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 27,October 2, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to__________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
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] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.)
Yes [X] No [ ]
639,425,930639,793,373 shares of common stock were outstanding as of April 24,October 29, 2004.
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 1413
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
Item 4. Controls and Procedures 2322
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 2423
Item 2. Changes inUnregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of
Equity Securities 2423
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 27
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.Oct. 2, 2004 July 3, 2004 Sept. 27, 2004 June 28, 2003
Mar. 29, 2003
------------- ------------- ------------------------- ------------ --------------
(unaudited) (unaudited)
ASSETS
Current assets
Cash $ 172,695189,603 $ 337,447199,706 $ 186,956221,544
Accounts and notes receivable, less
allowances of $66,986, $35,005$45,245, $34,175 and $64,685 2,087,476 2,009,627 1,946,819$46,242 2,247,088 2,189,127 2,123,716
Inventories 1,373,251 1,230,080 1,256,3971,457,180 1,404,410 1,313,497
Deferred taxes 53,019 --- 53,983
Prepaid expenses 57,128 52,380 60,775
------------- ------------- -------------65,891 54,903 63,433
Prepaid income taxes --- 3,265 ---
----------- ----------- -----------
Total current assets 3,690,550 3,629,534 3,450,9474,012,781 3,851,411 3,776,173
Plant and equipment at cost, less depreciation 2,088,314 1,922,660 1,829,0212,196,550 2,166,809 1,958,067
Other assets
Goodwill and intangibles, less amortization 1,177,161 1,113,960 1,084,6931,221,978 1,218,700 1,156,358
Restricted cash 169,220 83,807 84,056169,439 169,326 125,877
Prepaid pension cost 307,549 243,996 ---
Other assets 201,587 186,560 207,168
------------- ------------- -------------197,509 197,390 197,719
----------- ----------- -----------
Total other assets 1,547,968 1,384,327 1,375,917
------------- ------------- -------------1,896,475 1,829,412 1,479,954
----------- ----------- -----------
Total assets $ 7,326,8328,105,806 $ 6,936,5217,847,632 $ 6,655,885
============= ============= =============7,214,194
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 105,92254,129 $ 101,82273,834 $ 81,49287,967
Accounts payable 1,717,438 1,637,505 1,522,6701,710,066 1,742,578 1,674,898
Accrued expenses 655,985 624,451 617,373
Income586,605 724,970 628,296
Accrued income taxes 67,673 9,193 15,242450,763 --- 351,826
Deferred taxes 296,567 307,211 250,383--- 422,419 ---
Current maturities of long-term debt 10,296 20,947 24,684
------------- ------------- -------------368,780 162,833 21,967
----------- ----------- -----------
Total current liabilities 2,853,881 2,701,129 2,511,8443,170,343 3,126,634 2,764,954
Other liabilities
Long-term debt 1,420,139 1,249,467 1,279,6571,082,345 1,231,493 1,195,282
Deferred taxes 561,666 498,396 476,629836,298 686,705 632,939
Other long-term liabilities 222,098 289,998 190,721
------------- ------------- -------------254,914 238,294 296,425
----------- ----------- -----------
Total other liabilities 2,203,903 2,037,861 1,947,0072,173,557 2,156,492 2,124,646
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 shares 2,000,000,000 at Mar. 27,Oct. 2, 2004
and July 3, 2004, 1,000,000,000 at June 28, 2003 and Mar.
29,Sept. 27,
2003; issued 765,174,900 shares 765,175 765,175 765,175
Paid-in capital 317,003 249,235 246,756354,910 332,041 278,251
Retained earnings 3,762,183 3,373,853 3,202,3584,102,437 3,959,714 3,511,438
Other comprehensive loss (144,862) (152,381) (65,435)
------------- ------------- -------------
4,699,499 4,235,882 4,148,854income (loss) 34,153 17,640 (152,770)
----------- ----------- -----------
5,256,675 5,074,570 4,402,094
Less cost of treasury stock, 127,201,965,
121,517,325127,086,344,
128,639,869 and 119,159,737120,395,714 shares 2,430,451 2,038,351 1,951,820
------------- ------------- -------------2,494,769 2,510,064 2,077,500
----------- ----------- -----------
Total shareholders' equity 2,269,048 2,197,531 2,197,034
------------- ------------- -------------2,761,906 2,564,506 2,324,594
----------- ----------- -----------
Total liabilities and shareholders' equity $ 7,326,8328,105,806 $ 6,936,5217,847,632 $ 6,655,885
============= ============= =============7,214,194
=========== =========== ===========
Note: The June 28, 2003July 3, 2004 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.--------------------------------
Oct. 2, 2004 Sept. 27, 2004 Mar. 29, 2003 Mar. 27, 2004 Mar. 29, 2003
------------- ------------- ------------- ---------------------------
Sales $ 21,196,3867,531,925 $ 19,168,497 $ 7,025,585 $ 6,395,2787,134,281
Costs and expenses
Cost of sales 17,107,358 15,396,893 5,684,192 5,144,4736,094,931 5,753,767
Operating expenses 3,029,682 2,860,385 1,008,493 962,4591,055,412 1,024,336
Interest expense 50,744 52,607 15,737 18,27617,699 18,631
Other, net (10,285) (8,679) (1,250) (2,661)
------------- -------------(1,969) (1,983)
------------- -------------
Total costs and expenses 20,177,499 18,301,206 6,707,172 6,122,547
------------- -------------7,166,073 6,794,751
------------- -------------
Earnings before income taxes 1,018,887 867,291 318,413 272,731365,852 339,530
Income taxes 392,271 331,739 122,589 104,320
------------- -------------139,938 130,719
------------- -------------
Net earnings $ 626,616225,914 $ 535,552 $ 195,824 $ 168,411
============= =============208,811
============= =============
Net earnings:
Basic earnings per share $ 0.970.35 $ 0.82 $ 0.31 $ 0.26
============= =============0.32
============= =============
Diluted earnings per share $ 0.950.35 $ 0.81 $ 0.30 $ 0.26
============= =============0.32
============= =============
Average shares outstanding 644,219,976 652,148,645 642,038,004 649,267,210
============= =============638,167,698 645,862,376
============= =============
Diluted shares outstanding 662,482,772 662,873,939 663,097,806 657,994,124
============= =============650,779,334 657,274,982
============= =============
Dividends declared per common share $ 0.37 $ 0.31 $ 0.13 $ 0.11
============= =============
============= =============
3
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In Thousands)
39 - Week13-Week Period Ended
-------------------------------
Mar.----------------------------
Oct. 2, 2004 Sept. 27, 2004 Mar. 29, 2003
------------- ------------------------- --------------
Operating activities:
Net earnings $ 626,616225,914 $ 535,552208,811
Add non-cash items:
Depreciation and amortization 209,054 204,15574,065 69,679
Deferred tax provision 408,139 320,469147,999 128,924
Provision for losses on receivables 23,613 24,4447,498 7,332
Additional investment in certain assets and liabilities,
net of effect of businesses acquired:
(Increase) in receivables (85,195) (175,262)(57,114) (110,285)
(Increase) in inventories (134,750) (116,560)(47,435) (77,681)
(Increase) in prepaid expenses (4,701) (18,740)
Increase(10,812) (11,056)
(Decrease) increase in accounts payable 77,154 152,606(39,571) 39,307
(Decrease) in accrued expenses, and other long-term
liabilities (60,333) (2,328)and prepaid pension cost, net (163,578) (45,007)
(Decrease) in accrued income taxes (283,980) (20,158)
(Increase)(17,174) (9,968)
Decrease (increase) in other assets (18,982) (19,683)
------------- -------------955 (14,016)
--------- ---------
Net cash provided by operating activities 756,635 884,495
------------- -------------120,747 186,040
--------- ---------
Investing activities:
Additions to plant and equipment (379,390) (310,392)(99,905) (103,056)
Proceeds from sales of plant and equipment 13,354 9,5283,496 1,283
Acquisition of businesses, net of cash acquired (34,091) (169,492)(52) (31,640)
Increase in restricted cash (90,223) (52,056)
------------- -------------(113) (45,000)
--------- ---------
Net cash used for investing activities (490,350) (522,412)
------------- -------------(96,574) (178,413)
--------- ---------
Financing activities:
Bank and commercial paper (repayments) borrowings (15,779) 115,039repayments (19,705) (63,765)
Other debt borrowings (repayments) 184,966 (7,432)
Cash from termination of interest rate swap 1,305 --54,537 (3,150)
Common stock reissued from treasury 135,816 81,97165,474 55,428
Treasury stock purchases (508,963) (372,808)(48,912) (39,764)
Dividends paid (226,271) (190,336)
------------- -------------(83,062) (71,257)
--------- ---------
Net cash used for financing activities (428,926) (373,566)
------------- -------------(31,668) (122,508)
--------- ---------
Effect of exchange rates on cash (2,111) --
------------- -------------(2,608) (1,022)
--------- ---------
Net decrease in cash (164,752) (11,483)(10,103) (115,903)
Cash at beginning of period 199,706 337,447
198,439
------------- ---------------------- ---------
Cash at end of period $ 172,695189,603 $ 186,956
============= =============221,544
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 46,87513,522 $ 44,45112,274
Income taxes 257,102 36,7345,423 10,696
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,
without audit, with the exception of the June 28, 2003July 3, 2004 consolidated balance
sheet which was taken from the audited financial statements included in
the company's Fiscal 20032004 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 2004 presentation,
including other long-term liabilities related to pension and deferred
compensation plans previously classified as accrued expenses.2005
presentation. 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's Fiscal
20032004 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.-----------------------------
Oct. 2, 2004 Sept. 27, 2004 Mar. 29, 2003
Mar. 27, 2004 Mar. 29, 2003
------------- ------------- ------------- ------------------------- --------------
Numerator:
Numerator for earnings per share --
incomeIncome available to common shareholders $ 626,616,000 $ 535,552,000 $ 195,824,000 $ 168,411,000
============= ============= ============= =============$225,914,000 $208,811,000
============ ============
Denominator:
Denominator forWeighted-average basic earnings per share --
weighted-average shares 644,219,976 652,148,645 642,038,004 649,267,210
Effectoutstanding 638,167,698 645,862,376
Dilutive effect of dilutive securities:
Employeeemployee and director stock
options 18,262,796 10,725,294 21,059,802 8,726,914
------------- ------------- ------------- -------------
Denominator for12,611,636 11,412,606
------------ ------------
Weighted-average diluted earnings per share --
Adjusted weighted-average shares 662,482,772 662,873,939 663,097,806 657,994,124
============= ============= ============= =============outstanding 650,779,334 657,274,982
============ ============
Basic earnings per share $ 0.970.35 $ 0.82 $ 0.31 $ 0.26
============= ============= ============= =============0.32
============ ============
Diluted earnings per share $ 0.950.35 $ 0.81 $ 0.30 $ 0.26
============= ============= ============= =============0.32
============ ============
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.
SYSCO has chosen to satisfy these collateral requirements by depositing
funds in insurance trusts. The increase in restricted cash from June 28,
2003 to March 27,In October 2004, was primarily duesubsequent to the depositend of anits
first fiscal quarter, SYSCO deposited approximately $16,000,000 in
additional $90,000,000funds in insurance trusts duea trust to a change in underwriting
requirements adopted by an insurer regarding the percentage of the overall
risks required to be collateralized and to meet thesatisfy ongoing collateral requirements
of a new insurer.requirements.
In addition, for certain acquisitions, SYSCO has placed funds into escrow
to be disbursed to the sellers in the event that specified operating
results are attained or contingencies are resolved. Escrowed funds related to certain acquisitions
in the amount of $4,810,000 were released to the sellers during the
thirty-nine weeks ended March 27, 2004.
4. DEBT
In March 2004, SYSCO issued 4.60% notes totaling $200,000,000 due March 15,
2014 in a private offering. These notes, which were priced at 99.943% of
par, are unsecured, are not subject to any sinking fund requirement and
include a redemption provision which allows SYSCO to retire the notes at
any time prior to maturity at the greater of par plus accrued interest or
an amount designed to ensure that the note holders are not penalized by the
early redemption. Proceeds from the notes were utilized to retire
commercial paper borrowings.
As of March 27,October 2, 2004, SYSCO had uncommitted bank lines of credit which
providedprovide for unsecured borrowings for working capital of up to $95,000,000,
of which $31,000,000$2,000,000 was outstanding.outstanding at October 2, 2004.
As of March 27,October 2, 2004, SYSCO's outstanding borrowings under its commercial
paper programs were $104,921,000.$102,115,000. During the thirty-nine week13-week period ended March 27,October
2, 2004, commercial paper and short-term bank borrowings ranged from
approximately $73,102,000$46,327,000 to $478,114,000.$253,384,000.
Included in current maturities of long-term debt at October 2, 2004 are
the 6.5% Senior Notes due June 2005 and the 4.75% Senior Notes due July
2005. It is the company's intention to fund the repayment of these notes
at maturity through issuances of commercial paper, senior notes or a
combination thereof.
5. ACQUISITIONS
In September 2003, SYSCODuring the first quarter of fiscal 2005, the company issued 178,625 shares
with a value of $3,414,000 for contingent consideration related to
operations acquired certain assets of the Stockton,
California foodservice operations of Smart & Final, Inc.
In September 2003, a subsidiary of SYSCO acquired certain assets of Luzo
Foodservice Corporation, located in New Bedford, Massachusetts.
In April 2004, a subsidiary of SYSCO acquired Overton Distributors, Inc., a
full-line fresh fruit and vegetable foodservice distributor headquartered
in Nashville, Tennessee with operations in Tennessee and North Carolina.previous fiscal years.
Acquisitions of businesses are accounted for using the purchase method of
accounting and the financial statements of SYSCO include the results of
the acquired operationscompanies from the respective dates they joined SYSCO.
The acquisitions
were immaterial, individually and inpurchase price of the aggregate,acquired operations is allocated to the consolidated
financial statements.net
assets acquired and liabilities assumed based on the estimated fair value
at the dates of acquisition with any excess of cost over the fair value of
net assets acquired, including intangibles, recognized as goodwill. The
balances included in the Consolidated Balance Sheets related to recent
acquisitions made in the last twelve months are based upon preliminary information and are subject to
change when
6 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 specified operating results are attained. Aggregate
contingent consideration amounts outstanding as of March 27,October 2, 2004
included approximately 1,337,0001,095,000 shares of common stock and $26,082,000$61,614,000 in cash, which, if
distributed, could result in the company recording of up to $54,493,000$85,050,000 in additional
goodwill. Such amounts typically are to be paid out over periods of up to
five years from the date of acquisition.
6
6. DERIVATIVE FINANCIAL INSTRUMENTS
InAs of October 2003,2, 2004, SYSCO entered into $500 million aggregatehad interest rate swaps outstanding with a
notional amount of interest rate swaps as a$500,000,000. The 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 converted 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 461, 430 and 171 basis points,
respectively, which were designated as the respective benchmark interest
rates on each of the interest payment dates until maturity of the
respective notes.
In March 2004, SYSCO terminated the $200 million aggregate notional amount
swap which was a fair value hedge against the 6.10% Senior Notes due June
2012 and received approximately $1,305,000 representing the fair value of
the swap agreement at the time of termination.
In April 2004, subsequent to the company's third quarter end, SYSCO entered
into an interest rate swap with $100 million aggregate notional amount as a
fair value hedge against $100 million of the 4.60% Senior Notes due March
2014. The swap effectively converts the fixed rate on these notes into a
floating rate of six-month LIBOR in arrears less 52 basis points, which was
designated as the respective benchmark interest rate on each of the
interest payment dates until maturity of the notes.
In May 2004, subsequent to the company's third quarter end, SYSCO entered
into an interest rate swap with $100 million aggregate notional amount as a
fair value hedge against the remaining $100 million of the 4.60% Senior
Notes due March 2014. The swap effectively converts the fixed rate on these
notes into a floating rate of six-month LIBOR in arrears less 72 basis
points, which was designated as the respective benchmark interest rate on
each of the interest payment dates until maturity of the notes.
The terms of the swap agreements and the hedged items are such that the
hedges are considered perfectly effective against changes in the fair value
of the debt due to changes in the benchmark interest rate over their term.
As a result, the shortcut method provided by Statement of Financial
Accounting Standards (SFAS) No. 133 is applied and there is no need to
periodically reassess the effectiveness of the hedges during the terms of
the swaps. Interest expense on the debt is adjusted to include payments
made or received under the hedge agreements. The market value of the swaps
is carried as an asset or a liability on the consolidated balance sheet and
the carrying value of the hedged debt is adjusted accordingly. As of March
27, 2004, the market value of the outstanding swaps
was $1,292,000,$3,173,000, which is reflected in Other Assets on the Consolidated
Balance Sheet, and the carrying amount of the related debt has been
increased by the same amount.
The amount received upon terminationin accordance with the shortcut method
provided by Statement of a swap is reflected as an increase
in the carrying value of the related debt to reflect its fair value at
termination. This increase in the carrying
7
value of the debt is amortized as a reduction of interest expense over the
remaining term of the debt.Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
7. INCOME TAXES
The changes in the net deferred tax liability and prepaid/accrued income
tax balances from June 28, 2003July 3, 2004 to March 27,October 2, 2004 were primarily due to
the reclassification of certain deferred tax liabilities related to a portion
of previously deferred supply chain
distributions to accrued income taxes
and to the payment of taxes during the fiscal year. Thetaxes. This reclassification reflects the
inclusion intax payments to be made during the company's taxable income for fiscal 2004 of
thesenext twelve months related to
previously deferred supply chain distributions. Fiscal year 2004 is
the first period that these supply chain distributions are recognized in
taxable income since the company began deferring these items for tax
purposes as a result of the reorganization of its supply chain in fiscal
year 2002. Taxes paid during the thirty-nine week period ended March 27,
2004 increased to $257,102,000 as compared to $36,734,000 during the
comparable period in the prior year, primarily as a result of the factors
described above.
The effective tax rate in fiscal 20042005 is 38.50%38.25%, an increasea decrease of 0.25% from
the effective tax rate of 38.25%38.50% in fiscal 2003.2004. The increase indetermination of the
company's overall effective tax rate is attributable to increasedrequires the use of estimates. The
effective tax rate reflects a combination of income earned and taxed in
the various U.S. federal and state, income taxes.as well as Canadian federal and
provincial jurisdictions. Jurisdictional tax law changes,
increases/decreases in permanent differences between book and tax items,
tax credits and the company's change in earnings from these taxing
jurisdictions all affect the overall effective tax rate.
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, "Accounting for Stock Issued to Employees," and related
interpretations under which no compensation costexpense has been recognized.recognized
for stock option grants.
The following table provides comparative pro forma net earnings and
earnings per share had compensation costexpense for these plans been
determined using the fair value method as set forth inof SFAS No. 123, "Accounting for
Stock-Based Compensation," for all periods presented:
39-Week Period Ended 13-Week Period Ended
------------------------------- ------------------------------
Mar.------------------------------------
Oct. 2, 2004 Sept. 27, 2004 Mar. 29, 2003
Mar. 27, 2004 Mar. 29, 2003
------------- ------------- ------------- ---------------------------- ---------------
Net earnings:
Reported net earnings $ 626,616,000225,914,000 $ 535,552,000 $ 195,824,000 $ 168,411,000208,811,000
Stock based compensation expense, net of taxes (45,697,000) (38,393,000) (15,769,000) (13,402,000)
------------- ------------- ------------- -------------
Pro forma(16,401,000) (14,185,000)
--------------- ---------------
Adjusted net earnings $ 580,919,000209,513,000 $ 497,159,000 $ 180,055,000 $ 155,009,000
============= ============= ============= =============194,626,000
=============== ===============
Basic earnings per share:
Reported basic earnings per share $ 0.970.35 $ 0.82 $ 0.31 $ 0.260.32
Stock based compensation expense, net of taxes (0.07) (0.06) (0.03) (0.02)
------------- ------------- ------------- -------------
Pro forma net--------------- ---------------
Adjusted basic earnings per share $ 0.900.32 $ 0.76 $ 0.28 $ 0.24
============= ============= ============= =============0.30
=============== ===============
Diluted earnings per share:
Reported diluted earnings per share $ 0.950.35 $ 0.81 $ 0.30 $ 0.260.32
Stock based compensation expense, net of taxes (0.07) (0.06) (0.03) (0.02)
------------- ------------- ------------- -------------
Pro forma net--------------- ---------------
Adjusted diluted earnings per share $ 0.880.32 $ 0.75 $ 0.27 $ 0.24
============= ============= ============= =============0.30
=============== ===============
87
The weighted average fair value of options granted was $6.74$7.10 and $6.88$6.73
during the thirty-nine13 weeks ended March 27,October 2, 2004 and March 29,September 27, 2003,
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-nine weeks ended March 27, 2004
and March 29, 2003, respectively: dividend yield of 1.49% and 1.45%;
expected volatility of 22% and 25%; average risk-free interest rates of
3.2% and 2.7%; and expected lives of 5 years.each period presented:
13-Week Period Ended
----------------------------
Oct. 2, 2004 Sept. 27, 2003
------------ --------------
Dividend yield 1.45% 1.49%
Expected volatility 22% 22%
Risk-free interest rate 3.4% 3.2%
Expected life 5 years 5 years
The weighted average fair value of employee stock purchase rights issued
was $4.96$5.38 and $4.27$4.51 during the thirty-nine13 weeks ended March 27,October 2, 2004 and
March 29,September 27, 2003, 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 pro forma presentation applies the fair value method toincludes only options and
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.
9. COMPREHENSIVE INCOME
Comprehensive income is net earnings plus certain other items that are recorded
directly to shareholders' equity. The amounts recorded as other
comprehensive income primarily related to foreign currency translation
adjustments of ($2,835,000)$16,513,000 and $6,770,000$(1,138,000) for the thirteen weeks and
thirty-nine13 weeks ended MarchOctober
2, 2004 and September 27, 2004,2003, respectively. Comprehensive income was
$192,989,000$242,427,000 and $168,411,000$208,422,000 for the thirteen13 weeks ended March 27,October 2, 2004 and
March 29, 2003, respectively, and $634,135,000 and $535,552,000
for the thirty-nine weeks ended MarchSeptember 27, 2004 and March 29, 2003, respectively.
10. 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 company when ultimately concluded.
11. 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.
The Financial Accounting Standards Board issued SFAS No. 132 (revised
2003), "Employers' Disclosures about Pensions and Other Postretirement
Benefits." The standard requires that companies provide additional
financial statement disclosures for defined benefit plans. These disclosure
requirements become effective for SYSCO's financial statements for the
third quarter of fiscal 2004.
12. 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.
9
13.8
11. BUSINESS SEGMENT INFORMATION
The company has aggregated its operating companies into a number of
segments, of which only Broadline and SYGMA are reportable segments as
defined in 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's other segments,
including the company's specialty produce, custom-cut meat, Asian cuisine
foodservice and hotel supplylodging industry products segments. The company'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-Weeks13-Week Period Ended
13-Weeks Ended
------------------------------- -------------------------------
Mar.----------------------------------
Oct. 2, 2004 Sept. 27, 2004 Mar. 29, 2003
Mar. 27, 2004 Mar. 29, 2003
------------- ------------- ------------- ------------------------- --------------
Sales (in thousands):
Broadline $ 17,156,5996,095,362 $ 15,796,806 $ 5,648,123 $ 5,247,8725,827,089
SYGMA 2,561,446 2,133,252 873,344 713,334915,780 824,563
Other 1,707,734 1,429,382 574,401 502,378598,666 561,460
Intersegment sales (229,393) (190,943) (70,283) (68,306)
------------- ------------- ------------- -------------(77,883) (78,831)
----------- -----------
Total $ 21,196,3867,531,925 $ 19,168,497 $ 7,025,585 $ 6,395,278
============= ============= ============= =============7,134,281
=========== ===========
39-Weeks Ended 13-Weeks13-Week Period Ended
-------------------------------
-------------------------------
Mar.Oct. 2, 2004 Sept. 27, 2004 Mar. 29, 2003
Mar. 27, 2004 Mar. 29, 2003
------------- ------------- ------------- ------------------------- --------------
Earnings before income taxes (in thousands):
Broadline $ 1,016,475369,316 $ 884,738 $ 316,016 $ 281,114339,104
SYGMA 16,271 15,789 5,005 5,1743,763 5,274
Other 55,605 34,200 20,076 9,914
------------- ------------- ------------- -------------17,097 14,976
--------- ---------
Total segments 1,088,351 934,727 341,097 296,202390,176 359,354
Unallocated corporate expenses (69,464) (67,436) (22,684) (23,471)
------------- ------------- ------------- -------------(24,324) (19,824)
--------- ---------
Total $ 1,018,887365,852 $ 867,291 $ 318,413 $ 272,731
============= ============= ============= =============339,530
========= =========
Mar.Oct. 2, 2004 July 3, 2004 Sept. 27, 2004 June 28, 2003
Mar. 29, 2003
------------- ------------- ------------------------- ------------ --------------
Assets (in thousands):
Broadline $ 4,715,149 $ 4,513,533 $ 4,376,676$4,919,553 $4,792,595 $4,709,015
SYGMA 220,768 190,406 193,914229,268 240,418 197,155
Other 538,913 501,236 469,618
------------- ------------- -------------628,529 588,275 503,578
---------- ---------- ----------
Total segments 5,474,830 5,205,175 5,040,2085,777,350 5,621,288 5,409,748
Corporate 1,852,002 1,731,346 1,615,677
------------- ------------- -------------2,328,456 2,226,344 1,804,446
---------- ---------- ----------
Total $ 7,326,832 $ 6,936,521 $ 6,655,885
============= ============= =============$8,105,806 $7,847,632 $7,214,194
========== ========== ==========
10
14.9
12. SUPPLEMENTAL GUARANTOR INFORMATION
SYSCO International, Co. is an unlimited liability company organized under
the laws of the Province of Nova Scotia, Canada and is a wholly-owned
subsidiary of SYSCO. In May 2002, SYSCO International, Co. issued, in a
private offering, $200,000,000 of 6.10% notes due in 2012. These notes are
fully and unconditionally guaranteed by SYSCO.
The following condensed consolidating financial statements present
separately the financial position, results of operations and cash flows of
the parent guarantor (SYSCO), the subsidiary issuer (SYSCO International)
and all other non-guarantor subsidiaries of SYSCO (Other Non-Guarantor
Subsidiaries) on a combined basis and eliminating entries.
The financial
information for SYSCO includes corporate activities as well as certain
operating companies which were operated as divisions of SYSCO prior to the
third quarter of fiscal 2003. Beginning with the third quarter of fiscal
2003, these divisions have been operated as subsidiaries and their results
from that point in time are included in the Other Non-Guarantor
Subsidiaries column.
CONDENSED CONSOLIDATING BALANCE SHEET -- MARCH 27,OCTOBER 2, 2004
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SYSCO OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
----------- ------------- ------------- ------------- ------------- -------------------------------- ------------ ------------
(IN THOUSANDS)
Current assets.................assets ......... $ 98,216135,485 $ 4224 $ 3,592,2923,877,272 $ -- $ 3,690,5504,012,781
Investment in
subsidiaries................. 8,322,203 259,328 172,856 (8,754,387)subsidiaries ......... 8,964,950 274,868 162,147 (9,401,965) --
Plant and equipment, net....... 144,879net 123,734 -- 1,943,4352,072,816 -- 2,088,3142,196,550
Other assets................... 349,717assets ........... 658,552 -- 1,198,2511,237,923 -- 1,547,968
------------- ------------- ------------- ------------- -------------1,896,475
----------- ----------- ----------- ----------- -----------
Total assets...................assets ........... $ 8,915,0159,882,721 $ 259,370274,892 $ 6,906,8347,350,158 $(9,401,965) $ (8,754,387) $ 7,326,832
============= ============= ============= ============= =============8,105,806
=========== =========== =========== =========== ===========
Current liabilities ............... $ 247,939624,856 $ 102,21356,620 $ 2,503,7292,488,867 $ -- $ 2,853,8813,170,343
Intercompany payables
(receivables)................ 5,061,704 (42,983) (5,018,721) ........ 5,349,593 15,901 (5,365,494) -- --
Long-term debt................. 1,166,918 199,479 53,742debt ......... 831,006 199,512 51,827 -- 1,420,1391,082,345
Other liabilities.............. 208,913liabilities ...... 370,246 -- 574,851720,966 -- 783,7641,091,212
Shareholders' equity........... 2,229,541 661 8,793,233 (8,754,387) 2,269,048
------------- ------------- ------------- ------------- -------------equity ... 2,707,020 2,859 9,453,992 (9,401,965) 2,761,906
----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity.........equity . $ 8,915,0159,882,721 $ 259,370274,892 $ 6,906,8347,350,158 $(9,401,965) $ (8,754,387) $ 7,326,832
============= ============= ============= ============= =============8,105,806
=========== =========== =========== =========== ===========
CONDENSED CONSOLIDATING BALANCE SHEET -- JUNE 28, 2003
------------------------------------------------------------------------------------JULY 3, 2004
------------------------------------------------------------------------------------------
SYSCO OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
----------- ------------- ------------- ------------- ------------- -------------------------------- ------------ ------------
(IN THOUSANDS)
Current assets.................assets .......... $ 203,219119,526 $ 54934 $ 3,425,7663,731,851 $ -- $ 3,629,5343,851,411
Investment in
subsidiaries................. 7,529,006 213,247 217,315 (7,959,568)subsidiaries .......... 8,678,729 260,501 173,986 (9,113,216) --
Plant and equipment, net....... 84,023net 114,385 -- 1,838,6372,052,424 -- 1,922,6602,166,809
Other assets................... 254,047 2,135 1,128,145assets ............ 594,811 -- 1,384,327
------------- ------------- ------------- ------------- -------------1,234,601 -- 1,829,412
----------- ----------- ----------- ----------- -----------
Total assets...................assets ............ $ 8,070,2959,507,451 $ 215,931260,535 $ 6,609,8637,192,862 $(9,113,216) $ (7,959,568) $ 6,936,521
============= ============= ============= ============= =============7,847,632
=========== =========== =========== =========== ===========
Current liabilities ................ $ (15,010)374,144 $ 72,39974,948 $ 2,643,7402,677,542 $ -- $ 2,701,1293,126,634
Intercompany payables
(receivables)................ 4,694,543 (57,185) (4,637,358) ......... 5,298,927 (14,924) (5,284,003) -- --
Long-term debt................. 989,899 199,431 60,137debt .......... 981,476 199,496 50,521 -- 1,249,4671,231,493
Other liabilities.............. 236,069liabilities ....... 326,771 -- 552,325598,228 -- 788,394924,999
Shareholders' equity........... 2,164,794 1,286 7,991,019 (7,959,568) 2,197,531
------------- ------------- ------------- ------------- -------------equity .... 2,526,133 1,015 9,150,574 (9,113,216) 2,564,506
----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity.........equity .. $ 8,070,2959,507,451 $ 215,931260,535 $ 6,609,8637,192,862 $(9,113,216) $ (7,959,568) $ 6,936,521
============= ============= ============= ============= =============7,847,632
=========== =========== =========== =========== ===========
1110
CONDENSED CONSOLIDATING BALANCE SHEET -- MARCH 29,SEPTEMBER 27, 2003
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SYSCO OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
----------- ------------- ------------- ------------- ------------- -------------------------------- ------------ ------------
(IN THOUSANDS)
Current assets..................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)subsidiaries .......... 7,813,065 248,713 173,071 (8,234,849) --
Plant and equipment, net........ 47,796net 90,797 -- 1,781,2251,867,270 -- 1,829,0211,958,067
Other assets.................... 292,880 2,017 1,081,020assets ............ 306,834 2,064 1,171,056 -- 1,375,917
------------- ------------- ------------- ------------- -------------1,479,954
----------- ----------- ----------- ----------- -----------
Total assets....................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 ................. $ 343,552123,166 $ 103,32599,243 $ 2,064,9672,542,545 $ -- $ 2,511,8442,764,954
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 40,842debt .......... 938,168 199,447 57,667 -- 1,279,6571,195,282
Other liabilities............... 294,073liabilities ....... 225,597 -- 373,277703,767 -- 667,350929,364
Shareholders' equity............ 2,197,034 (6,269) 7,619,140 (7,612,871) 2,197,034
------------- ------------- ------------- ------------- -------------equity .... 2,292,995 2,014 8,264,434 (8,234,849) 2,324,594
----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity..........equity .. $ 7,748,7608,374,548 $ 223,331250,801 $ 6,296,6656,823,694 $(8,234,849) $ (7,612,871) $ 6,655,885
============= ============= ============= ============= =============
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE 39-WEEK PERIOD ENDED MARCH 27, 2004
-------------------------------------------------------------------------------------
OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
Sales............................ $ -- $ -- $ 21,196,386 $ -- $ 21,196,386
Cost of sales.................... -- -- 17,107,358 -- 17,107,358
Operating expenses............... 79,788 81 2,949,813 -- 3,029,682
Interest expense (income)........ 184,413 10,687 (144,356) -- 50,744
Other, net....................... (197) (935) (9,153) -- (10,285)
------------- ------------- ------------- ------------- -------------
Total costs and expenses......... 264,004 9,833 19,903,662 -- 20,177,499
------------- ------------- ------------- ------------- -------------
Earnings (losses) before
income taxes.................. (264,004) (9,833) 1,292,724 -- 1,018,887
Income tax (benefit) provision... (101,641) (3,786) 497,698 -- 392,271
Equity in earnings of
subsidiaries................... 788,979 5,267 -- (794,246) --
------------- ------------- ------------- ------------- -------------
Net earnings (loss).............. $ 626,616 $ (780) $ 795,026 $ (794,246) $ 626,616
============= ============= ============= ============= =============
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE 39-WEEK PERIOD ENDED MARCH 29, 2003
-------------------------------------------------------------------------------------
OTHER
SYSCO 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...................... $ 535,552 $ (5,349) $ 680,255 $ (674,906) $ 535,552
============= ============= ============= ============= =============7,214,194
=========== =========== =========== =========== ===========
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE 13-WEEK PERIOD ENDED MARCH 27,OCTOBER 2, 2004
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SYSCO OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
----------- ------------- ------------- ------------- ------------- -------------------------------- ------------ ------------
(IN THOUSANDS)
Sales............................Sales ................... $ -- $ -- $ 7,025,5857,531,925 $ -- $ 7,025,5857,531,925
Cost of sales....................sales ........... -- -- 5,684,1926,094,931 -- 5,684,1926,094,931
Operating expenses............... 20,892 25 987,576expenses ...... 23,709 29 1,031,674 -- 1,008,4931,055,412
Interest expense (income)........ 62,762 3,266 (50,291) 74,126 3,064 (59,491) -- 15,73717,699
Other, net....................... (5) (7) (1,238)net .............. (165) -- (1,250)
------------- ------------- ------------- ------------- -------------(1,804) -- (1,969)
----------- ----------- ----------- ----------- -----------
Total costs and expenses......... 83,649 3,284 6,620,239expenses 97,670 3,093 7,065,310 -- 6,707,172
------------- ------------- ------------- ------------- -------------7,166,073
----------- ----------- ----------- ----------- -----------
Earnings (losses) before
income taxes................... (83,649) (3,284) 405,346taxes ............ (97,670) (3,093) 466,615 -- 318,413365,852
Income tax (benefit)
provision....................... (32,204) (1,265) 156,058provision................ (37,359) (1,183) 178,480 -- 122,589139,938
Equity in earnings of
subsidiaries................... 247,269 (790)Subsidiaries .......... 286,225 2,528 -- (246,479)(288,753) --
------------- ------------- ------------- ------------- ------------------------ ----------- ----------- ----------- -----------
Net earnings (loss).......................... $ 195,824225,914 $ (2,809)618 $ 249,288288,135 $ (246,479)(288,753) $ 195,824
============= ============= ============= ============= =============225,914
=========== =========== =========== =========== ===========
12
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE 13-WEEK PERIOD ENDED MARCH 29,SEPTEMBER 27, 2003
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SYSCO OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
----------- ------------- ------------- ------------- ------------- -------------------------------- ------------ ------------
(IN THOUSANDS)
Sales.......................Sales ................... $ -- $ -- $ 6,395,2787,134,281 $ -- $ 6,395,2787,134,281
Cost of sales...............sales ........... -- -- 5,144,4735,753,767 -- 5,144,4735,753,767
Operating expenses.......... 34,685 259 927,515expenses ...... 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.................. 34net .............. (283) -- (2,695)(1,700) -- (2,661)
------------- ------------- ------------- ------------- -------------(1,983)
----------- ----------- ----------- ----------- -----------
Total costs and expenses.... 133,648 2,956 5,985,943expenses 98,327 3,746 6,692,678 -- 6,122,547
------------- ------------- ------------- ------------- -------------6,794,751
----------- ----------- ----------- ----------- -----------
Earnings (losses) before
income taxes.............. (133,648) (2,956) 409,335taxes ............ (98,327) (3,746) 441,603 -- 272,731339,530
Income tax (benefit)
provision................. (51,120) (1,131) 156,571provision ............... (37,856) (1,442) 170,017 -- 104,320130,719
Equity in earnings of
subsidiaries.............. 250,939Subsidiaries .......... 269,282 2,826 -- (272,108) --
(250,939) --
------------- ------------- ------------- ------------- ------------------------ ----------- ----------- ----------- -----------
Net earnings................earnings ............ $ 168,411208,811 $ (1,825)522 $ 252,764271,586 $ (250,939)(272,108) $ 168,411
============= ============= ============= ============= =============208,811
=========== =========== =========== =========== ===========
11
CONDENSED CONSOLIDATING CASH FLOWS
FOR THE 39-WEEK13-WEEK PERIOD ENDED MARCH 27,OCTOBER 2, 2004
----------------------------------------------------------------
SYSCO OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES TOTALS
--------- ------------- ------------- ------------- -------------------------------- ------------
(IN THOUSANDS)
Net cash provided by (used for):
Operating activities...................activities ............... $ (235,736)(40,539) $ 3,8661,477 $ 988,505159,809 $ 756,635120,747
Investing activities................... (162,254)activities ............... (14,365) -- (328,096) (490,350)(82,209) (96,574)
Financing activities................... (388,381) (26,852) (13,693) (428,926)activities ............... (10,790) (21,689) 811 (31,668)
Effect of exchange rate on cash........cash..... -- -- (2,111) (2,111)(2,608) (2,608)
Intercompany activity.................. 651,937 22,472 (674,409)activity .............. 54,084 20,212 (74,296) --
------------- ------------- ------------- ---------------------- --------- --------- ---------
Net (decrease) increase in cash................. (134,434) (514) (29,804) (164,752)cash.... (11,610) -- 1,507 (10,103)
Cash at the beginning of the
period.... 206,043 514 130,890 337,447
------------- ------------- ------------- -------------period ........................... 87,507 -- 112,199 199,706
--------- --------- --------- ---------
Cash at the end of the
period..........period ........................... $ 71,60975,897 $ -- $ 101,086113,706 $ 172,695
============= ============= ============= =============189,603
========= ========= ========= =========
CONDENSED CONSOLIDATING CASH FLOWS
FOR THE 39-WEEK13-WEEK PERIOD ENDED MARCH 29,SEPTEMBER 27, 2003
---------------------------------------------------------------------------------------------------------------------------------
SYSCO OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES TOTALS
--------- ------------- ------------- ------------- -------------------------------- ------------
(IN THOUSANDS)
Net cash provided by (used for):
Operating activities..............activities ........... $ (87,029)(31,972) $ 14,62541,303 $ 956,899176,709 $ 884,495186,040
Investing activities.............. (247,725)activities ........... (55,250) -- (274,687) (522,412)(123,163) (178,413)
Financing activities.............. (383,658) 18,232 (8,140) (373,566)activities ........... (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)activity .......... 114,228 (39,269) (74,959) --
------------- ------------- ------------- ---------------------- --------- --------- ---------
Net increase (decrease) in cash... 27,732 (10,006) (29,209) (11,483)cash ......... (81,289) (11,805) (22,809) (115,903)
Cash at the beginning of the
period.......................... 155,461 10,006 32,972 198,439
------------- ------------- ------------- -------------period ....................... 206,043 514 130,890 337,447
--------- --------- --------- ---------
Cash at the end of the
period..........................period ....................... $ 183,193124,754 $ --(11,291) $ 3,763108,081 $ 186,956
============= ============= ============= =============221,544
========= ========= ========= =========
13
15.13. EMPLOYEE BENEFIT PLANS
The components of net benefit cost for the thirty-nine week13-week periods presented are
as follows:
Pension Benefits Other Postretirement Plans
------------------------------ ------------------------------
Mar.-------------------------------- -------------------------------
Oct. 2, 2004 Sept. 27, 2003 Oct. 2, 2004 Mar. 29,Sept. 27, 2003
Mar. 27, 2004 Mar. 29, 2003
------------- ------------- ------------- ------------------------- -------------- ------------ --------------
Service cost $ 56,199,00020,322,000 $ 38,854,00018,733,000 $ 316,000120,000 $ 238,000105,000
Interest cost 45,873,000 38,106,000 302,000 279,00018,456,000 15,291,000 122,000 101,000
Expected return on plan assets (45,861,000) (34,847,000)(20,653,000) (15,287,000) -- --
Amortization of prior service cost 981,000 3,110,000 151,000 152,000
Recognized net actuarial loss (gain) 28,274,000 11,507,000 (30,000) (92,000)
Amortization of net transition
obligation 209,000 (414,000) 115,000 114,000
------------- ------------- ------------- -------------
Net periodic benefit cost $ 85,675,000 $ 56,316,000 $ 854,000 $ 691,000
============= ============= ============= =============
The components of net benefit cost for the thirteen week periods presented
are as follows:
Pension Benefits Other Postretirement Plans
------------------------------ ------------------------------
Mar. 27, 2004 Mar. 29, 2003 Mar. 27, 2004 Mar. 29, 2003
------------- ------------- ------------- -------------
Service cost $ 18,733,000 $ 12,951,000 $ 105,000 $ 79,000
Interest cost 15,291,000 12,702,000 101,000 93,000
Expected return on plan assets (15,287,000) (11,616,000) -- --
Amortization of prior service cost 327,000 236,000440,000 328,000 50,000 50,000
Recognized net actuarial loss (gain) 9,425,000 3,836,0008,151,000 9,424,000 -- (10,000) (30,000)
Amortization of net transition
obligation 70,000 (138,000) 38,000 38,000
------------- ------------- ------------- --------------- 69,000 39,000 39,000
------------ ------------ ------------ ------------
Net periodic benefit cost $ 28,559,00026,716,000 $ 17,971,00028,558,000 $ 284,000331,000 $ 230,000
============= ============= ============= =============285,000
============ ============ ============ ============
SYSCO's contributions to its defined benefit plans were $164,012,000$81,485,000 and
$41,293,000 during the 13-week periods ended October 2, 2004 and September
27, 2003, respectively.
12
14. MANAGEMENT INCENTIVE COMPENSATION
In September 2004, SYSCO adopted the 2004 Long-Term Incentive Cash Plan
(the Cash Plan) under which key employees have the opportunity to earn
cash incentive payments based on a performance period of at least three
years. In September 2004, performance units were awarded under the Cash
Plan which could result in a maximum aggregate payout after the three-year
performance period which includes fiscal years 2005 through the thirty-nine weeks ended March 27, 2004. The company does not
expect to make significant additional contributions this fiscal year.
Contributions in fiscal year 2003 were $164,565,000,2007 of
which approximately
$46,183,000 were made through the thirty-nine week period ended March 29,
2003.$23,454,000.
1413
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
HIGHLIGHTS
Sales increased 10.6%This discussion should be read in conjunction with our financial
statements as of July 3, 2004, and the fiscal year then ended, and
Management's Discussion and Analysis of Financial Condition and Results
of Operations, both contained in our Annual Report on Form 10-K for the
first thirty-nine weeks and 9.9% forfiscal year ended July 3, 2004.
HIGHLIGHTS
The company faced a number of challenges in the thirdfirst quarter of fiscal
20042005, including hurricanes and the related severe weather and rising
fuel costs. Sales increased 5.6% in the first quarter of fiscal 2005
over the comparable prior year periods.period. Gross margins as a percent toof
sales for both the first thirty-nine weeks and
third quarter of fiscal 20042005 decreased from the
comparable prior year periodsperiod due to the impact of product cost
increases and changes in customer mix and segment mix, product mix and
inflation.mix. Operating
expenses as a percent toof sales for both the first
thirty-nine weeks and third quarter of fiscal 20042005
decreased from the comparable prior year periodsperiod due to operating
efficiencies and operating costs increasing at lower rates than the
sales price increases driven by product cost inflation. Operating
expenses were negatively impacted by increased pension costs and expenses
incurred in connection with the national supply chain initiative. During
both the first thirty-nine weeks and the third quarter of fiscal 2004, the
company also recorded gains related to the cash surrender value of life
insurance assets.increases. Primarily as a
result of these factors, net earnings increased 17.0% for8.2% in the first thirty-nine weeks and 16.3% for the third
quarter of fiscal 20042005 over the comparable prior year periods.period.
Management believes that prolonged periods of rising product costs
together with general economic conditions, including increased fuel
costs, contributed to the softness in the foodservice market and thus a
slowing of SYSCO's sales growth beginning in the latter half of the
fourth quarter of fiscal 2004 and continuing in fiscal 2005. The
company continues to focus on customer account penetration and expense
controls, including managing labor costs, productivity and ongoing
benchmarking and sharing of best practices at the operating companies.
OVERVIEW
SYSCO distributes food and food related products to the foodservice
industry including restaurants, healthcare and educational facilities,
lodging establishments and other foodservice customers. SYSCO's
operations are located throughout the United States and Canada and
include broadline companies, specialty produce companies, custom-cut
meat operations, Asian cuisine foodservice, hotel supply operations, and
SYGMA, the company's chain restaurant distribution subsidiary.subsidiary, and a
company that distributes to internationally-located chain restaurants.
The company estimates that it serves about 13%more than 14% of an approximately
$200$207 billion annual foodservice market that includes the North American
foodservice, non-food and hotel amenity, furniture and textile markets.
The foodservice, or food-prepared-away-from-home, market represents
approximately one-half of the total food purchases made at the consumer
levellevel. This share has grown from about 37% thirty years ago,in 1972, since food
purchases in the foodservice industry have grown more rapidly than food
purchases in the retail grocery industry over most of that time period.
Factors influencing this trend, and therefore SYSCO's growth, include
increases in dual-worker and single-parent families; busier lifestyles;
the general aging of the population; growing affluence; and the
increasing demand for the variety, convenience and entertainment
afforded by the proliferation of restaurants and other foodservice
operations. Industry statisticians and demographers expect most of
these general trends to continue, although they may not continue at the
same pace.
14
General economic conditions and consumer confidence can have an effect onaffect the
frequency and amount spent by consumers for food prepared away from
home and therefore on SYSCO.in turn can impact SYSCO's sales. However, we have
consistently grown at a faster rate than the overall industry and have
grown our market share in this fragmented industry.
The company intends to continue to expand its market share and grow
earnings through strategies which include:
- Profitable sales growth: In addition to expansion through foldouts
(new operating companies created in established markets previously
served by other SYSCO operating companies) and a disciplined
acquisition program, refining the use of customer purchasing
potential and profitability data in targeting new customers,
deepening relationships with existing customers, tailoring products
and services and
15
allocating associated resources by customer, and
managing the profitability of, or exiting, low profit or
unprofitable customers.
- Brand management: Leveraging brand strength to grow sales and
profitability while ensuring strict quality control processes and
providing greater value to customers.
- Productivity: Deploying the latest technology and leveragingimplementing best
business practices to improve operating efficiencies and leverage
expenses to sales growth.
- Sales force effectiveness: Targeted recruiting, training and
compensation of marketing associates. Expanding the business
development and business review functions to further strengthen our
marketing associate-customercustomer relationships.
- Supply chain optimization: Creating a more efficient and effective
supply chain infrastructure through the national supply
chain initiative.National Supply Chain
project.
The company's national supply chain initiativeNational Supply Chain project is intended to optimize the
supply chain activities for certain products from SYSCO's operating companies
in each respective region and as a result, lower inventory and
operating costs, reduce working capital requirements and reduce future facility
expansion needs at SYSCO's operating companies while providing greater
value to our suppliers and customers. The company expects to build from
fiveseven to tennine regional distribution centers over a period of ten years.
The first regional distribution centerof which, the Northeast Redistribution Center located in
the NortheastFront Royal, Virginia, is expected to be operational in February 2005.
The company expects to begin construction of its second regional
redistribution facility, to be located in the Southeast, in the next
six months.
Management estimates that additional expenses related to the Northeast
Redistribution Center over what was incurred in fiscal 2004 will have a
negative impact of $0.04 to $0.05 on earnings per share during fiscal
2005. In fiscal 2006, the incremental benefits of the project are
expected to offset any further incremental costs, and management
estimates that there could be a slight, perhaps a one-half cent,
contribution to earnings per share in fiscal 2006.
1615
RESULTS OF OPERATIONS
The following table sets forth the components of the Results of
Operations expressed as a percentage of sales for the periods
indicated:
39-Week Period Ended 13-Week Period Ended
------------------------------ ------------------------------
Mar.----------------------------
Oct. 2, 2004 Sept. 27, 2004 Mar. 29, 2003
Mar. 27, 2004 Mar. 29, 2003
------------- ------------- ------------- ------------------------- --------------
Sales 100.0% 100.0% 100.0% 100.0%
Costs and Expenses
Cost of sales 80.7 80.3 80.9 80.480.6
Operating expenses 14.3 14.914.0 14.4
15.1
Interest expense 0.2 0.3 0.2 0.3
Other, net 0.0 0.0
0.0 (0.1)
----- ----- ----- -----
Total costs and expenses 95.2 95.5 95.5 95.7
----- -----95.1 95.3
----- -----
Earnings before income taxes 4.8 4.5 4.5 4.34.9 4.7
Income taxes 1.9 1.8 1.7 1.7 1.7
----- -----
----- -----
Net earnings 3.0% 2.8% 2.8% 2.6%
===== =====2.9%
===== =====
The following table sets forth the change in the components of the
Results of Operations expressed as a percentage increase or decrease
over the comparable period in the prior year:
% Increase (Decrease)
--------------------------------
39-Week Period 13-Week Period
--------------
--------------
Sales 10.6% 9.9%5.6%
Costs and Expenses
Cost of sales 11.1 10.55.9
Operating expenses 5.9 4.83.0
Interest expense (3.5) (13.9)(5.0)
Other, net 18.5 (53.0)
----(0.7)
----
Total costs and expenses 10.3 9.5
----5.5
----
Earnings before income taxes 17.5 16.87.8
Income taxes 18.2 17.5
----7.1
----
Net earnings 17.0% 16.3%
====8.2%
====
Basic earnings per share 18.3% 19.2%9.4%
Diluted earnings per share 17.3 15.49.4
Average shares outstanding (1.2)
(1.1)
Diluted shares outstanding (0.1) 0.8(1.0)
1716
SALES Sales increased 10.6% during5.6% in the first thirty-nine weeks and 9.9% in
the third quarter of fiscal 20042005 over the
comparable periodsperiod of the prior year. This compares to sales increases of 12.5% during the first
thirty-nine weeks and 13.8% in the third quarter of fiscal 2003 over the
comparable prior year periods. Acquisitions contributed 1.0%0.5% to
the overall sales growth rate for the first thirty-nine weeks of fiscal 2004 and 0.4%
for the third quarter of fiscal 2004, as compared to 6.5% and 7.3%,
respectively, for the comparable periods in the prior year. Also
contributing to sales growth were estimated2005.
Estimated product cost increases, an internal measure of inflation,
of 5.5%were 5.9% during the first thirty-nine weeks
of fiscal 2004 and 5.2% during the third quarter of fiscal 2004 over the
comparable periods in the prior year. The company estimated its product
costs decreased by 0.8% during the first thirty-nine weeks of fiscal 2003
and increased by 0.8% during the third quarter of fiscal 2003 from the
comparable periods in the prior year.2005. SYSCO generally
expects to pass product cost increases to its customers; however, the
actual amount of inflation reflected as increases in sales price increases is
difficult to quantify. Management believes that prolonged periods of
rising product costs together with general economic conditions,
including increased fuel costs, contributed to the softness in the
foodservice market and thus a slowing of SYSCO's sales growth beginning
in the latter half of the fourth quarter of fiscal 2004 and continuing
in fiscal 2005.
Additionally, the company continues its focus on profitable sales
growth. One part of this strategy involves being more selective with
respect to which customers we serve, including managing the
profitability of, or exiting, unprofitable customers and refining the
use of customer purchasing potential and profitability data in
targeting new customers. The company reduced sales to unprofitable
customers an estimated one-half of one percent of sales in the first
quarter of fiscal 2005 over the comparable prior year period.
COST OF SALES Cost of sales increased 11.1%as a percentage of sales was 80.9% for the
first quarter of fiscal 2005, as compared to 80.6% for the comparable
period in the first thirty-nine weeks
and 10.5%prior year. This 0.3% decline in gross margins as a
percent of sales represents an improvement from the 0.5% decline
experienced in the thirdfourth quarter of fiscal 2004 over the comparable
periods
of the prior year.year period. Management believes that cost of salesthe decline in gross
margins as a percentage of sales in the first quarter of fiscal 2005,
as compared to salesthe first quarter of fiscal 2004, was impactedcaused by several
factors, including changeproduct cost increases and changes in customer mix
and segment mix, product mix and inflation;mix; however, the specific impact of each factor is
difficult to quantify. Multi-unit customer sales in the
Broadline segment, which traditionally yield lower gross margins and 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 than sales at the
Broadline segment. In the area of product mix, meat sales continued to grow
as a percentage of overall sales and also experienced a high rate of cost
increases. Meat products typically generate higher prices and higher gross
margin dollars per case. However, meat products result in lower gross
margins as a percentage of sales. Therefore, increased sales of these
products had the effect of decreasing overall gross margins as a percentage
of sales even as gross margin dollars were maintained or increased. Product cost increases in substantially all
product categories also had the impact of reducing gross margins as a
percentage of sales, as gross profit dollars are earned on a higher
sales dollar base. Dairy, meat and poultry products, which are
especially affected by product cost increases since they are often sold
on a cost-per-pound plus a fee basis rather than a percentage markup,
experienced the highest rates of inflation. The result was a higher
sales price but a lower gross margin as a percentage of sales even as
gross margin dollars were maintained or even increased. Multi-unit
customer sales in the Broadline segment, which traditionally yield
lower gross margins and lower expenses than marketing associate-served
customer sales, grew faster than sales to marketing associate-served
customer sales. Sales at the SYGMA segment, which traditionally have
lower margins than Broadline segment sales, grew faster than sales at
the Broadline segment.
OPERATING EXPENSES Operating expenses increased 5.9% inwere 14.0% of sales for the first
thirty-nine weeks and 4.8% in the third
quarter of fiscal 2004 over2005, as compared to 14.4% for the comparable periods ofperiod
in the prior year. ImprovedThe decrease in operating expenses as a percentage
of sales was primarily attributable to improved operating efficiencies
as demonstrated by improving trends in key expense metrics, tracked at the
broadline operating companies including
number of stops, total miles driven, pieces sold per delivery, product
line items sold per delivery, pieces per trip and pieces per error
contributed to the decreases in operating expenses as a percentage to
sales.error.
Increases in product costs and the resulting increased average sales
price per item also favorably impacted expenses as a percentage toof
sales favorably as operating costs increased at a lower rate.
Operating expenses were also favorablynegatively impacted by the recognition of
$86,000 in income of $19,221,000expense in the first thirty-nine weeks and $2,437,000 in the
third quarter of fiscal 20042005 to adjust the
carrying value of life insurance assets to their cash surrender value
as compared to the recognition of a
loss of $13,156,000 and $3,271,000$4,566,000 in income in the comparable periodsfirst
quarter of fiscal 2003, respectively.2004. Operating expenses were also negatively
impacted by the
recognitionincreased costs to deliver product to customers due to
increased fuel costs of $85,675,000 in net pension costapproximately $5,000,000 in the first thirty-nine
weeks and $28,559,000 in the third quarter
of fiscal 2004 as compared to
$56,316,000 and $17,971,000 in2005 over the comparable periodsfirst quarter of fiscal 2003.2004. The impact of
increasing fuel costs
17
was partially offset by a reduction in total miles driven. In addition,
operating expenses related to the national supply chain
initiativeNational Supply Chain project were
$20,684,000$6,513,000 in the first thirty-nine weeks and $3,392,000
in the third quarter of fiscal 20042005, as compared to
$14,252,000 and
$4,454,000$8,165,000 in the comparable periods of fiscal 2003.
18
OTHER, NET Other net income was $10,285,000 in the first thirty-nine weeks
of fiscal 2004 and $1,250,000 in the third quarter of fiscal 2004.
The company recognizedcompany's focus on managing labor costs, including instituting a
gaintemporary hiring freeze, allowing attrition to naturally reduce the
level of associates and selectively eliminating certain positions has
resulted in a reduction of the number of associates by approximately
1,500 from July 3, 2004 to October 2, 2004. The impact on expenses for
the sale of a facility of approximately
$5,700,000 in the secondfirst quarter of fiscal 2004.2005 related to the reduction in the number
of associates was not material.
EARNINGS BEFORE INCOME TAXES AND NET EARNINGS Earnings before income taxes
increased 17.5% for7.8% and net earnings increased 8.2% in the first thirty-nine weeks and 16.8% for the third quarter of
fiscal 20042005 over the comparable periods of the prior year. Net
earnings increased 17.0% for the first thirty-nine weeks and 16.3% for the
third quarter of fiscal 2004 over the comparable periodsperiod of the prior year. These
increases were due primarily to the factors discussed above.
EARNINGS PER SHARE Basic earnings per share increased 18.3% for the first
thirty-nine weeks and 19.2% for the third quarter of fiscal 2004 over the
comparable periods of the prior year. Diluteddiluted earnings per
share increased 17.3% for9.4% in the first thirty-nine weeks and 15.4% for the third quarter of fiscal 20042005 over the
comparable periodsperiod of the prior year. These increases were due primarily
to the result of factors discussed above.above, as well as a net reduction of
shares outstanding primarily due to share repurchases.
SEGMENT RESULTS
The following table sets forth the change in the selected financial
data of each of the company's reportable segments expressed as a
percentage increase over the comparable period in the prior year and
should be read in conjunction with Business Segment Information
(Footnote No. 13)11) in the Notes to Consolidated Financial Statements:
% Increase (Decrease)
------------------------------------------
39-Week Period 13-Week Period
------------------ -----------------------------------------
Earnings
EarningsSales before before
Sales taxes Sales taxes
----- -------- ----- --------------------
Broadline 8.6% 14.9% 7.6% 12.4%4.6% 8.9%
SYGMA 20.1 3.1 22.4 (3.3)11.1 (28.6)
Other 19.5 62.6 14.3 102.56.6 14.2
The following table sets forth sales and earnings before income taxes
of each of the company's reportable segments expressed as a percentage
of the respective consolidated total and should be read in conjunction
with Business Segment Information (Footnote No. 13)11) in the Notes to
Consolidated Financial Statements:
% of Total
-------------------------------------------------
39-Week Period 13-Week Period -----------------------Ended
-----------------------------------------------
October 2, 2004 September 27, 2003
---------------------- ---------------------
Earnings Earnings
Sales before taxes Sales before taxes
------------- ------------ ----- ------------
Broadline 80.9% 99.8% 80.4% 99.2%100.9% 81.7% 99.9%
SYGMA 12.1 1.6 12.4 1.612.2 1.0 11.5 1.5
Other 8.1 5.4 8.2 6.37.9 4.7 7.9 4.4
Intersegment sales (1.1)(1.0) -- (1.0)(1.1) --
Unallocated corporate expenses -- (6.8)(6.6) -- (7.1)(5.8)
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
1918
BROADLINE SEGMENT The Broadline segment sales increased 8.6% for4.6% in the
thirty-nine weeks and 7.6% for the thirdfirst quarter of fiscal 2004 over2005 as compared to the comparable periodsperiod of
the prior year. Acquisitions contributed 0.3% to the
overalldid not have a material impact on sales
growth rate for the first thirty-nine weeks and 0.0% percent
for the third quarter of fiscal 2004.2005. The sales increases were
primarily due to increased sales to marketing associate-served
customers and multi-unit customers, including increased sales of SYSCO
Brand products and price increases primarily resulting from higher
product costs. These increases were
reflected in increased sales to the company's existing customer base and to
new customers. Marketing associate-served sales as a percentage of
broadline sales in the U.S. decreased to 54.1% and 52.8%54.5% for the thirty-nine weeks and thirteen weeks ended March 27, 2004, respectively,first quarter of
fiscal 2005 as compared to 54.5% and 53.3%, respectively54.9% for the comparable prior year periods.period.
This decrease was due to the increase in sales to multi-unit customers
exceeding the increase in sales to marketing associate-served
customers. The growth in sales to multi-unit customers is being fueled by
strong sales of those multi-unit customers resulting in increased sales to
existing locations and the addition of new locations. SYSCO Brand sales as a percentage of broadline sales in the
U.S. increased to 48.9% and 48.7%49.6% for the thirty-nine weeks and thirteen weeks ended March 27, 2004,
respectively,first quarter of fiscal 2005 as
compared to 48.8% and 48.4%, respectively49.1% for the comparable prior year periods.period.
Earnings before income taxes for the Broadline segment increased 14.9% for8.9%
in the thirty-nine weeks and 12.4% for thirdfirst quarter of fiscal 20042005 over the comparable periods of the prior year. These increases wereyear
period. The increase in earnings before income taxes was primarily due
to increases in sales and expense controlsincreased operating efficiencies resulting in
lower expenses as a percentage toof sales.
SYGMA SEGMENT SYGMA segment sales increased 20.1% for11.1% in the thirty-nine weeks
and 22.4% for the thirdfirst quarter
of fiscal 20042005 over the comparable periods
of the prior year.year period. Acquisitions
contributed 2.2%2.7% to the overall sales growth rate for the first thirty-nine weeks and 0.0% for the third quarter
of fiscal 2004.2005. The sales increases wereremaining increase was due primarily due to sales to
new customers, sales growth in SYGMA's existing customer base related
to new locations added by those customers, as well as increases in
sales to existing locations, and price increases resulting primarily
from higher product costs and
the acquisitions of Pronamic in October 2002 and the Denver operations of
Marriott Distribution Services, Inc. in December 2002.costs.
Earnings before income taxes for the SYGMA segment increased 3.1% fordecreased 28.6% in
the thirty-nine weeks and decreased 3.3% for the thirdfirst quarter of fiscal 20042005 over the comparable periods ofprior year period.
The decrease was due primarily to the prior year. Infactors discussed below.
During the third quarter of
fiscal 2004, increased expenses were incurred related to implementation of
new systems, severance payments related to certain personnel changes, costs
related to worker's compensation insurance claims and pension costs.
Beginning in March 2004 and continuing in the fourth quarterquarters of fiscal 2004 and the first
quarter of fiscal 2005, SYGMA will discontinuediscontinued servicing a portion of its
largest customer's locations due to that customer's geographic supply
chain realignment. SYGMA expects to offset these lost sales by
obtaining sales from additional locations from this customer and
obtaining new business from other customers. In many cases, this new
business will beis being served out of different SYGMA locations than those
that originally served the business
which was discontinued.discontinued business. As a result, induring
fiscal 2004 through the thirdfirst quarter of fiscal 2004,2005, SYGMA incurred
additional expenses, including severance payments and equipment moving
costs, as it began to transitiontransitioned its operations to serve these new customers.
SYGMA expects to incur similar expenses inIn addition, the fourth
quarter of fiscal 2004 and the first quarter of fiscal 2005 as it continues
to transition to serve these new customers.business acquired is at lower gross margins than
SYGMA's overall gross margins. Any net lost sales and the related
additional expenses are not expected to be material to SYSCO overall, and we expect SYGMA to continue to be a profitable segment.
20overall.
OTHER SEGMENTS Sales for the Other segments which includesales increased 6.6% in the company's
specialty businesses, increased 19.5% for the thirty-nine weeks and 14.3%
for the thirdfirst quarter
of fiscal 20042005 over the comparable periods of the
prior year.year period. Acquisitions
contributed 7.3%2.6% to the overall sales growth rate for the first thirty-nine weeks and 4.6% for the third quarter
of fiscal 2004.2005. The sales increases wereremaining increase was due to increased sales to
the existing customer base, sales to new customers and price increases
primarily resulting from higher product costs, the acquisitions of Asian Foods, Inc. in October 2002
and the specialty meat-cutting division of Colorado Boxed Beef Company in
April 2003 and increased intersegment sales to SYSCO Broadline companies.costs.
Earnings before income taxes for the Other segments increased 62.6% for14.2% in
the thirty-nine weeks and 102.5% for the thirdfirst quarter of fiscal 20042005 over the comparable periods of the prior year. These increases wereyear period.
The increase was primarily due to increases in sales, margin enhancementacquisitions and
expense controls.increased gross margins as a percentage of sales.
19
LIQUIDITY AND CAPITAL RESOURCES
The company generated $756,635,000$120,747,000 in net cash from operations for the
thirty-nine week period ended March 27, 2004,first quarter of fiscal 2005, compared with $884,495,000$186,040,000 for the
comparable period in fiscal 2003.2004.
Cash flow from operations for the thirty-nine week period ended March 27,first quarter of fiscal 2005 was
negatively impacted by the decrease in accrued expenses, other
long-term liabilities and prepaid pension cost of $163,578,000 for the
first quarter of fiscal 2005. This decrease was primarily due to three
factors. First, the company contributed $81,485,000 to its pension
plans during the first quarter of fiscal 2005, as compared to
$41,293,000 during the first quarter of fiscal 2004. SYSCO does not
expect to make significant additional contributions during the
remainder of fiscal 2005. Total contributions in fiscal 2004 were
$165,512,000. Second, the company made its annual matching contribution
of $28,106,000 to its 401(k) plan during the first quarter of fiscal
2005 whereas it made its fiscal 2004 annual matching contribution of
$27,390,000 in the second quarter of fiscal 2004. Finally, accrued
amounts related to bonus and incentive payments to employees decreased
approximately $120,000,000 during the first quarter of fiscal 2005 as
compared to a decrease of approximately $95,000,000 during the first
quarter of fiscal 2004. Annual incentive based bonuses for each fiscal
year are generally paid in the first quarter of the following fiscal
year.
In addition, cash flow from operations in the first quarter of fiscal
2005 was negatively impacted by increases in accounts receivable
balances of $85,195,000$57,114,000 and inventory balances of $134,750,000, offset by increases$47,435,000 and
decreases in accounts payable balances of $77,154,000. A contributor to the$39,571,000. The increase in
accounts receivable balances was primarily in the area of multi-unit
customer receivables. Due to normal seasonal patterns and sales growth
in this customer category, sales to multi-unit customers which represented a
larger percentage of total SYSCO sales for Marchin September 2004 as compared to
June 2003. This is due to
normal sales patterns where sales to2004. Payment terms for multi-unit customers as a group are
traditionally higher in March as compared to June due to many educational
facilities being closed in June. In addition, the growth in sales to
multi-unit customers outpaced the growth in SYSCO's overall sales.
Multi-unit customer payment terms are traditionally
longer than the overall SYSCO average; thus, the increasedaverage. Inventory balances are impacted
by many factors including current and anticipated sales to this groupvolumes and
changes in product mix, and purchases in anticipation of customers caused
the accounts receivableproduct
availability and product cost increases. Accounts payable balances at March 27, 2004 to increase. The company
showed improvementswere
impacted by many factors including changes in its working capital cycle for the fiscal quarter
ended March 27, 2004 as accounts receivable, inventoryproduct mix and accounts payable
days sales outstanding and accounts payable leverage ratios all showed
improvement as compared to the same period last year.
The decreasechanges
in accrued expenses and other long-term liabilities of
$60,333,000 for the thirty-nine weeks was primarilypayment terms with vendors due to pension
contributions of $164,012,000 during the thirty-nine week period ended
March 27, 2004, as comparedconversion to $46,183,000 during the comparable prior year
period. Pension contributions for the third quarter of fiscal 2004 were
$81,374,000 as comparedmore efficient
electronic payment methods and to $4,266,000 during the comparable prior year
period. SYSCO does not expect to make significant additional contributions
in fiscal 2004. Contributions in fiscal 2003 were $164,565,000.
Taxes paid during the thirty-nine week period ended March 27, 2004 were
$257,102,000 as compared to $36,734,000 during the comparable period in the
prior year. The increase in taxes paid was due to the company's inclusion
in taxable income for fiscal 2004 of supply chain distributions deferred in
prior years. Fiscal year 2004 is the first period that these supply chain
distributions are recognized in taxable income since the company began
deferring these items for tax purposes as a result of the reorganization of
its supply chain in fiscal year 2002.
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
21
paid in taxes on an annual basis without the deferral. This is due to the
company's expectations that its volume of purchases through this structure
will continue to grow.discount terms.
Total capital expenditures in fiscal 20042005 are expected to be approximatelyin the
range of $400,000,000 to $450,000,000, which is a reduction of the
previously announced range of $475,000,000 to $500,000,000. The
revision of the estimate primarily results from fleet utilization
efficiencies achieved at the operating companies, as well as the
projected timing of facility expansions. Projected capital expenditures
include the continuation of the fold-out program; facility, fleet and
other equipment replacements and expansions; the company's National
Supply Chain project; and the national supply chain project.investments in technology. Expenditures in
the thirty-nine week period ended March 27, 2004first quarter of fiscal 2005 related to the company's national supply chainNational
Supply Chain project totaled $101,419,000$19,749,000 of which $80,735,000$13,236,000 was
capitalized. Total expenditures on the project since inception are
$182,629,000$235,749,000, of which $125,167,000 has$165,490,000 have been capitalized. The
Northeast Redistribution Center is expected to be operational during fiscalin
February 2005.
During the thirty-nine week period ended March 27, 2004first quarter of fiscal 2005, a total of 13,805,4001,480,200 shares
were purchased at a cost of $508,963,000$48,912,000 as compared to 12,963,7001,214,800 shares
at a cost of $372,808,000$39,764,000 for the comparable period in fiscal 2003. An2004.
There were no additional 242,300 shares at a cost of $9,394,000 have been purchased through April 24,October 29, 2004,
resulting in 15,015,00011,128,700 shares remaining available for repurchase as
authorized by the Board as of that date.Board.
20
Dividends paid in the thirty-nine week period ended March 27, 2004first quarter of fiscal 2005 were $226,271,000,$83,062,000, or
$0.35$0.13 per share, as compared to $190,336,000,$71,257,000, or $0.29$0.11 per share, in the
comparable period of fiscal 2003.2004. In FebruarySeptember 2004, SYSCO declared its
regular quarterly dividend for the fourthsecond quarter of fiscal 2004,2005, at
$0.13 per share, which was paid in AprilOctober 2004.
Long-term debt to capitalization ratio was 38.5% at March 27, 2004, within
the company's long-term 35% to 40% target range.
In MarchAs of October 2, 2004, SYSCO issued 4.60% notes totaling $200,000,000 due March 15,
2014 in a private offering. These notes,had uncommitted bank lines of credit,
which provide for unsecured borrowings for working capital of up to
$95,000,000, of which $2,000,000 was outstanding at October 2, 2004.
Such borrowings were priced at 99.943%$9,500,000 as of par, are unsecured, are not subject to any sinking fund requirement and
include a redemption provision which allows SYSCO to retire the notes at
any time prior to maturity at the greater of par plus accrued interest or
an amount designed to ensure that the note holders are not penalized by the
early redemption. Proceeds from the notes were utilized to retire
commercial paper borrowings.October 29, 2004.
As of March 27,October 2, 2004, SYSCO's borrowings under its commercial paper
programs were $104,921,000.$102,115,000. Such borrowings were $248,705,000$201,150,000 as of
April
24,October 29, 2004. During the thirty-nine week13-week period ended March 27,October 2, 2004,
commercial paper and short-term bank borrowings ranged from
approximately $73,102,000$46,327,000 to $478,114,000.$253,384,000.
Included in current maturities of long-term debt are the 6.5% Senior
Notes due June 2005 and the 4.75% Senior Notes due July 2005. It is the
company's intention to fund the repayment of these notes at maturity
through issuances of commercial paper, senior notes or a combination
thereof.
The long-term debt to capitalization ratio was 34.4% at October 2,
2004. For purposes of calculating this ratio, long-term debt includes
both the current maturities and long-term portions.
Cash provided by operating activities, 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's
overall growth strategy; and the share repurchase program. Management
believes that the company'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 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.
22CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those that are most important to the
portrayal of the company's financial position and results of
operations. These policies require management's most subjective
judgments, often employing the use of estimates about the effect of
matters that are inherently uncertain. SYSCO's most critical accounting
policies pertain to the allowance for doubtful accounts, self-insurance
programs, pension plans and accounting for business combinations, and
are described in Item 7 of the company's Annual Report on Form 10-K for
the year ended July 3, 2004. There were no changes in critical
accounting policies during the first quarter of fiscal 2005.
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; industry growth; the impact of
ongoing legal proceedings; the timing, expected cost savings and other
benefits, including the expected impact on earnings per share of the
national supply
chainNational Supply Chain project, including the Northeast Redistribution
Center; anticipated capital expenditures; the ability to increase
market share and grow earnings; sales growth; growth strategies; the
impact of discontinued business at the SYGMA segment and SYGMA's
ability to offset such impact with additional
21
business; SYSCO's ability to refinance current maturities of long-term
debt; and SYSCO's ability to meet its 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; changing customer needs;
SYSCO's leverage and debt risks; the successful completion of
acquisitions and integration of acquired companies; the effect of
competition on SYSCO and its customers; the ultimate outcome of
litigation; potential impact of product liability claims; the risk of
interruption of supplies due to lack of long-term contracts, severe
weather, work stoppages or otherwise; labor issues; construction
schedules; management's allocation of capital and the timing of capital
purchases; 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
increase efficiencies, control expenses and successfully execute growth
strategies.
In addition, share repurchases could be affected by market prices for
the company'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's Annual Report on
Form 10-K for the fiscal year ended June 28, 2003.July 3, 2004.
22
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.
InAt 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 461, 430 and 171
basis points, respectively. In March 2004, SYSCO terminated the $200
million aggregate notional amount swap which was a fair
23
value hedge against the 6.10% Senior Notes due June 2012, leaving $300
million aggregate notional amount of interest rate swaps outstanding at
March 27, 2004.
At March 27,2, 2004, the company had a totaloutstanding $102,115,000 of
$435,921,000 in debtcommercial paper at variable rates of interest including commercial paper with maturities through
June 28, 2004 and $300,000,000 in fixed rate debt swapped to
floating rate as discussed above.January 12, 2005. The company's remaininglong-term debt obligations of
$1,100,436,000$1,451,125,000 were primarily at fixed rates of interest. In April 2004, subsequent toaddition,
the company's third quarter end, SYSCO entered
into ancompany has interest rate swap with $100 million aggregateagreements outstanding totaling
$500,000,000 in notional amount as a
fair value hedge against $100 millionwhereby the company receives interest
payments at fixed rates of the 4.60% Senior Notes due March
2014. The swap effectively converts the fixed rate on these notes into a
floating rate of six-month LIBOR in arrears less 52 basis points.
In May 2004, subsequent to the company's third quarter end, SYSCO entered
into an interest rate swap with $100 million aggregate notional amount as a
fair value hedge against the remaining $100 million of the 4.60% Senior
Notes due March 2014. The swap effectively converts the fixed rate on these
notes into a floating rate of six-month LIBOR in arrears less 72 basis
points.and pays interest at variable
rates.
Item 4. Controls and Procedures
As of March 27,October 2, 2004, 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 March 27,October 2, 2004 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 thirdfirst quarter of fiscal 20042005 that materially
affected, or would be reasonably likely to materially affect, the
company's internal controls over financial reporting.
2423
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 company when ultimately
concluded.
Item 2. Changes inUnregistered Sales of Equity Securities and Use of Proceeds
and Issuer PurchasesSYSCO made the following share repurchases during the first quarter of
Equity
Securitiesfiscal 2005:
ISSUER PURCHASES OF EQUITY SECURITIES
(c) TOTAL NUMBER
OF SHARES (d) MAXIMUM NUMBER
PURCHASED AS PART OF SHARES THAT MAY
(b) AVERAGE OF PUBLICLY YET BE PURCHASED
(a) TOTAL NUMBER PRICE PAID ANNOUNCED PLANS OR UNDER THE PLANS OR
PERIOD OF SHARES PURCHASED PER SHARE PROGRAMS PROGRAMS
- --------------------------------------------- ------------------- ----------- ------------------------------------- -------------------
Month #1
December 28July 4 - January 24 529,900 $ 36.52 529,900 22,239,600July 31 445,345 $35.22 430,000 12,178,900
Month #2
January 25August 1 - February 21 1,350,000 37.74 1,350,000 20,889,600August 28 417,630 31.84 400,000 11,778,900
Month #3
February 22August 29 - March 27 5,631,800 39.15 5,631,800 15,257,800October 2 655,450 32.36 650,200 11,128,700
--------- ---------------- --------- ----------
Total 7,511,700 38.71 7,511,700 15,257,8001,518,425 33.06 1,480,200 11,128,700
--------- ---------------- --------- ----------
The 2003In the above table, the total number of shares purchased includes
shares purchased as part of a publicly announced share repurchase
program, approvedas well as shares tendered by individuals in connection with
stock option exercises.
On September 12, 2003, the company announced that the Board of
Directors coveredapproved the repurchase of 20,000,000 shares and was announced onshares. In July 31, 2002. This program
was completed during the third quarter of fiscal 2004.
The 2004, share repurchase program approved by
the Board of Directors covered 20,000,000authorized the company to enter into agreements
from time to time to extend its ongoing repurchase program to include
repurchases during company announced "blackout periods" of such
securities in compliance with Rule 10b5-1 promulgated under the
Exchange Act. The company has not yet entered into such an agreement.
In September 2004, a total of 26,036 Dividend Access Shares,
convertible on a one-for-one basis into SYSCO shares, and was announced onwere released 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 12, 2003.2004, a total of 128,062 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.
24
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 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).
3(e) Certificate of Amendment to Restated Certificate of
Incorporation increasing authorized shares, incorporated by
reference to Exhibit 3(e) to Form 10-Q for the quarter ended
December 27, 2003 (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
25
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).
4(j) Seventh Supplemental Indenture, including form of Note, dated
March 5, 2004 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(j) to Form 10-Q for the quarter ended
March 27, 2004 (File No. 1-6544).
10(a)+ Second Amendment to Second Amended and Restated Executive
Deferred Compensation Agreement effective July 9, 2004,
incorporated by reference to Exhibit 10(gg) to Form 10-K filed
on September 16, 2004 (File No. 1-6544).
10(b)+ Fourth Amendment to Fifth Amended and Restated Supplemental
Executive Retirement Plan effective July 9, 2004, incorporated
by reference to Exhibit 10(hh) to Form 10-K filed on September
16, 2004 (File No. 1-6544).
10(c)+ Executive Severance Agreement dated July 6, 2004 between
SYSCO Corporation and Richard J. Schnieders, incorporated by
reference to Exhibit 10(ii) to Form 10-K filed on September
16, 2004 (File No. 1-6544).
10(d)+ Form of Executive Severance Agreement between SYSCO
Corporation and each of Thomas E. Lankford (dated July 12,
2004), John K. Stubblefield, Jr. (dated July 6, 2004), Kenneth
F. Spitler (dated July 14, 2004) and Larry J. Accardi (dated
August 18, 2004), incorporated by reference to Exhibit 10(jj)
to
26
Form 10-K filed on September 16, 2004 (File No. 1-6544).
10(e)+ Form of First Amendment dated September 3, 2004 to Executive
Severance Agreement between SYSCO Corporation and each of
Richard J. Schnieders, Thomas E. Lankford, John K.
Stubblefield, Jr., Kenneth F. Spitler and Larry J. Accardi,
incorporated by reference to Exhibit 10(kk) to Form 10-K filed
on September 16, 2004 (File No. 1-6544).
10(f)+ 2004 Long-Term Incentive Cash Plan effective September 3,
2004, incorporated by reference to Exhibit 10(a) to Form 8-K
filed on September 10, 2004 (File No. 1-6544).
10(g)+ Form of Performance Unit Grant Agreement for issuance to
executive officers under the 2004 Long-Term Incentive Cash
Plan, incorporated by reference to Exhibit 10(b) to Form 8-K
filed on September 10, 2004 (File No. 1-6544).
10(h)+ Form of Stock Option Grant Agreement for issuance to
executive officers under the 2000 Stock Incentive Plan,
incorporated by reference to Exhibit 10(a) to Form 8-K filed
on September 9, 2004 (File No. 1-6544).
10(i)+ Form of Stock Option Grant Agreement for issuance to
non-employee directors under the Non-Employee Directors Stock
Plan, incorporated by reference to Exhibit 10(b) to Form 8-K
filed on September 9, 2004 (File No. 1-6544).
*15(a) Report from Ernst & Young LLP dated November 10, 2004, re:
unaudited financial statements.
*15(b) Acknowledgment letter from Ernst & Young LLP.
*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.
*32(b) CFO Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- ----------
+ Executive Compensation Arrangement pursuant to 601(b)(10)(iii)(A) of
Regulation
S-K
* Filed herewith
27
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: November 10, 2004
By /s/ JOHN K. STUBBLEFIELD, JR.
--------------------------------------
John K. Stubblefield, Jr.
Executive Vice President,
Finance & Administration
Date: November 10, 2004
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).
3(e) Certificate of Amendment to Restated Certificate of Incorporation
increasing authorized shares, incorporated by reference to Exhibit 3(e)
to Form 10-Q for the quarter ended December 27, 2003 (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) 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
26
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).
*4(j) Seventh Supplemental Indenture, including form of Note, dated
March 5, 2004 between SYSCO Corporation, as Issuer, and
Wachovia Bank, National Association (formerly First Union
National Bank of North Carolina), as Trustee.
*15(a) Report from Ernst & Young LLP dated May 11, 2004, re:
unaudited financial statements.
*15(b) Acknowledgment letter from Ernst & Young LLP.
*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.
*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 26, 2004, the company filed a current report on Form 8-K
announcing under Items 7 and 12 thereof the results of its second
quarter ended December 27, 2003.
27
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 11, 2004
By /s/ JOHN K. STUBBLEFIELD, JR.
-----------------------------------------
John K. Stubblefield, Jr.
Executive Vice President,
Finance & Administration
Date: May 11, 2004
28
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).
3(e) Certificate of Amendment to Restated Certificate of
Incorporation increasing authorized shares, incorporated by
reference to Exhibit 3(e) to Form 10-Q for the quarter ended
December 27, 2003 (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) 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).
*4(j)4(j) Seventh Supplemental Indenture, including form of Note, dated March 5,
2004 between SYSCO Corporation, as Issuer, and Wachovia Bank, National
Association (formerly First Union National Bank of North Carolina), as
Trustee.Trustee, incorporated by reference to Exhibit 4(j) to Form 10-Q for the
quarter ended March 27, 2004 (File No. 1-6544).
10(a)+ Second Amendment to Second Amended and Restated Executive Deferred
Compensation Agreement effective July 9, 2004, incorporated by
reference to Exhibit 10(gg) to Form 10-K filed on September 16, 2004
(File No. 1-6544).
10(b)+ Fourth Amendment to Fifth Amended and Restated Supplemental Executive
Retirement Plan effective July 9, 2004, incorporated by reference to
Exhibit 10(hh) to Form 10-K filed on September 16, 2004 (File No.
1-6544).
10(c)+ Executive Severance Agreement dated July 6, 2004 between SYSCO
Corporation and Richard J. Schnieders, incorporated by reference to
Exhibit 10(ii) to Form 10-K filed on September 16, 2004 (File No.
1-6544).
10(d)+ Form of Executive Severance Agreement between SYSCO Corporation and
each of Thomas E. Lankford (dated July 12, 2004), John K. Stubblefield,
Jr. (dated July 6, 2004), Kenneth F. Spitler (dated July 14, 2004) and
Larry J. Accardi (dated August 18, 2004), incorporated by reference to
Exhibit 10(jj) to Form 10-
K filed on September 16, 2004 (File No. 1-6544).
10(e)+ Form of First Amendment dated September 3, 2004 to Executive Severance
Agreement between SYSCO Corporation and each of Richard J. Schnieders,
Thomas E. Lankford, John K. Stubblefield, Jr., Kenneth F. Spitler and
Larry J. Accardi, incorporated by reference to Exhibit 10(kk) to Form
10-K filed on September 16, 2004 (File No. 1-6544).
10(f)+ 2004 Long-Term Incentive Cash Plan effective September 3, 2004,
incorporated by reference to Exhibit 10(a) to Form 8-K filed on
September 10, 2004 (File No. 1-6544).
10(g)+ Form of Performance Unit Grant Agreement for issuance to executive
officers under the 2004 Long-Term Incentive Cash Plan, incorporated by
reference to Exhibit 10(b) to Form 8-K filed on September 10, 2004
(File No. 1-6544).
10(h)+ Form of Stock Option Grant Agreement for issuance to executive
officersunder the 2000 Stock Incentive Plan, incorporated by reference
to Exhibit 10(a) to Form 8-K filed on September 9, 2004 (File No.
1-6544).
10(i)+ Form of Stock Option Grant Agreement for issuance to non-employee
directors under the Non-Employee Directors Stock Plan, incorporated by
reference to Exhibit 10(b) to Form 8-K filed on September 9, 2004 (File
No. 1-6544).
*15(a) Report from Ernst & Young LLP dated May 11,November 10, 2004, re: unaudited
financial statements.
*15(b) Acknowledgment letter from Ernst & Young LLP.
*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.
*32(b) CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
- ----------------------------------------------
+ Executive Compensation Arrangement pursuant to 601(b)(10)(iii)(A) of
Regulation
S-K
* Filed herewith.