UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-6544

 

Sysco Corporation

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization) 1390 Enclave Parkway Houston, Texas (Address of principal executive offices)		74-1648137 (IRS employer identification number) 77077-2099 (Zip Code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer þ		Accelerated Filer o		Non-accelerated Filer o		Smaller Reporting Company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

586,032,473 shares of common stock were outstanding as of October 29, 2011.

 

 

TABLE OF CONTENTS

		Page No.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements			1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			34
Item 4. Controls and Procedures			35
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			36
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 3. Defaults Upon Senior Securities			36
Item 5. Other Information			36
Item 6. Exhibits			36
Signatures			37
EX-10.1
EX-10.2
EX-15.1
EX-15.2
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

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except for Share Data)

		October 1, 2011				July 2, 2011				October 2, 2010
		(unaudited)								(unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	284,101			$	639,765			$	448,374
Accounts and notes receivable, less allowances of $53,796, $42,436 and $49,376			3,061,145				2,898,283				2,814,958
Inventories			2,137,451				2,073,766				1,875,242
Deferred income taxes			135,962				—				74,419
Prepaid expenses and other current assets			77,575				72,496				76,418
Prepaid income taxes			—				48,572				—
Total current assets			5,696,234				5,732,882				5,289,411
Plant and equipment at cost, less depreciation			3,615,361				3,512,389				3,277,583
Other assets
Goodwill			1,621,257				1,633,289				1,577,691
Intangibles, less amortization			108,610				109,938				110,974
Restricted cash			123,773				110,516				129,532
Other assets			281,628				286,541				270,219
Total other assets			2,135,268				2,140,284				2,088,416
Total assets		$	11,446,863			$	11,385,555			$	10,655,410
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Notes payable		$	5,350			$	181,975			$	—
Accounts payable			2,164,695				2,183,417				1,998,982
Accrued expenses			817,703				856,569				751,640
Accrued income taxes			384,613				—				337,001
Deferred income taxes			—				146,083				50,561
Current maturities of long-term debt			206,329				207,031				7,837
Total current liabilities			3,578,690				3,575,075				3,146,021
Other liabilities
Long-term debt			2,384,986				2,279,517				2,486,646
Deferred income taxes			212,583				204,223				282,836
Other long-term liabilities			616,349				621,498				758,912
Total other liabilities			3,213,918				3,105,238				3,528,394
Commitments and contingencies
Shareholders’ equity
Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none			—				—				—
Common stock, par value $1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares			765,175				765,175				765,175
Paid-in capital			891,645				887,754				825,930
Retained earnings			7,831,330				7,681,669				7,286,409
Accumulated other comprehensive loss			(352,107	)			(259,958	)			(415,765	)
Treasury stock at cost, 177,669,492, 173,597,346 and 178,993,904 shares			(4,481,788	)			(4,369,398	)			(4,480,754	)
Total shareholders’ equity			4,654,255				4,705,242				3,980,995
Total liabilities and shareholders’ equity		$	11,446,863			$	11,385,555			$	10,655,410

Note: The July 2, 2011 balance sheet has been derived from the audited financial statements at that date.

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In Thousands, Except for Share and Per Share Data)

		13-Week Period Ended
		October 1, 2011				October 2, 2010
Sales		$	10,586,390			$	9,751,274
Cost of sales			8,638,790				7,905,170
Gross profit			1,947,600				1,846,104
Operating expenses			1,438,260				1,339,864
Operating income			509,340				506,240
Interest expense			29,474				31,101
Other expense (income), net			250				(1,684	)
Earnings before income taxes			479,616				476,823
Income taxes			176,963				177,754
Net earnings		$	302,653			$	299,069
Net earnings:
Basic earnings per share		$	0.51			$	0.51
Diluted earnings per share			0.51				0.51
Average shares outstanding			592,003,631				588,711,412
Diluted shares outstanding			593,449,101				591,103,346
Dividends declared per common share		$	0.26			$	0.25

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In Thousands)

		13-Week Period Ended
		October 1, 2011				October 2, 2010
Net earnings		$	302,653			$	299,069
Other comprehensive (loss) income:
Foreign currency translation adjustment			(102,267	)			51,465
Items presented net of tax:
Amortization of cash flow hedge			107				107
Amortization of unrecognized prior service cost			773				638
Amortization of unrecognized actuarial loss, net			9,215				12,253
Amortization of unrecognized transition obligation			23				23
Total other comprehensive (loss) income			(92,149	)			64,486
Comprehensive income		$	210,504			$	363,555

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In Thousands)

		13-Week Period Ended
		October 1, 2011				October 2, 2010
Cash flows from operating activities:
Net earnings		$	302,653			$	299,069
Adjustments to reconcile net earnings to cash provided by operating activities:
Share-based compensation expense			9,842				10,148
Depreciation and amortization			99,641				101,714
Deferred income taxes			(290,671	)			(198,900	)
Provision for losses on receivables			7,075				5,670
Other non-cash items			226				1,973
Additional investment in certain assets and liabilities, net of effect of businesses acquired:
(Increase) in receivables			(195,451	)			(178,499	)
(Increase) in inventories			(82,322	)			(85,649	)
(Increase) in prepaid expenses and other current assets			(6,347	)			(4,958	)
(Decrease) increase in accounts payable			(784	)			25,468
(Decrease) in accrued expenses			(40,867	)			(124,601	)
Increase in accrued income taxes			444,905				342,129
(Increase) in other assets			(3,448	)			(13,539	)
Increase in other long-term liabilities			10,895				47,034
Excess tax benefits from share-based compensation arrangements			(4	)			(277	)
Net cash provided by operating activities			255,343				226,782
Cash flows from investing activities:
Additions to plant and equipment			(226,547	)			(142,924	)
Proceeds from sales of plant and equipment			2,092				354
Acquisition of businesses, net of cash acquired			(36,118	)			(23,891	)
Maturities of short-term investments			—				24,075
(Increase) in restricted cash			(13,257	)			(5,044	)
Net cash used for investing activities			(273,830	)			(147,430	)
Cash flows from financing activities:
Bank and commercial paper borrowings (repayments), net			(68,625	)			—
Other debt borrowings			984				626
Other debt repayments			(2,165	)			(2,273	)
Proceeds from common stock reissued from treasury for share-based compensation awards			31,216				40,834
Treasury stock purchases			(133,370	)			(116,699	)
Dividends paid			(153,790	)			(146,868	)
Excess tax benefits from share-based compensation arrangements			4				277
Net cash used for financing activities			(325,746	)			(224,103	)
Effect of exchange rates on cash			(11,431	)			7,682
Net (decrease) in cash and cash equivalents			(355,664	)			(137,069	)
Cash and cash equivalents at beginning of period			639,765				585,443
Cash and cash equivalents at end of period		$	284,101			$	448,374
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$	52,765			$	54,302
Income taxes			21,913				35,180

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

     Unless this Form 10-Q indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Sysco,” or “the company” as used in this Form 10-Q refer to Sysco Corporation together with its consolidated subsidiaries and divisions.

1. BASIS OF PRESENTATION

     The consolidated financial statements have been prepared by the company, without audit, with the exception of the July 2, 2011 consolidated balance sheet which was taken from the audited financial statements included in the company’s Fiscal 2011 Annual Report on Form 10-K. The financial statements include consolidated balance sheets, consolidated results of operations, consolidated statements of comprehensive income and consolidated cash flows. In the opinion of management, all adjustments, which consist of normal recurring adjustments, necessary to present fairly the financial position, results of operations, comprehensive income and cash flows for all periods presented have been made.

     Prior year amounts within the consolidated results of operations have been reclassified to conform to the current year presentation as it relates to the classification of certain items in cost of sales and operating expenses within these statements.

     These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the company’s Fiscal 2011 Annual Report on Form 10-K. As discussed in footnote 12, Sysco’s management changed the way it evaluates the performance of its operating segment results beginning in fiscal 2012. As a result, fiscal 2011 information within Note 12, Note 13 and Note 14 has been revised to show the new basis of operating segment results. As a result of the new segment performance basis of reporting and the change in income statement presentation noted above, Sysco intends to revise applicable sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations and Financial Statements and Supplementary Data included in the company’s Annual Report on Form 10-K for the fiscal year ended July 2, 2011. These revised sections will be filed on a Current Report on Form 8-K on the same day this Form 10-Q is filed.

     A review of the financial information herein has been made by Ernst & Young LLP, independent auditors, in accordance with established professional standards and procedures for such a review. A report from Ernst & Young LLP concerning their review is included as Exhibit 15.1 to this Form 10-Q.

2. NEW ACCOUNTING STANDARDS

Testing Goodwill for Impairment

     In September 2011, the FASB issued Accounting Standard Update 2011-08, “Testing Goodwill for Impairment.” This update amends Accounting Standards Codification (ASC) 350, “Intangibles—Goodwill and Other” to allow entities an option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under that option, an entity no longer would be required to calculate the fair value of a reporting unit unless the entity determines, based on that qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments in this update are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. Sysco is currently evaluating the impact this update may have on its goodwill impairment testing.

Disclosures About an Employer’s Participation in a Multiemployer Plan

     In September 2011, the FASB issued Accounting Standard Update 2011-09, “Disclosures about an Employer’s Participation in a Multiemployer Plan.” This update amends ASC 715-80, “Compensation—Retirement Benefits—Multiemployer Plans” to require additional disclosures about an employer’s participation in a multiemployer pension plan including additional information about the plans, the level of an employer’s participation in the plans and the financial health of significant plans. This update does not change the accounting for multiemployer pension plans. The amendments in this update are effective for fiscal years ending after December 15, 2011. Sysco is currently evaluating the impact this update will have on its annual disclosures.

3. 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. 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.
•		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 4, “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 and liabilities measured at fair value on a recurring basis as of October 1, 2011, July 2, 2011 and October 2, 2010:

		Assets Measured at Fair Value as of October 1, 2011
		Level 1				Level 2				Level 3				Total
						(In thousands)
Assets:
Cash and cash equivalents
Cash equivalents		$	—			$	83,808			$	—			$	83,808
Restricted cash			123,773				—				—				123,773
Other assets
Interest rate swap agreements			—				13,246				—				13,246
Total assets at fair value		$	123,773			$	97,054			$	—			$	220,827

		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 October 2, 2010
		Level 1				Level 2				Level 3				Total
						(In thousands)
Assets:
Cash and cash equivalents
Cash equivalents		$	35,280			$	251,269			$	—			$	286,549
Restricted cash			129,532				—				—				129,532
Other assets
Interest rate swap agreements			—				17,484				—				17,484
Total assets at fair value		$	164,812			$	268,753			$	—			$	433,565

     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 $3,015.6 million, $2,919.4 million and $2,853.9 million as of October 1, 2011, July 2, 2011 and October 2, 2010, respectively. The carrying value of total debt was $2,596.7 million, $2,668.5 million and $2,494.5 million as of October 1, 2011, July 2, 2011 and October 2, 2010, respectively.

4. 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 fiscal 2010, the company entered into two interest rate swap agreements that effectively converted $250.0 million of fixed rate debt maturing in fiscal 2013 and $200.0 million of fixed rate debt maturing in fiscal 2014 to floating rate debt. These 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 October 1, 2011, July 2, 2011 and October 2, 2010 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

October 1, 2011

Other assets

$

13,246

N/A

N/A

July 2, 2011

Other assets

13,482

N/A

N/A

October 2, 2010

Other assets

17,484

N/A

N/A

     The location and effect of derivative instruments and related hedged items on the consolidated results of operations for the 13-week periods ended October 1, 2011 and October 2, 2010 presented on a pre-tax basis are as follows:

Location of (Gain)

or Loss Recognized

Amount of (Gain) or Loss

in Income

Recognized in Income

13-Week Period Ended

October 1, 2011

October 2, 2010

(In thousands)

Fair Value Hedge Relationships:

Interest rate swap agreements

Interest expense

$

(487

)

$

(500

)

     Hedge ineffectiveness represents the difference between the changes in the fair value of the derivative instruments and the changes in fair value of the fixed rate debt attributable to changes in the benchmark interest rate. Hedge ineffectiveness is recorded directly in earnings within interest expense and was immaterial for the 13-week periods ended October 1, 2011 and October 2, 2010. The interest rate swaps do not contain credit-risk-related contingent features.

5. DEBT

     As of October 1, 2011, Sysco had uncommitted bank lines of credit which provided for unsecured borrowings for working capital of up to $95.0 million, of which $5.4 million was outstanding.

     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, 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.

     Sysco and one of its subsidiaries, Sysco International, ULC, have a revolving credit facility supporting the company’s U.S. and Canadian commercial paper programs. The facility in the amount of $1,000.0 million expires on November 4, 2012, but is subject to extension.

     As of October 1, 2011, commercial paper issuances outstanding were $108.0 million and were classified as long-term debt since the company’s commercial paper programs are supported by the long-term revolving credit facility described above. During the 13-week period ended October 1, 2011, aggregate commercial paper issuances and short-term bank borrowings ranged from zero to approximately $401.8 million.

6. EMPLOYEE BENEFIT PLANS

     The components of net company-sponsored benefit cost for the 13-week period presented are as follows:

		Pension Benefits								Other Postretirement Plans
		October 1, 2011				October 2, 2010				October 1, 2011				October 2, 2010
						(In thousands)
Service cost		$	27,055			$	24,861			$	114			$	99
Interest cost			36,879				33,744				158				131
Expected return on plan assets			(40,401	)			(32,980	)			—				—
Amortization of prior service cost			1,201				989				54				47
Recognized net actuarial loss (gain)			15,041				19,988				(83	)			(97	)
Amortization of transition obligation			—				—				38				38
Net periodic benefit cost		$	39,775			$	46,602			$	281			$	218

     Sysco’s contributions to its company-sponsored defined benefit plans were $5.7 million and $5.0 million during the 13-week periods ended October 1, 2011 and October 2, 2010, respectively.

     The company made contributions of $140.0 million to its company-sponsored qualified pension plan (Retirement Plan) in fiscal 2011 that would normally have been made in fiscal 2012. Additional contributions to the Retirement Plan are not currently anticipated in fiscal 2012; however, management will evaluate the funding position at the end of fiscal 2012 and select the timing for a contribution at that time. The company’s contributions to the Supplemental Executive Retirement Plan (SERP) and other post-retirement plans are made in the amounts needed to fund current year benefit payments. The estimated fiscal 2012 contributions to fund benefit payments for the SERP and other post-retirement plans are $23.1 million and $0.3 million, respectively.

7. EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted earnings per share:

		13-Week Period Ended
		October 1, 2011				October 2, 2010
		(In thousands, except for share and per share data)
Numerator:
Net earnings		$	302,653			$	299,069
Denominator:
Weighted-average basic shares outstanding			592,003,631				588,711,412
Dilutive effect of share-based awards			1,445,470				2,391,934
Weighted-average diluted shares outstanding			593,449,101				591,103,346
Basic earnings per share:		$	0.51			$	0.51
Diluted earnings per share:		$	0.51			$	0.51

     The number of options that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately 50,000,000 and 47,800,000 for the first quarter of fiscal 2012 and 2011, respectively.

8. SHARE-BASED COMPENSATION

     Sysco provides compensation benefits to employees and non-employee directors under several share-based payment arrangements including various employee stock incentive plans, the Employees’ Stock Purchase Plan, and various non-employee director plans.

Stock Incentive Plans

     There were no share-based award grants to employees or non-employee directors during the first quarter of fiscal 2012.

Employees’ Stock Purchase Plan

     Plan participants purchased 377,730 shares of Sysco common stock under the Sysco Employees’ Stock Purchase Plan during the first quarter of fiscal 2012.

     The weighted average fair value per share of employee stock purchase rights issued pursuant to the Employees’ Stock Purchase Plan was $4.68 during the first quarter of fiscal 2012. The fair value of the stock purchase rights is estimated as the difference between the stock price and the employee purchase price.

All Share-Based Payment Arrangements

     The total share-based compensation cost that has been recognized in results of operations was $9.8 million and $10.1 million for the first quarter of fiscal 2012 and fiscal 2011, respectively.

     As of October 1, 2011, there was $52.7 million of total unrecognized compensation cost related to share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of 2.50 years.

9. INCOME TAXES

Internal Revenue Service Settlement

     In the first quarter of fiscal 2010, Sysco reached a settlement with the Internal Revenue Service (IRS) in connection with its audits of the company’s 2003 through 2006 federal income tax returns. As a result of the settlement, Sysco agreed to cease paying U.S. federal taxes related to its affiliate Baugh Supply Chain Cooperative (BSCC) on a deferred basis and pay the amounts that were recorded within deferred taxes related to BSCC over a three-year period as follows:

		(In thousands)
Fiscal 2010		$	528,000
Fiscal 2011			212,000
Fiscal 2012			212,000

     As noted in the table above, payments related to the settlement were $212.0 million in fiscal 2011, none of which had been paid in the first quarter of fiscal 2011. Amounts to be paid in fiscal 2012 will occur in connection with Sysco’s quarterly tax payments, two of which fall in the second quarter, one in the third quarter and one in the fourth quarter. The company believes it has access to sufficient cash on hand, cash flow from operations and current access to capital to make payments on all of the amounts noted above.

     Sysco’s deferred taxes were impacted by the timing of these installment payments. Sysco reclassified amounts due within one year from deferred taxes to accrued income taxes at the beginning of each year in which settlement payments were to be made.

Uncertain Tax Positions

     As of October 1, 2011, the gross amount of unrecognized tax benefits was $72.9 million and the gross amount of accrued interest liabilities was $34.5 million. It is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months either because Sysco prevails on positions that were being challenged upon audit or because the company agrees to their disallowance. Items that may cause changes to unrecognized tax benefits primarily include the consideration of various filing requirements in numerous states and the allocation of income and expense between tax jurisdictions. At this time, an estimate of the range of the reasonably possible change cannot be made.

Effective Tax Rates

     The effective tax rate of 36.90% for the first quarter of fiscal 2012 was favorably impacted by a decrease in a tax provision for a foreign tax liability of approximately $3.6 million resulting from changes in exchange rates. Lower foreign statutory tax rates also had the impact of reducing the effective tax rate.

     The effective tax rate of 37.28% for the first quarter of fiscal 2011 was favorably impacted by the adjustment of the carrying values of the company’s corporate-owned life insurance policies to their cash surrender values. The gain of $13.5 million recorded in the first quarter of fiscal 2011 was non-taxable for income tax purposes, and had the impact of decreasing income tax expense for the period by $5.2 million.

Other

     The determination of the company’s provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. The company’s provision for income taxes reflects a combination of income earned and taxed in the various U.S. federal and state, as well as foreign, jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for tax contingencies or valuation allowances, and the company’s change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.

10. ACQUISITIONS

     During the first quarter of fiscal 2012, in the aggregate, the company paid cash of $36.1 million for acquisitions made during fiscal 2012. Acquisitions in the first quarter of fiscal 2012 were immaterial to the consolidated financial statements.

     Certain acquisitions involve contingent consideration typically payable over periods up to five years only in the event that certain operating results are attained or certain outstanding contingencies are resolved. As of October 1, 2011, aggregate contingent consideration amounts outstanding relating to acquisitions was $64.5 million, of which $46.0 million could result in the recording of additional goodwill.

11. COMMITMENTS AND CONTINGENCIES

     Sysco is engaged in various legal proceedings which have arisen but have not been fully adjudicated. Management does not believe these proceedings will have a material adverse effect upon the consolidated financial position or results of operations of the company. However, the final results of legal proceedings cannot be predicted with certainty and if the company failed to prevail in one or more of these legal matters, the company’s consolidated financial position or results of operations could be materially adversely affected in future periods.

Multiemployer Pension Plans

     Sysco contributes to several multiemployer defined benefit pension plans based on obligations arising under collective bargaining agreements covering union-represented employees. Sysco does not directly manage these multiemployer plans, which are generally managed by boards of trustees, half of whom are appointed by the unions and the other half by other employers contributing to the plan. Based upon the information available from plan administrators, management believes that several of these multiemployer plans are underfunded. In addition, pension-related legislation requires underfunded pension plans to improve their funding ratios within prescribed intervals based on the level of their underfunding. As a result, Sysco expects its contributions to these plans to increase in the future.

     Under current law regarding multiemployer defined benefit plans, a plan’s termination, Sysco’s voluntary withdrawal, or the mass withdrawal of all contributing employers from any underfunded multiemployer defined benefit plan would require Sysco to make payments to the plan for Sysco’s proportionate share of the multiemployer 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 it participates. Based on the information available from plan administrators, which has valuation dates ranging from January 31, 2009 to December 31, 2010, Sysco estimates its share of withdrawal liability on most of the multiemployer plans in which it participates could have been as much as $210.0 million as of October 1, 2011, based on a voluntary withdrawal. This estimate excludes plans for which Sysco has recorded withdrawal liabilities. The majority of the plans Sysco participates in have a valuation date of calendar year-end. As such, the majority of the estimated withdrawal liability results from plans for which the valuation date was December 31, 2009; therefore, the company’s estimated liability reflects the condition of the financial markets as of that date. Due to the lack of current information, management believes Sysco’s current share of the withdrawal liability could materially differ from this estimate. In addition, if a multiemployer defined benefit plan fails to satisfy certain minimum funding requirements, the IRS may impose a nondeductible excise tax of 5% on the amount of the accumulated funding deficiency for those employers contributing to the fund.

     As of October 1, 2011, Sysco had approximately $46.9 million in liabilities recorded related to certain multiemployer defined benefit plans for which Sysco’s voluntary withdrawal had already occurred. Recorded withdrawal liabilities are estimated at the time of withdrawal based on the most recently available valuation and participant data for the respective plans; amounts are adjusted in 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, Sysco could have additional liability. The company does not currently believe any mass withdrawals are probable to occur in the applicable two year time frame relating to the plans from which Sysco has voluntarily withdrawn.

Fuel Commitments

     Sysco routinely enters into forward purchase commitments for a portion of its projected diesel fuel requirements. As of October 1, 2011, outstanding forward diesel fuel purchase commitments totaled approximately $91.7 million at a fixed price through September 2012.

12. BUSINESS SEGMENT INFORMATION

     The company has aggregated its operating companies into a number of segments, of which only Broadline and SYGMA are reportable segments as defined in the accounting literature related to disclosures about segments of an enterprise. The Broadline reportable segment is an aggregation of the company’s United States, Canadian and European Broadline segments. Broadline operating companies distribute a full line of food products and a wide variety of non-food products to their customers. SYGMA operating companies distribute a full line of food products and a wide variety of non-food products to certain chain restaurant customer locations. “Other” financial information is attributable to the company’s other operating segments, including the company’s specialty produce and lodging industry segments and a company that distributes to international customers. The accounting policies for the segments are the same as those disclosed by Sysco for its consolidated financial statements. Intersegment sales represent specialty produce products distributed by the Broadline and SYGMA operating companies.

     Beginning in the first quarter of fiscal 2012, operating segment results no longer include certain centrally incurred costs for corporate overhead and shared services due to a change in how management evaluates the performance of each of the operating segments. Previously, these centrally incurred costs were charged to the segments based upon the relative level of service used by each operating segment. Management now evaluates the performance of each of our operating segments based on its respective operating income results, which excludes the allocation of certain centrally incurred costs. This results in higher operating income at an operating segment level and higher corporate expenses. Segment reporting for the comparable prior year period has been revised to conform to the new basis of determining segment operating income without the allocation of certain centrally incurred costs. Corporate expenses generally include all expenses of the corporate office and Sysco’s shared service center. These also include all share-based compensation costs and expenses related to the company’s Business Transformation Project.

     In addition, beginning in the third quarter of fiscal 2011, the company’s custom-cut meat operations were reorganized to function as part of the United States Broadline segment. As a result, the custom-cut meat operations are included in the Broadline reportable segment in the segment reporting presented below. Previously, these operations were an independent segment and were presented with the “Other” financial information relating to non-reportable segments. Segment reporting for the comparable prior year period has been revised to conform to the new classification of the custom-cut meat operations as part of the Broadline reportable segment.

     The following tables set forth certain financial information for Sysco’s business segments:

		13-Week Period Ended
		October 1, 2011				October 2, 2010
Sales (in thousands):
Broadline		$	8,658,521			$	7,947,673
SYGMA			1,384,469				1,319,496
Other			588,561				525,867
Intersegment sales			(45,161	)			(41,762	)
Total		$	10,586,390			$	9,751,274

		13-Week Period Ended
		October 1, 2011				October 2, 2010
Operating income (in thousands):
Broadline		$	624,115			$	592,544
SYGMA			15,691				14,988
Other			24,485				20,988
Total segments			664,291				628,520
Corporate expenses			(154,951	)			(122,280	)
Total operating income			509,340				506,240
Interest expense			29,474				31,101
Other expense (income), net			250				(1,684	)
Earnings before income taxes		$	479,616			$	476,823

		October 1, 2011				July 2, 2011				October 2, 2010
Assets (in thousands):
Broadline		$	7,482,833			$	7,220,046			$	6,717,731
SYGMA			448,525				456,204				385,487
Other			826,334				814,174				764,659
Total segments			8,757,692				8,490,424				7,867,877
Corporate			2,689,171				2,895,131				2,787,533
Total		$	11,446,863			$	11,385,555			$	10,655,410

13. SUPPLEMENTAL GUARANTOR INFORMATION — PARENT GUARANTEE

     Sysco International, ULC is an unlimited liability company organized under the laws of the Province of British Columbia, Canada and is a wholly-owned subsidiary of Sysco. In May 2002, Sysco International, Co. issued, in a private offering, $200.0 million of 6.10% notes due in 2012. These notes are fully and unconditionally guaranteed by Sysco.

     The following condensed consolidating financial statements present separately the financial position, results of operations and cash flows of the parent guarantor (Sysco), the subsidiary issuer (Sysco International) and all other non-guarantor subsidiaries of Sysco (Other Non-Guarantor Subsidiaries) on a combined basis with eliminating entries.

						Condensed Consolidating Balance Sheet
		October 1, 2011
										Other
						Sysco				Non-Guarantor								Consolidated
		Sysco				International				Subsidiaries				Eliminations				Totals
										(In thousands)
Current assets		$	200,076			$	18			$	5,496,140			$	—			$	5,696,234
Investment in subsidiaries			14,459,412				385,449				51,391				(14,896,252	)			—
Plant and equipment, net			593,156				—				3,022,205				—				3,615,361
Other assets			389,985				224				1,745,059				—				2,135,268
Total assets		$	15,642,629			$	385,691			$	10,314,795			$	(14,896,252	)		$	11,446,863
Current liabilities		$	401,006			$	204,083			$	2,973,601			$	—			$	3,578,690
Intercompany payables (receivables)			7,896,806				(4,891	)			(7,891,915	)			—				—
Long-term debt			2,335,586				—				49,400				—				2,384,986
Other liabilities			504,461				—				324,471				—				828,932
Shareholders’ equity			4,504,770				186,499				14,859,238				(14,896,252	)			4,654,255
Total liabilities and shareholders’ equity		$	15,642,629			$	385,691			$	10,314,795			$	(14,896,252	)		$	11,446,863

		Condensed Consolidating Balance Sheet
		July 2, 2011
										Other
						Sysco				Non-Guarantor								Consolidated
		Sysco				International				Subsidiaries				Eliminations				Totals
										(In thousands)
Current assets		$	354,450			$	34			$	5,378,398			$	—			$	5,732,882
Investment in subsidiaries			14,014,569				371,866				128,461				(14,514,896	)			—
Plant and equipment, net			569,567				—				2,942,822				—				3,512,389
Other assets			378,317				329				1,761,638				—				2,140,284
Total assets		$	15,316,903			$	372,229			$	10,211,319			$	(14,514,896	)		$	11,385,555
Current liabilities		$	430,300			$	201,016			$	2,943,759			$	—			$	3,575,075
Intercompany payables (receivables)			7,800,254				9,301				(7,809,555	)			—				—
Long-term debt			2,227,483				—				52,034				—				2,279,517
Other liabilities			405,376				—				420,345				—				825,721
Shareholders’ equity			4,453,490				161,912				14,604,736				(14,514,896	)			4,705,242
Total liabilities and shareholders’ equity		$	15,316,903			$	372,229			$	10,211,319			$	(14,514,896	)		$	11,385,555

		Condensed Consolidating Balance Sheet
		October 2, 2010
										Other
						Sysco				Non-Guarantor								Consolidated
		Sysco				International				Subsidiaries				Eliminations				Totals
										(In thousands)
Current assets		$	219,678			$	21			$	5,069,712			$	—			$	5,289,411
Investment in subsidiaries			15,670,458				493,563				130,477				(16,294,498	)			—
Plant and equipment, net			471,947				—				2,805,636				—				3,277,583
Other assets			386,531				543				1,701,342				—				2,088,416
Total assets		$	16,748,614			$	494,127			$	9,707,167			$	(16,294,498	)		$	10,655,410
Current liabilities		$	369,160			$	4,165			$	2,772,696			$	—			$	3,146,021
Intercompany payables (receivables)			9,832,833				84,075				(9,916,908	)			—				—
Long-term debt			2,233,383				199,897				53,366				—				2,486,646
Other liabilities			513,242				—				528,506				—				1,041,748
Shareholders’ equity			3,799,996				205,990				16,269,507				(16,294,498	)			3,980,995
Total liabilities and shareholders’ equity		$	16,748,614			$	494,127			$	9,707,167			$	(16,294,498	)		$	10,655,410

		For the 13-Week Period Ended October 1, 2011
										Other
						Sysco				Non-Guarantor								Consolidated
		Sysco				International				Subsidiaries				Eliminations				Totals
										(In thousands)
Sales		$	—			$	—			$	10,586,390			$	—			$	10,586,390
Cost of sales			—				—				8,638,790				—				8,638,790
Gross profit			—				—				1,947,600				—				1,947,600
Operating expenses			116,963				34				1,321,263				—				1,438,260
Operating income (loss)			(116,963	)			(34	)			626,337				—				509,340
Interest expense (income)			96,278				2,736				(69,540	)			—				29,474
Other expense (income), net			(1,315	)			—				1,565				—				250
Earnings (losses) before income taxes			(211,926	)			(2,770	)			694,312				—				479,616
Income tax (benefit) provision			(78,193	)			(1,022	)			256,178				—				176,963
Equity in earnings of subsidiaries			436,386				26,335				—				(462,721	)			—
Net earnings		$	302,653			$	24,587			$	438,134			$	(462,721	)		$	302,653

		Condensed Consolidating Results of Operations
		For the 13-Week Period Ended October 2, 2010
										Other
										Non-Guarantor
		Sysco				Sysco International				Subsidiaries				Eliminations				Consolidated Totals
										(In thousands)
Sales		$	—			$	—			$	9,751,274			$	—			$	9,751,274
Cost of sales			—				—				7,905,170				—				7,905,170
Gross profit			—				—				1,846,104				—				1,846,104
Operating expenses			118,990				33				1,220,841				—				1,339,864
Operating income (loss)			(118,990	)			(33	)			625,263				—				506,240
Interest expense (income)			130,989				2,576				(102,464	)			—				31,101
Other expense (income), net			(83	)			—				(1,601	)			—				(1,684	)
Earnings (losses) before income taxes			(249,896	)			(2,609	)			729,328				—				476,823
Income tax (benefit) provision			(93,159	)			(973	)			271,886				—				177,754
Equity in earnings of subsidiaries			455,806				15,474				—				(471,280	)			—
Net earnings		$	299,069			$	13,838			$	457,442			$	(471,280	)		$	299,069

		Condensed Consolidating Cash Flows
		For the 13-Week Period Ended October 1, 2011
										Other
						Sysco				Non-Guarantor				Consolidated
		Sysco				International				Subsidiaries				Totals
						(In thousands)
Net cash provided by (used for):
Operating activities		$	(74,065	)		$	27,774			$	301,634			$	255,343
Investing activities			(65,808	)			—				(208,022	)			(273,830	)
Financing activities			(142,476	)			—				(183,270	)			(325,746	)
Effect of exchange rates on cash			—				—				(11,431	)			(11,431	)
Intercompany activity			111,977				(27,774	)			(84,203	)			—
Net increase (decrease) in cash			(170,372	)			—				(185,292	)			(355,664	)
Cash at the beginning of the period			305,513				—				334,252				639,765
Cash at the end of the period		$	135,141			$	—			$	148,960			$	284,101

		Condensed Consolidating Cash Flows
		For the 13-Week Period Ended October 2, 2010
										Other
						Sysco				Non-Guarantor				Consolidated
		Sysco				International				Subsidiaries				Totals
						(In thousands)
Net cash provided by (used for):
Operating activities		$	(116,168	)		$	16,971			$	325,979			$	226,782
Investing activities			(59,502	)			—				(87,928	)			(147,430	)
Financing activities			(222,242	)			—				(1,861	)			(224,103	)
Effect of exchange rates on cash			—				—				7,682				7,682
Intercompany activity			195,160				(16,971	)			(178,189	)			—
Net increase (decrease) in cash			(202,752	)			—				65,683				(137,069	)
Cash at the beginning of the period			373,523				—				211,920				585,443
Cash at the end of the period		$	170,771			$	—			$	277,603			$	448,374

14. SUPPLEMENTAL GUARANTOR INFORMATION — SUBSIDIARY GUARANTEES

     On January 19, 2011, the wholly-owned U.S. Broadline subsidiaries of Sysco Corporation entered into full and unconditional guarantees of all outstanding senior notes and debentures of Sysco Corporation. As of October 1, 2011, Sysco had a total of $2,225.0 million in senior notes and debentures outstanding.

     The following condensed consolidating financial statements present separately the financial position, results of operations and cash flows of the parent issuer (Sysco Corporation), the guarantors (U.S. Broadline subsidiaries), and all other non-guarantor subsidiaries of Sysco (Other Non-Guarantor Subsidiaries) on a combined basis with eliminating entries.

		Condensed Consolidating Balance Sheet
		October 1, 2011
						U.S.				Other
						Broadline				Non-Guarantor								Consolidated
		Sysco				Subsidiaries				Subsidiaries				Eliminations				Totals
										(In thousands)
Current assets		$	200,076			$	3,803,462			$	1,692,696			$	—			$	5,696,234
Investment in subsidiaries			14,459,412				—				—				(14,459,412	)			—
Plant and equipment, net			593,156				1,853,608				1,168,597				—				3,615,361
Other assets			389,985				518,715				1,226,568				—				2,135,268
Total assets		$	15,642,629			$	6,175,785			$	4,087,861			$	(14,459,412	)		$	11,446,863
Current liabilities		$	401,006			$	1,136,886			$	2,040,798			$	—			$	3,578,690
Intercompany payables (receivables)			7,896,806				(7,917,812	)			21,006				—				—
Long-term debt			2,335,586				26,517				22,883				—				2,384,986
Other liabilities			504,461				256,630				67,841				—				828,932
Shareholders’ equity			4,504,770				12,673,564				1,935,333				(14,459,412	)			4,654,255
Total liabilities and shareholders’ equity		$	15,642,629			$	6,175,785			$	4,087,861			$	(14,459,412	)		$	11,446,863

		Condensed Consolidating Balance Sheet
		July 2, 2011
						U.S.				Other
						Broadline				Non-Guarantor								Consolidated
		Sysco				Subsidiaries				Subsidiaries				Eliminations				Totals
										(In thousands)
Current assets		$	354,450			$	3,476,921			$	1,901,511			$	—			$	5,732,882
Investment in subsidiaries			14,014,569				—				—				(14,014,569	)			—
Plant and equipment, net			569,567				1,794,473				1,148,349				—				3,512,389
Other assets			378,317				519,664				1,242,303				—				2,140,284
Total assets		$	15,316,903			$	5,791,058			$	4,292,163			$	(14,014,569	)		$	11,385,555
Current liabilities		$	430,300			$	840,586			$	2,304,189			$	—			$	3,575,075
Intercompany payables (receivables)			7,800,254				(7,701,021	)			(99,233	)			—				—
Long-term debt			2,227,483				26,542				25,492				—				2,279,517
Other liabilities			405,376				343,427				76,918				—				825,721
Shareholders’ equity			4,453,490				12,281,524				1,984,797				(14,014,569	)			4,705,242
Total liabilities and shareholders’ equity		$	15,316,903			$	5,791,058			$	4,292,163			$	(14,014,569	)		$	11,385,555