Sysco 2011 Annual Report Download - page 89

16. INCOME TAXES
Income Tax Provisions
The income tax provision for each fiscal year consists of the following:
2011
2010
(53 Weeks) 2009
(In thousands)
United States federal income taxes . ........................................ $ 569,872 $ 542,535 $ 602,595
State and local income taxes ............................................. 60,081 80,492 87,223
Foreign income taxes .................................................. 45,471 46,579 25,068
Total .............................................................. $ 675,424 $ 669,606 $ 714,886
The current and deferred components of the income tax provisions for each fiscal year are as follows:
2011
2010
(53 Weeks) 2009
(In thousands)
Current ........................................................... $ 840,173 $ 791,120 $ 1,010,595
Deferred .......................................................... (164,749) (121,514) (295,709)
Total ............................................................. $ 675,424 $ 669,606 $ 714,886
The deferred tax provisions result from the effects of net changes during the year in deferred tax assets and liabilities arising from temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Internal Revenue Service Settlement
Sysco’s affiliate, Baugh Supply Chain Cooperative (BSCC), was a cooperative taxed under subchapter T of the United States Internal Revenue
Code, the operation of which has resulted in a deferral of tax payments. The IRS, in connection with its audits of the company’s 2003 through 2006
federal income tax returns, proposed adjustments that would have accelerated amounts that the company had previously deferred and would
have resulted in the payment of interest on those deferred amounts. Sysco reached a settlement with the IRS in the first quarter of fiscal 2010 to
cease paying U.S. federal taxes related to BSCC on a deferred basis, pay the amounts that were recorded within deferred taxes related to BSCC over
a three-year period and make a one-time payment of $41.0 million, of which approximately $39.0 million was non-deductible. The settlement
addressed the BSCC deferred tax issue as it related to the IRS audit of the company’s 2003 through 2006 federal income tax returns, and settled the
matter for all subsequent periods, including the 2007 and 2008 federal income tax returns already under audit. As a result of the settlement, the
company agreed to pay the amounts owed in the following schedule:
(In thousands)
Fiscal 2010............................................................................ $528,000
Fiscal 2011............................................................................ 212,000
Fiscal 2012............................................................................ 212,000
As noted in the table above, payments related to the settlement were $212.0 million and $528.0 million in fiscal 2011 and fiscal 2010,
respectively. Remaining amounts to be paid in 2012 will be paid in connection with the company’s quarterly tax payments, two of which fall in the
second quarter, one in the third quarter and one in the fourth quarter. The company believes it has access to sufficient cash on hand, cash flows
from operations and current access to capital to make payments on all of the amounts noted above. The company had previously accrued interest
for a portion of the exposure pertaining to the IRS proposed adjustments and as a result of the settlement with the IRS, Sysco recorded an income
tax benefit of approximately $29.0 million in the first quarter of fiscal 2010.
Sysco’s deferred taxes were impacted by the timing of these installment payments. Sysco reclassified amounts due within one year from
deferred taxes to accrued income taxes at the beginning of each of fiscal 2011 and 2010. Additionally, beginning in fiscal 2009, the company is not
deferring taxes for federal purposes according to its agreement with the IRS.
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