10-K 1 h84293e10vk.htm FORM 10-K e10vk
Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-K
 
     
(Mark One)    
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended July 2, 2011
OR
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number 1-6544
 
 
(SYSCO LOGO)
 
Sysco Corporation
(Exact name of registrant as specified in its charter)
 
     
Delaware
(State or other jurisdiction of
incorporation or organization)
  74-1648137
(IRS employer
identification number)
1390 Enclave Parkway
Houston, Texas
(Address of principal executive offices)
  77077-2099
(Zip Code)
 
Registrant’s telephone number, including area code:
(281) 584-1390
 
Securities Registered Pursuant to Section 12(b) of the Act:
 
     
    Name of each exchange on
Title of Each Class
 
which registered
 
Common Stock, $1.00 par value   New York Stock Exchange
 
Securities Registered Pursuant to Section 12(g) of the Act:
None
 
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o
 
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ     No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
     
Large accelerated filer þ
  Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
  Smaller reporting Company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
 
The aggregate market value of the voting stock of the registrant held by stockholders who were not affiliates (as defined by regulations of the Securities and Exchange Commission) of the registrant was approximately $16,371,221,000 as of January 1, 2011 (based on the closing sales price on the New York Stock Exchange Composite Tape on December 31, 2010, as reported by The Wall Street Journal (Southwest Edition)). As of August 17, 2011, the registrant had issued and outstanding an aggregate of 592,697,484 shares of its common stock.
 
DOCUMENTS INCORPORATED BY REFERENCE:
 
Portions of the company’s 2011 Proxy Statement to be filed with the Securities and Exchange Commission no later than 120 days after the end of the fiscal year covered by this Form 10-K are incorporated by reference into Part III.
 


 

 
TABLE OF CONTENTS
 
             
        Page No.
 
      Business   1
      Risk Factors   5
      Unresolved Staff Comments   9
      Properties   9
      Legal Proceedings   10
 
PART II
      Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities   10
      Selected Financial Data   12
      Management’s Discussion and Analysis of Financial Condition and Results of Operations   13
      Quantitative and Qualitative Disclosures about Market Risk   34
      Financial Statements and Supplementary Data   37
      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   77
      Controls and Procedures   77
      Other Information   77
 
PART III
      Directors, Executive Officers and Corporate Governance   77
      Executive Compensation   77
      Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   77
      Certain Relationships and Related Transactions, and Director Independence   77
      Principal Accounting Fees and Services   77
 
PART IV
      Exhibits   78
        Signatures   79
 EX-10.7
 EX-10.8
 EX-10.15
 EX-10.46
 EX-21.1
 EX-23.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT


Table of Contents

 
PART I
 
ITEM 1.  Business
 
Unless this Form 10-K indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Sysco,” or “the company” as used in this Form 10-K refer to Sysco Corporation together with its consolidated subsidiaries and divisions.
 
Overview
 
Sysco Corporation, acting through its subsidiaries and divisions, is the largest North American distributor of food and related products primarily to the foodservice or food-away-from-home industry. We provide products and related services to approximately 400,000 customers, including restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers.
 
Founded in 1969, Sysco commenced operations as a public company in March 1970 when the stockholders of nine companies exchanged their stock for Sysco common stock. Since our formation, we have grown from $115.0 million to $39.3 billion in annual sales, both through internal expansion of existing operations and through acquisitions.
 
Sysco’s fiscal year ends on the Saturday nearest to June 30th. This resulted in a 52-week year ending July 2, 2011 for fiscal 2011, a 53-week year ending July 3, 2010 for fiscal 2010 and a 52-week year ending June 27, 2009 for 2009.
 
Sysco Corporation is organized under the laws of Delaware. The address and telephone number of our executive offices are 1390 Enclave Parkway, Houston, Texas 77077-2099, (281) 584-1390. This annual report on Form 10-K, as well as all other reports filed or furnished by Sysco pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge on Sysco’s website at www.sysco.com as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission.
 
Operating Segments
 
Sysco provides food and related products to the foodservice or food-away-from-home industry. Under the accounting provisions related to disclosures about segments of an enterprise, we have aggregated our operating companies into a number of segments, of which only Broadline and SYGMA are reportable segments as defined by accounting standards. Broadline operating companies distribute a full line of food products and a wide variety of non-food products to their customers. SYGMA operating companies distribute a full line of food products and a wide variety of non-food products to chain restaurant customer locations. Our other segments include our specialty produce and lodging industry products segments and a company that distributes to international customers. Specialty produce companies distribute fresh produce and, on a limited basis, other foodservice products. Our lodging industry products company distributes personal care guest amenities, equipment, housekeeping supplies, room accessories and textiles to the lodging industry. Selected financial data for each of our reportable segments as well as financial information concerning geographic areas can be found in Note 19, “Business Segment Information,” in the Notes to Consolidated Financial Statements in Item 8.
 
Customers and Products
 
Sysco’s customers in the foodservice industry include restaurants, hospitals, schools, hotels, industrial caterers and other similar venues where foodservice products are served. Services to our customers are supported by similar physical facilities, vehicles, material handling equipment and techniques, and administrative and operating staffs.
 
The products we distribute include:
  •   a full line of frozen foods, such as meats, fully prepared entrees, fruits, vegetables and desserts;
  •   a full line of canned and dry foods;
  •   fresh meats;
  •   dairy products;
  •   beverage products;
  •   imported specialties; and
  •   fresh produce.
 
We also supply a wide variety of non-food items, including:
  •   paper products such as disposable napkins, plates and cups;
  •   tableware such as china and silverware;
  •   cookware such as pots, pans and utensils;
  •   restaurant and kitchen equipment and supplies; and
  •   cleaning supplies.

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A comparison of the sales mix in the principal product categories during the last three years is presented below:
 
                         
    2011     2010     2009  
 
Canned and dry products
    19 %     19 %     19 %
Fresh and frozen meats
    18       17       17  
Frozen fruits, vegetables, bakery and other
    14       14       14  
Dairy products
    11       10       10  
Poultry
    10       10       10  
Fresh produce
    8       9       8  
Paper and disposables
    8       8       8  
Seafood
    5       5       5  
Beverage products
    4       4       4  
Janitorial products
    2       2       3  
Equipment and smallwares
    1       2       2  
Medical supplies(1)
                 
                         
      100 %     100 %     100 %
                         
 
 
(1) Sales are less than 1% of total
 
Our operating companies distribute nationally-branded merchandise, as well as products packaged under our private brands. Products packaged under our private brands have been manufactured for Sysco according to specifications that have been developed by our quality assurance team. In addition, our quality assurance team certifies the manufacturing and processing plants where these products are packaged, enforces our quality control standards and identifies supply sources that satisfy our requirements.
 
We believe that prompt and accurate delivery of orders, competitive pricing, close contact with customers and the ability to provide a full array of products and services to assist customers in their foodservice operations are of primary importance in the marketing and distribution of foodservice products to our customers. Our operating companies offer daily delivery to certain customer locations and have the capability of delivering special orders on short notice. Through our approximately 13,500 sales and marketing representatives and support staff of Sysco and our operating companies, we stay informed of the needs of our customers and acquaint them with new products and services. Our operating companies also provide ancillary services relating to foodservice distribution, such as providing customers with product usage reports and other data, menu-planning advice, food safety training and assistance in inventory control, as well as access to various third party services designed to add value to our customers’ businesses.
 
No single customer accounted for 10% or more of Sysco’s total sales for the fiscal year ended July 2, 2011.
 
Based upon available information, we estimate that sales by type of customer during the past three fiscal years were as follows:
 
                         
Type of Customer
  2011     2010     2009  
 
Restaurants
    62 %     62 %     62 %
Hospitals and nursing homes
    11       11       11  
Hotels and motels
    6       6       6  
Schools and colleges
    5       5       5  
Other
    16       16       16  
                         
Totals
    100 %     100 %     100 %
                         
 
Sources of Supply
 
We purchase from thousands of suppliers, both domestic and international, none of which individually accounts for more than 10% of our purchases. These suppliers consist generally of large corporations selling brand name and private label merchandise, as well as independent regional brand and private label processors and packers. Purchasing is generally carried out through both centrally developed purchasing programs and direct purchasing programs established by our various operating companies.
 
We administer a consolidated product procurement program designed to develop, obtain and ensure consistent quality food and non-food products. The program covers the purchasing and marketing of Sysco Brand merchandise as well as products from a number of national brand suppliers, encompassing substantially all product lines. Sysco’s operating companies purchase product from the suppliers participating in these consolidated programs and from other suppliers, although Sysco Brand products are only available to the operating companies through these consolidated programs. We also focus on increasing profitability by lowering operating costs and by lowering aggregate inventory levels, which reduces future facility expansion needs at our broadline operating companies, while providing greater value to our suppliers and customers. This includes the construction and operation of regional distribution centers (RDCs), which aggregate inventory demand to optimize the supply chain activities for certain products for all Sysco broadline operating companies in the region. Currently, we have two RDCs in operation in Virginia and Florida and will begin construction on a third RDC in fiscal 2012 in Indiana.
 
Working Capital Practices
 
Our growth is funded through a combination of cash flow from operations, commercial paper issuances and long-term borrowings. See the discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources” at Item 7 regarding our liquidity, financial position and sources and uses of funds.

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Credit terms we extend to our customers can vary from cash on delivery to 30 days or more based on our assessment of each customer’s credit worthiness. We monitor each customer’s account and will suspend shipments if necessary.
 
A majority of our sales orders are filled within 24 hours of when customer orders are placed. We generally maintain inventory on hand to be able to meet customer demand. The level of inventory on hand will vary by product depending on shelf-life, supplier order fulfillment lead times and customer demand. We also make purchases of additional volumes of certain products based on supply or pricing opportunities.
 
We take advantage of suppliers’ cash discounts where appropriate and otherwise generally receive payment terms from our suppliers ranging from weekly to 30 days or more.
 
Corporate Headquarters And Shared Services Center
 
Our corporate staff makes available a number of services to our operating companies. Members of the corporate staff possess experience and expertise in, among other areas, accounting and finance, treasury, legal, cash management, information technology, employee benefits, engineering, real estate and construction, risk management and insurance, sales and marketing, payroll, human resources, training and development, strategy, and tax compliance services. The corporate office also makes available warehousing and distribution services, which provide assistance in operational best practices including space utilization, energy conservation, fleet management and work flow.
 
We are in the early stages of implementing a shared services center that will perform support services for employees, suppliers and customers, payroll administration, human resources, customer and vendor contract administration, financial services such as vendor payments, invoicing, cash application, certain credit services, accounting and sales and use tax administration, procurement and maintenance support and sales support for our operating companies.
 
Capital Improvements
 
To maximize productivity and customer service, we continue to modernize, expand and construct new distribution facilities. During fiscal 2011, 2010 and 2009, approximately $636.4 million, $594.6 million and $464.6 million respectively, were invested in technology, facilities, delivery fleet and other capital asset enhancements. We estimate our capital expenditures in fiscal 2012 should be in the range of $750 million to $800 million. During the three years ended July 2, 2011, capital expenditures were financed primarily by internally generated funds, our commercial paper program and bank and other borrowings. We expect to finance our fiscal 2012 capital expenditures from the same sources.
 
We are undertaking a multi-year Business Transformation Project, pursuant to which we are developing and implementing an integrated software system to support a majority of our businesses and further streamline our operations. These systems are commonly referred to as Enterprise Resource Planning (ERP) systems. Approximately $100 million to $120 million of the fiscal 2012 estimated capital expenditures are related to the Business Transformation Project.
 
Employees
 
As of July 2, 2011, we had approximately 46,000 full-time employees, approximately 17% of whom were represented by unions, primarily the International Brotherhood of Teamsters. Contract negotiations are handled by each individual operating company. Approximately 25% of our union employees are covered by collective bargaining agreements which have expired or will expire during fiscal 2012 and are subject to renegotiation. Since July 2, 2011, two contracts covering 85 of such employees have been renegotiated. We consider our labor relations to be satisfactory.
 
Competition
 
Industry sources estimate that there are more than 15,000 companies engaged in foodservice distribution in the United States. Our customers may also choose to purchase products directly from retail outlets or negotiate prices directly with our suppliers. While we compete primarily with local and regional distributors, a few organizations compete with us on a national basis. We believe that the principal competitive factors in the foodservice industry are effective customer contacts, the ability to deliver a wide range of quality products and related services on a timely and dependable basis and competitive prices. An additional competitive factor for our larger chain restaurant customers is the ability to provide a national distribution network. We consider our primary market to be the foodservice market in the United States and Canada and estimate that we serve about 17% of this approximately $220 billion annual market. We believe, based upon industry trade data, that our sales to the United States and Canada food-away-from-home industry were the highest of any foodservice distributor during fiscal 2011. While adequate industry statistics are not available, we believe that in most instances our local operations are among the leading distributors of food and related non-food products to foodservice customers in their respective trading areas. We believe our competitive advantages include our more than 8,000 marketing associates, our diversified product base, which includes a differentiated group of high quality Sysco brand products, the diversity in the types of customers we serve, our economies of scale and our wide geographic presence in the United States and Canada, which mitigates some of the impact of regional economic declines that may occur over time and provides a national distribution network for larger chain restaurant customers. We believe our liquidity and access to capital provides us the ability to continuously invest in business improvements. We are the only publicly-traded distributor in the food-away-from-home industry in the United States. While our public company status provides us with some advantages, including access to capital, we believe it also provides us with some disadvantages that our competitors do not have in terms of additional costs related to complying with regulatory requirements.

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Government Regulation
 
As a marketer and distributor of food products, we are subject to the U.S. Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder by the U.S. Food and Drug Administration (FDA), as well as the Canadian Food and Drugs Act and the regulations thereunder.
 
The FDA regulates food safety through various statutory and regulatory mandates, including manufacturing and holding requirements for foods through good manufacturing practice regulations, hazard analysis and critical control point (HACCP) requirements for certain foods, and the food and color additive approval process. The agency also specifies the standards of identity for certain foods, prescribes the format and content of information required to appear on food product labels, regulates food contact packaging and materials, and maintains a Reportable Food Registry for the industry to report when there is a reasonable probability that an article of food will cause serious adverse health consequences. For certain product lines, we are also subject to the Federal Meat Inspection Act, the Poultry Products Inspection Act, the Perishable Agricultural Commodities Act, the Packers and Stockyard Act and regulations promulgated by the U.S. Department of Agriculture (USDA) to interpret and implement these statutory provisions. The USDA imposes standards for product safety, quality and sanitation through the federal meat and poultry inspection program. The USDA reviews and approves the labeling of these products and also establishes standards for the grading and commercial acceptance of produce shipments from our suppliers. We are also subject to the Public Health Security and Bioterrorism Preparedness and Response Act of 2002, which imposes certain registration and record keeping requirements on facilities that manufacture, process, pack or hold food for human or animal consumption.
 
In Canada, the Canadian Food Inspection Agency administers and enforces the food safety and nutritional quality standards established by Health Canada under the Canadian Food and Drugs Act and under other related federal legislation, including the Canada Agricultural Products Act, the Meat Inspection Act, the Fish Inspection Act and the Consumer Packaging and Labeling Act (as it relates to food). These laws regulate the processing, storing, grading, packaging, marking, transporting and inspection of certain Sysco product lines as well as the packaging, labeling, sale, importation and advertising of pre-packaged and certain other products.
 
We and our products are also subject to state, provincial and local regulation through such measures as the licensing of our facilities; enforcement by state, provincial and local health agencies of state, provincial and local standards for our products; and regulation of our trade practices in connection with the sale of our products. Our facilities are subject to inspections and regulations issued pursuant to the U.S. Occupational Safety and Health Act by the U.S. Department of Labor, together with similar occupational health and safety laws in each Canadian province. These regulations require us to comply with certain manufacturing, health and safety standards to protect our employees from accidents and to establish hazard communication programs to transmit information on the hazards of certain chemicals present in products we distribute.
 
We are also subject to regulation by numerous U.S. and Canadian federal, state, provincial and local regulatory agencies, including, but not limited to, the U.S. Department of Labor and each Canadian provincial ministry of labour, which set employment practice standards for workers, and the U.S. Department of Transportation and the Canadian Transportation Agency, which regulate transportation of perishable and hazardous materials and waste, and similar state, provincial and local agencies.
 
Most of our distribution facilities have ammonia-based refrigeration systems and tanks for the storage of diesel fuel and other petroleum products which are subject to laws regulating such systems and storage tanks. Although we are subject to other U.S. and Canadian federal, state, provincial and local provisions relating to the protection of the environment or the discharge of materials, these provisions do not materially impact the use or operation of our facilities.
 
Compliance with these laws has not had, and is not anticipated to have, a material effect on our capital expenditures, earnings or competitive position.
 
General
 
We have numerous trademarks that are of significant importance, including the SYSCO® trademark and our privately-branded product trademarks that include the SYSCO® trademark. These trademarks and the private brands on which they are used are widely recognized within the foodservice industry. Approximately half of our privately-branded sales are from products labeled with our SYSCO® trademark without any other trademark. We believe the loss of the SYSCO® trademark would have a material adverse effect on our results of operations. Our U.S. trademarks are effective for a ten year period and the company generally renews its trademarks before their expiration dates unless a particular trademark is no longer in use. The company does not have any material patents or licenses.
 
We are not engaged in material research and development activities relating to the development of new products or the improvement of existing products.
 
Our sales do not generally fluctuate significantly on a seasonal basis; therefore, the business of the company is not deemed to be seasonal.
 
As of July 2, 2011, we operated 177 distribution facilities throughout the United States, Canada and Ireland.

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Item 1A.  Risk Factors
 
Periods of Difficult Economic Conditions and Heightened Uncertainty in the Financial Markets Affect Consumer Confidence, which Can Adversely Impact our Business
 
The foodservice distribution industry is characterized by relatively high inventory turnover with relatively low profit margins and the foodservice industry is sensitive to national and regional economic conditions. Difficult economic conditions, such as the slow economic recovery experienced in fiscal 2011 which included food and fuel cost inflation experienced by the consumer, and heightened uncertainty in the financial markets negatively affect consumer confidence and discretionary spending. This can lead to reductions in the frequency of dining out and the amount spent by consumers for food-away-from-home purchases. These conditions, in turn, can negatively impacted our sales. The development of worsening economic conditions in the future or permanent changes in consumer dining habits as a result of such conditions would likely negatively impact our operating results.
 
Periods of Significant or Prolonged Inflation or Deflation Affect our Product Costs and Profitability
 
Volatile food costs have a direct impact on our industry. Periods of product cost inflation may have a negative impact on our profit margins and earnings to the extent that we are unable to pass on all or a portion of such product cost increases to our customers, which may have a negative impact on our business and our profitability. In addition, product cost inflation may negatively impact consumer spending decisions, which could adversely impact our sales. Conversely, our business may be adversely impacted by periods of product cost deflation because we make a significant portion of our sales at prices that are based on the cost of products we sell plus a percentage markup. As a result, our profit levels may be negatively impacted during periods of product cost deflation, even though our gross profit percentage may remain relatively constant. Our estimate for the inflation in Sysco’s cost of goods was 4.6% in fiscal 2011, compared to deflation of 1.5% in fiscal 2010 and inflation of 4.7% in fiscal 2009.
 
Our Business Transformation Project Could Experience Implementation Problems, Scheduling Delays or Cost Overages and May Not Prove to Be Cost Effective or Result in the Benefits We Anticipate, Negatively Impacting our Business, Results of Operations and Liquidity
 
In fiscal 2009, we commenced the design of an enterprise-wide project to implement an integrated software system, commonly referred to as an Enterprise Resource Planning (ERP) system, to support a majority of our business processes and further streamline our operations. We have substantially completed the design and build phases of our Business Transformation Project and we are testing the underlying ERP system and processes through a pilot implementation. During the fourth quarter of fiscal 2011, our pilot operating company implemented the project and our shared services center became active in its support role. ERP implementations are complex and time-consuming projects that involve substantial investments in system software and implementation activities over a multi-year timeframe. As is the case in most ERP implementations, we expect that the implementation of our ERP system will require transformation of business and financial processes in order to realize the full benefits of the project. Although we expect the investment in the Business Transformation Project to provide meaningful benefits to the company over the long-term, the costs will exceed the benefits during the testing and deployment stages of implementation, including fiscal 2012. The expected costs of the project in fiscal 2012 may be greater or less than currently expected because as we continue implementation of the project, we may encounter the need for changes in design or revisions of the project calendar and budget, including incurring expenses at an earlier or later time than currently anticipated. In fiscal 2011, we took more time to test the underlying ERP system and processes. We are also taking additional time in fiscal 2012 to improve the underlying systems prior to larger scale deployment. These actions have caused a delay in the project of approximately six to twelve months and until we reach the point where the underlying system functions as intended, our deployment timeline is still being determined. Our business and results of operations may be adversely affected if we experience operating problems, scheduling delays, cost overages or limitations on the extent of the business transformation during the ERP implementation process. In addition, because the implementation is expected to involve a significant capital commitment, our business, results of operations and liquidity may also be adversely affected if the ERP system, and the associated process changes, do not prove to be cost effective or do not result in the cost savings and other benefits that we anticipate.
 
We May Not Be Able to Fully Compensate for Increases in Fuel Costs
 
Volatile fuel prices have a direct impact on our industry. The cost of fuel affects the price paid by us for products as well as the costs incurred by us to deliver products to our customers. Although we have been able to pass along a portion of increased fuel costs to our customers in the past, there is no guarantee that we can do so again if another period of high fuel costs occurs. If fuel costs increase again in the future, we may experience difficulties in passing all or a portion of these costs along to our customers, which may have a negative impact on our business and our profitability. We routinely enter into forward purchase commitments for a portion of our projected monthly diesel fuel requirements at prices equal to the then-current market price for diesel. If fuel prices decrease significantly, these forward purchases may prove ineffective and result in us paying higher than market costs for a portion of our diesel fuel.
 
Conditions Beyond our Control can Interrupt our Supplies and Increase our Product Costs
 
We obtain substantially all of our foodservice and related products from third party suppliers. For the most part, we do not have long-term contracts with our suppliers committing them to provide products to us. Although our purchasing volume can provide leverage when dealing with suppliers, suppliers may not provide the foodservice products and supplies needed by us in the quantities and at the prices requested. We are

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also subject to delays caused by interruption in production and increases in product costs based on conditions outside of our control. These conditions include work slowdowns, work interruptions, strikes or other job actions by employees of suppliers, short-term weather conditions or more prolonged climate change, crop conditions, product recalls, water shortages, transportation interruptions, unavailability of fuel or increases in fuel costs, competitive demands and natural disasters or other catastrophic events (including, but not limited to food-borne illnesses). Our inability to obtain adequate supplies of foodservice and related products as a result of any of the foregoing factors or otherwise could mean that we could not fulfill our obligations to customers, and customers may turn to other distributors.
 
If we Fail to Comply with Requirements Imposed by Applicable Law or Other Governmental Regulations, we Could Become Subject to Lawsuits, Investigations and Other Liabilities and Restrictions on our Operations that Could Significantly and Adversely Affect our Business
 
We are subject to governmental regulation at the federal, state, international, national, provincial and local levels in many areas of our business, such as food safety and sanitation, minimum wage, overtime, wage payment, wage and hour and employment discrimination, immigration, human health and safety, including regulations of the FDA, USDA, U.S. Occupational Safety and Health Administration, federal motor carrier safety, data privacy, environmental protection, the import and export of goods and customs regulations, the False Claims Act, the Foreign Corrupt Practices Act and the services we provide in connection with governmentally funded entitlement programs. From time to time, both federal and state governmental agencies have conducted audits of our billing practices as part of investigations of providers of services under governmental contracts, or otherwise. We also receive requests for information from governmental agencies in connection with these audits. While we attempt to comply with all applicable laws and regulations, we cannot assure you that we are in full compliance with all applicable laws and regulations or interpretations of these laws and regulations at all times or that we will be able to comply with any future laws, regulations or interpretations of these laws and regulations. If we fail to comply with applicable laws and regulations or encounter disagreements with respect to our contracts subject to governmental regulations, including those referred to above, we may be subject to investigations, criminal sanctions or civil remedies, including fines, injunctions, prohibitions on exporting, seizures or debarments from contracting with the government. The cost of compliance or the consequences of non-compliance, including debarments, could have a material adverse effect on our business and results of operations. In addition, governmental units may make changes in the regulatory frameworks within which we operate that may require either the corporation as a whole or individual businesses to incur substantial increases in costs in order to comply with such laws and regulations.
 
Adverse Publicity about us or Lack of Confidence in our Products Could Negatively Impact our Reputation and Reduce Earnings
 
Maintaining a good reputation and public confidence in the safety of the products we distribute is critical to our business, particularly to selling Sysco Brand products. Anything that damages that reputation or the public’s confidence in our products, whether or not justified, including adverse publicity about the quality, safety or integrity of our products, could quickly affect our revenues and profits. Reports, whether true or not, of food-borne illnesses, such as e-coli, avian flu, bovine spongiform encephalopathy, hepatitis A, trichinosis or salmonella, and injuries caused by food tampering could also severely injure our reputation or negatively impact the public’s confidence in our products. If patrons of our restaurant customers become ill from food-borne illnesses, our customers could be forced to temporarily close restaurant locations and our sales and profitability would be correspondingly decreased. In addition, instances of food-borne illnesses or food tampering or other health concerns, such as flu epidemics or other pandemics, even those unrelated to the use of Sysco products, or public concern regarding the safety of our products, can result in negative publicity about the food service distribution industry and cause our sales and profitability to decrease dramatically.
 
Competition in our Industry may Adversely Impact our Margins and our Ability to Retain Customers
 
The foodservice industry is highly competitive and numerous regional and local competitors exist. Additionally, new competition could arise from non-traditional sources or consolidation among competitors. New competitive sources may result in increased focus on pricing and on limiting price increases, or may require increased discounting. Such competition may result in margin erosion and/or make it difficult for us to attract and retain customers.
 
Increased competition within the industry and general economic conditions have served to further increase pressure on the industry’s profit margins, and continued margin pressure within the industry may have a material adverse impact on our operating results and profitability. If we are unable to effectively differentiate ourselves from our competitors, our market share, sales and profitability, through increased expenditures or decreased prices, could be adversely impacted.
 
Product Liability Claims Could Materially Impact our Business
 
We, like any other seller of food, face the risk of exposure to product liability claims in the event that the use of products sold by Sysco causes injury or illness. With respect to product liability claims, we believe we have sufficient primary or excess umbrella liability insurance. However, this insurance may not continue to be available at a reasonable cost or, if available, may not be adequate to cover all of our liabilities. We generally seek contractual indemnification and insurance coverage from parties supplying our products, but this indemnification or insurance coverage is limited, as a practical matter, to the creditworthiness of the indemnifying party and the insured limits of any insurance provided by suppliers. If Sysco does not have adequate insurance or contractual indemnification available, product liability relating to defective products could materially reduce our net earnings and earnings per share.

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Expanding into International Markets and Complimentary Lines of Business Presents Unique Challenges, and our Expansion Efforts with respect to International Operations and Complimentary Lines of Business may not be Successful
 
In addition to our domestic activities, an element of our strategy includes the possibility of further expansion of operations into international markets. Our ability to successfully operate in international markets may be adversely affected by local laws and customs, legal and regulatory constraints, including compliance with the Foreign Corrupt Practices Act, political and economic conditions and currency regulations of the countries or regions in which we currently operate or intend to operate in the future. Risks inherent in our existing and future international operations also include, among others, the costs and difficulties of managing international operations, difficulties in identifying and gaining access to local suppliers, suffering possible adverse tax consequences, maintaining product quality and greater difficulty in enforcing intellectual property rights. Additionally, foreign currency exchange rates and fluctuations may have an impact on our future costs or on future sales and cash flows from our international operations.
 
Another element of our strategy includes the possibility of expansion into businesses that are closely related or complimentary to, but not currently part of, our core foodservice distribution business. Our ability to successfully operate in these complimentary business markets may be adversely affected by legal and regulatory constraints, including compliance with regulatory programs to which we become subject. Risks inherent in branching out into such complimentary markets also include the costs and difficulties of managing operations outside of our core business, which may require additional skills and competencies, as well as difficulties in identifying and gaining access to suppliers or customers in new markets.
 
We Must Finance and Integrate Acquired Businesses Effectively
 
Historically, a portion of our growth has come through acquisitions. If we are unable to integrate acquired businesses successfully or realize anticipated economic, operational and other benefits and synergies in a timely manner, our earnings per share may decrease. Integration of an acquired business may be more difficult when we acquire a business in a market in which we have limited expertise, or with a culture different from Sysco’s. A significant expansion of our business and operations, in terms of geography or magnitude, could strain our administrative and operational resources. Significant acquisitions may also require the issuance of material additional amounts of debt or equity, which could materially alter our debt to equity ratio, increase our interest expense and decrease earnings per share, and make it difficult for us to obtain favorable financing for other acquisitions or capital investments.
 
We Need Access to Borrowed Funds in Order to Grow and Any Default by Us Under our Indebtedness Could Have a Material Adverse Impact
 
A substantial part of our growth historically has been the result of acquisitions and capital expansion. We anticipate additional acquisitions and capital expansion in the future. As a result, our inability to finance acquisitions and capital expenditures through borrowed funds could restrict our ability to expand. Moreover, any default under the documents governing our indebtedness could have a significant adverse effect on our cash flows, as well as the market value of our common stock.
 
Our Level of Indebtedness and the Terms of our Indebtedness Could Adversely Affect our Business and Liquidity Position
 
As of July 2, 2011, we had approximately $2.7 billion of total indebtedness. We have a Board-approved commercial paper program allowing us to issue short-term unsecured notes in an aggregate amount not to exceed $1.3 billion; a revolving credit facility supporting our U.S. and Canadian commercial paper programs in the amount of $1.0 billion set to expire on November 4, 2012; and certain uncommitted bank lines of credit providing for unsecured borrowings for working capital of up to $95.0 million. Our indebtedness may increase from time to time for various reasons, including fluctuations in operating results, working capital needs, capital expenditures and potential acquisitions or joint ventures. Prior to maturity of our revolving credit facility, we plan to renew or extend this credit facility. The amount of credit capacity we are able to obtain, if not sufficient for our needs, and the ultimate cost of such credit could have a negative impact on our liquidity, cost of capital and financial results. In addition, to the extent that we decrease the amount of capacity under our revolver when it is renewed, there is a risk that such liquidity levels may not be adequate in the future to the extent that our access to capital markets is restricted.
 
Technology Dependence Could have a Material Negative Impact on our Business
 
Our ability to decrease costs and increase profits, as well as our ability to serve customers most effectively, depends on the reliability of our technology network. We use software and other technology systems, among other things, to generate and select orders, to load and route trucks and to monitor and manage our business on a day-to-day basis. Any disruption to these computer systems could adversely impact our customer service, decrease the volume of our business and result in increased costs. Furthermore, process changes may be required as we continue to use our existing warehousing, delivery, and payroll systems to support operations as we implement the ERP system. While Sysco has invested and continues to invest in technology security initiatives and disaster recovery plans, these measures cannot fully insulate us from technology disruption that could result in adverse effects on operations and profits.
 
We may be Required to Pay Material Amounts Under Multi-Employer Defined Benefit Pension Plans
 
We contribute to several multi-employer defined benefit pension plans based on obligations arising under collective bargaining agreements covering union-represented employees. Approximately 10% of our current employees are participants in such multi-employer plans. In fiscal 2011, our total contributions to these plans were approximately $32.8 million.

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We do not directly manage these multi-employer plans, which are generally managed by boards of trustees, half of whom are appointed by the unions and the other half by other contributing employers to the plan. Based upon the information available to us from plan administrators, we believe that several of these multi-employer plans are underfunded. In addition, the Pension Protection Act, enacted in August 2006, requires underfunded pension plans to improve their funding ratios within prescribed intervals based on the level of their underfunding. As a result, we expect our required contributions to these plans to increase in the future.
 
Under current law regarding multi-employer defined benefit plans, a 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. Based on the information currently available from plan administrators, which has valuation dates ranging from January 31, 2009 to December 31, 2009, Sysco estimates its share of the aggregate withdrawal liability on most of the multi-employer plans in which it participates could have been as much as $200.0 million as of July 2, 2011 based on a voluntary withdrawal. This estimate excludes plans for which Sysco has recorded withdrawal liabilities. The majority of the plans we participate in have a valuation date of calendar year-end. As such, the majority of our estimated withdrawal liability results from plans for which the valuation date was December 31, 2009; therefore, our estimated liability reflects the effects of the fair value of the plans’ assets and projected benefit obligations as of that date. Due to the lack of current information, we believe our current share of the withdrawal liability could materially differ from this estimate. In addition, if a multi-employer defined benefit plan fails to satisfy certain minimum funding requirements, the Internal Revenue Service (IRS) may impose a nondeductible excise tax of 5% on the amount of the accumulated funding deficiency for those employers contributing to the fund. As of July 2, 2011, Sysco had approximately $42.4 million in liabilities recorded in total related to certain multi-employer defined benefit plans for which our voluntary withdrawal has already occurred. If any of these plans were to undergo a mass withdrawal, as defined by the Pension Benefit Guaranty Corporation, within a two year time frame from the point of our withdrawal, we could have additional liability. Requirements to pay such increased contributions, withdrawal liability, and excise taxes could negatively impact our liquidity and results of operations.
 
Our Funding of our Company-Sponsored Qualified Pension Plan may Increase and our Earnings May Decrease Should Financial Markets Experience Future Declines
 
Our company-sponsored qualified pension plan (Retirement Plan) holds investments in both equity and fixed income securities. The amount of our annual contribution to the plan is dependent upon, among other things, the returns on the plan’s assets and discount rates used to calculate the plan’s liability. Our expense is also impacted by these items. Fluctuations in asset values can cause the amount of our anticipated future contributions to the plan to increase and pension expense to increase and can result in a reduction to shareholders’ equity on our balance sheet at fiscal year-end, which is when this plan’s funded status is measured. Also, the projected liability of the plan will be impacted by the fluctuations of interest rates on high quality bonds in the public markets as these are inputs in determining our discount rate at fiscal year-end. Specifically, decreases in these interest rates may have an adverse impact on our results of operations. To the extent financial markets experience future declines similar to those experienced in fiscal 2008 through the beginning of fiscal 2010, and/or interest rates on high quality bonds in the public markets decline, our contributions and pension expense may increase for future years as our funded status decreases, which could have an adverse impact on our liquidity and results of operations.
 
Failure to Successfully Renegotiate Union Contracts Could Result in Work Stoppages
 
As of July 2, 2011, approximately 7,800 employees at 52 operating companies were members of 55 different local unions associated with the International Brotherhood of Teamsters and other labor organizations. In fiscal 2012, 21 agreements covering approximately 2,000 employees have expired or will expire. Since July 2, 2011, two contracts covering 85 of the approximately 2,000 employees have been renegotiated. Failure of our operating companies to effectively renegotiate these contracts could result in work stoppages. Although our operating subsidiaries have not experienced any significant labor disputes or work stoppages to date, and we believe they have satisfactory relationships with their unions, a work stoppage due to failure of multiple operating subsidiaries to renegotiate union contracts could have a material adverse effect on us.
 
A Shortage of Qualified Labor Could Negatively Impact our Business and Materially Reduce Earnings
 
Our operations rely heavily on our employees, particularly drivers, and any shortage of qualified labor could significantly affect our business. Our recruiting and retention efforts and efforts to increase productivity gains may not be successful and there may be a shortage of qualified drivers in future periods. Any such shortage would decrease Sysco’s ability to effectively serve our customers. Such a shortage would also likely lead to higher wages for employees and a corresponding reduction in our net earnings.
 
Our Authorized Preferred Stock Provides Anti-Takeover Benefits that may not be Viewed as Beneficial to Stockholders
 
Under our Restated Certificate of Incorporation, Sysco’s Board of Directors is authorized to issue up to 1,500,000 shares of preferred stock without stockholder approval. Issuance of these shares could make it more difficult for anyone to acquire Sysco without approval of the Board of Directors, depending on the rights and preferences of the stock issued. In addition, if anyone attempts to acquire Sysco without approval of the Board of Directors of Sysco, the existence of this undesignated preferred stock could allow the Board of Directors to adopt a shareholder rights plan without obtaining stockholder approval, which could result in substantial dilution to a potential acquirer. As a result, hostile takeover attempts that might result in an acquisition of Sysco, that could otherwise have been financially beneficial to our stockholders, could be deterred.

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Item 1B.  Unresolved Staff Comments
 
None.
 
Item 2.  Properties
 
The table below shows the number of distribution facilities occupied by Sysco in each state, province or country and the aggregate square footage devoted to cold and dry storage as of July 2, 2011.
 
                             
          Cold Storage
    Dry Storage
     
Location
  Number of Facilities     (Square Feet in thousands)     (Square Feet in thousands)     Segment Served*
 
Alabama
    2       184       228     BL
Alaska
    1       43       26     BL
Arizona
    2       130       104     BL, O
Arkansas
    2       130       88     BL, O
California
    18       1,009       1,074     BL, S, O
Colorado
    4       283       208     BL, S, O
Connecticut
    3       165       109     BL, O
District of Columbia
    1       22       3     BL
Florida
    15       1,253       926     BL, S, O
Georgia
    6       314       420     BL, S, O
Idaho
    2       84       88     BL
Illinois
    5       371       387     BL, S, O
Indiana
    1       100       109     BL
Iowa
    1       93       95     BL
Kansas
    1       177       171     BL
Kentucky
    1       92       106     BL
Louisiana
    1       134       113     BL
Maine
    1       59       50     BL
Maryland
    3       291       316     BL, O
Massachusetts
    2       166       207     BL, S
Michigan
    4       320       363     BL, S
Minnesota
    2       150       135     BL
Mississippi
    1       95       69     BL
Missouri
    2       107       95     BL, S
Montana
    1       120       121     BL
Nebraska
    2       217       231     BL
Nevada
    3       194       107     BL, O
New Jersey
    4       140       453     BL, O
New Mexico
    1       120       108     BL
New York
    2       224       199     BL
North Carolina
    6       330       421     BL, S, O
North Dakota
    1       46       59     BL
Ohio
    6       414       417     BL, S, O
Oklahoma
    4       132       119     BL, S, O
Oregon
    3       177       160     BL, S
Pennsylvania
    4       460       356     BL, S
South Carolina
    1       151       98     BL
Tennessee
    5       411       427     BL, O
Texas
    17       1,057       1,055     BL, S, O
Utah
    1       161       107     BL
Virginia
    3       564       410     BL
Washington
    1       134       92     BL
Wisconsin
    2       287       242     BL
Alberta, Canada
    3       221       223     BL
British Columbia, Canada
    8       296       275     BL, O
Manitoba, Canada
    1       78       74     BL
New Brunswick, Canada
    2       48       45     BL
Newfoundland, Canada
    1       40       25     BL
Nova Scotia, Canada
    1       31       42     BL
Ontario, Canada
    10       452       393     BL, O
Quebec, Canada
    1       33       58     BL
Saskatchewan, Canada
    1       46       63     BL
Ireland
    1       44       40     BL
                             
Total
    177       12,400       11,910      
                             
 
 
* Segments served include Broadline (BL), SYGMA (S) and Other (O).
 
We own approximately 20,132,000 square feet of our distribution facilities (or 83.0% of the total square feet), and the remainder is occupied under leases expiring at various dates from fiscal 2012 to fiscal 2032, exclusive of renewal options. Certain of the facilities owned by the company are subject to industrial revenue bond financing arrangements totaling $13.6 million as of July 2, 2011. Such industrial revenue bond financing arrangements mature at various dates through fiscal 2026.
 
We own our approximately 625,000 square foot headquarters office complex in Houston, Texas. In addition, we own our approximately 669,000 square foot shared services complex in Cypress, Texas, which became operational in fiscal 2011.

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We are currently constructing expansions, replacement or fold-out facilities for our distribution facilities in Toronto, Ontario, Canada; Hartford, Connecticut; Boston, Massachusetts; Lincoln, Nebraska; Jersey City, New Jersey; Syracuse, New York; Philadelphia, Pennsylvania; Austin, Texas; and San Antonio, Texas. These operating companies, in the aggregate, accounted for approximately 9.3% of fiscal 2011 sales.
 
As of July 2, 2011, our fleet of approximately 8,700 delivery vehicles consisted of tractor and trailer combinations, vans and panel trucks, most of which are either wholly or partially refrigerated for the transportation of frozen or perishable foods. We own approximately 90% of these vehicles and lease the remainder.
 
Item 3.  Legal Proceedings
 
None.
 
PART II
 
Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities
 
The principal market for Sysco’s common stock (SYY) is the New York Stock Exchange. The table below sets forth the high and low sales prices per share for our common stock as reported on the New York Stock Exchange Composite Tape and the cash dividends declared for the periods indicated.
 
                         
                Dividends
 
    Common Stock Prices     Declared
 
    High     Low     Per Share  
 
Fiscal 2010:
                       
First Quarter
  $   26.10     $   21.38     $   0.24  
Second Quarter
    29.48       24.24       0.25  
Third Quarter
    29.58       26.99       0.25  
Fourth Quarter
    31.99       28.13       0.25  
Fiscal 2011:
                       
First Quarter
  $ 31.55     $ 27.13     $ 0.25  
Second Quarter
    30.18       28.22       0.26  
Third Quarter
    30.54       27.31       0.26  
Fourth Quarter
    32.76       27.81       0.26  
 
The number of record owners of Sysco’s common stock as of August 17, 2011 was 14,210.
 
In May 2011, 52,070 shares were issued to the former shareholders of HRI Supply Ltd. (HRI) upon the conversion of dividend access shares issued in connection with Sysco’s acquisition of HRI in May 2001.
 
In May 2011, 370,062 shares were issued to the former shareholders of North Douglas Distributors Ltd. (North Douglas) upon the conversion of dividend access shares issued in connection with Sysco’s acquisition of North Douglas in December 2000.
 
The foregoing shares were issued pursuant to the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended.
 
We made the following share repurchases during the fourth quarter of fiscal 2011:
 
ISSUER PURCHASES OF EQUITY SECURITIES
 
                                 
                (c) Total Number
       
                of Shares
       
                Purchased
    (d) Maximum Number
 
                as Part of
    of Shares that May
 
    (a) Total Number
    (b) Average Price
    Publicly Announced
    Yet Be Purchased Under
 
Period
  of Shares Purchased(1)     Paid per Share     Plans or Programs     the Plans or Programs  
 
Month #1
April 3 — April 30
        $             13,386,600  
Month #2
May 1 — May 28
    313,772       31.99             13,386,600  
Month #3
May 29 — July 02
    46,820       31.20             13,386,600  
                                 
Total
    360,592     $ 31.88             13,386,600  
                                 
 
 
(1) The total number of shares purchased includes zero, 313,772 and 46,820 shares tendered by individuals in connection with stock option exercises in Month #1, Month #2 and Month #3, respectively. During the period, no other shares were purchased pursuant to the publicly announced program described below.
 
On August 27, 2010, the Board of Directors approved the repurchase of 20,000,000 shares. Pursuant to the repurchase program, shares may be acquired in the open market or in privately negotiated transactions at the 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.

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Stock Performance Graph
 
The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent that Sysco specifically incorporates such information by reference into such filing.
 
The following stock performance graph compares the performance of Sysco’s Common Stock to the S&P 500 Index and to the S&P 500 Food/Staple Retail Index for Sysco’s last five fiscal years.
 
The graph assumes that the value of the investment in our Common Stock, the S&P 500 Index, and the S&P 500 Food/Staple Index was $100 on the last trading day of fiscal 2006, and that all dividends were reinvested. Performance data for Sysco, the S&P 500 Index and the S&P 500 Food/Staple Retail Index is provided as of the last trading day of each of our last five fiscal years.
 
(PERFORMANCE GRAPH)
 
                                                             
      7/1/06     6/30/07     6/28/08     6/27/09     7/3/10     7/2/11
Sysco Corporation
    $ 100       $ 110       $ 97       $ 82       $ 105       $ 120  
S&P 500
      100         120         105         77         88         117  
S&P 500 Food/Staple Retail Index
      100         107         111         92         93         120  
                                                             

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Item 6.  Selected Financial Data
 
                                         
    Fiscal Year  
          2010
                   
    2011     (53 Weeks)     2009     2008     2007  
    (In thousands except for per share data)  
 
Sales
  $ 39,323,489     $ 37,243,495     $ 36,853,330     $ 37,522,111     $ 35,042,075  
                                         
Operating income
    1,931,502       1,975,868       1,872,211       1,879,949       1,708,482  
                                         
Earnings before income taxes
    1,827,454       1,849,589       1,770,834       1,791,338       1,621,215  
Income taxes
    675,424       669,606       714,886       685,187       620,139  
                                         
Net earnings
  $ 1,152,030     $ 1,179,983     $ 1,055,948     $ 1,106,151     $ 1,001,076  
                                         
                                         
Net earnings:
                                       
Basic earnings per share
  $ 1.96     $ 1.99     $ 1.77     $ 1.83     $ 1.62  
Diluted earnings per share
    1.96       1.99       1.77       1.81       1.60  
                                         
Dividends declared per share
  $ 1.03     $ 0.99     $ 0.94     $ 0.85     $ 0.74  
                                         
Total assets
  $ 11,385,555     $ 10,313,701     $ 10,148,186     $ 10,010,615     $ 9,475,365  
Capital expenditures
    636,442       594,604       464,561       515,963       603,242  
                                         
Current maturities of long-term debt
  $ 207,031     $ 7,970     $ 9,163     $ 4,896     $ 3,568  
Long-term debt
    2,279,517       2,472,662       2,467,486       1,975,435       1,758,227  
                                         
Total long-term debt
    2,486,548       2,480,632       2,476,649       1,980,331       1,761,795  
Shareholders’ equity
    4,705,242       3,827,526       3,449,702       3,408,986       3,278,400  
                                         
Total capitalization
  $ 7,191,790     $ 6,308,158     $ 5,926,351     $ 5,389,317     $ 5,040,195  
                                         
Ratio of long-term debt to capitalization
    34.6 %     39.3 %     41.8 %     36.8 %     35.0 %
 
 
Our financial results are impacted by accounting changes and the adoption of various accounting standards. See Note 2, “Accounting Changes,” to the Consolidated Financial Statements in Item 8 for further discussion.

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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Overview
 
Sysco distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Our operations are primarily located throughout the United States, Canada and Ireland and include broadline companies, custom-cut meat operations, specialty produce companies, hotel supply operations, SYGMA (our chain restaurant distribution subsidiary) and a company that distributes to international customers.
 
We consider our primary market to be the foodservice market in the United States and Canada and estimate that we serve about 17% of this approximately $220 billion annual market. According to industry sources, the foodservice, or food-away-from-home, market represents approximately 47% of the total dollars spent on food purchases made at the consumer level in the United States. This share grew from about 37% in 1972 to nearly 50% in 1998 and did not change materially until 2009 when it declined to the current level of 47%.
 
Industry sources estimate the total foodservice market in the United States experienced a real sales decline of approximately 0.8% in calendar year 2010 and 6.9% in calendar year 2009. Real sales declines do not include the impact of inflation or deflation.
 
General economic conditions and consumer confidence can affect the frequency of purchases and amounts spent by consumers for food-away-from-home and, in turn, can impact our customers and our sales. We believe the current general economic conditions, including pressure on consumer disposable income, have contributed to a decline in the foodservice market. Historically, we have grown at a faster rate than the overall industry and have grown our market share in this fragmented industry.
 
Highlights
 
A slow economic recovery in the United States, combined with rising product cost inflation and continued low levels of consumer confidence, contributed to a challenging business environment in fiscal 2011. Sales increased during fiscal 2011 as compared to fiscal 2010; however, gross profit dollars grew at a slower rate than sales and operating expenses increased faster than gross profit partially due to a significant charge of $36.1 million from a withdrawal from a multi-employer pension plan. This resulted in a decline in operating income for fiscal 2011 as compared to fiscal 2010. Comparisons between fiscal 2011 and fiscal 2010 are impacted by the presence of a 53rd week in fiscal 2010. Sysco’s fiscal year ends on the Saturday nearest to June 30th. This resulted in a 52-week year ending July 2, 2011, a 53-week year ending July 3, 2010 for fiscal 2010 and a 52-week year ending June 27, 2009. Our Results of Operations discussion includes reconciliations of the actual results for fiscal 2010 to the adjusted results for fiscal 2010 based on a 52-week fiscal year due to the impact of the 53-week year in fiscal 2010.
 
The following table sets forth the change in certain components of our consolidated results of operations expressed as a percentage increase or decrease over Fiscal 2010 on both a 53-week basis, or GAAP basis, and an adjusted 52-week basis:
 
                 
    Increase /
  Increase /
    (Decrease)
  (Decrease) on an
    on a GAAP Basis   Adjusted Basis
 
Sales
    5.6 %     7.7 %
Operating income
    (2.2 )     (0.1 )
Net earnings
    (2.4 )     (0.3 )
Basic earnings per share
    (1.5 )     0.5  
Diluted earnings per share
    (1.5 )     0.5  
 
  •   Sales were $39.3 billion in fiscal 2011, an increase of 5.6% from the comparable prior year period. After adjusting for the estimated impact of the 53rd week, the increase would have been 7.7%. This adjusted increase was primarily due to increased prices from inflation and improving case volumes. Inflation, as measured by changes in our product costs, was an estimated 4.6% during fiscal 2011. The exchange rates used to translate our foreign sales into U.S. dollars positively impacted sales by 0.5% and sales from acquisitions within the last 12 months favorably impacted sales by 0.7%.
 
  •   Operating income was $1.9 billion, a 2.2% decrease from the prior year. After adjusting for the estimated impact of the 53rd week in fiscal 2010, this decrease would have been 0.1%. This adjusted decrease was primarily driven by gross profit dollars growing at a slower rate than sales and operating expenses increasing faster than gross profit partially due to a significant charge of $36.1 million from a withdrawal from a multi-employer pension plan. Gross profit dollars increased 3.0% in fiscal 2011 from the comparable prior year period but declined as a percentage of sales. This result was primarily due to the impact of significant inflation in certain product categories and strategic pricing initiatives. Operating expenses increased 5.0% primarily due to higher pay-related expense, an increase in net company-sponsored pension costs, provisions for withdrawal from multi-employer pension plans and higher fuel costs as compared to the prior year period. The impact of these factors on operating expenses was partially offset by a decrease in operating expenses resulting from the absence of the 53rd week in fiscal 2011.
 
  •   Net earnings were $1.2 billion, an 2.4% decrease from the prior year. After adjusting for the estimated impact of the 53rd week in fiscal 2010, the decrease would have been 0.3%. This adjusted decrease was primarily due to the factors discussed above and an increase in the effective tax rate. The effective tax rate for fiscal 2011 was 36.96%, compared to an effective tax rate of 36.20% for fiscal 2010. The difference between the tax rates for the two periods resulted largely from the one-time reversal of interest accruals for tax contingencies related to our settlement with the Internal Revenue Service (IRS) in the first quarter of fiscal 2010.

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  •   Basic and diluted earnings per share in fiscal 2011 were $1.96, a decrease of 1.5% from the comparable prior year period. After adjusting for the estimated impact of the 53rd week in fiscal 2010, this would have been an increase of 0.5%. This adjusted increase is primarily a result of the factors discussed above. Basic and diluted earnings per share for fiscal 2011 were favorably impacted by two items. First, we recognized a favorable impact of $0.05 per share due to the gains recorded on the adjustment of the carrying value of corporate-owned life insurance (COLI) policies to their cash surrender values. Second, a favorable impact of $0.02 per share was recognized related to the recognition of deferred tax assets from the reversal of valuation allowances previously recorded on state net operating loss carryforwards. These favorable impacts were partially offset by $0.04 per share relating to the charge recorded upon withdrawal from a multi-employer pension plan in the third quarter. Basic and diluted earnings per share for fiscal 2010 were favorably impacted by $0.05 per share due to the one-time reversal of a previously accrued liability related to the settlement of an outstanding tax matter with the IRS and $0.04 per share due to gains recorded on the adjustment of the carrying value of COLI policies to their cash surrender values.
 
Trends and Strategy
 
Trends
 
General economic conditions and consumer confidence can affect the frequency of purchases and amounts spent by consumers for food-away-from-home and, in turn, can impact our customers and our sales. We believe the current general economic conditions, including pressure on consumer disposable income, have contributed to a slow rate of recovery in the foodservice market.
 
We have experienced higher levels of product cost inflation this fiscal year as compared to fiscal 2010. While we are generally able to pass on modest levels of inflation to our customers, we were unable to pass through fully these higher levels of product cost inflation with the same gross profit percentage without negatively impacting our customers’ business and therefore our business. While we cannot predict whether inflation will continue at current levels, periods of high inflation, either overall or in certain product categories, can have a negative impact on us and our customers, as high food costs can reduce consumer spending in the food-away-from-home market, and may negatively impact our sales, gross profit, operating income and earnings.
 
We have also experienced higher operating costs this fiscal year from increased pay-related expense due to increased sales and gross profit as well as higher pension and fuel costs. We believe pay-related expense could continue to increase if sales and gross profit increase, as a portion of these costs is variable in nature. Pension costs will decrease in fiscal 2012 primarily due to higher returns on assets of Sysco’s company-sponsored qualified pension plan (Retirement Plan) during fiscal 2011. Fuel costs are expected to increase in fiscal 2012 as a result of anticipated higher fuel prices. Our Business Transformation Project is a key part of our strategy to control costs and continue to grow our business. We believe expenses related to the project will increase in fiscal 2012 as compared to fiscal 2011 as we prepare to begin deployment of the project to our operating companies and increase our headcount in our shared services center.
 
Strategy
 
We are focused on optimizing our core broadline business in the U.S. and Canada, while continuing to explore appropriate opportunities to profitably grow our market share and create shareholder value through adjacent and international businesses. Day-to-day, our business decisions are driven by our mission to market and deliver great products to our customers with exceptional service, with the aspiration of becoming each of our customers’ most valued business partner. We have identified five strategies to help us achieve our mission and vision:
 
  •   Profoundly enriching the experience of doing business with Sysco:  Our primary focus is to help our customers succeed. We believe that by building on our current competitive advantages, we will be able to further differentiate our offering to customers. Our competitive advantages include our sales force of over 8,000 marketing associates; our diversified product base, which includes quality-assured Sysco brand products; the suite of services we provide to our customers such as business reviews and menu analysis; and our wide geographic presence in the United States and Canada. In addition, we have a portfolio of businesses spanning broadline, specialty meat, chain restaurant distribution, specialty produce, hotel amenities and export which serves our customers’ needs across a wide array of business segments. We believe this strategy of enriching the experience of doing business with Sysco will increase customer retention and profitably accelerate sales growth with both existing and new customers.
 
  •   Continuously improving productivity in all areas of our business:  This includes removing costs from our operations through improved productivity without impacting our service to our customers. In particular, we continue to optimize warehouse and delivery activities across the corporation to achieve a more efficient delivery of products to our customers. Our multi-year Business Transformation Project is designed to help further improve productivity. In this project, we are developing and implementing an integrated software system to support a majority of our business processes to further streamline our operations and reduce costs. These systems are commonly referred to as Enterprise Resource Planning (ERP) systems. We view the technology as an important enabler of this project; however the larger outcome of this project will be from transformed processes that standardize portions of our operations. This includes a shared business service center to centrally manage certain back-office functions that are currently performed at each operating company location.
 
  •   Expanding our portfolio of products and services by initiating a customer-centric innovation program:  We continually explore opportunities to provide new and improved products, technologies and services to our customers.
 
  •   Exploring, assessing and pursuing new businesses and markets:  This strategy is focused on identifying opportunities to expand the core business through growth in new international markets and in adjacent areas that complement our core foodservice distribution business.

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  As a part of our ongoing strategic analysis, we regularly evaluate business opportunities, including potential acquisitions and sales of assets and businesses.
 
  •   Developing and effectively integrating a comprehensive, enterprise-wide talent management process:  Our ability to drive results and grow our business is directly linked to having the best talent in the industry. We are committed to the continued enhancement of our talent management programs in terms of how we recruit, select, train and develop our associates throughout Sysco as well as succession planning. Our ultimate objective is to provide our associates with outstanding opportunities for professional growth and career development.
 
Business Transformation Project
 
In fiscal 2011, we substantially completed the design and build phases of our multi-year Business Transformation Project and we are testing the underlying ERP system and processes through a pilot implementation. We took more time to test the underlying ERP system and processes in fiscal 2011 than we originally anticipated. Our pilot operating company implemented the project and our shared services center became active in its support role in the fourth quarter of fiscal 2011. We are also taking additional time in fiscal 2012 to improve the underlying systems prior to larger scale deployment. These actions have caused a delay in the project of approximately six to twelve months and until we reach the point where the underlying system functions as intended, our deployment timeline is still being determined. Although we expect the investment in the Business Transformation Project to provide meaningful benefits to the company over the long-term, the costs will exceed the benefits during the testing and deployment stages of implementation, including fiscal 2012.
 
Gross project expenses related to the Business Transformation Project were $102.0 million in fiscal 2011 or $0.11 per share, $81.1 million in fiscal 2010 or $0.09 per share and $35.7 million in fiscal 2009 or $0.04 per share. Our cash outlay for fiscal 2011 was $278.8 million, of which approximately $196 million was capitalized. Provided the improvements needed in the underlying systems are obtained in the first half of fiscal 2012, we anticipate the software will be ready for its intended use in the second half of fiscal 2012, which will result in reduced capitalization as compared to fiscal 2011 and increased expense from both software amortization and deployment costs. We will also incur increased costs from the ramp up of our shared services center, continuing costs for additional phases of our Business Transformation Project and information technology support costs. Some of these increased costs will be partially offset by benefits obtained from the project, primarily in reduced headcount, however the costs will not exceed the benefits in fiscal 2012. We expect our gross project expenses related to the Business Transformation Project for fiscal 2012 to be approximately $280 million to $300 million and capital expenditures to be approximately $100 million to $120 million.
 
Results of Operations
 
The following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated:
 
                         
          2010
       
    2011     (53 Weeks)     2009  
 
Sales
    100.0 %     100.0 %     100.0 %
Cost of sales
    81.4       80.9       80.9  
                         
Gross profit
    18.6       19.1       19.1  
Operating expenses
    13.7       13.8       14.0  
                         
Operating income
    4.9       5.3       5.1  
Interest expense
    0.3       0.3       0.3  
Other expense (income), net
    (0.0 )     0.0       (0.0 )
                         
Earnings before income taxes
    4.6       5.0       4.8  
Income taxes
    1.7       1.8       1.9  
                         
Net earnings
    2.9 %     3.2 %     2.9 %
                         

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The following table sets forth the change in the components of our consolidated results of operations expressed as a percentage increase or decrease over the prior year:
 
                 
          2010
 
    2011     (53 Weeks)  
 
Sales
    5.6 %     1.1 %
Cost of sales
    6.2       1.1  
                 
Gross profit
    3.0       1.0  
Operating expenses
    5.0       (0.6 )
                 
Operating income
    (2.2 )     5.5  
Interest expense
    (5.7 )     7.9  
Other expense (income), net
    (1)     (1)
                 
Earnings before income taxes
    (1.2 )     4.4  
Income taxes
    0.9       (6.3 )
                 
Net earnings
    (2.4 )%     11.7 %
                 
Basic earnings per share
    (1.5 )%     12.4 %
Diluted earnings per share
    (1.5 )     12.4  
Average shares outstanding
    (1.0 )     (0.5 )
Diluted shares outstanding
    (0.8 )     (0.4 )
 
 
(1) Other expense (income), net was income of $14.2 million in fiscal 2011, expense of $0.8 million in fiscal 2010 and income of $14.9 million in fiscal 2009.
 
Impact of 53-week fiscal year in Fiscal 2010
 
Sysco’s fiscal year ends on the Saturday nearest to June 30th. This resulted in a 52-week year ending July 2, 2011, a 53-week year ending July 3, 2010 for fiscal 2010 and a 52-week year June 27, 2009 for 2009. Because the fourth quarter of fiscal 2010 contained an additional week as compared to fiscal 2011, our Results of Operations for fiscal 2010 are not directly comparable to the current or prior year. Management believes that adjusting the fiscal 2010 Results of Operations for the estimated impact of the additional week provides more comparable financial results on a year-over-year basis. As a result, the Results of Operations discussion for fiscal 2010 presented below in certain instances discusses operating items that have been adjusted by one-fourteenth of the total metric for the fourth quarter, except as otherwise noted with respect to adjusted diluted earnings per share. Failure to make these adjustments would cause the year-over-year changes in certain metrics such as sales, operating income, net earnings and diluted earnings per share to be overstated, whereas in certain cases, a metric may actually have increased rather than declined or declined rather than increased on a more comparable year-over-year basis. Our Results of Operations discussion includes reconciliations of the actual results for fiscal 2010 to the adjusted results for fiscal 2010 based on a 52-week fiscal year.
 
Sales
 
Sales for fiscal 2011 were 5.6% higher in fiscal 2011 than fiscal 2010. After adjusting for the estimated impact of the 53rd week in fiscal 2010, the increase in sales in fiscal 2011 would have been 7.7%. Sales for fiscal 2010 were 1.1% higher than fiscal 2009. After adjusting for the estimated impact of the 53rd week in fiscal 2010, fiscal 2010 would have had a sales decrease of 0.9%. Set forth below is a reconciliation of actual sales growth to adjusted sales growth/decline for the periods presented (see further discussion at “Impact of 53-week fiscal year in Fiscal 2010” above):
 
                         
          2010
       
    2011     (53 Weeks)     2009  
    (In thousands)  
 
Sales for the 53/52 week periods
  $ 39,323,489     $ 37,243,495     $ 36,853,330  
Estimated sales for the additional week in fiscal 2010
          739,177        
                         
Adjusted Sales
  $ 39,323,489     $ 36,504,318     $ 36,853,330  
                         
Actual percentage increase
    5.6 %     1.1 %        
Adjusted percentage increase (decrease)
    7.7 %     (0.9 )%        
 
Sales for fiscal 2011, excluding the negative impact of the extra week in fiscal 2010, increased as a result of product cost inflation and the resulting increase in selling prices along with improving case volumes. Estimated product cost increases, an internal measure of inflation, were approximately 4.6% during fiscal 2011. Sales from acquisitions in the last 12 months favorably impacted sales by 0.7% for fiscal 2011. The changes in the exchange rates used to translate our foreign sales into U.S. dollars positively impacted sales by 0.5% compared to fiscal 2010.
 
Sales for fiscal 2010, in addition to the positive impact of the extra week in fiscal 2010, were increased by improving case volumes. The changes in the exchange rates used to translate our foreign sales into U.S. dollars positively impacted sales by 0.9% compared to fiscal 2009. Sales from acquisitions within the last 12 months favorably impacted sales by 0.5% for fiscal 2010. Product cost deflation and the resulting decrease in selling prices had a significant impact on sales levels in fiscal 2010. Estimated changes in product costs, an internal measure of deflation or inflation, were estimated as deflation of 1.5% during fiscal 2010. A change in customer sales mix as compared to fiscal 2009 also negatively impacted fiscal 2010 sales. Case volumes increased at a greater rate within our contract based customer group which generally receives lower pricing for higher volume.

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Operating Income
 
Cost of sales primarily includes our product costs, net of vendor consideration, and includes in-bound freight. Operating expenses include the costs of facilities, product handling, delivery, selling and general and administrative activities. Fuel surcharges are reflected within sales and gross profit; fuel costs are reflected within operating expenses.
 
Operating income decreased 2.2% in fiscal 2011 over fiscal 2010 to $1.9 billion, and as a percentage of sales, declined to 4.9% of sales. After adjusting for the estimated impact of the 53rd week in fiscal 2010, the decrease in operating income in fiscal 2011 over fiscal 2010 would have been 0.1%. This adjusted decrease was primarily driven by gross profit dollars growing at a slower rate than sales and operating expenses increasing faster than gross profit partially due to a significant charge of $36.1 million from a withdrawal from a multi-employer pension plan. Gross profit dollars increased 3.0% in fiscal 2011 as compared to fiscal 2010, and operating expenses increased 5.0% in fiscal 2011.
 
Operating income increased 5.5% in fiscal 2010 from fiscal 2009 to $2.0 billion, and as a percentage of sales, increased to 5.3% of sales. After adjusting for the estimated impact of the 53rd week in fiscal 2010, the increase in operating income in fiscal 2010 over fiscal 2009 would have been 3.3%. This adjusted increase in operating income was primarily driven by a decrease in operating expenses. Gross profit dollars increased 1.0% in fiscal 2010 as compared to fiscal 2009, while operating expenses decreased 0.6% in fiscal 2010.
 
Set forth below is a reconciliation of actual operating income to adjusted operating income for the periods presented (see further discussion at “Impact of 53-week fiscal year in Fiscal 2010” above):
 
                         
          2010
       
    2011     (53 Weeks)     2009  
    (In thousands)  
 
Operating income for the 53/52 week periods
  $ 1,931,502     $ 1,975,868     $ 1,872,211  
Estimated operating income for the additional week in fiscal 2010
          41,720        
                         
Adjusted operating income
  $ 1,931,502     $ 1,934,148     $ 1,872,211  
                         
Actual percentage (decrease) increase
    (2.2 )%     5.5 %        
Adjusted percentage (decrease) increase
    (0.1 )%     3.3 %        
 
Gross profit dollars increased in fiscal 2011 as compared to fiscal 2010 primarily due to increased sales, partially offset by the negative comparison of the additional week included in fiscal 2010. Gross profit, as a percentage of sales, was 18.62% in fiscal 2011, a decline of 47 basis points from the gross profit as a percentage of sales of 19.08% in fiscal 2010. This decline in gross profit percentage was primarily the result of the following factors described in the paragraphs below.
 
First, Sysco’s product cost inflation was estimated as inflation of 4.6% during fiscal 2011. Based on our product sales mix for fiscal 2011, we were most impacted by higher levels of inflation in the dairy, meat and seafood product categories in the range of 10% to 12%. Our largest selling product category, canned and dry, experienced inflation of 4%. While we are generally able to pass through modest levels of inflation to our customers, we were unable to pass through fully these higher levels of product cost inflation with the same gross profit percentage in these product categories without negatively impacting our customers’ business and therefore our business. While we cannot predict whether inflation will continue at these levels, prolonged periods of high inflation, either overall or in certain product categories, can have a negative impact on us and our customers, as high food costs can reduce consumer spending in the food-away-from-home market, and may negatively impact our sales, gross profit and earnings.
 
Second, ongoing strategic pricing initiatives in fiscal 2011 lowered our prices to our customers in certain product categories in order to increase sales volumes. These initiatives are being phased in over time and resulted in short-term gross profit declines as a percentage of sales, but we believe will result in long-term gross profit dollar growth due to higher sales volumes and increased market share. We have experienced meaningful year over year volume growth with those items included in the early phases of these programs in the geographies where this program has been implemented. We believe the long-term benefits of these strategic initiatives will result in profitable market share growth.
 
Third, gross profit dollars for fiscal 2011 increased as a result of higher fuel surcharges. Fuel surcharges were approximately $26.0 million higher in fiscal 2011 than in the comparable prior year period due to higher fuel prices incurred during fiscal 2011 and the application of fuel surcharges to a broader customer base for a small portion of the third quarter and the entire fourth quarter. Assuming that fuel prices do not greatly vary from recent levels experienced in the second half of fiscal 2011, we expect fuel surcharges to largely offset our increased fuel costs expected in fiscal 2012.
 
Gross profit dollars increased in fiscal 2010 as compared to fiscal 2009 primarily due to the additional week included in fiscal 2010. In addition, gross profit reflected product cost deflation in fiscal 2010 as compared to product cost inflation in fiscal 2009. We may be negatively impacted by prolonged periods of product cost deflation because a significant portion of our sales are at prices based on the cost of products sold plus a percentage markup. As a result, our profit levels may be negatively impacted during periods of product cost deflation, even though our gross profit percentage may remain relatively constant. Gross profit dollars for fiscal 2010 were also impacted by lower fuel surcharges. Fuel surcharges were approximately $49.6 million lower in fiscal 2010 than fiscal 2009.
 
Operating expenses for fiscal 2011 increased 5.0% primarily due to higher pay-related expense, an increase in net company-sponsored pension costs, provisions for withdrawal from multi-employer pension plans and higher fuel costs as compared to the prior year period. The

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impact of these operating expense increases was partially offset by a decrease in operating expenses of approximately $99.8 million resulting from the absence of the 53rd week in fiscal 2011.
 
Operating expenses for fiscal 2010 were lower than in fiscal 2009 primarily due to reduced fuel costs and a favorable comparison on the amounts recorded to adjust the carrying value of COLI policies to their cash surrender values in both periods. Partially offsetting these operating expense declines were increases in pay-related expenses, net company-sponsored pension costs and approximately $99.8 million of expense associated with the additional week included in fiscal 2010.
 
Pay-related expenses, excluding labor costs associated with our Business Transformation Project, increased by $62.8 million in fiscal 2011 over fiscal 2010. The increase was primarily due to increased sales and gross profit, which resulted in increased delivery personnel costs and sales compensation. Portions of our pay-related expense are variable in nature and are expected to increase when sales and gross profit increase. Pay-related expenses from acquired companies and changes in the exchange rates used to translate our foreign sales into U.S. dollars also contributed to the increase. Partially offsetting these increases were lower provisions for current management incentive bonuses of $12.1 million.
 
Pay-related expenses, excluding labor costs associated with our Business Transformation Project, increased by $43.9 million in fiscal 2010 over fiscal 2009. The fiscal 2010 increase was primarily due to increased provisions for management incentive accruals and cost associated with the additional week included in fiscal 2010. Partially offsetting these increases were lower pay-related expenses due to reduced headcount. The criteria for paying annual bonuses to our corporate officers and certain portions of operating company management bonuses are tied to overall company performance. In fiscal 2010, the overall company performance criteria for payment of such bonuses was met; therefore, the provision for current management incentive bonuses was higher in fiscal 2010 than in fiscal 2009 when the company assessed it did not meet the criteria for paying certain annual bonuses. Headcount declines occurred in fiscal 2010 due to both productivity improvements and workforce reductions commensurate with lower sales. Headcount was 2.2% lower at the end of fiscal 2010 as compared to fiscal 2009.
 
Net company-sponsored pension costs in fiscal 2011 were $60.3 million higher than in fiscal 2010. The increase in fiscal 2011 was due primarily to a decrease in discount rates used to calculate our projected benefit obligation and related pension expense at the end of fiscal 2010, partially offset by reduced amortization of our net actuarial loss resulting from actuarial gains from higher returns on assets of Sysco’s Retirement Plan during fiscal 2010. Net company-sponsored pension costs in fiscal 2012 have been determined as of the fiscal 2011 year-end measurement date and will decrease by approximately $27 million from fiscal 2011 due primarily to higher returns on assets of Sysco’s Retirement Plan during fiscal 2011.
 
Net company-sponsored pension costs were $37.4 million higher in fiscal 2010 than in fiscal 2009. The increase in fiscal 2010 was due primarily to lower returns on assets of Sysco’s company-sponsored qualified pension plan (Retirement Plan) during fiscal 2009, partially offset by an increase in the discount rates used to calculate our projected benefit obligation and related pension expense for fiscal 2010.
 
From time to time, we may voluntarily withdraw from multi-employer pension plans to minimize or limit our future exposure to these plans. We recorded provisions related to multi-employer pension plans of $41.5 million in fiscal 2011, $2.9 million in fiscal 2010 and $9.6 million in fiscal 2009. See additional discussion of multi-employer pension plans at “Liquidity and Capital Resources, Other Considerations, Multi-Employer Pension Plans.”
 
Sysco’s fuel costs increased by $33.0 million in fiscal 2011 over fiscal 2010 primarily due to increased contracted and market diesel prices. Our fuel costs decreased by $71.8 million in fiscal 2010 over fiscal 2009 primarily due to decreased contracted diesel prices. Sysco’s costs per gallon increased 14.3% in fiscal 2011 over fiscal 2010, as compared to a decrease of 26.1% in fiscal 2010 over fiscal 2009. Sysco’s activities to mitigate fuel costs include reducing miles driven by our trucks through improved routing techniques, improving fleet utilization by adjusting idling time and maximum speeds and using fuel surcharges. We routinely enter into forward purchase commitments for a portion of our projected monthly diesel fuel requirements with a goal of mitigating a portion of the volatility in fuel prices.
 
Our fuel commitments will result in either additional fuel costs or avoided fuel costs based on the comparison of the prices on the fixed price contracts and market prices for the respective periods. In fiscal 2011, the forward purchase commitments resulted in an estimated $16.4 million of avoided fuel costs as the fixed price contracts were generally lower than market prices for the contracted volumes. In fiscal 2010, the forward purchase commitments resulted in an estimated $1.5 million of additional fuel costs as the fixed price contracts were higher than market prices for the contracted volumes for a portion of the fiscal year. In fiscal 2009, the forward purchase commitments resulted in an estimated $67.7 million of additional fuel costs as the fixed price contracts were higher than market prices for the contracted volumes.
 
As of July 2, 2011, we had forward diesel fuel commitments totaling approximately $86 million through June 2012. These contracts will lock in the price of approximately 30% to 35% of our fuel purchase needs for the contracted periods at prices lower than the current market price for diesel for the first 26 weeks of fiscal 2012 and near the current market price for diesel for the remainder of the fiscal year. Subsequent to July 2, 2011, we entered into forward diesel fuel commitments totaling approximately $17 million for July and August 2012. Assuming that fuel prices do not rise significantly over recent levels during fiscal 2012, fuel costs exclusive of any amounts recovered through fuel surcharges, are expected to increase by approximately $35 million to $45 million as compared to fiscal 2011. Our estimate is based upon current, published quarterly market price projections for diesel, the cost committed to in our forward fuel purchase agreements currently in place for fiscal 2012 and estimates of fuel consumption. Actual fuel costs could vary from our estimates if any of these assumptions change, in particular if future fuel prices vary significantly from our current estimates. We continue to evaluate all opportunities to offset potential increases in fuel expense, including the use of fuel surcharges and overall expense management. Based on our current projections, we anticipate that the increase in fuel surcharges will offset the majority of our projected fuel cost increase in fiscal 2012 as compared to fiscal 2011.

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Gross project expenses related to our Business Transformation Project, inclusive of pay-related expense, increased by $20.8 million in fiscal 2011 from fiscal 2010 and by $41.6 million in fiscal 2010 from fiscal 2009. The increase in fiscal 2011 resulted from increased project spend including the initial stages of ramping up of our shared services center and a provision for severance resulting from the implementation of an involuntary severance plan. The increase in fiscal 2010 resulted from only six months of activity being included in fiscal 2009, as the Business Transformation Project began in January 2009. Provided the improvements needed in the underlying systems are obtained in the first half of fiscal 2012, we anticipate the software will be ready for its intended use in the second half of fiscal 2012, which will result in increased expense from both software amortization and deployment costs. We will also incur increased costs from the ramp up of our shared services center, continuing costs for additional phases of our Business Transformation Project and information technology support costs. We believe the increase in gross project expenses, including all pay-related expenses, related to the Business Transformation Project in fiscal 2012 as compared to fiscal 2011 will be approximately $175 million to $195 million.
 
We adjust the carrying values of our COLI policies to their cash surrender values on an ongoing basis. The cash surrender values of these policies are largely based on the values of underlying investments, which through fiscal 2011 included publicly traded securities. As a result, the cash surrender values of these policies fluctuated with changes in the market value of such securities. The changes in the financial markets resulted in gains for these policies of $28.2 million in fiscal 2011, compared to gains for these policies of $21.6 million in fiscal 2010 and losses of $43.8 million in fiscal 2009. Near the end of fiscal 2011, we reallocated all of our policies into low-risk, fixed-income securities and therefore we no longer expect significant volatility in operating income, net earnings and earnings per share in future periods related to these policies.
 
The provision for losses on receivables included within operating expenses decreased by $39.7 million in fiscal 2010 over fiscal 2009. The decrease in our provision for losses on receivables in fiscal 2010 reflects fewer customer accounts exceeding our threshold for write-off in fiscal 2010 as compared to fiscal 2009. Customer accounts written off, net of recoveries, were $37.8 million, or 0.10% of sales, $34.3 million, or 0.10% of sales, and $71.9 million, or 0.20% of sales, for fiscal 2011, 2010 and 2009, respectively. Our provision for losses on receivables will fluctuate with general market conditions, as well as the circumstances of our customers.
 
Net Earnings
 
Net earnings for fiscal 2011 decreased 2.4% over the comparable prior year period. After adjusting for the estimated impact of the 53rd week in fiscal 2010, the decrease would have been 0.3%. This adjusted decrease was primarily due to the factors discussed above and an increase in the effective tax rate. The effective tax rate for fiscal 2011 was 36.96%, compared to an effective tax rate of 36.20% for fiscal 2010. The difference between the tax rates for the two periods resulted largely from the one-time reversal of interest accruals for tax contingencies related to our settlement with the Internal Revenue Service (IRS) in the first quarter of fiscal 2010.
 
Net earnings increased 11.7% in fiscal 2010 from fiscal 2009. After adjusting for the estimated impact of the 53rd week in fiscal 2010, the increase would have been 9.5%. This adjusted increase was primarily due to a reduction in the effective income tax rate, as well as the factors discussed above. The effective tax rate for fiscal 2010 was 36.20%, compared to an effective tax rate of 40.37% for fiscal 2009. The difference between the tax rates for the two periods resulted largely from the one-time reversal of interest accruals for tax contingencies related to our settlement with the Internal Revenue Service (IRS) in the first quarter of fiscal 2010.
 
Set forth below is a reconciliation of actual net earnings to adjusted net earnings for the periods presented (see further discussion at “Impact of 53-week fiscal year in Fiscal 2010” above):
 
                         
          2010
       
    2011     (53 Weeks)     2009  
    (In thousands)  
 
Net earnings for the 53/52 week periods
  $ 1,152,030     $ 1,179,983     $ 1,055,948  
Estimated net earnings for the additional week in fiscal 2010
          24,127        
                         
Adjusted net earnings
  $ 1,152,030     $ 1,155,856     $ 1,055,948  
                         
Actual percentage (decrease) increase
    (2.4 )%     11.7 %        
Adjusted percentage (decrease) increase
    (0.3 )%     9.5 %        
 
The effective tax rate of 36.96% for fiscal 2011 was favorably impacted primarily by two items. First, we recorded a tax benefit of approximately $17.0 million for the reversal of valuation allowances previously recorded on state net operating loss carryforwards. Second, we adjust the carrying values of our COLI policies to their cash surrender values. The gain of $28.2 million recorded in fiscal 2011 was primarily non-taxable for income tax purposes, and had the impact of decreasing income tax expense for the period by $11.1 million. Partially offsetting these favorable impacts was the recording of $9.3 million in tax and interest related to various federal, foreign and state uncertain tax positions.
 
The effective tax rate of 36.20% for fiscal 2010 was favorably impacted primarily by two items. First, we recorded an income tax benefit of approximately $29.0 million resulting from the one-time reversal of a previously accrued liability related to the settlement with the IRS (See “Liquidity and Capital Resources, Other Considerations, BSCC Cooperative Structure” for additional discussion). Second, the gain of $21.6 million recorded to adjust the carrying value of COLI policies to their cash surrender values in fiscal 2010 was non-taxable for income tax purposes, and had the impact of decreasing income tax expense for the period by $8.3 million.
 
The effective tax rate of 40.37% for fiscal 2009 was unfavorably impacted primarily by two factors. First, we recorded tax adjustments related to federal and state uncertain tax positions of $31.0 million. Second, the loss of $43.8 million recorded to adjust the carrying value of COLI policies to their cash surrender values in fiscal 2009 was non-deductible for income tax purposes, and had the impact of increasing income tax expense for

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the period by $16.8 million. The effective tax rate for fiscal 2009 was favorably impacted by the reversal of valuation allowances of $7.8 million previously recorded on Canadian net operating loss deferred tax assets.
 
Earnings Per Share
 
Basic and diluted earnings per share decreased 1.5% in fiscal 2011 from the prior year. After adjusting for the estimated impact of the 53rd week in fiscal 2010, earnings per share increased 0.5%. This adjusted increase was primarily the result of factors discussed above, as well as a net reduction in shares outstanding. The net reduction in both average and diluted shares outstanding was primarily due to share repurchases which occurred during the first 26 weeks of fiscal 2011.
 
Basic earnings per share and diluted earnings per share increased 12.4% in fiscal 2010 from the prior year. After adjusting for the estimated impact of the 53rd week in fiscal 2010, this increase would have been 10.2%. This adjusted increase was primarily the result of factors discussed above, as well as a net reduction in shares outstanding. The net reduction in average shares outstanding was primarily due to share repurchases. The net reduction in diluted shares outstanding was primarily due to share repurchases and an increase in the number of anti-dilutive options excluded from the diluted shares calculation.
 
Set forth below is a reconciliation of actual diluted earnings per share to adjusted diluted earnings per share for the periods presented (see further discussion at “Impact of 53-week fiscal year in Fiscal 2010” above):
 
                         
          2010
       
    2011     (53 Weeks)     2009  
    (In thousands, except for share and per share data)  
 
Calculation of diluted earnings per share impact for 53rd week:
                       
Estimated net earnings for the additional week in fiscal 2010
          $ 24,127          
Diluted shares outstanding
            593,590,042          
                         
Estimated diluted earnings per share for the additional week
          $ 0.04          
Diluted earnings per share for the 53/52 week periods
  $ 1.96     $ 1.99     $ 1.77  
Estimated diluted earnings per share for the additional week in fiscal 2010
          0.04        
                         
Adjusted diluted earnings per share
  $ 1.96     $ 1.95     $ 1.77  
                         
 
Basic and diluted earnings per share for fiscal 2011 were favorably impacted by two items. First, we recognized a favorable impact of $0.05 per share due to the gains recorded on the adjustment of the carrying value of COLI policies to their cash surrender values. Second, a favorable impact of $0.02 per share was recognized related to the recognition of deferred tax assets from the reversal of valuation allowances previously recorded on state net operating loss carryforwards. These favorable impacts were partially offset by $0.04 per share relating to the charge recorded upon withdrawal from a multi-employer pension plan in the third quarter.
 
Basic and diluted earnings per share for fiscal 2010 were favorably impacted by $0.05 per share due to the one-time reversal of a previously accrued liability related to the settlement of an outstanding tax matter with the IRS and $0.04 per share due to gains recorded on the adjustment of the carrying value of COLI policies to their cash surrender values.
 
Segment Results
 
We have aggregated our operating companies into a number of segments, of which only Broadline and SYGMA are reportable segments as defined in accounting provisions related to disclosures about segments of an enterprise. Beginning in the third quarter of fiscal 2011, the 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 within the Financial Statements and Supplementary Data within Part II Item 8 of this Form 10-K. Intersegment sales generally represent specialty produce products distributed by the Broadline and SYGMA operating companies. The segment results include certain centrally incurred costs for shared services that are charged to our segments. These centrally incurred costs are charged based upon the relative level of service used by each operating company consistent with how management views the performance of its operating segments.
 
Management evaluates the performance of each of our operating segments based on its respective operating income results, which include the allocation of certain centrally incurred costs. While a segment’s operating income may be impacted in the short term by increases or decreases in gross profits, expenses, or a combination thereof, over the long-term each business segment is expected to increase its operating income at a greater rate than sales growth. This is consistent with our long-term goal of leveraging earnings growth at a greater rate than sales growth.
 
Included in corporate expenses, among other items, are:
  •   Gains and losses recognized to adjust COLI policies to their cash surrender values;
  •   Share-based compensation expense;
  •   Expenses related to the company’s Business Transformation Project; and
  •   Corporate-level depreciation and amortization expense.

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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 19, “Business Segment Information” to the Consolidated Financial Statements in Item 8:
 
                         
    Operating Income as a
 
    Percentage of Sales  
          2010
       
    2011     (53 Weeks)     2009  
 
Broadline
    6.6 %     7.0 %     6.7 %
SYGMA
    1.1       1.0       0.6  
Other
    4.2       4.0       3.0  
 
The following table sets forth the change in the selected financial data of each of our reportable segments and the other segment expressed as a percentage increase over the prior year and should be read in conjunction with Note 19, “Business Segment Information” to the Consolidated Financial Statements in Item 8:
 
                                 
          2010
 
    2011     (53 Weeks)  
          Operating
          Operating
 
    Sales     Income     Sales     Income  
 
Broadline
    5.1 %     0.1 %     1.4 %     5.9 %
SYGMA
    9.2       27.3 (1)     1.1       56.7 (1)
Other
    5.1       9.6       (2.1 )     29.7  
 
 
(1) SYGMA had operating income of $60.2 million in fiscal 2011, $47.3 million in fiscal 2010 and $30.2 million in fiscal 2009.
 
The following table sets forth sales and operating income of each of our reportable segments, the other segment, and intersegment sales, expressed as a percentage of aggregate segment sales, including intersegment sales, and operating income, respectively. For purposes of this statistical table, operating income of our segments excludes corporate expenses of $337.1 million in fiscal 2011, $269.6 million in fiscal 2010 and $219.3 million in fiscal 2009 that are not charged to our segments. This information should be read in conjunction with Note 19, “Business Segment Information” to the Consolidated Financial Statements in Item 8:
 
                                                 
          2010
       
    2011     (53 Weeks)     2009  
          Segment
          Segment
          Segment
 
          Operating
          Operating
          Operating
 
    Sales     Income     Sales     Income     Sales     Income  
 
Broadline
    81.2 %     93.3 %     81.6 %     94.1 %     81.4 %     95.5 %
SYGMA
    13.6       2.6       13.1       2.1       13.1       1.4  
Other
    5.6       4.1       5.6       3.8       5.8       3.1  
Intersegment sales
    (0.4 )           (0.3 )           (0.3 )      
                                                 
Total
    100.0 %     100.0 %     100.0 %     100.0 %     100.0 %     100.0 %
                                                 
 
Broadline Segment
 
The Broadline reportable segment consists of the aggregated results of the United States, Canadian and European Broadline segments, as well as the custom-cut meat operations. Broadline operating companies distribute a full line of food products and a wide variety of non-food products to customers. Broadline operations have significantly higher operating margins than the rest of Sysco’s operations. In fiscal 2011, the Broadline operating results represented approximately 81% of Sysco’s overall sales and 93% of the aggregate operating income of Sysco’s segments, which excludes corporate expenses and consolidated adjustments.
 
There are several factors which contribute to these higher operating results as compared to the SYGMA and Other operating segments. We have invested substantial amounts in assets, operating methods, technology and management expertise in this segment. The breadth of its sales force, geographic reach of its distribution area and its purchasing power allow us to leverage this segment’s earnings.
 
Sales
 
Sales for fiscal 2011 were 5.1% greater than fiscal 2010. Negatively affecting the sales comparison of fiscal 2011 to fiscal 2010 was the additional week in fiscal 2010. Product cost inflation and the resulting increase in selling prices, combined with case volume improvement, contributed to the increase in sales in fiscal 2011. Changes in product costs, an internal measure of inflation or deflation, were estimated as inflation of 4.9% in fiscal 2011. Non-comparable acquisitions contributed 0.8% to the overall sales comparison for fiscal 2011. The changes in the exchange rates used to translate our foreign sales into U.S. dollars positively impacted sales by 0.6% compared to fiscal 2010.
 
Sales for fiscal 2010 were 1.4% greater than fiscal 2009. Case volume improvement caused an increase in sales in fiscal 2010 as compared to fiscal 2009. The changes in the exchange rates used to translate our foreign sales into U.S. dollars positively impacted sales by 1.0% compared to fiscal 2009. Non-comparable acquisitions contributed 0.6% to the overall sales comparison for fiscal 2010. Changes in product costs were estimated as deflation of 1.5% in fiscal 2010. This product cost deflation, which led to decreases in selling prices, and a change in customer sales mix partially offset case volume improvement in fiscal 2010. The additional week also contributed to the sales growth in fiscal 2010.

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Operating Income
 
Operating income increased by 0.1% in fiscal 2011 over fiscal 2010 as gross profit dollars increased slightly above the rate that operating expenses increased. However, it is important to note that operating expenses included a significant charge of $36.1 million from a withdrawal from a multi-employer pension plan. Additionally, negatively affecting the operating income comparison of fiscal 2011 to fiscal 2010 was the additional week in fiscal 2010.
 
Gross profit dollars increased in fiscal 2011 primarily due to increased sales; however, gross profit dollars increased at a lower rate than sales. This slower growth in gross profit dollars was primarily the result of two factors. Based on Broadline’s product sales mix for fiscal 2011, it was most impacted by higher levels of inflation in the dairy, meat and seafood product categories in the range of 10% to 12%. Broadline’s largest selling product category, canned and dry, experienced inflation of 4%. While we are generally able to pass through modest levels of inflation to our customers, we were unable pass through fully these higher levels of product cost inflation with the same gross profit percentage in these product categories without negatively impacting our customers’ business and therefore our business. While we cannot predict whether inflation will continue at these levels, prolonged periods of high inflation, either overall or in certain product categories, can have a negative impact on our customers, as high food costs can reduce consumer spending in the food-away-from-home market, and may negatively impact the Broadline segment’s sales, gross profit and earnings. Second, ongoing strategic pricing initiatives largely lowered our prices to our customers in certain product categories in order to increase sales volumes. These initiatives are being phased in over time and resulted in short-term gross profit declines as a percentage of sales, but we believe will result in long-term gross profit dollar growth due to higher sales volumes and increased market share. We have experienced meaningful year over year volume growth with those items included in the early phases of these programs in the geographies where this program has been implemented. We believe the long-term benefits of these strategic initiatives will result in profitable market share growth.
 
In addition, gross profit dollars for fiscal 2011 increased as a result of higher fuel surcharges. Fuel surcharges were approximately $19.4 million higher in fiscal 2011 than the prior year due to the application of fuel surcharges to a broader customer base for a small portion of the third quarter and the entire fourth quarter due to higher fuel prices incurred during these periods. Assuming that fuel prices do not greatly rise above recent levels during fiscal 2012, we expect fuel surcharges to largely offset our increased fuel costs expected in fiscal 2012.
 
The expense increases in fiscal 2011 were driven largely by provisions for withdrawal from a multi-employer pension plan and an increase in pay-related expenses. In fiscal 2011, we recorded provisions of $41.5 million for withdrawal liabilities from multi-employer pension plans from which union members elected to withdraw. The increase in pay-related expenses related to the sales and gross profit increase, including both delivery personnel costs and sales. Portions of our pay-related expense are variable in nature and are expected to increase when sales and gross profit increase. Pay-related expenses from acquired companies and changes in the exchange rates used to translate our foreign sales into U.S. dollars also contributed to the increase.
 
Fuel costs were $22.0 million higher in fiscal 2011 than the prior year. Assuming that fuel prices do not rise significantly over recent levels during fiscal 2012, fuel costs for fiscal 2012 not including any amounts recovered through fuel surcharges, are expected to increase by approximately $25 million to $35 million as compared to fiscal 2011. Our estimate is based upon current, published quarterly market price projections for diesel, the cost committed to in our forward fuel purchase agreements currently in place for fiscal 2012 and estimates of fuel consumption. Actual fuel costs could vary from our estimates if any of these assumptions change, in particular if future fuel prices vary significantly from our current estimates. We continue to evaluate all opportunities to offset potential increases in fuel expense, including the use of fuel surcharges and overall expense management.
 
Operating income increased by 5.9% in fiscal 2010 over fiscal 2009 primarily due to effective management of operations in the current economic environment by decreasing expenses as compared to the comparable prior year periods. Operating expenses decreased 1.2% in fiscal 2010 as compared to fiscal 2009. The additional week in fiscal 2010 contributed to the gross profit increase, partially offset by a decrease of approximately $37.4 million in the fuel surcharges charged to customers in fiscal 2010 as compared to fiscal 2009 due to less usage of these surcharges in fiscal 2010. Expense performance for fiscal 2010 was primarily due to reduced fuel cost and lower provision for losses on receivables and operating efficiencies, such as reduced pay — related expense due to reduced headcount. Fuel costs were $51.8 million lower in fiscal 2010 than in the prior year. Partially offsetting these expense declines were increases in expenses related to the additional week in fiscal 2010.
 
From time to time, we may voluntarily withdraw from multi-employer pension plans to minimize or limit our future exposure to these plans. We recorded provisions related to multi-employer pension plans of $41.5 million in fiscal 2011, $2.9 million in fiscal 2010 and $9.6 million in fiscal 2009.
 
SYGMA Segment
 
SYGMA operating companies distribute a full line of food products and a wide variety of non-food products to certain chain restaurant customer locations. SYGMA operations have traditionally had lower operating income as a percentage of sales than Sysco’s other segments. This segment of the foodservice industry has generally been characterized by lower overall operating margins as the volume that these customers command allows them to negotiate for reduced margins. These operations service chain restaurants through contractual agreements that are typically structured on a fee per case delivered basis.

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Sales
 
Sales were 9.2% greater in fiscal 2011 than in fiscal 2010. Negatively affecting the sales comparison of fiscal 2011 to fiscal 2010 was the additional week in fiscal 2010. The increase in sales was primarily due to case volume improvement largely attributable to new customers and, to a lesser extent, from an increase in volume from certain existing customers.
 
Sales were 1.1% greater in fiscal 2010 than in fiscal 2009. The additional week contributed to the sales growth in fiscal 2010. Case volume improvement caused an increase in sales in fiscal 2010 as compared to fiscal 2009. This case growth was largely attributable to new customers added largely in the latter part of the fiscal year and the additional week in fiscal 2010. Partially offsetting these case volume improvements was a decline in volume from existing customers due to the weak economic environment which applied continued pressure to consumer discretionary spending and negatively impacted overall restaurant traffic counts. Product cost deflation, which led to decreases in selling prices also impacted fiscal 2010 sales growth.
 
One chain restaurant customer (The Wendy’s Company) accounted for approximately 31% of the SYGMA segment sales for the fiscal year ended July 2, 2011. SYGMA maintains multiple regional contracts with varied expiration dates with this customer. While the loss of this customer would have a material adverse effect on SYGMA, we do not believe that the loss of this customer would have a material adverse effect on Sysco as a whole.
 
Operating Income
 
Operating income increased $12.9 million in 2011 over the prior year due to increased sales and improved productivity. Gross profit dollars increased 9.5% while operating expenses increased 7.3% in fiscal 2011 from fiscal 2010. Contributing to the gross profit increase in fiscal 2011 were increased sales and an increase of approximately $6.6 million in the fuel surcharges charged to customers in fiscal 2011 from prior year due to higher fuel prices in fiscal 2011. The increase in operating expenses for fiscal 2011 was largely driven by increased delivery and warehouse personnel payroll costs resulting from increased sales as well as increased fuel cost. Productivity improvements occurred within our warehouse and delivery functions in fiscal 2011 and expense reductions occurred within our administrative functions in fiscal 2011 as compared to the prior year. Fuel costs in fiscal 2011 were $12.9 million greater than the prior year. Assuming that fuel prices do not significantly rise above recent levels during fiscal 2012, we expect fuel costs and fuel surcharges for our SYGMA segment to increase as compared to fiscal 2011.
 
Operating income increased by $17.1 million in fiscal 2010 as compared to fiscal 2009. Gross profit dollars increased 0.7% while operating expenses decreased 3.7% in fiscal 2010 as compared to fiscal 2009. The additional week in fiscal 2010 contributed to the gross profit increase, partially offset by a decrease of approximately $11.4 million in the fuel surcharges charged to customers in fiscal 2010 compared to fiscal 2009 due to lower fuel prices in fiscal 2010. Expense reductions were accomplished by operational efficiencies in both delivery and warehouse areas, as well as lower payroll expense related to headcount reductions. Also contributing to the decrease in operating expenses was a decrease of $10.1 million in fuel costs in fiscal 2010 from the prior year due to lower fuel prices.
 
Other Segment
 
“Other” financial information is attributable to our other operating segments, including our specialty produce and lodging industry products and a company that distributes to international customers. These operating segments are discussed on an aggregate basis as they do not represent reportable segments under segment accounting literature.
 
On an aggregate basis, our “Other” segment has had a lower operating income as a percentage of sales than Sysco’s Broadline segment. Sysco has acquired the operating companies within these segments in relatively recent years. These operations generally operate in a niche within the foodservice industry. Each individual operation is also generally smaller in sales and scope than an average Broadline operation and each of these operating segments is considerably smaller in sales and overall scope than the Broadline segment. In fiscal 2011, in the aggregate, the “Other” segment represented approximately 5.6% of Sysco’s overall sales and 4.1% of the aggregate operating income of Sysco’s segments, which excludes corporate expenses and consolidated adjustments.
 
Operating income increased 9.6% for fiscal 2011 from fiscal 2010. The operating income comparison was negatively affected by the additional week in fiscal 2010. The increase in operating income was caused primarily by increased sales in the specialty produce segment and favorable expense management in the specialty produce and lodging industry products segments.
 
Operating income increased 29.7% for fiscal 2010 from fiscal 2009. The increase in operating income was caused primarily by increased sales in our specialty produce segment and increased operating income in all segments due to favorable expense management. The additional week in fiscal 2010 also contributed to the increase in operating income.
 
Liquidity and Capital Resources
 
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

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business opportunities, including potential acquisitions and sales of assets and businesses, and our overall capital structure. Any transactions resulting from these evaluations may materially impact our liquidity, borrowing capacity, leverage ratios and capital availability.
 
Our liquidity and capital resources can be influenced by economic trends and conditions primarily due to their impact on our cash flows from operations. Weak economic conditions and low levels of consumer confidence and the resulting pressure on consumer disposable income can lower our sales growth and potentially our cash flows from operations. While these factors were present in fiscal 2010 and fiscal 2011, they had only a modest impact on our cash flows from operations in these periods due in large part to effective working capital management. We do not believe current economic conditions will significantly impact our cash flows from operations in fiscal 2012, as we can respond to reduced consumer demand, if it were to occur, by lowering our working capital requirements. Additionally, approximately one-third of our customers are not impacted by general economic conditions to the same extent as restaurants and other food retailers. These customers include hospitals, nursing homes, schools and colleges. Product cost inflation can potentially lower our gross profit and cash flow from operations if we are unable to pass through all of the increased product costs with the same gross profit percentage to our customers. This occurred in fiscal 2011, as we were able to pass some, but not all, of our product cost increases on to our customers. However; we believe our mechanisms to manage product cost inflation, some of which are contractual, are sufficient to limit the impact on our cash flows from operations.
 
We believe that our cash flows from operations, the availability of additional capital under our existing commercial paper programs and bank lines of credit and our ability to access capital from financial markets, including issuances of debt securities, either privately or under our shelf registration statement filed with the Securities and Exchange Commission (SEC), will be sufficient to meet our anticipated cash requirements for the next twelve months and beyond, while maintaining sufficient liquidity for normal operating purposes. We believe that we will continue to be able to access the commercial paper market effectively as well as the long-term capital markets, if necessary. To further maintain and enhance our credit ratings on current and future debt, on January 19, 2011, the wholly-owned U.S. Broadline subsidiaries of Sysco Corporation entered into full and unconditional guarantees of all outstanding senior notes and debentures of Sysco Corporation. As of July 2, 2011, Sysco had a total of approximately $2.2 billion in senior notes and debentures outstanding that are covered by this guarantee.
 
Operating Activities
 
We generated $1.1 billion in cash flow from operations in fiscal 2011, $0.9 billion in fiscal 2010 and $1.6 billion in fiscal 2009. The increase of $206.1 million between fiscal 2011 and fiscal 2010 was driven largely by a reduction in the amount of payments made in relation to the IRS settlement of $316.0 million and reduced pension contributions in the amount of $136.2 million in fiscal 2011 as compared to fiscal 2010. These increases were partially offset by changes in working capital discussed in more detail below. The decrease of $691.3 million between fiscal 2010 and fiscal 2009 was driven largely by $528.0 million of payments related to the IRS settlement and $140.0 million of pension contributions made in advance for fiscal 2011. Additionally, several less significant items had offsetting impacts when comparing the cash flow from operations between fiscal 2010 and fiscal 2009. As described under “Other Considerations, BSCC Cooperative Structure,” we will make the final payments under the IRS settlement in fiscal 2012 in the amount of $212 million.
 
Cash flow from operations in fiscal 2011 was primarily generated by net income, reduced by increases in receivables and inventory balances and changes in deferred tax assets and liabilities, partially offset by non-cash depreciation and amortization expense and increases in accounts payable. Cash flow from operations in fiscal 2010 was primarily due to net income and non-cash depreciation and amortization expense, offset by decreases in accrued income taxes and other long-term liabilities and prepaid pension cost, net, increases in accounts receivable and inventory balances and changes in deferred tax assets and liabilities. Cash flow from operations in fiscal 2009 was primarily due to net income, non-cash depreciation and amortization expense, an increase in accrued income taxes, and increases in accounts receivable and inventory balances. The increases in fiscal 2009 were partially offset by decreases in accounts payable balances and accrued expenses.
 
The increases in accounts receivable and inventory balances in fiscal 2011 and fiscal 2010 were primarily due to sales growth. An increase in daily sales outstanding also contributed to the increase in accounts receivable and inventory balances in fiscal 2011. The decrease in accounts receivable and inventory balances in fiscal 2009 was primarily due to the sales decline. The increase in accounts payable balances in fiscal 2011 and fiscal 2010 was primarily from the growth in inventory resulting from sales growth. The decrease in accounts payable balances in fiscal 2009 was primarily from inventory decreases resulting from the sales decline. Accounts payable balances are impacted by many factors, including changes in product mix, cash discount terms and changes in payment terms with vendors.
 
Cash flow from operations was impacted by a decrease in accrued expenses of $43.3 million during fiscal 2011, an increase in accrued expenses of $58.0 million during fiscal 2010 and a decrease in accrued expenses of $120.3 million during fiscal 2009. The decrease in accrued expenses in the fiscal 2011 was primarily due to the payment of the respective prior year annual incentive bonuses, partially offset by lower accruals for current year compensation incentives. The remainder of the decrease was driven by multiple changes in various other accruals, of which no item was individually significant. The increase in accrued expenses during fiscal 2010 was primarily due to increases in incentive compensation accruals resulting from improved operating performance in fiscal 2010. The remainder of the increase was driven by multiple changes in various other accruals, of which no item was individually significant. The decrease in accrued expenses during fiscal 2009 was primarily due to the payment of prior year annual incentive bonuses, offset by lower accruals for current year incentive bonuses.
 
Cash flow from operations for fiscal 2011 was negatively impacted by changes in deferred tax assets and liabilities of $165.2 million and a decrease in accrued income taxes of $44.2 million. Cash flow from operations for fiscal 2010 was negatively impacted by changes in deferred tax assets and liabilities of $121.9 million and a decrease in accrued income taxes of $296.5 million. The main factor affecting both of these changes in fiscal 2011 and fiscal 2010, as well as cash taxes paid, was the IRS settlement (discussed below in “Other Considerations, BSCC Cooperative

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Structure”), which resulted in the payment of taxes of $212.0 million in fiscal 2011 and $528.0 million in fiscal 2010 for the settlement agreement. Partially offsetting the negative impact described above, the change in deferred tax assets and liabilities was impacted by the contribution of an additional $140.0 million to our company-sponsored qualified pension plan in fiscal 2010 for contributions that would normally have been made in fiscal 2011. Cash flow from operations for fiscal 2009 was positively impacted by an increase in accrued income taxes of $325.5 million, partially offset by changes in deferred tax assets and liabilities of $294.2 million. Total cash taxes paid were $907.7 million, $1,142.0 million and $735.8 million in fiscal 2011, 2010 and 2009, respectively. The changes in all periods were also impacted by the current tax provision and current year estimated tax payments.
 
Other long-term liabilities increased $44.3 million during fiscal 2011. The increase for 2011 was primarily attributable to three items. First, we recorded withdrawal liabilities from multi-employer pension plans from which union members elected to withdraw during the period. Second, net company sponsored pension costs exceeded contributions to our company-sponsored pension plans during the period. Third, we recognized a provision for severance resulting from the implementation of an involuntary severance plan. Partially offsetting these increases, our liability for uncertain tax positions decreased as a result of settlements with various taxing authorities during the period.
 
Other long-term liabilities and prepaid pension cost, net, decreased $271.7 million during fiscal 2010. The decrease in fiscal 2010 is primarily attributable to three items. First, pension contributions to our company-sponsored plans exceeded net company-sponsored pension costs. Second, our liability for deferred incentive compensation decreased due to accelerated distributions taken by plan participants of all or a portion of their vested balances pursuant to certain transitional relief under the provisions of Section 409A of the Internal Revenue Code and other regular distributions. Third, our liability for uncertain tax positions decreased as a result of the settlement with the IRS, as well as a reclass to accrued income taxes for amounts expected to be paid in fiscal 2011.
 
Other long-term liabilities and prepaid pension cost, net, decreased $48.4 million during fiscal 2009. The decrease in fiscal 2009 is primarily attributable to a decrease in our liability for uncertain tax benefits related to our settlement with the IRS. See additional discussion of an IRS settlement at “Other Considerations, BSCC Cooperative Structure.” The decrease was partially offset by a combination of the recording of net company-sponsored pension costs and incentive compensation deferrals.
 
We recorded net company-sponsored pension costs of $186.4 million, $126.1 million and $88.7 million during fiscal 2011, fiscal 2010 and fiscal 2009, respectively. Our contributions to our company-sponsored defined benefit plans were $161.7 million, $297.9 million and $95.8 million during fiscal 2011, fiscal 2010 and fiscal 2009, respectively. Included in the $161.7 million of contributions in fiscal 2011 was a $140.0 million contribution to our Retirement Plan that would normally have been made in fiscal 2012. Included in the $297.9 million of contributions in fiscal 2010 was a $140.0 million contribution to our Retirement Plan that would normally have been made in fiscal 2011 and quarterly contributions totaling $140.0 million for fiscal 2010. Additional contributions to our Retirement Plan are not currently anticipated in fiscal 2012, however we will evaluate our funding position at the end of fiscal 2012 and select the timing for a contribution at that time.
 
Investing Activities
 
Fiscal 2011 capital expenditures included:
 
  •   investments in technology including our Business Transformation Project;
 
  •   fleet replacements;
 
  •   replacement or significant expansion of facilities in Philadelphia, Pennsylvania and central Texas;
 
  •   the purchase of land for a fold-out facility in southern California; and
 
  •   the remodeling of our shared services facility purchased in fiscal 2010.
 
Fiscal 2010 capital expenditures included:
 
  •   investments in technology including our Business Transformation Project;
 
  •   fleet replacements;
 
  •   replacement or significant expansion of facilities in Vancouver, British Columbia, Canada; Winnipeg, Manitoba, Canada; Billings, Montana; Plainfield, New Jersey; Philadelphia, Pennsylvania and Houston, Texas;
 
  •   the purchase of a facility for our future shared services operations in connection with our Business Transformation Project; and
 
  •   the purchase of land for a fold-out facility in Long Island, New York.
 
Fiscal 2009 capital expenditures included:
 
  •   construction of a fold-out facility in Longview, Texas;
 
  •   replacement or significant expansion of facilities in Victoria, British Columbia, Canada; Chicago, Illinois; Pittsburgh, Pennsylvania and Houston, Texas;
 
  •   land purchases for future fold-out facilities; and
 
  •   investments in technology for our Business Transformation Project.

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We expect total capital expenditures in fiscal 2012 to be in the range of $750 million to $800 million. Fiscal 2012 expenditures will include facility, fleet and other equipment replacements and expansions; new facility construction, including fold-out facilities; and investments in technology including our Business Transformation Project.
 
During fiscal 2011, in the aggregate, the company paid cash of $101.1 million for operations acquired during fiscal 2011 and for contingent consideration related to operations acquired in previous fiscal years. During fiscal 2011, we acquired for cash broadline foodservice operations in central California; Los Angeles, California; Ontario, Canada; Lincoln, Nebraska; and Trenton, New Jersey.
 
During fiscal 2010, in the aggregate, the company paid cash of $29.3 million for operations acquired during fiscal 2010 and for contingent consideration related to operations acquired in previous fiscal years. During fiscal 2010, we acquired for cash a broadline foodservice operation in Syracuse, New York, a produce distributor in Atlanta, Georgia and a seafood distributor in Edmonton, Alberta, Canada.
 
During fiscal 2009, in the aggregate the company paid cash of $218.1 million for operations acquired during fiscal 2009 and for contingent consideration related to operations acquired in previous fiscal years. During fiscal 2009, we acquired for cash broadline foodservice operations in Ireland, Los Angeles, California and Boston, Massachusetts, as well as a produce distributor in Toronto, Ontario, Canada.
 
Financing Activities
 
Equity
 
Proceeds from common stock reissued from treasury for share-based compensation awards were $332.7 million in fiscal 2011, $94.8 million in fiscal 2010 and $111.8 million in fiscal 2009. The increase in proceeds in fiscal 2011 was due to an increase in the number of options exercised in fiscal 2011, as compared to fiscal 2010 and 2009. The level of option exercises, and thus proceeds, will vary from period to period and is largely dependent on movements in our stock price.
 
We traditionally have engaged in Board-approved share repurchase programs. The number of shares acquired and their cost during the past three fiscal years were 10,000,000 shares for $291.6 million in fiscal 2011, 6,000,000 shares for $179.2 million in fiscal 2010 and 16,951,200 shares for $438.8 million in fiscal 2009. There were no additional shares repurchased through August 17, 2011, resulting in a remaining authorization by our Board of Directors to repurchase up to 13,386,600 shares, based on the trades made through that date. Our current share repurchase strategy is to purchase enough shares to keep our diluted average shares outstanding relatively constant. Based on forecasted and past share exercises pursuant to our option plans, we expect to repurchase slightly more shares in fiscal 2012 than in fiscal 2011.
 
Dividends paid were $597.1 million, or $1.02 per share, in fiscal 2011, $579.8 million, or $0.98 per share, in fiscal 2010 and $548.2 million, or $0.92 per share, in fiscal 2009. In May 2011, we declared our regular quarterly dividend for the first quarter of fiscal 2012 of $0.26 per share, which was paid in July 2011.
 
In November 2000, we filed with the SEC a shelf registration statement covering 30,000,000 shares of common stock to be offered from time to time in connection with acquisitions. As of August 17, 2011, 29,477,835 shares remained available for issuance under this registration statement.
 
Short-term Borrowings
 
We have uncommitted bank lines of credit, which provided for unsecured borrowings for working capital of up to $95.0 million, of which none was outstanding as of July 2, 2011 or August 17, 2011.
 
Our Irish subsidiary, Pallas Foods Limited, has a €10.0 million (Euro) committed facility for unsecured borrowings for working capital. There were no borrowings outstanding under this facility as of July 2, 2011 or August 17, 2011.
 
On June 30, 2011, a Canadian subsidiary of Sysco entered into a short-term demand loan facility for the purpose of facilitating a distribution from the Canadian subsidiary to Sysco, and Sysco concurrently entered into an agreement with the bank to guarantee the loan. The amount borrowed was $182.0 million and was repaid in full on July 4, 2011.
 
Commercial Paper and Revolving Credit Facility
 
We have a Board-approved commercial paper program allowing us to issue short-term unsecured notes in an aggregate amount not to exceed $1.3 billion.
 
Sysco and one of our subsidiaries, Sysco International, ULC., have a revolving credit facility supporting our U.S. and Canadian commercial paper programs. The facility, in the amount of $1.0 billion, expires on November 4, 2012, but is subject to extension.
 
During fiscal 2011, 2010 and 2009, aggregate outstanding commercial paper issuances and short-term bank borrowings ranged from approximately zero to $330.3 million, zero to $1.8 million, and zero to $165.0 million, respectively. There were no commercial paper issuances outstanding as of July 2, 2011 and $300.0 million of commercial paper issuances outstanding as of August 17, 2011.
 
During fiscal 2011, 2010 and 2009, our aggregate commercial paper issuances and short-term bank borrowings had a weighted average interest rate of 0.25%, 0.80% and 0.88%, respectively.

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Fixed Rate Debt
 
Included in current maturities of long-term debt as July 2, 2011 are the 6.10% senior notes totaling $200.0 million, which mature in June 2012. These notes were issued by Sysco International, Co., a wholly-owned subsidiary of Sysco now known as Sysco International, ULC. It is our intention to fund the repayment of these notes at maturity through issuances of commercial paper, senior notes or a combination thereof.
 
In February 2009, Sysco deregistered the securities remaining unsold under its then existing shelf registration statement that was filed with the SEC in February 2008 for the issuance of debt securities. In February 2009, Sysco filed with the SEC an automatically effective well-known seasoned issuer shelf registration statement for the issuance of an indeterminate amount of debt securities that may be issued from time to time.
 
In March 2009, Sysco issued 5.375% senior notes totaling $250.0 million due March 17, 2019 (the 2019 notes) and 6.625% senior notes totaling $250.0 million due March 17, 2039 (the 2039 notes) under its February 2009 shelf registration. The 2019 and 2039 notes, which were priced at 99.321% and 98.061% of par, respectively, are unsecured, are not subject to any sinking fund requirement and include a redemption provision which allows Sysco to retire the notes at any time prior to maturity at the greater of par plus accrued interest or an amount designed to ensure that the note holders are not penalized by early redemption. Proceeds from the notes will be utilized over a period of time for general corporate purposes, which may include acquisitions, refinancing of debt, working capital, share repurchases and capital expenditures.
 
In September 2009, we entered into an interest rate swap agreement that effectively converted $200.0 million of fixed rate debt maturing in fiscal 2014 to floating rate debt. In October 2009, we entered into an interest rate swap agreement that effectively converted $250.0 million of fixed rate debt maturing in fiscal 2013 to floating rate debt. Both transactions were entered into with the goal of reducing overall borrowing cost and increasing floating interest rate exposure. These transactions were designated as fair value hedges since the swaps hedge against the changes in fair value of fixed rate debt resulting from changes in interest rates.
 
Total Debt
 
Total debt as of July 2, 2011 was $2.7 billion of which approximately 75% was at fixed rates with a weighted average of 5.9% and an average life of 15 years, and the remainder was at floating rates with a weighted average of 2.1% and an average life of one year. Certain loan agreements contain typical debt covenants to protect note holders, including provisions to maintain the company’s long-term debt to total capital ratio below a specified level. Sysco is currently in compliance will all debt covenants.
 
Other
 
As part of normal business activities, we issue letters of credit through major banking institutions as required by certain vendor and insurance agreements. As of July 2, 2011 and July 3, 2010, letters of credit outstanding were $23.0 million and $28.4 million, respectively.
 
Other Considerations
 
Multi-Employer Pension Plans
 
As discussed in Note 18, “Commitments and Contingencies”, to the Consolidated Financial Statements in Item 8, we contribute to several multi-employer defined benefit pension plans based on obligations arising under collective bargaining agreements covering union-represented employees.
 
Under current law regarding multi-employer defined benefit plans, a 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 July 2, 2011 based on a voluntary withdrawal. This estimate excludes plans for which Sysco has recorded withdrawal liabilities. The majority of the plans we participate in have a valuation date of calendar year-end. As such, the majority of our estimated withdrawal liability results from plans for which the valuation date was December 31, 2009; therefore, our estimated liability reflects the asset losses incurred by the financial markets as of that date. Due to the lack of current information, we believe our current share of the withdrawal liability could materially differ from this estimate. In addition, if a multi-employer defined benefit plan fails to satisfy certain minimum funding requirements, the IRS may impose a non-deductible excise tax of 5% on the amount of the accumulated funding deficiency for those employers contributing to the fund.
 
From time to time, we may voluntarily withdraw from multi-employer pension plans to minimize or limit our future exposure to these plans. In the third quarter of fiscal 2011, the union members of one of our subsidiaries voted to withdraw from the 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. We have experienced other instances triggering voluntary withdrawal from multi-employer pension plans. Total withdrawal liability provisions recorded include $41.5 million in fiscal 2011, $2.9 million in fiscal 2010 and $9.6 million in fiscal 2009. As of July 2, 2011, we had approximately $42.4 million in liabilities recorded related to certain multi-employer defined benefit plans for which our voluntary withdrawal had already occurred, which includes the liability recorded in the third quarter of fiscal 2011. Recorded withdrawal liabilities are estimated at the time of withdrawal based on

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the most recently available valuation and participant data for the respective plans; amounts are adjusted up to the period of payment to reflect any changes to these estimates. If any of these plans were to undergo a mass withdrawal, as defined by the Pension Benefit Guaranty Corporation, within a two year time frame from the point of our withdrawal, we could have additional liability. We do not currently believe any mass withdrawals are probable to occur in the applicable two year time frame relating to the plans from which we have voluntarily withdrawn.
 
Required contributions to multi-employer plans could increase in the future as these plans strive to improve their funding levels. In addition, the Pension Protection Act, enacted in August 2006, requires underfunded pension plans to improve their funding ratios within prescribed intervals based on the level of their underfunding. We believe that any unforeseen requirements to pay such increased contributions, withdrawal liability and excise taxes would be funded through cash flow from operations, borrowing capacity or a combination of these items.
 
During fiscal 2008, we obtained information that a multi-employer pension plan we participated in failed to satisfy minimum funding requirements for certain periods and concluded that it was probable that additional funding would be required as well as the payment of excise tax. As a result, during fiscal 2008, we recorded a liability of approximately $16.5 million related to our share of the minimum funding requirements and related excise tax for these periods. During the first quarter of fiscal 2009, we effectively withdrew from this multi-employer pension plan in an effort to secure benefits for our employees that were participants in the plan and to manage our exposure to this under-funded plan. We agreed to pay $15.0 million to the plan, which included the minimum funding requirements. In connection with this withdrawal agreement, we merged active participants from this plan into Sysco’s company-sponsored Retirement Plan and assumed $26.7 million in liabilities. The payment to the plan was made in the early part of the second quarter of fiscal 2009.
 
BSCC Cooperative Structure
 
Sysco’s affiliate, Baugh Supply Chain Cooperative (BSCC), was a cooperative taxed under subchapter T of the United States Internal Revenue Code, the operation of which had resulted in a deferral of tax payments. The IRS, in connection with its audits of our 2003 through 2006 federal income tax returns, proposed adjustments that would have accelerated amounts that we had previously deferred and would have resulted in the payment of interest on those deferred amounts. Sysco reached a settlement with the IRS in the first quarter of fiscal 2010 to cease paying U.S. federal taxes related to BSCC on a deferred basis, pay the amounts that were recorded within deferred taxes related to BSCC over a three-year period and make a one-time payment of $41.0 million, of which approximately $39.0 million was non-deductible. The settlement addressed the BSCC deferred tax issue as it relates to the IRS audit of our 2003 through 2006 federal income tax returns, and settles the matter for all subsequent periods, including the 2007 and 2008 federal income tax returns already under audit. As a result of the settlement, we agreed to pay the amounts owed in the following schedule:
 
         
    (In thousands)
 
Fiscal 2010
  $ 528,000  
Fiscal 2011
    212,000  
Fiscal 2012
    212,000  
 
As noted in the table above, payments related to the settlement were $212.0 million and $528.0 million in fiscal 2011 and fiscal 2010, respectively. Remaining amounts to be paid in 2012 will be paid in connection with our quarterly tax payments, two of which fall in the second quarter, one in the third quarter and one in the fourth quarter. We believe we have access to sufficient cash on hand, cash flows from operations and current access to capital to make payments required in fiscal 2012.
 
Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements.

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Contractual Obligations
 
The following table sets forth, as of July 2, 2011, certain information concerning our obligations and commitments to make contractual future payments:
 
                                         
    Payments Due by Period  
                            More Than
 
    Total     < 1 Year     1-3 Years     3-5 Years     5 Years  
    (In thousands)  
 
Recorded Contractual Obligations:
                                       
Short-term bank borrowings
  $ 181,975     $ 181,975     $     $     $  
Long-term debt
    2,442,839       200,164       462,239       1,245       1,779,191  
Capital lease obligations
    43,709       6,867       7,840       4,132       24,870  
Deferred compensation(1)
    90,985       11,010       15,793       11,005       53,177  
SERP and other postretirement plans(2)
    287,247       23,427       49,592       54,655       159,573  
Multi-employer pension plans(3)
    42,442       5,426       37,016              
Unrecognized tax benefits and interest(4)
    80,632                                  
IRS deferred tax settlement(4)
    212,000       212,000                    
Unrecorded Contractual Obligations:
                                       
Interest payments related to commercial paper and debt(5)
    1,347,640       126,093       221,305       202,664       797,578  
Retirement plan(6)
    972,090             285,780       229,090       457,220  
Long-term non-capitalized leases
    221,457       50,962       69,590       43,479       57,426  
Purchase obligations(7)
    2,186,350       1,882,961       242,436       60,953        
                                         
Total contractual cash obligations
  $   8,109,366     $   2,700,885     $   1,391,591     $   607,223     $   3,329,035  
                                         
 
(1) The estimate of the timing of future payments under the Executive Deferred Compensation Plan involves the use of certain assumptions, including retirement ages and payout periods.
 
(2) Includes estimated contributions to the unfunded SERP and other postretirement benefit plans made in amounts needed to fund benefit payments for vested participants in these plans through fiscal 2021, based on actuarial assumptions.
 
(3) Represents voluntary withdrawal liabilities recorded and excludes normal contributions required under our collective bargaining agreements.
 
(4) Unrecognized tax benefits relate to uncertain tax positions recorded under accounting standards related to uncertain tax positions. As of July 2, 2011, we had a liability of $56.2 million for unrecognized tax benefits for all tax jurisdictions and $24.5 million for related interest that could result in cash payment. Sysco reached a settlement with the IRS in the first quarter of fiscal 2010 related to timing of tax payments. Apart from this item, we are not able to reasonably estimate the timing of non-current payments or the amount by which the liability will increase or decrease over time. Accordingly, the related non-current balances have not been reflected in the “Payments Due by Period” section of the table.
 
(5) Includes payments on floating rate debt based on rates as of July 2, 2011, assuming amount remains unchanged until maturity, and payments on fixed rate debt based on maturity dates. The impact of our outstanding fixed-to-floating interest rate swaps on the fixed rate debt interest payments is included as well based on the floating rates in effect as of July 2, 2011.
 
(6) Provides the estimated minimum contribution to the Retirement Plan through fiscal 2021 to meet ERISA minimum funding requirements under the assumption that we only make minimum funding requirement contributions each year, based on actuarial assumptions.
 
(7) For purposes of this table, purchase obligations include agreements for purchases of product in the normal course of business, for which all significant terms have been confirmed, including minimum quantities resulting from our sourcing initiative. Such amounts included in the table above are based on estimates. Purchase obligations also includes amounts committed with a third party to provide hardware and hardware hosting services over a ten year period ending in fiscal 2015 (See discussion under Note 18, “Commitments and Contingencies”, to the Notes to Consolidated Financial Statements in Item 8), fixed electricity agreements and fixed fuel purchase commitments. Purchase obligations exclude full requirements electricity contracts where no stated minimum purchase volume is required.
 
Certain acquisitions involve contingent consideration, typically payable only in the event that certain operating results are attained or certain outstanding contingencies are resolved. Aggregate contingent consideration amounts outstanding as of July 2, 2011 included $56.6 million. This amount is not included in the table above.
 
Critical Accounting Policies and Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses in the accompanying financial statements. Significant accounting policies employed by Sysco are presented in the notes to the financial statements.
 
Critical accounting policies and estimates are those that are most important to the portrayal of our financial condition and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. We have reviewed with the Audit Committee of the Board of Directors the development and selection of the critical accounting policies and estimates and this related disclosure. Our most critical accounting policies and estimates pertain to the allowance for

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doubtful accounts receivable, self-insurance programs, company-sponsored pension plans, income taxes, vendor consideration, goodwill and intangible assets and share-based compensation.
 
Allowance for Doubtful Accounts
 
We evaluate the collectability of accounts receivable and determine the appropriate reserve for doubtful accounts based on a combination of factors. We utilize specific criteria to determine uncollectible receivables to be written off, including whether a customer has filed for or has been placed in bankruptcy, has had accounts referred to outside parties for collection or has had accounts past due over specified periods. Allowances are recorded for all other receivables based on analysis of historical trends of write-offs and recoveries. In addition, in circumstances where we are aware of a specific customer’s inability to meet its financial obligation, a specific allowance for doubtful accounts is recorded to reduce the receivable to the net amount reasonably expected to be collected. Our judgment is required as to the impact of certain of these items and other factors as to ultimate realization of our accounts receivable. If the financial condition of our customers were to deteriorate, as was the case in fiscal 2009, additional allowances may be required.
 
Self-Insurance Program
 
We maintain a self-insurance program covering portions of workers’ compensation, general liability and vehicle liability costs. The amounts in excess of the self-insured levels are fully insured by third party insurers. We also maintain a fully self-insured group medical program. Liabilities associated with these risks are estimated in part by considering historical claims experience, medical cost trends, demographic factors, severity factors and other actuarial assumptions. Projections of future loss expenses are inherently uncertain because of the random nature of insurance claims occurrences and could be significantly affected if future occurrences and claims differ from these assumptions and historical trends. In an attempt to mitigate the risks of workers’ compensation, vehicle and general liability claims, safety procedures and awareness programs have been implemented.
 
Company-Sponsored Pension Plans
 
Amounts related to defined benefit plans recognized in the financial statements are determined on an actuarial basis. Three of the more critical assumptions in the actuarial calculations are the discount rate for determining the current value of plan benefits, the assumption for the rate of increase in future compensation levels and the expected rate of return on plan assets.
 
For guidance in determining the discount rates, we calculate the implied rate of return on a hypothetical portfolio of high-quality fixed-income investments for which the timing and amount of cash outflows approximates the estimated payouts of the pension plan. The discount rate assumption is reviewed annually and revised as deemed appropriate. The discount rate for determining fiscal 2011 net pension costs for the Retirement Plan, which was determined as of the July 3, 2010 measurement date, decreased 187 basis points to 6.15%. The discount rate for determining fiscal 2011 net pension costs for the SERP, which was determined as of the July 3, 2010 measurement date, decreased 79 basis points to 6.35%. The combined effect of these discount rate changes increased our net company-sponsored pension costs for all plans for fiscal 2011 by an estimated $85.6 million. The discount rate for determining fiscal 2012 net pension costs for the Retirement Plan, which was determined as of the July 2, 2011 measurement date, decreased 21 basis points to 5.94%. The discount rate for determining fiscal 2012 net pension costs for the SERP, which was determined as of the July 2, 2011 measurement date, decreased 42 basis points to 5.93%. The combined effect of these discount rate changes will increase our net company-sponsored pension costs for all plans for fiscal 2012 by an estimated $14.3 million. A 100 basis point increase in the discount rates for fiscal 2012 would decrease Sysco’s net company-sponsored pension cost by $59.0 million, while a 100 basis point decrease in the discount rates would increase pension cost by $68.7 million. The impact of a 100 basis point increase in the discount rates differs from the impact of a 100 basis point decrease in discount rates because the liabilities are less sensitive to change at higher discount rates. Therefore, a 100 basis point increase in the discount rate will not generate the same magnitude of change as a 100 basis point decrease in the discount rate.
 
We look to actual plan experience in determining the rates of increase in compensation levels. We used a plan specific age-related set of rates for the Retirement Plan, which are equivalent to a single rate of 5.30% as of July 2, 2011 and July 3, 2010. For determining the benefit obligations as of July 2, 2011 and July 3, 2010, the SERP calculations use an age-graded salary growth assumption.
 
The expected long-term rate of return on plan assets of the Retirement Plan was 8.00% for fiscal 2011 and fiscal 2010. The expectations of future returns are derived from a mathematical asset model that incorporates assumptions as to the various asset class returns, reflecting a combination of historical performance analysis and the forward-looking views of the financial markets regarding the yield on bonds, historical returns of the major stock markets and returns on alternative investments. Although not determinative of future returns, the effective annual rate of return on plan assets, developed using geometric/compound averaging, was approximately 8.1%, 4.0%, 4.1%, and 18.5%, over the 20-year, 10-year, 5-year and 1-year periods ended December 31, 2010, respectively. In addition, in nine of the last 15 years, the actual return on plan assets has exceeded 10%. The rate of return assumption is reviewed annually and revised as deemed appropriate.
 
The expected return on plan assets impacts the recorded amount of net pension costs. The expected long-term rate of return on plan assets of the Retirement Plan is 7.75% for fiscal 2012. A 100 basis point increase (decrease) in the assumed rate of return for fiscal 2012 would decrease (increase) Sysco’s net company-sponsored pension costs for fiscal 2012 by approximately $20.9 million.

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Pension accounting standards require the recognition of the funded status of our defined benefit plans in the statement of financial position, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The amount reflected in accumulated other comprehensive loss related to the recognition of the funded status of our defined benefit plans as of July 2, 2011 was a charge, net of tax, of $501.1 million. The amount reflected in accumulated other comprehensive loss related to the recognition of the funded status of our defined benefit plans as of July 3, 2010 was a charge, net of tax, of $598.8 million.
 
Changes in the assumptions, including changes to the discount rate discussed above, together with the normal growth of the plans, the impact of actuarial losses from prior periods and the timing and amount of contributions, increased net company-sponsored pension costs by approximately $60 million in fiscal 2011. Changes in the assumptions, including changes to the discount rate discussed above, together with the normal growth of the plans, the impact of actuarial losses from prior periods, the impact of plan amendments and the timing and amount of contributions are expected to decrease net company-sponsored pension costs in fiscal 2012 by approximately $27 million.
 
We made cash contributions to our company-sponsored pension plans of $161.7 million and $297.9 million in fiscal years 2011 and 2010, respectively. Included in the $161.7 million of contributions in fiscal 2011 was a $140.0 million contribution to our Retirement Plan that would normally have been made in fiscal 2012. We did not have a minimum required contribution to the Retirement Plan for the calendar 2010 plan year to meet ERISA minimum funding requirements. Included in the $297.9 million of contributions in fiscal 2010 the minimum required contribution for the calendar 2009 plan year to meet ERISA minimum funding requirements, as well as a $140.0 million contribution to our Retirement Plan that would normally have been made in fiscal 2011. We do not have a minimum required contribution to the Retirement Plan for the calendar 2011 plan year to meet ERISA minimum funding requirements that must be made in fiscal 2012. Additional contributions to our Retirement Plan are not currently anticipated in fiscal 2012, however we will evaluate our funding position at the end of fiscal 2012 and select the timing for a contribution at that time. The estimated fiscal 2012 contributions to fund benefit payments for the SERP plan are approximately $23 million.
 
Income Taxes
 
The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. Our provision for income taxes primarily reflects a combination of income earned and taxed in the various U.S. federal and state, as well as foreign jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and our change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.
 
Our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions. We believe that the judgments and estimates discussed herein are reasonable; however, actual results could differ, and we may be exposed to losses or gains that could be material. To the extent we prevail in matters for which a liability has been established, or pay amounts in excess of recorded liabilities, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement may be recognized as a reduction in our effective income tax rate in the period of resolution.
 
Vendor Consideration
 
We recognize consideration received from vendors when the services performed in connection with the monies received are completed and when the related product has been sold by Sysco. There are several types of cash consideration received from vendors. In many instances, the vendor consideration is in the form of a specified amount per case or per pound. In these instances, we will recognize the vendor consideration as a reduction of cost of sales when the product is sold. In some instances, vendor consideration is received upon receipt of inventory in our distribution facilities. We estimate the amount needed to reduce our inventory based on inventory turns until the product is sold. Our inventory turnover is usually less than one month; therefore, amounts deferred against inventory do not require long-term estimation. In the situations where the vendor consideration is not related directly to specific product purchases, we will recognize these as a reduction of cost of sales when the earnings process is complete, the related service is performed and the amounts realized. Historically, adjustments to our estimates related to vendor consideration have not been significant.
 
Goodwill and Intangible Assets
 
Goodwill and intangible assets represent the excess of consideration paid over the fair value of tangible net assets acquired. Certain assumptions and estimates are employed in determining the fair value of assets acquired, including goodwill and other intangible assets, as well as determining the allocation of goodwill to the appropriate reporting unit.
 
In addition, annually in our fourth quarter or more frequently as needed, we assess the recoverability of goodwill and indefinite-lived intangibles by determining whether the fair values of the applicable reporting units exceed the carrying values of these assets. The reporting units used in assessing goodwill impairment are our eight operating segments as described in Note 19, “Business Segment Information,” to the Consolidated Financial Statements in Item 8. The components within each of our eight operating segments have similar economic characteristics and therefore are aggregated into eight reporting units.

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We arrive at our estimates of fair value using a combination of discounted cash flow and earnings multiple models. The results from each of these models are then weighted and combined into a single estimate of fair value for each of our eight operating segments. We use a 60% weighting for our discounted cash flow valuation and 40% for the earnings multiple models giving greater emphasis to our discounted cash flow model because the forecasted operating results that serve as a basis for the analysis incorporate management’s outlook and anticipated changes for the businesses. The primary assumptions used in these various models include estimated earnings multiples of comparable acquisitions in the industry including control premiums, earnings multiples on acquisitions completed by Sysco in the past, future cash flow estimates of the reporting units, which are dependent on internal forecasts and projected growth rates, and weighted average cost of capital, along with working capital and capital expenditure requirements. When possible, we use observable market inputs in our models to arrive at the fair values of our reporting units. We update our projections used in our discounted cash flow model based on historical performance and changing business conditions for each of our reporting units.
 
Our estimates of fair value contain uncertainties requiring management to make assumptions and to apply judgment to estimate industry economic factors and the profitability of future business strategies. Actual results could differ from these assumptions and projections, resulting in the company revising its assumptions and, if required, recognizing an impairment loss. There were no impairments of goodwill or indefinite-lived intangibles recorded as a result of assessment in fiscal 2011, 2010 and 2009. Our past estimates of fair value for fiscal 2010 and 2009 have not been materially different when revised to include subsequent years’ actual results. Sysco has not made any material changes in its impairment assessment methodology during the past three fiscal years. We do not believe the estimates used in the analysis are reasonably likely to change materially in the future but we will continue to assess the estimates in the future based on the expectations of the reporting units. In the fiscal 2011 analysis our estimates of fair value did not require additional analysis; however, we would have performed additional analysis to determine if an impairment existed for the following reporting units if our estimates of fair value were decreased by the following amounts. First, our reporting unit that distributes to international customers would have required additional analysis if the estimated fair value had been 26% lower. Second, our European Broadline company would have required additional analysis if the estimated fair value had been 27% lower. Third, our lodging industry products reporting unit would have required additional analysis if the estimated fair value had been 29% lower. Lastly, our specialty produce operations would have required additional analysis if the estimated fair value had been 34% lower. At July 2, 2011, these four reporting units had goodwill aggregating $498.3 million. For the remainder of our reporting units which at July 2, 2011 had goodwill aggregating $1.1 billion, we would have performed additional analysis to determine if an impairment existed for a reporting unit if the estimated fair value for any of these reporting units had declined by greater than 50%.
 
Certain reporting units (European Broadline, specialty produce, custom-cut meat, lodging industry products and international distribution operations) have a greater proportion of goodwill recorded to estimated fair value as compared to the United States Broadline, Canadian Broadline or SYGMA reporting units. This is primarily due to these businesses having been recently acquired, and as a result there has been less history of organic growth than in the United States Broadline, Canadian Broadline and SYGMA reporting units. In addition, these businesses also have lower levels of cash flow than the United States Broadline reporting units. As such, these reporting units have a greater risk of future impairment if their operations were to suffer a significant downturn.
 
Share-Based Compensation
 
We provide compensation benefits to employees and non-employee directors under several share-based payment arrangements including various employee stock incentive plans, the Employees’ Stock Purchase Plan, the Management Incentive Plan and various non-employee director plans.
 
As of July 2, 2011, there was $61.3 million of total unrecognized compensation cost related to share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 2.62 years.
 
The fair value of each option award is estimated on the date of grant using a Black-Scholes option pricing model. Expected volatility is based on historical volatility of Sysco’s stock, implied volatilities from traded options on Sysco’s stock and other factors. We utilize historical data to estimate option exercise and employee termination behavior within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. Expected dividend yield is estimated based on the historical pattern of dividends and the average stock price for the year preceding the option grant. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
 
The fair value of each restricted stock unit award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For restricted stock units granted without dividend equivalents, the fair value is reduced by the present value of expected dividends during the vesting period.
 
The fair value of the stock issued under the Employee Stock Purchase Plan is calculated as the difference between the stock price and the employee purchase price.
 
The fair value of restricted stock granted to employees is based on the stock price on grant date. The application of a discount to the fair value of a restricted stock grant is dependent upon whether or not each individual grant contains a post-vesting restriction.
 
The compensation cost related to these share-based awards is recognized over the requisite service period. The requisite service period is generally the period during which an employee is required to provide service in exchange for the award. The compensation cost related to stock

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issuances resulting from employee purchases of stock under the Employees’ Stock Purchase Plan is recognized during the quarter in which the employee payroll withholdings are made.
 
Certain of our option awards are generally subject to graded vesting over a service period. In those cases, we will recognize compensation cost on a straight-line basis over the requisite service period for the entire award. In other cases, certain of our option awards provide for graded vesting over a service period but include a performance-based provision allowing for the vesting to accelerate. In these cases, if it is probable that the performance condition will be met, we recognize compensation cost on a straight-line basis over the shorter performance period; otherwise, we recognize compensation cost over the probable longer service period.
 
In addition, certain of our share-based awards provide that if the award holder retires at certain age and years of service thresholds, the options continue to vest as if the award holder continued to be an employee or director. In these cases, for awards granted prior to July 2, 2005 (our adoption date for the fair value recognition provisions in current stock compensation accounting standards), we will recognize the compensation cost for such awards over the remaining service period and accelerate any remaining unrecognized compensation cost when the employee retires. For awards granted subsequent to July 3, 2005, we will recognize compensation cost for such awards over the period from the date of grant to the date the employee first becomes eligible to retire with his options continuing to vest after retirement.
 
Our option grants include options that qualify as incentive stock options for income tax purposes. In the period the compensation cost related to incentive stock options is recorded, a corresponding tax benefit is not recorded as it is assumed that we will not receive a tax deduction related to such incentive stock options. We may be eligible for tax deductions in subsequent periods to the extent that there is a disqualifying disposition of the incentive stock option. In such cases, we would record a tax benefit related to the tax deduction in an amount not to exceed the corresponding cumulative compensation cost recorded in the financial statements on the particular options multiplied by the statutory tax rate.
 
Forward-Looking Statements
 
Certain statements made herein that look forward in time or express 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, sales and expense trends, including expectations regarding pay-related expense and pension costs, anticipated multi-employer pension related liabilities and contributions to various multi-employer pension plans, expectations regarding potential payments of unrecognized tax benefits and interest, expectations regarding share repurchases, expected trends in fuel pricing, usage costs and surcharges, our expectation regarding the provision for losses on accounts receivable, expected implementation, costs and benefits of the ERP system, estimated expenses and capital expenditures related to our Business Transformation Project in fiscal 2012, our plan to continue to explore and identify opportunities to grow in international markets and adjacent areas that complement our core business, the impact of ongoing legal proceedings, the loss of SYGMA’s largest customer not having a material adverse effect on Sysco as a whole, compliance with laws and government regulations not having a material effect on our capital expenditures, earnings or competitive position, anticipated acquisitions and capital expenditures and the sources of financing for them, continued competitive advantages and positive results from strategic initiatives, anticipated company-sponsored pension plan liabilities, our expectations regarding cash flow from operations, the availability and adequacy of insurance to cover liabilities, the impact of future adoption of accounting pronouncements, predictions regarding the impact of changes in estimates used in impairment analyses, the anticipated impact of changes in foreign currency exchange rates and Sysco’s ability to meet future cash requirements and remain profitable.
 
These statements are based on management’s current expectations and estimates; actual results may differ materially due in part to the risk factors discussed at Item 1.A. above and elsewhere. In addition, the success of Sysco’s strategic initiatives could be affected by conditions in the economy and the industry and internal factors such as the ability to control expenses, including fuel costs. Expected trends related to fuel costs and usage are impacted by fluctuations in the economy generally and numerous factors affecting the oil industry that are beyond our control. Our efforts to lower our cost of goods sold may be impacted by factors beyond our control, including actions by our competitors and/or customers. We have experienced delays in the implementation of our Business Transformation Project and the expected costs of our Business Transformation Project may be greater or less than currently expected, as we may encounter the need for changes in design or revisions of the project calendar and budget. Our business and results of operations may be adversely affected if we experience operating problems, scheduling delays, cost overages, or limitations on the extent of the business transformation during the ERP implementation process. As implementation of the ERP system and the Business Transformation Project begins, there may be changes in design or timing that impact near-term expense and cause us to revise the project calendar and budget, and additional hiring and training of employees and consultants may be required, which could also impact project expense and timing. Company-sponsored pension plan liabilities are impacted by a number of factors including the discount rate for determining the current value of plan benefits, the assumption for the rate of increase in future compensation levels and the expected rate of return on plan assets. The amount of shares repurchased in a given period is subject to a number of factors, including available cash and our general working capital needs at the time. Our plans with respect to growth in international markets and adjacent areas that complement our core business are subject to the company’s other strategic initiatives and plans and economic conditions generally. Legal proceedings are impacted by events, circumstances and individuals beyond the control of Sysco. The need for additional borrowing or other capital is impacted by factors that include capital expenditures or acquisitions in excess of those currently anticipated, stock repurchases at historical levels, or other unexpected cash requirements. Predictions regarding the future adoption of accounting pronouncements involve estimates without the benefit of precedent, and if our estimates turn out to be materially incorrect, our assessment of the impact of the pronouncement could prove incorrect, as well. The anticipated impact of compliance with laws and regulations also involves the risk that estimates may turn out to be materially incorrect, and laws and regulations, as well as methods of enforcement, are subject to change.

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Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
 
Interest Rate Risk
 
We do not utilize financial instruments for trading purposes. Our use of debt directly exposes us to interest rate risk. Floating rate debt, where the interest rate fluctuates periodically, exposes us to short-term changes in market interest rates. Fixed rate debt, where the interest rate is fixed over the life of the instrument, exposes us to changes in market interest rates reflected in the fair value of the debt and to the risk that we may need to refinance maturing debt with new debt at higher rates.
 
We manage our debt portfolio to achieve an overall desired position of fixed and floating rates and may employ interest rate swaps as a tool to achieve that position. The major risks from interest rate derivatives include changes in the interest rates affecting the fair value of such instruments, potential increases in interest expense due to market increases in floating interest rates and the creditworthiness of the counterparties in such transactions.
 
Fiscal 2011
 
As of July 2, 2011, we had no commercial paper outstanding. Total debt as of July 2, 2011 was $2.7 billion, of which approximately 75% was at fixed rates of interest, including the impact of our interest rate swap agreements.
 
In fiscal 2010, we entered into two interest rate swap agreements that effectively converted $200 million of fixed rate debt maturing in fiscal 2014 (the fiscal 2014 swap) and $250 million of fixed rate debt maturing in fiscal 2013 (the fiscal 2013 swap) to floating rate debt. Both transactions were entered into with the goal of reducing overall borrowing cost. These transactions were designated as fair value hedges since the swaps hedge against the changes in fair value of fixed rate debt resulting from changes in interest rates.
 
As of July 2, 2011, the fiscal 2014 swap was recognized as an asset within the consolidated balance sheet at fair value within other assets of $7.4 million. The fixed interest rate on the hedged debt is 4.6% and the floating interest rate on the swap is three-month LIBOR which resets quarterly. As of July 2, 2011, the fiscal 2013 swap was recognized as an asset within the consolidated balance sheet at fair value within other assets of $6.1 million. The fixed interest rate on the hedged debt is 4.2% and the floating interest rate on the swap is three-month LIBOR which resets quarterly.
 
The following tables present our interest rate position as of July 2, 2011. All amounts are stated in U.S. dollar equivalents.
 
                                                                 
    Interest Rate Position as of July 2, 2011
 
    Principal Amount by Expected Maturity
 
    Average Interest Rate  
    2012     2013     2014     2015     2016     Thereafter     Total     Fair Value  
    (In thousands)  
 
U.S. $ Denominated:
                                                               
Fixed Rate Debt
  $ 205,616     $ 3,682     $ 1,910     $ 1,117     $ 632     $ 1,772,072     $ 1,985,029     $ 2,214,529  
Average Interest Rate
    6.0 %     4.1 %     4.4 %     4.4 %     4.6 %     5.8 %     5.9 %        
Floating Rate Debt(1)
  $ 181,975     $ 253,316     $ 208,779     $ 1,100     $     $ 12,500     $ 657,670     $ 676,075  
Average Interest Rate
    2.0 %     2.4 %     1.9 %     0.2 %           0.5 %     2.0 %        
Canadian $     Denominated:
                                                               
Fixed Rate Debt
  $ 1,178     $ 1,173     $ 1,219     $ 1,264     $ 1,264     $ 19,492     $ 25,590     $ 28,549  
Average Interest Rate
    7.7 %     8.4 %     8.7 %     8.8 %     9.3 %     9.8 %     9.5 %        
Euro € Denominated:
                                                               
Fixed Rate Debt
  $ 234     $     $     $     $     $     $ 234     $ 261  
Average Interest Rate
    8.9 %                                   8.9 %        
 
 
(1) Includes fixed rate debt that has been converted to floating rate debt through interest rate swap agreements.
 
                                                                 
    Interest Rate Position as of July 2, 2011
 
    Notional Amount by Expected Maturity
 
    Average Interest Swap Rate  
    2012     2013     2014     2015     2016     Thereafter     Total     Fair Value  
    (In thousands)  
 
Interest Rate Swaps
                                                               
Related To Debt:
                                                               
Pay Variable/Receive Fixed
  $     $ 250,000     $ 200,000     $     $     $     $ 450,000     $ 13,482  
Average Variable Rate Paid:
                                                               
Rate A Plus
          2.1 %     2.1 %                       2.1 %        
Fixed Rate Received
          4.2 %     4.6 %                       4.4 %        
 
Rate A — three-month LIBOR

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Fiscal 2010
 
As of July 3, 2010, we had no commercial paper outstanding. Total debt as of July 3, 2010 was $2.5 billion, of which approximately 81% was at fixed rates of interest including the impact of our interest rate swap agreements.
 
As of July 3, 2010, the 2014 swap was recognized as an asset within the consolidated balance sheet at fair value within other assets of $5.5 million. The fixed interest rate on the hedged debt is 4.6% and the floating interest rate on the swap is three-month LIBOR which resets quarterly. As of July 3, 2010, the 2013 swap was recognized as an asset within the consolidated balance sheet at fair value within other assets of $5.5 million. The fixed interest rate on the hedged debt is 4.2% and the floating interest rate on the swap is three-month LIBOR which resets quarterly.
 
The following tables present our interest rate positions as of July 3, 2010. All amounts are stated in U.S. dollar equivalents.
 
                                                                 
    Interest Rate Position as of July 3, 2010
 
    Principal Amount by Expected Maturity
 
    Average Interest Rate  
    2011     2012     2013     2014     2015     Thereafter     Total     Fair Value  
    (In thousands)  
 
U.S. $ Denominated:
                                                               
Fixed Rate Debt
  $ 6,250     $ 204,658     $ 2,471     $ 1,275     $ 552     $ 1,766,234     $ 1,981,440     $ 2,262,961  
Average Interest Rate
    4.5 %     6.1 %     4.7 %     4.0 %     3.5 %     5.8 %     5.9 %        
Floating Rate Debt(1)
  $     $     $ 252,801     $ 208,249     $ 1,100     $ 12,500     $ 474,650     $ 483,872  
Average Interest Rate
                2.5 %     2.2 %     0.3 %     0.6 %     2.3 %        
Canadian $     Denominated:
                                                               
Fixed Rate Debt
  $ 894     $ 957     $ 944     $ 979     $ 1,061     $ 18,676     $ 23,511     $ 26,851  
Average Interest Rate
    7.6 %     8.0 %     8.8 %     9.1 %     9.2 %     9.8 %     9.5 %        
Euro € Denominated:
                                                               
Fixed Rate Debt
  $ 826     $ 205     $     $     $     $     $ 1,031     $ 1,177  
Average Interest Rate
    8.9 %     8.9 %                             8.9 %        
 
                                                                 
    Interest Rate Position as of July 3, 2010
 
    Notional Amount by Expected Maturity
 
    Average Interest Swap Rate  
    2011     2012     2013     2014     2015     Thereafter     Total     Fair Value  
    (In thousands)  
 
Interest Rate Swaps
                                                               
Related To Debt:
                                                               
Pay Variable/Receive Fixed
  $     $     $ 250,000     $ 200,000     $     $     $ 450,000     $ 11,045  
Average Variable Rate Paid:
                                                               
Rate A Plus
                2.1 %     2.1 %                 2.1 %        
Fixed Rate Received
                4.2 %     4.6 %                 4.4 %        
 
Foreign Currency Exchange Rate Risk
 
The majority of our foreign subsidiaries use their local currency as their functional currency. To the extent that business transactions are not denominated in a foreign subsidiary’s functional currency, we are exposed to foreign currency exchange rate risk. We will also incur gains and losses within our shareholders’ equity due to the translation of our financial statements from foreign currencies into U.S. dollars. Our income statement trends may be impacted by the translation of the income statements of our foreign subsidiaries into U.S. dollars. The changes in the exchange rates used to translate our foreign sales into U.S. dollars positively impacted sales by 0.5% in fiscal 2011 compared to fiscal 2010 and 0.9% in fiscal 2010 compared to fiscal 2009. The impact to our operating income, net earnings and earnings per share was not material in fiscal 2011 and fiscal 2010. A 10% unfavorable change in the fiscal 2011 weighted year-to-date exchange rate and the resulting impact on our financial statements would have negatively impacted fiscal 2011 sales by 0.6% and would not have materially impacted our operating income, net earnings and earnings per share. We do not routinely enter into material agreements to hedge foreign currency exchange rate risks.
 
Our Canadian financing subsidiary has the U.S. dollar as its functional currency and has notes denominated in U.S. dollars. We have the potential to create taxable income in Canada when this debt is paid due to changes in the exchange rate from the inception of the debt through the payment date. A 10% unfavorable change in the fiscal 2011 year-end exchange rate and the resulting increase in the tax liability associated with these notes would not have a material impact on our results of operations.
 
Fuel Price Risk
 
Due to the nature of our distribution business, we are exposed to potential volatility in fuel prices. The price and availability of diesel fuel fluctuates due to changes in production, seasonality and other market factors generally outside of our control. Increased fuel costs may have a negative impact on our results of operations in three areas. First, the high cost of fuel can negatively impact consumer confidence and discretionary spending and thus reduce the frequency and amount spent by consumers for food-away-from-home purchases. Second, the high cost of fuel can increase the price we pay for product purchases and we may not be able to pass these costs fully to our customers. Third, increased

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fuel costs impact the costs we incur to deliver product to our customers. During fiscal 2011, 2010 and 2009, fuel costs related to outbound deliveries represented approximately 0.6%, 0.6% and 0.8% of sales, respectively. Fuel costs, excluding any amounts recovered through fuel surcharges, incurred by Sysco increased by approximately $33.0 million in fiscal 2011 from fiscal 2010 and decreased by $71.8 million in fiscal 2010 over fiscal 2009.
 
We routinely enter into forward purchase commitments for a portion of our projected monthly diesel fuel requirements. As of July 2, 2011, we had forward diesel fuel commitments totaling approximately $86 million through June 2012. These contracts will lock in the price of approximately 30% to 35% of our fuel purchase needs for the contracted periods at prices lower than the current market price for diesel for the first 26 weeks of fiscal 2012 and near the current market price for diesel for the remainder of the fiscal year.
 
Fuel costs in fiscal 2012, exclusive of any amounts recovered through fuel surcharges, are expected to increase by approximately $35 million to $45 million as compared to fiscal 2011. Our estimate is based upon current, published quarterly market price projections for diesel, the cost committed to in our forward fuel purchase agreements currently in place for fiscal 2012 and estimates of fuel consumption. Actual fuel costs could vary from our estimates if any of these assumptions change, in particular if future fuel prices vary significantly from our current estimates. A 10% unfavorable change in diesel prices from the market price used in our estimates above would change the range of potential increase to $55 million to $65 million.
 
Investment Risk
 
Our company-sponsored qualified pension plan (Retirement Plan) holds investments in both equity and fixed income securities. The amount of our annual contribution to the plan is dependent upon, among other things, the return on the plan’s assets and discount rates used to calculate the plan’s liability. Fluctuations in asset values can cause the amount of our anticipated future contributions to the plan to increase and pension expense to increase and can result in a reduction to shareholders’ equity on our balance sheet as of fiscal year-end, which is when this plan’s funded status is measured. Also, the projected liability of the plan will be impacted by the fluctuations of interest rates on high quality bonds in the public markets. Specifically, decreases in these interest rates may have a material impact on our results of operations. To the extent the financial markets experience declines, our anticipated future contributions, pension expense and funded status will be affected for future years. A 10% unfavorable change in the value of the investments held by our company-sponsored Retirement Plan at the plan’s fiscal year end (December 31, 2010) would not have a material impact on our anticipated future contributions for fiscal 2012; however, this unfavorable change would increase our pension expense for fiscal 2012 by $39.8 million and would reduce our shareholders’ equity on our balance sheet as of July 2, 2011 by $129.7 million.

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Item 8.  Financial Statements and Supplementary Data
 
SYSCO CORPORATION AND SUBSIDIARIES
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
         
    Page
 
Consolidated Financial Statements:
       
    38  
    39  
    40  
    41  
    42  
    43  
    44  
    45  
 
All schedules are omitted because they are not applicable or the information is set forth in the consolidated financial statements or notes thereto.

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REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
The management of Sysco Corporation (“Sysco”) is responsible for establishing and maintaining adequate internal control over financial reporting for the company. Sysco’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
 
Sysco’s management assessed the effectiveness of Sysco’s internal control over financial reporting as of July 2, 2011. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework. Based on this assessment, management concluded that, as of July 2, 2011, Sysco’s internal control over financial reporting was effective based on those criteria.
 
Ernst & Young LLP has issued an audit report on the effectiveness of Sysco’s internal control over financial reporting as of July 2, 2011.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
The Board of Directors and Shareholders
Sysco Corporation
 
We have audited Sysco Corporation (a Delaware Corporation) and its subsidiaries’ internal control over financial reporting as of July 2, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Sysco Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, Sysco Corporation maintained, in all material respects, effective internal control over financial reporting as of July 2, 2011, based on the COSO criteria.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of July 2, 2011 and July 3, 2010 and the related consolidated results of operations, shareholders’ equity and cash flows for each of the three years in the period ended July 2, 2011 of Sysco Corporation and subsidiaries and our report dated August 30, 2011 expressed an unqualified opinion thereon.
 
-s- Ernst & Young LLP
 
Houston, Texas
August 30, 2011

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON CONSOLIDATED FINANCIAL STATEMENTS
 
To the Board of Directors and Shareholders
Sysco Corporation
 
We have audited the accompanying consolidated balance sheets of Sysco Corporation (a Delaware Corporation) and subsidiaries (the “Company”) as of July 2, 2011 and July 3, 2010, and the related consolidated results of operations, shareholders’ equity, and cash flows for each of the three years in the period ended July 2, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at July 2, 2011 and July 3, 2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended July 2, 2011, in conformity with U.S. generally accepted accounting principles.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Sysco Corporation and its subsidiaries’ internal control over financial reporting as of July 2, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 30, 2011 expressed an unqualified opinion thereon.
 
-s- Ernst & Young LLP
 
Houston, Texas
August 30, 2011

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SYSCO
 
 
                 
    July 2, 2011     July 3, 2010  
    (In thousands except for
 
    share data)  
 
ASSETS
Current assets
               
Cash and cash equivalents
  $ 639,765     $ 585,443  
Short-term investments
          23,511  
Accounts and notes receivable, less allowances of $42,436 and $36,573
    2,898,283       2,617,352  
Inventories
    2,073,766       1,771,539  
Prepaid expenses and other current assets
    72,496       70,992  
Prepaid income taxes
    48,572       7,421  
                 
Total current assets
    5,732,882       5,076,258  
Plant and equipment at cost, less depreciation
    3,512,389       3,203,823  
Other assets
               
Goodwill
    1,633,289       1,549,815  
Intangibles, less amortization
    109,938       106,398  
Restricted cash
    110,516       124,488  
Prepaid pension cost
           
Other assets
    286,541       252,919  
                 
Total other assets
    2,140,284       2,033,620  
                 
Total assets
  $ 11,385,555     $ 10,313,701  
                 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
               
Notes payable
  $ 181,975     $  
Accounts payable
    2,183,417       1,953,092  
Accrued expenses
    856,569       870,114  
Deferred income taxes
    146,083       178,022  
Current maturities of long-term debt
    207,031       7,970  
                 
Total current liabilities
    3,575,075       3,009,198  
Other liabilities
               
Long-term debt
    2,279,517       2,472,662  
Deferred income taxes
    204,223       271,512  
Other long-term liabilities
    621,498       732,803  
                 
Total other liabilities
    3,105,238       3,476,977  
Commitments and contingencies
               
Shareholders’ equity
               
Preferred stock, par value $1 per share
               
Authorized 1,500,000 shares, issued none
           
Common stock, par value $1 per share
               
Authorized 2,000,000,000 shares, issued 765,174,900 shares
    765,175       765,175  
Paid-in capital
    887,754       816,833  
Retained earnings
    7,681,669       7,134,139  
Accumulated other comprehensive loss
    (259,958 )     (480,251 )
Treasury stock, 173,597,346 and 176,768,795 shares, at cost
    (4,369,398 )     (4,408,370 )
                 
Total shareholders’ equity
    4,705,242       3,827,526  
                 
Total liabilities and shareholders’ equity
  $   11,385,555     $   10,313,701  
                 
 
See Notes to Consolidated Financial Statements

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SYSCO
 
 
                         
    Year Ended  
          July 3, 2010
       
    July 2, 2011     (53 Weeks)     June 27, 2009  
    (In thousands except for share and per share data)  
 
Sales
  $ 39,323,489     $ 37,243,495     $ 36,853,330  
Cost of sales
    32,002,341       30,136,009       29,816,999  
                         
Gross profit
    7,321,148       7,107,486       7,036,331  
Operating expenses
    5,389,646       5,131,618       5,164,120  
                         
Operating income
    1,931,502       1,975,868       1,872,211  
Interest expense
    118,267       125,477       116,322  
Other expense (income), net
    (14,219 )     802       (14,945 )
                         
Earnings before income taxes
    1,827,454       1,849,589       1,770,834  
Income taxes
    675,424       669,606       714,886  
                         
Net earnings
  $ 1,152,030     $ 1,179,983     $ 1,055,948  
                         
Net earnings:
                       
Basic earnings per share
  $ 1.96     $ 1.99     $ 1.77  
Diluted earnings per share
    1.96       1.99       1.77  
                         
Average shares outstanding
    586,526,142       592,157,221       595,127,577  
Diluted shares outstanding
      588,691,546         593,590,042         596,069,204  
                         
Dividends declared per common share
  $ 1.03     $ 0.99     $ 0.94  
 
See Notes to Consolidated Financial Statements

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SYSCO
 
 
                                                                 
                            Accumulated
                   
                            Other
                   
    Common Stock     Paid-in
    Retained
    Comprehensive
    Treasury Stock        
    Shares     Amount     Capital     Earnings     Loss     Shares     Amounts     Totals  
    (In thousands except for share data)  
 
Balance as of June 28, 2008
    765,174,900     $ 765,175     $ 712,208     $ 6,041,429     $ (68,768 )     163,942,358     $ 4,041,058       3,408,986  
Net earnings
                            1,055,948                               1,055,948  
Foreign currency translation adjustment
                                    (84,452 )                     (84,452 )
Amortization of cash flow hedge, net of tax
                                    428                       428  
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax
                                    13,335                       13,335  
Pension liability assumption, net of tax
                                    (16,450 )                     (16,450 )
Pension funded status adjustment, net of tax
                                    (122,079 )                     (122,079 )
                                                                 
Comprehensive income
                                                            846,730  
Dividends declared
                            (557,487 )                             (557,487 )
Treasury stock purchases
                                            16,951,200       438,842       (438,842 )
Share-based compensation awards
                    48,144                       (5,745,155 )     (142,171 )     190,315  
                                                                 
Balance as of June 27, 2009
    765,174,900     $ 765,175     $ 760,352     $ 6,539,890     $ (277,986 )     175,148,403     $ 4,337,729     $ 3,449,702  
                                                                 
Net earnings
                            1,179,983                               1,179,983  
Foreign currency translation adjustment
                                    49,973                       49,973  
Amortization of cash flow hedge, net of tax
                                    428                       428  
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax
                                    27,464                       27,464  
Pension funded status adjustment, net of tax
                                    (280,130 )                     (280,130 )
                                                                 
Comprehensive income
                                                            977,718  
Dividends declared
                            (585,734 )                             (585,734 )
Treasury stock purchases
                                            6,000,000       179,174       (179,174 )
Share-based compensation awards
                    56,481                       (4,379,608 )     (108,533 )     165,014  
                                                                 
Balance as of July 3, 2010
    765,174,900     $ 765,175     $ 816,833     $ 7,134,139     $ (480,251 )     176,768,795     $ 4,408,370     $ 3,827,526  
                                                                 
Net earnings
                            1,152,030                               1,152,030  
Foreign currency translation adjustment
                                    122,217                       122,217  
Amortization of cash flow hedge, net of tax
                                    428                       428  
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax
                                    51,659                       51,659  
Pension funded status adjustment, net of tax
                                    45,989                       45,989  
                                                                 
Comprehensive income
                                                            1,372,323  
Dividends declared
                            (604,500 )                             (604,500 )
Treasury stock purchases
                                            10,000,000       291,600       (291,600 )
Treasury stock issued for acquisitions
                    (10,625 )                     (422,132 )     (10,625 )      
Share-based compensation awards
                    81,546                       (12,749,317 )     (319,947 )     401,493  
                                                                 
Balance as of July 2, 2011
    765,174,900     $ 765,175     $ 887,754     $ 7,681,669     $ (259,958 )     173,597,346     $ 4,369,398     $ 4,705,242  
                                                                 
 
See Notes to Consolidated Financial Statements

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SYSCO
 
 
                         
    Year Ended  
          July 3, 2010
       
    July 2, 2011     (53 Weeks)     June 27, 2009  
    (In thousands)  
 
Cash flows from operating activities:
                       
Net earnings
  $ 1,152,030     $ 1,179,983     $ 1,055,948  
Adjustments to reconcile net earnings to cash provided by operating activities:
                       
Share-based compensation expense
    59,235       66,358       56,030  
Depreciation and amortization
    402,588       389,976       382,339  
Deferred income taxes
    (165,239 )     (121,865 )     (294,162 )
Provision for losses on receivables
    42,623       34,931       74,638  
Other non-cash items
    (9,454 )     2,550       (3,586 )
Additional investment in certain assets and liabilities, net of effect of businesses acquired:
                       
(Increase) decrease in receivables
    (252,641 )     (166,426 )     188,748  
(Increase) decrease in inventories
    (254,738 )     (106,172 )     177,590  
Decrease (increase) in prepaid expenses and other current assets
    341       (6,271 )     (678 )
Increase (decrease) in accounts payable
    187,410       154,811       (198,284 )
(Decrease) increase in accrued expenses
    (43,348 )     58,002       (120,314 )
(Decrease) increase in accrued income taxes
    (44,202 )     (296,475 )     325,482  
(Increase) in other assets
    (26,966 )     (31,514 )     (15,701 )
Increase (decrease) in other long-term liabilities and prepaid pension cost, net
    44,308       (271,692 )     (48,380 )
Excess tax benefits from share-based compensation arrangements
    (429 )     (768 )     (2,921 )
                         
Net cash provided by operating activities
    1,091,518       885,428       1,576,749  
                         
Cash flows from investing activities:
                       
Additions to plant and equipment
    (636,442 )     (594,604 )     (464,561 )
Proceeds from sales of plant and equipment
    19,069       21,710       25,244  
Acquisition of businesses, net of cash acquired
    (101,148 )     (29,293 )     (218,075 )
Purchases of short-term investments
          (85,071 )      
Maturities of short-term investments
    24,993       61,568        
Decrease (increase) in restricted cash
    13,972       (30,630 )     (1,271 )
                         
Net cash used for investing activities
    (679,556 )     (656,320 )     (658,663 )
                         
Cash flows from financing activities:
                       
Bank and commercial paper borrowings (repayments), net
    181,975              
Other debt borrowings
    4,411       7,091       506,611  
Other debt repayments
    (8,732 )     (10,695 )     (10,173 )
Debt issuance costs
    (7 )     (7 )     (3,693 )
Proceeds from common stock reissued from treasury for share-based compensation awards
    332,688       94,750       111,780  
Treasury stock purchases
    (291,600 )     (179,174 )     (438,843 )
Dividends paid
    (597,071 )     (579,763 )     (548,246 )
Excess tax benefits from share-based compensation arrangements
    429       768       2,921  
                         
Net cash used for financing activities
    (377,907 )     (667,030 )     (379,643 )
                         
Effect of exchange rates on cash
    20,267       4,714       334  
                         
Net increase (decrease) in cash and cash equivalents
    54,322       (433,208 )     538,777  
Cash and cash equivalents at beginning of period
    585,443       1,018,651       479,874  
                         
Cash and cash equivalents at end of period
  $ 639,765     $ 585,443     $ 1,018,651  
                         
Supplemental disclosures of cash flow information:
                       
Cash paid during the period for:
                       
Interest
  $ 119,050     $ 127,411     $ 108,608  
Income taxes
    907,720       1,141,963       735,772  
 
See Notes to Consolidated Financial Statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  SUMMARY OF ACCOUNTING POLICIES
 
Business and Consolidation
 
Sysco Corporation, acting through its subsidiaries and divisions, (Sysco or the company), is engaged in the marketing and distribution of a wide range of food and related products primarily to the foodservice or food-away-from-home industry. These services are performed for approximately 400,000 customers from 177 distribution facilities located throughout the United States, Canada and Ireland.
 
Sysco’s fiscal year ends on the Saturday nearest to June 30th. This resulted in a 52-week year ending July 2, 2011, a 53-week year ending July 3, 2010 for fiscal 2010 and a 52-week year ending June 27, 2009 for 2009.
 
The accompanying financial statements include the accounts of Sysco and its consolidated subsidiaries. All significant intercompany transactions and account balances have been eliminated.
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates that affect the reported amounts of assets, liabilities, sales and expenses. Actual results could differ from the estimates used.
 
Cash and Cash Equivalents
 
For cash flow purposes, cash includes cash equivalents such as time deposits, certificates of deposit, short-term investments and all highly liquid instruments with original maturities of three months or less, which are recorded at fair value.
 
Accounts Receivable
 
Accounts receivable consist primarily of trade receivables from customers and receivables from suppliers for marketing or incentive programs. Sysco determines the past due status of trade receivables based on contractual terms with each customer. Sysco evaluates the collectability of accounts receivable and determines the appropriate reserve for doubtful accounts based on a combination of factors. The company utilizes specific criteria to determine uncollectible receivables to be written off including whether a customer has filed for or been placed in bankruptcy, has had accounts referred to outside parties for collection or has had accounts past due over specified periods. Allowances are recorded for all other receivables based on an analysis of historical trends of write-offs and recoveries. In addition, in circumstances where the company is aware of a specific customer’s inability to meet its financial obligation to Sysco, a specific allowance for doubtful accounts is recorded to reduce the receivable to the net amount reasonably expected to be collected.
 
Inventories
 
Inventories consisting primarily of finished goods include food and related products and lodging products held for resale and are valued at the lower of cost (first-in, first-out method) or market. Elements of costs include the purchase price of the product and freight charges to deliver the product to the company’s warehouses and are net of certain cash or non-cash consideration received from vendors (see “Vendor Consideration”).
 
Plant and Equipment
 
Capital additions, improvements and major replacements are classified as plant and equipment and are carried at cost. Depreciation is recorded using the straight-line method, which reduces the book value of each asset in equal amounts over its estimated useful life, and is included within operating expenses in the consolidated results of operations. Maintenance, repairs and minor replacements are charged to earnings when they are incurred. Upon the disposition of an asset, its accumulated depreciation is deducted from the original cost, and any gain or loss is reflected in current earnings.
 
Certain internal and external costs related to the acquisition and development of internal use software being built within our Business Transformation Project are capitalized within plant and equipment during the application development stages of the project. This project is primarily in the development stage as of July 2, 2011 and no material depreciation has occurred.
 
Applicable interest charges incurred during the construction of new facilities and development of software for internal use are capitalized as one of the elements of cost and are amortized over the assets’ estimated useful lives. Interest capitalized for the past three fiscal years was $13.9 million in fiscal 2011, $10.0 million in fiscal 2010 and $3.5 million in fiscal 2009.
 
Long-Lived Assets
 
Management reviews long-lived assets for indicators of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Cash flows expected to be generated by the related assets are estimated over the asset’s useful life based on updated projections on an undiscounted basis. If the evaluation indicates that the carrying value of the asset may not be recoverable, the potential impairment is measured at fair value.

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Goodwill and Intangibles
 
Goodwill and intangibles represent the excess of cost over the fair value of tangible net assets acquired. Goodwill and intangibles with indefinite lives are not amortized. Goodwill is assigned to the reporting units that are expected to benefit from the synergies of a business combination. The recoverability of goodwill and indefinite-lived intangibles is assessed annually, or more frequently as needed when events or changes have occurred that would suggest an impairment of carrying value, by determining whether the fair values of the applicable reporting units exceed their carrying values. The reporting units used to assess goodwill impairment are the company’s eight operating segments as described in Note 19, “Business Segment Information.” The components within each of the eight operating segments have similar economic characteristics and therefore are aggregated into eight reporting units. The evaluation of fair value requires the use of projections, estimates and assumptions as to the future performance of the operations in performing a discounted cash flow analysis, as well as assumptions regarding sales and earnings multiples that would be applied in comparable acquisitions.
 
Intangibles with definite lives are amortized on a straight-line basis over their useful lives, which generally range from three to ten years. Management reviews finite-lived intangibles for indicators of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Cash flows expected to be generated by the finite-lived intangibles are estimated over the intangible asset’s useful life based on updated projections on an undiscounted basis. If the evaluation indicates that the carrying value of the finite-lived intangible asset may not be recoverable, the potential impairment is measured at fair value.
 
Restricted Cash
 
Sysco is required by its insurers to collateralize a part of the self-insured portion of its workers’ compensation and liability claims. Sysco has chosen to satisfy these collateral requirements by depositing funds in insurance trusts or by issuing letters of credit. All amounts in restricted cash at July 2, 2011 and July 3, 2010 represented funds deposited in insurance trusts.
 
Derivative Financial Instruments
 
All derivatives are recognized as assets or liabilities within the consolidated balance sheets at fair value. Gains or losses on derivative financial instruments designated as fair value hedges are recognized immediately in the consolidated results of operations, along with the offsetting gain or loss related to the underlying hedged item.
 
Gains or losses on derivative financial instruments designated as cash flow hedges are recorded as a separate component of shareholders’ equity at their settlement, whereby gains or losses are reclassified to the Consolidated Results of Operations in conjunction with the recognition of the underlying hedged item.
 
In the normal course of business, Sysco enters into forward purchase agreements for the procurement of fuel and electricity. Certain of these agreements meet the definition of a derivative. However, the company elected to use the normal purchase and sale exemption available under derivatives accounting literature; therefore, these agreements are not recorded at fair value.
 
Investments in Corporate-Owned Life Insurance
 
Investments in corporate-owned life insurance (COLI) policies are recorded at their cash surrender values as of each balance sheet date. Changes in the cash surrender value during the period are recorded as a gain or loss within operating expenses. The company does not record deferred tax balances related to cash surrender value gains or losses for the policies that Sysco has the intent to hold these policies to maturity. Deferred tax balances are recorded for those policies that Sysco intends to redeem prior to maturity. The total amounts related to the company’s investments in COLI policies included in other assets in the consolidated balance sheets were $231.3 million and $203.2 million at July 2, 2011 and July 3, 2010, respectively.
 
Treasury Stock
 
The company records treasury stock purchases at cost. Shares removed from treasury are valued at cost using the average cost method.
 
Foreign Currency Translation
 
The assets and liabilities of all foreign subsidiaries are translated at current exchange rates. Related translation adjustments are recorded as a component of accumulated other comprehensive income (loss).
 
Revenue Recognition
 
The company recognizes revenue from the sale of a product when it is considered to be realized or realizable and earned. The company determines these requirements to be met at the point at which the product is delivered to the customer. The company grants certain customers sales incentives such as rebates or discounts and treats these as a reduction of sales at the time the sale is recognized. Sales tax collected from customers is not included in revenue but rather recorded as a liability due to the respective taxing authorities. Purchases and sales of inventory with the same counterparty that are entered into in contemplation of one another are considered to be a single nonmonetary transaction. As such, the company records the net effect of such transactions in the consolidated results of operations within sales.

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Vendor Consideration
 
Sysco recognizes consideration received from vendors when the services performed in connection with the monies received are completed and when the related product has been sold by Sysco as a reduction to cost of sales. There are several types of cash consideration received from vendors. In many instances, the vendor consideration is in the form of a specified amount per case or per pound. In these instances, Sysco will recognize the vendor consideration as a reduction of cost of sales when the product is sold. In the situations in which the vendor consideration is not related directly to specific product purchases, Sysco will recognize these as a reduction of cost of sales when the earnings process is complete, the related service is performed and the amounts are realized.
 
Shipping and Handling Costs
 
Shipping and handling costs include costs associated with the selection of products and delivery to customers. Included in operating expenses are shipping and handling costs of approximately $2,222.1 million in fiscal 2011, $2,103.3 million in fiscal 2010, and $2,136.8 million in fiscal 2009.
 
Insurance Program
 
Sysco maintains a self-insurance program covering portions of workers’ compensation, general and vehicle liability and property insurance costs. The amounts in excess of the self-insured levels are fully insured by third party insurers. The company also maintains a fully self-insured group medical program. Liabilities associated with these risks are estimated in part by considering historical claims experience, medical cost trends, demographic factors, severity factors and other actuarial assumptions.
 
Share-Based Compensation
 
Sysco recognizes expense for its share-based compensation based on the fair value of the awards that are granted. The fair value of stock options is estimated at the date of grant using the Black-Scholes option pricing model. Option pricing methods require the input of highly subjective assumptions, including the expected stock price volatility. The fair value of restricted stock and restricted stock unit awards are based on the company’s stock price on the date of grant. Measured compensation cost is recognized ratably over the vesting period of the related share-based compensation award. Cash flows resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) are classified as financing cash flows on the consolidated cash flows statements.
 
Income Taxes
 
Sysco recognizes deferred tax assets and liabilities based on the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured pursuant to tax laws using rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The impact on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized.
 
Sysco recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits of the position. The amount recognized is measured as the largest amount of tax benefit that has greater than a 50% likelihood of being realized upon settlement. To the extent interest and penalties may be assessed by taxing authorities on any underpayment of income tax, estimated amounts required by the accounting guidance related to uncertain tax positions have been accrued and are classified as a component of income taxes in the consolidated results of operations.
 
The determination of the 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 primarily reflects a combination of income earned and taxed in the various U.S. federal and state, as well as various foreign jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for tax contingencies or valuation allowances, and the company’s change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.
 
Acquisitions
 
Acquisitions of businesses are accounted for using the purchase method of accounting, and the financial statements include the results of the acquired operations from the respective dates of acquisition.
 
The purchase price of the acquired entities is allocated to the net assets acquired and liabilities assumed based on the estimated fair value at the dates of acquisition, with any excess of cost over the fair value of net assets acquired, including intangibles, recognized as goodwill. The balances included in the consolidated balance sheets related to recent acquisitions are based upon preliminary information and are subject to change when final asset and liability valuations are obtained. Subsequent changes to the preliminary balances are reflected retrospectively, if material. Material changes to the preliminary allocations are not anticipated by management.

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2.  CHANGES IN ACCOUNTING
 
Fair Value Measurements
 
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157, “Fair Value Measurements”, which was subsequently codified within Accounting Standards Codification (ASC) 820, “Fair Value Measurements.” This standard established a common definition for fair value under generally accepted accounting principles, established a framework for measuring fair value and expanded disclosure requirements about such fair value measurements. As of June 29, 2008, Sysco adopted the provisions of this fair value measurement guidance for financial assets and liabilities carried at fair value and non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis. The adoption of the fair value measurement provisions for financial assets and liabilities carried at fair value and non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis did not have a material impact on the company’s financial statements. As of June 28, 2009, Sysco adopted the provisions of this fair value measurements guidance for non-recurring, non-financial assets and liabilities that are recognized or disclosed at fair value. Sysco’s only non-recurring, non-financial asset fair value measurements are those used in its annual test of recoverability of goodwill and indefinite-lived intangibles, in which it determines whether estimated fair values of the applicable reporting units exceed their carrying values. The fair value measurements guidance was applied beginning in fiscal 2010 to this fair value estimation.
 
Disclosure About Derivative Instruments and Hedging Activities
 
In March 2008, the FASB issued FASB Statement No. 161, “Disclosure about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133,” which was subsequently codified within ASC 815, “Derivatives and Hedging”. Effective for Sysco in the third quarter of fiscal 2009, this standard requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. Sysco has provided the required disclosures for this standard in Note 8, “Derivative Financial Instruments.”
 
Business Combinations
 
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”, which was subsequently codified as ASC 805, “Business Combinations.” This standard establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in a business combination. This standard also establishes recognition and measurement principles for the goodwill acquired in a business combination and disclosure requirements to enable financial statement users to evaluate the nature and financial effects of the business combination. In April 2009, the FASB issued FASB Staff Position No. FAS 141(R)-1, “Accounting for Assets and Liabilities Assumed in a Business Combination That Arise From Contingencies”. This standard amended the previously issued business combinations guidance to address application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. Sysco adopted the provisions of these standards on a prospective basis for business combinations beginning in fiscal 2010.
 
Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities
 
In June 2008, the FASB issued FASB Staff Position No. EITF 03-06-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities”, which was subsequently codified within ASC 260, “Earnings Per Share.” This standard addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. This standard was effective for Sysco beginning in fiscal 2010 and interim periods within that year. All prior-period earnings per share data presented in filings subsequent to adoption must be adjusted retrospectively to conform to the provisions of this standard. Early application of this standard was not permitted. The adoption of this standard did not have a material impact on the company’s consolidated financial statements.
 
Measuring Liabilities at Fair Value
 
In August 2009, the FASB issued Accounting Standards Update 2009-05, “Measuring Liabilities at Fair Value”. This update provides additional guidance, including illustrative examples, clarifying the measurement of liabilities at fair value. This update is effective for the first reporting period beginning after its issuance. The company adopted the provisions of this update in the second quarter of fiscal 2010. The adoption of this update did not have a material impact on the company’s consolidated financial statements.
 
Improving Disclosures about Fair Value Measurements
 
In January 2010, the FASB issued Accounting Standards Update 2010-06, “Improving Disclosures about Fair Value Measurements.” This update requires some new disclosures and clarifies some existing disclosure requirements about fair value measurements codified within ASC 820, “Fair Value Measurements and Disclosures.” The majority of the provisions of this update, including those applicable to Sysco, were effective for interim and annual reporting periods beginning after December 15, 2009. Early application of the provisions of this update was permitted. The company adopted the applicable provisions of this update in the third quarter of fiscal 2010. The adoption of this update did not have a material impact on the company’s consolidated financial statement disclosures.

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Subsequent Events
 
In February 2010, the FASB issued Accounting Standard Update 2010-09, “Amendments to Certain Recognition and Disclosure Requirements.” This update amends ASC 855, “Subsequent Events” to remove the requirement for SEC filers to disclose the date through which subsequent events have been evaluated. In addition, the update clarifies the reissuance disclosure provision related to subsequent events. The update is effective immediately for financial statements that are issued or revised. The company adopted the provisions of this update in the third quarter of fiscal 2010. Because this update affects the disclosure and not the accounting treatment for subsequent events, the adoption of this provision did not have a material impact on the company’s consolidated financial statements.
 
Employers’ Disclosures about Postretirement Benefit Plan Assets
 
In December 2008, the FASB issued FASB Staff Position No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets”, which was subsequently codified within ASC 715, “Compensation — Retirement Benefits”. This standard requires additional disclosures about assets held in an employer’s defined benefit pension or other postretirement plan and became effective for Sysco in fiscal 2010. Sysco has provided the required disclosures for this standard in Note 12, “Employee Benefit Plans.”
 
3.  NEW ACCOUNTING STANDARDS
 
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs
 
In May 2011, the FASB issued Accounting Standard Update 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This update amends ASC 820, “Fair Value Measurement” to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. In addition, the update explains how to measure fair value, but does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting. This update is effective for interim reporting periods ending after December 15, 2011, which is the third quarter of fiscal 2012 for Sysco. The amendments in this update are to be applied prospectively and early application of this standard is not permitted. Sysco is currently evaluating the impact the adoption of ASU 2011-04 will have on its consolidated financial statements.
 
Presentation of Comprehensive Income
 
In June 2011, the FASB issued Accounting Standard Update 2011-05, “Presentation of Comprehensive Income.” This update amends ASC 220, “Comprehensive Income” to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, which will be fiscal 2013 for Sysco. The amendments in this update should be applied retrospectively and early application is permitted. Sysco is currently evaluating which presentation option it will utilize for comprehensive income in its consolidated financial statements.
 
4.  FAIR VALUE MEASUREMENTS
 
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). The accounting guidance includes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows:
 
  •   Level 1 — Unadjusted quoted prices for identical assets or liabilities in active markets;
 
  •   Level 2 — Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability; and
 
  •   Level 3 — Unobservable inputs for the asset or liability, which include 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 July 3, 2010, the difference between the fair value of the short-term investments and the original cost was not material. There were no short-term investments as of July 2, 2011. Restricted cash consists of investments in high-quality money market funds.
 
The following is a description of the valuation methodologies used for assets and liabilities measured at fair value.
 
  •   Time deposits, certificates of deposit and commercial paper included in cash equivalents are valued at amortized cost, which approximates fair value. These are included within cash equivalents as a Level 2 measurement in the tables below.

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  •   Commercial paper included in short-term investments is valued using broker quotes that utilize observable market inputs. These are included as a Level 2 measurement in the tables below.
 
  •   Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. These are included within cash equivalents and restricted cash as Level 1 measurements in the tables below.
 
  •   The interest rate swap agreements, discussed further in Note 8, “Derivative Financial Instruments,” are valued using a swap valuation model that utilizes an income approach using observable market inputs including interest rates, LIBOR swap rates and credit default swap rates. These are included as a Level 2 measurement in the tables below.
 
The following tables present the company’s assets measured at fair value on a recurring basis as of July 2, 2011 and July 3, 2010:
 
                                 
    Assets Measured at Fair Value as of July 2, 2011  
    Level 1     Level 2     Level 3     Total  
    (In thousands)  
 
Assets:
                               
Cash and cash equivalents
                               
Cash equivalents
  $     141,350     $     163,465     $     —     $     304,815  
Restricted cash
    110,516                   110,516  
Other assets
                               
Interest rate swap agreements
          13,482             13,482  
                                 
Total assets at fair value
  $ 251,866     $ 176,947     $     $ 428,813  
                                 
 
                                 
    Assets Measured at Fair Value as of July 3, 2010  
    Level 1     Level 2     Level 3     Total  
    (In thousands)  
 
Assets:
                               
Cash and cash equivalents
                               
Cash equivalents
  $     225,400     $     199,047     $     —     $     424,447  
Short-term investments
          23,511             23,511  
Restricted cash
    124,488                   124,488  
Other assets
                               
Interest rate swap agreements
          11,045             11,045  
                                 
Total assets at fair value
  $ 349,888     $ 233,603     $     $ 583,491  
                                 
 
The carrying values of accounts receivable and accounts payable approximated their respective fair values due to the short-term maturities of these instruments. The fair value of 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 $2,919.4 million and $2,774.9 million as of July 2, 2011 and July 3, 2010, respectively. The carrying value of total debt was $2,668.5 million and $2,480.6 million as of July 2, 2011 and July 3, 2010, respectively.
 
5.  ALLOWANCE FOR DOUBTFUL ACCOUNTS
 
A summary of the activity in the allowance for doubtful accounts appears below:
 
                         
    2011     2010     2009  
    (In thousands)  
 
Balance at beginning of period
  $     36,573     $     36,078     $     31,730  
Charged to costs and expenses
    42,623       34,931       74,638  
Allowance accounts resulting from acquisitions and other adjustments
    1,063       (139 )     1,587  
Customer accounts written off, net of recoveries
    (37,823 )     (34,297 )     (71,877 )
                         
Balance at end of period
  $ 42,436     $ 36,573     $ 36,078  
                         
 
6.  PLANT AND EQUIPMENT
 
A summary of plant and equipment, including the related accumulated depreciation, appears below:
 
                         
    July 2,
    July 3,
    Estimated Useful
 
    2011     2010     Lives  
    (In thousands)  
 
Plant and equipment, at cost:
                       
Land
  $ 348,168     $ 322,626          
Buildings and improvements
    3,227,340       2,982,524       10-30 years  
Fleet and equipment
    2,275,007       2,153,531       3-10 years  
Computer hardware and software
    897,712       701,305       3-7 years  
                         
      6,748,227       6,159,986          
Accumulated depreciation
    (3,235,838 )     (2,956,163 )        
                         
Net plant and equipment
  $     3,512,389     $     3,203,823          
                         

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The capitalized direct costs for the internal use software portion of the company’s Business Transformation Project are included within “computer hardware and software” in the table above in the amount of $356.2 million and $181.5 million as of July 2, 2011 and July 3, 2010, respectively.
 
Depreciation expense, including capital leases, for the past three years was $374.0 million in 2011, $361.7 million in 2010 and $361.1 million in 2009.
 
7.  GOODWILL AND OTHER INTANGIBLES
 
The changes in the carrying amount of goodwill and the amount allocated by reportable segment for the years presented are as follows:
 
                                 
    Broadline     SYGMA     Other     Total  
    (In thousands)  
 
Carrying amount as of June 27, 2009
  $   1,087,467     $   32,609     $   390,719     $   1,510,795  
Goodwill acquired during year
    18,350             6,829       25,179  
Currency translation/Other
    15,651             (1,810 )     13,841  
                                 
Carrying amount as of July 3, 2010
    1,121,468       32,609       395,738       1,549,815  
Goodwill acquired during year
    44,047                   44,047  
Currency translation/Other
    39,442             (15 )     39,427  
                                 
Carrying amount as of July 2, 2011
  $ 1,204,957     $ 32,609     $ 395,723     $ 1,633,289  
                                 
 
Amortized intangible assets acquired during fiscal 2011 were $19.2 million with a weighted-average amortization period of eight years. By intangible asset category, the amortized intangible assets acquired during fiscal 2011 were customer relationships of $15.6 million with a weighted-average amortization period of eight years, non-compete agreements of $3.1 million with a weighted-average amortization period of five years and amortized trademarks of $0.5 million with a weighted-average amortization period of five years. The following table presents details of the company’s amortized intangible assets:
 
                                                 
    July 2, 2011     July 3, 2010  
    Gross Carrying
    Accumulated
          Gross Carrying
    Accumulated
       
    Amount     Amortization     Net     Amount     Amortization     Net  
    (In thousands)  
 
Amortized intangible assets:
                                               
Customer relationships
  $   190,112     $   (97,846 )   $   92,266     $   169,913     $   (77,394 )   $   92,519  
Non-compete agreements
    4,574       (1,269 )     3,305       2,320       (1,306 )     1,014  
Trademarks
    1,623       (282 )     1,341       1,038       (136 )     902  
                                                 
Total amortized intangible assets
  $ 196,309     $ (99,397 )   $ 96,912     $ 173,271     $ (78,836 )   $ 94,435  
                                                 
 
Intangible assets that have been fully amortized have been removed in the schedule above in the period full amortization is reached. Indefinite-lived intangible assets consisted of trademarks of $13.0 million and $12.0 million as of July 2, 2011 and July 3, 2010, respectively.
 
Amortization expense for the past three years was $21.9 million in 2011, $20.9 million in 2010 and $15.7 million in 2009. The estimated future amortization expense for the next five fiscal years on intangible assets outstanding as of July 2, 2011 is shown below:
 
         
    Amount
    (In thousands)
 
2012
  $ 22,513  
2013
    20,518  
2014
    19,126  
2015
    14,501  
2016
    7,668  
 
8.  DERIVATIVE FINANCIAL INSTRUMENTS
 
Sysco manages its debt portfolio to achieve an overall desired position of fixed and floating rates and may employ interest rate swaps from time to time to achieve this position. The company does not use derivative financial instruments for trading or speculative purposes.
 
In September 2009, the company entered into an interest rate swap agreement that effectively converted $200.0 million of fixed rate debt maturing in fiscal 2014 to floating rate debt. In October 2009, the company entered into an interest rate swap agreement that effectively converted $250.0 million of fixed rate debt maturing in fiscal 2013 to floating rate debt. Both transactions were entered into with the goal of reducing overall borrowing cost and increasing floating interest rate exposure. These transactions were designated as fair value hedges since the swaps hedge against the changes in fair value of fixed rate debt resulting from changes in interest rates.
 
The location and the fair value of derivative instruments in the consolidated balance sheet as of each fiscal year-end are as follows:
 
                                 
    Asset Derivatives     Liability Derivatives  
    Balance Sheet
          Balance Sheet
       
    Location     Fair Value     Location     Fair Value  
    (In thousands)  
 
Fair Value Hedge Relationships:
                               
Interest rate swap agreements
                               
July 2, 2011
    Other assets     $     13,482       N/A       N/A  
July 3, 2010
    Other assets     $ 11,045       N/A       N/A  

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The location and effect of derivative instruments and related hedged items on the consolidated results of operations for each fiscal year presented on a pre-tax basis are as follows:
 
                                 
          Amount of (Gain) or Loss
 
    Location of (Gain)
    Recognized in Income  
    or Loss Recognized
          2010
       
    in Income     2011     (53 Weeks)     2009  
    (In thousands)  
 
Fair Value Hedge Relationships:
                               
Interest rate swap agreements
    Interest expense     $     (9,026 )   $     (10,557 )     N/A  
 
Hedge ineffectiveness represents the difference between the changes in the fair value of the derivative instruments and the changes in fair value of the fixed rate debt attributable to changes in the benchmark interest rate. Hedge ineffectiveness is recorded directly in earnings within interest expense and was immaterial for fiscal 2011 and fiscal 2010. The interest rate swaps do not contain a credit-risk-related contingent feature.
 
9.  SELF-INSURED LIABILITIES
 
Sysco maintains a self-insurance program covering portions of workers’ compensation, general and vehicle liability and property insurance costs. The amounts in excess of the self-insured levels are fully insured by third party insurers. The company also maintains a fully self-insured group medical program. A summary of the activity in self-insured liabilities appears below:
 
                         
    2011     2010     2009  
    (In thousands)  
 
Balance at beginning of period
  $     128,997     $     132,551     $     117,725  
Charged to costs and expenses
    325,540       321,373       328,830  
Payments
    (324,866 )     (324,927 )     (314,004 )
                         
Balance at end of period
  $ 129,671     $ 128,997     $ 132,551  
                         
 
10.  DEBT AND OTHER FINANCING ARRANGEMENTS
 
Sysco’s debt consists of the following:
 
                 
    July 2, 2011     July 3, 2010  
    (In thousands)  
 
Short-term bank borrowings, interest at 2.0% as of July 2, 2011
  $ 181,975     $  
Senior notes, interest at 6.1%, maturing in fiscal 2012
    200,092       200,186  
Senior notes, interest at 4.2%, maturing in fiscal 2013
    253,316       252,801  
Senior notes, interest at 4.6%, maturing in fiscal 2014
    208,779       208,249  
Senior notes, interest at 5.25%, maturing in fiscal 2018
    497,724       497,379  
Senior notes, interest at 5.375%, maturing in fiscal 2019
    248,693       248,524  
Debentures, interest at 7.16%, maturing in fiscal 2027
    50,000       50,000  
Debentures, interest at 6.5%, maturing in fiscal 2029
    224,593       224,570  
Senior notes, interest at 5.375%, maturing in fiscal 2036
    499,639       499,625  
Senior notes, interest at 6.625%, maturing in fiscal 2039
    245,524       245,364  
Industrial Revenue Bonds and other debt, interest averaging 5.9% as of July 2, 2011 and 5.7% as of July 3, 2010, maturing at various dates to fiscal 2026
    58,188       53,934  
                 
Total debt
    2,668,523       2,480,632  
Less current maturities of long-term debt
    (207,031 )     (7,970 )
Less short-term bank borrowings
    (181,975 )      
                 
Net long-term debt
  $ 2,279,517     $ 2,472,662  
                 
 
The principal payments required to be made during the next five fiscal years on debt outstanding as of July 2, 2011 are shown below:
 
         
    Amount  
    (In thousands)  
 
2012
  $     207,031  
2013
    258,171  
2014
    211,908  
2015
    3,481  
2016
    1,896  
 
Short-term Borrowings
 
As of July 2, 2011, Sysco had uncommitted bank lines of credit, which provided for unsecured borrowings for working capital of up to $95.0 million. As of July 3, 2010, Sysco had uncommitted bank lines of credit, which provided for unsecured borrowings for working capital of up to $88.0 million. There were no borrowings outstanding under these lines of credit as of July 2, 2011 or July 3, 2010, respectively.
 
As of July 2, 2011 and July 3, 2010, the company’s Irish subsidiary, Pallas Foods Limited, had a €10.0 million (Euro) committed facility for unsecured borrowings for working capital. There were no borrowings outstanding under this facility as of July 2, 2011 or July 3, 2010.
 
On June 30, 2011, a Canadian subsidiary of Sysco entered into a short-term demand loan facility for the purpose of facilitating a distribution from the Canadian subsidiary to Sysco, and Sysco concurrently entered into an agreement with the bank to guarantee the loan. As of July 2, 2011,

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the amount outstanding under the facility was $182.0 million. The interest rate under the facility was 2.0% and payable on the due date. The loan was repaid in full on July 4, 2011.
 
Commercial Paper and Revolving Credit Facility
 
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.
 
During fiscal 2011, 2010 and 2009, aggregate outstanding commercial paper issuances and short-term bank borrowings ranged from approximately zero to $330.3 million, zero to $1.8 million, and zero to $165.0 million, respectively. There were no commercial paper issuances outsta