Sysco 2007 Annual Report Download - page 46

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The increase in earnings before income taxes for fiscal 2007 was primarily due to increases in sales, gross margin dollar
increases and effective expense management.
Sales for fiscal 2006 were 5.8% greater than fiscal 2005. The adoption of EITF 04-13 in the fourth quarter of fiscal 2006
reduced sales growth in fiscal 2006 by 0.2%. Acquisitions contributed 0.1% to the overall sales growth rate for fiscal 2006.
Management believes that SYSCO’s continued focus on customer account penetration through the use of business reviews
with customers, increases in the number of customer contact personnel and efforts of our marketing associates
contributed to the sales growth in fiscal 2006.
The decrease of Broadline segment sales as a percentage of total SYSCO sales in fiscal 2006 as compared to fiscal 2005
was due primarily to strong sales growth in the SYGMA and other segments outpacing the Broadline sales growth, as well
as the contributions to sales growth from the acquisitions of specialty meat, specialty produce and SYGMA operations
during fiscal 2006.
The increase in earnings before income taxes for fiscal 2006 were primarily due to increases in sales partially offset by
higher fuel costs and the continued investment in the National Supply Chain project.
SYGMA Segment
Sales for fiscal 2007 were 6.0% greater than fiscal 2006. The impact of EITF 04-13 reduced sales growth by 2.7%, or
$159,236,000 for fiscal 2007 compared to a $42,560,000 reduction for fiscal 2006. Sales are reported on a comparable
basis beginning in the fourth quarter of fiscal 2007, which is the one-year anniversary of the adoption of EITF 04-13.
Acquisitions contributed 2.1% to the overall sales growth rate for fiscal 2007. Fiscal 2007 growth was due to sales to new
customers and sales growth in SYGMA’s existing customer base related to increased sales at existing locations as well as
new locations added by those customers. In addition, certain customers were transferred from Broadline operations to be
serviced by SYGMA operations, contributing to the sales increase.
The increase in earnings before income taxes in fiscal 2007 was due to several factors, including sales growth, increased
margins and improved operating efficiencies, partially offset by costs of labor and auto liability related expenses.
In addition, the transfer of customers from Broadline operations referred to above also contributed to the increase
in earnings before income taxes.
Sales for fiscal 2006 were 10.3% greater than fiscal 2005. The adoption of EITF 04-13 in the fourth quarter of fiscal 2006
reduced sales growth in fiscal 2006 by 1.1%. Acquisitions contributed 0.5% to the overall sales growth rate for fiscal 2006.
Fiscal 2006 growth was due primarily to sales to new customers and sales growth in SYGMA’s existing customer base
related to new locations added by those customers, each of which temporarily increases SYGMA’s cost to service the
customers. In addition, certain customers were transferred from Broadline operations to be serviced by SYGMA
operations, contributing to the sales increase.
The decrease in earnings before income taxes in fiscal 2006 was due to several factors. Certain of SYGMA’s customers
experienced a slowdown in their business. This in turn resulted in lower cases per delivery and therefore reduced gross
margin dollars per stop. In addition, SYGMA experienced increased fuel costs, startup costs related to new facilities,
costs incurred on information systems projects and increased workers compensation costs.
LIQUIDITY AND CAPITAL RESOURCES
SYSCO provides marketing and distribution services to foodservice customers primarily throughout the United States and
Canada. We intend to continue to expand our market share through profitable sales growth, foldouts and acquisitions.
We also strive to increase the effectiveness of our customer contact personnel and our consolidated buying programs,
as well as the productivity of our warehousing and distribution activities. These objectives require continuing investment.
Our resources include cash provided by operations and access to capital from financial markets.
Our operations historically have produced significant cash flow. Cash generated from operations is first allocated to
working capital requirements; investments in facilities, fleet and other equipment required to meet customers’ needs;
cash dividends; and acquisitions compatible with our overall growth strategy. Any remaining cash generated from
operations may be applied toward a portion of the cost of the share repurchase program, while the remainder of the cost
may be financed with additional debt. Our share repurchase program is used primarily to offset shares issued under
various employee benefit and compensation plans, to reduce shares outstanding (which may have the net effect of
increasing earnings per share) and to aid in managing the ratio of long-term debt to total capitalization. We target a long-
page 20 ][ SYSCO Corporation