Page 1 of 16
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 December 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-6544
SYSCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1648137
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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 [ ]
170,037,852 shares of common stock were outstanding as of
January 23, 1998.
2
PART I. FINANCIAL INFORMATION
---------------------------------------------------
Item 1. Financial Statements
The following consolidated financial statements
have been prepared by the Company, without
audit, with the exception of the June 28, 1997,
consolidated balance sheet which was taken from
the audited financial statements included in the
Company's Fiscal 1997 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 year have
been reclassified to conform to the current
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 1997 Annual Report on
Form 10-K.
A review of the financial information herein has
been made by Arthur Andersen LLP, independent
public accountants, in accordance with established
professional standards and procedures for such a
review. A letter from Arthur Andersen LLP
concerning their review is included as Exhibit 15.
3
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share Data)
Dec. 27, June 28, Dec. 28,
1997 1997 1996
----------- ---------- -----------
(Unaudited) (Audited) (Unaudited)
ASSETS
----------
Current assets
Cash $ 99,824 $ 117,696 $ 87,651
Accounts and notes receivable,
less allowances of $29,843,
$17,240 and $33,550 1,195,930 1,065,002 1,094,169
Inventories 810,192 733,782 766,343
Deferred taxes 27,738 23,720 27,279
Prepaid expenses 24,198 21,429 22,541
---------- ---------- ----------
Total current assets 2,157,882 1,961,629 1,997,983
Plant and equipment at cost,
less depreciation 1,097,718 1,058,432 1,024,961
Goodwill and intangibles, less
amortization 243,496 247,423 251,338
Other assets 131,427 166,339 165,524
---------- ---------- ----------
Total assets $3,630,523 $3,433,823 $3,439,806
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Notes payable $ 24,912 $ 14,267 $ 10,967
Accounts payable 900,433 827,593 806,773
Accrued expenses 235,755 240,928 211,654
Accrued income taxes 10,968 17,741 23,156
Current maturities of
long-term debt 15,289 13,285 13,883
---------- --------- ----------
Total current liabilities 1,187,357 1,113,814 1,066,433
Long-term debt 829,152 685,620 682,953
Deferred taxes 218,152 233,917 222,070
Shareholders' equity
Preferred stock, par value
$1 per share:
Authorized 1,500,000 shares;
issued none --- --- ---
Common stock, par value
$1 per share:
Authorized 500,000,000 shares;
issued 191,293,725 shares 191,294 191,294 191,294
Paid-in capital 30,842 32,258 34,763
Retained earnings 1,855,697 1,771,548 1,671,711
---------- ---------- ----------
2,077,833 1,995,100 1,897,768
Less cost of treasury stock,
20,999,811, 18,855,458 and
14,113,937 shares 681,971 594,628 429,418
---------- ---------- ----------
Total shareholders' equity 1,395,862 1,400,472 1,468,350
---------- ---------- ----------
Total liabilities and
shareholders' equity $3,630,523 $3,433,823 $3,439,806
========== ========== ==========
<FN>
Note: The June 28, 1997 balance sheet has been taken from the audited
financial statements at that date. Certain amounts have been reclassified
to conform to the current presentation.
4
SYSCO Corporation and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In Thousands Except for Share Data)
26-Week Period Ended 13-Week Period Ended
---------------------------- -----------------------------
Dec. 27, Dec. 28, Dec. 27, Dec. 28,
1997 1996 1997 1996
------------ ------------ ------------ --------------
Sales $ 7,614,340 $ 7,289,571 $ 3,786,096 $ 3,610,348
Costs and expenses
Cost of sales 6,213,796 5,982,959 3,082,913 2,954,481
Operating expenses 1,104,921 1,038,423 551,889 518,694
Interest expense 27,640 22,805 14,500 11,888
Other income, net (425) (259) (303) (18)
------------ ----------- ------------ ------------
Total costs and expenses 7,345,932 7,043,928 3,648,999 3,485,045
------------ ----------- ------------ ------------
Earnings before income taxes 268,408 245,643 137,097 125,303
Income taxes 104,679 95,801 53,468 48,868
------------ ------------ ------------ ------------
Earnings before cumulative
effect of accounting change 163,729 149,842 83,629 76,435
Cumulative effect of
accounting change (28,053) --- (28,053) ---
____________ ____________ ____________ ____________
Net earnings $ 135,676 $ 149,842 $ 55,576 $ 76,435
============ ============ ============ ============
Earnings per share before
accounting change:
Basic earnings per share $ 0.96 $ 0.84 $ 0.49 $ 0.43
============ ============ ============ ============
Diluted earnings per
share $ 0.95 $ 0.83 $ 0.49 $ 0.43
============ ============ ============ ============
Cumulative effect of
accounting change:
Basic earnings per share $ (0.16) $ --- $ (0.16) $ ---
============ ============ ============ ============
Diluted earnings per
share $ (0.16) $ --- $ (0.16) $ ---
============ ============ ============ ============
Net earnings:
Basic earnings per share $ 0.79 $ 0.84 $ 0.33 $ 0.43
============ ============ ============ ============
Diluted earnings per
share $ 0.79 $ 0.83 $ 0.32 $ 0.43
============ ============ ============ ============
Average number of shares
outstanding 171,317,862 179,233,095 170,793,423 178,412,247
============ ============ ============ ============
Diluted average number of
shares outstanding 172,571,218 179,978,653 172,279,833 179,307,299
============ ============ ============ ============
Dividends paid per
common share $ 0.30 $ 0.26 $ 0.15 $ 0.13
============ ============ ============ ============
(/Table)
5
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS - (Unaudited)
(In Thousands)
26-Week Period Ended
------------------------
Dec. 27, Dec. 28,
1997 1996
--------- ----------
Operating activities:
Net earnings $ 135,676 $ 149,842
Add non-cash items:
Cumulative effect of accounting change 28,053 ---
Depreciation and amortization 87,569 78,455
Deferred tax provision (19,783) (4,325)
Provision for losses on accounts receivable 9,732 13,640
Additional investment in certain assets
and liabilities net of effect of business
acquired:
(Increase) in receivables (140,660) (61,466)
(Increase) in inventories (76,410) (39,444)
(Increase) in prepaid expenses (2,769) (3,646)
Increase in accounts payable 72,840 22,325
(Decrease) in accrued expenses (5,173) (1,762)
(Decrease) in accrued income taxes (6,773) (174)
Decrease (Increase) in other assets 1,481 (7,715)
--------- ---------
Net cash provided by operating activities 83,783 145,730
Investing activities:
Additions to plant and equipment (121,042) (101,778)
Sales and retirements of plant and
equipment 3,492 885
Acquisition of business --- (5,330)
--------- ---------
Net cash used for investing activities (117,550) (106,223)
Financing activities:
Bank and commercial paper borrowings 155,457 94,237
Other debt borrowings 724 2,318
Common stock reissued from treasury 20,863 16,307
Treasury stock purchases (109,622) (125,757)
Dividends paid (51,527) (46,720)
--------- ---------
Net cash provided by (used for)
financing activities 15,895 (59,615)
--------- ---------
Net (decrease) in cash (17,872) (20,108)
Cash at beginning of period 117,696 107,759
--------- ---------
Cash at end of period $ 99,824 $ 87,651
========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 27,263 $ 22,801
Income taxes 112,294 101,738
6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
-------------------------------
The liquidity and capital resources discussion
included on page 11 of the Company's Fiscal 1997
Annual Report on Form 10-K remains applicable,
other than the common stock repurchase program
described below.
In Fiscal 1992, the Company began a common stock
repurchase program which was continued through
early Fiscal 1998, resulting in the repurchase
30,000,000 shares of common stock.
In July 1997, the Board of Directors authorized
the repurchase of an additional 6,000,000
shares. Under this latest authorization,
2,287,900 shares were purchased through
December 27, 1997.
Results of Operations
---------------------
Sales increased 4.4% during the 26 weeks and 4.9%
in the second quarter of Fiscal 1998 over comparable
periods of the prior year. Cost of sales also
increased 3.9% during the 26 weeks and 4.4% in the
second quarter of Fiscal 1998 which is in line
with the sales increases. Real sales growth for
the 26 weeks of Fiscal 1998 was 5.1% after
eliminating 0.7% food cost deflation. Real sales
growth for the quarter was 5.2%, with food cost
deflation measuring 0.3%. Deflation occurred
primarily due to lower costs of canned and dry
products, dairy foods, paper and disposable items
and poultry products.
Operating expenses for the periods presented
remained approximately the same as a percent of
sales.
Interest expense in the current periods presented
increased over the prior periods due to increased
borrowings primarily related to the Company's
share repurchase program.
Income taxes for the periods presented reflect
an effective rate of 39%.
7
Pretax earnings and net earnings before
accounting change increased about 9% for
the periods presented over the prior year
due to the factors discussed above as
well as the Company's continued efforts to
increase sales to the Company's traditional
territorial street customers.
Basic and diluted earnings per share before
accounting change increased about 14%
for the periods presented over the prior
year due to the factors discussed above,
coupled with the decrease in average shares
outstanding for the periods presented,
reflecting purchases of shares made through
the Company's share repurchase program.
Summary of Accounting Policies
==============================
For the period ended December 27, 1997,
SYSCO recorded a one-time, after-tax,
non-cash charge of $28 million to comply
with a new consensus ruling by the
Emerging Issues Task Force of the
Financial Accounting Standards Board
(EITF Issue No. 97-13), requiring
reengineering costs associated with
computer system development to be
expensed as they are incurred. Prior
to this change, SYSCO had capitalized
business process reengineering costs
incurred in connection with its SYSCO
Uniform Systems information systems
redevelopment project in accordance
with generally accepted accounting
principles.
In 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards No. 128, Earnings per Share. Statement
128 replaced the previously reported primary
and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share
excludes any dilutive effects of options.
Diluted earnings per share is very similar to
the previously reported earnings per share.
Earnings per share amounts for each period
have been presented and restated to conform
to the Statement 128 requirements.
A reconciliation of basic and diluted earnings
per share follows on the next page.
8
The following table sets forth the computation of
basic and diluted earnings per share:
26-Week Period Ended 13-Week Period Ended
============================== ===============================
Dec. 27 Dec. 28 Dec. 27 Dec. 28
1997 1996 1997 1996
============= ============= ============= ==============
Numerator:
Numerator for basic earnings
per share--income available
to common shareholders $ 135,676,000 $ 149,842,000 $ 55,576,000 $ 76,435,000
Effect of dilutive
securities - - - - - - - - - - - -
------------- ------------- ------------- --------------
Numerator for diluted
earnings per share --
income available to common
shareholders $ 135,676,000 $ 149,842,000 $ 55,576,000 $ 76,435,000
============= ============= ============= ==============
Denominator:
Denominator for basic
earnings per share --
weighted-average shares 171,317,862 179,233,095 170,793,423 178,412,247
Effect of dilutive
securities:
Employee incentive stock
options 1,253,356 745,558 1,486,410 895,052
------------- ------------- ------------- --------------
Denominator for diluted
earnings per share --
adjusted weighted-average
shares and assumed
conversions 172,571,218 179,978,653 172,279,833 179,307,299
============= ============= ============= ==============
Basic earnings per share $ 0.79 $ 0.84 $ 0.33 $ 0.43
============= ============= ============= ==============
Diluted earnings per share $ 0.79 $ 0.83 $ 0.32 $ 0.43
============= ============= ============= ==============
(/Table)
Item 3. Quantitative and Qualitative Disclosures about Market Risks
Not applicable.
9
PART II. OTHER INFORMATION
-------------------------
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on
November 7, 1997 ("1997 Annual Meeting"). At the 1997
Annual Meeting the following persons were elected to serve
as directors of the Company for three year terms:
Charles H. Cotros, Jonathan Golden, Richard J. Schnieders,
Arthur J. Swenka and Thomas B. Walker, Jr.
The terms of the following persons as directors of the
Company continued after the 1997 Annual Meeting:
John W. Anderson, Colin G. Campbell, Judith B. Craven,
Frank A. Godchaux III, Donald J. Keller, Bill M. Lindig,
Richard G. Merrill, Frank H. Richardson, Phyllis S.
Sewell and John F. Woodhouse.
The results of such vote were as follows:
Number of Votes Cast
--------------------
Withheld and Broker
Matter Voted Upon For Against Abstained Non-votes
----------------- ----------- ---------- ------------ ---------
Election as Director:
Charles H. Cotros 148,608,193 2,419,576 None None
Jonathan Golden 146,734,945 4,292,824 None None
Richard J. Schnieders 148,419,138 2,608,632 None None
Arthur J. Swenka 148,420,228 2,607,541 None None
Thomas B. Walker, Jr. 148,148,821 2,878,948 None None
10
PART II. OTHER INFORMATION
========================
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3(a) Restated Certificate of Incorporation,
as amended, incorporated by reference
to Form 10-K for the year ended
June 28, 1997.
3(b) Bylaws, as amended, incorporated by
reference to Form 10-K for the year
ended July 2, 1994.
3(c) Amended Certificate of Designation,
incorporated by reference to Form 10-K
for the year ended June 29, 1996.
4(a) Seventh Amendment and Restatement of
Competitive Advance and Revolving
Credit Facility Agreement dated as of
June 27, 1997, incorporated by reference
to Form 10-K for the year ended
June 28, 1997.
4(b) Sysco Corporation Note Agreement dated
as of June 1, 1989, incorporated by
reference to Form 10-K for the year
ended June 28, 1997.
4(c) Indenture, dated as of October 1, 1989,
between Sysco Corporation and Chemical
Bank, Trustee, incorporated by reference
to Registration Statement on Form S-3
(File No. 33-31227).
4(d) Indenture, dated as of June 15, 1995,
between Sysco Corporation and First
Union National Bank of North Carolina,
Trustee, incorporated by reference to
Registration Statement on Form S-3
(File No. 33-60023).
4(e) First Supplemental Indenture, dated as
of June 27, 1995, between Sysco
Corporation and First Union Bank of
North Carolina, Trustee as amended,
incorporated by reference to Form 10-K
for the year ended June 29, 1996.
4(f) Second Supplemental Indenture, dated
as of May 1, 1996, between Sysco
Corporation and First Union Bank of
North Carolina, Trustee as amended,
incorporated by reference to Form 10-K
for the year ended June 29, 1996.
11
4(g) Third Supplemented Indenture, dated
as of April 25, 1997, between Sysco
Corporation and First Union National
Bank of North Carolina, Trustee,
incorporated by reference to Form 10-K
for the year ended June 28, 1997.
4(h) 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 Form 10-K
for the year ended June 28, 1997.
15 Letter from Arthur Andersen LLP dated
February 6, 1998, re unaudited
financial statements.
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed
during the quarter for which this
report is filed.
12
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/ JOHN K. STUBBLEFIELD, JR.
-----------------------------
John K. Stubblefield, Jr.
Senior Vice President &
Chief Financial Officer
Date: February 6, 1998
13
EXHIBIT INDEX
----------------------
SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ----- ----------------------------------------- -------------
3(a) Restated Certificate of Incorporation,
as amended, incorporated by reference
to Form 10-K for the year ended
June 28, 1997.
3(b) Bylaws, as amended, incorporated by
reference to Form 10-K for the year
ended July 2, 1994.
3(c) Amended Certificate of Designation,
incorporated by reference to Form 10-K
for the year ended June 29, 1996.
4(a) Seventh Amendment and Restatement of
Competitive Advance and Revolving
Credit Facility Agreement dated as
of June 27, 1997, incorporated by
reference to Form 10-K for the year
ended June 28, 1997.
4(b) Sysco Corporation Note Agreement dated
as of June 1, 1989, incorporated by
reference to Form 10-K for the year
ended June 28, 1997.
4(c) Indenture, dated as of October 1, 1989,
between Sysco Corporation and Chemical
Bank, Trustee, incorporated by
reference to Registration Statement
on Form S-3 (File No. 33-31227).
4(d) Indenture, dated as of June 15, 1995,
between Sysco Corporation and First
Union National Bank of North Carolina,
Trustee, incorporated by reference to
Registration Statement on Form S-3
(File No. 33-60023).
4(e) First Supplemental Indenture, dated
as of June 27, 1995, between Sysco
Corporation and First Union Bank of
North Carolina, Trustee as amended,
incorporated by reference to Form
10-K for the year ended June 29, 1996.
4(f) Second Supplemental Indenture, dated
as of May 1, 1996, between Sysco
Corporation and First Union Bank of
North Carolina, Trustee as amended,
incorporated by reference to Form
10-K for the year ended June 29, 1996.
14
4(g) 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 Form 10-K
for the year ended June 28, 1997.
4(h) 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 Form 10-K
for the year ended June 28, 1997.
15 Letter from Arthur Andersen LLP dated
February 6, 1998, re unaudited financial
statements. 15
27 Financial Data Schedule. 16