UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29,September 27, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file number 1-6544
SYSCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1648137
(State or other jurisdiction of (IRS employer
identification
incorporation or organization) identification number)
1390 Enclave Parkway
Houston, Texas 77077-2099
(Address of principal executive offices)
(Zip code)
Registrant's telephone number, including area code: (281) 584-1390
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 X[X] No ----- -----[ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.)
Yes X[X] No ----- -----
649,630,544[ ]
647,152,436 shares of common stock were outstanding as of May 2,October 24, 2003.
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 1513
Item 3. Quantitative and Qualitative Disclosures about Market Risk 2118
Item 4. Controls and Procedures 2118
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 2319
Item 2. Changes in Securities and Use of Proceeds 2319
Item 3. Defaults Upon Senior Securities 2319
Item 4. Submission of Matters to a Vote of Security Holders 2319
Item 5. Other Information 2319
Item 6. Exhibits and Reports on Form 8-K 2319
Signatures 26
Certifications 2722
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share Data)
Mar. 29,Sept. 27, 2003 June 29,28, 2003 Sept. 28, 2002
Mar. 30, 2002
------------- ------------- ----------------------------- ---------------- ----------------
(unaudited) (unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 186,956221,544 $ 198,439337,447 $ 346,083163,189
Accounts and notes receivable, less
allowances of $64,685, $30,338$46,242, $35,005 and $73,289 1,946,819 1,760,827 1,625,314$40,967 2,123,716 2,009,627 1,869,128
Inventories 1,256,397 1,117,869 1,089,3341,313,497 1,230,080 1,226,885
Deferred taxes -- 34,188 104,99353,983 --- 41,699
Prepaid expenses 60,775 41,966 52,133
------------- ------------- -------------63,433 52,380 73,030
---------------- ---------------- ----------------
Total current assets 3,450,947 3,153,289 3,217,8573,776,173 3,629,534 3,373,931
Plant and equipment at cost, less depreciation 1,829,021 1,697,782 1,646,4651,958,067 1,922,660 1,718,941
Other assets
Goodwill and intangibles, less amortization 1,084,693 922,222 774,6941,156,358 1,113,960 922,491
Restricted cash 84,056 32,000 --125,877 83,807 57,000
Other assets 207,168 184,460 187,970
------------- ------------- -------------197,719 186,560 173,094
---------------- ---------------- ----------------
Total other assets 1,375,917 1,138,682 962,664
------------- ------------- -------------1,479,954 1,384,327 1,152,585
---------------- ---------------- ----------------
Total assets $ 6,655,8857,214,194 $ 5,989,7536,936,521 $ 5,826,986
============= ============= =============6,245,457
================ ================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 81,49287,967 $ 66,360101,822 $ 271,19550,016
Accounts payable 1,522,670 1,349,330 1,305,2451,674,898 1,637,505 1,420,276
Accrued expenses 808,094 768,317 647,781
Accrued income653,848 624,451 544,668
Income taxes 15,242 41,596 65,351351,826 9,193 38,241
Deferred taxes 250,383 -- ----- 307,211 ---
Current maturities of long-term debt 24,684 13,754 11,400
------------- ------------- -------------21,967 20,947 13,474
---------------- ---------------- ----------------
Total current liabilities 2,702,565 2,239,357 2,300,9722,790,506 2,701,129 2,066,675
Other liabilities
Long-term debt 1,279,657 1,176,307 877,0351,195,282 1,249,467 1,265,938
Deferred taxes 476,629 441,570 428,169632,939 498,396 554,690
Other long-term liabilities 270,873 289,998 164,469
---------------- ---------------- ----------------
Total other liabilities 2,099,094 2,037,861 1,985,097
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 1,000,000,000 shares, issued
765,174,900 shares 765,175 765,175 765,175
Paid-in capital 246,756 217,891 213,748278,251 249,235 233,727
Retained earnings 3,202,358 2,869,417 2,722,7393,511,438 3,373,853 2,992,849
Other comprehensive loss (152,770) (152,381) (65,435)
(65,435) (5,624)
------------- ------------- -------------
4,148,854 3,787,048 3,696,038---------------- ---------------- ----------------
4,402,094 4,235,882 3,926,316
Less cost of treasury stock, 119,159,737,
111,634,603120,395,714,
121,517,325 and 101,484,766113,371,374 shares 1,951,820 1,654,529 1,475,228
------------- ------------- -------------2,077,500 2,038,351 1,732,631
---------------- ---------------- ----------------
Total shareholders' equity 2,197,034 2,132,519 2,220,810
------------- ------------- -------------2,324,594 2,197,531 2,193,685
---------------- ---------------- ----------------
Total liabilities and shareholders' equity $ 6,655,8857,214,194 $ 5,989,7536,936,521 $ 5,826,986
============= ============= =============6,245,457
================ ================ ================
Note: The June 29, 200228, 2003 balance sheet has been derived from the audited
financial statements at that date.
2
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
------------------------------ ------------------------------
Mar. 29,------------------------------------------------
Sept. 27, 2003 Mar. 30,Sept. 28, 2002
Mar. 29, 2003 Mar 30, 2002
------------- ------------- ------------- --------------------------------- -------------------
Sales $ 19,168,4977,134,281 $ 17,039,968 $ 6,395,278 $ 5,620,3246,424,422
Costs and expenses
Cost of sales 15,396,893 13,675,331 5,144,473 4,510,0595,753,767 5,154,704
Operating expenses 2,860,385 2,552,479 962,459 851,6681,024,336 960,635
Interest expense 52,607 46,695 18,276 14,31818,631 16,828
Other, net (8,679) (1,936) (2,661) (877)
------------- ------------- ------------- -------------(1,983) (3,412)
-------------------- -------------------
Total costs and expenses 18,301,206 16,272,569 6,122,547 5,375,168
------------- ------------- ------------- -------------6,794,751 6,128,755
-------------------- -------------------
Earnings before income taxes 867,291 767,399 272,731 245,156339,530 295,667
Income taxes 331,739 293,530 104,320 93,772
------------- ------------- ------------- -------------130,719 113,093
-------------------- -------------------
Net earnings $ 535,552208,811 $ 473,869 $ 168,411 $ 151,384
============= ============= ============= =============182,574
==================== ===================
Net earnings:
Basic earnings per share $ 0.820.32 $ 0.71 $ 0.26 $ 0.23
============= ============= ============= =============0.28
==================== ===================
Diluted earnings per share $ 0.810.32 $ 0.70 $ 0.26 $ 0.23
============= ============= ============= =============0.28
==================== ===================
Average shares outstanding 652,148,645 663,289,299 649,267,210 661,144,231
============= ============= ============= =============645,862,376 654,176,221
==================== ===================
Diluted shares outstanding 662,873,939 675,028,798 657,994,124 672,528,949
============= ============= ============= =============657,274,982 663,542,498
==================== ===================
Dividends declared per common share $ 0.31 $ 0.25 $ 0.11 $ 0.09
============= ============= ============= ================================= ===================
3
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In Thousands)
3913 - Week Period Ended
------------------------------
Mar. 29,-------------------------------------------------
Sept. 27, 2003 Mar. 30,Sept. 28, 2002
------------- ---------------------------------- --------------------
Operating activities:
Net earnings $ 535,552208,811 $ 473,869182,574
Add non-cash items:
Depreciation and amortization 204,155 203,47769,679 65,796
Deferred tax provision 320,469 142,237128,924 105,609
Provision for losses on accounts receivable 24,444 25,647receivables 7,332 7,546
Additional investment in certain assets and liabilities,
net of effect of businesses acquired:
(Increase) decrease in receivables (175,262) 3,251(110,285) (115,847)
(Increase) in inventories (116,560) (43,691)(77,681) (109,016)
(Increase) in prepaid expenses (18,740) (11,647)(11,056) (31,064)
Increase in accounts payable 152,606 31,68339,307 70,946
(Decrease) in accrued expenses (2,328) (19,976)and other
long-term liabilities (45,007) (59,082)
(Decrease) increase in accrued income taxes (20,158) (57,981)(9,968) 2,342
(Increase) decrease in other assets (19,683) (2,553)
------------- -------------(14,016) 7,433
-------------------- --------------------
Net cash provided by operating activities 884,495 744,316
------------- -------------186,040 127,237
-------------------- --------------------
Investing activities:
Additions to plant and equipment (310,392) (309,343)(103,056) (88,025)
Proceeds from sales of plant and equipment 9,528 8,0241,283 4,782
Acquisition of businesses, net of cash acquired (169,492) (12,198)(31,640) (48)
Increase in restricted cash (52,056) --
------------- -------------(45,000) (25,000)
-------------------- --------------------
Net cash used for investing activities (522,412) (313,517)
------------- -------------(178,413) (108,291)
-------------------- --------------------
Financing activities:
Bank and commercial paper (repayments) borrowings 115,039 161,111(63,765) 75,509
Other debt repayments (7,432) (16,809)(3,150) (2,502)
Common stock reissued from treasury 81,971 71,61255,428 41,936
Treasury stock purchases (372,808) (282,904)(39,764) (109,899)
Dividends paid (190,336) (153,469)
------------- -------------(71,257) (59,240)
-------------------- --------------------
Net cash used for financing activities (373,566) (220,459)
------------- -------------(122,508) (54,196)
-------------------- --------------------
Effect of exchange rates on cash (1,022) ---
-------------------- --------------------
Net (decrease) increasedecrease in cash (11,483) 210,340(115,903) (35,250)
Cash at beginning of period 337,447 198,439
135,743
------------- --------------------------------- --------------------
Cash at end of period $ 186,956221,544 $ 346,083
============= =============163,189
==================== ====================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 44,45112,274 $ 44,0827,938
Income taxes 36,734 208,73010,696 8,268
4
SYSCO CORPORATION and its Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements have been prepared by the
Company,company, without audit, with the exception of the June 29, 200228, 2003
consolidated balance sheet which was taken from the audited financial
statements included in the Company'scompany's Fiscal 20022003 Annual Report on Form
10-K. The financial statements include consolidated balance sheets,
consolidated results of operations and consolidated cash flows.
Certain amounts in the prior periods presented have been reclassified
to conform to the fiscal 20032004 presentation, including the reflection of
dividends on a declared versus paid basis.other long-term
liabilities related to pension and deferred compensation plans
previously classified as accrued expenses. In the opinion of
management, all adjustments, which consist of normal recurring
adjustments, necessary to present fairly the financial position,
results of operations 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'scompany's Fiscal 20022003 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(a).
2. 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
----------------------------- -----------------------------
Mar. 29,------------------------------------
Sept. 27, 2003 Mar. 30,Sept. 28, 2002
Mar. 29, 2003 Mar. 30, 2002
------------- ------------- ------------- --------------------------- --------------
Numerator:
Numerator for basic earnings per share --
incomeIncome available to common shareholders $ 535,552,000 $ 473,869,000 $ 168,411,000 $ 151,384,000
============= ============= ============= =============$208,811,000 $182,574,000
============ ============
Denominator:
Denominator forWeighted-average basic earnings per share --
weighted-average shares 652,148,645 663,289,299 649,267,210 661,144,231
Effectoutstanding 645,862,376 654,176,221
Dilutive effect of dilutive securities:
Employeeemployee and director stock
options 10,725,294 11,739,499 8,726,914 11,384,718
------------- ------------- ------------- -------------
Denominator forOptions 11,412,606 9,366,277
------------ ------------
Weighted-average diluted earnings per share --
adjusted for weighted-average shares 662,873,939 675,028,798 657,994,124 672,528,949
============= ============= ============= =============outstanding 657,274,982 663,542,498
============ ============
Basic earnings per share $ 0.820.32 $ 0.71 $ 0.26 $ 0.23
============= ============= ============= =============0.28
============ ============
Diluted earnings per share $ 0.810.32 $ 0.70 $ 0.26 $ 0.23
============= ============= ============= =============0.28
============ ============
5
3. RESTRICTED CASH
SYSCO is required by its insurers to collateralize a part of the
self-insured portion of its workers' compensation and liability
claims. Previously, the collateral requirements were met by issuing
letters of credit. These letters of credit were replaced with funds
deposited in an insurance trust. In addition, in certain acquisitions,
SYSCO has placed funds into escrow to be disperseddisbursed to thecertain sellers
in the event that certain operating results are attained or certain
contingencies are resolved. The increase in restricted cash from June
29, 200228, 2003 to March
29,September 27, 2003 was primarily due to the timingdeposit of depositingan
additional $45,000,000 in a trust due to a change in underwriting
requirements adopted by the insurers regarding the percentage of the
overall risks collateralized. In addition, escrowed funds related to
replace letters
of credit as they expired andcertain acquisitions were released to the depositingsellers. In the second
quarter of funds into escrow
relatingfiscal 2004, SYSCO deposited an additional $45,000,000 in a
trust to recent acquisitions.meet the collateral requirements of a new insurer.
4. DEBT
As of March 29,September 27, 2003, SYSCO had uncommitted bank lines of credit
which provide for unsecured borrowings for working capital of up to
$95,000,000, of which none was outstanding at March 29,September 27, 2003.
As of March 29,September 27, 2003, SYSCO's outstanding borrowings under its
commercial paper programs were $181,350,000.$87,967,000. During the thirty-ninethirteen week
period ended March 29,September 27, 2003, commercial paper and short-term bank
borrowings ranged from approximately $55,813,000$79,458,000 to $495,703,000.$171,074,000.
5. ACQUISITIONS
In December 2002,September 2003, SYSCO International, Co. completed a registered
exchange offer for its $200,000,000 aggregate principal amount of 6.10%
notes due June 1, 2012. In the exchange offer, allacquired certain assets of the outstanding
$200,000,000 aggregate principal amount of 6.10% notes due June 1, 2012
which had been issued in a private offering in June 2002 were exchanged
for new notes which were identical in all respects to the outstanding
notes except that the new notes were registered under the Securities
Act of 1933. The new notes are fully and unconditionally guaranteed by
Sysco Corporation.
5. VENDOR CONSIDERATION
SYSCO recognizes consideration receivedStockton,
California foodservice operations from vendors when the services
performed in connection with the monies received are completed. There
are several types of cash consideration received from vendors.Smart & Final, Inc.
In many
instances, the vendor consideration is in the form of a specified
amount per case or per pound. In these instances, SYSCO will recognize
the vendor consideration as a reduction of the cost of goods sold when
the product is sold. In the instances where the vendor consideration is
structured as a volume-based incentive, SYSCO will recognize these as a
reduction of cost of goods sold when the underlying milestones are
attained and the consideration is received, as we believe that in most
cases these types of incentives are not reasonably estimated. In the
situations where the vendor consideration is not related directly to
specific product purchases, SYSCO will recognize these as a reduction
of the cost of goods sold when the earnings process is complete, the
related service is performed and the amounts realized. In certain of
these latter instances, the vendor consideration represents a
reimbursement of a specific incremental identifiable cost incurred by
SYSCO in selling the vendor's product. In these cases, SYSCO classifies
the consideration as a reduction of those costs with any excess funds
classified as a reduction of the cost of the goods sold and recognizes
these in the period where the costs are incurred and related services
performed.
In JanuarySeptember 2003, the Emerging Issues Task Force (EITF) reached a final
consensus on EITF Issue No. 02-16, "Accounting by a Customer (Including
a Reseller) for Certain
6
Consideration Received from a Vendor." EITF No. 02-16 clarifies certain
aspects for accounting and recording of consideration received from
vendors. SYSCO's historical accounting for consideration received from
vendors is consistent with the provisions of EITF 02-16; therefore, the
adoption of EITF 02-16 did not have a material impact on SYSCO's
consolidated financial statements.
6. ACQUISITIONS
In October 2002, SYSCO acquired Abbott Foods, Inc., an independently
owned broadline foodservice distributor located in Columbus, Ohio.
In October 2002, SYSCO acquired the net assets of Pronamics, the
quick-service distribution division of priszm brandz (priszm). Priszm
is the owner and operator of more than 750 quick-service restaurants in
Canada. As part of the transaction, priszm and SYSCO entered into a
distribution contract in which SYSCO will become priszm's national
Canadian distributor of all food products, paper and other merchandise.
Pronamics will be operated as a SYGMA distribution center.
In November 2002, SYSCO acquired Asian Foods, Inc., a specialty
distributor of products and services to the Asian foodservice market
located in St. Paul, Minnesota and Kansas City, Missouri.
In December 2002, a subsidiary of SYSCO acquired certain assets of
the
Denver operations of Marriott Distribution Services, Inc., a wholly
owned subsidiary of Marriott International, Inc. The acquired customer
base will be serviced by SYSCO's SYGMA subsidiary.
In April 2003, a subsidiary of SYSCO acquired the specialty meat
cutting division of the Colorado Boxed Beef Company and its affiliated
broadline foodservice operation, J&BLuzo Foodservice Corporation, located in Auburndale,
Florida.
In May 2003, a subsidiary of SYSCO acquired the paper and chemical
products distributor Reed Distributors, Inc. located in Lewiston,
Maine.New Bedford, Massachusetts.
Acquisitions of businesses are accounted for using the purchase method
of accounting and the financial statements of SYSCO include the
results of the acquired companies from the respective dates they
joined SYSCO. The acquisitions were immaterial, individually and in
the aggregate, to the consolidated financial statements.
The costpurchase price of the acquired entities wereoperations was allocated to the net
assets acquired and liabilities assumed based on the estimated fair
value at the date of acquisition with any excess of cost over the fair
value of net assets (including intangibles) acquired recognized as
goodwill.
Goodwill increased $162,471,000 from June 2002 to March 2003 primarily
due to the acquisitions mentioned above. Goodwill also increased
$29,422,000 from December 2002 to March 2003. During the third quarter
of fiscal year 2003, SYSCO recorded as costs of the acquisition of a
Canadian broadline foodservice operation and as accrued expenses
certain amounts related to plans to exit activities of the acquired
company. These amounts primarily relate to terminating leases on
facilities and equipment and to involuntarily terminating employees of
the acquired company. Total costs related to exiting activities treated
as part of the acquisition cost of the Canadian broadline foodservice
operations were approximately $16,300,000. The remainder of the
7
increase in goodwill was primarily due to increases in the Canadian
dollar to U.S. dollar exchange rate, which causes the amount of
goodwill recorded at our Canadian operations to be translated into U.S.
dollars at a greater amount, and to the settlement of stock based
contingent consideration related to prior acquisitions. The balances included in the Consolidated Balance Sheets
related to acquisitions made in the last twelve months are based upon
preliminary information and are subject to change when final asset and
liability valuations are obtained. Material changes to the preliminary
allocations are not anticipated by management.
Certain acquisitions involve contingent consideration typically
payable only in the event that certain operating results are attained.
Aggregate contingent consideration amounts outstanding as of March 29,September
27, 2003 included approximately 3,533,0001,999,000 shares and $27,057,000$28,116,000 in
cash, which, if distributed, could result in the Companycompany recording up
to $97,286,000$70,964,000 in additional goodwill. Such amounts typically are to
be paid out over periods of up to five years from the date of
acquisition.
7.
6
6. DERIVATIVE FINANCIAL INSTRUMENTS
In October 2003, SYSCO has outstanding one interest rate swap agreement with aentered into $500 million aggregate notional
amount of $200,000,000 related tointerest rate swaps as a fair value hedge against the $200,000,000 aggregate principal
amount7.00%
Senior Notes due May 2006, 7.25% Senior Notes due April 2007 and 6.10%
Senior Notes due June 2012. The swaps effectively convert the fixed
interest rate on each of 4.75%the three series of notes due July 30, 2005. Underinto a floating
rate of six-month LIBOR averaged over a six month period plus a margin
of 461, 430 and 171 basis points, respectively, which were designated
as the respective benchmark interest rates on each of the interest
ratepayment dates until maturity of the respective notes.
The terms of the swap agreement, SYSCO receives a fixed rate equal to 4.75% per annumagreements and pays a variable interest rate equal to six-month LIBORthe hedged items are such that
the hedges are considered perfectly effective against changes in arrears less
84.5 basis points. The recordedthe
fair value of the swap agreement anddebt due to changes on the related debt are carried at fair value.benchmark interest rate
over their term. As a result, the shortcut method provided by
Statement of Financial Accounting Standards (SFAS) No. 133 will be
applied and there will be no need to periodically reassess the
effectiveness of the hedges during the terms of the swaps. Interest
expense on the debt will be adjusted to include payments made or
received under the hedge agreements. The market value of the swaps
will be carried as an asset of
$14,244,000 is reflectedor a liability in Other Assets on the Consolidated Balance
Sheet as of March 29, 2003our consolidated balance
sheet and the carrying amountvalue of the relatedhedged debt has been increased by the same amount.
8.will be adjusted
accordingly.
7. INCOME TAXES
The increasechanges in the net deferred tax liability and accrued income tax
balances from June 29, 200228, 2003 to March 29,September 27, 2003 waswere primarily due
to the deferralreclassification of federal and
statecertain deferred tax liabilities related to
supply chain distributions to accrued income taxes. This
reclassification reflects the tax payments resultingto be made during the next
twelve months related to previously deferred supply chain
distributions.
The effective tax rate in fiscal 2004 is 38.50%, an increase of 0.25%
from the Company's reorganizationeffective tax rate of its supply chain.38.25% in fiscal 2003. The increase in
deferredthe effective tax liability balances
relatedrate is attributable to this item was approximately $334,000,000 for the thirty-nine
week period ended March 29, 2003. A portion of the deferral related to
this item was classified as a current deferred tax liability as of
March 29, 2003 due to the timing of when the relatedincreased state income
tax
payments will become payable.
9.taxes.
7
8. STOCK BASED COMPENSATION
SYSCO accounts for its stock option plans and the employee stock
purchase plan using the intrinsic value method of accounting provided
under APB Opinion No. 25 and related interpretations under which no
compensation cost has been recognized.
The following table provides comparative pro forma net earnings and
earnings per share had compensation cost for these plans been
determined using the fair value method of Statement Financial
Accounting Standards (SFAS)SFAS No. 123 for all periods
presented:
8
39-Week Period Ended
13-Week Period Ended
---------------------------------- ----------------------------------
Mar. 29,------------------------------------------
Sept. 27, 2003 Mar. 30, 2002 Mar. 29, 2003 Mar. 30,Sept. 28, 2002
--------------- --------------- --------------- -------------------------------
Net earnings:
Reported netNet earnings $ 535,552,000208,811,000 $ 473,869,000 $ 168,411,000 $ 151,384,000182,574,000
Stock based compensation expense, net of taxes (38,404,000) (26,800,000) (13,444,000) (10,584,000)(14,185,000) (11,610,000)
--------------- ---------------
--------------- ---------------
AdjustedPro forma net earnings $ 497,148,000194,626,000 $ 447,069,000 $ 154,967,000 $ 140,800,000
=============== ===============170,964,000
=============== ===============
Basic earnings per share:
ReportedBasic earnings per share $ 0.820.32 $ 0.71 $ 0.26 $ 0.230.28
Stock based compensation expense, net of taxes (0.06) (0.04) (0.02) (0.02)
--------------- ---------------
--------------- ---------------
AdjustedPro forma basic earnings per share $ 0.760.30 $ 0.67 $ 0.24 $ 0.21
=============== ===============0.26
=============== ===============
Diluted earnings per share:
ReportedDiluted earnings per share $ 0.810.32 $ 0.70 $ 0.26 $ 0.230.28
Stock based compensation expense, net of taxes (0.06) (0.04) (0.02) (0.02)
--------------- ---------------
--------------- ---------------
AdjustedPro forma diluted earnings per share $ 0.750.30 $ 0.66 $ 0.24 $ 0.21
=============== ===============0.26
=============== ===============
The weighted average fair value of options granted was $7.18$6.73 and $8.81$6.88
during the thirty-ninethirteen weeks ended March 29,September 27, 2003 and March 30,September 28,
2002, respectively. The fair value was estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in the thirty-ninethirteen weeks
ended March 29,September 27, 2003 and March 30,September 28, 2002, respectively:
dividend yield of 1.45%1.49% and 1.24%1.45%; expected volatility of 25%22% and 22%25%;
average risk-free interest rates of 2.7%3.2% and 4.8%2.7%; and expected lives
of 5 years.
The weighted average fair value of employee stock purchase rights
issued was $4.01$4.51 and $4.28$4.08 during the thirty-ninethirteen weeks ended March 29,September
27, 2003 and March 30,September 28, 2002, respectively. The fair value of the
stock purchase rights was calculated as the difference between the
stock price at date of issuance and the employee purchase price.
The disclosure requirements of SFAS No. 123 are applicable topro forma presentation includes options
and employee stock purchase rights granted after 1995. The
pro forma effects for the periods presented are not necessarily
indicative of the pro forma effects in future years.
8
9. COMPREHENSIVE INCOME
Comprehensive income is net earnings plus certain other items that are
recorded directly to shareholders' equity. Comprehensive income was
$208,422,000 and $182,574,000 for the thirteen weeks ended September
27, 2003 and September 28, 2002, respectively.
10. NEW ACCOUNTING STANDARDSSUPPLEMENTAL GUARANTOR INFORMATION
SYSCO adoptedInternational, Co. is an unlimited liability company organized
under the provisions of SFAS No. 142, "Accounting for Goodwill
and Other Intangible Assets" effective with the beginning of fiscal
year 2003. As a result, the amortization of goodwill was discontinued.
Management completed its assessmentlaws of the impact that the adoptionProvince of SFAS No. 142 had on the Company's consolidated financial statementsNova Scotia, Canada and determined that there was no impairment to the carrying valueis a
wholly-owned subsidiary of goodwill.
The following table provides comparative net earnings and earnings per
share had the non-amortization provision been in effect for all periods
presented:
9
39-Week Period Ended 13-Week Period Ended
--------------------------------- ---------------------------------
Mar. 29, 2003 Mar. 30, 2002 Mar. 29, 2003 Mar. 30, 2002
--------------- --------------- --------------- ---------------
Net Earnings:
Reported net earnings $ 535,552,000 $ 473,869,000 $ 168,411,000 $ 151,384,000
Goodwill amortization, net of taxes -- 15,163,000 -- 5,062,000
--------------- --------------- --------------- ---------------
Adjusted net earnings $ 535,552,000 $ 489,032,000 $ 168,411,000 $ 156,446,000
=============== =============== =============== ===============
Basic earnings per share:
Reported earnings per share $ 0.82 $ 0.71 $ 0.26 $ 0.23
Goodwill amortization, net of taxes -- 0.02 -- 0.01
--------------- --------------- --------------- ---------------
Adjusted earnings per share $ 0.82 $ 0.74 $ 0.26 $ 0.24
=============== =============== =============== ===============
Diluted earnings per share:
Reported earnings per share $ 0.81 $ 0.70 $ 0.26 $ 0.23
Goodwill amortization, net of taxes -- 0.02 -- 0.01
--------------- --------------- --------------- ---------------
Adjusted earnings per share $ 0.81 $ 0.72 $ 0.26 $ 0.23
=============== =============== =============== ===============
SYSCO adopted the provisions of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" effective with the
beginning of fiscal year 2003. The adoption of SFAS No. 144 has not had
a material effect on the Company's consolidated financial statements.
SYSCO adopted the provisions of FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." This
Interpretation requires certain guarantees to be recorded at fair value
and also requires a guarantor to make certain disclosures regarding
guarantees. This Interpretation's initial recognition and initial
measurement provisions are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. The disclosure
requirements are effective for SYSCO's financial statements for the
third quarter of fiscal 2003. The adoption of this interpretation did
not have a material impact on SYSCO's consolidated financial statements
or disclosures.
SYSCO adopted the provisions of SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148
provides alternative methods of transition to SFAS No. 123, "Accounting
for Stock-Based Compensation" fair value method of accounting for
stock-based employee compensation if a Company elects to adopt these
provisions. SFAS No. 148 also specifies required disclosures of an
entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual
and interim financial statements. These disclosure requirements are
effective for SYSCO's financial statements for the third quarter of
fiscal 2003 and have been included in footnote 9.
SYSCO adopted the provisions of the EITF Issue No. 02-16 "Accounting by
a Customer (including a Reseller) for Cash Consideration Received from
a Vendor." The provisions of EITF No. 02-16 are effective for fiscal
periods beginning after December 15, 2002 with certain provisions
effective for arrangements entered into after November 21, 2002.
SYSCO's historical accounting policies are consistent with the
provisions of EITF No. 02-16 and thus SYSCO has chosen to adopt this
accounting policy during the third quarter of fiscal 2003. EITF No.
02-16 provides guidance as to the recognition and classification of
10
monies received from vendors. The adoption of this consensus did not
have an impact on SYSCO's consolidated financial statements.
SYSCO adopted the provisions of the EITF Issue 02-17 "Recognition of
Customer Relationship Intangible Assets Acquired in a Business
Combination" effective October 2002. EITF No. 02-17 addresses the
intangible asset recognition criteria of SFAS No. 141 "Business
Combinations" and provides that an intangible asset related to customer
intangibles may exist even though the relationship is not evidenced by
a contract. The adoption of this consensus did not have a material
impact on SYSCO's consolidated financial statements.
In November 2002, the EITF reached a consensus on Issue No. 00-21
"Multiple-Deliverable Revenue Arrangements." EITF No. 00-21 addresses
how to account for revenue arrangements with multiple deliverables and
provides guidance relating to when such arrangements should be divided
into components for revenue recognition purposes. The consensus will be
effective for agreements entered into in fiscal year 2004 with early
adoption permitted. The adoption of this consensus will not have a
material impact on SYSCO's consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities, an Interpretation of Accounting Research
Bulletin (ARB) No. 51." FIN 46 introduces a new consolidation model,
the variable interests model, which determines control (and
consolidation) based on potential variability in gains and losses of
the entity being evaluated for consolidation. The interpretation's
consolidation provisions apply immediately to variable interests in
variable interest entities (VIE's) created after January 31, 2003 and
apply in the first fiscal year or interim period beginning after June
15, 2003 to VIE's acquired before February 1, 2003. The adoption of
this interpretation will not have a material impact on SYSCO's
consolidated financial statements.
11. SUPPLEMENTAL GUARANTOR INFORMATIONSYSCO. In May 2002, SYSCO International,
Co., issued, in a wholly owned subsidiary of
SYSCO, issuedprivate offering, $200,000,000 of 6.10% notes due in
2012. The notes are
fully and unconditionally guaranteed by SYSCO. TheseIn December 2002, these notes were exchanged for substantially
identical notes in an exchange offer registered under the Securities
Act of 19331933. These notes are fully and unconditionally guaranteed by
SYSCO. SYSCO International, Co. is a holding company with no
significant sources of income or assets, other than its equity
interests in December 2002.its subsidiaries and interest income from loans made to
its subsidiaries. The proceeds from the issuance of the 6.10% notes
were used to repay commercial paper issued to fund the fiscal 2002
acquisition of a Canadian broadline foodservice operation.
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 and eliminating
entries. The financial information for SYSCO includes corporate
activities as well as certain operating companies which arewere operated
as divisions of SYSCO.SYSCO prior to the third quarter of fiscal 2003.
Beginning with the third quarter of fiscal 2003, these divisions arehave
been operated as subsidiaries and their results from that point in
time are included in the Other Non-Guarantor Subsidiaries column.
11The
accompanying financial information includes the balances and results
of SYSCO International, Co. from the date of its inception in February
2002.
CONDENSED CONSOLIDATING BALANCE SHEET -- MARCH 29,SEPTEMBER 27, 2003
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
-------------- ------------------------- ------------- ------------------- -------------- -------------------------- ------------
(IN THOUSANDS)
Current assets ........................ $ 215,110163,852 $ 324 $ 3,235,8343,612,297 $ -- $ 3,450,9473,776,173
Investment in
subsidiaries ............... 7,192,974 221,311 198,586 (7,612,871)......... 7,813,065 248,713 173,071 (8,234,849) --
Plant and equipment, net .... 47,79690,797 -- 1,781,2251,867,270 -- 1,829,0211,958,067
Other assets ................. 292,880 2,017 1,081,020........... 306,834 2,064 1,171,056 -- 1,375,917
-------------- -------------- -------------- -------------- --------------1,479,954
----------- ----------- ----------- ----------- -----------
Total assets ............................ $ 7,748,7608,374,548 $ 223,331250,801 $ 6,296,6656,823,694 $(8,234,849) $ (7,612,871) $ 6,655,885
============== ============== ============== ============== ==============7,214,194
=========== =========== =========== =========== ===========
Current liabilities .............. $ 534,273128,619 $ 103,32599,243 $ 2,064,9672,562,644 $ -- $ 2,702,5652,790,506
Intercompany payables
(receivables) .............. 3,874,701 (73,140) (3,801,561)........ 4,794,622 (49,903) (4,744,719) -- --
Long-term debt ............... 1,039,400 199,415 40,842......... 938,168 199,447 57,667 -- 1,279,6571,195,282
Other liabilities ............ 103,352...... 220,144 -- 373,277683,668 -- 476,629903,812
Shareholders' equity
(deficit) .................. 2,197,034 (6,269) 7,619,140 (7,612,871) 2,197,034
-------------- -------------- -------------- -------------- --------------............ 2,292,995 2,014 8,264,434 (8,234,849) 2,324,594
----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity ........ $ 7,748,7608,374,548 $ 223,331250,801 $ 6,296,6656,823,694 $(8,234,849) $ (7,612,871) $ 6,655,885
============== ============== ============== ============== ==============7,214,194
=========== =========== =========== =========== ===========
9
CONDENSED CONSOLIDATING BALANCE SHEET -- JUNE 29, 2002
-------------------------------------------------------------------------------------28, 2003
----------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
-------------- ------------------------- ------------- ------------------- -------------- -------------------------- ------------
(IN THOUSANDS)
Current assets ........................ $ 526,259203,219 $ 10,010549 $ 2,617,0203,425,766 $ -- $ 3,153,2893,629,534
Investment in
subsidiaries ............... 5,279,299 204,064 194,854 (5,678,217)......... 7,529,006 213,247 217,315 (7,959,568) --
Plant and equipment, net .... 271,97184,023 -- 1,425,8111,838,637 -- 1,697,7821,922,660
Other assets ................. 228,320 1,418 908,944........... 254,047 2,135 1,128,145 -- 1,138,682
-------------- -------------- -------------- -------------- --------------1,384,327
----------- ----------- ----------- ----------- -----------
Total assets ............................ $ 6,305,8498,070,295 $ 215,492215,931 $ 5,146,6296,609,863 $(7,959,568) $ (5,678,217) $ 5,989,753
============== ============== ============== ============== ==============6,936,521
=========== =========== =========== =========== ===========
Current liabilities .............. $ 790,631(15,010) $ 64,55472,399 $ 1,384,1722,643,740 $ -- $ 2,239,3572,701,129
Intercompany payables
(receivables) .............. 2,353,921 (47,508) (2,306,413)........ 4,694,543 (57,185) (4,637,358) -- --
Long-term debt ............... 933,028 199,366 43,913......... 989,899 199,431 60,137 -- 1,176,3071,249,467
Other liabilities ............ 95,750...... 236,069 -- 345,820552,325 -- 441,570788,394
Shareholders' equity
(deficit) .................. 2,132,519 (920) 5,679,137 (5,678,217) 2,132,519
-------------- -------------- -------------- -------------- --------------............ 2,164,794 1,286 7,991,019 (7,959,568) 2,197,531
----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity .......equity.. $ 6,305,8498,070,295 $ 215,492215,931 $ 5,146,6296,609,863 $(7,959,568) $ (5,678,217) $ 5,989,753
============== ============== ============== ============== ==============6,936,521
=========== =========== =========== =========== ===========
CONDENSED CONSOLIDATING BALANCE SHEET --MARCH 30,-- SEPTEMBER 28, 2002
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
-------------- ------------------------- ------------- ------------------- -------------- -------------------------- ------------
(IN THOUSANDS)
Current assets ......................... $ 518,649565,283 $ 15,6754 $ 2,683,5332,808,644 $ -- $ 3,217,8573,373,931
Investment in
subsidiaries ... 5,070,868 203,449 -- (5,274,317).......... 5,492,419 203,680 195,237 (5,891,336) --
Plant and equipment, net .... 254,545277,563 -- 1,391,9201,441,378 -- 1,646,4651,718,941
Other assets ................. 208,860 8 753,796............ 241,716 1,379 909,490 -- 962,664
-------------- -------------- -------------- -------------- --------------1,152,585
----------- ----------- ----------- ----------- -----------
Total assets ............................. $ 6,052,9226,576,981 $ 219,132205,063 $ 4,829,2495,354,749 $(5,891,336) $ (5,274,317) $ 5,826,986
============== ============== ============== ============== ==============6,245,457
=========== =========== =========== =========== ===========
Current liabilities ............... $ 381,161521,915 $ 243,31054,287 $ 1,676,5011,490,473 $ -- 2,300,972$ 2,066,675
Intercompany payables
(receivables) .............. 2,542,458 (24,154) (2,518,304)......... 2,553,593 (45,376) (2,508,217) -- --
Long-term debt ............... 830,822.......... 1,023,040 199,383 43,515 -- 46,213 -- 877,0351,265,938
Other liabilities ............ 77,671....... 284,748 -- 350,498434,411 -- 428,169719,159
Shareholders' equity
(deficit) .................. 2,220,810 (24) 5,274,341 (5,274,317) 2,220,810
-------------- -------------- -------------- -------------- --------------............. 2,193,685 (3,231) 5,894,567 (5,891,336) 2,193,685
----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity ......... $ 6,052,9226,576,981 $ 219,132205,063 $ 4,829,2495,354,749 $(5,891,336) $ (5,274,317) $ 5,826,986
============== ============== ============== ============== ==============
12
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE 39-WEEK PERIOD ENDED MARCH 29, 2003
--------------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
-------------- -------------- ------------------- ------------- --------------
(IN THOUSANDS)
Sales .................................. $ 1,651,729 $ -- $ 17,516,768 $ -- $ 19,168,497
Cost of sales .......................... 1,278,537 -- 14,118,356 -- 15,396,893
Operating expenses ..................... 348,012 865 2,511,508 -- 2,860,385
Interest expense (income) .............. 250,693 7,798 (205,884) -- 52,607
Other, net ............................. 161 -- (8,840) -- (8,679)
-------------- -------------- -------------- -------------- --------------
Total costs and expenses ............... 1,877,403 8,663 16,415,140 -- 18,301,206
-------------- -------------- -------------- -------------- --------------
Earnings (losses) before
income taxes ......................... (225,674) (8,663) 1,101,628 -- 867,291
Income tax (benefit) provision ......... (86,320) (3,314) 421,373 -- 331,739
Equity in earnings of
Subsidiaries ......................... 674,906 -- -- (674,906) --
-------------- -------------- -------------- -------------- --------------
Net earnings (loss) .................... $ 535,552 $ (5,349) $ 680,255 $ (674,906) $ 535,552
============== ============== ============== ============== ==============
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE 39-WEEK PERIOD ENDED MARCH 30, 2002
--------------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
-------------- -------------- ------------------- -------------- --------------
(IN THOUSANDS)
Sales .................................. $ 2,313,384 $ -- $ 14,726,584 $ -- $ 17,039,968
Cost of sales .......................... 1,806,806 -- 11,868,525 -- 13,675,331
Operating expenses ..................... 410,462 -- 2,142,017 -- 2,552,479
Interest expense (income) .............. 202,477 38 (155,820) -- 46,695
Other, net ............................. 33 (1,969) -- (1,936)
-------------- -------------- -------------- -------------- --------------
Total costs and expenses ............... 2,419,778 38 13,852,753 -- 16,272,569
-------------- -------------- -------------- -------------- --------------
Earnings (losses) before
income taxes ......................... (106,394) (38) 873,831 -- 767,399
Income tax (benefit) provision ......... (40,696) (14) 334,240 -- 293,530
Equity in earnings of
Subsidiaries ......................... 539,567 -- -- (539,567) --
-------------- -------------- -------------- -------------- --------------
Net earnings ........................... $ 473,869 $ (24) $ 539,591 $ (539,567) $ 473,869
============== ============== ============== ============== ==============6,245,457
=========== =========== =========== =========== ===========
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE 13-WEEK PERIOD ENDED MARCH 29,SEPTEMBER 27, 2003
------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
----------- ------------- ------------------- -------------- -------------- ------------------- ------------- --------------------------
(IN THOUSANDS)
Sales ........................................................ $ -- $ -- $ 6,395,2787,134,281 $ -- $ 6,395,2787,134,281
Cost of sales ........................................ -- -- 5,144,4735,753,767 -- 5,144,4735,753,767
Operating expenses ..................... 34,685 259 927,515......... 37,555 36 986,745 -- 962,4591,024,336
Interest expense (income) .............. 98,929 2,697 (83,350).. 61,055 3,710 (46,134) -- 18,27618,631
Other, net ............................. 34 (2,695)................. (283) -- (2,661)
-------------- -------------- -------------- -------------- --------------(1,700) -- (1,983)
----------- ----------- ----------- ------------- -----------
Total costs and expenses ............... 133,648 2,956 5,985,943... 98,327 3,746 6,692,678 -- 6,122,547
-------------- -------------- -------------- -------------- --------------6,794,751
----------- ----------- ----------- ------------- -----------
Earnings (losses) before
income taxes ......................... (133,648) (2,956) 409,335............... (98,327) (3,746) 441,603 -- 272,731339,530
Income tax (benefit)
provision ......... (51,120) (1,131) 156,571................ (37,856) (1,442) 170,017 -- 104,320130,719
Equity in earnings of
Subsidiaries ......................... 250,939............. 269,282 2,826 -- (272,108) --
(250,939) --
-------------- -------------- -------------- -------------- ------------------------- ----------- ----------- ------------- -----------
Net earnings (loss) ............................ $ 168,411208,811 $ (1,825)522 $ 252,764271,586 $ (250,939)(272,108) $ 168,411
============== ============== ============== ============== ==============208,811
=========== =========== =========== ============= ===========
10
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE 13-WEEK PERIOD ENDED MARCH 30,SEPTEMBER 28, 2002
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
-------------- ------------------------- ------------- ------------------- -------------- -------------------------- ------------
(IN THOUSANDS)
Sales ....................................................... $ 725,392847,894 $ -- $ 4,894,9325,576,528 $ -- $ 5,620,3246,424,422
Cost of sales .......................... 567,743............. 655,633 -- 3,942,3164,499,071 -- 4,510,0595,154,704
Operating expenses ..................... 135,626 716,042........ 166,263 316 794,056 -- 851,668960,635
Interest expense (income) .............. 71,814 38 (57,534). 75,619 2,536 (61,327) -- 14,31816,828
Other, net ............................. 39 (916)................ (37) 1 (3,376) -- (877)
-------------- -------------- -------------- -------------- --------------(3,412)
----------- ----------- ----------- ----------- -----------
Total costs and expenses ............... 775,222 38 4,599,908.. 897,478 2,853 5,228,424 -- 5,375,168
-------------- -------------- -------------- -------------- --------------6,128,755
----------- ----------- ----------- ----------- -----------
Earnings (losses) before
income taxes ......................... (49,830) (38) 295,024.............. (49,584) (2,853) 348,104 -- 245,156295,667
Income tax (benefit)
provision ......... (19,060) (14) 112,846............... (18,966) (1,091) 133,150 -- 93,772113,093
Equity in earnings of
Subsidiaries .......................... 182,154............ 213,192 -- -- (182,154)(213,192) --
-------------- -------------- -------------- -------------- ------------------------- ----------- ----------- ----------- -----------
Net earnings ......................................... $ 151,384182,574 $ (24)(1,762) $ 182,178214,954 $ (182,154)(213,192) $ 151,384
============== ============== ============== ============== ==============182,574
=========== =========== =========== =========== ===========
13
CONDENSED CONSOLIDATING CASH FLOWS
FOR THE 39-WEEK13-WEEK PERIOD ENDED MARCH 29,SEPTEMBER 27, 2003
-------------------------------------------------------------------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES TOTALS
--------------- -------------------------- ------------- ------------------- ---------------------------
(IN THOUSANDS)
Net cash provided by (used for):
Operating activities ................................ $ (87,029)(31,972) $ 14,62541,303 $ 956,899176,709 $ 884,495186,040
Investing activities ................... (247,725)............. (55,250) -- (274,687) (522,412)(123,163) (178,413)
Financing activities ................... (383,658) 18,232 (8,140) (373,566)............. (108,295) (13,839) (374) (122,508)
Effect of exchange rate on
cash ........................... -- -- (1,022) (1,022)
Intercompany activity .................. 746,144 (42,863) (703,281)............ 114,228 (39,269) (74,959) --
--------------- --------------- --------------- ------------------------ --------- --------- ---------
Net increase (decrease) in cash ........ 27,732 (10,006) (29,209) (11,483).. (81,289) (11,805) (22,809) (115,903)
Cash at the beginning of the
period ............................... 155,461 10,006 32,972 198,439
--------------- --------------- --------------- ---------------......................... 206,043 514 130,890 337,447
--------- --------- --------- ---------
Cash at the end of the
period ........................................................ $ 183,193124,754 $ --(11,291) $ 3,763108,081 $ 186,956
=============== =============== =============== ===============221,544
========= ========= ========= =========
CONDENSED CONSOLIDATING CASH FLOWS
FOR THE 39-WEEK13-WEEK PERIOD ENDED MARCH 30,SEPTEMBER 28, 2002
------------------------------------------------------------------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES TOTALS
--------------- ------------------------- ------------- ------------------- ---------------------------
(IN THOUSANDS)
Net cash provided by (used for):
Operating activities ........... $ (306,067)(23,346) $ (32)1,287 $ 1,050,415149,296 $ 744,316127,237
Investing activities ........... (47,854)(36,026) -- (265,663) (313,517)(72,265) (108,291)
Financing activities ........... (427,850) 243,311 (35,920) (220,459)(36,833) (13,628) (3,735) (54,196)
Intercompany activity .......... 854,148 (227,603) (626,545)62,369 2,335 (64,704) --
--------------- --------------- --------------- ------------------------ --------- --------- ---------
Net increase (decrease) in cash ........... 72,377 15,676 122,287 210,340(33,836) (10,006) 8,592 (35,250)
Cash at the beginning of the
period ....................... 39,832 -- 95,911 135,743
--------------- --------------- --------------- ---------------92,447 10,006 95,986 198,439
--------- --------- --------- ---------
Cash at the end of the
period ....................... $ 112,20958,611 $ 15,676-- $ 218,198104,578 $ 346,083
=============== =============== =============== ===============163,189
========= ========= ========= =========
12.
11
11. BUSINESS SEGMENT INFORMATION
The accounting policies for the segments are the same as those
disclosed in the Company's Fiscal 2002 Annual Report on Form 10-K. The
Companycompany has aggregated its operating companies into a number of
segments, of which only Broadline and SYGMA are reportable segments as
defined in SFAS No. 131. Broadline operating companies distribute a
full line of food products and a wide variety of non-food products to
both our traditional and chain restaurant customers. SYGMA operating
companies distribute a full line of food products and a wide variety
of non-food products to some of our chain restaurant customer
locations. "Other" financial information is attributable to the
Company'scompany's other segments, including the Company'scompany's specialty produce,
meat and lodging industry products segments. The Company'scompany's Canadian
operations are not significant for geographical disclosure purposes.
Intersegment sales represent specialty produce and meat company
products distributed by the Broadline and SYGMA operating companies.
The segment results include allocation of centrally incurred costs for
shared services that eliminate upon consolidation. Centrally incurred
costs are allocated based upon the relative level of service used by
each operating company.
39-Weeks Ended 13-Weeks Ended
----------------------------------- -----------------------------------
Mar. 29,--------------------------------
Sept. 27, 2003 Mar. 30,Sept. 28, 2002
Mar. 29, 2003 Mar. 30, 2002
--------------- --------------- --------------- ----------------------------- --------------
Sales (in thousands):
Broadline $ 15,796,8065,827,089 $ 13,967,699 $ 5,247,872 $ 4,589,0665,321,257
SYGMA 2,133,252 1,956,650 713,334 648,925824,563 709,584
Other 1,429,382 1,251,424 502,378 430,951561,460 451,350
Intersegment sales (190,943) (135,805) (68,306) (48,618)
--------------- --------------- --------------- ---------------(78,831) (57,769)
----------- -----------
Total $ 19,168,4977,134,281 $ 17,039,968 $ 6,395,278 $ 5,620,324
=============== =============== =============== ===============6,424,422
=========== ===========
14
39-Weeks Ended 13-Weeks Ended
------------------------------- -------------------------------
Mar. 29,------------------------------
Sept. 27, 2003 Mar. 30,Sept. 28, 2002
Mar. 29, 2003 Mar. 30, 2002
------------- ------------- ------------- --------------------------- --------------
Earnings before income taxes
(in thousands):
Broadline $ 884,738 $ 790,219 $ 281,114 $ 250,383$343,412 $300,223
SYGMA 15,789 15,026 5,174 5,2575,341 5,238
Other 34,200 34,564 9,914 13,145
------------- ------------- ------------- -------------15,165 11,982
-------- --------
Total segments 934,727 839,809 296,202 268,785363,918 317,443
Unallocated corporate expenses (67,436) (72,410) (23,471) (23,629)
------------- ------------- ------------- -------------(24,388) (21,776)
-------- --------
Total $ 867,291 $ 767,399 $ 272,731 $ 245,156
============= ============= ============= =============$339,530 $295,667
======== ========
Mar. 29,Sept. 27, 2003 June 29,28, 2003 Sept. 28, 2002
Mar. 30, 2002-------------- ------------- ------------- ---------------------------
Assets (in thousands):
Broadline $ 4,376,676 $ 3,983,216 $ 3,593,751$4,709,015 $4,513,533 $4,149,164
SYGMA 193,914 176,093 175,453197,155 190,406 165,527
Other 469,618 424,982 425,351
------------- ------------- -------------503,578 501,236 459,835
---------- ---------- ----------
Total segments 5,040,208 4,584,291 4,194,5555,409,748 5,205,175 4,774,526
Corporate 1,615,677 1,405,462 1,632,431
------------- ------------- -------------1,804,446 1,731,346 1,470,931
---------- ---------- ----------
Total $ 6,655,885 $ 5,989,753 $ 5,826,986
============= ============= =============$7,214,194 $6,936,521 $6,245,457
========== ========== ==========
13.
12
12. 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 statements of the Companycompany when ultimately
concluded.
13. NEW ACCOUNTING STANDARDS
SYSCO adopted the provisions of SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity," effective at the beginning of fiscal 2004. The adoption of
SFAS No. 150 has not had a material effect on the company's
consolidated financial statements.
14. SHAREHOLDERS' EQUITY
On November 7, 2003, SYSCO's shareholders approved the adoption of an
amendment to SYSCO's Restated Certificate of Incorporation to increase
the number of shares of common stock that SYSCO will have the
authority to issue to two billion shares, an increase from the
previous authorization of one billion shares.
1513
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
SYSCO provides marketing and distribution services to foodservice
customers and suppliers throughout the United States and Canada. The Companycompany intends
to continue to expand its market share through profitable sales
growth, foldouts acquisitions, and constant emphasis
on the development of its consolidated buying programs.acquisitions. The Companycompany also strives to
increase the effectiveness of its marketing associates, its
consolidated buying programs and the productivity of its warehousing
and distribution activities. These objectives require continuing
investment. SYSCO's resources include cash provided by operations and
access to capital from financial markets.
The Companycompany generated $884,495,000$186,040,000 in net cash from operations for the
thirty-nine week period ended March 29, 2003,first quarter of fiscal 2004, compared with $744,316,000$127,237,000 for the
comparable period in fiscal 2002. The increase in
the deferred tax provision was primarily due to the deferral of federal
and state income tax payments resulting from the Company's
reorganization of its supply chain. The deferred tax provision related
to this item was approximately $334,000,000 for the thirty-nine week
period ended March 29, 2003 compared to $150,000,000 for the comparable
period in fiscal 2002.
A federal tax payment of $75,000,000 normally due in the fourth quarter
of fiscal 2001 was deferred until the first quarter of fiscal 2002 as
allowed by the Internal Revenue Service due to the Texas tropical storm
Allison disaster.2003.
Cash flow from operations for the thirty-nine week period ended March
29, 2003first quarter of fiscal 2004 was
negatively impacted by increases in accounts receivable balances of
$175,262,000$110,285,000 and inventory balances of $116,560,000$77,681,000 partially offset by
increases in accounts payable balances of $152,606,000.$39,307,000. The increases
in accounts receivable, balances areinventory and accounts payable were primarily
due to the increased sales volumes for the month of MarchSeptember 2003 as
compared to June 2002. In addition,2003. An additional contributor to the increase in
accounts receivable balances was sales to national contract customers.
Total national contract customer sales represented a larger percentage
of total SYSCO normally experiences higher volumes withsales in September 2003 as compared to June 2003. This
was due to normal sales patterns where sales to national contract
customers during this periodas a group are traditionally higher in September as compared
to June due to school openings. In addition, the month
of June which resultsgrowth in thesesales to
national contract customers having a greater percentage ofoutpaced the growth in SYSCO's overall
sales for this period as compared to the month of June.
The nationalsales. National contract customers'customer payment terms are traditionally
greaterlonger than the overall SYSCO average. Theaverage; thus, the increased sales volumes also
contributed to
this group of customers caused the increaseaccounts receivable balances at
September 2003 to increase. In addition, SYSCO had approximately
$37,000,000 in receivables past due at the end of fiscal 2003 from a
U.S. military contractor that was collected in the first quarter of
fiscal 2004. Accounts receivable, inventory balances and accounts payable
balances.balances at the end of the first quarter of fiscal 2003 were similarly
impacted by the traditional increases in sales volume.
The deferral of supply chain distributions was not a significant
factor in cash flow from operations in the first quarter of fiscal
2004 or the first quarter of fiscal 2003 as federal and state tax
payments are traditionally not significant in the first quarter of
SYSCO's fiscal year due to the timing of quarterly federal estimated
tax payments. Tax payments were $10,696,000 and $8,268,000, during the
first quarter of fiscal 2004 and the first quarter of fiscal 2003,
respectively.
The company will make substantial tax payments in the second quarter
of fiscal 2004 as it makes the first two quarterly federal estimated
tax payments of fiscal 2004. These federal estimated tax payments will
reflect the recognition in taxable income of supply chain
distributions which were distributed in fiscal 2004 and which had been
deferred in prior years.
The company expects the net cash flow impact of the deferral of supply
chain distributions in fiscal 2004 and beyond to be incrementally
positive when compared to what would have been paid for taxes on an
annual basis without the deferral due to the company's belief that its
volume of purchases through this structure will continue to grow.
14
Cash used for investing activities was $522,412,000$178,413,000 for the thirty-nine
week period ended March 29, 2003,first
quarter of fiscal 2004, compared with $313,517,000$108,291,000 used in the
comparable period in fiscal 2002.2003. Expenditures for facilities, fleet
and other equipment were $310,392,000$103,056,000 for the thirty-nine week
period ended March 29, 2003,first quarter of fiscal
2004, compared with $309,343,000$88,025,000 for the comparable period in fiscal
2002.2003. Total capital expenditures in fiscal 20032004 are expected to be
in the range of $425,000,000 to $450,000,000.approximately $490,000,000. Projected capital expenditures include the
continuation of the fold-out program; facility, fleet and other
equipment replacements and expansions; and the National Supply Chain
project. TheExpenditures in the first quarter of fiscal 2004 related to
the company's National Supply Chain project is expected to create a more
efficient and effective supply chain infrastructure for SYSCO, its
suppliers and its customers. Thetotaled $31,377,000 of
which $22,465,000 was capitalized. Total expenditures on the project
entails the implementationsince inception are $112,588,000 of regional distribution centers, which will aggregate inventory demand to
optimize the supply chain activities for certain products from all
SYSCO operating companies in the region. The project is expected to
achieve lower costs of inventory, transportation, product handling,
transaction processing in addition to lowering working capital
requirements and facility expansion at the operating companies.
16$66,897,000 have been
capitalized. The Northeast Redistribution Center facility is expected to be
operational in the summerfall of 2004.
During the first quarter of fiscal 2004, and will receive and redistribute
food and food-related productsSYSCO expended approximately
$31,640,000 in cash related to 14acquisitions. In September 2003, SYSCO
operating companies in the
Northeast. Total cash expended for the National Supply Chain project
has been $59,600,000 since the initiative began in fiscal 2002. Of that
figure, $29,600,000 has been expensed and the remainder has been
capitalized. When the Northeast Redistribution Center is completed,
total cash expenditures for this phaseacquired certain assets of the National Supply Chain
project are expected to be in the range of $275,000,000 to $325,000,000
which includes developmental costs and information technology systems
which will benefit a nation wide rollout. It is estimated that
approximately 75% of these costs will be capitalized and the remainder
expensed in the period incurred. Capitalized costs for additional
redistribution centers in other regions are expected to be in the range
of $65,000,000 to $75,000,000.
In October 2002, SYSCO acquired Abbott Foods,Stockton, California foodservice
operations from Smart & Final, Inc., an independently
owned broadline foodservice distributor located in Columbus, Ohio, and
the net assets of Pronamics, the quick-service distribution division of
prizm brandz located in Canada. In November 2002, SYSCO acquired Asian
Foods, Inc., a specialty distributor of products and services to the
Asian foodservice market located in St. Paul, Minnesota and Kansas
City, Missouri and a subsidiary of SYSCO
acquired certain assets of the
Denver operations of Marriott Distribution Services, Inc., a wholly
owned subsidiary of Marriott International, Inc. SYSCO expended
approximately $169,492,000 in cash related to acquisitions during the
first thirty-nine weeks of fiscal 2003.
In April 2003, a subsidiary of SYSCO acquired the specialty meat
cutting division of the Colorado Boxed Beef Company and its affiliated
broadline foodservice operation, J&BLuzo Foodservice Corporation, located in
Auburndale,
Florida. In May 2003, a subsidiary of SYSCO acquired the paper and
chemical products distributor Reed Distributors, Inc. located in
Lewiston, Maine.New Bedford, Massachusetts.
Cash used for financing activities was $373,566,000$122,508,000 for the thirty-nine
week period ended March 29, 2003,first
quarter of fiscal 2004, compared with $220,459,000$54,196,000 for the comparable
period in fiscal 2002.2003. Stock repurchases in the thirty-nine
week period ended March 29, 2003first quarter of
fiscal 2004 totaled 12,963,7001,214,800 shares at a cost of $372,808,000$39,764,000 as
compared to 11,149,1003,778,800 shares at a cost of $282,904,000$109,899,000 for the
comparable period in fiscal 2002. The2003. An additional 1,601,100 shares at a
cost of $54,057,000 have been purchased through October 31, 2003
resulting in 26,247,300 shares remaining number of
shares available for repurchase as of March 29, 2003 as
authorized by the Board was 12,599,500.as of that date.
Dividends paid in the thirty-nine week period ended March 29, 2003first quarter of fiscal 2004 were $190,336,000,$71,257,000,
or $0.29$0.11 per share, as compared to $153,469,000,$59,240,000, or $0.23$0.09 per share, in
the comparable period of fiscal 2002.2003. In FebruarySeptember 2003, SYSCO
declared its regular quarterly dividend for the fourthsecond quarter of
fiscal 2003,2004, at $0.11 per share, payable in AprilOctober 2003. In MayNovember
2003, SYSCO also declared its regular quarterly dividend for the firstthird
quarter of fiscal 2004, at $0.11increasing it to $0.13 per share, payable in
July 2003.January 2004.
As of March 29,September 27, 2003, SYSCO had uncommitted bank lines of credit,
which provide for unsecured borrowings for working capital of up to
$95,000,000, of which none was outstanding at March 29,September 27, 2003. Such
borrowings were $10,000,000 as of October 31, 2003.
As of March 29,September 27, 2003, SYSCO's borrowings under its commercial
paper programs were $181,350,000.$87,967,000. Such borrowings were $226,214,000$297,136,000 as
of May
2,October 31, 2003. During the thirty-ninethirteen week period ended March 29,September
27, 2003, commercial paper and short-term bank borrowings ranged from
approximately $55,813,000$79,458,000 to $495,703,000.
17$171,074,000.
Long-term debt to capitalization ratio was 36.8%33.9% at March 29,September 27,
2003, withinwhich was slightly below the company's long-term 35% to 40%
target ratio.
Cash generated from operations is first allocated to working capital
requirements. Any remaining cash generated from operations, as
supplemented by commercial paper and other bank borrowings, may, at
the discretion of management, be applied towards investments in
facilities, fleet and other equipment; cash dividends; acquisitions
fitting within the Company'scompany's overall growth strategy; and the share
repurchase program. Management believes that the Company'scompany's cash flows
from operations, as well as the availability of additional capital
under its existing commercial paper programs, bank lines of credit,
debt shelf registration and its
15
ability to access capital from financial markets in the future, will
be sufficient to meet its cash requirements while maintaining proper
liquidity for normal operating purposes.
Results of Operations
Sales increased 12.5%11.0% in the first quarter of fiscal 2004 over the
comparable period of the prior year. Acquisitions represented 1.9% of
the sales growth for the first quarter of fiscal 2004 and 5.4% for the
first quarter of fiscal 2003. Also contributing to sales growth was
estimated product cost increases, an internal measure of inflation, of
5.0% during the thirty-nine weeks and 13.8%first quarter of fiscal 2004 over the comparable
period in the thirdprior year. The company estimated its product cost
decreases were 2.2% during the first quarter of fiscal 2003 over the
comparable periodsperiod in the prior year. SYSCO generally expects to pass
product cost increases to its customers; however, the actual amount of
inflation reflected as sales price increases cannot be quantified.
Cost of sales increased 11.6% in the first quarter of fiscal 2004 over
the comparable period of the prior year. After adjusting for internally estimatedManagement believes that cost
of sales as a percentage to sales was impacted by many factors
including change in customer mix, segment mix, product mix and
inflation; the specific impact of each can be difficult to quantify.
Contract customer sales, which traditionally yield lower gross
margins, coupled with lower expenses, than marketing associate-served
sales, grew faster than sales to marketing associate-served sales over
the comparable period in the prior year. Sales at the SYGMA and the
Other segments, which traditionally have lower margins than the
Broadline segment, grew faster, at 19.4% combined, than sales at the
Broadline segment which grew 9.5% over the comparable period in the
prior year. In the area of product mix, fresh-cut meat sales, as an
example, continue to grow as a percentage of overall sales. These are
higher price and higher gross margin dollars per case and lower gross
margin percentage products. Increased sales of these products had the
effect of decreasing overall gross margins as a percent of sales even
as gross margin dollars increased. Higher than normal product cost
decreases
(deflation)increases also had the impact of reducing gross margins as a
percentage of sales when they are experienced with products that are
traditionally priced on a cents per pound and acquisitions, realfee per case mark-up
basis.
Operating expenses were 14.4% of sales growth was approximately 6.8% for the first thirty-nine weeks of fiscal 2003. Acquisitions
represented 6.5% of sales increases and deflation was 0.8%. This
compared to real sales growth of 1.7% for the first thirty-nine weeks
of fiscal 2002, after adjusting the 6.5% in overall sales growth by
2.6% for acquisitions and 2.2% for internally estimated product cost
increases (inflation). After adjusting the 13.8% in overall sales
growth for internally estimated inflation and acquisitions, real sales
growth was approximately 5.7% for the third quarter of fiscal
2003.
Acquisitions represented 7.3% of sales increases and inflation was
0.8%. This compared to real sales growth of 2.7% for the third quarter
of fiscal 2002, after adjusting the 5.2% in overall sales growth by
1.5% for acquisitions and 1.0% for inflation. Management believes that
the presentation of real sales growth information is useful to
investors as an indicator of the Company's organic growth without
regard to inflation and acquisitions.
Cost of sales was 80.3% for the first thirty-nine weeks and 80.4% for
the third quarter of fiscal 2003, respectively,2004, as compared to 80.3%
and 80.2%, respectively,15.0% for the comparable periodsperiod in the prior
year. The increase in cost of sales for the third quarter of fiscal 2003 was
mainly attributed to the higher cost of sales at SERCA whose results
are not reflected in the prior period as it was acquired at the end of
March 2002.
Operating expenses were 14.9% of sales for the first thirty-nine weeks
of fiscal 2003 and 15.0% for the third quarter of fiscal 2003, as
compared to 15.0% and 15.2%, respectively, for the comparable periods
in the prior year. The reductiondecrease in operating expenses as a percentage to sales was
primarily attributable to improved operating efficiencies as
demonstrated by improving trends in key expense metrics including
pieces sold per delivery, product line items sold per delivery, pieces
per trip and pieces per error. Short-term increases in operating
efficiencies driven by our investments in technology systems includingproduct costs
and the SYSCO Order Selector (SOS) and our delivery vehicle routing systems
as well as the lowerresulting increased sales price per item also impacted
expenses as a percentpercentage to sales favorably as operating costs
increased at SERCA whose
results are not reflecteda lower rate.
Operating expenses were favorably impacted by the recognition of
$4,566,000 in income in the prior period as it was acquired at the
end of March 2002.
In fiscal 2003, SYSCO adopted Statement of Financial Accounting
Standards (SFAS) No. 142, "Accounting for Goodwill and Other Intangible
Assets." Goodwill amortization for the thirty-nine weeks and the thirdfirst quarter of fiscal 2002 was $18,346,000 and $6,123,000, respectively.
The elimination of this expense item in fiscal 2003 was offset by other
corporate expenses incurred including expenses incurred related to the
National Supply Chain project of approximately $14,255,000 for the
first thirty-nine weeks of fiscal 2003 and $4,454,000 for the third
quarter of fiscal 2003, as well as charges taken2004 to adjust the
carrying value of life insurance assets to their cash surrender value
as compared to the recognition of approximately $13,156,000 fora loss of $15,469,000 in the first thirty-nine weeks of fiscal
2003 and $3,271,000 for the third
quarter of fiscal 2003.
18
Expenses recognized for these itemsThe company maintains policies on the lives of
participants in the comparable periodscompany's Supplemental Executive Retirement Plan
and the Executive Deferred Compensation Plan. Operating expenses were
negatively impacted by an increase in net periodic pension cost of
$9,986,000 in the first quarter of fiscal 2002 were not significant.
Management expects that its net pension cost related to its defined
benefit obligations for fiscal 2003 will be approximately $20,000,000
higher than fiscal 2002, or approximately $5,000,000 higher per quarter
primarily due to a previous change in management's assumptions
including those related2004 as compared to the
discount rate and expected return on
plan assets.first quarter of fiscal 2003.
Interest expense increased 12.7%10.7% during the first thirty-nine weeks and
27.6% for the third quarter of fiscal
2003, respectively,2004 over the comparable periodsperiod of the prior year, primarily due to
increased borrowing levels.interest rates.
Other net income increaseddecreased to $8,679,000$1,983,000 in the first thirty-nine weeksquarter of
fiscal 2003. The increase includes a gain2004. Changes between the years typically result from
fluctuations in miscellaneous activities such as gains or losses on
the salesales of a facility
and other miscellaneous items.facilities or equipment.
16
Income taxes for the periods presented reflect an effective rate of
38.50% for fiscal 2004 and 38.25%. for fiscal 2003. The increase in the
effective tax rate is attributable to increased state income taxes.
Pretax earnings increased 14.8% and net earnings increased 13.0%14.4% for
the first thirty-nine weeks and 11.2% for the third quarter of fiscal 20032004 over the comparable periodsperiod of the
prior year. The increases were due to the factors discussed above.
Basic and diluted earnings per share increased 15.4%14.3% for the first
thirty-nine
weeks and 13.0% for the third quarter of fiscal 20032004 over the comparable periods of the prior year. Diluted earnings per share
increased 15.7% for the first thirty-nine weeks and 13.0% for the third
quarter of fiscal 2003 over the comparable periodsperiod of the prior year.
The increases wereincrease was the result of factors discussed above as well as a
reduction of shares outstanding due to share repurchases.above.
Broadline Segment
The Broadline segment had sales increasesincreased 9.5% in the first quarter of
13.1% and 14.4% for the
thirty-nine weeks and thirteen weeks ended March 29, 2003,
respectively,fiscal 2004 as compared to the comparable period of the prior year periods.year.
This increase was due primarily to the acquisition of SERCA and Abbott, increased sales to marketing associate-served
customers and multi-unit customers, including increased sales of SYSCO
Brand products and increased sales to
multi-unit customers.products. These increases were reflected in increased sales to
the Company'scompany's existing customer base and to new customers. Excluding
Canadian operations, marketingMarketing
associate-served sales as a percentage of broadline sales increasedin the U.S.
decreased to 55.3% and 53.9%, respectively,56.0% for the thirty-nine weeks and thirteen weeks ended March 29, 2003,
respectively,first quarter of fiscal 2004 as compared to
54.8% and 54.0%, respectively,56.4% for the comparable prior year periods. Excluding Canadian operations,period. This decrease was due to
the increase in sales to national contract customers exceeding the
increase in sales to marketing associate-served customers. SYSCO Brand
sales as a percentage of broadline sales increasedin the U.S. decreased to
48.6% and
48.2%, respectively,48.8% for the thirty-nine weeks and thirteen weeks ended
March 29, 2003first quarter of fiscal 2004 as compared to 48.1%, respectively,48.9% for
the comparable prior year periods.period.
Pretax earnings for the Broadline segment increased by 12.0% and 12.3%14.4% for the
thirty-nine weeks and thirteen weeks ended March 29, 2003,
respectively,first quarter of fiscal 2004 over the comparable prior year periods.period.
The increasesincrease in pretax earnings werewas primarily due to increases in
sales to marketing
associate served customers and in sales of SYSCO Brand products, both
of which generate higher gross margins, increased operating efficiencies resulting in lower expenses
as a percentage to sales and
the acquisition of SERCA and Abbott.
19sales.
SYGMA Segment
SYGMA segment sales increased by 9.0% and 9.9%16.2% for the thirty-nine
weeks and thirteen weeks ended March 29, 2003, respectively,first quarter of fiscal
2004 over the comparable prior year periods.period. The increases wereincrease was due
primarily to sales to new customers, sales growth in SYGMA's existing
customer base and the acquisitionacquisitions of Pronamics and the Denver
operations of Marriott Distribution Services, Inc.
Pretax earnings for the SYGMA segment increased by 5.1% and decreased
by 1.6%2.0% for the thirty-nine weeks and thirteen weeks ended March 29,
2003, respectively,first
quarter of fiscal 2004 over the comparable prior year periods.period. The
increase for the thirty-nine week period was primarily a result of the increased sales and operating efficiencies. The decrease for the
thirteen week period was primarily a result of initially increasedoffset by
higher operating expenses related toand costs associated with the integration of thenewly acquired
operations.
Other SegmentSegments
Other segmentsegments sales increased by 14.2% and 16.6%24.4% for the thirty-nine
weeks and thirteen weeks ended March 29, 2003, respectively,first quarter of
fiscal 2004 over the comparable prior year periods.period. The increases wereincrease was
due to increased sales to the existing customer base, sales to new
customers, the acquisition of Asian Foods, Inc. and increased sales to
SYSCO broadlineBroadline companies.
17
Pretax earnings for the Other segment decreasedsegments increased by 1.1% and 24.6%26.6% for the
thirty-nine weeks and thirteen weeks ended March 29, 2003,
respectively,first quarter of fiscal 2004 over the comparable prior year periods.period.
The decreases
wereincrease is primarily a result of expenses incurred on a start-up operation
supplying the health care industry, decreased profits at our operations
servicing the lodging industry which has been impacted by the reduced
activity in the tourism industrysales increases and reduced profits at our specialty
meat cutting operations. The decreased profits at the specialty meat
cutting operations are primarily attributable to initially decreased
gross margins as costs increase in an inflationary period (as compared
to a deflationary period in the prior year) and increased costs
associated with entering new markets. In the third quarter, two new
specialty meat cutting operations were opened in Chicago, Illinois and
South Plainfield, New Jersey.improved
operating efficiencies.
New Accounting Standards
SYSCO adopted the provisions of SFASStatement of Financial Accounting
Standards (SFAS) No. 142,150, "Accounting for GoodwillCertain Financial
Instruments with Characteristics of Both Liabilities and Other Intangible Assets"Equity,"
effective withat the beginning of fiscal year 2003. As a result, the amortization of goodwill was discontinued.
Management has completed its preliminary assessment of the impact that
the adoption of SFAS No. 142 had on the Company's consolidated
financial statements and has concluded that there was no impairment to
the carrying value of goodwill. Goodwill amortization, net of tax, for
the first thirty-nine weeks of fiscal 2002 was $15,163,000, or $.02
earnings per share and $.02 diluted earnings per share.
SYSCO adopted the provisions of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" effective with the
beginning of fiscal year 2003.2004. The adoption of SFAS No.
144150 has not had a material effect on the Company'scompany's consolidated
financial statements.
SYSCO adopted the provisions of FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." This
interpretation requires certain guarantees to be recorded at fair value
and also requires a guarantor to make certain disclosures regarding
guarantees. This interpretation's initial recognition and initial
measurement provisions are applicable on a prospective basis to
20
guarantees issued or modified after December 31, 2002. The disclosure
requirements are effective for SYSCO's financial statements for the
third quarter of fiscal 2003. The adoption of this interpretation did
not have a material impact on SYSCO's consolidated financial statements
or disclosures.
SYSCO adopted the provisions of SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148
provides alternative methods of transition to SFAS No. 123, "Accounting
for Stock-Based Compensation" fair value method of accounting for
stock-based employee compensation if a Company elects to adopt these
provisions. SFAS No. 148 also specifies required disclosures of an
entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual
and interim financial statements. These disclosure requirements are
effective for SYSCO's financial statements for the third quarter of
fiscal 2003 and have been included in footnote 9.
SYSCO adopted the provisions of the EITF Issue No. 02-16 "Accounting by
a Customer (including a Reseller) for Cash Consideration Received from
a Vendor." The provisions of EITF No. 02-16 are effective for fiscal
periods beginning after December 15, 2002 with certain provisions
effective for arrangements entered into after November 21, 2002.
SYSCO's historical accounting policies are consistent with the
provisions of EITF No. 02-16 and thus SYSCO has chosen to adopt this
accounting policy at the current date. EITF No. 02-16 provides guidance
as to the recognition and classification of monies received from
vendors. The adoption of this consensus did not have an impact on
SYSCO's consolidated financial statements.
SYSCO adopted the provisions of the EITF Issue 02-17 "Recognition of
Customer Relationship Intangible Assets Acquired in a Business
Combination" effective October 2002. EITF No. 02-17 addresses the
intangible asset recognition criteria of SFAS No. 141 "Business
Combinations" and provides that an intangible asset related to customer
intangibles may exist even though the relationship is not evidenced by
a contract. The adoption of this consensus did not have a material
impact on SYSCO's consolidated financial statements.
In November 2002, the EITF reached a consensus on Issue No. 00-21
"Multiple-Deliverable Revenue Arrangements." EITF No. 00-21 addresses
how to account for revenue arrangements with multiple deliverables and
provides guidance relating to when such arrangements should be divided
into components for revenue recognition purposes. The consensus will be
effective for agreements entered into in fiscal year 2004 with early
adoption permitted. The adoption of this consensus will not have a
material impact on SYSCO's consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities, an Interpretation of Accounting Research
Bulletin (ARB) No. 51." FIN 46 introduces a new consolidation model,
the variable interests model, which determines control (and
consolidation) based on potential variability in gains and losses of
the entity being evaluated for consolidation. The interpretation's
consolidation provisions apply immediately to variable interests in
variable interest entities (VIE's) created after January 31, 2003 and
apply in the first fiscal year or interim period beginning after June
15, 2003 to VIE's acquired before February 1, 2003. The adoption of
this interpretation will not have a material impact on SYSCO's
consolidated financial statements.
21
Item 3. Quantitative and Qualitative Disclosures about Market Risk
SYSCO does not utilize financial instruments for trading purposes.
SYSCO's use of debt directly exposes the Company to interest rate risk.
Floating rate debt, where the interest rate fluctuates periodically,
exposes the Company to short-term changes in market interest rates.
Fixed rate debt, where the interest rate is fixed over the life of the
instrument, exposes the Company to changes in market interest rates
reflected in the fair value of the debt and to the risk the Company may
need to refinance maturing debt with new debt at a higher rate.
SYSCO manages its debt portfolio to achieve an overall desired position
of fixed and floating rates and may employ interest rate swaps as a
tool to achieve that goal. The major risks from interest rate
derivatives include changes in interest rates affecting the fair value
of such instruments, potential increases in interest expense due to
market increases in floating interest rates and the creditworthiness of
the counterparties in such transactions. At March 29, 2003, the Company
had outstanding one interest rate swap agreement whereby SYSCO
exchanged the fixed interest payments on the $200,000,000 principal
amount of 4.75% notes for floating interest rates. At March 29, 2003
the Company had outstanding $181,350,000 of commercial paper at
variable rates of interest with maturities through June 27, 2003. The
Company's remaining debt obligations of $1,204,483,000 were primarily
at fixed rates of interest except for $200,000,000 in fixed rate debt
swapped to a floating rate of interest as discussed above.
Item 4. Controls and Procedures
Within the 90-day period prior to the date of this report, an
evaluation was performed under the supervision and with the
participation of the Company's management, including the CEO and CFO,
of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on that evaluation, the
Company's management, including the CEO and CFO, concluded that the
Company's disclosure controls and procedures were effective as of the
evaluation date. There have been no significant changes in the
Company's internal controls or in other factors that could
significantly affect internal controls subsequent to the date the
Company carried out its evaluation.
Forward-Looking Statements
Certain statements made herein are forward-looking statements under
the Private Securities Litigation Reform Act of 1995. They include
statements regarding potential future repurchases under the share
repurchase program, market risks, the impact of ongoing legal
proceedings, the timing, expected operating efficiencies, cost savings and other benefits of
the National Supply Chain project, including the Northeast
Redistribution Center, anticipated capital expenditures, the ability
to increase market share, sales growth, and SYSCO's ability to meet
cash requirements while maintaining proper liquidity. These statements
involve risks and uncertainties and are based on management's current
expectations and estimates; actual results may differ materially.
Those risks and uncertainties that could impact these statements
include the risks relating to the foodservice distribution industry's
relatively low profit margins and sensitivity to general economic
conditions, including the current economic environment; SYSCO's
leverage and debt risks; the ultimate outcome of litigation; risks
relating to the successful completion and operation of the National
Supply Chain project including the Northeast Redistribution Center,
and internal factors such as the ability to control expenses.
22
In addition, share repurchases could be affected by market prices for
the Company'scompany's securities as well as management's decision to utilize
its capital for other purposes. The effect of market risks could be
impacted by future borrowing levels and certain economic factors such
as interest rates. For a more detailed discussion of these and other
factors that could cause actual results to differ from those contained
in the forward-looking statements, see the Company'scompany's Annual Report on
Form 10-K for the fiscal year ended June 29, 2002.28, 2003.
2318
Item 3. Quantitative and Qualitative Disclosures about Market Risk
SYSCO does not utilize financial instruments for trading purposes.
SYSCO's use of debt directly exposes the company to interest rate
risk. Floating rate debt, where the interest rate fluctuates
periodically, exposes the company to short-term changes in market
interest rates. Fixed rate debt, where the interest rate is fixed over
the life of the instrument, exposes the company to changes in market
interest rates reflected in the fair value of the debt and to the risk
the company may need to refinance maturing debt with new debt at a
higher rate.
SYSCO manages its debt portfolio to achieve an overall desired
position of fixed and floating rates and may employ interest rate
swaps as a tool to achieve that goal. The major risks from interest
rate derivatives include changes in interest rates affecting the fair
value of such instruments, potential increases in interest expense due
to market increases in floating interest rates and the
creditworthiness of the counterparties in such transactions. At
September 27, 2003, the company had no interest rate swaps
outstanding. At September 27, 2003, the company had outstanding
$87,967,000 of commercial paper at variable rates of interest with
maturities through February 27, 2004. The company's long-term debt
obligations at September 27, 2003 of $1,217,249,000 were primarily at
fixed rates of interest.
In October 2003, SYSCO entered into $500 million aggregate notional
amount of interest rate swaps as a fair value hedge against the 7.00%
Senior Notes due May 2006, 7.25% Senior Notes due April 2007 and 6.10%
Senior Notes due June 2012. The swaps effectively convert the fixed
interest rate on each of the three series of notes into a floating
rate of six-month LIBOR averaged over a six month period plus a margin
of 461, 430 and 171 basis points, respectively.
Item 4. Controls and Procedures
As of September 27, 2003, an evaluation was performed under the
supervision and with the participation of the company's management,
including the CEO and CFO, of the effectiveness of the design and
operation of the company's disclosure controls and procedures. Based
on that evaluation, the company's management, including the CEO and
CFO, concluded that the company's disclosure controls and procedures
were effective as of September 27, 2003 in providing reasonable
assurances that material information required to be disclosed is
included on a timely basis in the reports it files with the Securities
and Exchange Commission. Furthermore, the company's management noted
that no changes occurred during the first quarter of fiscal 2004 that
materially affected, or would be reasonably likely to materially
affect, the company's internal controls over financial reporting.
19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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 statements of the Companycompany when
ultimately concluded.
Item 2. Changes in Securities and Use of Proceeds.
NoneIn September 2003, a total of 64,452 shares of Common Stock were
issued to the former shareholders of Buckhead Beef Company
("Buckhead") pursuant to the terms of an escrow agreement
executed in connection with SYSCO's acquisition of Buckhead in
August 1999.
In September 2003, a total of 26,034 Dividend Access Shares,
convertible on a one-for-one basis into SYSCO shares, were issued
to the former owners of HRI Supply, Ltd. ("HRI") pursuant to the
terms of an escrow agreement executed in connection with SYSCO's
acquisition of HRI in May 2001.
In September 2003, a total of 64,024 shares of Common Stock were
issued to the former shareholders of Newport Meat Company
("Newport") pursuant to the terms of an escrow agreement executed
in connection with SYSCO's acquisition of Newport in July 1999.
All of the above issuances were made pursuant to the exemption
from registration provided by Section 4(2) of the Securities Act
of 1933, as amended.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
3(a) Restated Certificate of Incorporation, incorporated by
reference to Exhibit 3(a) to Form 10-K for the year ended
June 28, 1997 (File No. 1-6544).
3(b) Bylaws, as amended and restated February 8, 2002,
incorporated by reference to 3(b) Exhibit 3(b) to Form 10-Q
for the quarter ended December 29, 2001 (File No. 1-6544).
3(c) Form of Amended Certificate of Designation, Preferences and
Rights of Series
20
A Junior Participating Preferred Stock, incorporated by
reference to Exhibit 3(c) to Form 10-K for the year ended
June 29, 1996 (File No. 1-6544).
3(d) Certificate of Amendment of Certificate of Incorporation
increasing authorized shares, incorporated by reference to
Exhibit 3(d) to Form 10-Q for the quarter ended January 1,
2000 (File No. 1-6544).
4(a) Senior Debt Indenture, dated as of June 15, 1995, between
Sysco Corporation and First Union National Bank of North
Carolina, Trustee, incorporated by reference to Exhibit
4(a) to Registration Statement on Form S-3 filed June 6,
1995 (File No. 33-60023).
25
4(b) First Supplemental Indenture, dated June 27, 1995, between
Sysco Corporation and First Union National Bank of North
Carolina, Trustee, as amended, incorporated by reference to
Exhibit 4(e) to Form 10-K for the year ended June 29, 1996
(File No. 1-6544).
4(c) Second Supplemental Indenture, dated as of May 1, 1996,
between Sysco Corporation and First Union National Bank of
North Carolina, Trustee, as amended, incorporated by
reference to Exhibit 4(f) to Form 10-K for the year ended
June 29, 1996 (File No. 1-6544).
4(d) Third Supplemental Indenture, dated as of April 25, 1997,
between Sysco Corporation and First Union National Bank of
North Carolina, Trustee, incorporated by reference to
Exhibit 4(g) to Form 10-K for the year ended June 28, 1997
(File No. 1-6544).
4(e) Fourth Supplemental Indenture, dated as of April 25, 1997,
between Sysco Corporation and First Union National Bank of
North Carolina, Trustee, incorporated by reference to
Exhibit 4(h) to Form 10-K for the year ended June 28, 1997
(File No. 1-6544).
4(f) Fifth Supplemental Indenture, dated as of July 27, 1998,
between Sysco Corporation and First Union National Bank,
Trustee, incorporated by reference to Exhibit 4 (h) to Form
10-K for the year ended June 27, 1998 (File No. 1-6554).
4(g) Sixth Supplemental Indenture, including form of Note, dated
April 5, 2002 between SYSCO Corporation, as Issuer, and
Wachovia Bank, National Association (formerly First Union
National Bank of North Carolina), as Trustee, incorporated
by reference to Exhibit 4.1 to Form 8-K dated April 5, 2002
(File No. 1-6544).
4(h) Indenture dated May 23, 2002 between SYSCO International,
Co., SYSCO Corporation and Wachovia Bank, National
Association, incorporated by reference to Exhibit 4.1 to
Registration Statement on Form S-4 filed August 21, 2002
(File No. 333-98489).
4(i) Credit Agreement dated September 13, 2002 by and among
SYSCO Corporation, JPMorgan Chase Bank, individually and as
Administrative Agent, the Co-Syndication Agents named
therein and the other financial institutions party thereto,
incorporated by reference to Exhibit 4(i) to Form 10-Q for
the quarter ended September 28, 2002 (File No. 1-6544).
21
*15(a) Report from Ernst & Young LLP dated May 12,November 10, 2003, re:
unaudited financial statements.
25
*15(b) Acknowledgment letter from Ernst & Young LLP.
*99(a)*31(a) CEO Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
*31(b) CFO Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
*32(a) CEO Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*99(b)*32(b) CFO Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- -------------------------------
* Filed herewith.
(b) Reports on Form 8-K:
1. On January 27,July 11, 2003, the Companycompany filed a current report on Form 8-K
announcing under Item 5 thereof that Richard J. Schnieders,
Chairman and CEO of Sysco Corporation, entered into a stock
trading plan with Smith Barney to sell shares of stock owned by
him pursuant to Rule 10b5-1 under the Securities Exchange Act of
1934, as amended.
2. On August 11, 2003, the company filed a current report on Form
8-K announcing under Items 7 and 12 thereof the results of its
secondfourth quarter ended DecemberJune 28, 2002.2003.
2622
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYSCO CORPORATION
(Registrant)
By /s/ RICHARD J. SCHNIEDERS
-------------------------------------------------------------------------
Richard J. Schnieders
Chairman and Chief Executive Officer
Date: May 12,November 10, 2003
By /s/ JOHN K. STUBBLEFIELD, JR.
-------------------------------------------------------------------------
John K. Stubblefield, Jr.
Executive Vice President,
Finance & Administration
Date: May 12,November 10, 2003
27
CERTIFICATION
I, Richard J. Schnieders, Chairman and Chief Executive Officer of Sysco
Corporation (the "Company"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of Sysco Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
28
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
------------------------------------
/s/ RICHARD J. SCHNIEDERS
------------------------------------
Richard J. Schnieders
Chairman and Chief Executive Officer
Date: May 12, 2003
- --------------------
29
CERTIFICATION
I, John K. Stubblefield Jr., Executive Vice President, Finance and
Administration of Sysco Corporation (the "Company"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of Sysco Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report; 4.
The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls;
30
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
-----------------------------
/s/ JOHN K. STUBBLEFIELD, JR.
-----------------------------
John K. Stubblefield, Jr.
Executive Vice President,
Finance and Administration
Date: May 12, 2003
- --------------------
EXHIBIT INDEX
NO. DESCRIPTION
-------------- --------------------------------------------------- ------ -----------------------------------------------------------------------
3(a) Restated Certificate of Incorporation, incorporated by reference to
Exhibit 3(a) to Form 10-K for the year ended June 28, 1997 (File No.
1-6544).
3(b) Bylaws, as amended and restated February 8, 2002, incorporated by
reference to Exhibit 3(b) to Form 10-Q for the quarter ended December
29, 2001 (File No. 1-6544).
3(c) Form of Amended Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock, incorporated by
reference to Exhibit 3(c) to Form 10-K for the year ended June 29, 1996
(File No. 1-6544).
3(d) Certificate of Amendment of Certificate of Incorporation increasing
authorized shares, incorporated by reference to Exhibit 3(d) to
Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544).
4(a) Senior Debt Indenture, dated as of June 15, 1995, between Sysco
Corporation and First Union National Bank of North Carolina, Trustee,
incorporated by reference to Exhibit 4(a) to Registration Statement on
Form S-3 filed June 6, 1995 (File No. 33-60023).
4(b) First Supplemental Indenture, dated June 27, 1995, between Sysco
Corporation and First Union National Bank of North Carolina, Trustee,
as amended, incorporated by reference to Exhibit 4(e) to Form 10-K for
the year ended June 29, 1996 (File No. 1-6544).
4(c) Second Supplemental Indenture, dated as of May 1, 1996, between Sysco
Corporation and First Union National Bank of North Carolina, Trustee,
as amended, incorporated by reference to Exhibit 4(f) to Form 10-K for
the year ended June 29, 1996 (File No. 1-6544).
4(d) Third Supplemental Indenture, dated as of April 25, 1997, between Sysco
Corporation and First Union National Bank of North Carolina, Trustee,
incorporated by reference to Exhibit 4(g) to Form 10-K for the year
ended June 28, 1997 (File No. 1-6544).
4(e) Fourth Supplemental Indenture, dated as of April 25, 1997, between
Sysco Corporation and First Union National Bank of North Carolina,
Trustee, incorporated by reference to Exhibit 4(h) to Form 10-K for the
year ended June 28, 1997 (File No. 1-6544).
4(f) Fifth Supplemental Indenture, dated as of July 27, 1998, between Sysco
Corporation and First Union National Bank, Trustee, incorporated by
reference to Exhibit 4(h)4 (h) to Form 10-K for the year ended June 27,
1998 (File No. 1-6554).
4(g) Sixth Supplemental Indenture, including form of Note, dated April 5,
2002 between SYSCO Corporation, as Issuer, and Wachovia Bank, National
Association (formerly First Union National Bank of North Carolina), as
Trustee, incorporated by reference to Exhibit 4.1 to Form 8-K dated
April 5, 2002 (File No. 1-6544).
4(h) Indenture dated May 23, 2002 between SYSCO International, Co., SYSCO
Corporation and Wachovia Bank, National Association, incorporated by
reference to Exhibit 4.1 to Registration Statement on Form S-4 filed
August 21, 2002 (File No. 333-98489).
4(i) Credit Agreement dated September 13, 2002 by and among SYSCO
Corporation, JPMorgan Chase Bank, individually and as Administrative
Agent, the Co-Syndication Agents named therein and the other financial
institutions party thereto, incorporated by reference to Exhibit 4(i)
to Form 10-Q for the quarter ended September 28, 2002 (File No.
1-6544).
*15(a) Report from Ernst & Young LLP dated May 12,November 10, 2003, re: unaudited
financial statements.
*15(b) Acknowledgment letter from Ernst & Young LLP.
*99(a)*31(a) CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
*31(b) CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
*32(a) CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
*99(b)*32(b) CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
- ----------------------------------
* Filed herewith.