Sysco 2010 Annual Report Download - page 57
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Please find page 57 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.From time to time, we will enter into forward purchase commitments for a portion of our projected monthly diesel fuel requirements. As of
July 3, 2010, we had forward diesel fuel commitments totaling approximately $93.0 million through September 2011. These contracts will lock in the
price of approximately 30% to 35% of our fuel purchase needs for the contracted periods at prices slightly lower than the current market price for
diesel.
Fuel costs in fiscal 2011, exclusive of any amounts recovered through fuel surcharges, are expected to increase by approximately $10 million to
$20 million as compared to fiscal 2010. Our estimate is based upon current, published quarterly market price projections for diesel, the cost
committed to in our forward fuel purchase agreements currently in place for fiscal 2011 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 increase to $25 million to
$35 million.
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. 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. Fluctuations in asset values can cause the amount of our anticipated future contributions to the plan to increase and pension expense
to increase and can result in a reduction to shareholders’ equity on our balance sheet as of fiscal year-end, which is when this plan’s funded status is
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
declines, our anticipated future contributions, pension expense and funded status will be affected for future years. 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, 2009) would not have a
material impact on our anticipated future contributions for fiscal 2011; however, this unfavorable change would increase our pension expense for
fiscal 2011 by $31.6 million and would reduce our shareholders’ equity on our balance sheet as of July 3, 2010 by $102.7 million.
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