UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-6544

 

Sysco Corporation

Delaware (State or other jurisdiction of incorporation or organization) 1390 Enclave Parkway Houston, Texas (Address of principal executive offices)		74-1648137 (IRS employer identification number) 77077-2099 (Zip Code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ   No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ   No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer þ		Accelerated Filer o		Non-accelerated Filer o (Do not check if a smaller reporting company)		Smaller Reporting Company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No þ

591,586,557 shares of common stock were outstanding as of April 24, 2010.

 

 

TABLE OF CONTENTS

			Page No.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements			1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3. Quantitative and Qualitative Disclosures About Market Risk			32
Item 4. Controls and Procedures			33
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			34
Item 1A. Risk Factors			34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 3. Defaults Upon Senior Securities			34
Item 5. Other Information			34
Item 6. Exhibits			35
Signatures			37
EX-10.1
EX-10.2
EX-10.3
EX-15.1
EX-15.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except for Share Data)

		March 27, 2010				June 27, 2009				March 28, 2009
		(unaudited)								(unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	652,792			$	1,087,084			$	899,117
Accounts and notes receivable, less allowances of $83,069, $36,078 and $99,535			2,633,995				2,468,511				2,549,769
Inventories			1,751,239				1,650,666				1,710,251
Prepaid expenses and other current assets			71,761				64,418				67,131
Prepaid income taxes			22,008				—				—
Total current assets			5,131,795				5,270,679				5,226,268
Plant and equipment at cost, less depreciation			3,176,220				2,979,200				2,891,893
Other assets
Goodwill			1,559,291				1,510,795				1,404,993
Intangibles, less amortization			114,254				121,089				87,011
Restricted cash			135,590				93,858				93,714
Prepaid pension cost			92,757				26,746				239,773
Other assets			258,320				214,252				193,400
Total other assets			2,160,212				1,966,740				2,018,891
Total assets		$	10,468,227			$	10,216,619			$	10,137,052
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	2,038,922			$	1,856,887			$	1,830,432
Accrued expenses			794,235				797,756				776,767
Accrued income taxes			—				323,983				98,179
Deferred taxes			76,258				162,365				404,185
Current maturities of long-term debt			7,817				9,163				6,529
Total current liabilities			2,917,232				3,150,154				3,116,092
Other liabilities
Long-term debt			2,468,517				2,467,486				2,463,243
Deferred taxes			513,211				526,377				530,100
Other long-term liabilities			541,229				622,900				696,440
Total other liabilities			3,522,957				3,616,763				3,689,783
Commitments and contingencies
Shareholders’ equity
Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none			—				—				—
Common stock, par value $1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares			765,175				765,175				765,175
Paid-in capital			799,278				760,352				755,408
Retained earnings			6,943,640				6,539,890				6,366,304
Accumulated other comprehensive loss			(167,827	)			(277,986	)			(200,413	)
Treasury stock at cost,173,872,949, 175,148,403 and 175,857,763 shares			(4,312,228	)			(4,337,729	)			(4,355,297	)
Total shareholders’ equity			4,028,038				3,449,702				3,331,177
Total liabilities and shareholders’ equity		$	10,468,227			$	10,216,619			$	10,137,052

Note: The June 27, 2009 balance sheet has been derived from the audited financial statements at that date.

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In Thousands, Except for Share and Per Share Data)

		39-Week Period Ended								13-Week Period Ended
		March 27, 2010				March 28, 2009				March 27, 2010				March 28, 2009
Sales		$	26,895,018			$	27,766,582			$	8,945,093			$	8,739,350
Cost of sales			21,769,400				22,492,837				7,261,721				7,102,274
Gross margin			5,125,618				5,273,745				1,683,372				1,637,076
Operating expenses			3,733,836				3,941,806				1,251,269				1,231,753
Operating income			1,391,782				1,331,939				432,103				405,323
Interest expense			92,976				83,043				27,654				28,233
Other income, net			(2,122	)			(11,550	)			1,028				(3,514	)
Earnings before income taxes			1,300,928				1,260,446				403,421				380,604
Income taxes			458,726				519,812				155,773				154,438
Net earnings		$	842,202			$	740,634			$	247,648			$	226,166
Net earnings:
Basic earnings per share		$	1.42			$	1.24			$	0.42			$	0.38
Diluted earnings per share			1.42				1.24				0.42				0.38
Average shares outstanding			592,450,575				596,653,289				593,129,783				590,152,592
Diluted shares outstanding			593,397,235				597,691,315				594,833,736				590,667,577
Dividends declared per common share		$	0.74			$	0.70			$	0.25			$	0.24

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In Thousands)

		39-Week Period Ended								13-Week Period Ended
		March 27, 2010				March 28, 2009				March 27, 2010				March 28, 2009
Net earnings		$	842,202			$	740,634			$	247,648			$	226,166
Other comprehensive income (loss):
Foreign currency translation adjustment			89,241				(125,392	)			5,295				(6,691	)
Items presented net of tax:
Amortization of cash flow hedge			321				321				107				107
Amortization of unrecognized prior service cost			2,030				1,690				677				729
Amortization of unrecognized actuarial losses (gains), net			18,498				8,117				6,166				2,706
Amortization of unrecognized transition obligation			69				69				23				23
Pension liability assumption			—				(16,450	)			—				—
Total other comprehensive income (loss)			110,159				(131,645	)			12,268				(3,126	)
Comprehensive income		$	952,361			$	608,989			$	259,916			$	223,040

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In Thousands)

		39-Week Period Ended
		March 27, 2010				March 28, 2009
Cash flows from operating activities:
Net earnings		$	842,202			$	740,634
Adjustments to reconcile net earnings to cash provided by operating activities:
Share-based compensation expense			51,981				46,744
Depreciation and amortization			284,213				284,153
Deferred taxes			(152,236	)			495,732
Provision for losses on receivables			32,030				61,609
Other non-cash items			(1,112	)			(741	)
Additional investment in certain assets and liabilities, net of effect of businesses acquired:
(Increase) decrease in receivables			(169,520	)			74,131
(Increase) decrease in inventories			(79,010	)			96,617
(Increase) in prepaid expenses and other current assets			(6,569	)			(4,157	)
Increase (decrease) in accounts payable			156,856				(179,160	)
(Decrease) in accrued expenses			(21,468	)			(125,637	)
(Decrease) in accrued income taxes			(316,074	)			(508,628	)
(Increase) decrease in other assets			(39,618	)			3,294
(Decrease) increase in other long-term liabilities and prepaid pension cost, net			(115,210	)			2,952
Excess tax benefits from share-based compensation arrangements			(518	)			(2,818	)
Net cash provided by operating activities			465,947				984,725
Cash flows from investing activities:
Additions to plant and equipment			(438,071	)			(314,858	)
Proceeds from sales of plant and equipment			4,106				3,224
Acquisition of businesses, net of cash acquired			(20,880	)			(53,868	)
Purchases of short-term investments			(60,876	)			—
Maturities of short-term investments			60,990				—
(Increase) in restricted cash			(41,732	)			(1,127	)
Net cash used for investing activities			(496,463	)			(366,629	)
Cash flows from financing activities:
Other debt borrowings			5,419				502,460
Other debt repayments			(8,196	)			(7,778	)
Debt issuance costs			(7	)			(3,007	)
Common stock reissued from treasury for share-based compensation awards			54,068				98,452
Treasury stock purchases			(41,020	)			(438,843	)
Dividends paid			(431,916	)			(406,689	)
Excess tax benefits from share-based compensation arrangements			518				2,818
Net cash used for financing activities			(421,134	)			(252,587	)
Effect of exchange rates on cash			17,358				(17,944	)
Net (decrease) increase in cash and cash equivalents			(434,292	)			347,565
Cash and cash equivalents at beginning of period			1,087,084				551,552
Cash and cash equivalents at end of period		$	652,792			$	899,117
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$	119,720			$	100,469
Income taxes			973,354				510,147

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

     Unless this Form 10-Q indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Sysco,” or “the company” as used in this Form 10-Q refer to Sysco Corporation together with its consolidated subsidiaries and divisions.

1. BASIS OF PRESENTATION

     The consolidated financial statements have been prepared by the company, without audit, with the exception of the June 27, 2009 consolidated balance sheet which was taken from the audited financial statements included in the company’s Fiscal 2009 Annual Report on Form 10-K. The financial statements include consolidated balance sheets, consolidated results of operations, consolidated statements of comprehensive income and consolidated cash flows. In the opinion of management, all adjustments, which consist of normal recurring adjustments, necessary to present fairly the financial position, results of operations, comprehensive income and cash flows for all periods presented have been made.

     These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the company’s Fiscal 2009 Annual Report on Form 10-K.

     A review of the financial information herein has been made by Ernst & Young LLP, independent auditors, in accordance with established professional standards and procedures for such a review. A report from Ernst & Young LLP concerning their review is included as Exhibit 15.1 to this Form 10-Q.

2. CHANGES IN ACCOUNTING

Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities

     In June 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position No. EITF 03-06-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities”, which was subsequently codified within Accounting Standards Codification (ASC) 260, “Earnings Per Share.” This standard addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. This standard was effective for Sysco beginning in fiscal 2010 and interim periods within that year. All prior-period earnings per share data presented in filings subsequent to adoption must be adjusted retrospectively to conform to the provisions of this standard. Early application of this standard was not permitted. The adoption of this standard did not have a material impact on the company’s consolidated financial statements.

Interim Disclosures about Fair Value of Financial Instruments

     In April 2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” which was subsequently codified within ASC 825, “Financial Instruments.” This standard amended previous guidance to require disclosures about the fair value of financial instruments for interim reporting periods of publicly traded companies. Prior disclosure requirements only applied to annual financial statements. This standard was effective for interim reporting periods ending after June 15, 2009, which was the first quarter of fiscal 2010 for Sysco. The company has included the required disclosures for this standard in Note 3, “Fair Value Measurements”.

Measuring Liabilities at Fair Value

     In August 2009, the FASB issued Accounting Standards Update 2009-05, “Measuring Liabilities at Fair Value”. This update provides additional guidance, including illustrative examples, clarifying the measurement of liabilities at fair value. This update is effective for the first reporting period beginning after its issuance. The company adopted the provisions of this update in the second quarter of fiscal 2010. The adoption of this update did not have a material impact on the company’s consolidated financial statements.

Improving Disclosures about Fair Value Measurements

     In January 2010, the FASB issued Accounting Standards Update 2010-06, “Improving Disclosures about Fair Value Measurements.” This update requires some new disclosures and clarifies some existing disclosure requirements about fair

value measurements codified within ASC 820, “Fair Value Measurements and Disclosures.” The majority of the provisions of this update, including those applicable to Sysco, were effective for interim and annual reporting periods beginning after December 15, 2009. Early application of the provisions of this update was permitted. The company adopted the applicable provisions of this update in the third quarter of fiscal 2010. The adoption of this update did not have a material impact on the company’s consolidated financial statement disclosures.

Subsequent Events

     In February 2010, the FASB issued Accounting Standard Update 2010-09, “Amendments to Certain Recognition and Disclosure Requirements.” This update amends ASC 855, “Subsequent Events” to remove the requirement for SEC filers to disclose the date through which subsequent events have been evaluated. In addition, the update clarifies the reissuance disclosure provision related to subsequent events. The update is effective immediately for financial statements that are issued or revised. The company adopted the provisions of this update in the third quarter of fiscal 2010. Because this update affects the disclosure and not the accounting treatment for subsequent events, the adoption of this provision did not have a material impact on the company’s consolidated financial statements.

3. FAIR VALUE MEASUREMENTS

     Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). The accounting guidance includes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows:

•		Level 1 — Unadjusted quoted prices for identical assets or liabilities in active markets;
•		Level 2 — Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability; and
•		Level 3 — Unobservable inputs for the asset or liability, which include management’s own assumption about the assumptions market participants would use in pricing the asset or liability, including assumptions about risk.

     Sysco’s policy is to invest in only high-quality investments. Cash equivalents primarily include time deposits, certificates of deposit, commercial paper, high-quality money market funds and all highly liquid instruments with original maturities of three months or less. Restricted cash consists of investments in high-quality money market funds.

     The following is a description of the valuation methodologies used for assets and liabilities measured at fair value.

•		Time deposits, certificates of deposit and commercial paper included in cash equivalents are valued at amortized cost, which approximates fair value. These are included within cash equivalents as a Level 2 measurement in the tables below.
•		Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. These are included within cash equivalents and restricted cash as Level 1 measurements in the tables below.
•		The interest rate swap agreements are valued using a swap valuation model that utilizes an income approach using observable market inputs including interest rates, LIBOR swap rates and credit default swap rates. These are included as a Level 2 measurement in the tables below.

     The following tables present the company’s assets measured at fair value on a recurring basis as of March 27, 2010, June 27, 2009 and March 28, 2009:

		Assets Measured at Fair Value as of March 27, 2010
		Level 1				Level 2				Level 3				Total
Assets:
Cash and cash equivalents
Cash equivalents		$	241,207,000			$	202,967,000			$	—			$	444,174,000
Restricted cash			135,590,000				—				—				135,590,000
Other assets
Interest rate swap agreements			—				3,836,000				—				3,836,000
Total assets at fair value		$	376,797,000			$	206,803,000			$	—			$	583,600,000

		Assets Measured at Fair Value as of June 27, 2009
		Level 1				Level 2				Level 3				Total
Assets:
Cash and cash equivalents
Cash equivalents		$	721,710,000			$	117,844,000			$	—			$	839,554,000
Restricted cash			93,858,000				—				—				93,858,000
Total assets at fair value		$	815,568,000			$	117,844,000			$	—			$	933,412,000

		Assets Measured at Fair Value as of March 28, 2009
		Level 1				Level 2				Level 3				Total
Assets:
Cash and cash equivalents
Cash equivalents		$	462,097,000			$	251,170,000			$	—			$	713,267,000
Restricted cash			93,714,000				—				—				93,714,000
Total assets at fair value		$	555,811,000			$	251,170,000			$	—			$	806,981,000

     The fair value of Sysco’s total debt is estimated based on the quoted market prices for the same or similar issue or on the current rates offered to the company for debt of the same remaining maturities. The fair value of total debt approximated $2,633,180,000 and $2,548,861,000 as of March 27, 2010 and June 27, 2009, respectively. The carrying value of total debt was $2,476,334,000 and $2,476,649,000 as of March 27, 2010 and June 27, 2009, respectively.

4. DERIVATIVE FINANCIAL INSTRUMENTS

     Sysco manages its debt portfolio by targeting an overall desired position of fixed and floating rates and may employ interest rate swaps from time to time to achieve this goal. The company does not use derivative financial instruments for trading or speculative purposes.

     In September 2009, the company entered into an interest rate swap agreement that effectively converted $200,000,000 of fixed rate debt maturing in fiscal 2014 to floating rate debt. In October 2009, the company entered into an interest rate swap agreement that effectively converted $250,000,000 of fixed rate debt maturing in fiscal 2013 to floating rate debt. Both transactions were entered into with the goal of reducing overall borrowing cost. These transactions were designated as fair value hedges since the swaps hedge against the changes in fair value of fixed rate debt resulting from changes in interest rates.

     The location and the fair value of derivative instruments in the consolidated balance sheet as of March 27, 2010 are as follows:

Asset Derivatives

Liability Derivatives

Balance Sheet

Balance Sheet

Location

Fair Value

Location

Fair Value

Interest rate swap agreements

Other assets

$

3,836,000

N/A

N/A

     The location and effect of derivative instruments and related hedged items on the consolidated results of operations for the 39-week period and 13-week period ended March 27, 2010 presented on a pre-tax basis are as follows:

Amount of (Gain) or Loss

Recognized in Income

Location of (Gain)

39-Week

13-Week

or Loss Recognized

Period Ended

Period Ended

in Income

March 27, 2010

March 27, 2010

Fair Value Hedge Relationships:

Interest rate swap agreements

Interest expense

$

(5,638,000

)

$

(4,184,000

)

Hedged items — debt

Interest expense

(766,000

)

(663,000

)

     Hedge ineffectiveness represents the difference between the changes in the fair value of the derivative instruments and the changes in fair value of the fixed rate debt attributable to changes in the benchmark interest rate. Hedge ineffectiveness is recorded directly in earnings within interest expense and was immaterial for the 39-week period and the 13-week period ended March 27, 2010. The interest rate swaps do not contain a credit-risk-related contingent feature.

5. DEBT

     As of March 27, 2010, Sysco had uncommitted bank lines of credit which provided for unsecured borrowings for working capital of up to $88,000,000, of which none was outstanding.

     As of March 27, 2010, the company’s Irish Subsidiary, Pallas Foods Limited, had a €10,000,000 (Euro) committed facility for unsecured borrowings for working capital expiring March 31, 2011. There were no borrowings outstanding under this facility as of March 27, 2010. In January 2010, the €8,000,000 (Euro) revolver portion of this facility was discontinued and the overdraft line portion of this facility was extended one year for €10,000,000 (Euro).

     Sysco and one of its subsidiaries, Sysco International, Co., have a revolving credit facility supporting the company’s U.S. and Canadian commercial paper programs. The facility in the amount of $1,000,000,000 expires on November 4, 2012, but is subject to extension.

     As of March 27, 2010, there were no commercial paper issuances outstanding. During the 39-week period ended March 27, 2010, aggregate commercial paper issuances and short-term bank borrowings ranged from zero to approximately $1,820,000.

6. EMPLOYEE BENEFIT PLANS

     The components of net company-sponsored benefit cost for the 39-week period presented are as follows:

		Pension Benefits								Other Postretirement Plans
		March 27, 2010				March 28, 2009				March 27, 2010				March 28, 2009
Service cost		$	49,989,000			$	60,643,000			$	246,000			$	367,000
Interest cost			89,694,000				85,161,000				421,000				468,000
Expected return on plan assets			(78,645,000	)			(95,566,000	)			—				—
Amortization of prior service cost			3,157,000				2,643,000				139,000				98,000
Recognized net actuarial loss (gain)			30,394,000				13,295,000				(367,000	)			(118,000	)
Amortization of transition obligation			—				—				114,000				114,000
Net periodic benefit cost		$	94,589,000			$	66,176,000			$	553,000			$	929,000

     The components of net company-sponsored benefit cost for the 13-week period presented are as follows:

		Pension Benefits								Other Postretirement Plans
		March 27, 2010				March 28, 2009				March 27, 2010				March 28, 2009
Service cost		$	16,663,000			$	20,256,000			$	82,000			$	122,000
Interest cost			29,897,000				28,555,000				140,000				156,000
Expected return on plan assets			(26,215,000	)			(31,855,000	)			—				—
Amortization of prior service cost			1,053,000				1,149,000				46,000				33,000
Recognized net actuarial loss (gain)			10,132,000				4,432,000				(122,000	)			(39,000	)
Amortization of transition obligation			—				—				38,000				38,000
Net periodic benefit cost		$	31,530,000			$	22,537,000			$	184,000			$	310,000

     Sysco’s contributions to its company-sponsored defined benefit plans were $118,340,000 and $91,889,000 during the 39-week periods ended March 27, 2010 and March 28, 2009, respectively.

     Sysco has made the minimum required contribution to its company-sponsored qualified pension plan (Retirement Plan) for the calendar 2009 plan year to meet ERISA minimum funding requirements. The company anticipates it will make $140,000,000 of contributions to the Retirement Plan in fiscal 2010, of which $105,000,000 has been made through the first 39 weeks of fiscal 2010. The company’s contributions to the Supplemental Executive Retirement Plan (SERP) and other post-retirement plans are made in the amounts needed to fund current year benefit payments. The estimated fiscal 2010 contributions to fund benefit payments for the SERP and other post-retirement plans are $19,445,000 and $372,000, respectively.

7. EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted earnings per share:

		39-Week Period Ended								13-Week Period Ended
		March 27, 2010				March 28, 2009				March 27, 2010				March 28, 2009
Numerator:
Net earnings		$	842,202,000			$	740,634,000			$	247,648,000			$	226,166,000
Denominator:
Weighted-average basic shares outstanding			592,450,575				596,653,289				593,129,783				590,152,592
Dilutive effect of share-based awards			946,660				1,038,026				1,703,953				514,985
Weighted-average diluted shares outstanding			593,397,235				597,691,315				594,833,736				590,667,577
Basic earnings per share:		$	1.42			$	1.24			$	0.42			$	0.38
Diluted earnings per share:		$	1.42			$	1.24			$	0.42			$	0.38

     The number of options that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately 61,500,000 and 62,600,000 for the first 39 weeks of fiscal 2010 and 2009, respectively. The number of options that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately 52,800,000 and 66,600,000 for the third quarter of fiscal 2010 and 2009, respectively.

8. SHARE-BASED COMPENSATION

     Sysco provides compensation benefits to employees and non-employee directors under several share-based payment arrangements including various employee stock incentive plans, the Employees’ Stock Purchase Plan, and various non-employee director plans. Sysco also previously provided share-based compensation under its Management Incentive Plans.

Stock Incentive Plans

     Sysco’s 2007 Stock Incentive Plan was amended in November 2009 to increase the total number of shares authorized for issuance under the plan from 30,000,000 to 55,000,000 shares. The number of shares available for issuance as options or stock appreciation rights was increased from 25,000,000 to 55,000,000 shares. The number of shares available for issuance as restricted stock, restricted stock units or other types of stock-based awards was increased from 5,000,000 to 10,000,000 shares. The amendment also removed the provision that allowed for issuance of restricted stock, restricted stock units and other types of stock-based awards in excess of the 5,000,000 share limitation if the aggregate number of shares available for issuance under the plan was reduced by four shares for each share issued in excess of the limitation.

     In the first 39 weeks of fiscal 2010, options to purchase 8,494,200 shares were granted to employees from the 2007 Stock Incentive Plan. The fair value of each option award is estimated as of the date of grant using a Black-Scholes option pricing model. The weighted average grant-date fair value per share of options granted during the first 39 weeks of fiscal 2010 was $4.53.

     In the first 39 weeks of fiscal 2010, 652,300 restricted stock units were granted to employees from the 2007 Stock Incentive Plan. The majority of these restricted stock units were granted with dividend equivalents. The fair value of each restricted stock unit award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For restricted stock unit awards granted without dividend equivalents, the fair value was reduced by the present value of expected dividends during the vesting period. The weighted average grant-date fair value per share of restricted stock units granted during the first 39 weeks of fiscal 2010 was $27.24.

     In the first 39 weeks of fiscal 2010, 58,310 shares of restricted stock were granted to non-employee directors from the 2005 Non-Employee Directors Stock Plan. The fair value of the restricted stock awards is based on the company’s stock price as of the date of grant. The weighted average grant-date fair value per share of restricted stock granted during the first 39 weeks of fiscal 2010 was $27.44.

     Sysco’s 2009 Non-Employee Directors Stock Plan was adopted in November 2009 and provides for the issuance of up to 750,000 shares of Sysco common stock for share-based awards to non-employee directors. The authorized shares may be granted as restricted stock, restricted stock units, elected shares or additional shares. This plan will replace the 2005 Non-Employee Directors Stock Plan once all remaining shares in the 2005 Plan have been issued.

Employees’ Stock Purchase Plan

     Plan participants purchased 1,453,389 shares of Sysco common stock under the Sysco Employees’ Stock Purchase Plan during the first 39 weeks of fiscal 2010.

     The weighted average fair value per share of employee stock purchase rights issued pursuant to the Employees’ Stock Purchase Plan was $3.73 during the first 39 weeks of fiscal 2010. The fair value of the stock purchase rights is estimated as the difference between the stock price and the employee purchase price.

All Share-Based Payment Arrangements

     The total share-based compensation cost that has been recognized in results of operations was $51,981,000 and $46,744,000 for the first 39 weeks of fiscal 2010 and fiscal 2009, respectively.

     As of March 27, 2010, there was $75,404,000 of total unrecognized compensation cost related to share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of 3.04 years.

9. INCOME TAXES

Internal Revenue Service Settlement

     Sysco’s affiliate, Baugh Supply Chain Cooperative (BSCC), is 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 Internal Revenue Service (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 on August 21, 2009 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 $41,000,000, of which approximately $39,000,000 was non-deductible. The settlement addresses the BSCC deferred tax issue as it relates to the IRS audit of the company’s 2003 through 2006 federal income tax returns, and settles 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 will pay the amounts owed in the following schedule:

Amounts paid annually:
Fiscal 2010		$	528,000,000
Fiscal 2011			212,000,000
Fiscal 2012			212,000,000

     Of the amounts to be paid in fiscal 2010 included in the table above, $475,000,000 was paid in the first 39 weeks of fiscal 2010 and the remaining payments will be paid in equal installments with Sysco’s remaining quarterly tax payments. Amounts to be paid in fiscal 2011 and 2012 will be paid with Sysco’s quarterly tax payments. The company believes it has access to sufficient cash on hand, cash flow 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 $29,000,000 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 fiscal 2010. Additionally, beginning in fiscal 2010, the company is not deferring taxes for federal purposes according to its agreement with the IRS.

Uncertain Tax Benefits

     As of March 27, 2010, the gross amount of unrecognized tax benefits was $86,899,000 and the gross amount of accrued interest liabilities was $38,141,000. Accrued interest decreased from the amount accrued as of June 27, 2009 of $146,998,000 due to the settlement with the IRS. It is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months either because Sysco prevails on positions that were being challenged upon audit or because the company agrees to their disallowance. Items that may cause changes to unrecognized tax benefits primarily include the consideration of various filing requirements in numerous states and the allocation of income and expense between tax jurisdictions. At this time, an estimate of the range of the reasonably possible change cannot be made.

Effective Tax Rates

     The effective tax rate of 35.26% for the first 39 weeks of fiscal 2010 was favorably impacted by two items. First, as discussed above, the company recorded an income tax benefit of approximately $29,000,000 resulting from the one-time reversal of previously accrued interest related to the settlement with the IRS. Second, the carrying values of the company’s corporate-owned life insurance (COLI) policies are adjusted to their cash surrender values. The gain of $31,834,000 recorded to adjust the carrying value of COLI policies to their cash surrender values in the first 39 weeks of fiscal 2010 is non-taxable for income tax purposes and had the impact of decreasing the effective tax rate for the period.

     The effective tax rate of 41.23% for the first 39 weeks of fiscal 2009 was unfavorably impacted by two items. First, a loss of $63,284,000 was recorded to adjust the carrying value of COLI policies to their cash surrender values in the first 39 weeks of fiscal 2009. Second, the company recorded a tax adjustment of approximately $11,000,000 to accrue for a previously unidentified tax contingency arising from a tax audit and an additional provision for state tax contingencies of approximately $7,200,000. The effective tax rate for the first 39 weeks of fiscal 2009 was favorably impacted by a decrease in a tax provision for a foreign tax liability of approximately $6,900,000, resulting from changes in exchange rates.

     The effective tax rate for the third quarter of fiscal 2010 was 38.61%. The effective tax rate of 40.60% for the third quarter of fiscal 2009 was unfavorably impacted by the recording of an additional provision for state tax contingencies of approximately $7,200,000 and the loss of $8,680,000 recorded to adjust the carrying value of COLI policies to their cash surrender values in the third quarter of fiscal 2009.

Other

     The determination of the company’s provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. The company’s provision for income taxes reflects a combination of income earned and taxed in the various U.S. federal and state, as well as foreign, jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for tax contingencies or valuation allowances, and the company’s change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.

10. ACQUISITIONS

     During the first 39 weeks of fiscal 2010, in the aggregate, the company paid cash of $20,880,000 for acquisitions made during fiscal 2010 and for contingent consideration related to operations acquired in previous fiscal years. The fiscal 2010 acquisitions were immaterial to the consolidated financial statements.

     Certain acquisitions involve contingent consideration typically payable over periods up to four years only in the event that certain operating results are attained or certain outstanding contingencies are resolved. As of March 27, 2010, aggregate contingent consideration amounts outstanding relating to acquisitions was $60,404,000, of which $58,456,000 could result in the recording of additional goodwill.

11. COMMITMENTS AND CONTINGENCIES

     Sysco is engaged in various legal proceedings which have arisen but have not been fully adjudicated. These proceedings, in the opinion of management, will not have a material adverse effect upon the consolidated financial position or results of operations of the company when ultimately concluded.

Multi-Employer Pension Plans

     Sysco contributes to several multi-employer defined benefit pension plans based on obligations arising under collective bargaining agreements covering union-represented employees. Sysco does not directly manage these multi-employer plans, which are generally managed by boards of trustees, half of whom are appointed by the unions and the other half by other employers contributing to the plan. Based upon the information available from plan administrators, management believes that several of these multi-employer plans are underfunded. In addition, pension-related legislation requires underfunded pension plans to improve their funding ratios within prescribed intervals based on the level of their underfunding. As a result, Sysco expects its contributions to these plans to increase in the future.

     Under current law regarding multi-employer defined benefit plans, a plan’s termination, Sysco’s voluntary withdrawal, or the mass withdrawal of all contributing employers from any underfunded multi-employer defined benefit plan would require Sysco to make payments to the plan for Sysco’s proportionate share of the multi-employer plan’s unfunded vested liabilities. Based on the information available from plan administrators, which has valuation dates ranging from December 31, 2007 to June 30, 2009, Sysco estimates its share of withdrawal liability on most of the multi-employer plans in which it participates could have been as much as $173,000,000 as of March 27, 2010, based on a voluntary withdrawal. The majority of the estimated withdrawal liability results from plans for which the valuation date was December 31, 2008; therefore, the company’s estimated liability reflects the asset losses incurred by the financial markets as of that date. In general, the financial markets have improved since December 31, 2008; therefore, management believes Sysco’s current share of the withdrawal liability could differ from this estimate. In addition, if a multi-employer defined benefit plan fails to satisfy certain minimum funding requirements, the IRS may impose a nondeductible excise tax of 5% on the amount of the accumulated funding deficiency for those employers contributing to the fund. As of March 27, 2010, Sysco had approximately $16,000,000 in liabilities recorded in total related to certain multi-employer defined benefit plans for which Sysco’s voluntary withdrawal had already occurred, the majority of which are expected to be paid during fiscal 2010.

Fuel Commitments

     From time to time, Sysco may enter into forward purchase commitments for a portion of its projected diesel fuel requirements. As of March 27, 2010, outstanding forward diesel fuel purchase commitments totaled approximately $71,000,000 at a fixed price through March 2011.

12. BUSINESS SEGMENT INFORMATION

     The company has aggregated its operating companies into a number of segments, of which only Broadline and SYGMA are reportable segments as defined in the accounting literature related to disclosures about segments of an enterprise. Broadline operating companies distribute a full line of food products and a wide variety of non-food products to their customers. SYGMA operating companies distribute a full line of food products and a wide variety of non-food products to certain chain restaurant customer locations. “Other” financial information is attributable to the company’s other operating segments, including the company’s specialty produce, custom-cut meat and lodging industry segments and a company that distributes to international customers.

     The accounting policies for the segments are the same as those disclosed by Sysco for its consolidated financial statements. Intersegment sales represent specialty produce and meat company products distributed by the Broadline and SYGMA operating companies. The segment results include certain centrally incurred costs for shared services that are charged to our segments. These centrally incurred costs are charged based upon the relative level of service used by each operating company consistent with how Sysco’s management views the performance of its operating segments. Management evaluates the performance of each of our operating segments based on its respective operating income results, which include the allocation of certain centrally incurred costs.

     Included in corporate expenses, among other items, are:

	•		Gains and losses recorded to adjust COLI policies to their cash surrender values;
	•		Share-based compensation expense;
	•		Expenses related to the company’s business transformation project; and
	•		Corporate-level depreciation and amortization expense.

     The following table sets forth certain financial information for Sysco’s business segments:

		39-Week Period Ended								13-Week Period Ended
		March 27, 2010				March 28, 2009				March 27, 2010				March 28, 2009
Sales (in thousands):
Broadline		$	21,502,023			$	21,976,065			$	7,108,594			$	6,898,126
SYGMA			3,505,710				3,655,045				1,197,536				1,194,236
Other			2,264,461				2,478,273				768,918				751,476
Intersegment sales			(377,176	)			(342,801	)			(129,955	)			(104,488	)
Total		$	26,895,018			$	27,766,582			$	8,945,093			$	8,739,350

		39-Week Period Ended								13-Week Period Ended
		March 27, 2010				March 28, 2009				March 27, 2010				March 28, 2009
Operating income (in thousands):
Broadline		$	1,463,245			$	1,416,181			$	453,321			$	421,057
SYGMA			31,365				23,795				13,508				9,453
Other			86,640				86,936				30,841				26,481
Total segments			1,581,250				1,526,912				497,670				456,991
Corporate expenses			(189,468	)			(194,973	)			(65,567	)			(51,668	)
Total operating income			1,391,782				1,331,939				432,103				405,323
Interest expense			92,976				83,043				27,654				28,233
Other income, net			(2,122	)			(11,550	)			1,028				(3,514	)
Earnings before income taxes		$	1,300,928			$	1,260,446			$	403,421			$	380,604

		March 27, 2010				June 27, 2009				March 28, 2009
Assets (in thousands):
Broadline		$	6,242,189			$	5,706,431			$	5,738,289
SYGMA			380,756				366,539				384,014
Other			952,307				914,764				943,200
Total segments			7,575,252				6,987,734				7,065,503
Corporate			2,892,975				3,228,885				3,071,549
Total		$	10,468,227			$	10,216,619			$	10,137,052

13. SUPPLEMENTAL GUARANTOR INFORMATION

     Sysco International, Co. is an unlimited liability company organized under the laws of the Province of Nova Scotia, Canada and is a wholly-owned subsidiary of Sysco. In May 2002, Sysco International, Co. issued, in a private offering, $200,000,000 of 6.10% notes due in 2012. These notes are fully and unconditionally guaranteed by Sysco.

     The following condensed consolidating financial statements present separately the financial position, results of operations and cash flows of the parent guarantor (Sysco), the subsidiary issuer (Sysco International) and all other non-guarantor subsidiaries of Sysco (Other Non-Guarantor Subsidiaries) on a combined basis with eliminating entries.

		Condensed Consolidating Balance Sheet
		March 27, 2010
										Other
										Non-Guarantor
		Sysco				Sysco International				Subsidiaries				Eliminations				Consolidated Totals
										(In thousands)
Current assets		$	420,468			$	49			$	4,711,278			$	—			$	5,131,795
Investment in subsidiaries			14,493,372				473,766				134,043				(15,101,181	)			—
Plant and equipment, net			372,716				—				2,803,504				—				3,176,220
Other assets			542,736				700				1,616,776				—				2,160,212
Total assets		$	15,829,292			$	474,515			$	9,265,601			$	(15,101,181	)		$	10,468,227
Current liabilities		$	389,464			$	3,941			$	2,523,827			$	—			$	2,917,232
Intercompany payables (receivables)			8,923,960				84,904				(9,008,864	)			—				—
Long-term debt			2,219,676				199,863				48,978				—				2,468,517
Other liabilities			436,957				—				617,483				—				1,054,440
Shareholders’ equity			3,859,235				185,807				15,084,177				(15,101,181	)			4,028,038
Total liabilities and shareholders’ equity		$	15,829,292			$	474,515			$	9,265,601			$	(15,101,181	)		$	10,468,227

		Condensed Consolidating Balance Sheet
		June 27, 2009
										Other
										Non-Guarantor
		Sysco				Sysco International				Subsidiaries				Eliminations				Consolidated Totals
										(In thousands)
Current assets		$	937,335			$	36			$	4,333,308			$	—			$	5,270,679
Investment in subsidiaries			13,293,437				403,363				165,197				(13,861,997	)			—
Plant and equipment, net			264,657				—				2,714,543				—				2,979,200
Other assets			421,371				830				1,544,539				—				1,966,740
Total assets		$	14,916,800			$	404,229			$	8,757,587			$	(13,861,997	)		$	10,216,619
Current liabilities		$	380,195			$	954			$	2,769,005			$	—			$	3,150,154
Intercompany payables (receivables)			8,533,159				54,785				(8,587,944	)			—				—
Long-term debt			2,219,655				199,816				48,015				—				2,467,486
Other liabilities			413,651				—				735,626				—				1,149,277
Shareholders’ equity			3,370,140				148,674				13,792,885				(13,861,997	)			3,449,702
Total liabilities and shareholders’ equity		$	14,916,800			$	404,229			$	8,757,587			$	(13,861,997	)		$	10,216,619

		Condensed Consolidating Balance Sheet
		March 28, 2009
										Other
										Non-Guarantor
		Sysco				Sysco International				Subsidiaries				Eliminations				Consolidated Totals
										(In thousands)
Current assets		$	783,041			$	—			$	4,443,227			$	—			$	5,226,268
Investment in subsidiaries			12,845,626				374,307				183,853				(13,403,786	)			—
Plant and equipment, net			246,452				—				2,645,441				—				2,891,893
Other assets			591,333				839				1,426,719				—				2,018,891
Total assets		$	14,466,452			$	375,146			$	8,699,240			$	(13,403,786	)		$	10,137,052
Current liabilities		$	347,035			$	4,123			$	2,764,934			$	—			$	3,116,092
Intercompany payables (receivables)			8,119,268				37,514				(8,156,782	)			—				—
Long-term debt			2,220,064				199,800				43,379				—				2,463,243
Other liabilities			487,532				—				739,008				—				1,226,540
Shareholders’ equity			3,292,553				133,709				13,308,701				(13,403,786	)			3,331,177
Total liabilities and shareholders’ equity		$	14,466,452			$	375,146			$	8,699,240			$	(13,403,786	)		$	10,137,052

		Condensed Consolidating Results of Operations
		For the 39-Week Period Ended March 27, 2010
										Other
										Non-Guarantor
		Sysco				Sysco International				Subsidiaries				Eliminations				Consolidated Totals
										(In thousands)
Sales		$	—			$	—			$	26,895,018			$	—			$	26,895,018
Cost of sales			—				—				21,769,400				—				21,769,400
Gross margin			—				—				5,125,618				—				5,125,618
Operating expenses			180,871				77				3,552,888				—				3,733,836
Operating income			(180,871	)			(77	)			1,572,730				—				1,391,782
Interest expense (income)			360,170				7,600				(274,794	)			—				92,976
Other income, net			2,115				—				(4,237	)			—				(2,122	)
Earnings (losses) before income taxes			(543,156	)			(7,677	)			1,851,761				—				1,300,928
Income tax (benefit) provision			(191,525	)			(2,707	)			652,958				—				458,726
Equity in earnings of subsidiaries			1,193,833				36,003				—				(1,229,836	)			—
Net earnings		$	842,202			$	31,033			$	1,198,803			$	(1,229,836	)		$	842,202

		Condensed Consolidating Results of Operations
		For the 39-Week Period Ended March 28, 2009
										Other
										Non-Guarantor
		Sysco				Sysco International				Subsidiaries				Eliminations				Consolidated Totals
										(In thousands)
Sales		$	—			$	—			$	27,766,582			$	—			$	27,766,582
Cost of sales			—				—				22,492,837				—				22,492,837
Gross margin			—				—				5,273,745				—				5,273,745
Operating expenses			194,992				81				3,746,733				—				3,941,806
Operating income			(194,992	)			(81	)			1,527,012				—				1,331,939
Interest expense (income)			359,549				8,897				(285,403	)			—				83,043
Other income, net			(2,416	)			—				(9,134	)			—				(11,550	)
Earnings (losses) before income taxes			(552,125	)			(8,978	)			1,821,549				—				1,260,446
Income tax (benefit) provision			(227,740	)			(3,799	)			751,351				—				519,812
Equity in earnings of subsidiaries			1,065,019				34,226				—				(1,099,245	)			—
Net earnings		$	740,634			$	29,047			$	1,070,198			$	(1,099,245	)		$	740,634

		Condensed Consolidating Results of Operations
		For the 13-Week Period Ended March 27, 2010
										Other
										Non-Guarantor
		Sysco				Sysco International				Subsidiaries				Eliminations				Consolidated Totals
										(In thousands)
Sales		$	—			$	—			$	8,945,093			$	—			$	8,945,093
Cost of sales			—				—				7,261,721				—				7,261,721
Gross margin			—				—				1,683,372				—				1,683,372
Operating expenses			58,061				8				1,193,200				—				1,251,269
Operating income			(58,061	)			(8	)			490,172				—				432,103
Interest expense (income)			119,040				2,532				(93,918	)			—				27,654
Other income, net			2,475				—				(1,447	)			—				1,028
Earnings (losses) before income taxes			(179,576	)			(2,540	)			585,537				—				403,421
Income tax (benefit) provision			(68,799	)			(973	)			225,545				—				155,773
Equity in earnings of subsidiaries			358,425				8,810				—				(367,235	)			—
Net earnings		$	247,648			$	7,243			$	359,992			$	(367,235	)		$	247,648

		Condensed Consolidating Results of Operations
		For the 13-Week Period Ended March 28, 2009
										Other
										Non-Guarantor
		Sysco				Sysco International				Subsidiaries				Eliminations				Consolidated Totals
										(In thousands)
Sales		$	—			$	—			$	8,739,350			$	—			$	8,739,350
Cost of sales			—				—				7,102,274				—				7,102,274
Gross margin			—				—				1,637,076				—				1,637,076
Operating expenses			54,387				22				1,177,344				—				1,231,753
Operating income			(54,387	)			(22	)			459,732				—				405,323
Interest expense (income)			109,425				3,083				(84,275	)			—				28,233
Other income, net			(324	)			—				(3,190	)			—				(3,514	)
Earnings (losses) before income taxes			(163,488	)			(3,105	)			547,197				—				380,604
Income tax (benefit) provision			(66,350	)			(1,360	)			222,148				—				154,438
Equity in earnings of subsidiaries			323,304				6,813				—				(330,117	)			—
Net earnings		$	226,166			$	5,068			$	325,049			$	(330,117	)		$	226,166