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 October 2, 2004January 1, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number 1-6544
SYSCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1648137
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
1390 Enclave Parkway
Houston, Texas 77077-2099
(Address of principal executive offices)
(Zip code)
Registrant's telephone number, including area code: (281) 584-1390
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X]X No
[ ]----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.)
Yes [X]X No
[ ]
639,793,373----- -----
636,906,775 shares of common stock were outstanding as of OctoberJanuary 29, 2004.2005.
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 1314
Item 3. Quantitative and Qualitative Disclosures about Market Risk 2223
Item 4. Controls and Procedures 2223
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 2324
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 2324
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 2425
Item 5. Other Information 2425
Item 6. Exhibits 2426
Signatures 2728
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share Data)
Oct. 2, 2004Jan. 1, 2005 July 3, 2004 Sept.Dec. 27, 2003
------------ ------------ ---------------------------
(unaudited) (unaudited)
ASSETS
Current assets
Cash $ 189,603152,926 $ 199,706 $ 221,544232,595
Accounts and notes receivable, less
allowances of $45,245,$55,713, $34,175 and $46,242 2,247,088$55,744 2,167,931 2,189,127 2,123,7162,086,107
Inventories 1,457,1801,546,007 1,404,410 1,313,497
Deferred taxes 53,019 --- 53,9831,359,886
Prepaid expenses 65,89164,714 54,903 63,43360,201
Prepaid income taxes ----- 3,265 ---
----------- ----------- -------------
---------- ---------- ----------
Total current assets 4,012,7813,931,578 3,851,411 3,776,1733,738,789
Plant and equipment at cost, less depreciation 2,196,5502,232,172 2,166,809 1,958,0672,029,718
Other assets
Goodwill and intangibles, less amortization 1,221,9781,258,716 1,218,700 1,156,3581,166,336
Restricted cash 169,439185,660 169,326 125,877170,877
Prepaid pension cost 307,549289,464 243,996 -----
Other assets 197,509203,297 197,390 197,719
----------- ----------- -----------199,857
---------- ---------- ----------
Total other assets 1,896,4751,937,137 1,829,412 1,479,954
----------- ----------- -----------1,537,070
---------- ---------- ----------
Total assets $ 8,105,806 $ 7,847,632 $ 7,214,194
=========== =========== ===========$8,100,887 $7,847,632 $7,305,577
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 54,12967,153 $ 73,834 $ 87,967124,609
Accounts payable 1,710,0661,684,567 1,742,578 1,674,8981,645,948
Accrued expenses 586,605626,651 724,970 628,296
Accrued income583,559
Income taxes 450,763 --- 351,826239,984 -- 172,420
Deferred taxes ---183,748 422,419 ---190,175
Current maturities of long-term debt 368,780367,853 162,833 21,967
----------- ----------- -----------12,322
---------- ---------- ----------
Total current liabilities 3,170,3433,169,956 3,126,634 2,764,9542,729,033
Other liabilities
Long-term debt 1,082,3451,101,852 1,231,493 1,195,2821,395,981
Deferred taxes 836,298716,977 686,705 632,939524,989
Other long-term liabilities 254,914268,878 238,294 296,425
----------- ----------- -----------289,750
---------- ---------- ----------
Total other liabilities 2,173,5572,087,707 2,156,492 2,124,6462,210,720
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 Oct. 2, 2004
and July 3, 2004, 1,000,000,000 at Sept. 27,
2003;shares, issued
765,174,900 shares 765,175 765,175 765,175
Paid-in capital 354,910364,738 332,041 278,251290,744
Retained earnings 4,102,4374,239,352 3,959,714 3,511,4383,649,583
Other comprehensive income (loss) 34,153loss 52,813 17,640 (152,770)
----------- ----------- -----------
5,256,675(142,027)
---------- ---------- ----------
5,422,078 5,074,570 4,402,0944,563,475
Less cost of treasury stock, 127,086,344,128,629,507,
128,639,869 and 120,395,714122,970,398 shares 2,494,7692,578,854 2,510,064 2,077,500
----------- ----------- -----------2,197,651
---------- ---------- ----------
Total shareholders' equity 2,761,9062,843,224 2,564,506 2,324,594
----------- ----------- -----------2,365,824
---------- ---------- ----------
Total liabilities and shareholders' equity $ 8,105,806 $ 7,847,632 $ 7,214,194
=========== =========== ===========$8,100,887 $7,847,632 $7,305,577
========== ========== ==========
Note: The July 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)
26-Week Period Ended 13-Week Period Ended
--------------------------------
Oct. 2, 2004 Sept.---------------------------- ----------------------------
Jan. 1, 2005 Dec. 27, 2003 Jan. 1, 2005 Dec. 27, 2003
------------ ------------- -------------------------- -------------
Sales $ 7,531,92514,863,182 $ 7,134,28114,170,801 $ 7,331,257 $ 7,036,520
Costs and expenses
Cost of sales 6,094,931 5,753,76712,028,446 11,423,166 5,933,515 5,669,399
Operating expenses 1,055,412 1,024,3362,060,331 2,021,189 1,004,919 996,853
Interest expense 17,699 18,63135,465 35,007 17,766 16,376
Other, net (1,969) (1,983)
------------- -------------(3,662) (9,035) (1,693) (7,052)
------------ ------------ ------------ ------------
Total costs and expenses 7,166,073 6,794,751
------------- -------------14,120,580 13,470,327 6,954,507 6,675,576
------------ ------------ ------------ ------------
Earnings before income taxes 365,852 339,530742,602 700,474 376,750 360,944
Income taxes 139,938 130,719
------------- -------------284,045 269,682 144,107 138,963
------------ ------------ ------------ ------------
Net earnings $ 225,914458,557 $ 208,811
============= =============430,792 $ 232,643 $ 221,981
============ ============ ============ ============
Net earnings:
Basic earnings per share $ 0.350.72 $ 0.32
============= =============0.67 $ 0.36 $ 0.34
============ ============ ============ ============
Diluted earnings per share $ 0.350.70 $ 0.32
============= =============0.65 $ 0.36 $ 0.34
============ ============ ============ ============
Average shares outstanding 638,167,698 645,862,376
============= =============638,403,789 645,301,941 638,638,789 644,723,466
============ ============ ============ ============
Diluted shares outstanding 650,779,334 657,274,982
============= =============652,448,434 660,127,514 652,993,142 661,632,986
============ ============ ============ ============
Dividends declared per common share $ 0.28 $ 0.24 $ 0.15 $ 0.13
$ 0.11
============= ========================= ============ ============ ============
3
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In Thousands)
13-Week26-Week Period Ended
----------------------------
Oct. 2, 2004 Sept.Jan. 1, 2005 Dec. 27, 2003
------------ ---------------------------
Operating activities:
Net earnings $ 225,914458,557 $ 208,811430,792
Add non-cash items:
Depreciation and amortization 74,065 69,679150,294 138,679
Deferred tax provision 147,999 128,924265,289 265,053
Provision for losses on receivables 7,498 7,33215,019 14,895
Additional investment in certain assets and liabilities,
net of effect of businesses acquired:
(Increase)Decrease (increase) in receivables (57,114) (110,285)32,612 (73,428)
(Increase) in inventories (47,435) (77,681)(123,510) (120,215)
(Increase) in prepaid expenses (10,812) (11,056)(9,378) (7,755)
(Decrease) increase in accounts payable (39,571) 39,307(78,330) 3,905
(Decrease) in accrued expenses (107,609) (69,771)
(Decrease) in accrued income taxes (224,079) (186,649)
(Increase) in other assets (7,689) (24,644)
(Decrease) in other long-term liabilities and prepaid
pension cost, net (163,578) (45,007)
(Decrease) in accrued income taxes (17,174) (9,968)
Decrease (increase) in other assets 955 (14,016)(9,453) (6,083)
--------- ---------
Net cash provided by operating activities 120,747 186,040361,723 364,779
--------- ---------
Investing activities:
Additions to plant and equipment (99,905) (103,056)(205,585) (248,697)
Proceeds from sales of plant and equipment 3,496 1,2837,331 9,815
Acquisition of businesses, net of cash acquired (52) (31,640)(33,439) (33,703)
Increase in restricted cash (113) (45,000)(16,334) (90,000)
--------- ---------
Net cash used for investing activities (96,574) (178,413)(248,027) (362,585)
--------- ---------
Financing activities:
Bank and commercial paper repayments (19,705) (63,765)(repayments) borrowings (6,881) 182,739
Other debt borrowings (repayments) 54,537 (3,150)68,973 (12,964)
Common stock reissued from treasury 65,474 55,428103,168 86,337
Treasury stock purchases (48,912) (39,764)(154,858) (218,149)
Dividends paid (83,062) (71,257)(166,234) (142,501)
--------- ---------
Net cash used for financing activities (31,668) (122,508)(155,832) (104,538)
--------- ---------
Effect of exchange rates on cash (2,608) (1,022)(4,644) (2,508)
--------- ---------
Net decrease in cash (10,103) (115,903)(46,780) (104,852)
Cash at beginning of period 199,706 337,447
--------- ---------
Cash at end of period $ 189,603152,926 $ 221,544232,595
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 13,52234,841 $ 12,27436,598
Income taxes 5,423 10,696237,694 190,761
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 July 3, 2004
consolidated balance sheet which was taken from the audited financial
statements included in the company's Fiscal 2004 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 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 2004 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:
26-Week Period Ended 13-Week Period Ended
-----------------------------
Oct. 2, 2004 Sept.---------------------------- ----------------------------
Jan. 1, 2005 Dec. 27, 2003 Jan. 1, 2005 Dec. 27, 2003
------------ --------------------------- ------------ -------------
Numerator:
IncomeNumerator for earnings per share --
income available to common shareholders $225,914,000 $208,811,000$458,557,000 $430,792,000 $232,643,000 $221,981,000
============ ============ ============ ============
Denominator:
Weighted-averageDenominator for basic earnings per share --
weighted-average shares outstanding 638,167,698 645,862,376
Dilutive effect638,403,789 645,301,941 638,638,789 644,723,466
Effect of employeedilutive securities:
Employee and director stock options 12,611,636 11,412,60614,044,645 14,825,573 14,354,353 16,909,520
------------ ------------ Weighted-average------------ ------------
Denominator for diluted earnings per share --
Adjusted weighted-average shares outstanding 650,779,334 657,274,982652,448,434 660,127,514 652,993,142 661,632,986
============ ============ ============ ============
Basic earnings per share $ 0.350.72 $ 0.320.67 $ 0.36 $ 0.34
============ ============ ============ ============
Diluted earnings per share $ 0.350.70 $ 0.320.65 $ 0.36 $ 0.34
============ ============ ============ ============
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. In October 2004, subsequent to the end of its
first fiscal quarter, SYSCO deposited
approximately $16,000,000 in additional funds in a trust to satisfy
ongoing collateral 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.
A summary of restricted cash balances appears below:
Jan. 1, 2005 July 3, 2004 Dec. 27, 2003
------------ ------------ -------------
Funds deposited in insurance trusts $163,663,000 $147,329,000 $147,000,000
Escrow funds related to acquisitions 21,997,000 21,997,000 23,877,000
------------ ------------ ------------
Total $185,660,000 $169,326,000 $170,877,000
============ ============ ============
4. DEBT
As of October 2, 2004,January 1, 2005, SYSCO had uncommitted bank lines of credit
which provide for unsecured borrowings for working capital of up to
$95,000,000,$95,000,000. Outstanding borrowings on these lines of which $2,000,000 was outstanding at October 2, 2004.credit were
$4,000,000 as of January 1, 2005.
As of October 2, 2004,January 1, 2005, SYSCO's outstanding borrowings under its
commercial paper programs were $102,115,000.$133,149,000. During the 13-week26-week period
ended October
2, 2004,January 1, 2005, commercial paper and short-term bank borrowings
ranged from approximately $46,327,000 to $253,384,000.
Included in current maturities of long-term debt at October 2, 2004January 1, 2005
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, cash flow from operations or a combination thereof.
5. ACQUISITIONS
During the first quarter26 weeks of fiscal 2005, in the aggregate, the
company paid cash of $33,439,000 and issued 178,625 shares with a
value of $3,414,000 for acquisitions during fiscal 2005 and for
contingent consideration related to operations acquired in previous
fiscal years. Acquisitions during fiscal 2005 were immaterial,
individually and in the aggregate, to the consolidated financial
statements.
Acquisitions of businesses are accounted for using the purchase method
of accounting and the financial statements of SYSCO include the
results of the acquired companies from the respective dates they
joined SYSCO.
The purchase price of the acquired operations is allocated to the 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 Sheetspurchase price allocations related to recent
acquisitions are based upon preliminary information and aremay be subject
to change when final asset and liability
6
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
October 2, 2004January 1, 2005 included approximately 1,095,000 shares and
$61,614,000$84,326,000 in cash, which, if distributed, could result in recording
of up to $85,050,000$107,762,000 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
As of October 2, 2004,January 1, 2005, SYSCO had interest rate swaps outstanding with
a notional amount of $500,000,000. The fair value of the outstanding
swaps was $3,173,000,$2,785,000, 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 in accordance with the
shortcut method provided by Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities."
In February 2005, SYSCO terminated $500,000,000 aggregate notional
amount of interest rate swaps which were fair value hedges against the
7.00% Senior Notes due May 2006, 7.25% Senior Notes due April 2007 and
4.60% Senior Notes due March 2014 and received approximately
$5,300,000, which represented the fair value of the swap agreements at
the time of termination. A corresponding amount will be reflected as
an increase in the carrying value of the related debt to reflect the
fair value at termination. This increase in the carrying value of the
debt will be amortized as a reduction of interest expense over the
remaining term of the debt.
7. INCOME TAXES
TheReflected in the changes in the net deferred tax liability and
prepaid/accrued income tax balances from July 3, 2004 to October 2, 2004 were primarily due toJanuary 1,
2005 is the reclassification of deferred tax liabilities related to
supply chain distributions to accrued income taxes. This
reclassification reflects the tax payments to be made during the next twelve monthsthis fiscal year
related to previously deferred supply chain distributions.
The effective tax rate in fiscal 2005 is 38.25%, a decrease of 0.25%
from the effective tax rate of 38.50% in fiscal 2004. The
determination of the company's overall effective tax rate requires the
use of estimates. The effective tax rate reflects a combination of
income earned and taxed in the various U.S. federal and state, 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 expense has
been recognized for stock option grants.
7
The following table provides comparative pro forma net earnings and
earnings per share had compensation expense for these plans been
determined using the fair value method of SFAS No. 123, "Accounting
for Stock-Based Compensation," for all periods presented:presented. The pro
forma presentation includes only options granted after 1995 in
accordance with SFAS 123. The pro forma effects for the periods
presented are not necessarily indicative of the pro forma effects in
future years.
26-Week Period Ended 13-Week Period Ended
------------------------------------
Oct. 2, 2004 Sept.---------------------------- ----------------------------
Jan. 1, 2005 Dec. 27, 2003 --------------- ---------------Jan. 1, 2005 Dec. 27, 2003
------------ ------------- ------------ -------------
Net earnings:
Reported net earnings $ 225,914,000 $ 208,811,000$458,557,000 $430,792,000 $232,643,000 $221,981,000
Stock based compensation expense, net of taxes (16,401,000) (14,185,000)
--------------- ---------------(47,414,000) (40,762,000) (23,943,000) (21,863,000)
------------ ------------ ------------ ------------
Adjusted net earnings $ 209,513,000 $ 194,626,000
=============== ===============$411,143,000 $390,030,000 $208,700,000 $200,118,000
============ ============ ============ ============
Basic earnings per share:
Reported basic earnings per share $ 0.350.72 $ 0.320.67 $ 0.36 $ 0.34
Stock based compensation expense, net of taxes (0.08) (0.07) (0.03) (0.02)
--------------- ---------------(0.03)
------------ ------------ ------------ ------------
Adjusted basic earnings per share $ 0.320.64 $ 0.30
=============== ===============0.60 $ 0.33 $ 0.31
============ ============ ============ ============
Diluted earnings per share:
Reported diluted earnings per share $ 0.350.70 $ 0.320.65 $ 0.36 $ 0.34
Stock based compensation expense, net of taxes (0.03) (0.02)
--------------- ---------------(0.07) (0.06) (0.04) (0.04)
------------ ------------ ------------ ------------
Adjusted diluted earnings per share $ 0.63 $ 0.59 $ 0.32 $ 0.30
=============== =========================== ============ ============ ============
7
The weighted average fair value of options granted was $7.10 and $6.73$6.74
during the 1326 weeks ended October 2, 2004January 1, 2005 and SeptemberDecember 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 for each period presented:
13-Week26-Week Period Ended
----------------------------
Oct. 2, 2004 Sept.Jan. 1, 2005 Dec. 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 $5.38$4.89 and $4.51$4.70 during the 1326 weeks ended October 2, 2004January 1, 2005
and SeptemberDecember 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 includes only options granted after 1995. The
pro forma effects for the periods presented are not necessarily indicative
of the pro forma effects in future years.
8
9. COMPREHENSIVE INCOME
Comprehensive income is net earnings plus certain other items that are
recorded directly to shareholders' equity. The amounts recorded asfollowing table
provides a summary of the components of other comprehensive income primarily related to foreign currency translation
adjustments of $16,513,000 and $(1,138,000) for
the 13 weeks ended October
2, 2004 and September 27, 2003, respectively. Comprehensive income was
$242,427,000 and $208,422,000 for the 13 weeks ended October 2, 2004 and
September 27, 2003, respectively.periods presented:
26-Week Period Ended 13-Week Period Ended
---------------------------- ----------------------------
Jan. 1, 2005 Dec. 27, 2003 Jan. 1, 2005 Dec. 27, 2003
------------ ------------- ------------ -------------
Net earnings $458,557,000 $430,792,000 $232,643,000 $221,981,000
Minimum pension liability adjustment -- 749,000 -- --
Foreign currency translation adjustment 35,173,000 9,605,000 18,660,000 10,743,000
------------ ------------ ------------ ------------
Other comprehensive income $493,730,000 $441,146,000 $251,303,000 $232,724,000
============ ============ ============ ============
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
On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123 (revised 2004), Share-Based Payment
(SFAS 123(R)), which is a revision of FASB Statement No. 123,
Accounting for Stock-Based Compensation (SFAS 123). SFAS 123(R)
supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees (APB Opinion 25), and amends FASB Statement No. 95,
Statement of Cash Flows. Generally, the approach in SFAS 123(R) is
similar to the approach described in SFAS 123. However, SFAS 123(R)
requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based
on their fair values. Pro forma disclosure is no longer an alternative
under the new standard.
SYSCO must adopt Statement 123(R) no later than July 3, 2005. Early
adoption is permitted in periods in which financial statements have
not yet been issued. SYSCO expects to adopt SFAS 123(R) on July 3,
2005. SFAS 123(R) allows for two transition methods. The basic
difference between the two methods is that the modified-prospective
transition method does not require restatement of prior periods,
whereas the modified-retrospective transition method will require
restatement.
As permitted by SFAS 123, the company currently accounts for
share-based payments to employees using APB Opinion 25's intrinsic
value method and, as such, generally recognizes no compensation cost
for employee stock options or stock issuances under the employee stock
purchase plan. Although the full impact of the company's adoption of
SFAS 123(R)'s fair value method has not yet been determined, the
company expects that it will have a significant impact on its results
of operations. The disclosure in the footnotes to the company's
consolidated financial statements under Stock-Based Compensation of
pro forma net income and earnings per share as if the company had
recognized compensation cost for share based payments under SFAS 123
for periods prior to fiscal 2006 is not necessarily indicative of the
potential impact of recognizing compensation cost for share based
payments under SFAS 123(R) in future periods. The potential impact of
adopting SFAS 123(R) is dependent on levels of share-based payments
granted, the specific option pricing model utilized to determine fair
value and the transition methodology selected.
8
11.9
12. BUSINESS SEGMENT INFORMATION
The company has aggregated its operating companies into a number of
segments, of which only Broadline and SYGMA are reportable segments as
defined in 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 lodging 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.
26-Week Period Ended 13-Week Period Ended
----------------------------------
Oct. 2, 2004 Sept.---------------------------- ----------------------------
Jan. 1, 2005 Dec. 27, 2003 Jan. 1, 2005 Dec. 27, 2003
------------ --------------------------- ------------ -------------
Sales (in thousands):
Broadline $ 6,095,362 $ 5,827,08911,943,304 $11,508,476 $5,847,942 $5,681,387
SYGMA 915,780 824,5631,857,201 1,688,102 941,421 863,539
Other 598,666 561,4601,225,124 1,133,333 626,458 571,873
Intersegment sales (77,883) (78,831)(162,447) (159,110) (84,564) (80,279)
------------ ----------- --------------------- ----------
Total $ 7,531,925 $ 7,134,28114,863,182 $14,170,801 $7,331,257 $7,036,520
============ =========== ===================== ==========
26-Week Period Ended 13-Week Period Ended
-------------------------------
Oct. 2, 2004 Sept.---------------------------- ----------------------------
Jan. 1, 2005 Dec. 27, 2003 Jan. 1, 2005 Dec. 27, 2003
------------ --------------------------- ------------ -------------
Earnings before income taxes
(in thousands):
Broadline $ 369,316 $ 339,104$729,932 $684,726 $360,616 $345,622
SYGMA 3,763 5,2747,634 11,012 3,871 5,738
Other 17,097 14,976
--------- ---------39,888 34,730 22,791 19,754
-------- -------- -------- --------
Total segments 390,176 359,354777,454 730,468 387,278 371,114
Unallocated corporate expenses (24,324) (19,824)
--------- ---------(34,852) (29,994) (10,528) (10,170)
-------- -------- -------- --------
Total $ 365,852 $ 339,530
========= =========$742,602 $700,474 $376,750 $360,944
======== ======== ======== ========
Oct. 2, 2004Jan. 1, 2005 July 3, 2004 Sept.Dec. 27, 2003
------------ ------------ ---------------------------
Assets (in thousands):
Broadline $4,919,553$4,924,815 $4,792,595 $4,709,015$4,700,779
SYGMA 229,268284,235 240,418 197,155230,214
Other 628,529631,371 588,275 503,578512,851
---------- ---------- ----------
Total segments 5,777,3505,840,421 5,621,288 5,409,7485,443,844
Corporate 2,328,4562,260,466 2,226,344 1,804,4461,861,733
---------- ---------- ----------
Total $8,105,806$8,100,887 $7,847,632 $7,214,194$7,305,577
========== ========== ==========
9
12.10
13. SUPPLEMENTAL GUARANTOR INFORMATION
SYSCO International, Co. is an unlimited liability company organized
under the laws of the Province of Nova Scotia, Canada and is a
wholly-owned subsidiary of SYSCO. In May 2002, SYSCO International,
Co. issued in a
private offering, $200,000,000 of 6.10% notes due in 2012. These notes are
fully and unconditionally guaranteed by SYSCO.
The following condensed consolidating financial statements present
separately the financial position, results of operations and cash
flows of the parent guarantor (SYSCO), the subsidiary issuer (SYSCO
International) and all other non-guarantor subsidiaries of SYSCO
(Other Non-Guarantor Subsidiaries) on a combined basis and eliminating
entries.
CONDENSED CONSOLIDATING BALANCE SHEET
-- OCTOBER 2, 2004
-----------------------------------------------------------------------------------------JANUARY 1, 2005
-------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
----------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
Current assets ....................... $ 135,48597,392 $ 2414 $ 3,877,2723,834,172 $ -- $ 4,012,781$3,931,578
Investment in
subsidiaries ......... 8,964,950 274,868 162,147 (9,401,965)............. 9,253,746 289,461 155,062 (9,698,269) --
Plant and equipment, net 123,734.... 131,032 -- 2,072,8162,101,140 -- 2,196,5502,232,172
Other assets ........... 658,552................ 663,434 -- 1,237,9231,273,703 -- 1,896,4751,937,137
----------- -------- ----------- ----------- ----------- ----------- ---------------------
Total assets ........................... $10,145,604 $289,475 $ 9,882,721 $ 274,892 $ 7,350,158 $(9,401,965) $ 8,105,8067,364,077 $(9,698,269) $8,100,887
=========== ======== =========== =========== =========== =========== =====================
Current liabilities ............. $ 624,856610,576 $ 56,62064,344 $ 2,488,8672,495,036 $ -- $ 3,170,343$3,169,956
Intercompany payables
(receivables) ........ 5,349,593 15,901 (5,365,494)............ 5,535,449 22,950 (5,558,399) -- --
Long-term debt ......... 831,006 199,512 51,827.............. 851,729 199,528 50,595 -- 1,082,3451,101,852
Other liabilities ...... 370,246........... 378,172 -- 720,966607,683 -- 1,091,212985,855
Shareholders' equity ... 2,707,020 2,859 9,453,992 (9,401,965) 2,761,906........ 2,769,678 2,653 9,769,162 (9,698,269) 2,843,224
----------- -------- ----------- ----------- ----------- ----------- ---------------------
Total liabilities and
shareholders' equity ...... $10,145,604 $289,475 $ 9,882,721 $ 274,892 $ 7,350,158 $(9,401,965) $ 8,105,8067,364,077 $(9,698,269) $8,100,887
=========== ======== =========== =========== =========== =========== =====================
CONDENSED CONSOLIDATING BALANCE SHEET
-- JULY 3, 2004
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
----------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
Current assets ........................ $ 119,526 $ 34 $ 3,731,851 $ -- $ 3,851,411$3,851,411
Investment in
subsidiaries ....................... 8,678,729 260,501 173,986 (9,113,216) --
Plant and equipment, net .... 114,385 -- 2,052,424 -- 2,166,809
Other assets ............................ 594,811 -- 1,234,601 -- 1,829,412
---------- -------- ----------- ----------- ----------- ----------- ---------------------
Total assets ............ $ 9,507,451 $ 260,535................ $9,507,451 $260,535 $ 7,192,862 $(9,113,216) $ 7,847,632$7,847,632
========== ======== =========== =========== =========== =========== =====================
Current liabilities .............. $ 374,144 $ 74,948 $ 2,677,542 $ -- $ 3,126,634$3,126,634
Intercompany payables
(receivables) ..................... 5,298,927 (14,924) (5,284,003) -- --
Long-term debt ........................ 981,476 199,496 50,521 -- 1,231,493
Other liabilities .................. 326,771 -- 598,228 -- 924,999
Shareholders' equity ............ 2,526,133 1,015 9,150,574 (9,113,216) 2,564,506
---------- -------- ----------- ----------- ----------- ----------- ---------------------
Total liabilities and
shareholders' equity .. $ 9,507,451 $ 260,535..... $9,507,451 $260,535 $ 7,192,862 $(9,113,216) $ 7,847,632$7,847,632
========== ======== =========== =========== =========== =========== =====================
1011
CONDENSED CONSOLIDATING BALANCE SHEET
-- SEPTEMBERDECEMBER 27, 2003
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
----------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
Current assets ........................ $ 163,852155,342 $ 2414 $ 3,612,2973,583,433 $ -- $ 3,776,173$3,738,789
Investment in
subsidiaries .......... 7,813,065 248,713 173,071 (8,234,849)............. 8,074,934 260,264 172,711 (8,507,909) --
Plant and equipment, net 90,797.... 118,907 -- 1,867,2701,910,811 -- 1,958,0672,029,718
Other assets ............ 306,834 2,064 1,171,056................ 347,491 2,077 1,187,502 -- 1,479,9541,537,070
---------- --------- ----------- ----------- ----------- ----------- ---------------------
Total assets ............................ $8,696,674 $ 8,374,548262,355 $ 250,801 $ 6,823,694 $(8,234,849) $ 7,214,1946,854,457 $(8,507,909) $7,305,577
========== ========= =========== =========== =========== =========== =====================
Current liabilities .............. $ 123,166302,789 $ 99,243105,347 $ 2,542,5452,320,897 $ -- $ 2,764,954$2,729,033
Intercompany payables
(receivables) ......... 4,794,622 (49,903) (4,744,719)............ 4,728,093 (45,927) (4,682,166) -- --
Long-term debt .......... 938,168 199,447 57,667.............. 1,140,108 199,463 56,410 -- 1,195,2821,395,981
Other liabilities ....... 225,597........... 202,202 -- 703,767612,537 -- 929,364814,739
Shareholders' equity .... 2,292,995 2,014 8,264,434 (8,234,849) 2,324,594........ 2,323,482 3,472 8,546,779 (8,507,909) 2,365,824
---------- --------- ----------- ----------- ----------- ----------- ---------------------
Total liabilities and
shareholders' equity ....... $8,696,674 $ 8,374,548262,355 $ 250,801 $ 6,823,694 $(8,234,849) $ 7,214,1946,854,457 $(8,507,909) $7,305,577
========== ========= =========== =========== =========== =========== =====================
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE 13-WEEK26-WEEK PERIOD ENDED OCTOBER 2, 2004
-------------------------------------------------------------------------------------------JANUARY 1, 2005
-------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
----------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
Sales .......................................... $ -- $ -- $ 7,531,92514,863,182 $ -- $ 7,531,925$14,863,182
Cost of sales .......................... -- -- 6,094,93112,028,446 -- 6,094,93112,028,446
Operating expenses ...... 23,709 29 1,031,674.......... 33,719 58 2,026,554 -- 1,055,4122,060,331
Interest expense (income) 74,126 3,064 (59,491)... 149,518 5,378 (119,431) -- 17,69935,465
Other, net .............. (165).................. (160) -- (1,804)(3,502) -- (1,969)
----------- ----------- ----------- -----------(3,662)
--------- ------- ------------ --------- -----------
Total costs and expenses 97,670 3,093 7,065,310.... 183,077 5,436 13,932,067 -- 7,166,073
----------- ----------- ----------- -----------14,120,580
--------- ------- ------------ --------- -----------
Earnings (losses) before
income taxes ............ (97,670) (3,093) 466,615............. (183,077) (5,436) 931,115 -- 365,852742,602
Income tax (benefit)
provision................ (37,359) (1,183) 178,480provision ................ (70,027) (2,079) 356,151 -- 139,938284,045
Equity in earnings of
Subsidiaries .......... 286,225 2,528............. 571,607 3,772 -- (288,753)(575,379) --
----------- ----------- ----------- -------------------- ------- ------------ --------- -----------
Net earnings ............................ $ 225,914458,557 $ 618415 $ 288,135574,964 $(575,379) $ (288,753) $ 225,914
=========== =========== =========== ===========458,557
========= ======= ============ ========= ===========
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE 13-WEEK26-WEEK PERIOD ENDED SEPTEMBERDECEMBER 27, 2003
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
----------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
Sales .......................................... $ -- $ -- $ 7,134,281$14,170,801 $ -- $ 7,134,281$14,170,801
Cost of sales .......................... -- -- 5,753,76711,423,166 -- 5,753,76711,423,166
Operating expenses ...... 37,555 36 986,745.......... 58,896 56 1,962,237 -- 1,024,3362,021,189
Interest expense (income) 61,055 3,710 (46,134)... 121,651 7,421 (94,065) -- 18,63135,007
Other, net .............. (283).................. (192) (928) (7,915) -- (1,700) -- (1,983)(9,035)
--------- ------- ----------- ----------- ----------- -------------------- -----------
Total costs and expenses 98,327 3,746 6,692,678.... 180,355 6,549 13,283,423 -- 6,794,75113,470,327
--------- ------- ----------- ----------- ----------- -------------------- -----------
Earnings (losses) before
income taxes ............ (98,327) (3,746) 441,603............. (180,355) (6,549) 887,378 -- 339,530700,474
Income tax (benefit)
provision ............... (37,856) (1,442) 170,017................ (69,437) (2,521) 341,640 -- 130,719269,682
Equity in earnings of
Subsidiaries .......... 269,282 2,826............. 541,710 6,057 -- (272,108)(547,767) --
--------- ------- ----------- ----------- ----------- -------------------- -----------
Net earnings ............................ $ 208,811430,792 $ 5222,029 $ 271,586545,738 $(547,767) $ (272,108)430,792
========= ======= =========== ========= ===========
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
13-WEEK PERIOD ENDED JANUARY 1, 2005
-------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
----------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
Sales ....................... $ 208,811
=========== =========== =========== ===========-- $ -- $7,331,257 $ -- $ 7,331,257
Cost of sales ............... -- -- 5,933,515 -- 5,933,515
Operating expenses .......... 10,010 29 994,880 -- 1,004,919
Interest expense (income) ... 75,392 2,314 (59,940) -- 17,766
Other, net .................. 5 -- (1,698) -- (1,693)
-------- ------- ---------- --------- -----------
Total costs and expenses .... 85,407 2,343 6,866,757 -- 6,954,507
-------- ------- ---------- --------- -----------
Earnings (losses) before
income taxes ............. (85,407) (2,343) 464,500 -- 376,750
Income tax (benefit)
provision ................ (32,668) (896) 177,671 -- 144,107
Equity in earnings of
Subsidiaries ............. 285,382 1,244 -- (286,626) --
-------- ------- ---------- --------- -----------
Net earnings (loss) ......... $232,643 $ (203) $ 286,829 $(286,626) $ 232,643
======== ======= ========== ========= ===========
1112
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
13-WEEK PERIOD ENDED DECEMBER 27, 2003
-------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
----------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
Sales ....................... $ -- $ -- $7,036,520 $ -- $7,036,520
Cost of sales ............... -- -- 5,669,399 -- 5,669,399
Operating expenses .......... 21,341 20 975,492 -- 996,853
Interest expense (income) ... 60,596 3,711 (47,931) -- 16,376
Other, net .................. 91 (928) (6,215) -- (7,052)
-------- ------- ---------- --------- ----------
Total costs and expenses .... 82,028 2,803 6,590,745 -- 6,675,576
-------- ------- ---------- --------- ----------
Earnings (losses) before
income taxes ............. (82,028) (2,803) 445,775 -- 360,944
Income tax (benefit)
provision ................ (31,581) (1,079) 171,623 -- 138,963
Equity in earnings of
Subsidiaries ............. 272,428 3,231 -- (275,659) --
-------- ------- ---------- --------- ----------
Net earnings ................ $221,981 $ 1,507 $ 274,152 $(275,659) $ 221,981
======== ======= ========== ========= ==========
CONDENSED CONSOLIDATING CASH FLOWS
FOR THE 13-WEEK26-WEEK PERIOD ENDED OCTOBER 2, 2004JANUARY 1, 2005
----------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES TOTALS
-------------------- ------------- ------------------- ------------
(IN THOUSANDS)
Net cash provided by (used for):
Operating activities ............................. $ (40,539)(63,840) $ 1,477(3,260) $ 159,809428,823 $ 120,747361,723
Investing activities ............... (14,365).............. (43,126) -- (82,209) (96,574)(204,901) (248,027)
Financing activities ............... (10,790) (21,689) 811 (31,668).............. (143,841) (10,649) (1,342) (155,832)
Effect of exchange rate on
cash.....cash ........................... -- -- (2,608) (2,608)(4,644) (4,644)
Intercompany activity .............. 54,084 20,212 (74,296)............. 236,679 13,909 (250,588) --
--------- ----------------- --------- ---------
Net (decrease) increasedecrease in cash.... (11,610)cash .............. (14,128) -- 1,507 (10,103)(32,652) (46,780)
Cash at the beginning of the
period .................................................... 87,507 -- 112,199 199,706
--------- ----------------- --------- ---------
Cash at the end of the
period .................................................... $ 75,89773,379 $ -- $ 113,70679,547 $ 189,603152,926
========= ================= ========= =========
CONDENSED CONSOLIDATING CASH FLOWS
FOR THE 13-WEEK26-WEEK PERIOD ENDED SEPTEMBERDECEMBER 27, 2003
---------------------------------------------------------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES TOTALS
-------------------- ------------- ------------------- ------------
(IN THOUSANDS)
Net cash provided by (used for):
Operating activities ......................... $(120,854) $ (31,972)663 $ 41,303484,970 $ 176,709 $ 186,040364,779
Investing activities ........... (55,250).............. (132,075) -- (123,163) (178,413)(230,510) (362,585)
Financing activities ........... (108,295) (13,839) (374) (122,508).............. (86,419) (7,181) (10,938) (104,538)
Effect of exchange rate on
cash .................................................... -- -- (1,022) (1,022)(2,508) (2,508)
Intercompany activity .......... 114,228 (39,269) (74,959)............. 269,716 6,004 (275,720) --
--------- ---------------- --------- ---------
Net (decrease)decrease in cash ......... (81,289) (11,805) (22,809) (115,903).............. (69,632) (514) (34,706) (104,852)
Cash at the beginning of the
period ................................................ 206,043 514 130,890 337,447
--------- ---------------- --------- ---------
Cash at the end of the
period ................................................ $ 124,754136,411 $ (11,291)-- $ 108,08196,184 $ 221,544232,595
========= ================ ========= =========
13.
13
14. EMPLOYEE BENEFIT PLANS
The components of net benefit cost for the 26-week periods presented
are as follows:
Pension Benefits Other Postretirement Plans
---------------------------- ----------------------------
Jan. 1, 2005 Dec. 27, 2003 Jan. 1, 2005 Dec. 27, 2003
------------ ------------- ------------ -------------
Service cost $ 40,642,000 $ 37,466,000 $239,000 $211,000
Interest cost 36,913,000 30,582,000 244,000 201,000
Expected return on plan assets (41,306,000) (30,574,000) -- --
Amortization of prior service cost 880,000 654,000 101,000 101,000
Recognized net actuarial loss (gain) 16,302,000 18,849,000 -- (20,000)
Amortization of net transition
obligation -- 139,000 77,000 77,000
------------ ------------ -------- --------
Net periodic benefit cost $ 53,431,000 $ 57,116,000 $661,000 $570,000
============ ============ ======== ========
The components of net benefit cost for the 13-week periods presented
are as follows:
Pension Benefits Other Postretirement Plans
-------------------------------- -------------------------------
Oct. 2, 2004 Sept.---------------------------- ----------------------------
Jan. 1, 2005 Dec. 27, 2003 Oct. 2, 2004 Sept.Jan. 1, 2005 Dec. 27, 2003
------------ --------------------------- ------------ ---------------------------
Service cost $ 20,322,00020,320,000 $ 18,733,000 $ 120,000 $ 105,000$119,000 $106,000
Interest cost 18,456,00018,457,000 15,291,000 122,000 101,000100,000
Expected return on plan assets (20,653,000) (15,287,000) -- --
Amortization of prior service cost 440,000 328,000 50,000 50,000326,000 51,000 51,000
Recognized net actuarial loss (gain) 8,151,000 9,424,0009,425,000 -- (10,000)
Amortization of net transition
obligation -- 69,000 39,000 39,00070,000 38,000 38,000
------------ ------------ ------------ -------------------- --------
Net periodic benefit cost $ 26,716,00026,715,000 $ 28,558,000 $ 331,000 $ 285,000$330,000 $285,000
============ ============ ============ ==================== ========
SYSCO's contributions to its defined benefit plans were $81,485,000$83,048,000
and $41,293,000$82,637,000 during the 13-week26-week periods ended October 2, 2004January 1, 2005 and
SeptemberDecember 27, 2003, respectively.
12
14.SYSCO does not expect to make
significant additional contributions during the remainder of fiscal
2005, whereas total contributions in fiscal 2004 were $165,512,000.
15. 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 to approximately 172 employees, which could result in a
maximum aggregate payout after the three-year performance period which
includes fiscal years 2005 through 2007 of $23,454,000.
1314
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 fiscal year ended
July 3, 2004.
HIGHLIGHTS
The company faced a number of challenges inSales increased 4.9% for the first quarter of fiscal
2005, including hurricanes26 weeks and 4.2% for the related severe weather and rising
fuel costs. Sales increased 5.6% in the firstsecond quarter
of fiscal 2005 over the comparable prior year period.periods. Gross margins as a
percent of sales for both the first 26 weeks and second quarter of fiscal
2005 decreased from the comparable prior year periodperiods due to the impact of
product cost increases and changes in customer mix and segment mix.
Operating expenses as a percent of sales for both the first 26 weeks and
the second quarter of fiscal 2005 decreased from the comparable prior year
periodperiods due to operating efficiencies and operating costs increasing at
lower rates than the sales price increases driven by product cost
increases. Primarily as a result of these factors, net earnings increased
8.2% in6.4% for the first 26 weeks and 4.8% for the second quarter of fiscal 2005
over the comparable prior year period.periods.
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, and a
company that distributes to internationally-located chain restaurants.subsidiary.
The company estimates that it serves more than 14% of an approximately $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
level. This share has grown from about 37% 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 affect the
frequency and amount spent by consumers for food prepared away from home
and in turn can impact SYSCO's
15
sales. However, weWe have consistentlyhistorically 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 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 implementing 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
customer relationships.
- Supply chain optimization: Creating a more efficient and effective
supply chain infrastructure through the National Supply Chain project.
The company's National Supply Chain project is intended to optimize the
supply chain activities for products from SYSCO's operating companies in
each respective region and as a result, lower inventory and operating
costs, working capital requirements and future facility expansion needs at
SYSCO's operating companies while providing greater value to our suppliers
and customers. The company expects to build from seven to nine regional
distribution centers over a period of ten years. The first of which, the
Northeast Redistribution Center located in Front Royal, Virginia, is expectedwill
begin distributing products to be operationalthe company's broadline facility near Boston
in February 2005, followed incrementally by 13 additional broadline
companies in the Northeast region. The company expects that all 14
companies will be receiving products from the Northeast Redistribution
Center by October 2005. The company expects to begin construction of its
second regional redistribution facility, to be located in the Southeast, in
the next
six months.fiscal 2006.
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$0.03 to $0.05$0.04 on earnings per share during fiscal 2005.
In fiscal 2006, management estimates that the incremental benefits of the project are
expected to offset any further incremental costs, and management
estimates that there couldshould be a slight,no
additional negative impact, and perhaps a one-half cent contribution, to
earnings per share in fiscal 2006.share.
1516
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:
26-Week Period Ended 13-Week Period Ended
---------------------------- Oct. 2, 2004 Sept.----------------------------
Jan. 1, 2005 Dec. 27, 2003 Jan. 1, 2005 Dec. 27, 2003
------------ --------------------------- ------------ -------------
Sales 100.0% 100.0% 100.0% 100.0%
Costs and Expenses
Cost of sales 80.9 80.6 80.9 80.6
Operating expenses 14.0 14.413.9 14.3 13.8 14.2
Interest expense 0.2 0.30.2 0.2 0.2
Other, net 0.0 0.0 0.0 (0.1)
----- ----- ----- -----
Total costs and expenses 95.0 95.1 95.394.9 94.9
----- ----- ----- -----
Earnings before income taxes 5.0 4.9 4.75.1 5.1
Income taxes 1.9 1.81.9 1.9 1.9
----- ----- ----- -----
Net earnings 3.1% 3.0% 2.9%3.2% 3.2%
===== ===== ===== =====
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:
26-Week Period 13-Week Period
-------------- --------------
Sales 5.6%4.9% 4.2%
Costs and Expenses
Cost of sales 5.95.3 4.7
Operating expenses 3.01.9 0.8
Interest expense (5.0)1.3 8.5
Other, net (0.7)
----(59.5) (76.0)
----- -----
Total costs and expenses 5.5
----4.8 4.2
----- -----
Earnings before income taxes 7.86.0 4.4
Income taxes 7.1
----5.3 3.7
----- -----
Net earnings 8.2%
====6.4% 4.8%
===== =====
Basic earnings per share 9.4%7.5% 5.9%
Diluted earnings per share 9.47.7 5.9
Average shares outstanding (1.2)(1.1) (0.9)
Diluted shares outstanding (1.0)(1.2) (1.3)
1617
SALES Sales increased 5.6% in the first quarter of fiscal 2005 over the
comparable period of the prior year. Acquisitions contributed 0.5%0.6% to the overall sales growth rate for
the first 26 weeks of fiscal 2005 and 0.7% for the second quarter of fiscal
2005. Estimated product cost increases an internal measure of inflation,
were 5.9%4.7% during the first 26 weeks
of fiscal 2005 and 3.8% during the second quarter of fiscal 2005. SYSCO
generally expects to pass product cost increases to its customers; however,
the actual amount of inflationproduct cost increases reflected as increases in sales
price 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
reducedcontinues to see reductions in 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 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 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 fourth quarter of fiscal 2004 over the comparable
prior year period. Management believes that theperiods.
GROSS MARGINS The decline in gross margins as a percentage of sales in the
first 26 weeks and second quarter of fiscal 2005, as compared to the
first quartercomparable prior year periods, was experienced in substantially all of fiscal 2004,the
company's segments. Management believes that this gross margin decline was
caused by several factors, including product cost increases, and changes in
customersegment mix and segment mix; however, the specific impact of each factor is
difficult to quantify.pricing pressure.
Product cost increases in substantially allmost of the 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,
experiencedWithin the highest rates of inflation. The result was a higher
sales price but a lowerBroadline segment, 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 thanon
sales to multi-unit customers, where margins are contractually agreed to
and are frequently fee-based, declined. Gross margins as a percentage of
sales on sales to marketing-associate served customers, where marketing
associate-served
customer sales.associates negotiate the price on each order, were maintained.
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 were 14.0% of sales for the first
quarter of fiscal 2005, as compared to 14.4% for the comparable period
in the prior year. The decrease in operating expenses as a percentage of
sales was primarily attributable to improved operating efficiencies
as demonstrated byefficiencies. For
example, the Broadline segment continues to demonstrate improving trends in
key expense metrics, including number of stops, total miles driven per trip,
pieces sold per delivery, product line items sold per delivery, pieces per
trip and pieces per error. Increases in product costs and the resulting
increased average sales price per item also favorably impacted expenses as
a percentage of sales as operating costs increased at a lower rate.
Operating expenses were negativelyalso favorably impacted by the recognition in
income of $86,000 in expense$14,195,000 in the first 26 weeks and $14,281,000 in the second
quarter of fiscal 2005 to adjust the carrying value of life insurance
assets to their cash surrender value
asvalue. This compared to the recognition of $4,566,000 in
income of $16,784,000 and $12,218,000 in the first
quartercomparable periods of fiscal
2004.2004, respectively.
Operating expenses were also negatively impacted by increased costs to deliver
product to customers due to increased fuel costs of approximately
$5,000,000$14,000,000 in the first 26 weeks and $8,500,000 in the second quarter of
fiscal 2005 over the first quartercomparable periods of fiscal 2004. The
18
impact of increasing fuel costs
17 was partially offset by a reduction in totalboth
miles driven. In addition,
operatingdriven and number of stops.
Operating expenses related to the National Supply Chain project were
$6,513,000$12,211,000 in the first 26 weeks and $6,460,000 in the second quarter of
fiscal 2005, as compared to $8,165,000$17,698,000 and $8,786,000 in the first quartercomparable
periods of fiscal 2004.
The company's focus on managing labor costs including instituting a
temporary 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 1,5002,000 from July 3, 2004 to
October 2, 2004.January 1, 2005. The impactcompany believes that this has resulted in the total
number of associates being more aligned with the current sales volumes and
as a result, has aided in the company's efforts to manage overall expenses.
The company will adjust its workforce levels in the future as actual or
expected sales volumes change.
OTHER INCOME The company recognized a gain on expenses for
the firstsale of a facility of
approximately $5,700,000 in the second quarter of fiscal 2005 related to the reduction in the number
of associates was not material.
EARNINGS BEFORE TAXES AND NET EARNINGS Earnings before income taxes
increased 7.8% and net earnings increased 8.2% in the first quarter of
fiscal 2005 over the comparable period of the prior year. These
increases were due primarily to the factors discussed above.2004.
EARNINGS PER SHARE BasicThe increases in earnings per share and diluted earnings per
share increased 9.4% in the first quarter of fiscal 2005 over the
comparable period of the prior year. These increases were due primarily
to the result of
factors discussed above, as well as a net reduction of shares outstanding
due 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 (decrease) over the comparable period in the prior year and should
be read in conjunction with Business Segment Information (Footnote No. 11)12)
in the Notes to Consolidated Financial Statements:
26-Week Period 13-Week Period
-------------------------------------- ----------------
Earnings Earnings
before before
Sales beforetaxes Sales taxes
----- -------------------- ----- --------
Broadline 4.6% 8.9%3.8% 6.6% 2.9% 4.3%
SYGMA 11.1 (28.6)10.0 (30.7) 9.0 (32.5)
Other 6.6 14.28.1 14.9 9.5 15.4
The following table setstables set 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. 11)12) in the Notes to Consolidated
Financial Statements:
13-Week26-Week Period Ended
-----------------------------------------------
October 2, 2004 September-----------------------------------
Jan. 1, 2005 Dec. 27, 2003
---------------------- ------------------------------------- ----------------
Earnings Earnings
before before
Sales before taxes Sales before taxes
----- -------------------- ----- --------------------
Broadline 80.9% 100.9% 81.7% 99.9%80.4% 98.3% 81.2% 97.8%
SYGMA 12.212.5 1.0 11.5 1.511.9 1.6
Other 7.9 4.7 7.9 4.48.2 5.4 8.0 4.9
Intersegment sales (1.0) -- (1.1) --(1.1)
Unallocated corporate expenses -- (6.6) -- (5.8)(4.7) (4.3)
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
1819
13-Week Period Ended
-----------------------------------
Jan. 1, 2005 Dec. 27, 2003
---------------- ----------------
Earnings Earnings
before before
Sales taxes Sales taxes
----- -------- ----- --------
Broadline 79.8% 95.7% 80.7% 95.8%
SYGMA 12.8 1.0 12.3 1.6
Other 8.5 6.0 8.1 5.4
Intersegment sales (1.1) (1.1)
Unallocated corporate expenses (2.7) (2.8)
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
BROADLINE SEGMENT The Broadline segment sales increased 4.6% in the
first quarter of fiscal 2005 as compared to the comparable period of
the prior year. Acquisitions did not have a material impact on sales
growth for the Broadline segment for the first 26 weeks or for the second
quarter of fiscal 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. Marketing associate-served
sales as a percentage of broadline sales in the U.S. decreased to 54.5%were 53.7% and 52.9%
for the first 26 weeks and second quarter of fiscal 2005, respectively, as
compared to 54.9%53.7% and 52.5%, respectively, for the comparable prior year
period.
This decrease was due to the increase in sales to multi-unit customers
exceeding the increase in sales to marketing associate-served
customers.periods. SYSCO Brand sales as a percentage of broadline sales in the U.S.
increased to 49.6%49.5% and 49.4% for the first 26 weeks and the second quarter
of fiscal 2005, respectively, as compared to 49.1%49.0% and 49.0%, respectively,
for the comparable prior year period.
Earningsperiods.
The increases in earnings before income taxes for the Broadline segment
increased 8.9%
in the first quarter of fiscal 2005 over the comparable prior year
period. The increase in earnings before income taxes waswere primarily due to increases in sales and increased operating
efficiencies resulting in lower expenses as a percentage of sales.
SYGMA SEGMENT SYGMA segment sales increased 11.1% in the first quarter
of fiscal 2005 over the comparable prior year period. Acquisitions contributed 2.7%2.8% to the overall sales growth
rate for the SYGMA segment for the first 26 weeks and 2.9% for the second
quarter of fiscal 2005. The remaining increase was due primarily 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.
Earnings before income taxes for the SYGMA segment decreased 28.6% in
the first quarterprimarily as a
result of fiscal 2005 over the comparable prior year period.
The decrease was due primarily to the factors discussed below.
During the third and fourth quartersquarter of fiscal 2004 and the first quarter of fiscal
2005, SYGMA discontinued servicing a portion of its largest customer's
locations due to that customer's geographic supply chain realignment. SYGMA
expects to offsetis offsetting these lost sales by obtaining sales from additional locations
from this customer and obtaining new business from other customers. The new
business is being added throughout fiscal 2005. In many cases, this new
business is being served out of different SYGMA locations than those that
originally served the discontinued business. As a result, during fiscal
2004 through the first quarter ofand fiscal 2005, SYGMA incurred
additionalSYGMA's operating profits have been impacted by
increased operating expenses including severance payments and equipment moving
costs, as it transitioned its operations to serve
thesethis new customers.business. In addition, the new 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.
OTHER SEGMENTS Other segments sales increased 6.6% in the first quarter
of fiscal 2005 over the comparable prior year period. Acquisitions
contributed 2.6% to the overall sales growth rate for the first quarter
of fiscal 2005. The remaining increase was due to increased sales to
the existing customer base, sales to new customers and price increases
primarily resulting from higher product costs.
Earnings before income taxes for the Other segments increased 14.2% in
the first quarter of fiscal 2005 over the comparable prior year period.
The increase was primarily due to increases in sales, acquisitions and
increased gross margins as a percentagepercent of sales.
19
LIQUIDITY AND CAPITAL RESOURCES
The company generated $120,747,000sales
in net cash from operations for the
first quarter of fiscal 2005 compared with $186,040,000 forhave declined from the comparable period in fiscal 2004.
Cash flow from operations for the first quarter of fiscal 2005 was
negatively impacted by the decrease2004 due
to product cost increases and lower agreed upon pricing with its customers.
These trends in accrued expenses, other
long-term liabilities and prepaid pension cost of $163,578,000 for the
first quarter ofgross margins are expected to continue throughout fiscal
2005. This decrease was primarily due to three
factors. First,However, the company contributed $81,485,000expects that SYGMA will continue to its pension
plans duringbe a
profitable segment.
20
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities, as supplemented by commercial paper
and other bank borrowings, may, at the first quarterdiscretion of fiscal 2005, as compared to
$41,293,000 duringmanagement, be applied
towards investments in facilities, fleet and other equipment; cash
dividends; acquisitions fitting within the first quarter of fiscal 2004. SYSCO does not
expect to make significant additional contributions duringcompany's overall growth
strategy; and 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, cashshare repurchase program.
Operating Activities
Cash flow from operations in the first quarter26 weeks of fiscal 2005 was
negatively impacted by increases in accounts receivable
balances of $57,114,000 and inventory balances of $47,435,000$123,510,000 and
decreases in accounts payable balances of $39,571,000. The increase$78,330,000, offset by a decrease
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 represented a
larger percentage of total SYSCO sales in September 2004 as compared to
June 2004. Payment terms for multi-unit customers are traditionally
longer than the overall SYSCO average.$32,612,000.
Inventory balances are impacted by many factors including current and
anticipated sales volumes and changes in product mix, and purchases in
anticipation of product availability and product cost increases. The
company has also historically experienced elevated inventory levels during
the holiday period that the second quarter ends in. Sales in the last weeks
of the quarter are at lower volumes due to the holiday period which can
build inventory levels. In addition, purchasing levels are typically
increased in anticipation of increased sales volumes from the re-opening of
schools.
Accounts payable balances were impacted by manyseveral factors including
changes in product mix and changes in payment terms.
Sales to multi-unit customers, whose payment terms with vendors dueare traditionally longer
than the overall SYSCO average, typically represent a larger percentage of
total SYSCO sales (and thus receivable balances) in December as compared to
conversionJune. These seasonable changes in customer mix traditionally result in
higher accounts receivable balances. In addition, the fiscal second quarter
ends in a holiday period which can slow customer payments. In fiscal 2005,
improvements in receivable collections more than offset these factors.
Also impacting cash flow from operations was a decrease in accrued expenses
of $107,609,000. Accrued amounts related to more efficient
electronicbonus and incentive payments to
employees decreased approximately $95,600,000 during the first 26 weeks of
fiscal 2005. This decrease reflects the payment methodsof annual incentive based
bonuses for fiscal 2004 which were paid in early fiscal 2005, offset by
accruals for fiscal 2005 incentive based bonuses.
The company's contributions to its defined benefit plans were $83,048,000
and $82,637,000 during the 26-week periods ended January 1, 2005 and
December 27, 2003, respectively. SYSCO does not expect to cash discount terms.make significant
additional contributions during the remainder of fiscal 2005, whereas total
contributions in fiscal 2004 were $165,512,000.
Investing Activities
Total capital expenditures in fiscal 2005 are expected to be in the
range ofapproximately
$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.$450,000,000. 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 investments in technology. Expenditures in the first quarter26 weeks of fiscal
2005 related to the company's National Supply Chain project totaled
$19,749,000$38,524,000, of which $13,236,000$26,313,000 was capitalized. Total expenditures on
the project since inception are $235,749,000,$256,311,000, of which $165,490,000$178,567,000 have
been capitalized.
The
Northeast Redistribution Center is expected to be operational in
February 2005.
21
Financing Activities
During the first quarter26 weeks of fiscal 2005, a total of 1,480,2004,430,200 shares were
purchasedrepurchased at a cost of $48,912,000$154,858,000, as compared to 1,214,8006,293,700 shares at a
cost of $39,764,000$218,149,000 for the comparable period in fiscal 2004. There were noAn
additional 1,976,000 shares at a cost of $72,016,000 have been purchased
through OctoberJanuary 29, 2004,2005, resulting in 11,128,7006,202,700 shares remaining available
for repurchase as authorized by the Board.
20
Dividends paid inBoard as of that date.
The company made two regular quarterly dividend payments during the first
quarter26 weeks of fiscal 2005, were $83,062,000, oreach at $0.13 per share, as compared to $71,257,000, or $0.11 per share, in the
comparable period of fiscal 2004.share. In SeptemberNovember 2004, SYSCO
declared its regular quarterly dividend for the secondthird quarter of fiscal
2005, at
$0.13increasing it to $0.15 per share, which was paid in October 2004.January 2005.
As of October 2, 2004,January 1, 2005, SYSCO's borrowings under its commercial paper
programs were $133,149,000. Such borrowings were $122,116,000 as of January
29, 2005. During the 26-week period ended January 1, 2005, commercial paper
and short-term bank borrowings ranged from approximately $46,327,000 to
$253,384,000.
As of January 1, 2005, SYSCO 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$4,000,000 was outstanding at October 2, 2004.January 1, 2005. Such borrowings
were $9,500,000$24,500,000 as of OctoberJanuary 29, 2004.
As of October 2, 2004, SYSCO's borrowings under its commercial paper
programs were $102,115,000. Such borrowings were $201,150,000 as of
October 29, 2004. During the 13-week period ended October 2, 2004,
commercial paper and short-term bank borrowings ranged from
approximately $46,327,000 to $253,384,000.2005.
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, cash flow from operations or a
combination thereof.
The long-term debt to capitalization ratio was 34.4%34.1% at October 2,
2004.January 1, 2005,
which is slightly below the company's long-term 35% to 40% target range.
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.portion.
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.
CRITICAL 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 firstsecond
quarter of fiscal 2005.
22
NEW ACCOUNTING STANDARDS
On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123 (revised 2004), Share-Based Payment (SFAS
123(R)), which is a revision of FASB Statement No. 123, Accounting for
Stock-Based Compensation (SFAS 123). SFAS 123(R) supersedes APB Opinion No.
25, Accounting for Stock Issued to Employees (APB Opinion 25), and amends
FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in
SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS
123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on
their fair values. Pro forma disclosure is no longer an alternative under
the new standard.
SYSCO must adopt Statement 123(R) no later than July 3, 2005. Early
adoption is permitted in periods in which financial statements have not yet
been issued. SYSCO expects to adopt SFAS 123(R) on July 3, 2005. SFAS
123(R) allows for two transition methods. The basic difference between the
two methods is that the modified-prospective transition method does not
require restatement of prior periods, whereas the modified-retrospective
transition method will require restatement.
As permitted by SFAS 123, the company currently accounts for share-based
payments to employees using APB Opinion 25's intrinsic value method and, as
such, generally recognizes no compensation cost for employee stock options
or stock issuances under the employee stock purchase plan. Although the
full impact of the company's adoption of SFAS 123(R)'s fair value method
has not yet been determined, the company expects that it will have a
significant impact on its results of operations. The disclosure in the
footnotes to the company's consolidated financial statements under
Stock-Based Compensation of pro forma net income and earnings per share as
if the company had recognized compensation cost for share based payments
under SFAS 123 for periods prior to fiscal 2006 is not necessarily
indicative of the potential impact of recognizing compensation cost for
share based payments under SFAS 123(R) in future periods. The potential
impact of adopting SFAS 123(R) is dependent on levels of share-based
payments granted, the specific option pricing model utilized to determine
fair value and the transition methodology selected.
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 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
23
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 increaseimprove
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 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 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.
At October 2, 2004,January 1, 2005, the company had outstanding $102,115,000$133,149,000 of commercial
paper at variable rates of interest with maturities through January 12,April 20, 2005.
The company's long-term debt obligations of $1,451,125,000$1,469,705,000 were primarily
at fixed rates of interest. In addition,Also at January 1, 2005, the company hashad
interest rate swap agreements outstanding totaling $500,000,000 in notional
amount whereby the company receivesreceived interest payments at fixed rates of
interest and payspaid interest at variable rates. In February 2005, the company
terminated all outstanding swap agreements.
Item 4. Controls and Procedures
As of October 2, 2004,January 1, 2005, 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 October 2, 2004January 1, 2005 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 firstsecond quarter of fiscal 2005
that materially affected, or would be reasonably likely to materially
affect, the company's internal controls over financial reporting.
2324
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. Unregistered Sales of Equity Securities and Use of Proceeds
SYSCO made the following share repurchases during the firstsecond quarter of
fiscal 2005:
ISSUER PURCHASES OF EQUITY SECURITIES
(c)(C) TOTAL NUMBER OF
SHARES (d)PURCHASED AS (D) MAXIMUM NUMBER
PURCHASED AS(B) AVERAGE PART OF PUBLICLY OF SHARES THAT MAY (b) AVERAGE OF PUBLICLY YET
BE PURCHASED
(a)(A) TOTAL NUMBER OF PRICE PAID PER ANNOUNCED PLANS OR BE PURCHASED UNDER
PERIOD SHARES PURCHASED SHARE PROGRAMS THE PLANS OR PERIOD OF SHARES PURCHASED PER SHARE PROGRAMS
PROGRAMS
- --------------------------- ------------------- ------------------------- ------------------- -----------------------------------------
Month #1
July 4Oct. 3 - July 31 445,345 $35.22 430,000 12,178,900Oct. 30 2,558 $30.13 0 11,128,700
Month #2
August 1Oct. 31 - August 28 417,630 31.84 400,000 11,778,900Nov. 27 865,995 35.06 850,000 10,278,700
Month #3
August 29Nov. 28 - October 2 655,450 32.36 650,200 11,128,700Jan. 1 2,143,466 36.27 2,100,000 8,178,700
--------- ----------- --------- ----------
Total 1,518,425 33.06 1,480,200 11,128,700
--------- ----- --------- ----------3,012,019 35.92 2,950,000 8,178,700
========= ====== ========= ==========
In the above table, the total number of shares purchased includes shares
purchased as part of a publicly announced share repurchase program, as well
as shares tendered by individuals in connection with stock option
exercises.
On September 12, 2003, the company announced that the Board of Directors
approved the repurchase of 20,000,000 shares. In July 2004, the Board of
Directors authorized 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.
TheOn November 23, 2004, the company has not yet entered into such an agreement.
In September 2004, a totalstock purchase plan with
Banc of 26,036 Dividend Access Shares,
convertible on a one-for-one basis intoAmerica Securities LLC to purchase shares of SYSCO shares, were released to
the former owners of HRI Supply, Ltd. ("HRI")common stock
pursuant to Rules 10b5-1 and 10b-18 under the terms of
an escrow agreement executed in connection with SYSCO's acquisition of
HRI in May 2001.
In SeptemberExchange Act. Subject to
certain conditions, the shares will be purchased during the period between
December 1, 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.
24and August 16, 2005, including during company "blackout"
periods.
Item 3. Defaults upon Senior Securities
None
25
Item 4. Submission of Matters to a Vote of Security Holders
NoneSYSCO held its 2004 Annual Meeting of Stockholders on November 12, 2004.
Four directors, Colin G. Campbell, John M. Cassaday, John K. Stubblefield,
Jr., and Jackie M. Ward, were elected for a three-year term. Directors
whose terms continued after the meeting included Judith B. Craven, Jonathan
Golden, Joseph A. Hafner, Jr., Thomas E. Lankford, Richard G. Merrill,
Richard J. Schnieders, Phyllis S. Sewell, and Richard G. Tilghman.
Other matters voted on included:
_ Ratification of the appointment of Ernst & Young LLP as SYSCO's
independent accountants for fiscal 2005;
_ Approval of the 2004 Stock Option Plan; and
_ Approval of the payment of compensation to certain executive
officers pursuant to the 2004 Long-Term Incentive Cash Plan.
A shareholder proposal requesting that the Board review and report on the
Company's policies for food products containing genetically engineered
ingredients was not presented at the meeting and a vote was not taken.
The final voting results were as follows:
Number of Votes Cast
Matter ------------------------------------------ Broker
Voted Upon For Against/Withheld Abstain Non-Votes
---------- ----------- ---------------- --------- ----------
Election of Directors
Colin G. Campbell 534,275,894 24,957,830 n/a n/a
John M. Cassaday 535,252,010 23,981,714 n/a n/a
John K. Stubblefield, Jr. 537,057,348 22,176,376 n/a n/a
Jackie M. Ward 538,124,340 21,109,384 n/a n/a
Ratification of Independent 541,587,426 14,098,823 3,547,475 n/a
Accountants
2004 Stock Option Plan 385,505,136 81,697,148 4,882,378 87,149,061
2004 Long-Term Incentive 514,331,019 39,722,220 5,180,485 n/a
Cash Plan
Item 5. Other Information
NoneOn November 11, 2004, the Board of Directors determined to increase the
annual retainer for those non-employee directors who chair the Audit
Committee, the Compensation and Stock Option Committee, the Finance
Committee and the Corporate Governance and Nominating Committee from
$65,000 to $70,000. Such increase was effective January 1, 2005.
26
Item 6. Exhibits
(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).
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
Form10-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.
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,
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)+ Form of Retainer Stock Agreement for issuance to Non-Employee
Directors under the Non-Employee Directors Stock Plan.
*10(b)+ Supplemental Performance Based Bonus Plan dated November 11, 2004.
*10(c)+ Description of Compensation Arrangements with Named Executive
Officers.
*10(d)+ Description of Compensation Arrangements with Non-Employee Directors.
*15(a) Report from Ernst & Young LLP dated February 10, 2005,
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 herewithherewith.
2728
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: NovemberFebruary 10, 20042005
By /s/ JOHN K. STUBBLEFIELD, JR.
---------------------------------------------------------------------------
John K. Stubblefield, Jr.
Executive Vice President, Finance & Administrationand
Chief Financial Officer
Date: NovemberFebruary 10, 20042005
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-QForm10-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).shares.
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(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)*10(a)+ 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 GrantRetainer Stock 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
directorsNon-Employee Directors
under the Non-Employee Directors Stock Plan.
*10(b)+ Supplemental Performance Based Bonus Plan incorporated by
reference to Exhibit 10(b) to Form 8-K filed on September 9, 2004 (File
No. 1-6544).dated November 11, 2004.
*10(c)+ Description of Compensation Arrangements with Named Executive Officers.
*10(d)+ Description of Compensation Arrangements with Non-Employee Directors.
*15(a) Report from Ernst & Young LLP dated NovemberFebruary 10, 2004,2005, 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.