UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 2004
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 [ ]
639,425,930 shares of common stock were outstanding as of April 24, 2004.
TABLE OF CONTENTS
PAGE NO.
-------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
Item 4. Controls and Procedures 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 27
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SYSCO CORPORATION and its Consolidated Subsidiaries CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share Data)
Mar. 27, 2004 June 28, 2003 Mar. 29, 2003
------------- ------------- -------------
(unaudited) (unaudited)
ASSETS
Current assets
Cash $ 172,695 $ 337,447 $ 186,956
Accounts and notes receivable, less
allowances of $66,986, $35,005 and $64,685 2,087,476 2,009,627 1,946,819
Inventories 1,373,251 1,230,080 1,256,397
Prepaid expenses 57,128 52,380 60,775
------------- ------------- -------------
Total current assets 3,690,550 3,629,534 3,450,947
Plant and equipment at cost, less depreciation 2,088,314 1,922,660 1,829,021
Other assets
Goodwill and intangibles, less amortization 1,177,161 1,113,960 1,084,693
Restricted cash 169,220 83,807 84,056
Other assets 201,587 186,560 207,168
------------- ------------- -------------
Total other assets 1,547,968 1,384,327 1,375,917
------------- ------------- -------------
Total assets $ 7,326,832 $ 6,936,521 $ 6,655,885
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 105,922 $ 101,822 $ 81,492
Accounts payable 1,717,438 1,637,505 1,522,670
Accrued expenses 655,985 624,451 617,373
Income taxes 67,673 9,193 15,242
Deferred taxes 296,567 307,211 250,383
Current maturities of long-term debt 10,296 20,947 24,684
------------- ------------- -------------
Total current liabilities 2,853,881 2,701,129 2,511,844
Other liabilities
Long-term debt 1,420,139 1,249,467 1,279,657
Deferred taxes 561,666 498,396 476,629
Other long-term liabilities 222,098 289,998 190,721
------------- ------------- -------------
Total other liabilities 2,203,903 2,037,861 1,947,007
Contingencies
Shareholders' equity
Preferred stock, par value $1 per share
Authorized 1,500,000 shares, issued none -- -- --
Common stock, par value $1 per share
Authorized shares 2,000,000,000 at Mar. 27,
2004, 1,000,000,000 at June 28, 2003 and Mar.
29, 2003; issued 765,174,900 shares 765,175 765,175 765,175
Paid-in capital 317,003 249,235 246,756
Retained earnings 3,762,183 3,373,853 3,202,358
Other comprehensive loss (144,862) (152,381) (65,435)
------------- ------------- -------------
4,699,499 4,235,882 4,148,854
Less cost of treasury stock, 127,201,965,
121,517,325 and 119,159,737 shares 2,430,451 2,038,351 1,951,820
------------- ------------- -------------
Total shareholders' equity 2,269,048 2,197,531 2,197,034
------------- ------------- -------------
Total liabilities and shareholders' equity $ 7,326,832 $ 6,936,521 $ 6,655,885
============= ============= =============
Note: The June 28, 2003 balance sheet has been derived from the audited
financial statements at that date.
2
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In Thousands Except for Share and Per Share Data)
39-Week Period Ended 13-Week Period Ended
------------------------------- -------------------------------
Mar. 27, 2004 Mar. 29, 2003 Mar. 27, 2004 Mar. 29, 2003
------------- ------------- ------------- -------------
Sales $ 21,196,386 $ 19,168,497 $ 7,025,585 $ 6,395,278
Costs and expenses
Cost of sales 17,107,358 15,396,893 5,684,192 5,144,473
Operating expenses 3,029,682 2,860,385 1,008,493 962,459
Interest expense 50,744 52,607 15,737 18,276
Other, net (10,285) (8,679) (1,250) (2,661)
------------- ------------- ------------- -------------
Total costs and expenses 20,177,499 18,301,206 6,707,172 6,122,547
------------- ------------- ------------- -------------
Earnings before income taxes 1,018,887 867,291 318,413 272,731
Income taxes 392,271 331,739 122,589 104,320
------------- ------------- ------------- -------------
Net earnings $ 626,616 $ 535,552 $ 195,824 $ 168,411
============= ============= ============= =============
Net earnings:
Basic earnings per share $ 0.97 $ 0.82 $ 0.31 $ 0.26
============= ============= ============= =============
Diluted earnings per share $ 0.95 $ 0.81 $ 0.30 $ 0.26
============= ============= ============= =============
Average shares outstanding 644,219,976 652,148,645 642,038,004 649,267,210
============= ============= ============= =============
Diluted shares outstanding 662,482,772 662,873,939 663,097,806 657,994,124
============= ============= ============= =============
Dividends declared per common share $ 0.37 $ 0.31 $ 0.13 $ 0.11
============= ============= ============= =============
3
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In Thousands)
39 - Week Period Ended
-------------------------------
Mar. 27, 2004 Mar. 29, 2003
------------- -------------
Operating activities:
Net earnings $ 626,616 $ 535,552
Add non-cash items:
Depreciation and amortization 209,054 204,155
Deferred tax provision 408,139 320,469
Provision for losses on receivables 23,613 24,444
Additional investment in certain assets and
liabilities, net of effect of
businesses acquired:
(Increase) in receivables (85,195) (175,262)
(Increase) in inventories (134,750) (116,560)
(Increase) in prepaid expenses (4,701) (18,740)
Increase in accounts payable 77,154 152,606
(Decrease) in accrued expenses and other
long-term liabilities (60,333) (2,328)
(Decrease) in accrued income taxes (283,980) (20,158)
(Increase) in other assets (18,982) (19,683)
------------- -------------
Net cash provided by operating activities 756,635 884,495
------------- -------------
Investing activities:
Additions to plant and equipment (379,390) (310,392)
Proceeds from sales of plant and equipment 13,354 9,528
Acquisition of businesses, net of cash acquired (34,091) (169,492)
Increase in restricted cash (90,223) (52,056)
------------- -------------
Net cash used for investing activities (490,350) (522,412)
------------- -------------
Financing activities:
Bank and commercial paper (repayments) borrowings (15,779) 115,039
Other debt borrowings (repayments) 184,966 (7,432)
Cash from termination of interest rate swap 1,305 --
Common stock reissued from treasury 135,816 81,971
Treasury stock purchases (508,963) (372,808)
Dividends paid (226,271) (190,336)
------------- -------------
Net cash used for financing activities (428,926) (373,566)
------------- -------------
Effect of exchange rates on cash (2,111) --
------------- -------------
Net decrease in cash (164,752) (11,483)
Cash at beginning of period 337,447 198,439
------------- -------------
Cash at end of period $ 172,695 $ 186,956
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 46,875 $ 44,451
Income taxes 257,102 36,734
4
SYSCO CORPORATION and its Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements have been prepared by the company,
without audit, with the exception of the June 28, 2003 consolidated balance
sheet which was taken from the audited financial statements included in the
company's Fiscal 2003 Annual Report on Form 10-K. The financial statements
include consolidated balance sheets, consolidated results of operations and
consolidated cash flows. Certain amounts in the prior periods presented
have been reclassified to conform to the fiscal 2004 presentation,
including other long-term liabilities related to pension and deferred
compensation plans previously classified as accrued expenses. 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
2003 Annual Report on Form 10-K.
A review of the financial information herein has been made by Ernst & Young
LLP, independent auditors, in accordance with established professional
standards and procedures for such a review. A report from Ernst & Young LLP
concerning their review is included as Exhibit 15(a).
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
39-Week Period Ended 13-Week Period Ended
------------------------------ ------------------------------
Mar. 27, 2004 Mar. 29, 2003 Mar. 27, 2004 Mar. 29, 2003
------------- ------------- ------------- -------------
Numerator:
Numerator for earnings per share --
income available to common shareholders $ 626,616,000 $ 535,552,000 $ 195,824,000 $ 168,411,000
============= ============= ============= =============
Denominator:
Denominator for basic earnings per share --
weighted-average shares 644,219,976 652,148,645 642,038,004 649,267,210
Effect of dilutive securities:
Employee and director stock options 18,262,796 10,725,294 21,059,802 8,726,914
------------- ------------- ------------- -------------
Denominator for diluted earnings per share --
Adjusted weighted-average shares 662,482,772 662,873,939 663,097,806 657,994,124
============= ============= ============= =============
Basic earnings per share $ 0.97 $ 0.82 $ 0.31 $ 0.26
============= ============= ============= =============
Diluted earnings per share $ 0.95 $ 0.81 $ 0.30 $ 0.26
============= ============= ============= =============
5
3. RESTRICTED CASH
SYSCO is required by its insurers to collateralize a part of the
self-insured portion of its workers' compensation and liability claims.
SYSCO has chosen to satisfy these collateral requirements by depositing
funds in insurance trusts. The increase in restricted cash from June 28,
2003 to March 27, 2004 was primarily due to the deposit of an additional
$90,000,000 in insurance trusts due to a change in underwriting
requirements adopted by an insurer regarding the percentage of the overall
risks required to be collateralized and to meet the collateral requirements
of a new insurer.
In 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 resolved. Escrowed funds related to certain acquisitions
in the amount of $4,810,000 were released to the sellers during the
thirty-nine weeks ended March 27, 2004.
4. DEBT
In March 2004, SYSCO issued 4.60% notes totaling $200,000,000 due March 15,
2014 in a private offering. These notes, which were priced at 99.943% of
par, are unsecured, are not subject to any sinking fund requirement and
include a redemption provision which allows SYSCO to retire the notes at
any time prior to maturity at the greater of par plus accrued interest or
an amount designed to ensure that the note holders are not penalized by the
early redemption. Proceeds from the notes were utilized to retire
commercial paper borrowings.
As of March 27, 2004, SYSCO had uncommitted bank lines of credit which
provided for unsecured borrowings for working capital of up to $95,000,000,
of which $31,000,000 was outstanding.
As of March 27, 2004, SYSCO's outstanding borrowings under its commercial
paper programs were $104,921,000. During the thirty-nine week period ended
March 27, 2004, commercial paper and short-term bank borrowings ranged from
approximately $73,102,000 to $478,114,000.
5. ACQUISITIONS
In September 2003, SYSCO acquired certain assets of the Stockton,
California foodservice operations of Smart & Final, Inc.
In September 2003, a subsidiary of SYSCO acquired certain assets of Luzo
Foodservice Corporation, located in New Bedford, Massachusetts.
In April 2004, a subsidiary of SYSCO acquired Overton Distributors, Inc., a
full-line fresh fruit and vegetable foodservice distributor headquartered
in Nashville, Tennessee with operations in Tennessee and North Carolina.
Acquisitions of businesses are accounted for using the purchase method of
accounting and the financial statements include the results of acquired
operations from the respective dates they joined SYSCO. The acquisitions
were immaterial, individually and in the aggregate, to the consolidated
financial statements.
The balances included in the Consolidated Balance Sheets related to
acquisitions made in the last twelve months are based upon preliminary
information and are subject to change when
6
final asset and liability valuations are obtained. Material changes to the
preliminary allocations are not anticipated by management.
Certain acquisitions involve contingent consideration payable in the event
that specified operating results are attained. Aggregate contingent
consideration amounts outstanding as of March 27, 2004 included
approximately 1,337,000 shares of common stock and $26,082,000 in cash,
which, if distributed, could result in the company recording up to
$54,493,000 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
In October 2003, SYSCO entered into $500 million aggregate notional amount
of interest rate swaps as a fair value hedge against the 7.00% Senior Notes
due May 2006, 7.25% Senior Notes due April 2007 and 6.10% Senior Notes due
June 2012. The swaps effectively converted the fixed interest rate on each
of the three series of notes into a floating rate of six-month LIBOR
averaged over a six month period plus 461, 430 and 171 basis points,
respectively, which were designated as the respective benchmark interest
rates on each of the interest payment dates until maturity of the
respective notes.
In March 2004, SYSCO terminated the $200 million aggregate notional amount
swap which was a fair value hedge against the 6.10% Senior Notes due June
2012 and received approximately $1,305,000 representing the fair value of
the swap agreement at the time of termination.
In April 2004, subsequent to the company's third quarter end, SYSCO entered
into an interest rate swap with $100 million aggregate notional amount as a
fair value hedge against $100 million of the 4.60% Senior Notes due March
2014. The swap effectively converts the fixed rate on these notes into a
floating rate of six-month LIBOR in arrears less 52 basis points, which was
designated as the respective benchmark interest rate on each of the
interest payment dates until maturity of the notes.
In May 2004, subsequent to the company's third quarter end, SYSCO entered
into an interest rate swap with $100 million aggregate notional amount as a
fair value hedge against the remaining $100 million of the 4.60% Senior
Notes due March 2014. The swap effectively converts the fixed rate on these
notes into a floating rate of six-month LIBOR in arrears less 72 basis
points, which was designated as the respective benchmark interest rate on
each of the interest payment dates until maturity of the notes.
The terms of the swap agreements and the hedged items are such that the
hedges are considered perfectly effective against changes in the fair value
of the debt due to changes in the benchmark interest rate over their term.
As a result, the shortcut method provided by Statement of Financial
Accounting Standards (SFAS) No. 133 is applied and there is no need to
periodically reassess the effectiveness of the hedges during the terms of
the swaps. Interest expense on the debt is adjusted to include payments
made or received under the hedge agreements. The market value of the swaps
is carried as an asset or a liability on the consolidated balance sheet and
the carrying value of the hedged debt is adjusted accordingly. As of March
27, 2004, the market value of the outstanding swaps was $1,292,000, which
is reflected in Other Assets on the Consolidated Balance Sheet, and the
carrying amount of the related debt has been increased by the same amount.
The amount received upon termination of a swap is reflected as an increase
in the carrying value of the related debt to reflect its fair value at
termination. This increase in the carrying
7
value of the debt is amortized as a reduction of interest expense over the
remaining term of the debt.
7. INCOME TAXES
The changes in the net deferred tax liability and accrued income tax
balances from June 28, 2003 to March 27, 2004 were primarily due to the
reclassification of certain deferred tax liabilities related to a portion
of previously deferred supply chain distributions to accrued income taxes
and to the payment of taxes during the fiscal year. The reclassification
reflects the inclusion in the company's taxable income for fiscal 2004 of
these previously deferred supply chain distributions. Fiscal year 2004 is
the first period that these supply chain distributions are recognized in
taxable income since the company began deferring these items for tax
purposes as a result of the reorganization of its supply chain in fiscal
year 2002. Taxes paid during the thirty-nine week period ended March 27,
2004 increased to $257,102,000 as compared to $36,734,000 during the
comparable period in the prior year, primarily as a result of the factors
described above.
The effective tax rate in fiscal 2004 is 38.50%, an increase of 0.25% from
the effective tax rate of 38.25% in fiscal 2003. The increase in the
effective tax rate is attributable to increased state income taxes.
8. STOCK BASED COMPENSATION
SYSCO accounts for its stock option plans and the employee stock purchase
plan using the intrinsic value method of accounting provided under APB
Opinion No. 25 and related interpretations under which no compensation cost
has been recognized.
The following table provides comparative pro forma net earnings and
earnings per share had compensation cost for these plans been determined
using the fair value method as set forth in SFAS No. 123 for all periods
presented:
39-Week Period Ended 13-Week Period Ended
------------------------------- ------------------------------
Mar. 27, 2004 Mar. 29, 2003 Mar. 27, 2004 Mar. 29, 2003
------------- ------------- ------------- -------------
Net earnings:
Reported net earnings $ 626,616,000 $ 535,552,000 $ 195,824,000 $ 168,411,000
Stock based compensation expense,
net of taxes (45,697,000) (38,393,000) (15,769,000) (13,402,000)
------------- ------------- ------------- -------------
Pro forma net earnings $ 580,919,000 $ 497,159,000 $ 180,055,000 $ 155,009,000
============= ============= ============= =============
Basic earnings per share:
Reported earnings per share $ 0.97 $ 0.82 $ 0.31 $ 0.26
Stock based compensation expense,
net of taxes (0.07) (0.06) (0.03) (0.02)
------------- ------------- ------------- -------------
Pro forma net earnings $ 0.90 $ 0.76 $ 0.28 $ 0.24
============= ============= ============= =============
Diluted earnings per share:
Reported earnings per share $ 0.95 $ 0.81 $ 0.30 $ 0.26
Stock based compensation expense,
net of taxes (0.07) (0.06) (0.03) (0.02)
------------- ------------- ------------- -------------
Pro forma net earnings $ 0.88 $ 0.75 $ 0.27 $ 0.24
============= ============= ============= =============
8
The weighted average fair value of options granted was $6.74 and $6.88
during the thirty-nine weeks ended March 27, 2004 and March 29, 2003,
respectively. The fair value was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in the thirty-nine weeks ended March 27, 2004
and March 29, 2003, respectively: dividend yield of 1.49% and 1.45%;
expected volatility of 22% and 25%; average risk-free interest rates of
3.2% and 2.7%; and expected lives of 5 years.
The weighted average fair value of employee stock purchase rights issued
was $4.96 and $4.27 during the thirty-nine weeks ended March 27, 2004 and
March 29, 2003, respectively. The fair value of the stock purchase rights
was calculated as the difference between the stock price at date of
issuance and the employee purchase price.
The pro forma presentation applies the fair value method to options and
stock purchase rights granted after 1995. The pro forma effects for the
periods presented are not necessarily indicative of the pro forma effects
in future years.
9. COMPREHENSIVE INCOME
Comprehensive income is net earnings plus certain other items that are
recorded directly to shareholders' equity. The amounts recorded as other
comprehensive income primarily related to foreign currency translation
adjustments of ($2,835,000) and $6,770,000 for the thirteen weeks and
thirty-nine weeks ended March 27, 2004, respectively. Comprehensive income
was $192,989,000 and $168,411,000 for the thirteen weeks ended March 27,
2004 and March 29, 2003, respectively, and $634,135,000 and $535,552,000
for the thirty-nine weeks ended March 27, 2004 and March 29, 2003,
respectively.
10. CONTINGENCIES
SYSCO is engaged in various legal proceedings which have arisen but have
not been fully adjudicated. These proceedings, in the opinion of
management, will not have a material adverse effect upon the consolidated
financial statements of the company when ultimately concluded.
11. NEW ACCOUNTING STANDARDS
SYSCO adopted the provisions of SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity,"
effective at the beginning of fiscal 2004. The adoption of SFAS No. 150 has
not had a material effect on the company's consolidated financial
statements.
The Financial Accounting Standards Board issued SFAS No. 132 (revised
2003), "Employers' Disclosures about Pensions and Other Postretirement
Benefits." The standard requires that companies provide additional
financial statement disclosures for defined benefit plans. These disclosure
requirements become effective for SYSCO's financial statements for the
third quarter of fiscal 2004.
12. SHAREHOLDERS' EQUITY
On November 7, 2003, SYSCO's shareholders approved the adoption of an
amendment to SYSCO's Restated Certificate of Incorporation to increase the
number of shares of common stock that SYSCO will have the authority to
issue to two billion shares, an increase from the previous authorization of
one billion shares.
9
13. 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
foodservice and hotel supply segments. The company's Canadian operations
are not significant for geographical disclosure purposes.
Intersegment sales represent specialty produce and meat company products
distributed by the Broadline and SYGMA operating companies. The segment
results include allocation of centrally incurred costs for shared services
that eliminate upon consolidation. Centrally incurred costs are allocated
based upon the relative level of service used by each operating company.
39-Weeks Ended 13-Weeks Ended
------------------------------- -------------------------------
Mar. 27, 2004 Mar. 29, 2003 Mar. 27, 2004 Mar. 29, 2003
------------- ------------- ------------- -------------
Sales (in thousands):
Broadline $ 17,156,599 $ 15,796,806 $ 5,648,123 $ 5,247,872
SYGMA 2,561,446 2,133,252 873,344 713,334
Other 1,707,734 1,429,382 574,401 502,378
Intersegment sales (229,393) (190,943) (70,283) (68,306)
------------- ------------- ------------- -------------
Total $ 21,196,386 $ 19,168,497 $ 7,025,585 $ 6,395,278
============= ============= ============= =============
39-Weeks Ended 13-Weeks Ended
------------------------------- -------------------------------
Mar. 27, 2004 Mar. 29, 2003 Mar. 27, 2004 Mar. 29, 2003
------------- ------------- ------------- -------------
Earnings before income taxes
(in thousands):
Broadline $ 1,016,475 $ 884,738 $ 316,016 $ 281,114
SYGMA 16,271 15,789 5,005 5,174
Other 55,605 34,200 20,076 9,914
------------- ------------- ------------- -------------
Total segments 1,088,351 934,727 341,097 296,202
Unallocated corporate expenses (69,464) (67,436) (22,684) (23,471)
------------- ------------- ------------- -------------
Total $ 1,018,887 $ 867,291 $ 318,413 $ 272,731
============= ============= ============= =============
Mar. 27, 2004 June 28, 2003 Mar. 29, 2003
------------- ------------- -------------
Assets (in thousands):
Broadline $ 4,715,149 $ 4,513,533 $ 4,376,676
SYGMA 220,768 190,406 193,914
Other 538,913 501,236 469,618
------------- ------------- -------------
Total segments 5,474,830 5,205,175 5,040,208
Corporate 1,852,002 1,731,346 1,615,677
------------- ------------- -------------
Total $ 7,326,832 $ 6,936,521 $ 6,655,885
============= ============= =============
10
14. 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. 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. The financial
information for SYSCO includes corporate activities as well as certain
operating companies which were operated as divisions of SYSCO prior to the
third quarter of fiscal 2003. Beginning with the third quarter of fiscal
2003, these divisions have been operated as subsidiaries and their results
from that point in time are included in the Other Non-Guarantor
Subsidiaries column.
CONDENSED CONSOLIDATING BALANCE SHEET -- MARCH 27, 2004
------------------------------------------------------------------------------------
OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
Current assets................. $ 98,216 $ 42 $ 3,592,292 $ -- $ 3,690,550
Investment in
subsidiaries................. 8,322,203 259,328 172,856 (8,754,387) --
Plant and equipment, net....... 144,879 -- 1,943,435 -- 2,088,314
Other assets................... 349,717 -- 1,198,251 -- 1,547,968
------------- ------------- ------------- ------------- -------------
Total assets................... $ 8,915,015 $ 259,370 $ 6,906,834 $ (8,754,387) $ 7,326,832
============= ============= ============= ============= =============
Current liabilities ........... $ 247,939 $ 102,213 $ 2,503,729 $ -- $ 2,853,881
Intercompany payables
(receivables)................ 5,061,704 (42,983) (5,018,721) -- --
Long-term debt................. 1,166,918 199,479 53,742 -- 1,420,139
Other liabilities.............. 208,913 -- 574,851 -- 783,764
Shareholders' equity........... 2,229,541 661 8,793,233 (8,754,387) 2,269,048
------------- ------------- ------------- ------------- -------------
Total liabilities and
shareholders' equity......... $ 8,915,015 $ 259,370 $ 6,906,834 $ (8,754,387) $ 7,326,832
============= ============= ============= ============= =============
CONDENSED CONSOLIDATING BALANCE SHEET -- JUNE 28, 2003
------------------------------------------------------------------------------------
OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
Current assets................. $ 203,219 $ 549 $ 3,425,766 $ -- $ 3,629,534
Investment in
subsidiaries................. 7,529,006 213,247 217,315 (7,959,568) --
Plant and equipment, net....... 84,023 -- 1,838,637 -- 1,922,660
Other assets................... 254,047 2,135 1,128,145 -- 1,384,327
------------- ------------- ------------- ------------- -------------
Total assets................... $ 8,070,295 $ 215,931 $ 6,609,863 $ (7,959,568) $ 6,936,521
============= ============= ============= ============= =============
Current liabilities ........... $ (15,010) $ 72,399 $ 2,643,740 $ -- $ 2,701,129
Intercompany payables
(receivables)................ 4,694,543 (57,185) (4,637,358) -- --
Long-term debt................. 989,899 199,431 60,137 -- 1,249,467
Other liabilities.............. 236,069 -- 552,325 -- 788,394
Shareholders' equity........... 2,164,794 1,286 7,991,019 (7,959,568) 2,197,531
------------- ------------- ------------- ------------- -------------
Total liabilities and
shareholders' equity......... $ 8,070,295 $ 215,931 $ 6,609,863 $ (7,959,568) $ 6,936,521
============= ============= ============= ============= =============
11
CONDENSED CONSOLIDATING BALANCE SHEET -- MARCH 29, 2003
------------------------------------------------------------------------------------
OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
Current assets.................. $ 215,110 $ 3 $ 3,235,834 $ -- $ 3,450,947
Investment in
subsidiaries.................. 7,192,974 221,311 198,586 (7,612,871) --
Plant and equipment, net........ 47,796 -- 1,781,225 -- 1,829,021
Other assets.................... 292,880 2,017 1,081,020 -- 1,375,917
------------- ------------- ------------- ------------- -------------
Total assets.................... $ 7,748,760 $ 223,331 $ 6,296,665 $ (7,612,871) $ 6,655,885
============= ============= ============= ============= =============
Current liabilities ............ $ 343,552 $ 103,325 $ 2,064,967 $ -- $ 2,511,844
Intercompany payables
(receivables)................. 3,874,701 (73,140) (3,801,561) -- --
Long-term debt.................. 1,039,400 199,415 40,842 -- 1,279,657
Other liabilities............... 294,073 -- 373,277 -- 667,350
Shareholders' equity............ 2,197,034 (6,269) 7,619,140 (7,612,871) 2,197,034
------------- ------------- ------------- ------------- -------------
Total liabilities and
shareholders' equity.......... $ 7,748,760 $ 223,331 $ 6,296,665 $ (7,612,871) $ 6,655,885
============= ============= ============= ============= =============
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE 39-WEEK PERIOD ENDED MARCH 27, 2004
-------------------------------------------------------------------------------------
OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
Sales............................ $ -- $ -- $ 21,196,386 $ -- $ 21,196,386
Cost of sales.................... -- -- 17,107,358 -- 17,107,358
Operating expenses............... 79,788 81 2,949,813 -- 3,029,682
Interest expense (income)........ 184,413 10,687 (144,356) -- 50,744
Other, net....................... (197) (935) (9,153) -- (10,285)
------------- ------------- ------------- ------------- -------------
Total costs and expenses......... 264,004 9,833 19,903,662 -- 20,177,499
------------- ------------- ------------- ------------- -------------
Earnings (losses) before
income taxes.................. (264,004) (9,833) 1,292,724 -- 1,018,887
Income tax (benefit) provision... (101,641) (3,786) 497,698 -- 392,271
Equity in earnings of
subsidiaries................... 788,979 5,267 -- (794,246) --
------------- ------------- ------------- ------------- -------------
Net earnings (loss).............. $ 626,616 $ (780) $ 795,026 $ (794,246) $ 626,616
============= ============= ============= ============= =============
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE 39-WEEK PERIOD ENDED MARCH 29, 2003
-------------------------------------------------------------------------------------
OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
Sales............................. $ 1,651,729 $ -- $ 17,516,768 $ -- $ 19,168,497
Cost of sales..................... 1,278,537 -- 14,118,356 -- 15,396,893
Operating expenses................ 348,012 865 2,511,508 -- 2,860,385
Interest expense (income)......... 250,693 7,798 (205,884) -- 52,607
Other, net........................ 161 -- (8,840) -- (8,679)
------------- ------------- ------------- ------------- -------------
Total costs and expenses.......... 1,877,403 8,663 16,415,140 -- 18,301,206
------------- ------------- ------------- ------------- -------------
Earnings (losses) before
income taxes.................... (225,674) (8,663) 1,101,628 -- 867,291
Income tax (benefit) provision... (86,320) (3,314) 421,373 -- 331,739
Equity in earnings of
subsidiaries.................... 674,906 -- -- (674,906) --
------------- ------------- ------------- ------------- -------------
Net earnings...................... $ 535,552 $ (5,349) $ 680,255 $ (674,906) $ 535,552
============= ============= ============= ============= =============
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE 13-WEEK PERIOD ENDED MARCH 27, 2004
-------------------------------------------------------------------------------------
OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
Sales............................ $ -- $ -- $ 7,025,585 $ -- $ 7,025,585
Cost of sales.................... -- -- 5,684,192 -- 5,684,192
Operating expenses............... 20,892 25 987,576 -- 1,008,493
Interest expense (income)........ 62,762 3,266 (50,291) -- 15,737
Other, net....................... (5) (7) (1,238) -- (1,250)
------------- ------------- ------------- ------------- -------------
Total costs and expenses......... 83,649 3,284 6,620,239 -- 6,707,172
------------- ------------- ------------- ------------- -------------
Earnings (losses) before
income taxes................... (83,649) (3,284) 405,346 -- 318,413
Income tax (benefit)
provision....................... (32,204) (1,265) 156,058 -- 122,589
Equity in earnings of
subsidiaries................... 247,269 (790) -- (246,479) --
------------- ------------- ------------- ------------- -------------
Net earnings (loss).............. $ 195,824 $ (2,809) $ 249,288 $ (246,479) $ 195,824
============= ============= ============= ============= =============
12
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE 13-WEEK PERIOD ENDED MARCH 29, 2003
-------------------------------------------------------------------------------------
OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
Sales....................... $ -- $ -- $ 6,395,278 $ -- $ 6,395,278
Cost of sales............... -- -- 5,144,473 -- 5,144,473
Operating expenses.......... 34,685 259 927,515 -- 962,459
Interest expense (income)... 98,929 2,697 (83,350) -- 18,276
Other, net.................. 34 -- (2,695) -- (2,661)
------------- ------------- ------------- ------------- -------------
Total costs and expenses.... 133,648 2,956 5,985,943 -- 6,122,547
------------- ------------- ------------- ------------- -------------
Earnings (losses) before
income taxes.............. (133,648) (2,956) 409,335 -- 272,731
Income tax (benefit)
provision................. (51,120) (1,131) 156,571 -- 104,320
Equity in earnings of
subsidiaries.............. 250,939 -- -- (250,939) --
------------- ------------- ------------- ------------- -------------
Net earnings................ $ 168,411 $ (1,825) $ 252,764 $ (250,939) $ 168,411
============= ============= ============= ============= =============
CONDENSED CONSOLIDATING CASH FLOWS
FOR THE 39-WEEK PERIOD ENDED MARCH 27, 2004
----------------------------------------------------------------
OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES TOTALS
------------- ------------- ------------- -------------
(IN THOUSANDS)
Net cash provided by (used for):
Operating activities................... $ (235,736) $ 3,866 $ 988,505 $ 756,635
Investing activities................... (162,254) -- (328,096) (490,350)
Financing activities................... (388,381) (26,852) (13,693) (428,926)
Effect of exchange rate on cash........ -- -- (2,111) (2,111)
Intercompany activity.................. 651,937 22,472 (674,409) --
------------- ------------- ------------- -------------
Net (decrease) in cash................. (134,434) (514) (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.......... $ 71,609 $ -- $ 101,086 $ 172,695
============= ============= ============= =============
CONDENSED CONSOLIDATING CASH FLOWS
FOR THE 39-WEEK PERIOD ENDED MARCH 29, 2003
----------------------------------------------------------------
OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES TOTALS
------------- ------------- ------------- -------------
(IN THOUSANDS)
Net cash provided by (used for):
Operating activities.............. $ (87,029) $ 14,625 $ 956,899 $ 884,495
Investing activities.............. (247,725) -- (274,687) (522,412)
Financing activities.............. (383,658) 18,232 (8,140) (373,566)
Intercompany activity............. 746,144 (42,863) (703,281) --
------------- ------------- ------------- -------------
Net increase (decrease) in cash... 27,732 (10,006) (29,209) (11,483)
Cash at the beginning of the
period.......................... 155,461 10,006 32,972 198,439
------------- ------------- ------------- -------------
Cash at the end of the
period.......................... $ 183,193 $ -- $ 3,763 $ 186,956
============= ============= ============= =============
13
15. EMPLOYEE BENEFIT PLANS
The components of net benefit cost for the thirty-nine week periods
presented are as follows:
Pension Benefits Other Postretirement Plans
------------------------------ ------------------------------
Mar. 27, 2004 Mar. 29, 2003 Mar. 27, 2004 Mar. 29, 2003
------------- ------------- ------------- -------------
Service cost $ 56,199,000 $ 38,854,000 $ 316,000 $ 238,000
Interest cost 45,873,000 38,106,000 302,000 279,000
Expected return on plan assets (45,861,000) (34,847,000) -- --
Amortization of prior service cost 981,000 3,110,000 151,000 152,000
Recognized net actuarial loss (gain) 28,274,000 11,507,000 (30,000) (92,000)
Amortization of net transition
obligation 209,000 (414,000) 115,000 114,000
------------- ------------- ------------- -------------
Net periodic benefit cost $ 85,675,000 $ 56,316,000 $ 854,000 $ 691,000
============= ============= ============= =============
The components of net benefit cost for the thirteen week periods presented
are as follows:
Pension Benefits Other Postretirement Plans
------------------------------ ------------------------------
Mar. 27, 2004 Mar. 29, 2003 Mar. 27, 2004 Mar. 29, 2003
------------- ------------- ------------- -------------
Service cost $ 18,733,000 $ 12,951,000 $ 105,000 $ 79,000
Interest cost 15,291,000 12,702,000 101,000 93,000
Expected return on plan assets (15,287,000) (11,616,000) -- --
Amortization of prior service cost 327,000 236,000 50,000 50,000
Recognized net actuarial loss (gain) 9,425,000 3,836,000 (10,000) (30,000)
Amortization of net transition
obligation 70,000 (138,000) 38,000 38,000
------------- ------------- ------------- -------------
Net periodic benefit cost $ 28,559,000 $ 17,971,000 $ 284,000 $ 230,000
============= ============= ============= =============
SYSCO's contributions to its defined benefit plans were $164,012,000
through the thirty-nine weeks ended March 27, 2004. The company does not
expect to make significant additional contributions this fiscal year.
Contributions in fiscal year 2003 were $164,565,000, of which approximately
$46,183,000 were made through the thirty-nine week period ended March 29,
2003.
14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
HIGHLIGHTS
Sales increased 10.6% for the first thirty-nine weeks and 9.9% for the
third quarter of fiscal 2004 over the comparable prior year periods. Gross
margins as a percent to sales for both the first thirty-nine weeks and
third quarter of fiscal 2004 decreased from the comparable prior year
periods due to changes in customer mix, segment mix, product mix and
inflation. Operating expenses as a percent to sales for both the first
thirty-nine weeks and third quarter of fiscal 2004 decreased from the
comparable prior year periods due to operating efficiencies and operating
costs increasing at lower rates than product cost inflation. Operating
expenses were negatively impacted by increased pension costs and expenses
incurred in connection with the national supply chain initiative. During
both the first thirty-nine weeks and the third quarter of fiscal 2004, the
company also recorded gains related to the cash surrender value of life
insurance assets. Primarily as a result of these factors, net earnings
increased 17.0% for the first thirty-nine weeks and 16.3% for the third
quarter of fiscal 2004 over the comparable prior year periods.
OVERVIEW
SYSCO distributes food and food related products to the foodservice
industry including restaurants, healthcare and educational facilities,
lodging establishments and other foodservice customers. SYSCO's operations
are located throughout the United States and Canada and include broadline
companies, specialty produce companies, custom-cut meat operations, Asian
foodservice, hotel supply operations and SYGMA, the company's chain
restaurant distribution subsidiary.
The company estimates that it serves about 13% of an approximately $200
billion annual foodservice market that includes the North American
foodservice, non-food and hotel amenity markets. The foodservice, or
food-prepared-away-from-home, market represents approximately one-half of
the total food purchases made at the consumer level This share has grown
from about 37% thirty years ago, since food purchases in the foodservice
industry have grown more rapidly than food purchases in the retail grocery
industry over most of that time period. Factors influencing this trend, and
therefore SYSCO's growth, include increases in dual-worker and
single-parent families; busier lifestyles; the general aging of the
population; growing affluence; and the increasing demand for the variety,
convenience and entertainment afforded by the proliferation of restaurants
and other foodservice operations. Industry statisticians and demographers
expect these general trends to continue, although they may not continue at
the same pace.
General economic conditions and consumer confidence can have an effect on
the frequency and amount spent by consumers for food prepared away from
home and therefore on SYSCO. However, we have consistently grown at a
faster rate than the overall industry and have grown our market share in
this fragmented industry.
The company intends to continue to expand its market share and grow
earnings through strategies which include:
- Profitable sales growth: In addition to expansion through
foldouts (new operating companies created in established markets
previously served by other SYSCO operating companies) and a
disciplined acquisition program, refining the use of customer
purchasing potential and profitability data in targeting new
customers, deepening relationships with existing customers,
tailoring products and services and
15
allocating associated resources by customer, and managing the
profitability of, or exiting, low profit or unprofitable
customers.
- Brand management: Leveraging brand strength to grow sales and
profitability while ensuring strict quality control processes and
providing greater value to customers.
- Productivity: Deploying the latest technology and leveraging best
business practices to improve operating efficiencies and leverage
expenses to sales growth.
- Sales force effectiveness: Targeted recruiting, training and
compensation of marketing associates. Expanding the business
development and business review functions to further strengthen
our marketing associate-customer relationships.
- Supply chain optimization: Creating a more efficient and
effective supply chain infrastructure through the national supply
chain initiative.
The company's national supply chain initiative is intended to optimize the
supply chain activities for certain products from SYSCO's operating
companies in each respective region and as a result, lower inventory and
operating costs, reduce working capital requirements and reduce future
facility expansion needs at SYSCO's operating companies while providing
greater value to our suppliers and customers. The company expects to build
from five to ten regional distribution centers over a period of ten years.
The first regional distribution center in the Northeast is expected to be
operational during fiscal 2005.
16
RESULTS OF OPERATIONS
The following table sets forth the components of the Results of Operations
expressed as a percentage of sales for the periods indicated:
39-Week Period Ended 13-Week Period Ended
------------------------------ ------------------------------
Mar. 27, 2004 Mar. 29, 2003 Mar. 27, 2004 Mar. 29, 2003
------------- ------------- ------------- -------------
Sales 100.0% 100.0% 100.0% 100.0%
Costs and Expenses
Cost of sales 80.7 80.3 80.9 80.4
Operating expenses 14.3 14.9 14.4 15.1
Interest expense 0.2 0.3 0.2 0.3
Other, net 0.0 0.0 0.0 (0.1)
----- ----- ----- -----
Total costs and expenses 95.2 95.5 95.5 95.7
----- ----- ----- -----
Earnings before income taxes 4.8 4.5 4.5 4.3
Income taxes 1.8 1.7 1.7 1.7
----- ----- ----- -----
Net earnings 3.0% 2.8% 2.8% 2.6%
===== ===== ===== =====
The following table sets forth the change in the components of the Results
of Operations expressed as a percentage increase or decrease over the
comparable period in the prior year:
% Increase (Decrease)
--------------------------------
39-Week Period 13-Week Period
-------------- --------------
Sales 10.6% 9.9%
Costs and Expenses
Cost of sales 11.1 10.5
Operating expenses 5.9 4.8
Interest expense (3.5) (13.9)
Other, net 18.5 (53.0)
---- ----
Total costs and expenses 10.3 9.5
---- ----
Earnings before income taxes 17.5 16.8
Income taxes 18.2 17.5
---- ----
Net earnings 17.0% 16.3%
==== ====
Basic earnings per share 18.3% 19.2%
Diluted earnings per share 17.3 15.4
Average shares outstanding (1.2) (1.1)
Diluted shares outstanding (0.1) 0.8
17
SALES Sales increased 10.6% during the first thirty-nine weeks and 9.9% in
the third quarter of fiscal 2004 over the comparable periods of the prior
year. This compares to sales increases of 12.5% during the first
thirty-nine weeks and 13.8% in the third quarter of fiscal 2003 over the
comparable prior year periods. Acquisitions contributed 1.0% to the overall
sales growth rate for the first thirty-nine weeks of fiscal 2004 and 0.4%
for the third quarter of fiscal 2004, as compared to 6.5% and 7.3%,
respectively, for the comparable periods in the prior year. Also
contributing to sales growth were estimated product cost increases, an
internal measure of inflation, of 5.5% during the first thirty-nine weeks
of fiscal 2004 and 5.2% during the third quarter of fiscal 2004 over the
comparable periods in the prior year. The company estimated its product
costs decreased by 0.8% during the first thirty-nine weeks of fiscal 2003
and increased by 0.8% during the third quarter of fiscal 2003 from the
comparable periods in the prior year. SYSCO generally expects to pass
product cost increases to its customers; however, the actual amount of
inflation reflected as sales price increases is difficult to quantify.
COST OF SALES Cost of sales increased 11.1% in the first thirty-nine weeks
and 10.5% in the third quarter of fiscal 2004 over the comparable periods
of the prior year. Management believes that cost of sales as a percentage
to sales was impacted by several factors including change in customer mix,
segment mix, product mix and inflation; however, the specific impact of
each factor is difficult to quantify. Multi-unit customer sales in the
Broadline segment, which traditionally yield lower gross margins and lower
expenses than marketing associate-served sales, grew faster than sales to
marketing associate-served sales over the comparable period in the prior
year. Sales at the SYGMA and the Other segments, which traditionally have
lower margins than the Broadline segment, grew faster than sales at the
Broadline segment. In the area of product mix, meat sales continued to grow
as a percentage of overall sales and also experienced a high rate of cost
increases. Meat products typically generate higher prices and higher gross
margin dollars per case. However, meat products result in lower gross
margins as a percentage of sales. Therefore, increased sales of these
products had the effect of decreasing overall gross margins as a percentage
of sales even as gross margin dollars were maintained or increased. Product
cost increases in substantially all product categories also had the impact
of reducing gross margins as a percentage of sales as gross profit dollars
are earned on a higher sales dollar base.
OPERATING EXPENSES Operating expenses increased 5.9% in the first
thirty-nine weeks and 4.8% in the third quarter of fiscal 2004 over the
comparable periods of the prior year. Improved operating efficiencies as
demonstrated by improving trends in key expense metrics tracked at the
broadline operating companies including pieces sold per delivery, product
line items sold per delivery, pieces per trip and pieces per error
contributed to the decreases in operating expenses as a percentage to
sales. Increases in product costs and the resulting increased average sales
price per item also impacted expenses as a percentage to sales favorably as
operating costs increased at a lower rate.
Operating expenses were also favorably impacted by the recognition in
income of $19,221,000 in the first thirty-nine weeks and $2,437,000 in the
third quarter of fiscal 2004 to adjust the carrying value of life insurance
assets to their cash surrender value as compared to the recognition of a
loss of $13,156,000 and $3,271,000 in the comparable periods of fiscal
2003, respectively. Operating expenses were negatively impacted by the
recognition of $85,675,000 in net pension cost in the first thirty-nine
weeks and $28,559,000 in the third quarter of fiscal 2004 as compared to
$56,316,000 and $17,971,000 in the comparable periods of fiscal 2003. In
addition, operating expenses related to the national supply chain
initiative were $20,684,000 in the first thirty-nine weeks and $3,392,000
in the third quarter of fiscal 2004 as compared to $14,252,000 and
$4,454,000 in the comparable periods of fiscal 2003.
18
OTHER, NET Other net income was $10,285,000 in the first thirty-nine weeks
of fiscal 2004 and $1,250,000 in the third quarter of fiscal 2004. The
company recognized a gain on the sale of a facility of approximately
$5,700,000 in the second quarter of fiscal 2004.
EARNINGS BEFORE INCOME TAXES AND NET EARNINGS Earnings before income taxes
increased 17.5% for the first thirty-nine weeks and 16.8% for the third
quarter of fiscal 2004 over the comparable periods of the prior year. Net
earnings increased 17.0% for the first thirty-nine weeks and 16.3% for the
third quarter of fiscal 2004 over the comparable periods of the prior year.
These increases were due to the factors discussed above.
EARNINGS PER SHARE Basic earnings per share increased 18.3% for the first
thirty-nine weeks and 19.2% for the third quarter of fiscal 2004 over the
comparable periods of the prior year. Diluted earnings per share increased
17.3% for the first thirty-nine weeks and 15.4% for the third quarter of
fiscal 2004 over the comparable periods of the prior year. These increases
were due to the factors discussed above.
SEGMENT RESULTS
The following table sets forth the change in the selected financial data of
each of the company's reportable segments expressed as a percentage
increase over the comparable period in the prior year and should be read in
conjunction with Business Segment Information (Footnote No. 13) in the
Notes to Consolidated Financial Statements:
% Increase (Decrease)
------------------------------------------
39-Week Period 13-Week Period
------------------ -------------------
Earnings Earnings
before before
Sales taxes Sales taxes
----- -------- ----- --------
Broadline 8.6% 14.9% 7.6% 12.4%
SYGMA 20.1 3.1 22.4 (3.3)
Other 19.5 62.6 14.3 102.5
The following table sets forth sales and earnings before income taxes of
each of the company's reportable segments expressed as a percentage of the
respective consolidated total and should be read in conjunction with
Business Segment Information (Footnote No. 13) in the Notes to Consolidated
Financial Statements:
% of Total
-------------------------------------------------
39-Week Period 13-Week Period
----------------------- ---------------------
Earnings Earnings
Sales before taxes Sales before taxes
-------- ------------ ----- ------------
Broadline 80.9% 99.8% 80.4% 99.2%
SYGMA 12.1 1.6 12.4 1.6
Other 8.1 5.4 8.2 6.3
Intersegment sales (1.1) -- (1.0) --
Unallocated corporate expenses -- (6.8) -- (7.1)
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
19
BROADLINE SEGMENT The Broadline segment sales increased 8.6% for the
thirty-nine weeks and 7.6% for the third quarter of fiscal 2004 over the
comparable periods of the prior year. Acquisitions contributed 0.3% to the
overall sales growth rate for the first thirty-nine weeks and 0.0% percent
for the third quarter of fiscal 2004. The sales increases were due to
increased sales to marketing associate-served customers and multi-unit
customers, including increased sales of SYSCO Brand products and price
increases resulting from higher product costs. These increases were
reflected in increased sales to the company's existing customer base and to
new customers. Marketing associate-served sales as a percentage of
broadline sales in the U.S. decreased to 54.1% and 52.8% for the
thirty-nine weeks and thirteen weeks ended March 27, 2004, respectively, as
compared to 54.5% and 53.3%, respectively for the comparable prior year
periods. This decrease was due to the increase in sales to multi-unit
customers exceeding the increase in sales to marketing associate-served
customers. The growth in sales to multi-unit customers is being fueled by
strong sales of those multi-unit customers resulting in increased sales to
existing locations and the addition of new locations. SYSCO Brand sales as
a percentage of broadline sales in the U.S. increased to 48.9% and 48.7%
for the thirty-nine weeks and thirteen weeks ended March 27, 2004,
respectively, as compared to 48.8% and 48.4%, respectively for the
comparable prior year periods.
Earnings before taxes for the Broadline segment increased 14.9% for the
thirty-nine weeks and 12.4% for third quarter of fiscal 2004 over the
comparable periods of the prior year. These increases were primarily due to
increases in sales and expense controls resulting in lower expenses as a
percentage to sales.
SYGMA SEGMENT SYGMA segment sales increased 20.1% for the thirty-nine weeks
and 22.4% for the third quarter of fiscal 2004 over the comparable periods
of the prior year. Acquisitions contributed 2.2% to the overall sales
growth rate for the first thirty-nine weeks and 0.0% for the third quarter
of fiscal 2004. The sales increases were primarily due to sales to new
customers, sales growth in SYGMA's existing customer base related to new
locations added by those customers as well as increases in sales to
existing locations, price increases resulting from higher product costs and
the acquisitions of Pronamic in October 2002 and the Denver operations of
Marriott Distribution Services, Inc. in December 2002.
Earnings before taxes for the SYGMA segment increased 3.1% for the
thirty-nine weeks and decreased 3.3% for the third quarter of fiscal 2004
over the comparable periods of the prior year. In the third quarter of
fiscal 2004, increased expenses were incurred related to implementation of
new systems, severance payments related to certain personnel changes, costs
related to worker's compensation insurance claims and pension costs.
Beginning in March 2004 and continuing in the fourth quarter of fiscal 2004
and the first quarter of fiscal 2005, SYGMA will discontinue servicing a
portion of its largest customer's locations due to that customer's
geographic supply chain realignment. SYGMA expects to offset these lost
sales by obtaining additional locations from this customer and obtaining
new business from other customers. In many cases, this new business will be
served out of different SYGMA locations than those that served the business
which was discontinued. As a result, in the third quarter of fiscal 2004,
SYGMA incurred additional expenses including severance payments and
equipment moving costs as it began to transition its operations to serve
these new customers. SYGMA expects to incur similar expenses in the fourth
quarter of fiscal 2004 and the first quarter of fiscal 2005 as it continues
to transition to serve these new customers. Any net lost sales and the
related additional expenses are not expected to be material to SYSCO
overall, and we expect SYGMA to continue to be a profitable segment.
20
OTHER SEGMENTS Sales for the Other segments, which include the company's
specialty businesses, increased 19.5% for the thirty-nine weeks and 14.3%
for the third quarter of fiscal 2004 over the comparable periods of the
prior year. Acquisitions contributed 7.3% to the overall sales growth rate
for the first thirty-nine weeks and 4.6% for the third quarter of fiscal
2004. The sales increases were due to increased sales to the existing
customer base, sales to new customers, price increases resulting from
higher product costs, the acquisitions of Asian Foods, Inc. in October 2002
and the specialty meat-cutting division of Colorado Boxed Beef Company in
April 2003 and increased intersegment sales to SYSCO Broadline companies.
Earnings before taxes for the Other segments increased 62.6% for the
thirty-nine weeks and 102.5% for the third quarter of fiscal 2004 over the
comparable periods of the prior year. These increases were primarily due to
increases in sales, margin enhancement and expense controls.
LIQUIDITY AND CAPITAL RESOURCES
The company generated $756,635,000 in net cash from operations for the
thirty-nine week period ended March 27, 2004, compared with $884,495,000
for the comparable period in fiscal 2003. Cash flow from operations for the
thirty-nine week period ended March 27, 2004 was negatively impacted by
increases in accounts receivable balances of $85,195,000 and inventory
balances of $134,750,000, offset by increases in accounts payable of
$77,154,000. A contributor to the increase in accounts receivable balances
was sales to multi-unit customers which represented a larger percentage of
total SYSCO sales for March 2004 as compared to June 2003. This is due to
normal sales patterns where sales to multi-unit customers as a group are
traditionally higher in March as compared to June due to many educational
facilities being closed in June. In addition, the growth in sales to
multi-unit customers outpaced the growth in SYSCO's overall sales.
Multi-unit customer payment terms are traditionally longer than the overall
SYSCO average; thus, the increased sales to this group of customers caused
the accounts receivable balances at March 27, 2004 to increase. The company
showed improvements in its working capital cycle for the fiscal quarter
ended March 27, 2004 as accounts receivable, inventory and accounts payable
days sales outstanding and accounts payable leverage ratios all showed
improvement as compared to the same period last year.
The decrease in accrued expenses and other long-term liabilities of
$60,333,000 for the thirty-nine weeks was primarily due to pension
contributions of $164,012,000 during the thirty-nine week period ended
March 27, 2004, as compared to $46,183,000 during the comparable prior year
period. Pension contributions for the third quarter of fiscal 2004 were
$81,374,000 as compared to $4,266,000 during the comparable prior year
period. SYSCO does not expect to make significant additional contributions
in fiscal 2004. Contributions in fiscal 2003 were $164,565,000.
Taxes paid during the thirty-nine week period ended March 27, 2004 were
$257,102,000 as compared to $36,734,000 during the comparable period in the
prior year. The increase in taxes paid was due to the company's inclusion
in taxable income for fiscal 2004 of supply chain distributions deferred in
prior years. Fiscal year 2004 is the first period that these supply chain
distributions are recognized in taxable income since the company began
deferring these items for tax purposes as a result of the reorganization of
its supply chain in fiscal year 2002.
The company expects the net cash flow impact of the deferral of supply
chain distributions in fiscal 2004 and beyond to be incrementally positive
when compared to what would have been
21
paid in taxes on an annual basis without the deferral. This is due to the
company's expectations that its volume of purchases through this structure
will continue to grow.
Total capital expenditures in fiscal 2004 are expected to be approximately
$500,000,000. Projected capital expenditures include the continuation of
the fold-out program; facility, fleet and other equipment replacements and
expansions; and the national supply chain project. Expenditures in the
thirty-nine week period ended March 27, 2004 related to the company's
national supply chain project totaled $101,419,000 of which $80,735,000 was
capitalized. Total expenditures on the project since inception are
$182,629,000 of which $125,167,000 has been capitalized. The Northeast
Redistribution Center is expected to be operational during fiscal 2005.
During the thirty-nine week period ended March 27, 2004 a total of
13,805,400 shares were purchased at a cost of $508,963,000 as compared to
12,963,700 shares at a cost of $372,808,000 for the comparable period in
fiscal 2003. An additional 242,300 shares at a cost of $9,394,000 have been
purchased through April 24, 2004 resulting in 15,015,000 shares remaining
available for repurchase as authorized by the Board as of that date.
Dividends paid in the thirty-nine week period ended March 27, 2004 were
$226,271,000, or $0.35 per share, as compared to $190,336,000, or $0.29 per
share, in the comparable period of fiscal 2003. In February 2004, SYSCO
declared its regular quarterly dividend for the fourth quarter of fiscal
2004, at $0.13 per share, which was paid in April 2004.
Long-term debt to capitalization ratio was 38.5% at March 27, 2004, within
the company's long-term 35% to 40% target range.
In March 2004, SYSCO issued 4.60% notes totaling $200,000,000 due March 15,
2014 in a private offering. These notes, which were priced at 99.943% of
par, are unsecured, are not subject to any sinking fund requirement and
include a redemption provision which allows SYSCO to retire the notes at
any time prior to maturity at the greater of par plus accrued interest or
an amount designed to ensure that the note holders are not penalized by the
early redemption. Proceeds from the notes were utilized to retire
commercial paper borrowings.
As of March 27, 2004, SYSCO's borrowings under its commercial paper
programs were $104,921,000. Such borrowings were $248,705,000 as of April
24, 2004. During the thirty-nine week period ended March 27, 2004,
commercial paper and short-term bank borrowings ranged from approximately
$73,102,000 to $478,114,000.
Cash provided by operating activities, as supplemented by commercial paper
and other bank borrowings, may, at the discretion of management, be applied
towards investments in facilities, fleet and other equipment; cash
dividends; acquisitions fitting within the company's overall growth
strategy; and the share repurchase program. Management believes that the
company's cash flows from operations, as well as the availability of
additional capital under its existing commercial paper programs, bank lines
of credit, debt shelf registration and its ability to access capital from
financial markets in the future, will be sufficient to meet its cash
requirements while maintaining proper liquidity for normal operating
purposes.
22
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 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; and SYSCO's ability to meet its cash requirements
while maintaining proper liquidity. These statements involve risks and
uncertainties and are based on management's current expectations and
estimates; actual results may differ materially. Those risks and
uncertainties that could impact these statements include the risks relating
to the foodservice distribution industry's relatively low profit margins
and sensitivity to general economic conditions, including the current
economic environment; changing customer needs; SYSCO's leverage and debt
risks; the successful completion of acquisitions and integration of
acquired companies; the effect of competition on SYSCO and its customers;
the ultimate outcome of litigation; potential impact of product liability
claims; the risk of interruption of supplies due to lack of long-term
contracts, severe weather, work stoppages or otherwise; labor issues;
construction schedules; management's allocation of capital and the timing
of capital purchases; risks relating to the successful completion and
operation of the national supply chain project including the Northeast
Redistribution Center; and internal factors such as the ability to increase
efficiencies, control expenses and successfully execute growth strategies.
In addition, share repurchases could be affected by market prices for the
company's securities as well as management's decision to utilize its
capital for other purposes. The effect of market risks could be impacted by
future borrowing levels and certain economic factors such as interest
rates. For a more detailed discussion of these and other factors that could
cause actual results to differ from those contained in the forward-looking
statements, see the company's Annual Report on Form 10-K for the fiscal
year ended June 28, 2003.
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. In October 2003, SYSCO entered into $500 million aggregate
notional amount of interest rate swaps as a fair value hedge against the
7.00% Senior Notes due May 2006, 7.25% Senior Notes due April 2007 and
6.10% Senior Notes due June 2012. The swaps effectively convert the fixed
interest rate on each of the three series of notes into a floating rate of
six-month LIBOR averaged over a six month period plus 461, 430 and 171
basis points, respectively. In March 2004, SYSCO terminated the $200
million aggregate notional amount swap which was a fair
23
value hedge against the 6.10% Senior Notes due June 2012, leaving $300
million aggregate notional amount of interest rate swaps outstanding at
March 27, 2004.
At March 27, 2004, the company had a total of $435,921,000 in debt at
variable rates of interest including commercial paper with maturities
through June 28, 2004 and $300,000,000 in fixed rate debt swapped to
floating rate as discussed above. The company's remaining debt obligations
of $1,100,436,000 were at fixed rates of interest.
In April 2004, subsequent to the company's third quarter end, SYSCO entered
into an interest rate swap with $100 million aggregate notional amount as a
fair value hedge against $100 million of the 4.60% Senior Notes due March
2014. The swap effectively converts the fixed rate on these notes into a
floating rate of six-month LIBOR in arrears less 52 basis points.
In May 2004, subsequent to the company's third quarter end, SYSCO entered
into an interest rate swap with $100 million aggregate notional amount as a
fair value hedge against the remaining $100 million of the 4.60% Senior
Notes due March 2014. The swap effectively converts the fixed rate on these
notes into a floating rate of six-month LIBOR in arrears less 72 basis
points.
Item 4. Controls and Procedures
As of March 27, 2004, an evaluation was performed under the supervision and
with the participation of the company's management, including the CEO and
CFO, of the effectiveness of the design and operation of the company's
disclosure controls and procedures. Based on that evaluation, the company's
management, including the CEO and CFO, concluded that the company's
disclosure controls and procedures were effective as of March 27, 2004 in
providing reasonable assurances that material information required to be
disclosed is included on a timely basis in the reports it files with the
Securities and Exchange Commission. Furthermore, the company's management
noted that no changes occurred during the third quarter of fiscal 2004 that
materially affected, or would be reasonably likely to materially affect,
the company's internal controls over financial reporting.
24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
SYSCO is engaged in various legal proceedings which have arisen but have
not been fully adjudicated. These proceedings, in the opinion of
management, will not have a material adverse effect upon the consolidated
financial statements of the company when ultimately concluded.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
ISSUER PURCHASES OF EQUITY SECURITIES
(c) TOTAL NUMBER
OF SHARES (d) MAXIMUM NUMBER
PURCHASED AS PART OF SHARES THAT MAY
(b) AVERAGE OF PUBLICLY YET BE PURCHASED
(a) TOTAL NUMBER PRICE PAID ANNOUNCED PLANS OR UNDER THE PLANS OR
PERIOD OF SHARES PURCHASED PER SHARE PROGRAMS PROGRAMS
- ------------------------ ------------------- ----------- ------------------ -------------------
Month #1
December 28 - January 24 529,900 $ 36.52 529,900 22,239,600
Month #2
January 25 - February 21 1,350,000 37.74 1,350,000 20,889,600
Month #3
February 22 - March 27 5,631,800 39.15 5,631,800 15,257,800
--------- ----------- --------- ----------
Total 7,511,700 38.71 7,511,700 15,257,800
--------- ----------- --------- ----------
The 2003 share repurchase program approved by the Board of Directors
covered 20,000,000 shares and was announced on July 31, 2002. This program
was completed during the third quarter of fiscal 2004.
The 2004 share repurchase program approved by the Board of Directors
covered 20,000,000 shares and was announced on September 12, 2003.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
3(a) Restated Certificate of Incorporation, incorporated by
reference to Exhibit 3(a) to Form 10-K for the year ended June
28, 1997 (File No. 1-6544).
3(b) Bylaws, as amended and restated February 8, 2002, incorporated
by reference
25
to Exhibit 3(b) to Form 10-Q for the quarter ended December
29, 2001 (File No. 1-6544).
3(c) Form of Amended Certificate of Designation, Preferences and
Rights of Series A Junior Participating Preferred Stock,
incorporated by reference to Exhibit 3(c) to Form 10-K for the
year ended June 29, 1996 (File No. 1-6544).
3(d) Certificate of Amendment of Certificate of Incorporation
increasing authorized shares, incorporated by reference to
Exhibit 3(d) to Form 10-Q for the quarter ended January 1,
2000 (File No. 1-6544).
3(e) Certificate of Amendment to Restated Certificate of
Incorporation increasing authorized shares, incorporated by
reference to Exhibit 3(e) to Form 10-Q for the quarter ended
December 27, 2003 (File No. 1-6544).
4(a) Senior Debt Indenture, dated as of June 15, 1995, between
Sysco Corporation and First Union National Bank of North
Carolina, Trustee, incorporated by reference to Exhibit 4(a)
to Registration Statement on Form S-3 filed June 6, 1995 (File
No. 33-60023).
4(b) First Supplemental Indenture, dated June 27, 1995, between
Sysco Corporation and First Union National Bank of North
Carolina, Trustee, as amended, incorporated by reference to
Exhibit 4(e) to Form 10-K for the year ended June 29, 1996
(File No. 1-6544).
4(c) Second Supplemental Indenture, dated as of May 1, 1996,
between Sysco Corporation and First Union National Bank of
North Carolina, Trustee, as amended, incorporated by reference
to Exhibit 4(f) to Form 10-K for the year ended June 29, 1996
(File No. 1-6544).
4(d) Third Supplemental Indenture, dated as of April 25, 1997,
between Sysco Corporation and First Union National Bank of
North Carolina, Trustee, incorporated by reference to Exhibit
4(g) to Form 10-K for the year ended June 28, 1997 (File No.
1-6544).
4(e) Fourth Supplemental Indenture, dated as of April 25, 1997,
between Sysco Corporation and First Union National Bank of
North Carolina, Trustee, incorporated by reference to Exhibit
4(h) to Form 10-K for the year ended June 28, 1997 (File No.
1-6544).
4(f) Fifth Supplemental Indenture, dated as of July 27, 1998,
between Sysco Corporation and First Union National Bank,
Trustee, incorporated by reference to Exhibit 4 (h) to Form
10-K for the year ended June 27, 1998 (File No. 1-6554).
4(g) Sixth Supplemental Indenture, including form of Note, dated
April 5, 2002 between SYSCO Corporation, as Issuer, and
Wachovia Bank, National Association (formerly First Union
National Bank of North Carolina), as Trustee, incorporated by
reference to Exhibit 4.1 to Form 8-K dated April 5, 2002 (File
No. 1-6544).
4(h) Indenture dated May 23, 2002 between SYSCO International, Co.,
SYSCO Corporation and Wachovia Bank, National Association,
incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-4 filed August
26
21, 2002 (File No. 333-98489).
4(i) Credit Agreement dated September 13, 2002 by and among SYSCO
Corporation, JPMorgan Chase Bank, individually and as
Administrative Agent, the Co-Syndication Agents named therein
and the other financial institutions party thereto,
incorporated by reference to Exhibit 4(i) to Form 10-Q for the
quarter ended September 28, 2002 (File No. 1-6544).
*4(j) Seventh Supplemental Indenture, including form of Note, dated
March 5, 2004 between SYSCO Corporation, as Issuer, and
Wachovia Bank, National Association (formerly First Union
National Bank of North Carolina), as Trustee.
*15(a) Report from Ernst & Young LLP dated May 11, 2004, re:
unaudited financial statements.
*15(b) Acknowledgment letter from Ernst & Young LLP.
*31(a) CEO Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
*31(b) CFO Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
*32(a) CEO Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*32(b) CFO Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- --------------------------------------
* Filed herewith.
(b) Reports on Form 8-K:
1. On January 26, 2004, the company filed a current report on Form 8-K
announcing under Items 7 and 12 thereof the results of its second
quarter ended December 27, 2003.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYSCO CORPORATION
(Registrant)
By /s/ RICHARD J. SCHNIEDERS
---------------------------------------
Richard J. Schnieders
Chairman and Chief Executive Officer
Date: May 11, 2004
By /s/ JOHN K. STUBBLEFIELD, JR.
-----------------------------------------
John K. Stubblefield, Jr.
Executive Vice President,
Finance & Administration
Date: May 11, 2004
28
EXHIBIT INDEX
NO. DESCRIPTION
- ---- --------------------------------------------------------
3(a) Restated Certificate of Incorporation, incorporated by
reference to Exhibit 3(a) to Form 10-K for the year
ended June 28, 1997 (File No. 1-6544).
3(b) Bylaws, as amended and restated February 8, 2002,
incorporated by reference to Exhibit 3(b) to Form 10-Q
for the quarter ended December 29, 2001 (File No.
1-6544).
3(c) Form of Amended Certificate of Designation, Preferences
and Rights of Series A Junior Participating Preferred
Stock, incorporated by reference to Exhibit 3(c) to Form
10-K for the year ended June 29, 1996 (File No. 1-6544).
3(d) Certificate of Amendment of Certificate of Incorporation
increasing authorized shares, incorporated by reference
to Exhibit 3(d) to Form 10-Q for the quarter ended
January 1, 2000 (File No. 1-6544).
3(e) Certificate of Amendment to Restated Certificate of
Incorporation increasing authorized shares, incorporated by
reference to Exhibit 3(e) to Form 10-Q for the quarter ended
December 27, 2003 (File No. 1-6544).
4(a) Senior Debt Indenture, dated as of June 15, 1995,
between Sysco Corporation and First Union National Bank
of North Carolina, Trustee, incorporated by reference to
Exhibit 4(a) to Registration Statement on Form S-3 filed
June 6, 1995 (File No. 33-60023).
4(b) First Supplemental Indenture, dated June 27, 1995,
between Sysco Corporation and First Union National Bank
of North Carolina, Trustee, as amended, incorporated by
reference to Exhibit 4(e) to Form 10-K for the year
ended June 29, 1996 (File No. 1-6544).
4(c) Second Supplemental Indenture, dated as of May 1, 1996,
between Sysco Corporation and First Union National Bank
of North Carolina, Trustee, as amended, incorporated by
reference to Exhibit 4(f) to Form 10-K for the year
ended June 29, 1996 (File No. 1-6544).
4(d) Third Supplemental Indenture, dated as of April 25,
1997, between Sysco Corporation and First Union National
Bank of North Carolina, Trustee, incorporated by
reference to Exhibit 4(g) to Form 10-K for the year
ended June 28, 1997 (File No. 1-6544).
4(e) Fourth Supplemental Indenture, dated as of April 25,
1997, between Sysco Corporation and First Union National
Bank of North Carolina, Trustee, incorporated by
reference to Exhibit 4(h) to Form 10-K for the year
ended June 28, 1997 (File No. 1-6544).
4(f) Fifth Supplemental Indenture, dated as of July 27, 1998, between
Sysco Corporation and First Union National Bank, Trustee,
incorporated by reference to Exhibit 4 (h) to Form 10-K for the year
ended June 27, 1998 (File No. 1-6554).
4(g) Sixth Supplemental Indenture, including form of Note, dated April 5,
2002 between SYSCO Corporation, as Issuer, and Wachovia Bank,
National Association (formerly First Union National Bank of North
Carolina), as Trustee, incorporated by reference to Exhibit 4.1 to
Form 8-K dated April 5, 2002 (File No. 1-6544).
4(h) Indenture dated May 23, 2002 between SYSCO International, Co., SYSCO
Corporation and Wachovia Bank, National Association, incorporated by
reference to Exhibit 4.1 to Registration Statement on Form S-4 filed
August 21, 2002 (File No. 333-98489).
4(i) Credit Agreement dated September 13, 2002 by and among SYSCO
Corporation, JPMorgan Chase Bank, individually and as Administrative
Agent, the Co-Syndication Agents named therein and the other
financial institutions party thereto, incorporated by reference to
Exhibit 4(i) to Form 10-Q for the quarter ended September 28, 2002
(File No. 1-6544).
*4(j) Seventh Supplemental Indenture, including form of Note, dated March
5, 2004 between SYSCO Corporation, as Issuer, and Wachovia Bank,
National Association (formerly First Union National Bank of North
Carolina), as Trustee.
*15(a) Report from Ernst & Young LLP dated May 11, 2004, re: unaudited
financial statements.
*15(b) Acknowledgment letter from Ernst & Young LLP.
*31(a) CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
*31(b) CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
*32(a) CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
*32(b) CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
- ------------------------------------
* Filed herewith.