales from
acquisitions within the last 12 months favorably impacted sales by 0.7% for the first 39 weeks and
0.8% in the third quarter of fiscal 2011. The exchange rates used to translate our foreign sales
into U.S. dollars positively impacted sales by 0.6% in the first 39 weeks and 0.7% in the third
quarter of fiscal 2011 compared to the first 39 weeks and third quarter of fiscal 2010.
Operating Income
Operating income increased by 1.1% in the first 39 weeks and 3.2% in the third quarter of
fiscal 2011. This increase in operating income for both periods was primarily due to gross margin
dollars increasing more than operating expenses. Gross margin dollars increased 4.3% while
operating expenses increased 5.8% in the first 39 weeks of fiscal 2011 as compared to the first 39
weeks of fiscal 2010. Gross margin dollars increased 7.0% while operating expenses increased 8.7%
in the third quarter of fiscal 2011 as compared to the third quarter of fiscal 2010.
Gross margin dollars increased in the first 39 weeks and third quarter of fiscal 2011
primarily due to increased sales; however, gross margin dollars increased at a lower rate than
sales. This slower growth in gross margin dollars was primarily
29
Table of Contents
the result of two factors. First, based on our product sales mix for the first 39 weeks of
fiscal 2011, we were most impacted by higher levels of inflation in the dairy, meat and seafood
product categories in the range of 9% to 11%. For the third quarter of fiscal 2011, we were
impacted by higher levels of inflation in the seafood, meat and canned and dry product categories
in the range of 5 to 14%. While we are generally able to pass through modest levels of inflation
to our customers, we were unable pass through fully these higher levels of product cost inflation
with the same gross margin percentage in these product categories without negatively impacting our
customers’ business and therefore our business. While we cannot predict whether inflation will
continue at these levels, prolonged periods of high inflation, either overall or in certain product
categories, can have a negative impact on our customers, as high food costs can reduce consumer
spending in the food-away-from-home market, and may negatively impact the Broadline segment’s
sales, gross margins and earnings. Second, ongoing strategic pricing initiatives largely lowered
our prices to our customers in certain product categories in order to increase sales volumes.
These initiatives are being phased in over time and resulted in short-term gross margin declines as
a percentage of sales, but we believe will result in long-term gross margin dollar growth due to
higher sales volumes and increased market share. Strategic pricing initiatives had less of an
impact on gross margin for the third quarter of fiscal 2011 than for the first 39 weeks of fiscal
2011. We have experienced meaningful year over year volume growth with those items included in the
early phases of these programs in the geographies where this program has been implemented. We
believe the long-term benefits of these strategic initiatives will result in profitable market
share growth.
In addition, gross margin dollars for the first 39 weeks and third quarter of fiscal 2011
increased as a result of higher fuel surcharges. Fuel surcharges were approximately $5.2 million
and $4.0 million higher in the first 39 weeks and third quarter of fiscal 2011, respectively, than
the comparable prior year periods due to the application of fuel surcharges to a broader customer
base for a small portion of the third quarter and higher fuel prices incurred during these periods.
Assuming that fuel prices do not greatly rise above recent levels during the remaining portion of
fiscal 2011, we expect fuel surcharges in the fourth quarter of fiscal 2011 to be $10 million to
$15 million higher than the fourth quarter of fiscal 2010.
The expense increases in fiscal 2011 were driven largely by provisions for withdrawal from a
multi-employer pension plan and an increase in pay-related expenses. In the first 39 weeks and
third quarter of fiscal 2011, we recorded provisions of $41.5 million and $36.1 million,
respectively, for withdrawal liabilities from multi-employer pension plans from which union members
elected to withdraw. The increase in pay-related expenses related to the sales and gross margin
increase, including both sales compensation and delivery personnel costs. Portions of our
pay-related expense are variable in nature and are expected to increase when sales and gross margin
increase. Also contributing to the increase in pay-related expenses for the third quarter of
fiscal 2011 were higher provisions for management incentive compensation. These provisions are
based on management’s current estimates of company performance for the full fiscal year and the
resulting accruals needed for management incentive compensation as of the third quarter based on
these estimates.
Fuel costs were $13.0 million higher in the first 39 weeks and $10.4 million higher in the
third quarter of fiscal 2011 than in the comparable periods of the prior year. Assuming that fuel
prices do not rise significantly over recent levels during fiscal 2011, fuel costs for the last 13
weeks of fiscal 2011, not including any amounts recovered through fuel surcharges, are expected to
increase by approximately $10 million to $15 million as compared to the last 14 weeks in fiscal
2010. Our estimate is based upon current, published quarterly market price projections for diesel,
the cost committed to in our forward fuel purchase agreements currently in place for fiscal 2011
and estimates of fuel consumption. Actual fuel costs could vary from our estimates if any of these
assumptions change, in particular if future fuel prices vary significantly from our current
estimates. We continue to evaluate all opportunities to offset potential increases in fuel
expense, including the use of fuel surcharges and overall expense management.
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.
Sales
Sales were 12.6% greater in the first 39 weeks and 9.8% greater in the third quarter of fiscal
2011 than in the comparable periods of the prior year primarily due to case volume improvement.
The case growth in both periods was largely attributable to new customers. Also contributing to
the case growth to a lesser extent was an increase in volume from certain existing customers.
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Operating Income
Operating income increased $13.9 million in the first 39 weeks and $3.3 million in the third
quarter of fiscal 2011 over the comparable periods of the prior year due to increased sales and
improved productivity. Gross margin dollars increased 13.1% while operating expenses increased 9.5%
in the first 39 weeks of fiscal 2011 from the first 39 weeks of fiscal 2010. Gross margin dollars
increased 11.7% while operating expenses increased 9.7% in the third quarter of fiscal 2011 from
the third quarter of fiscal 2010.
Contributing to the gross margin increase in the first 39 weeks and third quarter of fiscal
2011 were increased sales and an increase of approximately $3.7 million and $1.6 million in the
fuel surcharges charged to customers in the first 39 weeks and third quarter of fiscal 2011 from
the comparable period of the prior year due to higher fuel prices in fiscal 2011. The increase in
operating expenses for the first 39 weeks of fiscal 2011 was largely driven by increased delivery
and warehouse personnel payroll costs resulting from increased sales as well as increased fuel
cost. The increase in operating expenses for the third quarter of fiscal 2011 was largely driven
by increased delivery personnel payroll costs resulting from increased sales as well as increased
fuel cost. Productivity improvements occurred within our warehouse and delivery functions in the
first 39 weeks and third quarter of fiscal 2011 and expense reductions occurred within our
administrative functions the first 39 weeks and third quarter of fiscal 2011, as compared to the
comparable prior year periods. Fuel costs in the first 39 weeks and third quarter of fiscal 2011
were $8.4 million and $4.8 million greater, respectively, than the comparable periods of
the prior year.
Other Segment
“Other” financial information is attributable to our other operating segments, including our
specialty produce and lodging industry products segments and a company that distributes to
international customers. These operating segments are discussed on an aggregate basis as they do
not represent reportable segments under segment accounting literature.
Operating income increased 7.2% for the first 39 weeks and 25.4% for the third quarter of
fiscal 2011 from the comparable periods of the prior year. The increase in operating income for
the first 39 weeks of fiscal 2011 was caused primarily by increased sales and favorable expense
management in the specialty produce segment. The increase in operating income for the third
quarter of fiscal 2011 was caused primarily by increased sales and favorable expense management in
the specialty produce and lodging industry products segments.
Liquidity and Capital Resources
Sysco’s strategic objectives require continuing investment and our financial resources include
cash provided by operations and access to capital from financial markets. Our operations
historically have produced significant cash flow. Cash generated from operations is generally
allocated to working capital requirements; investments in facilities, systems, fleet, other
equipment and technology; acquisitions compatible with our overall growth strategy; and cash
dividends. Any remaining cash generated from operations may be invested in high-quality,
short-term instruments or applied toward the cost of the share repurchase program. As a part of
our ongoing strategic analysis, we regularly evaluate business opportunities, including potential
acquisitions and sales of assets and businesses, and our overall capital structure. Any
transactions resulting from these evaluations may materially impact our liquidity, borrowing
capacity, leverage ratios and capital availability.
Our liquidity and capital resources can be influenced by economic trends and conditions
primarily due to their impact on our cash flows from operations. Weak economic conditions and low
levels of consumer confidence and the resulting pressure on consumer disposable income can lower
our sales growth and potentially our cash flows from operations. While these factors were present
in fiscal 2010 and fiscal 2011 to date, they had only a modest impact on our fiscal 2011 cash flows
from operations due in large part to effective working capital management. We do not believe
current economic conditions will significantly impact our cash flows from operations in the
remainder of fiscal 2011, as we can respond to reduced consumer demand, if it were to occur, by
lowering our working capital requirements. Additionally, approximately one-third of our customers
are not impacted by general economic conditions to the same extent as restaurants and other food
retailers. These customers include hospitals, nursing homes, schools and colleges. In addition,
product cost inflation can potentially lower our gross margins and cash flow from operations if we
are unable to pass through all of the increased product costs to our customers. This occurred in
the first 39 weeks of fiscal 2011, as we were able to pass some, but not all, of our product cost
increases on to our customers. However; we believe our mechanisms to manage product cost
inflation, some of which are contractual, are sufficient to limit the impact on our cash flows from
operations.
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We believe that our cash flows from operations, the availability of additional capital under
our existing commercial paper programs and bank lines of credit and our ability to access capital
from financial markets, including issuances of debt securities, either privately or under our shelf
registration statement filed with the Securities and Exchange Commission (SEC), will be sufficient
to meet our anticipated cash requirements for the next twelve months and beyond, while maintaining
sufficient liquidity for normal operating purposes. We believe that we will continue to be able to
access the commercial paper market effectively as well as the long-term capital markets, if
necessary. To further maintain and enhance our credit ratings on current and future debt, on
January 19, 2011, the wholly-owned U.S. Broadline subsidiaries of Sysco Corporation entered into
full and unconditional guarantees of all outstanding senior notes and debentures of Sysco
Corporation. As of April 2, 2011, Sysco had a total of approximately $2.2 billion in senior notes
and debentures outstanding.
Operating Activities
We generated $665.8 million in cash flow from operations in the first 39 weeks of fiscal 2011,
as compared to $476.5 million in the first 39 weeks of fiscal 2010. The increase of $189.2 million
between the two periods was driven largely by a reduction in the amount of payments made in
relation to the IRS settlement and reduced pension contributions in the first 39 weeks of fiscal
2011 as compared to the first 39 weeks of fiscal 2010, partially offset by changes in working
capital discussed in more detail below.
Cash flow from operations in the first 39 weeks of fiscal 2011 was primarily generated by net
income, reduced by increases in receivables and inventory balances and changes in deferred tax
assets and liabilities, partially offset by non-cash depreciation and amortization expense and
increases in accounts payable and other long-term liabilities. Cash flow from operations in the
first 39 weeks of fiscal 2010 was primarily generated by net income, reduced by changes in deferred
tax assets and liabilities, increases in receivables and inventory balances, decreases in accrued
income taxes and the net balances of other long-term liabilities and prepaid pension cost,
partially offset by non-cash depreciation and amortization expense and an increase in accounts
payable.
The increase in accounts receivable balances for the first 39 weeks of fiscal 2011 was
primarily due to the increase in sales during this period as well as a seasonal change in customer
mix. The increase in accounts receivable balances for the first 39 weeks of fiscal 2010 was
primarily due to the increase in sales in the third quarter as well as a seasonal change in
customer mix. Due to normal seasonal patterns, sales to multi-unit customers and school districts
represented a larger percentage of our sales at the end of each first 39 week period as compared to
the end of each prior fiscal year. Payment terms for these types of customers are traditionally
longer than average.
The increase in inventory balances for the first 39 weeks of fiscal 2011 was primarily due to
increased sales during this period. The increase in inventory balances for the first 39 weeks of
fiscal 2010 was primarily due to the increase in sales in the third quarter.
The increases in accounts payable balances for the first 39 weeks of fiscal 2011 and fiscal
2010 were primarily due to the growth in inventory discussed above. In addition, accounts payable
balances are impacted by many factors, including changes in product mix, cash discount terms and
changes in payment terms with vendors.
Cash flow from operations was negatively impacted by decreases in accrued expenses of $83.8
million for the first 39 weeks of fiscal 2011 and $21.5 million for the first 39 weeks of fiscal
2010. The decrease in the first 39 weeks of fiscal 2011 was primarily due to the payment of the
respective prior year annual incentive bonuses, partially offset by accruals for current year
compensation incentives and a decrease in accrued interest. The decrease for the first 39 weeks
of fiscal 2010 was due to offsetting changes in multiple accruals, of which no item was
individually significant.
Cash flow from operations for the first 39 weeks of fiscal 2011 was negatively impacted by
changes in deferred tax assets and liabilities of $244.7 million, partially offset by an increase
in accrued income taxes of $83.6 million. Cash flow from operations for the first 39 weeks of
fiscal 2010 was negatively impacted by changes in deferred tax assets and liabilities of $152.2
million and a decrease in accrued income taxes of $316.1 million. The main factor affecting both
of these items, as well as cash taxes paid, was the IRS settlement, which resulted in the payment
of taxes of $159.0 million in the first 39 weeks of fiscal 2011 and $475.0 million in the first 39
weeks of fiscal 2010. Total cash taxes paid were $658.0 million and $973.4 million in the first 39
weeks of fiscal 2011 and 2010, respectively. The changes in both the first 39 weeks of fiscal 2011
and the first 39 weeks of fiscal 2010 were also impacted by the current tax provision and current
year estimated tax payments.
Other long-term liabilities increased $142.3 million during the first 39 weeks of fiscal 2011.
The net increase was primarily attributable to three items. First, net company sponsored pension
costs exceeded contributions to our company-sponsored pension plans during the period. Second, we
recorded withdrawal liabilities from multi-employer pension plans
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from which union members elected to withdraw during the period. Third, partially offsetting
these increases, our liability for uncertain tax positions decreased as a result of settlements
with various taxing authorities during the period.
The net balances of other long-term liabilities and prepaid pension cost decreased $115.2
million during the first 39 weeks of fiscal 2010. The decrease was primarily attributable to three
items. First, our liability for uncertain tax positions decreased as a result of the settlement
with the IRS. Second, our liability for deferred incentive compensation decreased due to
accelerated distributions taken by plan participants during the first 39 weeks of fiscal 2010 of
all or a portion of their vested balances pursuant to certain transitional relief under the
provisions of Section 409A of the Internal Revenue Code. Third, pension contributions to our
company-sponsored plans exceeded net company-sponsored pension costs.
We recorded net company-sponsored pension costs of $139.8 million and $94.6 million in the
first 39 weeks of fiscal 2011 and fiscal 2010, respectively. Our contributions to our
company-sponsored defined benefit plans were $16.0 million and $118.3 million in the first 39 weeks
of fiscal 2011 and fiscal 2010, respectively. The difference in the level of contributions in the
first 39 weeks of fiscal 2011 and fiscal 2010 is due to the timing and amount of our contributions
to the Retirement Plan. In fiscal 2010, we contributed $35.0 million per quarter to the Retirement
Plan and made an additional contribution of $140.0 million in the fourth quarter that would
normally have been made in fiscal 2011. Additional contributions to the Retirement Plan are not
currently anticipated in fiscal 2011.
Investing Activities
We expect total capital expenditures in fiscal 2011 to be in the range of $625 million to
$650 million. Capital expenditures in the first 39 weeks of fiscal 2011 primarily included
facility replacements and expansions, investments in technology including our Business
Transformation Project and fleet replacements. Capital expenditures in the first 39 weeks of
fiscal 2010 primarily included facility replacements and expansions, investments in technology
including our Business Transformation Project, fleet replacements and the purchase of a facility
for our future shared services operations in connection with our Business Transformation Project.
During the first 39 weeks of fiscal 2011, we paid cash of $35.5 million for operations
acquired during fiscal 2011 and for contingent consideration related to operations acquired in
previous years.
Financing Activities
During the first 39 weeks of fiscal 2011, a total of 10,000,000 shares of Sysco
common stock were repurchased at a cost of $291.6 million. During the first 39 weeks of fiscal
2010, a total of 1,430,000 shares were repurchased at a cost of $41.0 million. On August 27, 2010,
the Board of Directors approved a new share repurchase program covering an additional 20,000,000
shares. As of April 30, 2011, there was a remaining authorization by our Board of Directors to
repurchase up to 13,386,600 shares, based on the trades made through that date. We do not
anticipate having any share repurchase activity in the fourth quarter of fiscal 2011.
Dividends paid in the first 39 weeks of fiscal 2011 were $445.4 million, or $0.76 per share,
as compared to $431.9 million, or $0.73 per share, in the first 39 weeks of fiscal 2010. In
February 2011, we declared our regular quarterly dividend for the fourth quarter of fiscal 2011 of
$0.26 per share, which was paid in April 2011.
We have uncommitted bank lines of credit, which provide for unsecured borrowings for working
capital of up to $95.0 million, of which $2.3 million was outstanding as of April 2, 2011. Such
borrowings were $0.7 million as of April 30, 2011.
We have a Board-approved commercial paper program allowing us to issue short-term unsecured
notes in an aggregate amount not to exceed $1.3 billion.
Sysco and one of our subsidiaries, Sysco International, ULC, have a revolving credit facility
supporting our U.S. and Canadian commercial paper programs. The facility, in the amount of $1.0
billion, expires on November 4, 2012, but is subject to extension.
As of April 2, 2011, commercial paper issuances outstanding were $186.0 million. As of April
30, 2011, commercial paper issuances outstanding were $197.0 million. During the 39-week period
ended April 2, 2011, aggregate commercial paper issuances and short-term bank borrowings ranged
from zero to approximately $330.3 million.
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Other Considerations
Multi-Employer Pension Plans
As discussed in Note 10, “Commitments and Contingencies,” 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 plan’s 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 plan’s unfunded vested liabilities. Generally, Sysco does
not have the greatest share of liability among the participants in any of the plans in which we
participate. Based on the information available from plan administrators, which has valuation dates
ranging from January 31, 2009 to December 31, 2009, we estimate our share of withdrawal liability
on most of the multi-employer plans in which we participate could have been as much as $200.0
million as of April 2, 2011 based on a voluntary withdrawal. This estimate excludes plans for
which Sysco has recorded withdrawal liabilities. The majority of the plans we participate in have
a valuation date of calendar year-end. As such, the majority of our estimated withdrawal liability
results from plans for which the valuation date was December 31, 2009; therefore, our estimated
liability reflects the effects of the fair value of the plans’ assets and projected benefit
obligations as of that date. Due to the lack of current information, we believe our current share
of the withdrawal liability could differ from this estimate. In addition, if a multi-employer
defined benefit plan fails to satisfy certain minimum funding requirements, the IRS may impose a
non-deductible excise tax of 5% on the amount of the accumulated funding deficiency for those
employers contributing to the fund.
In the third quarter of fiscal 2011, the union members of one of our subsidiaries voted to
withdraw from the union’s multi-employer pension plan and join Sysco’s company-sponsored Retirement
Plan. This action triggered a partial withdrawal from the multi-employer pension plan. As a
result, during the third quarter of fiscal 2011, we recorded a withdrawal liability provision of
approximately $36.1 million related to this plan. As of April 2, 2011, we had approximately $42.4
million in liabilities recorded related to certain multi-employer defined benefit plans for which
our voluntary withdrawal had already occurred, which includes the liability recorded in the third
quarter of fiscal 2011. Recorded withdrawal liabilities are estimated at the time of withdrawal
based on the most recently available valuation and participant data for the respective plans;
amounts are adjusted up to the period of payment to reflect any changes to these estimates.
Required contributions to multi-employer plans could increase in the future as these plans
strive to improve their funding levels. In addition, pension-related legislation requires
underfunded pension plans to improve their funding ratios within prescribed intervals based on the
level of their underfunding. We believe that any 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.
BSCC Cooperative Structure
In the first quarter of fiscal 2010, Sysco reached a settlement with the IRS in connection
with its audits of our 2003 through 2006 federal income tax returns. As a result of the
settlement, we agreed to cease paying U.S. federal taxes related to our affiliate Baugh Supply
Chain Cooperative (BSCC) on a deferred basis and pay the amounts that were recorded within deferred
taxes related to BSCC over a three-year period as follows:
| (In thousands) | ||||
|
Fiscal 2010
|
$ | 528,000 | ||
|
Fiscal 2011
|
212,000 | |||
|
Fiscal 2012
|
212,000 | |||
In the first 39 weeks of fiscal 2011, $159.0 million of payments were made related to the
settlement. As noted in the table above, $528.0 million was paid related to the settlement in
fiscal 2010, of which $475.0 million was paid in the first 39 weeks of fiscal 2010. The remaining
amount to be paid in fiscal 2011 will be paid in connection with Sysco’s quarterly tax payment in
the fourth quarter. Remaining amounts to be paid in fiscal 2012 will be paid in connection with
our quarterly tax payments, two of which fall in the second quarter, one in the third quarter and
one in the fourth quarter. We believe we have access to sufficient cash on hand, cash flow from
operations and current access to capital to make payments on all of the amounts noted above.
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Contractual Obligations
Our Annual Report on Form 10-K for the fiscal year ended July 3, 2010 contains a table that
summarizes our obligations and commitments to make contractual future cash payments as of July 3,
2010. Since July 3, 2010, there have been no material changes to our contractual obligations.
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that are most important to the portrayal
of our financial position 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. Sysco’s most critical accounting policies and estimates include those that
pertain to the allowance for doubtful accounts receivable, self-insurance programs, pension plans,
income taxes, vendor consideration, accounting for business combinations and share-based
compensation, which are described in Item 7 of our Annual Report on Form 10-K for the year ended
July 3, 2010.
Forward-Looking Statements
Certain statements made herein that look forward in time or express management’s 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:
| • | Sysco’s ability to increase its sales and market share and grow earnings; | ||
| • | the continuing impact of economic conditions on consumer confidence and our business; | ||
| • | the expected implementation, benefits and costs of our business transformation project and the expected timing of incurring such costs; | ||
| • | sales and operating income trends; | ||
| • | expectations regarding the impact of increased growth in Broadline and SYGMA segments; | ||
| • | anticipated multi-employer pension-related liabilities and contributions to various multi-employer pension plans, and the source of funds for any such contributions; | ||
| • | source and adequacy of funds for required payments under the IRS settlement; | ||
| • | the impact of ongoing legal proceedings; | ||
| • | anticipated company-sponsored pension plan contributions; | ||
| • | expectations regarding uncertain tax positions; | ||
| • | our plan to continue to explore and identify opportunities to grow in international markets and complimentary lines of business; | ||
| • | Sysco’s ability to meet future cash requirements, including the ability to access debt markets effectively, and remain profitable; | ||
| • | the impact of the financial markets on the cash surrender values of our COLI policies; | ||
| • | our expectations regarding trends in pay-related expense and pension and fuel costs; | ||
| • | expected results of ongoing strategic pricing initiatives; | ||
| • | expectations regarding cash flows from operations and our ability to manage working capital and product cost inflation; | ||
| • | expectations regarding our share repurchase activity; | ||
| • | fuel costs and expectations regarding the use and amount of fuel surcharges and plans to mitigate fuel costs; | ||
| • | expectations regarding operating income and sales for our business segments; and | ||
| • | expectations regarding capital expenditures. |
These statements are based on management’s current expectations and estimates; actual results
may differ materially due in part to the risk factors set forth below and those discussed in Item
1A of our Annual Report on Form 10-K for the fiscal year ended July 3, 2010:
| • | risks relating to difficult economic conditions and heightened uncertainty in the financial markets and their effect on consumer confidence; | ||
| • | periods of significant or prolonged inflation or deflation and their impact on our product costs and profitability; | ||
| • | risks related to our Business Transformation Project, including the risk that the project may not be successfully implemented, may not prove cost effective and may have a material adverse effect on our liquidity and results of operations; | ||
| • | the risk that we may not be able to compensate for increases in fuel costs; | ||
| • | the risk of interruption of supplies due to lack of long-term contracts, severe weather or prolonged climate change, work stoppages or otherwise; |
35
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| • | Sysco’s leverage and debt risks, capital and borrowing needs and changes in interest rates; | ||
| • | the potential impact of product liability claims and adverse publicity; | ||
| • | difficulties in successfully entering and operating in international markets and complimentary lines of business; | ||
| • | the successful completion of acquisitions and integration of acquired companies, as well as the risk that acquisitions could require additional debt or equity financing and negatively impact our stock price or operating results; | ||
| • | our dependence on technology and the reliability of our technology network; | ||
| • | the risk that other sponsors of our multi-employer pension plans will withdraw or become insolvent; | ||
| • | that the IRS may impose an excise tax on the unfunded portion of our multi-employer pension plans or that the Pension Protection Act could require that we make additional pension contributions; | ||
| • | the impact of financial market changes on the cash surrender values of our COLI policies and on the assets held by our company-sponsored Retirement Plan and by the multi-employer pension plans in which we participate; | ||
| • | labor issues, including the renegotiation of union contracts and shortage of qualified labor; and | ||
| • | the risk that the anti-takeover benefits provided by our preferred stock may not be viewed as beneficial to stockholders. |
For a more detailed discussion of factors that could cause actual results to differ from those
contained in the forward-looking statements, see the risk factors discussion contained in Item 1A
of our Annual Report on Form 10-K for the fiscal year ended July 3, 2010.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Our market risks consist of interest rate risk, foreign currency exchange rate risk, fuel
price risk and investment risk. For a discussion on our exposure to market risk, see Part II, Item
7A, “Quantitative and Qualitative Disclosures about Market Risks” in our Annual Report on Form 10-K
for the fiscal year ended July 3, 2010. There have been no significant changes to our market risks
since July 3, 2010 except as noted below.
Interest Rate Risk
At April 2, 2011, we had $186.0 million of commercial paper issuances outstanding at variable
rates of interest with maturities through April 4, 2011. Excluding commercial paper issuances, our
long-term debt obligations at April 2, 2011 were $2.5 billion, of which approximately 81% were at
fixed rates of interest, including the impact of our interest rate swap agreements.
In fiscal 2010, we entered into two interest rate swap agreements that effectively converted
$200 million of fixed rate debt maturing in fiscal 2014 (the fiscal 2014 swap) and $250 million of
fixed rate debt maturing in fiscal 2013 (the fiscal 2013 swap) to floating rate debt. Both
transactions were entered into with the goal of reducing overall borrowing cost. The major risks
from interest rate derivatives include changes in 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. These transactions were
designated as fair value hedges since the swaps hedge against the changes in fair value of fixed
rate debt resulting from changes in interest rates.
As of April 2, 2011, the fiscal 2014 swap was recognized as an asset within the consolidated
balance sheet at fair value within other assets of $5.3 million. The fixed interest rate on the
hedged debt is 4.6% and the floating interest rate on the swap is three-month LIBOR which resets
quarterly. As of April 2, 2011, the fiscal 2013 swap was recognized as an asset within the
consolidated balance sheet at fair value within other assets of $5.6 million. The fixed interest
rate on the hedged debt is 4.2% and the floating interest rate on the swap is three-month LIBOR
which resets quarterly.
Fuel Price Risk
Due to the nature of our distribution business, we are exposed to potential volatility in fuel
prices. During the first 39 weeks of both fiscal 2011 and fiscal 2010, fuel costs related to
outbound deliveries represented approximately 0.6% of sales. From time to time, we will enter into
forward purchase commitments for a portion of our projected monthly diesel fuel requirements with a
goal of mitigating a portion of the volatility in fuel prices. As of April 2, 2011, we had forward
diesel fuel commitments totaling approximately $71.0 million through February 2012. These
contracts will lock in the price of approximately 30% to 35% of our fuel purchase needs for the
contracted periods at prices lower than the current market price for diesel. Subsequent to April
2, 2011, we entered into forward diesel fuel commitments totaling
approximately $10 million for
the month of March 2012.
36
Table of Contents
Item 4.
Controls and Procedures
Sysco’s management, with the participation of our chief executive officer and chief financial
officer, evaluated the effectiveness of our disclosure controls and procedures as of April 2, 2011.
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act, means controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in
the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act is accumulated and communicated to the
company’s management, including its principal executive and principal financial officers, as
appropriate to allow timely decisions regarding the required disclosure. Management recognizes that
any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. Sysco’s disclosure
controls and procedures have been designed to provide reasonable assurance of achieving their
objectives. Based on the evaluation of our disclosure controls and procedures as of April 2, 2011,
our chief executive officer and chief financial officer concluded that, as of such date, Sysco’s
disclosure controls and procedures were effective at the reasonable assurance level.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended April 2, 2011 that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
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Table of Contents
PART II — OTHER INFORMATION
Item 1.
Legal Proceedings
We are engaged in various legal proceedings which have arisen but have not been fully
adjudicated. These proceedings, in the opinion of management, will not have a material adverse
effect upon the consolidated financial statements of Sysco when ultimately concluded.
Item 1A.
Risk Factors
The information set forth in this report should be read in conjunction with the risk factors
discussed in Item 1A of our Annual Report on Form 10-K for the year ended July 3, 2010, which could
materially impact our business, financial condition or future results.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
We made the following share repurchases during the third quarter of fiscal 2011:
ISSUER
PURCHASES OF EQUITY SECURITIES
| (c) Total Number of | (d) Maximum Number of | |||||||||||||||
| Shares Purchased as Part | Shares that May Yet Be | |||||||||||||||
| (a) Total Number of | (b) Average Price | of Publicly Announced | Purchased Under the Plans or | |||||||||||||
| Period | Shares Purchased (1) | Paid per Share | Plans or Programs | Programs | ||||||||||||
|
Month #1
January 2 –January 29 |
245,259 | $ | 29.46 | 210,000 | 13,386,600 | |||||||||||
|
|
||||||||||||||||
|
Month #2
January 30 –February 26 |
4,653 | 29.85 | — | 13,386,600 | ||||||||||||
|
|
||||||||||||||||
|
Month #3
February 27 –April 2 |
— | — | — | 13,386,600 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total
|
249,912 | $ | 29.47 | 210,000 | 13,386,600 | |||||||||||
|
|
||||||||||||||||
| (1) | The total number of shares purchased includes 35,259 and 4,653 shares tendered by individuals in connection with stock option exercises in Month #1 and Month #2, respectively. There were no shares tendered by individuals in connection with stock option exercises in Month #3. All other shares were purchased pursuant to the publicly announced program described below. |
On August 27, 2010, we announced that the Board of Directors approved the repurchase of
20,000,000 shares. Pursuant to this repurchase program, shares may be acquired in the open market
or in privately negotiated transactions at the company’s 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.
Item 3.
Defaults Upon Senior Securities
None
Item 5.
Other Information
None
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Item 6.
Exhibits
|
|
||||
|
3.1
|
— | Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(a) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). | ||
|
|
||||
|
3.2
|
— | Certificate of Amendment of Certificate of Incorporation increasing authorized shares, incorporated by reference to Exhibit 3(d) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). | ||
|
|
||||
|
3.3
|
— | Certificate of Amendment to Restated Certificate of Incorporation increasing authorized shares, incorporated by reference to Exhibit 3(e) to Form 10-Q for the quarter ended December 27, 2003 (File No. 1-6544). | ||
|
|
||||
|
3.4
|
— | Form of Amended Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, incorporated by reference to Exhibit 3(c) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). | ||
|
|
||||
|
3.5
|
— | Amended and Restated Bylaws of Sysco Corporation dated July 18, 2008, incorporated by reference to Exhibit 3.5 to Form 8-K filed on July 23, 2008 (File No. 1-6544). | ||
|
|
||||
|
4.1
|
— | Senior Debt Indenture, dated as of June 15, 1995, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-3 filed June 6, 1995 (File No. 33-60023). | ||
|
|
||||
|
4.2
|
— | Third Supplemental Indenture, dated as of April 25, 1997 between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(g) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). | ||
|
|
||||
|
4.3
|
— | Fifth Supplemental Indenture, dated as of July 27, 1998 between Sysco Corporation and First Union National Bank, Trustee, incorporated by reference to Exhibit 4(h) to Form 10-K for the year ended June 27, 1998 (File No. 1-6544). | ||
|
|
||||
|
4.4
|
— | Seventh Supplemental Indenture, including form of Note, dated March 5, 2004 between Sysco Corporation, as Issuer, and Wachovia Bank, National Association (formerly First Union National Bank of North Carolina), as Trustee, incorporated by reference to Exhibit 4(j) to Form 10-Q for the quarter ended March 27, 2004 (File No. 1-6544). | ||
|
|
||||
|
4.5
|
— | Eighth Supplemental Indenture, including form of Note, dated September 22, 2005 between Sysco Corporation, as Issuer, and Wachovia Bank, National Association, as Trustee, incorporated by reference to Exhibits 4.1 and 4.2 to Form 8-K filed on September 20, 2005 (File No. 1-6544). | ||
|
|
||||
|
4.6
|
— | Ninth Supplemental Indenture, including form of Note, dated February 12, 2008 between Sysco Corporation, as Issuer, and the Trustee, incorporated by reference to Exhibit 4.1 to Form 8-K filed on February 12, 2008 (File No. 1-6544). | ||
|
|
||||
|
4.7
|
— | Tenth Supplemental Indenture, including form of Note, dated February 12, 2008 between Sysco Corporation, as Issuer, and the Trustee, incorporated by reference to Exhibit 4.3 to Form 8-K filed on February 12, 2008 (File No. 1-6544). | ||
|
|
||||
|
4.8
|
— | Form of Eleventh Supplemental Indenture, including form of Note, dated March 17, 2009 between Sysco Corporation, as Issuer, and the Trustee, incorporated by reference to Exhibit 4.1 to Form 8-K filed on March 13, 2009 (File No. 1-6544). | ||
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|
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4.9
|
— | Form of Twelfth Supplemental Indenture, including form of Note, dated March 17, 2009 between Sysco Corporation, as Issuer, and the Trustee, incorporated by reference to Exhibit 4.3 to Form 8-K filed on March 13, 2009 (File No. 1-6544). | ||
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4.10
|
— | Form of Guarantee of Indebtedness of Sysco Corporation under Exhibits 4.1 through 4.9 as executed by Sysco’s U.S. Broadline subsidiaries, incorporated by reference to Exhibit 4.1 to Form 8-K filed on January 20, 2011 (File No. 1-6544). | ||
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4.11
|
— | Indenture dated May 23, 2002 between Sysco International, Co., Sysco Corporation and Wachovia Bank, National Association, incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-4 filed August 21, 2002 (File No. 333-98489). | ||
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|
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4.12
|
— | Form of Supplemental Indenture No. 1, dated July 2, 2010, between Sysco International, ULC, as successor by conversion and name change to Sysco International Co., Sysco Corporation, as Guarantor, and the Trustee, incorporated by reference to Exhibit 4.12 to Form 10-K for the year ended July 3, 2010 filed on August 31, 2010 (File No. 1-6544). |
39
Table of Contents
|
4.13
|
— | Agreement of Resignation, Appointment and Acceptance, dated February 13, 2007, by and among Sysco Corporation and Sysco International Co., a wholly-owned subsidiary of Sysco Corporation, U.S. Bank National Association and The Bank of New York Trust Company, N.A., incorporated by reference to Exhibit 4(h) to Registration Statement on Form S-3 filed on February 6, 2008 (File No. 333-149086). | ||
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10.1#
|
— | Form of Restricted Stock Grant Agreement under the 2009 Non-Employee Directors Stock Plan. | ||
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10.2#
|
— | Form of Restricted Stock Grant Agreement under the 2009 Non-Employee Directors Stock Plan for those individuals who elected to defer receipt of shares under the 2009 Board of Directors Stock Deferral Plan. | ||
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15.1#
|
— | Report from Ernst & Young LLP dated May 10, 2011, re: unaudited financial statements. | ||
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15.2#
|
— | Acknowledgement letter from Ernst & Young LLP. | ||
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|
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31.1#
|
— | CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
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31.2#
|
— | CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
|
|
||||
|
32.1#
|
— | CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
|
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||||
|
32.2#
|
— | CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
|
|
||||
|
101.1#
|
— | The following financial information from Sysco Corporation’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2011 filed with the SEC on May 10, 2011, formatted in XBRL includes: (i) Consolidated Balance Sheets as of April 2, 2011, July 3, 2010 and March 27, 2010, (ii) Consolidated Results of Operations for the thirty-nine and thirteen week periods ended April 2, 2011 and March 27, 2010, (iii) Consolidated Statements of Comprehensive Income for the thirty-nine and thirteen week periods ended April 2, 2011 and March 27, 2010, (iv) Consolidated Cash Flows for the thirty-nine and thirteen week periods ended April 2, 2011 and March 27, 2010, and (v) the Notes to Consolidated Financial Statements. |
| # | Filed herewith |
40
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Sysco Corporation
(Registrant) |
||||
| By | /s/ WILLIAM J. DELANEY | |||
| William J. DeLaney | ||||
| President and Chief Executive Officer | ||||
Date: May 10, 2011
| By | /s/ ROBERT C. KREIDLER | |||
| Robert C. Kreidler | ||||
|
Executive Vice President and
Chief Financial Officer |
||||
Date: May 10, 2011
| By | /s/ G. MITCHELL ELMER | |||
| G. Mitchell Elmer | ||||
|
Senior Vice President, Controller and
Chief Accounting Officer |
||||
Date: May 10, 2011
41
Table of Contents
EXHIBIT INDEX
|
|
||||
|
3.1
|
— | Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(a) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). | ||
|
|
||||
|
3.2
|
— | Certificate of Amendment of Certificate of Incorporation increasing authorized shares, incorporated by reference to Exhibit 3(d) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). | ||
|
|
||||
|
3.3
|
— | Certificate of Amendment to Restated Certificate of Incorporation increasing authorized shares, incorporated by reference to Exhibit 3(e) to Form 10-Q for the quarter ended December 27, 2003 (File No. 1-6544). | ||
|
|
||||
|
3.4
|
— | Form of Amended Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, incorporated by reference to Exhibit 3(c) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). | ||
|
|
||||
|
3.5
|
— | Amended and Restated Bylaws of Sysco Corporation dated July 18, 2008, incorporated by reference to Exhibit 3.5 to Form 8-K filed on July 23, 2008 (File No. 1-6544). | ||
|
|
||||
|
4.1
|
— | Senior Debt Indenture, dated as of June 15, 1995, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-3 filed June 6, 1995 (File No. 33-60023). | ||
|
|
||||
|
4.2
|
— | Third Supplemental Indenture, dated as of April 25, 1997 between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(g) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). | ||
|
|
||||
|
4.3
|
— | Fifth Supplemental Indenture, dated as of July 27, 1998 between Sysco Corporation and First Union National Bank, Trustee, incorporated by reference to Exhibit 4(h) to Form 10-K for the year ended June 27, 1998 (File No. 1-6544). | ||
|
|
||||
|
4.4
|
— | Seventh Supplemental Indenture, including form of Note, dated March 5, 2004 between Sysco Corporation, as Issuer, and Wachovia Bank, National Association (formerly First Union National Bank of North Carolina), as Trustee, incorporated by reference to Exhibit 4(j) to Form 10-Q for the quarter ended March 27, 2004 (File No. 1-6544). | ||
|
|
||||
|
4.5
|
— | Eighth Supplemental Indenture, including form of Note, dated September 22, 2005 between Sysco Corporation, as Issuer, and Wachovia Bank, National Association, as Trustee, incorporated by reference to Exhibits 4.1 and 4.2 to Form 8-K filed on September 20, 2005 (File No. 1-6544). | ||
|
|
||||
|
4.6
|
— | Ninth Supplemental Indenture, including form of Note, dated February 12, 2008 between Sysco Corporation, as Issuer, and the Trustee, incorporated by reference to Exhibit 4.1 to Form 8-K filed on February 12, 2008 (File No. 1-6544). | ||
|
|
||||
|
4.7
|
— | Tenth Supplemental Indenture, including form of Note, dated February 12, 2008 between Sysco Corporation, as Issuer, and the Trustee, incorporated by reference to Exhibit 4.3 to Form 8-K filed on February 12, 2008 (File No. 1-6544). | ||
|
|
||||
|
4.8
|
— | Form of Eleventh Supplemental Indenture, including form of Note, dated March 17, 2009 between Sysco Corporation, as Issuer, and the Trustee, incorporated by reference to Exhibit 4.1 to Form 8-K filed on March 13, 2009 (File No. 1-6544). | ||
|
|
||||
|
4.9
|
— | Form of Twelfth Supplemental Indenture, including form of Note, dated March 17, 2009 between Sysco Corporation, as Issuer, and the Trustee, incorporated by reference to Exhibit 4.3 to Form 8-K filed on March 13, 2009 (File No. 1-6544). | ||
|
|
||||
|
4.10
|
— | Form of Guarantee of Indebtedness of Sysco Corporation under Exhibits 4.1 through 4.9 as executed by Sysco’s U.S. Broadline subsidiaries, incorporated by reference to Exhibit 4.1 to Form 8-K filed on January 20, 2011 (File No. 1-6544). | ||
|
|
||||
|
4.11
|
— | Indenture dated May 23, 2002 between Sysco International, Co., Sysco Corporation and Wachovia Bank, National Association, incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-4 filed August 21, 2002 (File No. 333-98489). |
Table of Contents
|
4.12
|
— | Form of Supplemental Indenture No. 1, dated July 2, 2010, between Sysco International, ULC, as successor by conversion and name change to Sysco International Co., Sysco Corporation, as Guarantor, and the Trustee, incorporated by reference to Exhibit 4.12 to Form 10-K for the year ended July 3, 2010 filed on August 31, 2010 (File No. 1-6544). | ||
|
|
||||
|
4.13
|
— | Agreement of Resignation, Appointment and Acceptance, dated February 13, 2007, by and among Sysco Corporation and Sysco International Co., a wholly-owned subsidiary of Sysco Corporation, U.S. Bank National Association and The Bank of New York Trust Company, N.A., incorporated by reference to Exhibit 4(h) to Registration Statement on Form S-3 filed on February 6, 2008 (File No. 333-149086). | ||
|
|
||||
|
10.1#
|
— | Form of Restricted Stock Grant Agreement under the 2009 Non-Employee Directors Stock Plan. | ||
|
|
||||
|
10.2#
|
— | Form of Restricted Stock Grant Agreement under the 2009 Non-Employee Directors Stock Plan for those individuals who elected to defer receipt of shares under the 2009 Board of Directors Stock Deferral Plan. | ||
|
|
||||
|
15.1#
|
— | Report from Ernst & Young LLP dated May 10, 2011, re: unaudited financial statements. | ||
|
|
||||
|
15.2#
|
— | Acknowledgement letter from Ernst & Young LLP. | ||
|
|
||||
|
31.1#
|
— | CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
|
|
||||
|
31.2#
|
— | CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
|
|
||||
|
32.1#
|
— | CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
|
|
||||
|
32.2#
|
— | CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
|
|
||||
|
101.1#
|
— | The following financial information from Sysco Corporation’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2011 filed with the SEC on May 10, 2011, formatted in XBRL includes: (i) Consolidated Balance Sheets as of April 2, 2011, July 3, 2010 and March 27, 2010, (ii) Consolidated Results of Operations for the thirty-nine and thirteen week periods ended April 2, 2011 and March 27, 2010, (iii) Consolidated Statements of Comprehensive Income for the thirty-nine and thirteen week periods ended April 2, 2011 and March 27, 2010, (iv) Consolidated Cash Flows for the thirty-nine and thirteen week periods ended April 2, 2011 and March 27, 2010, and (v) the Notes to Consolidated Financial Statements. |
| # | Filed herewith |
TABLE OF CONTENTS
Part I Financial InformationprintItem 1. Financial StatementsprintItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II Other InformationprintItem 1. Legal ProceedingsprintItem 1A. Risk FactorsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 3. Defaults Upon Senior SecuritiesprintItem 5. Other InformationprintItem 6. Exhibitsprint