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 January 1,April 2, 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 No ----- ----- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yes X No ----- ----- 636,906,775633,042,914 shares of common stock were outstanding as of January 29,April 30, 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 1415 Item 3. Quantitative and Qualitative Disclosures about Market Risk 2324 Item 4. Controls and Procedures 2325 PART II. OTHER INFORMATION Item 1. Legal Proceedings 2426 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 2426 Item 3. Defaults Upon Senior Securities 2427 Item 4. Submission of Matters to a Vote of Security Holders 2527 Item 5. Other Information 2527 Item 6. Exhibits 2627 Signatures 2829
1 PART I - FINANCIAL INFORMATION Item 1. Financial Statements SYSCO CORPORATION and its Consolidated Subsidiaries CONSOLIDATED BALANCE SHEETS (In Thousands Except for Share Data)
Jan. 1,Apr. 2, 2005 July 3, 2004 Dec.Mar. 27, 20032004 ------------ ------------ ------------- (unaudited) (unaudited) ASSETS Current assets Cash $ 152,926199,518 $ 199,706 $ 232,595172,695 Accounts and notes receivable, less allowances of $55,713,$64,604, $34,175 and $55,744 2,167,931$66,986 2,242,837 2,189,127 2,086,1072,087,476 Inventories 1,546,0071,490,305 1,404,410 1,359,8861,373,251 Prepaid expenses 64,71463,482 54,903 60,20157,128 Prepaid income taxes -- 3,265 -- ---------- ---------- --------------------- ----------- ----------- Total current assets 3,931,5783,996,142 3,851,411 3,738,7893,690,550 Plant and equipment at cost, less depreciation 2,232,1722,247,555 2,166,809 2,029,7182,088,314 Other assets Goodwill and intangibles, less amortization 1,258,7161,267,914 1,218,700 1,166,3361,177,161 Restricted cash 185,660185,233 169,326 170,877169,220 Prepaid pension cost 289,464272,266 243,996 -- Other assets 203,297198,126 197,390 199,857 ---------- ---------- ----------201,587 ----------- ----------- ----------- Total other assets 1,937,1371,923,539 1,829,412 1,537,070 ---------- ---------- ----------1,547,968 ----------- ----------- ----------- Total assets $8,100,887 $7,847,632 $7,305,577 ========== ========== ==========$ 8,167,236 $ 7,847,632 $ 7,326,832 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable $ 67,15373,043 $ 73,834 $ 124,609105,922 Accounts payable 1,684,5671,770,379 1,742,578 1,645,9481,717,438 Accrued expenses 626,651698,135 724,970 583,559650,193 Income taxes 239,984114,170 -- 172,42067,673 Deferred taxes 183,748312,357 422,419 190,175296,567 Current maturities of long-term debt 367,853365,755 162,833 12,322 ---------- ---------- ----------10,296 ----------- ----------- ----------- Total current liabilities 3,169,9563,333,839 3,126,634 2,729,0332,848,089 Other liabilities Long-term debt 1,101,8521,032,822 1,231,493 1,395,9811,420,139 Deferred taxes 716,977705,918 686,705 524,989561,666 Other long-term liabilities 268,878278,877 238,294 289,750 ---------- ---------- ----------227,890 ----------- ----------- ----------- Total other liabilities 2,087,7072,017,617 2,156,492 2,210,7202,209,695 Contingencies Shareholders' equity Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none -- -- -- Common stock, par value $1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares 765,175 765,175 765,175 Paid-in capital 364,738377,067 332,041 290,744317,003 Retained earnings 4,239,3524,362,360 3,959,714 3,649,5833,762,183 Other comprehensive loss 52,81345,928 17,640 (142,027) ---------- ---------- ---------- 5,422,078(144,862) ----------- ----------- ----------- 5,550,530 5,074,570 4,563,4754,699,499 Less cost of treasury stock, 128,629,507,132,144,351, 128,639,869 and 122,970,398127,201,965 shares 2,578,8542,734,750 2,510,064 2,197,651 ---------- ---------- ----------2,430,451 ----------- ----------- ----------- Total shareholders' equity 2,843,2242,815,780 2,564,506 2,365,824 ---------- ---------- ----------2,269,048 ----------- ----------- ----------- Total liabilities and shareholders' equity $8,100,887 $7,847,632 $7,305,577 ========== ========== ==========$ 8,167,236 $ 7,847,632 $ 7,326,832 =========== =========== ===========
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-Week39-Week Period Ended 13-Week Period Ended ---------------------------- ---------------------------- Jan. 1,----------------------------------------- ----------------------------------------- Apr. 2, 2005 Dec.Mar. 27, 2003 Jan. 1,2004 Apr. 2, 2005 Dec.Mar. 27, 2003 ------------2004 -------------- ------------- -------------------------- ------------- Sales $ 14,863,18222,300,635 $ 14,170,80121,196,386 $ 7,331,2577,437,453 $ 7,036,5207,025,585 Costs and expenses Cost of sales 12,028,446 11,423,166 5,933,515 5,669,39918,060,611 17,107,358 6,032,165 5,684,192 Operating expenses 2,060,331 2,021,189 1,004,919 996,8533,112,808 3,029,682 1,052,477 1,008,493 Interest expense 35,465 35,007 17,766 16,37655,616 50,744 20,151 15,737 Other, net (3,662) (9,035) (1,693) (7,052) ------------ ------------ ------------ ------------(6,581) (10,285) (2,919) (1,250) ------------- ------------- ------------- ------------- Total costs and expenses 14,120,580 13,470,327 6,954,507 6,675,576 ------------ ------------ ------------ ------------21,222,454 20,177,499 7,101,874 6,707,172 ------------- ------------- ------------- ------------- Earnings before income taxes 742,602 700,474 376,750 360,9441,078,181 1,018,887 335,579 318,413 Income taxes 284,045 269,682 144,107 138,963 ------------ ------------ ------------ ------------401,404 392,271 117,359 122,589 ------------- ------------- ------------- ------------- Net earnings $ 458,557676,777 $ 430,792626,616 $ 232,643218,220 $ 221,981 ============ ============ ============ ============195,824 ============= ============= ============= ============= Net earnings: Basic earnings per share $ 0.721.06 $ 0.67 $ 0.360.97 $ 0.34 ============ ============ ============ ============$ 0.31 ============= ============= ============= ============= Diluted earnings per share $ 0.701.04 $ 0.65 $ 0.360.95 $ 0.34 ============ ============ ============ ============$ 0.30 ============= ============= ============= ============= Average shares outstanding 638,403,789 645,301,941 638,638,789 644,723,466 ============ ============ ============ ============637,487,017 644,219,976 635,654,561 642,038,004 ============= ============= ============= ============= Diluted shares outstanding 652,448,434 660,127,514 652,993,142 661,632,986 ============ ============ ============ ============653,057,150 662,482,772 650,753,697 663,097,806 ============= ============= ============= ============= Dividends declared per common share $ 0.280.43 $ 0.240.37 $ 0.15 $ 0.13 ============ ============ ============ ========================= ============= ============= =============
3 SYSCO CORPORATION and its Consolidated Subsidiaries CONSOLIDATED CASH FLOWS (Unaudited) (In Thousands)
26-Week39-Week Period Ended ---------------------------- Jan. 1,------------------------------ Apr. 2, 2005 Dec.Mar. 27, 20032004 ------------ ------------- Operating activities: Net earnings $ 458,557676,777 $ 430,792626,616 Add non-cash items: Depreciation and amortization 150,294 138,679230,964 209,054 Deferred tax provision 265,289 265,053383,852 408,139 Provision for losses on receivables 15,019 14,89521,873 23,613 Additional investment in certain assets and liabilities, net of effect of businesses acquired: Decrease (increase)(Increase) in receivables 32,612 (73,428)(48,948) (85,195) (Increase) in inventories (123,510) (120,215)(69,578) (134,750) (Increase) in prepaid expenses (9,378) (7,755)(8,080) (4,701) Increase in accounts payable 7,967 77,154 (Decrease) increase in accounts payable (78,330) 3,905 (Decrease) in accrued expenses (107,609) (69,771)(38,225) 7,567 (Decrease) in accrued income taxes (224,079) (186,649)(342,831) (283,980) (Increase) in other assets (7,689) (24,644) (Decrease)(10,245) (18,982) Increase (decrease) in other long-term liabilities and prepaid pension cost, net (9,453) (6,083)17,743 (67,900) --------- --------- Net cash provided by operating activities 361,723 364,779821,269 756,635 --------- --------- Investing activities: Additions to plant and equipment (205,585) (248,697)(304,400) (379,390) Proceeds from sales of plant and equipment 7,331 9,81517,059 13,354 Acquisition of businesses, net of cash acquired (33,439) (33,703)(49,485) (34,091) Increase in restricted cash (16,334) (90,000)(16,584) (90,223) --------- --------- Net cash used for investing activities (248,027) (362,585)(353,410) (490,350) --------- --------- Financing activities: Bank and commercial paper (repayments) borrowings (6,881) 182,739(791) (15,779) Other debt (repayments) borrowings (repayments) 68,973 (12,964)(3,092) 184,966 Cash from termination of interest rate swaps 5,316 1,305 Common stock reissued from treasury 103,168 86,337150,467 135,816 Treasury stock purchases (154,858) (218,149)(354,078) (508,963) Dividends paid (166,234) (142,501)(261,974) (226,271) --------- --------- Net cash used for financing activities (155,832) (104,538)(464,152) (428,926) --------- --------- Effect of exchange rates on cash (4,644) (2,508)(3,895) (2,111) --------- --------- Net decrease in cash (46,780) (104,852)(188) (164,752) Cash at beginning of period 199,706 337,447 --------- --------- Cash at end of period $ 152,926199,518 $ 232,595172,695 ========= ========= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 34,84150,136 $ 36,59846,875 Income taxes 237,694 190,761357,135 257,102
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-Week39-Week Period Ended 13-Week Period Ended ---------------------------- ---------------------------- Jan. 1,---------------------------------- ----------------------------------- Apr. 2, 2005 Dec.Mar. 27, 2003 Jan. 1,2004 Apr. 2, 2005 Dec.Mar. 27, 2003 ------------2004 ------------- ------------------------- ------------- ------------- Numerator: Numerator for earnings per share -- income available to common shareholders $458,557,000 $430,792,000 $232,643,000 $221,981,000 ============ ============ ============ ============$ 676,777,000 $ 626,616,000 $ 218,220,000 $ 195,824,000 ============= ============= ============= ============= Denominator: Denominator for basic earnings per share -- weighted-average shares 638,403,789 645,301,941 638,638,789 644,723,466637,487,017 644,219,976 635,654,561 642,038,004 Effect of dilutive securities: Employee and director stock options 14,044,645 14,825,573 14,354,353 16,909,520 ------------ ------------ ------------ ------------15,570,133 18,262,796 15,099,136 21,059,802 ------------- ------------- ------------- ------------- Denominator for diluted earnings per share -- Adjusted weighted-average shares 652,448,434 660,127,514 652,993,142 661,632,986 ============ ============ ============ ============653,057,150 662,482,772 650,753,697 663,097,806 ============= ============= ============= ============= Basic earnings per share $ 0.721.06 $ 0.67 $ 0.360.97 $ 0.34 ============ ============ ============ ============$ 0.31 ============= ============= ============= ============= Diluted earnings per share $ 0.701.04 $ 0.65 $ 0.360.95 $ 0.34 ============ ============ ============ ============$ 0.30 ============= ============= ============= =============
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, SYSCO deposited approximately $16,000,000 in additional funds in a trust to satisfy ongoing collateral requirements.trusts or by issuing letters of credit. 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,Apr. 2, 2005 July 3, 2004 Dec.Mar. 27, 2003 ------------ ------------2004 ------------- ------------- ------------- Funds deposited in insurance trusts $163,663,000 $147,329,000 $147,000,000$ 163,912,000 $ 147,329,000 $ 147,223,000 Escrow funds related to acquisitions 21,321,000 21,997,000 21,997,000 23,877,000 ------------ ------------ ------------------------- ------------- ------------- Total $185,660,000 $169,326,000 $170,877,000 ============ ============ ============$ 185,233,000 $ 169,326,000 $ 169,220,000 ============= ============= =============
In October 2004, SYSCO deposited approximately $16,000,000 in additional funds in a trust to satisfy ongoing collateral requirements. On April 14, 2005, SYSCO received $102,000,000 that was released from one of the insurance trust accounts. SYSCO then issued a letter of credit to the insurer in the amount of $72,000,000 to replace the collateral. 4. DEBT As of January 1,April 2, 2005, SYSCO had uncommitted bank lines of credit which provide for unsecured borrowings for working capital of up to $95,000,000. Outstanding borrowings on these lines$95,000,000, of credit were $4,000,000 as of January 1, 2005.which none was outstanding. As of January 1,April 2, 2005, SYSCO's outstanding borrowings under its commercial paper programs were $133,149,000.$73,043,000. During the 26-week39-week period ended January 1,April 2, 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 January 1,April 2, 2005 are the 6.5% Senior Notes totaling $150,000,000 due June 2005 and the 4.75% Senior Notes totaling $200,000,000 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 company currently intends to issue long-term debt totaling approximately $350,000,000 in the first quarter of fiscal 2006 to replace the cash used and/or commercial paper issued to repay the maturing senior notes. In April 2005, SYSCO filed with the Securities and Exchange Commission a $1,500,000,000 shelf registration of debt securities. The registration statement was declared effective in May 2005. 5. ACQUISITIONS During the first 2639 weeks of fiscal 2005, in the aggregate, the company paid cash of $33,439,000$49,485,000 and issued 178,625214,145 shares with a value of $3,414,000$4,195,000 for acquisitions during fiscal 2005 and for contingent consideration related to operations acquired in previous fiscal years. 6 Acquisitions completed 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 purchase price allocations related to recent acquisitions are based upon preliminary information and may 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 January 1,April 2, 2005 included approximately 1,095,0001,059,000 shares and $84,326,000$95,776,000 in cash, which, if distributed, could result in the recording of up to $107,762,000$118,430,000 in additional goodwill. Such amounts typically are to be paid out over periods of up to five years from the date of acquisition. 6. DERIVATIVE FINANCIAL INSTRUMENTS As of 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 $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,cash of $5,316,000, which represented the fair value of the swap agreements at the time of termination. AIn accordance with the shortcut method provided by Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", a corresponding amount will bewas 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. The company currently intends to issue long-term debt totaling approximately $350,000,000 in the first quarter of fiscal 2006. In March 2005, SYSCO entered into a forward-starting interest rate swap with a notional amount of $350,000,000 in order to hedge the interest rate risk arising during the period prior to the expected issuance. In accordance with SFAS No. 133, the company has designated this derivative as a cash flow hedge of the variability in the cash outflows of interest payments on the forecasted debt issuance due to changes in the benchmark interest rate. The fair value of the swap as of April 2, 2005 decreased $2,528,000 and was recognized as a liability on the company's balance sheet with the corresponding amount reflected in other comprehensive income. 7. INCOME TAXES Reflected in the changes in the net deferred tax liability and prepaid/accrued income tax balances from July 3, 2004 to January 1,April 2, 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 this 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. 7 The determination of the company's overall effective tax rateprovision for income taxes requires significant judgment, the use of estimates.estimates and the interpretation and application of complex tax laws. The effective tax ratecompany's provision for income taxes 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/increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for tax creditscontingencies or valuation allowances, and the company's change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate. In evaluating the exposures connected with the various tax filing positions, the company establishes an accrual when, despite management's belief that the company's tax return positions are supportable, management believes that certain positions may be successfully challenged and a loss is probable. When facts and circumstances change, these accruals are adjusted. Included in income tax expense is the reversal of an accrual for tax contingencies of $11,000,000. Based on additional information and supported by a third party analysis, the company concluded that the accrual was no longer necessary. 8. COMPREHENSIVE INCOME Comprehensive income is net earnings plus certain other items that are recorded directly to shareholders' equity. The following table provides a summary of the components of other comprehensive income for the periods presented:
39-Week Period Ended 13-Week Period Ended ------------------------------- ------------------------------- Apr. 2, 2005 Mar. 27, 2004 Apr. 2, 2005 Mar. 27, 2004 ------------- ------------- ------------- ------------- Net earnings $ 676,777,000 $ 626,616,000 $ 218,220,000 $ 195,824,000 Minimum pension liability adjustment, net of tax -- 749,000 -- -- Foreign currency translation adjustment 29,849,000 6,770,000 (5,324,000) (2,835,000) Change in fair value of forward-starting interest rate swap, net of tax (1,561,000) -- (1,561,000) -- ------------- ------------- ------------- ------------- Comprehensive income $ 705,065,000 $ 634,135,000 $ 211,335,000 $ 192,989,000 ============= ============= ============= =============
9. 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. 10. 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. 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. 8
26-Week39-Week Period Ended 13-Week Period Ended ---------------------------- ---------------------------- Jan. 1,------------------------------- ------------------------------- Apr. 2, 2005 Dec.Mar. 27, 2003 Jan. 1,2004 Apr. 2, 2005 Dec.Mar. 27, 2003 ------------2004 ------------- ------------------------- ------------- ------------- Net earnings: Reported net earnings $458,557,000 $430,792,000 $232,643,000 $221,981,000$ 676,777,000 $ 626,616,000 $ 218,220,000 $ 195,824,000 Stock based compensation expense, net of taxes (47,414,000) (40,762,000) (23,943,000) (21,863,000) ------------ ------------ ------------ ------------(68,536,000) (55,220,000) (21,122,000) (15,548,000) ------------- ------------- ------------- ------------- Adjusted net earnings $411,143,000 $390,030,000 $208,700,000 $200,118,000 ============ ============ ============ ============$ 608,241,000 $ 571,396,000 $ 197,098,000 $ 180,276,000 ============= ============= ============= ============= Basic earnings per share: Reported earnings per share $ 0.721.06 $ 0.670.97 $ 0.360.34 $ 0.340.31 Stock based compensation expense, net of taxes (0.11) (0.08) (0.07) (0.03) (0.03) ------------ ------------ ------------ ------------------------- ------------- ------------- ------------- Adjusted earnings per share $ 0.640.95 $ 0.60 $ 0.330.89 $ 0.31 ============ ============ ============ ============$ 0.28 ============= ============= ============= ============= Diluted earnings per share: Reported earnings per share $ 0.701.04 $ 0.650.95 $ 0.360.34 $ 0.340.30 Stock based compensation expense, net of taxes (0.07) (0.06)(0.11) (0.09) (0.04) (0.04) ------------ ------------ ------------ ------------(0.03) ------------- ------------- ------------- ------------- Adjusted earnings per share $ 0.630.93 $ 0.59 $ 0.320.86 $ 0.30 ============ ============ ============ ============$ 0.27 ============= ============= ============= =============
The weighted average fair value of options granted was $7.10 and $6.74 during the 2639 weeks ended January 1,April 2, 2005 and DecemberMarch 27, 2003,2004, 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:
26-Week39-Week Period Ended ---------------------------- Jan. 1,------------------------------------- Apr. 2, 2005 Dec.Mar. 27, 20032004 ------------ ------------- Dividend yield 1.45% 1.49% Expected volatility 22% 22% Risk-free interest rate 3.4% 3.2% Expected life 5 years 5 years
The weighted average fair value of employee stock purchase rights issued was $4.89$5.14 and $4.70$4.96 during the 2639 weeks ended January 1,April 2, 2005 and DecemberMarch 27, 2003,2004, 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. 8 9. COMPREHENSIVE INCOME Comprehensive income is net earnings plus certain other items that are recorded directly to shareholders' equity. The following table provides a summary of the components of other comprehensive income for the 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"Share-Based Payment" (SFAS 123(R)), which is a revision of FASB Statement No. 123, Accounting"Accounting for Stock-Based CompensationCompensation" (SFAS 123). SFAS 123(R) supersedes APB Opinion No. 25, Accounting"Accounting for Stock Issued to EmployeesEmployees" (APB Opinion 25), and amends FASB Statement No. 95, Statement"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. 9 SYSCO mustwill 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.the first quarter of fiscal 2006. 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. 910 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-Week39-Week Period Ended 13-Week Period Ended ---------------------------- ---------------------------- Jan. 1,------------ ------------- ------------ ------------- Apr. 2, 2005 Dec.Mar. 27, 2003 Jan. 1,2004 Apr. 2, 2005 Dec.Mar. 27, 20032004 ------------ ------------- ------------ ------------- Sales (in thousands): Broadline $ 11,943,304 $11,508,476 $5,847,942 $5,681,38717,838,966 $ 17,156,599 $ 5,895,662 $ 5,648,123 SYGMA 1,857,201 1,688,102 941,421 863,5392,840,043 2,561,446 982,842 873,344 Other 1,225,124 1,133,333 626,458 571,8731,867,871 1,707,734 642,747 574,401 Intersegment sales (162,447) (159,110) (84,564) (80,279)(246,245) (229,393) (83,798) (70,283) ------------ ----------- ---------- ---------------------- ------------ ------------ Total $ 14,863,182 $14,170,801 $7,331,257 $7,036,52022,300,635 $ 21,196,386 $ 7,437,453 $ 7,025,585 ============ =========== ========== ====================== ============ ============
26-Week39-Week Period Ended 13-Week Period Ended ---------------------------- ---------------------------- Jan. 1,------------ ------------- ------------ ------------- Apr. 2, 2005 Dec.Mar. 27, 2003 Jan. 1,2004 Apr. 2, 2005 Dec.Mar. 27, 20032004 ------------ ------------- ------------ ------------- Earnings before income taxes (in thousands): Broadline $729,932 $684,726 $360,616 $345,622$ 1,070,245 $ 998,523 $ 340,313 $ 313,797 SYGMA 7,634 11,012 3,871 5,73812,931 15,984 5,297 4,972 Other 39,888 34,730 22,791 19,754 -------- -------- -------- --------60,545 54,622 20,657 19,892 ------------ ------------ ------------ ------------ Total segments 777,454 730,468 387,278 371,1141,143,721 1,069,129 366,267 338,661 Unallocated corporate expenses (34,852) (29,994) (10,528) (10,170) -------- -------- -------- --------(65,540) (50,242) (30,688) (20,248) ------------ ------------ ------------ ------------ Total $742,602 $700,474 $376,750 $360,944 ======== ======== ======== ========$ 1,078,181 $ 1,018,887 $ 335,579 $ 318,413 ============ ============ ============ ============
Jan. 1,Apr. 2, 2005 July 3, 2004 Dec.Mar. 27, 20032004 ------------ ------------ ------------- Assets (in thousands): Broadline $4,924,815 $4,792,595 $4,700,779$ 4,874,343 $ 4,792,595 $ 4,715,149 SYGMA 284,235289,509 240,418 230,214220,768 Other 631,371655,017 588,275 512,851 ---------- ---------- ----------538,913 ------------- ------------ ------------ Total segments 5,840,4215,818,869 5,621,288 5,443,8445,474,830 Corporate 2,260,4662,348,367 2,226,344 1,861,733 ---------- ---------- ----------1,852,002 ------------- ------------ ------------ Total $8,100,887 $7,847,632 $7,305,577 ========== ========== ==========$ 8,167,236 $ 7,847,632 $ 7,326,832 ============ ============ ============
1011 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 $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 JANUARY 1,APRIL 2, 2005 --------------------------------------------------------------------------------------------------------------------------------------------------------- SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ----------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) Current assets....... $ 148,605 $ 44 $ 3,847,493 $ -- $3,996,142 Investment in subsidiaries....... 9,537,924 285,388 158,803 (9,982,115) -- Plant and equipment, net 135,428 -- 2,112,127 -- 2,247,555 Other assets......... 641,241 -- 1,282,298 -- 1,923,539 ----------- --------- ----------- ----------- ---------- Total assets......... $10,463,198 $ 285,432 $ 7,400,721 $(9,982,115) $8,167,236 =========== ========= =========== =========== ========== Current liabilities.. $ 588,293 $ 77,666 $ 2,667,880 $ -- $3,333,839 Intercompany payables (receivables)...... 5,967,767 8,005 (5,975,772) -- -- Long-term debt....... 783,525 199,544 49,753 -- 1,032,822 Other liabilities.... 376,055 -- 608,740 -- 984,795 Shareholders' equity 2,747,558 217 10,050,120 (9,982,115) 2,815,780 ----------- --------- ----------- ----------- ---------- Total liabilities and shareholders' equity $10,463,198 $ 285,432 $ 7,400,721 $(9,982,115) $8,167,236 =========== ========= =========== =========== ========== 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 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 $ 7,192,862 $(9,113,216) $7,847,632 =========== ========= =========== =========== ========== Current liabilities.. $ 374,144 $ 74,948 $ 2,677,542 $ -- $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 $ 7,192,862 $(9,113,216) $7,847,632 =========== ========= =========== =========== ==========
12
CONDENSED CONSOLIDATING BALANCE SHEET MARCH 27, 2004 ----------------------------------------------------------------------------- SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ----------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) Current assets .................................. $ 97,39298,216 $ 1442 $ 3,834,1723,592,292 $ -- $3,931,578$ 3,690,550 Investment in subsidiaries ............. 9,253,746 289,461 155,062 (9,698,269).................... 8,322,203 259,328 172,856 (8,754,387) -- Plant and equipment, net .... 131,032.......... 144,879 -- 2,101,1401,943,435 -- 2,232,1722,088,314 Other assets ................ 663,434...................... 349,717 -- 1,273,7031,198,251 -- 1,937,137 ----------- --------1,547,968 ----------- ----------- ---------------------- ------------ ------------ Total assets ................ $10,145,604 $289,475...................... $ 7,364,077 $(9,698,269) $8,100,887 =========== ========8,915,015 $ 259,370 $ 6,906,834 $ (8,754,387) $ 7,326,832 =========== =========== ====================== ============ ============ Current liabilities ........................ $ 610,576242,147 $ 64,344102,213 $ 2,495,0362,503,729 $ -- $3,169,956$ 2,848,089 Intercompany payables (receivables) ............ 5,535,449 22,950 (5,558,399)................... 5,061,704 (42,983) (5,018,721) -- -- Long-term debt .............. 851,729 199,528 50,595.................... 1,166,918 199,479 53,742 -- 1,101,8521,420,139 Other liabilities ........... 378,172................. 214,705 -- 607,683574,851 -- 985,855789,556 Shareholders' equity ........ 2,769,678 2,653 9,769,162 (9,698,269) 2,843,224 ----------- --------.............. 2,229,541 661 8,793,233 (8,754,387) 2,269,048 ----------- ----------- ---------------------- ------------ ------------ Total liabilities and shareholders' equity ..... $10,145,604 $289,475............ $ 7,364,077 $(9,698,269) $8,100,887 =========== ========8,915,015 $ 259,370 $ 6,906,834 $ (8,754,387) $ 7,326,832 =========== =========== ==========
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 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 $ 7,192,862 $(9,113,216) $7,847,632 ========== ======== =========== =========== ========== Current liabilities ......... $ 374,144 $ 74,948 $ 2,677,542 $ -- $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 $ 7,192,862 $(9,113,216) $7,847,632 ========== ======== =========== =========== ==========
11
CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 27, 2003 ------------------------------------------------------------------------------- SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ----------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) Current assets .............. $ 155,342 $ 14 $ 3,583,433 $ -- $3,738,789 Investment in subsidiaries ............. 8,074,934 260,264 172,711 (8,507,909) -- Plant and equipment, net .... 118,907 -- 1,910,811 -- 2,029,718 Other assets ................ 347,491 2,077 1,187,502 -- 1,537,070 ---------- --------- ----------- ----------- ---------- Total assets ................ $8,696,674 $ 262,355 $ 6,854,457 $(8,507,909) $7,305,577 ========== ========= =========== =========== ========== Current liabilities ......... $ 302,789 $ 105,347 $ 2,320,897 $ -- $2,729,033 Intercompany payables (receivables) ............ 4,728,093 (45,927) (4,682,166) -- -- Long-term debt .............. 1,140,108 199,463 56,410 -- 1,395,981 Other liabilities ........... 202,202 -- 612,537 -- 814,739 Shareholders' equity ........ 2,323,482 3,472 8,546,779 (8,507,909) 2,365,824 ---------- --------- ----------- ----------- ---------- Total liabilities and shareholders' equity ..... $8,696,674 $ 262,355 $ 6,854,457 $(8,507,909) $7,305,577 ========== ========= =========== =========== ==========
============ ============ ============
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS 26-WEEK39-WEEK PERIOD ENDED JANUARY 1,APRIL 2, 2005 ------------------------------------------------------------------------------------------------------------------------------------------------------------ SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ----------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) Sales .................................................... $ -- $ -- $ 14,863,18222,300,635 $ -- $14,863,182$ 22,300,635 Cost of sales .................................... -- -- 12,028,44618,060,611 -- 12,028,44618,060,611 Operating expenses .......... 33,719 58 2,026,554................ 57,359 88 3,055,361 -- 2,060,3313,112,808 Interest expense (income) ... 149,518 5,378 (119,431)......... 233,002 8,755 (186,141) -- 35,46555,616 Other, net .................. (160)........................ (430) -- (3,502)(6,151) -- (3,662) --------- -------(6,581) ----------- ----------- ------------ --------- ----------------------- ------------ Total costs and expenses .... 183,077 5,436 13,932,067.......... 289,931 8,843 20,923,680 -- 14,120,580 --------- -------21,222,454 ----------- ----------- ------------ --------- ----------------------- ------------ Earnings (losses) before income taxes ............. (183,077) (5,436) 931,115.................... (289,931) (8,843) 1,376,955 -- 742,6021,078,181 Income tax (benefit) provision ................ (70,027) (2,079) 356,151....................... (110,899) (3,382) 515,685 -- 284,045401,404 Equity in earnings of Subsidiaries ............. 571,607 3,772.................... 855,809 3,440 -- (575,379)(859,249) -- --------- ------------------ ----------- ------------ --------- ----------------------- ------------ Net earnings ..................................... $ 458,557676,777 $ 415(2,021) $ 574,964 $(575,379)861,270 $ 458,557 ========= =======(859,249) $ 676,777 =========== =========== ============ ========= ===========
============ ============
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS 26-WEEK39-WEEK PERIOD ENDED DECEMBERMARCH 27, 2003 -------------------------------------------------------------------------------2004 ----------------------------------------------------------------------------- SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ----------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) Sales .................................................... $ -- $ -- $14,170,801$ 21,196,386 $ -- $14,170,801$ 21,196,386 Cost of sales .................................... -- -- 11,423,16617,107,358 -- 11,423,16617,107,358 Operating expenses .......... 58,896 56 1,962,237................ 79,788 81 2,949,813 -- 2,021,1893,029,682 Interest expense (income) ... 121,651 7,421 (94,065)......... 184,413 10,687 (144,356) -- 35,00750,744 Other, net .................. (192) (928) (7,915)........................ (197) (935) (9,153) -- (9,035) --------- -------(10,285) ----------- --------- ----------- ------------ ------------ ------------ (935) Total costs and expenses .... 180,355 6,549 13,283,423.......... 264,004 9,833 19,903,662 -- 13,470,327 --------- -------20,177,499 ----------- --------- ----------- ------------ ------------ ------------ Earnings (losses) before income taxes ............. (180,355) (6,549) 887,378.................... (264,004) (9,833) 1,292,724 -- 700,4741,018,887 Income tax (benefit) provision ................ (69,437) (2,521) 341,640....................... (101,641) (3,786) 497,698 -- 269,682392,271 Equity in earnings of Subsidiaries ............. 541,710 6,057.................... 788,979 5,267 -- (547,767)(794,246) -- --------- ------- ----------- --------- ----------- ------------ ------------ ------------ Net earnings ................(loss) ............... $ 430,792626,616 $ 2,029(780) $ 545,738 $(547,767)795,026 $ 430,792 ========= =======(794,246) $ 626,616 =========== ========= ===========
=========== ============ ============ ============
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS 13-WEEK PERIOD ENDED JANUARY 1,APRIL 2, 2005 ------------------------------------------------------------------------------------------------------------------------------------------------------------ SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ----------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) Sales .................................................... $ -- $ -- $7,331,257$ 7,437,453 $ -- $ 7,331,2577,437,453 Cost of sales .................................... -- -- 5,933,5156,032,165 -- 5,933,5156,032,165 Operating expenses .......... 10,010 29 994,880................ 23,640 30 1,028,807 -- 1,004,9191,052,477 Interest expense (income) ... 75,392 2,314 (59,940)......... 83,484 3,377 (66,710) -- 17,76620,151 Other, net .................. 5........................ (270) -- (1,698)(2,649) -- (1,693) -------- ------- ---------- ---------(2,919) ----------- ----------- ------------ ------------ ------------ Total costs and expenses .... 85,407 2,343 6,866,757.......... 106,854 3,407 6,991,613 -- 6,954,507 -------- ------- ---------- ---------7,101,874 ----------- ----------- ------------ ------------ ------------ Earnings (losses) before income taxes ............. (85,407) (2,343) 464,500.................... (106,854) (3,407) 445,840 -- 376,750335,579 Income tax (benefit) provision ................ (32,668) (896) 177,671....................... (40,872) (1,303) 159,534 -- 144,107117,359 Equity in earnings of Subsidiaries ............. 285,382 1,244.................... 284,202 (332) -- (286,626)(283,870) -- -------- ------- ---------- --------- ----------- ----------- ------------ ------------ ------------ Net earnings (loss) ......... $232,643............... $ (203)218,220 $ 286,829 $(286,626)(2,436) $ 232,643 ======== ======= ========== =========286,306 $ (283,870) $ 218,220 =========== =========== ============ ============ ============
1213
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS 13-WEEK PERIOD ENDED DECEMBERMARCH 27, 2003 -------------------------------------------------------------------------------2004 ---------------------------------------------------------------------------- SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ----------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) Sales .................................................... $ -- $ -- $7,036,520$ 7,025,585 $ -- $7,036,520$ 7,025,585 Cost of sales .................................... -- -- 5,669,3995,684,192 -- 5,669,3995,684,192 Operating expenses .......... 21,341 20 975,492................ 20,892 25 987,576 -- 996,8531,008,493 Interest expense (income) ... 60,596 3,711 (47,931)......... 62,762 3,266 (50,291) -- 16,37615,737 Other, net .................. 91 (928) (6,215)........................ (5) (7) (1,238) -- (7,052) -------- ------- ---------- --------- ----------(1,250) ----------- ----------- ----------- ----------- ----------- Total costs and expenses .... 82,028 2,803 6,590,745.......... 83,649 3,284 6,620,239 -- 6,675,576 -------- ------- ---------- --------- ----------6,707,172 ----------- ----------- ----------- ----------- ----------- Earnings (losses) before income taxes ............. (82,028) (2,803) 445,775.................... (83,649) (3,284) 405,346 -- 360,944318,413 Income tax (benefit) provision ................ (31,581) (1,079) 171,623....................... (32,204) (1,265) 156,058 -- 138,963122,589 Equity in earnings of Subsidiaries ............. 272,428 3,231.................... 247,269 (790) -- (275,659)(246,479) -- -------- ------- ---------- --------- --------------------- ----------- ----------- ----------- ----------- Net earnings ................ $221,981(loss) ............... $ 1,507195,824 $ 274,152 $(275,659)(2,809) $ 221,981 ======== ======= ========== ========= ==========249,288 $ (246,479) $ 195,824 =========== =========== =========== =========== ===========
CONDENSED CONSOLIDATING CASH FLOWS 26-WEEK39-WEEK PERIOD ENDED JANUARY 1,APRIL 2, 2005 ------------------------------------------------------------------------------------------------------------------------------ SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES TOTALS --------------------- ------------- ------------------- ------------ (IN THOUSANDS) Net cash provided by (used for): Operating activities .............. $ (63,840)(123,839) $ (3,260)(1,962) $ 428,823947,070 $ 361,723821,269 Investing activities .............. (43,126)(52,304) -- (204,901) (248,027)(301,106) (353,410) Financing activities .............. (143,841) (10,649) (1,342) (155,832)(461,099) (743) (2,310) (464,152) Effect of exchange rate on cash .............................. -- -- (4,644) (4,644)(3,895) (3,895) Intercompany activity ............. 236,679 13,909 (250,588)670,475 2,705 (673,180) -- --------- -------- --------- ------------------- ---------- ---------- ---------- Net decrease in cash .............. (14,128)33,233 -- (32,652) (46,780)(33,421) (188) Cash at the beginning of the period .........................period.................... 87,507 -- 112,199 199,706 --------- -------- --------- ------------------- ---------- ---------- ---------- Cash at the end of the period .............................. $ 73,379120,740 $ -- $ 79,54778,778 $ 152,926 ========= ======== ========= =========199,518 ========== ========== ========== ==========
CONDENSED CONSOLIDATING CASH FLOWS 26-WEEK39-WEEK PERIOD ENDED DECEMBERMARCH 27, 2003 ----------------------------------------------------------------2004 -------------------------------------------------------------- SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES TOTALS --------------------- ------------- ------------------- ------------ (IN THOUSANDS) Net cash provided by (used for): Operating activities .............. $(120,854) $ 663(235,736) $ 484,9703,866 $ 364,779988,505 $ 756,635 Investing activities .............. (132,075)(162,254) -- (230,510) (362,585)(328,096) (490,350) Financing activities .............. (86,419) (7,181) (10,938) (104,538)(388,381) (26,852) (13,693) (428,926) Effect of exchange rate on cash .............................. -- -- (2,508) (2,508)(2,111) (2,111) Intercompany activity ............. 269,716 6,004 (275,720)651,937 22,472 (674,409) -- --------- ------- --------- ------------------- ---------- ---------- ---------- Net decrease in cash .............. (69,632)(134,434) (514) (34,706) (104,852)(29,804) (164,752) Cash at the beginning of the period ............................................ 206,043 514 130,890 337,447 --------- ------- --------- ------------------- ---------- ---------- ---------- Cash at the end of the period .............................. $ 136,41171,609 $-- $ --101,086 $ 96,184 $ 232,595 ========= ======= ========= =========172,695 ========== ========== ========== ==========
1314 14. EMPLOYEE BENEFIT PLANS The components of net periodic benefit cost for the 26-week39-week periods presented are as follows:
Pension Benefits Other Postretirement Plans ---------------------------- ---------------------------- Jan. 1,---------------------------------- ------------------------------- Apr. 2, 2005 Dec.Mar. 27, 2003 Jan. 1,2004 Apr. 2, 2005 Dec.Mar. 27, 20032004 ------------ ------------- ------------ ------------- Service cost $ 40,642,00060,962,000 $ 37,466,000 $239,000 $211,00056,199,000 $ 359,000 $ 316,000 Interest cost 36,913,000 30,582,000 244,000 201,00055,369,000 45,873,000 366,000 302,000 Expected return on plan assets (41,306,000) (30,574,000)(61,960,000) (45,861,000) -- -- Amortization of prior service cost 880,000 654,000 101,000 101,0001,320,000 981,000 151,000 151,000 Recognized net actuarial loss (gain) 16,302,000 18,849,00024,454,000 28,274,000 -- (20,000)(30,000) Amortization of net transition obligation -- 139,000 77,000 77,000209,000 115,000 115,000 ------------ ------------ -------- -------------------- ------------ Net periodic benefit cost $ 53,431,00080,145,000 $ 57,116,000 $661,000 $570,00085,675,000 $ 991,000 $ 854,000 ============ ============ ======== ==================== ============
The components of net periodic benefit cost for the 13-week periods presented are as follows:
Pension Benefits Other Postretirement Plans ---------------------------- ---------------------------- Jan. 1,---------------------------------- ------------------------------- Apr. 2, 2005 Dec.Mar. 27, 2003 Jan. 1,2004 Apr. 2, 2005 Dec.Mar. 27, 20032004 ------------ ------------- ------------ ------------- Service cost $ 20,320,000 $ 18,733,000 $119,000 $106,000$ 120,000 $ 105,000 Interest cost 18,457,00018,456,000 15,291,000 122,000 100,000101,000 Expected return on plan assets (20,653,000)(20,654,000) (15,287,000) -- -- Amortization of prior service cost 440,000 326,000 51,000 51,000327,000 50,000 50,000 Recognized net actuarial loss (gain) 8,151,0008,152,000 9,425,000 -- (10,000) Amortization of net transition obligation -- 70,000 38,000 38,000 ------------ ------------ -------- -------------------- ------------ Net periodic benefit cost $ 26,715,00026,714,000 $ 28,558,000 $330,000 $285,00028,559,000 $ 330,000 $ 284,000 ============ ============ ======== ==================== ============
SYSCO's contributions to its defined benefit plans were $83,048,000$84,603,000 and $82,637,000$164,012,000 during the 26-week39-week periods ended January 1,April 2, 2005 and DecemberMarch 27, 2003,2004, respectively. SYSCO does not expect to make significant additional contributions during the remainder of fiscal 2005, whereas total2005. 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. 1415 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 Sales increased 4.9%5.2% for the first 2639 weeks and 4.2%5.9% for the secondthird quarter of fiscal 2005 over the comparable prior year periods. Gross margins as a percent of sales for both the first 2639 weeks and secondthird quarter of fiscal 2005 decreased from the comparable prior year periods 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 2639 weeks and the secondthird quarter of fiscal 2005 decreased from the comparable prior year periods due to operating efficiencies and operating costs increasing at lower rates than the sales price increases driven by product cost increases.which overcame increased fuel costs, increased expenses incurred on the National Supply Chain project and increased expenses incurred as a result of bad weather. Included in income tax expense is the reduction of an accrual for a tax contingency of $11,000,000. Primarily as a result of these factors, net earnings increased 6.4%8.0% for the first 2639 weeks and 4.8%11.4% for the secondthird quarter of fiscal 2005 over the comparable prior year periods. Management believes that prolonged periods of rising product costs together with general economic conditions, including the impact of increased fuel costs on consumer spending, 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,personnel expenses, improving productivity and ongoing benchmarking and sharing of best practices at the operating companies. OVERVIEW SYSCO distributes food and 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 operations, hotel supply operations, and SYGMA, the company's chain restaurant distribution 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 dollars spent on food purchases made at the consumer level. This share has grown from about 37% in 1972 sinceto its current level in 1998. This growth was a result of food purchases in the foodservice industry have grownincreasing 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,the mix of dollars spent on food-prepared-away-from-home versus retail grocery purchases 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. 16 General economic conditions and consumer confidence can affect the frequency and amount spent by consumers for food prepared away from homefood-prepared-away-from-home and in turn can impact SYSCO's 15 sales. We haveSYSCO has historically grown at a faster rate than the overall industry and havehas grown ourits market share in this fragmented industry. The company intends to continue to expand its market share and grow earnings through strategies which include: -o 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. -o Brand management: Leveraging brand strength to grow sales and profitability while ensuring strict quality control processes and providing greater value to customers. -o Productivity: Deploying the latest technology and implementing best business practices to improve operating efficiencies and leverage expenses to sales growth. -o Sales force effectiveness: Targeted recruiting, training and compensation of marketing associates. Expandingcustomer contact associates, increasing the number of customer contact associates and expanding the business development and business review functions to further strengthen our customer relationships. -o 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, increase profitability and 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, will begin distributingopened during the third quarter of fiscal 2005. As of May 2, it was supplying products to five of the company's14 broadline facility near Boston in February 2005, followed incrementally by 13 additional broadlineoperating companies in the Northeast region.northeast region and is expected to be shipping products to one half of the operating companies in the northeast region by the end of May. 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 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 $0.03 to $0.04 on earnings per share during fiscal 2005. In fiscal 2006, management estimates that the benefits of the project are expected to offset any further costs, and that there should be no additional negative impact, and perhaps a one-half cent contribution, to earnings per share. 1617 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-Week39-Week Period Ended 13-Week Period Ended ---------------------------- ---------------------------- Jan. 1,----------------------------- ----------------------------- Apr. 2, 2005 Dec.Mar. 27, 2003 Jan. 1,2004 Apr. 2, 2005 Dec.Mar. 27, 20032004 ------------ ------------- ------------ ------------- Sales 100.0% 100.0% 100.0% 100.0% Costs and Expenses Cost of sales 81.0 80.7 81.1 80.9 80.6 80.9 80.6 Operating expenses 13.914.0 14.3 13.8 14.214.1 14.4 Interest expense 0.2 0.2 0.20.3 0.2 Other, net 0.0 0.0 0.0 (0.1)0.0 ----- ----- ----- ----- Total costs and expenses 95.0 95.1 94.9 94.995.2 95.2 95.5 95.5 ----- ----- ----- ----- Earnings before income taxes 5.0 4.9 5.1 5.14.8 4.8 4.5 4.5 Income taxes 1.9 1.9 1.9 1.91.8 1.8 1.6 1.7 ----- ----- ----- ----- Net earnings 3.1% 3.0% 3.2% 3.2%3.0% 2.9% 2.8% ===== ===== ===== =====
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-Week39-Week Period 13-Week Period -------------- -------------- Sales 4.9% 4.2%5.2% 5.9% Costs and Expenses Cost of sales 5.3 4.75.6 6.1 Operating expenses 1.9 0.82.7 4.4 Interest expense 1.3 8.59.6 28.0 Other, net (59.5) (76.0)(36.0) 133.5 ----- ----- Total costs and expenses 4.8 4.25.2 5.9 ----- ----- Earnings before income taxes 6.0 4.45.8 5.4 Income taxes 5.3 3.72.3 (4.3) ----- ----- Net earnings 6.4% 4.8%8.0% 11.4% ===== ===== Basic earnings per share 7.5% 5.9%9.3% 9.7% Diluted earnings per share 7.7 5.99.5 13.3 Average shares outstanding (1.1) (0.9)(1.0) (1.0) Diluted shares outstanding (1.2) (1.3)(1.4) (1.9)
1718 SALES Acquisitions contributed 0.6%0.7% to the overall sales growth rate for the first 2639 weeks of fiscal 2005 and 0.7%1.0% for the secondthird quarter of fiscal 2005. Estimated product costIn addition, increases were 4.7% duringin both sales prices and unit volumes shipped contributed to the first 26 weeks of fiscal 2005 and 3.8% during the second quarter of fiscal 2005.sales growth. SYSCO generally expects to pass product cost increases to its customers; however, the actual amount of product cost increases reflected as increases in sales price is difficult to quantify. Estimated product cost increases were 4.4% during the first 39 weeks of fiscal 2005 and 3.8% during the third quarter of fiscal 2005. Management believes that prolonged periods of rising product costs together with general economic conditions, including the impact of increased fuel costs on consumer spending, 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 ininto fiscal 2005. Additionally,However, sales growth of 5.9% in the third quarter of fiscal 2005 over the comparable prior year period represents a sequential increase when compared to the sales growth of 4.2% for the second quarter of fiscal 2005 over the comparable prior year period. In addition, sales growth in the third quarter of fiscal 2005 was negatively impacted by bad weather particularly in the Northeast and Midwest. The company also 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 continues to see reductions in sales to unprofitable customers over the comparable prior year periods. GROSS MARGINS The decline in grossGross margins as a percentage of sales declined in the first 2639 weeks and secondthird quarter of fiscal 2005 aswhen compared to the comparable prior year periods, was experienced in substantially all of the company's segments.periods. Management believes that this gross margin decline was caused by several factors, including product cost increases, changes in segment mix, customer mix and pricing pressure. Product cost increases in most of the product categories had the impact of reducing gross margins as a percentage of sales, as gross profit dollars are earned on a higher sales dollar base. Within the Broadline segment, gross margin as a percentage of sales on 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 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 The decrease in operating expenses as a percentage of sales was primarily attributable toaided by improved operating efficiencies. For example, the Broadline segment continues to demonstrate improving trends in key expense metrics, including number of stops, 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 also favorably impacted by the recognition in income of $14,195,000$12,430,000 in the first 2639 weeks and $14,281,000negatively impacted by the recognition of a loss of $1,765,000 in the secondthird quarter of fiscal 2005 to adjust the carrying value of life insurance assets to their cash surrender value. This compared to the recognition in income of $16,784,000$19,221,000 and $12,218,000$2,437,000 in the comparable periods of fiscal 2004, respectively. Operating expenses were negatively impacted by increased costs to deliver product to customers due to increased fuel costs of approximately $14,000,000$22,000,000 in the first 2639 weeks and $8,500,000$7,000,000 in the secondthird quarter of fiscal 2005 over comparable periods of fiscal 2004. The 18 impact of increasing fuel costs was partially offset by a reduction in both miles driven and number of stops. Operating expenses were also negatively impacted by bad weather conditions. 19 Operating expenses related to the National Supply Chain project were $12,211,000$29,581,000 in the first 2639 weeks and $6,460,000$14,030,000 in the secondthird quarter of fiscal 2005, as compared to $17,698,000$20,684,000 and $8,786,000$3,392,000 in the comparable periods of fiscal 2004. The company's focus on managing labor costspersonnel expenses has resulted in a reduction of the number of associates by approximately 2,0002,100 from July 3, 2004 to January 1,April 2, 2005. The company 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. In the coming periods, the company will be focusing its efforts on increasing the number of customer contact associates. INTEREST EXPENSE The increase in interest expense was due to increased borrowing rates in fiscal 2005 as compared to fiscal 2004. The increase in the company's overall borrowing rates was primarily due to an increase in the percentage of the company's debt with fixed interest rates in fiscal 2005 as compared to fiscal 2004. In fiscal 2004, the company's debt portfolio included a larger percentage of floating rate debt in the form of either commercial paper borrowings or fixed rate debt converted to floating through interest rate swap agreements. In addition, market interest rates have increased over the last year. OTHER INCOME The company recognized a gain on the sale of a facility of approximately $5,700,000 in the second quarter of fiscal 2004. INCOME TAXES The effective tax rate was 37.23% and 34.97% for the first 39 weeks and third quarter of fiscal 2005, respectively, as compared to 38.5% for the comparable prior year periods. Included in income tax expense in the third quarter of fiscal 2005 is the reduction of an accrual for a tax contingency of $11,000,000. EARNINGS PER SHARE The increases in earnings per share were the result of factors discussed above, as well as a net reduction of shares outstanding due primarily 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. 12) in the Notes to Consolidated Financial Statements:
26-Week39-Week Period 13-Week Period ---------------- ------------------------------------- ------------------ Earnings Earnings before before Sales taxes Sales taxes ----- -------- ----- -------- Broadline 3.8% 6.6% 2.9% 4.3%4.0% 7.2% 4.4% 8.5% SYGMA 10.0 (30.7) 9.0 (32.5)10.9 (19.1) 12.5 6.5 Other 8.1 14.9 9.5 15.49.4 10.8 11.9 3.8
20 The following tables 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. 12) in the Notes to Consolidated Financial Statements:
26-Week39-Week Period Ended ----------------------------------- Jan. 1,------------------------------------------------ Apr. 2, 2005 Dec.Mar. 27, 2003 ---------------- ----------------2004 ---------------------- --------------------- Earnings Earnings Sales before before Sales taxes Sales before taxes ----- -------------------- ----- -------------------- Broadline 80.4% 98.3% 81.2% 97.8%80.0% 99.2% 80.9% 98.0% SYGMA 12.5 1.0 11.912.7 1.2 12.1 1.6 Other 8.2 5.4 8.0 4.98.4 5.6 8.1 5.3 Intersegment sales (1.1) (1.1) Unallocated corporate expenses (4.7) (4.3)(6.0) (4.9) ----- ----- ----- ----- Total 100.0% 100.0% 100.0% 100.0% ===== ===== ===== =====
19
13-Week Period Ended ----------------------------------- Jan. 1,------------------------------------------------ Apr. 2, 2005 Dec.Mar. 27, 2003 ---------------- ----------------2004 ---------------------- --------------------- Earnings Earnings Sales before before Sales taxes Sales before taxes ----- -------------------- ----- -------------------- Broadline 79.8% 95.7% 80.7% 95.8%79.3% 101.4% 80.4% 98.6% SYGMA 12.8 1.0 12.313.2 1.6 12.4 1.6 Other 8.5 6.0 8.1 5.48.6 6.1 8.2 6.2 Intersegment sales (1.1) (1.1)(1.0) Unallocated corporate expenses (2.7) (2.8)(9.1) (6.4) ----- ----- ----- ----- Total 100.0% 100.0% 100.0% 100.0% ===== ===== ===== =====
BROADLINE SEGMENT Acquisitions did not have a material impact oncontributed 0.1% to the overall sales growth rate for the Broadline segment for the first 2639 weeks orand 0.2% for the secondthird 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.in both sales prices and unit volumes. Marketing associate-served sales as a percentage of broadline sales in the U.S. were 53.7%53.3% and 52.9%52.6% for the first 2639 weeks and secondthird quarter of fiscal 2005, respectively, as compared to 53.7%53.1% and 52.5%51.7%, respectively, for the comparable prior year periods. SYSCO Brand sales as a percentage of broadline sales in the U.S. increased to 49.5%were 49.4% and 49.4%48.8% for the first 2639 weeks and the secondthird quarter of fiscal 2005, respectively, as compared to 49.0%49.3% and 49.0%49.1%, respectively, for the comparable prior year periods. The increases in earnings before income taxes for the Broadline segment were primarily due to increases in sales and increased operating efficiencies which overcame higher fuel costs, resulting in lower expenses as a percentage of sales. 21 SYGMA SEGMENT Acquisitions contributed 2.8% to the overall sales growth rate for the SYGMA segment for the first 2639 weeks and 2.9%2.8% for the secondthird 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. EarningsThe decrease in earnings before income taxes for the SYGMA segment decreasedfor the first 39 weeks of fiscal 2005 over the comparable prior year period was primarily as a result of the factors discussed below. Earnings before income taxes for the third quarter of fiscal 2005 increased over the comparable prior year period but was also impacted by the factors discussed below. During the fourth quarter 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 is 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. SYGMA opened a new facility to serve a portion of the new business which it began serving in the fourth quarter of fiscal 2005. As a result, during the fourth quarter of fiscal 2004 and throughout fiscal 2005, SYGMA's operating profits have been impacted by increased operating expenses as it transitioned its operations to serve thisthe new business.business it has acquired. In addition, SYGMA's gross margins as a percent of sales in fiscal 2005 have declined from the comparable period in fiscal 2004 due to product cost increases and lower agreed upon pricing with its customers. These trends in gross margins are expected to continue throughout fiscal 2005. However, the company expects that SYGMA will continue to be 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 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. Operating Activities Cash flow from operations in the first 2639 weeks of fiscal 2005 was negatively impacted by increases in inventory balances of $123,510,000$69,578,000 and decreasesincreases in accounts receivable balances of $48,948,000, offset by a modest increase in accounts payable balances of $78,330,000, offset by a decrease in accounts receivable balances of $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 several factors including changes in product mix and changes in payment terms. Sales to multi-unit customers, whose payment terms are 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 June. 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.$7,967,000. Also impacting cash flow from operations was a decrease in accrued expenses of $107,609,000. Accrued amounts related to bonus and incentive payments to employees decreased approximately $95,600,000 during the first 26 weeks of fiscal 2005.$38,225,000. This decrease primarily reflects the payment of annual incentive based bonuses for fiscal 2004 which were paid in early fiscal 2005, partially offset by accruals for fiscal 2005 incentive based bonuses. The company's contributions to its defined benefit plans were $83,048,000$84,603,000 and $82,637,000$164,012,000 during the 26-week39-week periods ended January 1,April 2, 2005 and DecemberMarch 27, 2003,2004, respectively. 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. Investing Activities Total capital expenditures in fiscal 2005 are expected to be approximately $400,000,000 to $450,000,000.$425,000,000. 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; 22 and investments in technology. ExpendituresAmounts capitalized in the first 2639 weeks of fiscal 2005 related to the company's National Supply Chain project totaled $38,524,000, of which $26,313,000 was capitalized.$31,814,000. Total expendituresamounts capitalized on the project since inception are $256,311,000, of which $178,567,000 have been capitalized. 21were $184,069,000 through April 2, 2005. Financing Activities During the first 2639 weeks of fiscal 2005, a total of 4,430,20010,096,200 shares were repurchased at a cost of $154,858,000,$354,078,000, as compared to 6,293,70013,805,400 shares at a cost of $218,149,000$508,963,000 for the comparable period in fiscal 2004. An additional 1,976,0002,070,000 shares at a cost of $72,016,000$73,480,000 have been purchased through January 29,April 30, 2005. In February 2005, the Board authorized an additional 20,000,000 shares for repurchase, resulting in 6,202,70020,442,700 shares remaining available for repurchase as authorized by the Board as of that date.April 30, 2005. The company made twothree regular quarterly dividend payments during the first 2639 weeks of fiscal 2005, each at $0.13totaling $0.41 per share. In November 2004,February 2005, SYSCO declared its regular quarterly dividend for the thirdfourth quarter of fiscal 2005, increasing it toat $0.15 per share, which was paid in JanuaryApril 2005. As of January 1,April 2, 2005, SYSCO's borrowings under its commercial paper programs were $133,149,000.$73,043,000. Such borrowings were $122,116,000$41,326,000 as of January 29,April 30, 2005. During the 26-week39-week period ended January 1,April 2, 2005, commercial paper and short-term bank borrowings ranged from approximately $46,327,000 to $253,384,000. As of January 1,April 2, 2005, SYSCO had uncommitted bank lines of credit, which provide for unsecured borrowings for working capital of up to $95,000,000, of which $4,000,000none was outstanding at January 1,April 2, 2005. SuchThere were no outstanding borrowings were $24,500,000under these lines of credit as of January 29,April 30, 2005. Included in current maturities of long-term debt are the 6.5% Senior Notes totaling $150,000,000 due June 2005 and the 4.75% Senior Notes totaling $200,000,000 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 company currently intends to issue long-term debt totaling approximately $350,000,000 in the first quarter of fiscal 2006 to replace the cash used and/or commercial paper issued to repay the maturing senior notes. In April 2005, SYSCO filed with the Securities and Exchange Commission a $1,500,000,000 shelf registration of debt securities. The registration statement was declared effective in May 2005. The long-term debt to capitalization ratio was 34.1%33.2% at January 1,April 2, 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 portion. As part of normal business activities, SYSCO issues letters of credit through major banking institutions as required by certain vendor and insurance agreements. As of April 2, 2005, letters of credit outstanding were $8,971,000. In April 2005, SYSCO issued a letter of credit in the amount of $72,000,000 to satisfy the collateral requirement for an insurance agreement which was previously satisfied with funds on deposit in an insurance trust. As of April 30, 2005, letters of credit outstanding were $80,971,000. 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 23 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 secondthird 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"Share-Based Payment" (SFAS 123(R)), which is a revision of FASB Statement No. 123, Accounting"Accounting for Stock-Based CompensationCompensation" (SFAS 123). SFAS 123(R) supersedes APB Opinion No. 25, Accounting"Accounting for Stock Issued to EmployeesEmployees" (APB Opinion 25), and amends FASB Statement No. 95, Statement"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 mustwill 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.the first quarter of fiscal 2006. 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. 24 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 business; SYSCO's ability to refinance current maturities of long-term debt; the anticipated amount and timing of debt issuances 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 and integration of acquisitions and integration of acquired companies;fold-outs; 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 improve 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. 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 January 1,April 2, 2005, the company had outstanding $133,149,000$73,043,000 of commercial paper at variable rates of interest with maturities through April 20,July 7, 2005. The company's long-term debt obligations of $1,469,705,000$1,398,577,000 were primarily at fixed rates of interest. AlsoIn 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, 25 7.25% Senior Notes due April 2007 and 4.60% Senior Notes due March 2014 and received cash of $5,316,000, which represented the fair value of the swap agreements at January 1,the time of termination. The company currently intends to issue long-term debt totaling approximately $350,000,000 in the first quarter of fiscal 2006. In March 2005, the company hadSYSCO entered into a forward-starting interest rate swap agreements outstanding totaling $500,000,000 inwith a notional amount wherebyof $350,000,000 in order to hedge the interest rate risk arising during the period prior to the expected issuance. The company receivedhas designated this derivative as a cash flow hedge of the variability in the cash outflows of interest payments at fixed rates ofon the forecasted debt issuance due to changes in the benchmark interest and paid interest at variable rates. In February 2005, the company terminated all outstanding swap agreements.rate. Item 4. Controls and Procedures As of January 1,April 2, 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 January 1,April 2, 2005 in providing reasonable assurances that material information required to be disclosed is includedrecorded, processed, summarized and reported on a timely basis in the reports it files with the Securities and Exchange Commission. Furthermore, the company's management noted that, as a result of their evaluation of changes in internal control over financial reporting, they identified no changes occurred during the secondthird quarter of fiscal 2005 that materially affected, or would be reasonably likely to materially affect, the company's internal controlscontrol over financial reporting. 2426 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 secondthird quarter of fiscal 2005:
----------------------------------------------------------------------------------------------------------- ISSUER PURCHASES OF EQUITY SECURITIES
(C)----------------------------------------------------------------------------------------------------------- (c) TOTAL NUMBER OF SHARES (d) MAXIMUM NUMBER PURCHASED AS (D) MAXIMUM NUMBER (B) AVERAGE PART OF PUBLICLY OF SHARES THAT MAY YET (A)(a) TOTAL NUMBER (b) AVERAGE OF PUBLICLY YET BE PURCHASED OF SHARES PRICE PAID PER ANNOUNCED PLANS OR BE PURCHASED UNDER PERIOD SHARES PURCHASED SHARE PROGRAMS THE PLANS OR PERIOD PURCHASED(1) PER SHARE PROGRAMS ------ ------------------- -------------- ------------------- ----------------------PROGRAMS ----------------------------------------------------------------------------------------------------------- Month #1 Oct. 3Jan. 2 - Oct. 30 2,558 $30.13 0 11,128,700Jan. 29 1,717,785 $36.59 1,706,000 6,472,700 ----------------------------------------------------------------------------------------------------------- Month #2 Oct. 31Jan. 30 - Nov. 27 865,995 35.06 850,000 10,278,700Feb. 26 1,731,878 34.95 1,710,000 24,762,700 ----------------------------------------------------------------------------------------------------------- Month #3 Nov. 28Feb. 27 - Jan. 1 2,143,466 36.27 2,100,000 8,178,700 --------- ------ --------- ----------Apr. 2 2,290,120 34.24 2,250,000 22,512,700 ----------------------------------------------------------------------------------------------------------- Total 3,012,019 35.92 2,950,000 8,178,700 ========= ====== ========= ==========5,739,783 35.16 5,666,000 22,512,700 -----------------------------------------------------------------------------------------------------------
In the above table, the(1) The total number of shares purchased includes shares purchased as part of a publicly announced share repurchase program, as well as11,875, 21,878 and 40,120 shares tendered by individuals in connection with stock option exercises.exercises in Month #1, Month #2 and Month #3, respectively. 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. On November 23, 2004, the company entered into a stock purchase plan with Banc of America Securities LLC to purchase shares of SYSCO common stock pursuant to Rules 10b5-1 and 10b-18 under the Exchange Act. Subject to certain conditions, the shares will be purchased during the period between December 1,November 29, 2004 and August 16, 2005, including during company "blackout" periods. The maximum share authorization under this agreement was reached in May 2005; therefore, no further shares will be purchased under this agreement. On February 18, 2005, the company announced that the Board of Directors approved the repurchase of an additional 20,000,000 shares over a 12- to 18-month period. In March 2005, 35,520 Dividend Access Shares, convertible on a one-for-one basis into SYSCO shares, were released to the former shareholders of North Douglas Distributors ("North Douglas") pursuant to the terms of an escrow agreement executed in connection with SYSCO's acquisition of North Douglas in December 2000. 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. 27 Item 3. Defaults upon Senior Securities None 25 Item 4. Submission of Matters to a Vote of Security Holders SYSCO 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
None Item 5. Other Information On 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. 26None Item 6. 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 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, 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 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). 28 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, 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 10,2004 (File No. 1-6544). *10(a) Form of CEO Supplemental Performance-Based Bonus Agreement. *15(a) Report from Ernst & Young LLP dated May 12, 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.herewith 2829 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/ RICHARDRichard J. SCHNIEDERS -------------------------------------Schnieders -------------------------------------- Richard J. Schnieders Chairman and Chief Executive Officer Date: February 10,May 12, 2005 By /s/ JOHNJohn K. STUBBLEFIELD, JR. -------------------------------------Stubblefield, Jr. -------------------------------------- John K. Stubblefield, Jr. Executive Vice President, Finance and Chief Financial Officer Date: February 10,May 12, 2005 EXHIBIT INDEX
NO. DESCRIPTION --- ----------- 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 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, 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 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)+ 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 10,4(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) Form of CEO Supplemental Performance-Based Bonus Agreement. *15(a) Report from Ernst & Young LLP dated May 12, 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.herewith