Sysco 2009 Annual Report Download - page 51

From time to time, we will enter into forward purchase commitments for a portion of our projected monthly diesel fuel requirements. As of
June 27, 2009, we had forward diesel fuel commitments totaling approximately $64,000,000 through March 2010. In July 2009, we entered
additional forward purchase commitments totaling approximately $16,000,000 at a fixed price through June 2010. Together, these contracts will
lock in the price of approximately 40% of our fuel purchase needs for fiscal 2010. Our commitments through August 2009 were entered into at
prevailing rates from mid-July through mid-August 2008. As a result, these contracts are at fixed prices greater than both the prices incurred during
same periods in the previous fiscal year and current market prices. The remainder of our outstanding contracts were entered into at the prevailing
rates in March, April and July 2009 and thus the fixed price on these contracts reflects the lower current market price for diesel.
Fuel costs in fiscal 2010, exclusive of any amounts recovered through fuel surcharges, are expected to decrease by approximately
$50,000,000 to $80,000,000 as compared to fiscal 2009. Our estimate is based upon the prevailing market prices for diesel in mid-August
2009, the cost committed to in our forward fuel purchase agreements currently in place for fiscal 2010 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
decrease to $40,000,000 to $70,000,000.
Investment Risk
Sysco invests in corporate-owned life insurance policies in order to fund certain retirement programs which are subject to market risk. The value
of our investments in corporate-owned life insurance policies is largely based on the values of underlying investments, which include publicly traded
securities.Therefore, the value of these policies will be adjusted each period based on the performance of the underlying securities which could result
in volatility in our earnings. Due to the declines in the financial markets in fiscal 2009 and fiscal 2008, we have experienced significant losses in
adjusting the carrying value of these policies to their cash surrender values in these periods. Should the financial markets decline, we would take
charges to adjust the carrying value of our corporate-owned life insurance, and if the market declines are significant, these charges could reasonably
be expected to have a material adverse impact on our operating expenses, net income and earnings per share. A 10% unfavorable change in publicly
traded securities held within our investments in corporate-owned life insurance would not have a material impact on our operating expenses, net
income and earnings per share.
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. As a result of the declines in the financial markets in fiscal 2009, the value of the investments held by the Retirement Plan declined as
of June 27, 2009 as compared to June 28, 2008.These fluctuations in asset values have caused the amount of our anticipated future contributions to
the plan to increase, have caused pension expense for fiscal 2010 to increase and have resulted in a reduction to shareholders’ equity on our balance
sheet as of June 27, 2009, which is when this plan’s funded status was last 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 further declines, our anticipated future contributions, pension expense and
funded status will be affected for future years as well. 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, 2008) would not have a material impact on our anticipated future contributions for fiscal
2010; however, this unfavorable change would increase our pension expense for fiscal 2010 by $23,700,000 and would reduce our shareholders’
equity on our balance sheet as of June 27, 2009 by $76,630,000.
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