Sysco 2010 Annual Report Download - page 45
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Please find page 45 of the 2010 Sysco annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.We attempt to mitigate fuel costs by reducing miles driven, improving fleet consumption by adjusting idling time and maximum speeds and
using fuel surcharges. Assuming that fuel prices do not significantly rise above recent levels during fiscal 2011, we expect fuel costs for our Broadline
segment to increase by approximately $7 million to $14 million as compared to fiscal 2010 and we do not expect fuel surcharges to change
significantly in fiscal 2011 as compared to fiscal 2010.
We recorded provisions related to multi-employer pension plans of $2.9 million in fiscal 2010, $9.6 million in fiscal 2009 and $22.3 million in
fiscal 2008.
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.
Sales
Sales were 1.1% greater in fiscal 2010 than fiscal 2009 and 5.8% greater in fiscal 2009 than in fiscal 2008. 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. In fiscal 2009, sales growth was primarily due to significant contracts with new
customers and product cost increases, which led to increases in selling prices. These increases were partially offset by lost sales due to the
elimination of unprofitable business and lower case volumes due to difficult economic conditions impacting SYGMA’s existing customer base.
One chain restaurant customer (Wendy’s/Arby’s Group, Inc.) accounted for approximately 33% of the SYGMA segment sales for the fiscal
year ended July 3, 2010. 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 by $17.1 million in fiscal 2010 as compared to fiscal 2009. Gross margin 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 margin 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.
Operating income increased by $21.9 million in fiscal 2009 as compared to fiscal 2008. Gross margin dollars increased 0.4% while operating
expenses decreased 5.1% in fiscal 2009 as compared to fiscal 2008. Offsetting the gross margin increase, was a decrease of approximately
$5.0 million in the fuel surcharges charged to customers in fiscal 2009 compared to fiscal 2008. Expense reductions were accomplished by
operational efficiencies in both delivery and warehouse areas, as well as lower payroll expense related to headcount reductions. Offsetting these
expense declines were increased fuel costs of $2.0 million in fiscal 2009 over fiscal 2008.
Assuming that fuel prices do not significantly rise above recent levels during fiscal 2011, we expect fuel costs and fuel surcharges for our
SYGMA segment to increase as compared to fiscal 2010.
Other Segment
“Other” financial information is attributable to our other operating segments, including our specialty produce, custom-cut meat 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. These operations are also generally smaller in sales and scope than an average Broadline operation and each of these segments
is considerably smaller in sales and overall scope than the Broadline segment. In fiscal 2010, in the aggregate, the “Other” segment represented
approximately 8.5% of Sysco’s overall sales and 5.5% of the aggregate operating income of Sysco’s segments, which excludes corporate expenses
and consolidated adjustments.
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