Sysco 2010 Annual Report Download - page 46
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Please find page 46 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.Operating income increased 20.8% 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.
Operating income decreased 25.8% for fiscal 2009 from fiscal 2008. The decrease in operating income was caused primarily by reduced sales
in all segments attributable to the deteriorating economic environment.
Liquidity and Capital Resources
Sysco’s strategic objectives require continuing investment, and 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 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 on-going strategic analysis, we regularly evaluate business opportunities, including
potential acquisitions and sales of assets and businesses, and our overall capital structure. These transactions may materially impact our liquidity,
borrowing capacity, leverage ratios and capital availability.
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 in the future, including issuances of debt securities 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 have continued to maintain the highest credit rating
available for U.S. commercial paper. 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.
Operating Activities
We generated $0.9 billion in cash flow from operations in fiscal 2010, $1.6 billion in fiscal 2009 and $1.6 billion in fiscal 2008. 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 continue to make payments under the IRS settlement in fiscal 2011 and fiscal 2012, in the amount of $212 million per year. If
equivalent levels of net earnings are achieved in fiscal 2011, we expect cash flows from operations to increase in fiscal 2011 as compared to fiscal
2010.
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. Cash flow from operations in fiscal
2008 was primarily due to net income, changes in deferred tax assets and liabilities and non-cash depreciation and amortization expense. The
increases in fiscal 2008 were reduced by decreases in accrued income taxes and increases in accounts receivable and inventory balances.
The increase in accounts receivable and inventory balances in fiscal 2010 was primarily due to sales growth. The decrease in accounts
receivable and inventory balances in fiscal 2009 was primarily due to the sales decline.The increase in accounts receivable and inventory balances in
fiscal 2008 was primarily due to sales growth. The increase in accounts payable balances in 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. The increase in accounts payable balances in fiscal 2008 was primarily due to inventory increases resulting from sales growth.
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 favorably impacted by an increase in accrued expenses of $58.0 million during fiscal 2010. Cash flow from
operations was negatively impacted by decreases in accrued expenses of $120.3 million during fiscal 2009 and $22.7 million during fiscal 2008.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. The decrease in accrued expenses during fiscal 2008 was primarily due to the
reversal of a product liability claim which is further explained below.This decrease was partially offset by increased accrued interest due to fixed-rate
debt issued in fiscal 2008 and an increase to a provision related to a multi-employer pension plan. See additional discussion of multi-employer
pension plans at “Other Considerations, Multi-Employer Pension Plans”.
In fiscal 2007, we recorded a liability for a product liability claim of $50.3 million within accrued expenses and a corresponding insurance
receivable of $48.3 million within prepaid expenses and other current assets. In fiscal 2008, these amounts were reversed as our insurance carrier
and other parties paid the full amount of the judgment.
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