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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 29, 2002JULY 3, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 77077-2099
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code: (281) 584-1390
Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
Common Stock, $1.00 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: NONE
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.) [X]
The aggregate market value of the voting stock of the registrant held by
stockholders who were not affiliates (as defined by regulations of the
Securities and Exchange Commission) of the registrant was approximately
$19,975,544,000$23,542,540,000 at September 10, 2002December 26, 2003 (based on the closing sales price on the
New York Stock Exchange Composite Tape on September 10, 2002,December 26, 2003, as reported by The
Wall Street Journal (Southwest Edition)). At September 10, 2002,August 28, 2004, the registrant had
issued and outstanding an aggregate of 657,722,693639,345,528 shares of its common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the proxy statementcompany's 2004 Proxy Statement to be filed with the
Securities and Exchange Commission on September 23, 2002no later than 120 days after the end of the
fiscal year covered by this Form 10-K are incorporated by reference into Part
III.
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TABLE OF CONTENTS
PAGE NO.
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PART I.I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 56
Item 3. Legal Proceedings........................................... 67
Item 4. Submission of Matters to a Vote of Security Holders......... 7
Item 4A. Executive Officers of the Registrant........................ 78
PART II.II
Item 5. Market for Registrant's Common Equity, and Related Stockholder
Matters.........................................Matters and Issuer Purchases of Equity Securities........... 8
Item 6. Selected Financial Data..................................... 810
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 911
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 1927
Item 8. Financial Statements and Supplementary Data................. 2030
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 4865
Item 9A. Controls and Procedures..................................... 65
Item 9B. Other Information........................................... 65
PART III.III
Item 10. Directors and Executive Officers of the Registrant.......... 4865
Item 11. Executive Compensation...................................... 4865
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 48Management and Related Stockholder Matters.................. 65
Item 13. Certain Relationships and Related Transactions.............. 4865
Item 14. ControlsPrincipal Accountant Fees and Procedures..................................... 48Services...................... 65
PART IV.IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 4866
Signatures............................................................ 52
Certifications........................................................ 5371
PART I
ITEM 1. BUSINESS
OVERVIEW
Sysco Corporation, acting through its subsidiaries and divisions
(collectively referred to as "SYSCO" or the "company"), is the largest North
American distributor of food and food related products primarily to the foodservice
or "food-prepared-away-from-home" industry. Founded in 1969, SYSCO provides its
products and services to approximately 415,000400,000 customers, including restaurants,
healthcare and educational facilities, lodging establishments and other
foodservice customers.
SYSCO, which was formed when the stockholders of nine companies exchanged
their stock for SYSCO common stock, commenced operations in March 1970. Since
its formation, the company has grown from $115 million to over $23$29 billion in
annual sales, both through internal expansion of existing operations and acquisitions of formerly independent companies.through
acquisitions. Through the end of fiscal 2002,2004, SYSCO had acquired sixty-seven121 companies
or divisions of companies.
In September 2001, Guest Supply,May 2004, SYSCO acquired International Food Group, Inc., a distributor
of foodservice products to quick-service restaurants in various international
markets. In April 2004, 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. In September 2003,
SYSCO acquired certain assets of Luzo Foodservice Corporation, located in
Bedford, Massachusetts. In September 2003, SYSCO acquired certain assets of the
Stockton, California foodservice operations from Smart & Final, Inc.
In May 2003, SYSCO acquired the paper and chemical products distributor
Reed Distributors, Inc. located in Lewiston, Maine. In April 2003, SYSCO
acquired the specialty meat-cutting division of the Colorado Boxed Beef Company
and its affiliated broadline foodservice operation, J&B Foodservice located in
Auburndale, Florida. In December 2002, SYSCO acquired certain assets of the
Denver operations of Marriott Distribution Services, Inc., a wholly owned
subsidiary of Marriott International, Inc. In November 2002, SYSCO acquired
Asian Foods, Inc., a specialty distributor of products and services to the Asian
cuisine foodservice market located in St. Paul, Minnesota and Kansas City,
Missouri. In October 2002, SYSCO acquired the net assets of Pronamic the
quick-service distribution division of priszm brandz. In October 2002, SYSCO
acquired Abbott Foods, Inc., an independently owned broadline foodservice
distributor located in Columbus, Ohio.
In March 2002, SYSCO acquired substantially all of the assets and certain
liabilities of the SERCA Foodservice operations of Sobeys, Inc. headquartered in
Toronto, Ontario with operations across Canada. In September 2001, SYSCO
acquired Franklin Supply Company, a supplier of housekeeping and other operating
supplies to the lodging industry headquartered in Louisburg, North Carolina. In
March
2002, SYSCO acquired substantially all of the assets and certain liabilities of
the SERCA Foodservice operations of Sobeys Inc. SERCA Foodservice Inc. is a
foodservice and equipment distributor headquartered in Toronto, Ontario.
In December 2000, SYSCO acquired North Douglas Distributors, Ltd., a
broadline foodservice distributor operating on Vancouver Island, British
Columbia and the Albert M. Briggs Company, a specialty meat distributor in
Washington, D.C. In January 2001, the company acquired certain operations of the
Freedman Companies, a specialty meat supplier based in Houston, Texas. In March
2001, SYSCO acquired Guest Supply, Inc. through an exchange offer followed by a
merger. Guest Supply is a specialty distributor to the lodging industry
headquartered in Monmouth Junction, New Jersey. In May 2001, the company
acquired HRI Supply, Inc. a broadline foodservice distributor located in
Kelowna, British Columbia. In July 2001, the company acquired Fulton Provision Co., a specialty meat company
based in Portland, Oregon.
In July 1999, SYSCO acquired Newport Meat Co. Inc., a southern California
based distributor of fresh aged beef and other meats, seafood and poultry
products. In August 1999, the company acquired Doughtie's Foods, Inc., a food
distributor located in Virginia. Also in August 1999, SYSCO bought substantially
all of the assets of Buckhead Beef Company, Inc., a Georgia based distributor of
custom-cut fresh steaks and other meats, seafood and poultry products. In
November 1999, SYSCO acquired Malcolm Meats, an Ohio based distributor of
custom-cut fresh steaks and other meat and poultry products. In January 2000,
SYSCO acquired Watson Foodservice, Inc., a broadline foodservice distributor
located in Lubbock, Texas. In March 2000, SYSCO acquired FreshPoint, Inc., a
distributor of produce with locations in the U.S. and Canada.
SYSCO is organized under the laws of Delaware. The address and telephone
number of the company's executive officeoffices are 1390 Enclave Parkway, Houston,
Texas 77077-2099, (281) 584-1390. This annual report on Form 10-K, as well as
all other reports filed or furnished by SYSCO pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, are available free of charge on SYSCO's
website at www.sysco.com as soon as reasonably practicable after they are
electronically filed with or furnished to the Securities and Exchange
Commission.
OPERATING SEGMENTS
SYSCO provides food and otherrelated products to the foodservice or
"food-prepared-away-from-home" industry. Each of SYSCO's operating companies
generally represents a separate operating segment. Under the provisions of SFASStatement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information"
(SFAS No. 131),Information," the company has aggregated its operating
companies into fivea 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
1
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 three other segments, including the company's
specialty produce, custom-cut meat, Asian cuisine foodservice and lodging
industry products segments. The company's specialty produce companies distribute
fresh produce and, on a limited 1
basis, other foodservice products. Specialty
meat companies distribute custom-cut fresh steaks, and other meat, seafood and
poultry products. Our specialty Asian cuisine foodservice companies distribute a
full line of food products and a wide variety of non-food products to
restaurants serving Asian cuisine. Our lodging industry products company
distributes personal care guest amenities, equipment, housekeeping supplies,
room accessories and textiles to the lodging industry. The company's Canadian
operations are not significant for geographical disclosure purposes.
CUSTOMERS AND PRODUCTS
The foodservice industry consists of two major customer
types -- "traditional" and "chain restaurant." Traditional foodservice customers
include restaurants, hospitals, schools, hotels and industrial caterers. SYSCO's
chain restaurant customers include regional pizza and national hamburger, sandwich,
pizza, chicken, steak and steakother chain operations.
Services to the company's traditional foodservice and chain restaurant
customers are supported by similar physical facilities, vehicles, materials
handling equipment and techniques, and administrative and operating staffs.
Products distributed by the company include a full line of frozen foods,
such as meats, fully prepared entrees, fruits, vegetables and desserts, and a
full line of canned and dry goods,foods, fresh meats, imported specialties and fresh
produce. The company also supplies a wide variety of nonfoodnon-food items, including
paper products such as disposable napkins, plates and cups; tableware such as
china and silverware; restaurant and kitchen equipment and supplies; medical and
surgical supplies; and
cleaning supplies. SYSCO's operating companies distribute both
nationally-branded merchandise and products packaged under SYSCO's private
brands.
The company believes that prompt and accurate delivery of orders, close
contact with customers and the ability to provide a full array of products and
services to assist customers in their foodservice operations are of primary
importance in the marketing and distribution of products to the traditional
customers. SYSCO's operating companies offer daily delivery to certain customer
locations and have the capability of delivering special orders on short notice.
Through the more than 13,15013,500 sales and marketing representatives and support
staff of SYSCO and its operating companies, SYSCO stays informed of the needs of
its customers and acquaints them with new products and services. SYSCO's
operating companies also provide ancillary services relating to foodservice
distribution such as providing customers with product usage reports and other
data, menu-planning advice, food safety training contract services for installing kitchen
equipment, installation and service of beverage dispensing machines and assistance in inventory
control, as well as access to various third party services designed to add value
to our customers' businesses.
No single foodservice customer accounted for as much as 10% of SYSCO's total sales for
its fiscal year ended June 29, 2002.July 3, 2004. Approximately 3.7%3% of traditional foodservice
sales during fiscal 20022004 resulted from a process of competitive bidding. There are no material long-term contracts with any traditional
foodservice customer that may not be cancelled by either party at its option.
SYSCO's sales to chain restaurant customers consist of a variety of food
products necessitated by the increasingly broad menus of chain restaurants. The
company believes that consistent product quality and timely and accurate service
are important factors in the selection of a chain restaurant supplier. One chain
restaurant customer (Wendy's International, Inc.) accounted for 5.2%5% of SYSCO's
sales for its fiscal year ended June 29, 2002.July 3, 2004. Although this customer represents
41%approximately 43% of the SYGMA segment sales, the company does not believe that
the loss of this customer would have a material adverse effect on SYSCO as a
whole.
There
are no material long-term contracts with any chain restaurant customer that may
not be cancelled by either party at its option.
2
Based upon available information, the company estimates that sales by type
of customer during the past three fiscal years were as follows:
FISCAL FISCAL FISCAL
TYPE OF CUSTOMER 2004 2003 2002 2001 2000
- ---------------- ------ ------ ------
Restaurants................................................. 64% 63% 64% 65%63%
Hospitals and nursing homes................................. 10 1110 10
Schools and colleges........................................ 65 6 6
Hotels and motels........................................... 6 5 56 6
Other....................................................... 15 14 1415 15
--- --- ---
Totals.................................................... 100% 100% 100%
=== === ===
SOURCES OF SUPPLY
SYSCO estimates that it purchases from thousands of independent sources,
none of which individually accountaccounts for more than 5%10% of the company's
purchases. These sources of supply consist generally of large corporations
selling brand name and private label merchandise and independent private label
processors and packers. Generally, purchasing is carried out through centrally
developed purchasing programs (see "Corporate Headquarters' Services" below) and direct purchasing programs established by the
company's various operating companies. The company continually develops
relationships with suppliers but has no material long-term purchase commitments
with any supplier.
In the second quarter of fiscal 2002, SYSCO began restructuring its supply
chain. This National Supply Chain initiative, which reorganizes SYSCO's supply
chain, involves the creation of the Baugh Supply Chain Cooperative that handles
product procurement and the construction of regional distribution centers which
will aggregate inventory demand to optimize the supply chain activities for
certain products from all SYSCO operating companies in the region. This National
Supply Chain initiative is expected to create a more efficient and effective
supply chain infrastructure for SYSCO, its suppliers and its customers.
The use of regional distribution centers is expected to result in lower
costs of inventory, transportation, product handling and transaction processing
in addition to lowering working capital and future facility expansion needs at
the operating companies. Construction is underway on the first regional
distribution center, the Northeast Redistribution Center located in Front Royal,
Virginia. Expected to be operational in the third quarter of fiscal 2005, the
center will receive and distribute food and related products to SYSCO's
operating companies in the Northeast.
The Baugh Supply Chain Cooperative, through its staff of 470 persons,
administers a consolidated product procurement program designed to develop,
obtain and ensure consistent quality food and non-food products. The program
covers the purchasing and marketing of SYSCO Brand merchandise, as well as
private label and national brand merchandise, encompassing substantially all
product lines. The operating companies are all members of the cooperative and
can choose to purchase product through the cooperative or directly from
suppliers.
CORPORATE HEADQUARTERS' SERVICES
SYSCO's corporate staff, consisting of approximately 940700 persons, makes
available a number of services to the company's operating companies. These
persons possess experience and expertise in, among other areas, accounting and
finance, cash management, information technology, employee benefits, engineering
and insurance. CorporateThe corporate office also makes available legal, marketing and
tax compliance services as well as warehousing and distribution services, which
provide assistance in space utilization, energy conservation, fleet management
and work flow.
The corporate staff also administers a consolidated product procurement
program designed to develop, obtain and assure consistent quality food and
nonfood products. The program covers the purchasing and marketing of SYSCO brand
merchandise, as well as private label and national brand merchandise,
encompassing substantially all product lines. The company's operating companies
may participate in the program at their option.
CAPITAL IMPROVEMENTS
To maximize productivity and customer service, the company continues to
construct and modernize its distribution facilities. During fiscal 2004, 2003
and 2002, 2001approximately $530,086,000, $435,637,000 and
2000, approximately $416,000,000, $341,000,000 and $266,000,000,3
$416,393,000, respectively, were invested in facility expansions, fleet
additions and other capital asset enhancements. The company estimates its
capital expenditures in fiscal 20032005 should be in the range of $450,000,000$475,000,000 to
$500,000,000. During the three years ended June 29, 2002,July 3, 2004, capital expenditures
were financed primarily by internally generated funds, the company's commercial
paper program and bank borrowings. The Companycompany expects to finance its fiscal
20032005 capital expenditures from the same sources.
EMPLOYEES
As of June 29, 2002,July 3, 2004, SYSCO and its operating companies had approximately
46,80047,800 full-time employees, approximately 21%19% of whom were represented by
unions, primarily the International Brotherhood of Teamsters. Contract
negotiations are handled locally. Collective bargaining agreements covering
approximately 22%21% of the company's union employees expire during fiscal 2003.2005.
SYSCO considers its labor relations to be satisfactory.
3
COMPETITION
The business of SYSCO is competitive with numerous companies engaged in
foodservice distribution. While competition is encountered primarily from local
and regional distributors, a few companies compete with SYSCO on a national
basis. The company believes that, although price and customer contact are
important considerations, the principal competitive factor in the foodservice
industry is the ability to deliver a wide range of quality products and related
services on a timely and dependable basis. Although SYSCO's share of the
foodservice industry market in the United States and Canada was approximately
11.7%an estimated 14%
as of June 29, 2002,July 3, 2004, SYSCO believes, based upon industry trade data, that its
sales to the U.S.North American "food-prepared-away-from-home" industry were the
largesthighest of any foodservice distributor during fiscal 2002.2004. While adequate
industry statistics are not available, the company believes that in most
instances its local operations are among the leading distributors of food and
related nonfoodnon-food products to foodservice customers in their respective trading
areas.
GOVERNMENT REGULATION
As a marketer and distributor of food products, SYSCO is subject to the
Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder by
the U.S. Food and Drug Administration ("FDA"). The FDA regulates manufacturing
and holding requirements for foods through its current good manufacturing
practice regulations, specifies the standards of identity for certain foods and
prescribes the format and content of certain information required to appear on
food product labels. For certain product lines, SYSCO is also subject to the
Federal Meat Inspection Act, the Poultry Products Inspection Act, the Perishable
Agricultural Commodities Act and regulations promulgated thereunder by the U.S.
Department of Agriculture ("USDA"). The USDA imposes standards for product
quality and sanitation including the inspection and labeling of meat and poultry
products and the grading and commercial acceptance of produce shipments from the
company's suppliers. The company and its products are also subject to state and
local regulation through such measures as the licensing of its facilities,
enforcement by state and local health agencies of state and local standards for
the company's products and regulation of the company's trade practices in
connection with the sale of its products. SYSCO's facilities are generally
inspected at least annually by state and/or federal authorities. These
facilities are also subject to inspections and regulations issued pursuant to
the Occupational Safety and Health Act by the U.S. Department of Labor, which
require the company to comply with certain manufacturing, health and safety
standards to protect its employees from accidents and to establish hazard
communication programs to transmit information on the hazards of certain
chemicals present in products distributed by the company.
The company is also subject to regulation by numerous federal, state and
local regulatory agencies, including but not limited to the U.S. Department of
Labor, which sets employment practice standards for workers, and the U.S.
Department of Transportation, which regulates transportation of perishable and
hazardous materials and waste, and similar state and local agencies.
4
The company's distribution facilities have tanks for the storage of diesel
fuel and other petroleum products which are subject to laws regulating such
storage tanks. Other federal, state and local provisions relating to the
protection of the environment or the discharge of materials do not materially
impact the company's use or operation of its facilities.
Compliance with these laws has not had and is not anticipated to have a
material effect on the capital expenditures, earnings or competitive position of
SYSCO.
GENERAL
SYSCO has numerous trademarks which are of significant importance to the
company. The loss of the SYSCO(R) trademark would have a material adverse effect
on SYSCO's results of operations.
SYSCO is not engaged in material research and development activities
relating to the development of new products or the improvement of existing
products.
4
Sales of the company do not generally fluctuate on a seasonal basis;
therefore, the business of the company is not deemed to be seasonal.
As of September 10, 2002,July 3, 2004, SYSCO and its operating companies operated 158166
facilities throughout the United States and Canada, of which 142150 were principal
distribution facilities.
5
ITEM 2. PROPERTIES
The table below shows the number of distribution facilities and self-serve
centers occupied by SYSCO in each state or province and the aggregate cubic
footage devoted to cold and dry storage as of September 10, 2002.July 3, 2004.
NUMBER OF COLD STORAGE DRY STORAGE
FACILITIES (THOUSANDS (THOUSANDS SEGMENTS
LOCATION AND CENTERS CUBIC FEET) CUBIC FEET) SERVED*
- -------- ----------- ------------ ----------- --------
Alabama...........................................
Alabama................................ 2 1,6832,886 2,393 Alaska............................................BL
Alaska................................. 1 236 475 Arizona...........................................BL
Arizona................................ 1 2,819 3,348
Arkansas..........................................2,901 3,190 BL
Arkansas............................... 1 1,607 2,802
California........................................ 17 20,168 27,308
Colorado.......................................... 2 3,729 4,260
Connecticut.......................................2,477 2,809 BL
California............................. 16 23,880 30,927 BL, S, O
Colorado............................... 4 5,106 5,434 BL, S, O
Connecticut............................ 1 2,489 2,7374,244 3,990 BL
District of Columbia.............................. 2 670 158
Florida........................................... 11 16,385 20,746
Hawaii............................................Columbia................... 1 335 30 O
Florida................................ 13 21,037 24,088 BL, S, O
Georgia................................ 5 5,265 8,680 BL, S, O
Hawaii................................. 1 -- 258 Georgia........................................... 5 5,265 8,680
Idaho.............................................O
Idaho.................................. 1 1,004 1,171
Illinois.......................................... 3 3,926 7,419
Indiana...........................................998 1,154 BL
Illinois............................... 4 3,838 9,639 BL, S, O
Indiana................................ 2 2,909 2,250
Iowa..............................................2,995 1,822 BL, O
Iowa................................... 1 1,314 4,148
Kansas............................................1,273 2,082 BL
Kansas................................. 1 2,735 3,793
Kentucky..........................................4,003 3,894 BL
Kentucky............................... 1 2,330 2,648 Louisiana.........................................BL
Louisiana.............................. 1 2,577 3,254 Maine.............................................BL
Maine.................................. 1 1,508 1,916
Maryland..........................................1,507 2,121 BL
Maryland............................... 5 7,078 7,147
Massachusetts.....................................7,031 8,521 BL, O
Massachusetts.......................... 2 6,756 6,927
Michigan..........................................5,762 7,481 BL, S
Michigan............................... 4 5,565 8,482
Minnesota......................................... 1 3,636 3,063
Mississippi.......................................5,651 9,569 BL, S, O
Minnesota.............................. 2 4,676 4,308 BL, O
Mississippi............................ 1 2,125 2,690 Missouri..........................................BL
Missouri............................... 2 1,368 2,173 BL, O
Montana................................ 1 1,128 1,348
Montana...........................................3,288 2,538 BL
Nebraska............................... 1 2,043 1,830
Nebraska.......................................... 1 1,844 2,206
Nevada............................................1,712 2,108 BL
Nevada................................. 2 2,749 3,092 BL, O
New Jersey........................................Jersey............................. 4 3,085 10,753 BL, O
New Mexico............................. 1 2,256 2,278 BL
New York............................... 5 7,433 10,436 BL
North Carolina......................... 6 4,782 10,179 BL, S, O
North Dakota........................... 1 525 584 BL
Ohio................................... 9 9,387 14,049 BL, S, O
Oklahoma............................... 2 3,235 4,315 BL, S
Oregon................................. 3 3,082 10,715
New Mexico........................................3,871 3,653 BL, S, O
Pennsylvania........................... 4 6,696 8,503 BL, S
South Carolina......................... 1 2,182 1,855
New York..........................................2,271 2,362 BL
South Dakota........................... 1 2 123 BL
Tennessee.............................. 5 6,220 9,104
North Carolina.................................... 4 3,976 9,107
Ohio.............................................. 8 7,185 13,497
Oklahoma.......................................... 2 2,834 3,3846,482 9,526 BL, O
56
NUMBER OF COLD STORAGE DRY STORAGE
FACILITIES (THOUSANDS (THOUSANDS SEGMENTS
LOCATION AND CENTERS CUBIC FEET) CUBIC FEET) SERVED*
- -------- ----------- ------------ ----------- --------
Oregon............................................
Texas.................................. 13 19,702 22,352 BL, S, O
Utah................................... 1 3,600 3,690 BL
Virginia............................... 2 4,772 4,308 BL
Washington............................. 1 4,647 3,044 BL
Wisconsin.............................. 3 4,085 3,866
Pennsylvania...................................... 4 7,211 7,767
South Carolina.................................... 1 2,271 2,362
South Dakota...................................... 1 2 123
Tennessee......................................... 4 7,178 9,766
Texas............................................. 14 14,048 19,204
Utah.............................................. 1 3,840 3,936
Virginia.......................................... 2 4,820 4,342
Washington........................................ 1 3,526 3,008
Wisconsin......................................... 3 6,091 6,5557,128 5,902 BL
Alberta, Canada...................................Canada........................ 3 4,380 4,375 BL
British Columbia, Canada..........................Canada............... 8 3,866 4,5683,896 4,649 BL, O
Manitoba, Canada..................................Canada....................... 1 1,135 860 BL
New Brunswick, Canada.............................Canada.................. 2 1,172 1,031 BL
Newfoundland, Canada..............................Canada................... 2 744 669 BL
Nova Scotia, Canada............................... 2 744 710Canada.................... 1 735 704 BL
Ontario, Canada................................... 8 8,289 9,572Canada........................ 7 8,014 8,989 BL, S, O
Quebec, Canada....................................Canada......................... 1 716 1,2181,209 BL
Saskatchewan, Canada..............................Canada................... 1 1,271 750 BL
--- ------- -------
Total........................................ 158 207,144 268,890Total........................... 166 234,187 290,661
=== ======= =======
- ---------------
* Segments served include Broadline (BL), SYGMA (S) and Other (O).
SYSCO owns approximately 369,000,000415,513,000 cubic feet of its distribution
facilities and self-serve centers (or 77.5%79.2% of the total cubic feet), and the
remainder is occupied under leases expiring at various dates from fiscal 20032005 to
fiscal 2020,2023, exclusive of renewal options. Certain of the facilities owned by
the company are either subject to mortgage indebtedness or industrial revenue
bond financing arrangements totaling $26,030,000$18,676,000 at June 29, 2002.July 3, 2004. Such mortgage
indebtedness and industrial revenue bond financing arrangements mature at
various dates to fiscal 2026.
The company owns its approximately 188,000 square foot headquarters office
complex in Houston, Texas and leases approximately 150,600208,000 square feet of
additional office space in Houston, Texas.
Facilities in Harrisburg, Pennsylvania; Cleveland, Ohio; Lewisville, Texas;
Houston, Texas; Olathe, Kansas; Pocomoke,Rocky Hills, Connecticut; Halfmoon, New York; Jessup,
Maryland; Moundsview, Minnesota;
Peterborough, Ontario; Miami, FloridaHarahan, Louisiana; Poway, California; and Lubbock, TexasKansas City, Missouri
(which in the aggregate accounted for approximately 14.4%6.7% of fiscal 20022004 sales)
are operating near capacity and the company is currently constructing expansions
or replacements for these distribution facilities. New distribution facilities
are also under construction in Post Falls, Idaho and Chicago, Illinois. In
addition, the company's first regional distribution center is under construction
in Front Royal, Virginia.
As of September 10, 2002,July 3, 2004, SYSCO's fleet of approximately 8,3808,560 delivery vehicles
consisted of tractor and trailer combinations, vans and panel trucks, most of
which are either wholly or partially refrigerated for the transportation of
frozen or perishable foods. The company owns approximately 85%86% of these vehicles
and leases the remainder.
ITEM 3. 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 position
or results of operations of the company when ultimately concluded.
67
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the executive officers of SYSCO, each of whom serves at
the discretion of the Board and holds the office opposite his or her name below
until the meeting of the Board of Directors immediately preceding the next
Annual Meeting of Stockholders or until his or her successor has been elected or
qualified. Executive officers who also serve as directors, serve as directors
until expiration of their terms or until their successors have been elected and
qualified.
SERVED IN THIS
NAME OF OFFICER CAPACITY POSITION SINCE AGE
- --------------- ------------------------------- -------------- ---
Charles H. Cotros.............. Chairman and Chief Executive 2000 & 1985 65
Officer; Director
Larry J. Accardi............... Executive Vice President, 2000 & 2002 53
Merchandising Services and
Multi-Unit Sales; President,
Specialty Distribution
Kenneth J. Carrig.............. Senior Vice President, 1999 45
Administration
James C. Graham................ Senior Vice President, 2000 52
Foodservice Operations
James E. Lankford.............. Senior Vice President, 2000 49
Foodservice Operations
Thomas E. Lankford............. Executive Vice President; 2000, 2002 & 55
President of Foodservice 2000
Operations, North America;
Director
Gregory K. Marshall............ Senior Vice President; CEO, The 1993 55
SYGMA Network
Michael C. Nichols............. Vice President, General Counsel 1999 & 2002 50
and Secretary
Larry G. Pulliam............... Senior Vice President, 2002 46
Merchandising Services
Diane Day Sanders.............. Vice President and Treasurer 1994 53
Richard J. Schnieders.......... President and Chief Operating 2000 & 1999 54
Officer; Director
Stephen F. Smith............... Senior Vice President, 2002 52
Foodservice Operations
Bruce L. Soltis................ Senior Vice President, Canadian 2002 57
Foodservice Operations
Kenneth F. Spitler............. Executive Vice President, 2002 53
Redistribution and Northeast
Region
John K. Stubblefield, Jr....... Executive Vice President, 2000 56
Finance and Administration
James D. Wickus................ Senior Vice President, 1995 60
Foodservice Operations
Each of the executive officers listed above has been employed by the
company throughout the past five years except Kenneth J. Carrig. Before joining
SYSCO, Mr. Carrig was Vice President of Human Resources for Continental
Airlines, Inc. from 1995 to 1997. Prior to that he was Senior Director of the
Southwest Region for PepsiCo, Inc. from 1987 to 1995.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, AND RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The principal market for SYSCO's Common Stock (SYY) is the New York Stock
Exchange. The table below sets forth the high and low sales prices per share for
SYSCO's Common Stock as reported on the New York Stock Exchange Composite Tape
and the cash dividends paiddeclared for the periods indicated, adjusted for the 2-for-1
stock split effected by a 100% stock dividend paid on December 15, 2000 to
stockholders of record on November 15, 2000.indicated.
COMMON STOCK
PRICES
--------------- DIVIDENDS PAIDDECLARED
HIGH LOW PER SHARE
------ ------ --------------------------------
Fiscal 2001:2003:
First Quarter....................................... $23.63 $19.38 $0.06Quarter.................................... $31.37 $21.25 $0.09
Second Quarter...................................... 30.44 21.75 0.06Quarter................................... 32.58 28.01 0.11
Third Quarter....................................... 30.00 23.50 0.07Quarter.................................... 30.89 22.90 0.11
Fourth Quarter...................................... 30.12 25.70 0.07Quarter................................... 31.50 24.83 0.11
Fiscal 2002:2004:
First Quarter....................................... $29.86 $21.75 $0.07Quarter.................................... $34.24 $28.54 $0.11
Second Quarter...................................... 27.22 23.85 0.07Quarter................................... 37.57 31.45 0.13
Third Quarter....................................... 30.35 25.28 0.09Quarter.................................... 41.27 35.33 0.13
Fourth Quarter...................................... 29.94 25.76 0.09Quarter................................... 39.73 34.75 0.13
The number of record owners of SYSCO's Common Stock as of August 28, 2004
was 15,293.
In March 2004, 35,520 Dividend Access Shares, convertible on a one-for-one
basis into SYSCO shares, were released to the former shareholders of North
Douglas Distributors ("North Douglas") pursuant to the terms of an escrow
agreement executed in connection with SYSCO's acquisition of North Douglas in
December 2000.
In June 2004, 28,401 Dividend Access Shares, convertible on a one-for-one
basis into SYSCO shares, were released to the former owners of HRI Supply, Ltd.
("HRI") pursuant to the terms of an escrow agreement executed in connection with
SYSCO's acquisition of HRI in May 2001.
All of the above issuances were made pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
In June 2004, 78,744 shares were issued to a former shareholder of Strano
Foodservice ("Strano") upon the conversion of Dividend Access Shares issued in
connection with SYSCO's acquisition of Strano in July 1996. The foregoing shares
were issued pursuant to the exemption from registration contained in Section
3(a)(9) of the Securities Act of 1933, as amended.
8
SYSCO made the following share repurchases during the fourth quarter of
fiscal 2004:
ISSUER PURCHASES OF EQUITY SECURITIES
(C) TOTAL NUMBER
OF SHARES PURCHASED (D) MAXIMUM NUMBER
AS PART OF OF SHARES THAT MAY YET
(A) TOTAL NUMBER (B) AVERAGE PRICE PUBLICLY ANNOUNCED BE PURCHASED UNDER
PERIOD OF SHARES PURCHASED PAID PER SHARE PLANS OR PROGRAMS THE PLANS OR PROGRAMS
- ------ ------------------- ----------------- ------------------- ----------------------
Month #1
March 28 - April 24.... 248,011 $38.78 242,300 15,015,500
Month #2
April 25 - May 22...... 1,047,868 38.24 1,020,700 13,994,800
Month #3
May 23 - July 3........ 1,462,234 36.89 1,385,900 12,608,900
--------- ------ --------- ----------
Total.................. 2,758,113 $37.57 2,648,900 12,608,900
========= ====== ========= ==========
In the above table, the total number of shares purchased includes shares
purchased as part of the publicly announced share repurchase program as well as
shares tendered by individuals in connection with stock option exercises.
On July 31, 2002, the company announced that the Board of Directors
approved the repurchase of 20,000,000 shares, which was completed during the
third quarter of fiscal 2004. On September 10,
2002 was 15,583.12, 2003, the company announced that
the Board of Directors approved the repurchase of an additional 20,000,000
shares.
In July 2004, the Board of Directors authorized the company to enter into
agreements from time to time for the repurchase during company announced
"blackout periods" of such securities in compliance with Rule 10b5-1 promulgated
under the Exchange Act. The company has not yet entered into such an agreement.
9
ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEAR
ENDED
-------------------------------------------------------------------
1999
2002 2001 20002004
(53 WEEKS) 19982003(1) 2002 2001(2) 2000(2),(3)
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS EXCEPT FOR SHARE DATA)
Sales...........................Sales......................... $29,335,403 $26,140,337 $23,350,504 $21,784,497 $19,303,268
$17,422,815 $15,327,536
Earnings before income
taxes....taxes....................... 1,475,144 1,260,387 1,100,870 966,655 737,608
593,887 532,493
Income taxes....................taxes.................. 567,930 482,099 421,083 369,746 283,979 231,616 207,672
----------- ----------- ----------- ----------- -----------
Earnings before cumulative
effect of accounting
change...change...................... 907,214 778,288 679,787 596,909 453,629 362,271 324,821
Cumulative effect of
accounting change........................change........... -- -- (8,041) -- (28,053)-- (8,041)
----------- ----------- ----------- ----------- -----------
Net earnings....................earnings.................. $ 907,214 $ 778,288 $ 679,787 $ 596,909 $ 445,588 $ 362,271 $ 296,768
=========== =========== =========== =========== ===========
Earnings before accounting
change:
Basic earnings per share......share.... $ 1.41 $ 1.20 $ 1.03 $ 0.90 $ 0.69
$ 0.54 $ 0.48
Diluted earnings per
share....share.................... 1.37 1.18 1.01 0.88 0.68 0.54 0.47
Cumulative effect of
accounting change:
Basic earnings per share......share.... -- -- -- -- (0.01)
-- (0.04)
Diluted earnings per
share....share.................... -- -- (0.01) -- (0.04)-- (0.01)
Net earnings:
Basic earnings per share......share.... 1.41 1.20 1.03 0.90 0.68
0.54 0.44
Diluted earnings per
share....share.................... 1.37 1.18 1.01 0.88 0.67
0.54 0.43
Cash dividendsDividends declared per
share........ 0.32 0.26 0.22 0.19 0.17share....................... 0.50 0.42 0.34 0.27 0.23
Total assets....................assets.................. 7,847,632 6,936,521 5,989,753 5,352,987 4,730,145
4,081,205 3,780,189
Capital expenditures............expenditures.......... 530,086 435,637 416,393 341,138 266,413
286,687 259,353
Long-term debt..................debt................ $ 1,231,493 $ 1,249,467 $ 1,176,307 $ 961,421 $ 1,023,642
997,717 867,017
Shareholders' equity............equity.......... 2,564,506 2,197,531 2,132,519 2,100,535 1,721,584 1,394,221 1,326,639
----------- ----------- ----------- ----------- -----------
Total capitalization............capitalization.......... $ 3,795,999 $ 3,446,998 $ 3,308,826 $ 3,061,956 $ 2,745,226 $ 2,391,938 $ 2,193,656
=========== =========== =========== =========== ===========
Ratio of long-term debt to
capitalization................capitalization.............. 32.4% 36.2% 35.6% 31.4% 37.3% 41.7% 39.5%
8- ---------------
(1) SYSCO adopted the provisions of SFAS No. 142, "Accounting for Goodwill and
Other Intangible Assets" effective at the beginning of fiscal 2003. As a
result, the amortization of goodwill and intangibles with indefinite lives
was discontinued.
(2) The per share data for fiscal 2001 and fiscal 2000 reflect the 2-for-1 stock
split of December 15, 2000.
(3) In fiscal 2000, SYSCO recorded a one-time, after-tax, non-cash charge of
$8,041 to comply with the required adoption of AICPA SOP 98-5, "Reporting on
the Costs of Start-up Activities."
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
HIGHLIGHTS
Sales increased 12.2% in fiscal 2004 over fiscal 2003. Fiscal 2004 included
53 weeks which represented an additional week over the 52 weeks in fiscal 2003.
This additional week represented an estimated 2.2% of the sales increase in
fiscal 2004. Gross margins as a percent of sales for fiscal 2004 decreased from
the prior year due to the impact of product cost increases and changes in
customer mix, segment mix and product mix. Operating expenses as a percent of
sales for fiscal 2004 decreased from the prior year due to operating
efficiencies and operating costs increasing at lower rates than the sales price
increases driven by product cost increases. Operating expenses were negatively
impacted by increased net pension costs and expenses incurred in connection with
the National Supply Chain project and were favorably impacted by gains recorded
related to the cash surrender value of life insurance assets. Primarily as a
result of these factors, net earnings increased 16.6% in fiscal 2004 over fiscal
2003. The earnings increases in fiscal 2004 over fiscal 2003 also include the
impact of the additional week in fiscal 2004.
The impact on our customers of a prolonged period of rising product costs,
internally estimated at 6.3% for the fiscal year and 8.0% for the fourth quarter
of fiscal 2004, has contributed to a softer foodservice market. Management
believes that the softness in the foodservice market together with general
economic conditions contributed to a slowing of sales growth for the company in
the latter half of the fourth quarter of fiscal 2004 which is continuing in the
first quarter of fiscal 2005. The company has renewed its focus on expense
controls in fiscal 2005, including managing labor costs and productivity and
ongoing benchmarking and sharing of best practices at the operating companies.
OVERVIEW
SYSCO distributes food and related products to the foodservice industry,
including restaurants, healthcare and educational facilities, lodging
establishments and other foodservice customers. SYSCO's operations are located
throughout the United States and Canada and include broadline companies,
specialty produce companies, custom-cut meat operations, Asian cuisine
foodservice, hotel supply operations, SYGMA, the company's chain restaurant
distribution subsidiary, and a company that distributes to internationally
located chain restaurants.
The company estimates that it serves more than 14% of an approximately $207
billion annual foodservice market that includes the North American foodservice,
non-food and hotel amenity, furniture and textile markets. The foodservice, or
food-prepared-away-from-home, market represents approximately one-half of the
total food purchases made at the consumer level. This share has grown from about
37% in 1972, since food purchases in the foodservice industry have grown more
rapidly than food purchases in the retail grocery industry over most of that
time period. Factors influencing this trend, and therefore SYSCO's growth,
include increases in dual-worker and single-parent families; busier lifestyles;
the general aging of the population; growing affluence; and the increasing
demand for the variety, convenience and entertainment afforded by the
proliferation of restaurants and other foodservice operations. Industry
statisticians and demographers expect most of these general trends to continue,
although they may not continue at the same pace.
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
11
services and allocating associated resources by customer, and managing
the profitability of, or exiting, low profit or unprofitable customers.
- Brand management: Leveraging brand strength to grow sales and
profitability while ensuring strict quality control processes and
providing greater value to customers.
- Productivity: Deploying the latest technology and 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 project.
The company's National Supply Chain project is intended to optimize the
supply chain activities for certain products from SYSCO's operating companies in
each respective region and as a result, reduce inventory and operating costs,
working capital requirements and future facility expansion needs at SYSCO's
operating companies while providing greater value to our suppliers and
customers. The company expects to build from 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 the third quarter of fiscal
2005.
12
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:
2004 2003 2002
----- ----- -----
Sales....................................................... 100.0% 100.0% 100.0%
Costs and Expenses
Cost of sales............................................. 80.7 80.3 80.2
Operating expenses........................................ 14.1 14.7 14.9
Interest expense.......................................... 0.2 0.2 0.2
Other, net................................................ 0.0 0.0 0.0
----- ----- -----
Total costs and expenses.................................... 95.0 95.2 95.3
----- ----- -----
Earnings before income taxes................................ 5.0 4.8 4.7
Income taxes................................................ 1.9 1.8 1.8
----- ----- -----
Net earnings................................................ 3.1% 3.0% 2.9%
===== ===== =====
The following table sets forth the change in the components of the Results
of Operations expressed as a percentage increase or decrease over the prior
year:
2004 2003
---- -----
Sales....................................................... 12.2% 11.9%
Costs and Expenses
Cost of sales............................................. 12.8 12.1
Operating expenses........................................ 7.9 10.6
Interest expense.......................................... (3.3) 14.8
Other, net................................................ 48.1 197.6
---- -----
Total costs and expenses.................................... 12.0 11.8
---- -----
Earnings before income taxes................................ 17.0 14.5
Income taxes................................................ 17.8 14.5
---- -----
Net earnings................................................ 16.6% 14.5%
==== =====
Basic earnings per share.................................... 17.5% 16.5%
Diluted earnings per share.................................. 16.1 16.8
Average shares outstanding.................................. (1.2) (1.7)
Diluted shares outstanding.................................. 0.1 (1.8)
Sales
Sales increased 12.2% in fiscal 2004 and 11.9% in fiscal 2003 over the
prior years. The additional week contributed approximately 2.2% to the overall
sales growth rate for fiscal 2004. Because the fourth quarter of fiscal 2004
contained an additional week as compared to fiscal 2003, sales growth for fiscal
2004 is not directly comparable to the prior year. In order to provide a more
comparable picture of sales growth during fiscal 2004, management believes that
it is appropriate to adjust the sales figures for fiscal 2004 by the estimated
impact of the additional week. As a result, sales for fiscal 2004 presented in
the table below are adjusted by one-fourteenth of total sales for the fourth
quarter. Failure to make these adjustments might cause investors to
13
overstate the amount of actual sales growth due to the additional week of sales
included in fiscal 2004. Set forth below is a reconciliation of actual sales
growth to adjusted sales growth for the periods presented:
2004 2003
--------------- ---------------
Sales for the 53/52 week periods............................ $29,335,403,000 $26,140,337,000
Estimated sales for the additional week..................... 581,358,000 --
--------------- ---------------
Adjusted Sales.............................................. $28,754,045,000 $26,140,337,000
=============== ===============
Actual percentage increase.................................. 12.2% 11.9%
Adjusted percentage increase................................ 10.0% 11.9%
Acquisitions contributed 0.9% to the overall sales growth rate for fiscal 2004
and 5.2% for fiscal 2003. Estimated product cost increases, an internal measure
of inflation, were 6.3% during fiscal 2004 as compared to a flat rate during
fiscal 2003. 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. Management believes that SYSCO's restaurant
operator customers have experienced softness in their rate of sales growth as
cost and price increases impact customer spending. Product cost increases in the
fourth quarter of fiscal 2004 reached 8.0%. Management believes that the
softness in the foodservice market together with general economic conditions
contributed to a slowing of SYSCO's sales growth in the latter half of the
fourth quarter of fiscal 2004 which is continuing in the first quarter of fiscal
2005.
Industry sources estimate the total foodservice market experienced a real
sales decline of approximately 0.7% in calendar year 2003 and real sales growth
of 0.5% in calendar year 2002.
A comparison of the sales mix in the principal product categories during
the last three years is presented below:
2004 2003 2002
---- ---- ----
Fresh and frozen meats...................................... 19% 18% 18%
Canned and dry products..................................... 18 19 19
Frozen fruits, vegetables, bakery and other................. 14 14 13
Poultry..................................................... 11 10 10
Dairy products.............................................. 9 9 9
Fresh produce............................................... 8 8 9
Paper and disposables....................................... 8 8 8
Seafood..................................................... 5 6 6
Beverage products........................................... 3 3 3
Equipment and smallwares.................................... 2 2 2
Janitorial products......................................... 2 2 2
Medical supplies............................................ 1 1 1
--- --- ---
100% 100% 100%
=== === ===
A comparison of sales by type of customer during the last three years is
presented below:
2004 2003 2002
---- ---- ----
Restaurants................................................. 64% 63% 63%
Hospitals and nursing homes................................. 10 10 10
Schools and colleges........................................ 5 6 6
Hotels and motels........................................... 6 6 6
All other................................................... 15 15 15
--- --- ---
100% 100% 100%
=== === ===
14
Cost of Sales
Cost of sales as a percentage of sales was 80.7% in fiscal 2004, 80.3% in
fiscal 2003 and 80.2% in fiscal 2002. Management believes that cost of sales as
a percentage of sales in fiscal 2004 was impacted by several factors, including
product cost increases and changes in customer mix, segment mix and product mix;
however, the specific impact of each factor is difficult to quantify. Product
cost increases in substantially all product categories also had the impact of
reducing gross margins as a percentage of sales, as gross profit dollars are
earned on a higher sales dollar base. Dairy and meat products, which are
especially affected by product cost increases since they are often sold on a
cost-per-pound plus a fee basis rather than a percentage markup, experienced the
highest rates of inflation. The result was a higher sales price but a lower
gross margin as a percentage of sales even as gross margin dollars were
maintained or even increased. Multi-unit customer sales in the Broadline
segment, which traditionally yield lower gross margins and lower expenses than
marketing associate-served customer sales, grew faster than sales to marketing
associate-served customer sales. Sales at the SYGMA 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 than the average of other products, but
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.
The increase in cost of sales as a percentage of sales in fiscal 2003 was
primarily a result of two factors. First, multi-unit sales growth was greater
than marketing associate-served sales growth. Second, fresh-cut meat sales grew
as a percentage of overall sales.
In fiscal 2002, cost of sales was influenced by SYSCO's overall customer
and product mix, economies realized in purchasing and increased sales of SYSCO
Brand products.
Operating Expenses
Operating expenses include the costs of warehousing and delivering products
as well as selling, administrative and occupancy expenses. These expenses as a
percent of sales were 14.1% for fiscal 2004, 14.7% for fiscal 2003 and 14.9% for
fiscal 2002. Changes in the percentage relationship of operating expenses to
sales result from an interplay of several factors, including improved
efficiencies, customer mix, and product cost increases.
The decrease in expenses as a percentage of sales in fiscal 2004 as
compared to fiscal 2003 was attributable to several factors including 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. Increases in product costs and the resulting increased average sales
price per item also favorably impacted expenses as a percentage of sales as
operating costs increased at a lower rate. Operating expenses were negatively
impacted by increases in net pension costs of $39,944,000 and by increases in
expenses related to the National Supply Chain project of $5,584,000 over fiscal
2003. Management estimates that the company will incur an additional $40,000,000
to $50,000,000 in expenses related to the National Supply Chain project in
fiscal 2005 over what was incurred in fiscal 2004, including depreciation of the
first redistribution center.
Operating expenses were also favorably impacted by the recognition of
income in fiscal 2004 of $19,124,000 to adjust the carrying value of life
insurance assets to their cash surrender value. The gains in fiscal 2004 were
recognized in the first 39 weeks with a modest loss of $97,000 in the fourth
quarter of fiscal 2004. This contrasted with fiscal 2003 where a gain of
$13,000,000 was recognized in the fourth quarter reversing the majority of prior
losses recognized in the first 39 weeks and resulting in a net loss of $156,000
for the fiscal year.
The company has renewed its focus on expense controls in fiscal 2005,
including managing labor costs and productivity and ongoing benchmarking and
sharing of best practices at the operating companies.
15
The decrease in expenses as a percentage of sales in fiscal 2003 as
compared to fiscal 2002 was primarily attributable to improved operating
efficiencies, as demonstrated by improving trends in key expense metrics,
including pieces sold per delivery and product line items sold per delivery.
These operating expense improvements were partially offset by increases in net
pension costs of $22,952,000 and by increases in expenses incurred in connection
with the National Supply Chain project of $5,996,000 over fiscal 2002.
Operating expenses in fiscal 2002 were negatively impacted by increases in
marketing associate-served sales, for which higher expenses are incurred to
serve these customers.
Interest Expense
Interest expense decreased 3.3% in fiscal 2004 and increased 14.8% in
fiscal 2003 over the prior years. The decrease in interest expense in fiscal
2004 was primarily due to lower borrowing rates offsetting moderately higher
borrowing levels. The lower average borrowing rates of the company in fiscal
2004 were due to lower short-term market interest rates and the use of interest
rate swaps which converted the fixed rates of interest on a portion of SYSCO's
long term debt to lower variable rates of interest. The increase in interest
expense in fiscal 2003 was primarily due to increased borrowings, partially
offset by decreases in interest rate levels.
Other, Net
Other, net was income of $12,365,000 in fiscal 2004, $8,347,000 in fiscal
2003 and $2,805,000 in fiscal 2002. Changes between the years result from
fluctuations in miscellaneous activities, primarily gains and losses on the sale
of surplus facilities.
Earnings Before Income Taxes
Earnings before income taxes increased 17.0% in fiscal 2004 and 14.5% in
fiscal 2003 over the prior years. The increases were due to the factors
discussed above. The additional week also contributed to the earnings growth in
fiscal 2004.
Provision for Income Taxes
The effective tax rate was 38.50% in fiscal 2004 and 38.25% in fiscal 2003
and 2002.
Net Earnings
Fiscal 2004 represents the twenty-eighth consecutive year of increased
earnings before the cumulative effect of accounting changes. Net earnings
increased 16.6% in fiscal 2004 and 14.5% in fiscal 2003 over the prior periods.
The increases were due to the factors discussed above.
Return on Average Shareholders' Equity
The return on average shareholders' equity was approximately 39% in fiscal
2004, 36% in fiscal 2003 and 31% in fiscal 2002. The increase in net earnings
and share repurchases in fiscal 2004, reduced by the reversal of a portion of
minimum pension liability, contributed to the increase in fiscal 2004. Since its
inception, SYSCO has averaged approximately 19% return on average shareholders'
equity.
16
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 prior year and should be read in conjunction with Business Segment
Information in the Notes to Consolidated Financial Statements:
2004 2003
-------------------- --------------------
EARNINGS EARNINGS
SALES BEFORE TAXES SALES BEFORE TAXES
----- ------------ ----- ------------
Broadline...................................... 10.4% 14.4% 12.1% 12.8%
SYGMA.......................................... 21.7 7.2 9.2 3.4
Other.......................................... 19.0 55.4 17.3 4.8
The following table sets forth sales and earnings before 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 in the Notes to Consolidated Financial Statements:
2004 2003 2002
-------------------- -------------------- --------------------
EARNINGS EARNINGS EARNINGS
SALES BEFORE TAXES SALES BEFORE TAXES SALES BEFORE TAXES
----- ------------ ----- ------------ ----- ------------
Broadline................. 80.9% 99.0% 82.2% 101.2% 82.1% 102.7%
SYGMA..................... 12.1 1.7 11.2 1.9 11.4 2.1
Other..................... 8.1 5.4 7.7 4.1 7.3 4.4
Intersegment sales........ (1.1) -- (1.1) -- (0.8) --
Unallocated corporate
expenses................ -- (6.1) -- (7.2) -- (9.2)
----- ----- ----- ----- ----- -----
Total..................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== =====
Broadline Segment
Broadline segment sales increased 10.4% in fiscal 2004 and 12.1% in fiscal
2003 over the prior years. Acquisitions contributed 0.2% to the overall sales
growth rate for fiscal 2004 and 5.6% in fiscal 2003. The fiscal 2004 sales
growth was 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. The additional week also
contributed to the sales growth in fiscal 2004. The fiscal 2003 sales growth was
due primarily to increased sales to marketing associate-served and multi-unit
customers, including increased sales of SYSCO Brand products, as well as the
acquisition of a Canadian broadline foodservice operation. The sales growth in
both years was obtained through increased sales to the existing customer base as
well as the acquisition of new customers. Broadline segment sales as a
percentage of total SYSCO sales were 80.9% in fiscal 2004, 82.2% in fiscal 2003
and 82.1% in fiscal 2002. The decrease in fiscal 2004 was due primarily to
strong sales growth in the custom-cut meat, SYGMA and lodging industry product
segments outpacing the broadline sales growth, as well as the acquisition of the
Asian cuisine foodservice operations during fiscal 2003. The increase in fiscal
2003 was due primarily to the acquisition of a Canadian broadline foodservice
operation.
Marketing associate-served sales as a percentage of broadline sales in the
U.S. decreased to 54.3% in fiscal 2004 as compared to 54.6% in fiscal 2003. The
decrease in fiscal 2004 was due to the rate of sales increase to multi-unit
customers exceeding the rate of sales increase to marketing associate-served
customers. The growth in sales to multi-unit customers was fueled by 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 49.1% for fiscal
2004 as compared to 48.7% in fiscal 2003.
Earnings before income taxes for the Broadline segment increased 14.4% in
fiscal 2004 and 12.8% in fiscal 2003 over the prior years. The increase in
earnings before income taxes for fiscal year 2004 was primarily due to increased
sales and reduced expenses as a percentage of sales, which more than offset
reduced margins as a
17
percentage of sales. Reduced expenses as a percentage of sales is attributable
to several factors including improved operating efficiencies. The decrease in
margins and expenses as a percentage of sales was also impacted by increases in
product costs and the resulting increase in the average sales price per item.
The additional week also contributed to the earnings growth in fiscal 2004. The
increases in earnings before income taxes for fiscal years 2003 and 2002 were
primarily due to increases in sales and lower expenses as a percentage of sales.
SYGMA Segment
SYGMA segment sales increased 21.7% in fiscal 2004 and 9.2% in fiscal 2003
over the prior years. Acquisitions contributed 1.9% to the overall sales growth
rate for fiscal 2004 and 2.8% in fiscal 2003. The fiscal 2004 sales growth was
due primarily to sales to new customers, sales growth in SYGMA's existing
customer base related to new locations added by those customers, as well as
increases in sales to existing locations, price increases resulting from higher
product costs and sales from acquisitions. The additional week also contributed
to the sales growth in fiscal 2004. The fiscal 2003 sales growth was primarily
due to sales growth in SYGMA's existing customer base as well as the acquisition
of two quickservice operations. SYGMA segment sales as a percentage of total
SYSCO sales were 12.1% in fiscal 2004, 11.2% in fiscal 2003 and 11.4% in fiscal
2002.
Earnings before income taxes for the SYGMA segment increased 7.2% in fiscal
2004 and 3.4% in fiscal 2003 over the prior years. The increase in fiscal 2004
was primarily due to the increased sales offset by increased expenses 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. The additional week also contributed to the earnings growth in
fiscal 2004. The increase in fiscal 2003 was primarily due to increased sales.
During fiscal 2004 and continuing in the first quarter of fiscal 2005,
SYGMA is discontinuing servicing a portion of its largest customer's locations
due to that customer's geographic supply chain realignment. SYGMA expects to
offset these lost sales by obtaining sales from additional locations from this
customer and obtaining new business from other customers. In many cases, this
new business will be served out of different SYGMA locations than those that
served the business that was discontinued. As a result, during fiscal 2004,
SYGMA incurred additional expenses including severance payments and equipment
moving costs as it transitioned its operations to serve these new customers.
SYGMA expects to incur similar expenses during the first and second 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.
Other Segments
Other segment sales increased 19.0% in fiscal 2004 and 17.3% in fiscal 2003
over the prior years. Acquisitions contributed 6.2% to the overall sales growth
rate for fiscal 2004 and 4.9% in fiscal 2003. The increase in fiscal 2004 was
primarily attributable to increased sales to the existing customer base, sales
to new customers, price increases resulting from higher product costs and sales
from acquisitions. The additional week also contributed to the sales growth in
fiscal 2004. The increase in fiscal 2003 was primarily attributable to sales
growth in our custom meat-cutting operations as well as the timing of
acquisitions made during the year. Other segment sales as a percentage of total
SYSCO sales were 8.1% in fiscal 2004, 7.7% in fiscal 2003 and 7.3% in fiscal
2002.
Earnings before income taxes for the Other segment increased 55.4% in
fiscal 2004 and 4.8% in fiscal 2003 over the prior years. The increase in fiscal
2004 was primarily due to increases in sales, acquisitions and reduced expenses
as a percentage of sales, which more than offset reduced gross margins as a
percentage of sales. The additional week also contributed to the earnings growth
in fiscal 2004. The increase in fiscal 2003 was due primarily to acquisitions,
increased earnings from increased gross margins and operating efficiencies at
our specialty produce operations, and increased earnings from increased sales
and gross margins at the company's specialty lodging industry products
operations. These were offset by expenses incurred on a start-up operation
supplying the health care industry and decreased earnings at the company's
specialty meat-cutting operations.
18
LIQUIDITY AND CAPITAL RESOURCES
SYSCO provides marketing and distribution services to foodservice customers
primarily throughout the United States and Canada. The company intends to
continue to expand its market share through profitable sales growth, foldouts
acquisitions,
and constant emphasis on the development of its consolidated buying programs.acquisitions. The company also strives to increase the effectiveness of its
marketing associates, its consolidated buying programs and the productivity of
its warehousing and distribution activities. These objectives require continuing
investment. SYSCO's resources include cash provided by operations and access to
capital from financial markets.
SYSCO's operations historically have produced significant cash flow. Cash
generated from operations is first allocated to working capital requirements;
investments in facilities, fleet and other equipment required to meet customers'
needs; cash dividends; and acquisitions fitting withincompatible with the company's overall
growth strategy. Any remaining cash generated from operations may, at the
discretion of management, be applied toward a portion of the cost of the share
repurchase program, while the remainder of the cost may be financed with
additional long-term debt. SYSCO's share repurchase program is used primarily to
offset shares issued under various employee benefit and compensation plans, for
acquisitions, and to reduce shares outstanding, all of which may have the net effect of
increasing earnings per share.share, and to aid in managing the ratio of long-term
debt to total capitalization. Management targets a long-term debt to total
capitalization ratio between 35% toand 40%. The ratio may exceed the target range
from time to time, due to borrowings incurred in order to fund acquisitions and
internal growth opportunities, and due to fluctuations in the timing and amount
of share repurchases. The ratio also may also fall below the target range due to
strong cash flow from operations and fluctuations in the timing and amount of
share repurchases. This ratio was 35.6%32.4% and 31.4%36.2% at June 29, 2002July 3, 2004 and June 30,
2001,28,
2003, respectively. The reversal of a portion of the minimum pension liability
adjustments in other comprehensive income contributed to the decrease in the
ratio at July 3, 2004.
The company generated net cash from operations of $1,189,522,000 in fiscal
2004, $1,372,840,000 in fiscal 2003, and $1,084,980,000 in fiscal 2002, $955,224,000 in fiscal 2001 and $708,726,000 in fiscal 2000. The overall
increases in operating results2002. Several
factors contributed to the annual increasesdecrease in cash flowsflow from operations. In addition, duringoperations in fiscal 2004.
During the second quarter of fiscal 2002, the company began reorganizing its
supply chain to maximize consolidated efficiencies and increase the
effectiveness of the merchandising and procurement functions performed for the
benefit of our customers. The new structure resultedresults in the deferral of certain federal
and state income tax payments, which amountedas supply chain distributions are not included in
taxable income until distributed in periods subsequent to $266,673,000when they are
recognized in book income. Fiscal 2004 is the first period that supply chain
distributions were included in taxable income since the company began deferring
these items for tax purposes in fiscal 20022002. As a result of the impact of these
items and was reflectedother temporary differences, including the utilization of U.S. federal
net operating loss carryforwards, excess tax depreciation and pension
contributions, taxes paid during fiscal 2004 increased to $344,414,000 as
compared to $28,747,000 in the increase in the
deferred tax provision.fiscal 2003. The company expects the positive cash flow effect of the
deferral in fiscal 2003 to increase from fiscal 2002 levels. The company expects
thenet cash flow
impact of deferrals in fiscal 2004 and beyond to be less than
fiscal 2003 levels, as it expects to begin making payments related to these
deferrals in fiscal 2004. The company expects the cash flow impact of deferrals
in fiscal 20042005 and beyond to be incrementally positive when
compared to what would have been paid on an annual basis without the deferral.
In addition, a federal tax payment of $75,000,000 normally due in the
fourth quarter of 2001 was deferred until the first quarter of 2002 as allowed
by the Internal Revenue Servicedeferral,
due to the Texas tropical storm Allison disastercompany's belief that its volume through the new structure will
continue to grow.
Cash flow from operations for fiscal 2004 was negatively impacted by
increases in accounts receivable and is reflectedinventory balances, partially offset by
increases in accounts payable balances and increases in accrued expenses and
other liabilities. Increased sales volumes over the prior periods partially
contributed to the increase in accounts receivable balances. SYSCO has also
experienced sales increases with multi-unit customers that have outpaced the
sales increases from marketing associate-served customers. Multi-unit customers'
payment terms are traditionally longer than the SYSCO average. Inventory levels
also increased over prior year levels, partially due to the increased sales
volumes. In addition, inventory levels at the end of fiscal 2004, measured as a
function of average days sales outstanding, exceeded the levels at the end of
fiscal 2003, which in turn were lower than those at the end of fiscal 2002. This
relative increase in inventory levels negatively impacted cash flow from
operations for fiscal 2004. The increase in accounts payable balances was
partially due to the increased inventory balances but was also negatively
impacted by decreases in accounts payable days outstanding over the prior
periods. A significant reason for the decrease ofin accrued income taxesexpenses and other
long-term liabilities in fiscal 2002.2003 was the increase in pension contributions
from $83,136,000 in fiscal 2002 to $164,565,000 in fiscal 2003. Pension
contributions in fiscal 2004 were $165,512,000. The company anticipates pension
contributions in fiscal 2005 will be approximately $86,294,000.
19
Cash used for investing activities was $630,300,000$683,811,000 in fiscal 2002,
$338,751,0002004,
$681,825,000 in fiscal 20012003, and $459,392,000$662,300,000 in fiscal 2000.2002. Expenditures for
facilities, fleet and other equipment were $530,086,000 in fiscal 2004,
$435,637,000 in fiscal 2003, and $416,393,000 in fiscal 2002,
$341,138,0002002. Fiscal 2004
capital expenditures included the construction of fold-out facilities in Oxnard,
California and Fargo, North Dakota, replacement or significant expansion of
facilities in Billings, Montana; Cleveland, Ohio; Jacksonville, Florida; Miami,
Florida; and San Antonio, Texas, and continued expenditures related to the
National Supply Chain project. The capital expenditures in fiscal 2001 and $266,413,000 in fiscal 2000. The increase in
fiscal 2002 over prior years is primarily due to2003 included
the construction of fold-out facilities in Las Vegas, Nevada and completionOxnard,
California, replacement facilities in Cleveland, Ohio; Dallas, Texas; and Miami,
Florida and the Northeast Redistribution Center in Front Royal, Virginia (first
phase of newthe National Supply Chain project). Fiscal 2002 expenditures included
construction of fold-out facilities located in Sacramento, California andCalifornia; Columbia,
South CarolinaCarolina; and the ongoing construction of the fold-out facility in Las Vegas, Nevada. Fiscal 2002 expenditures also includedNevada, as well as costs incurred on the
construction or expansion of facilities in Lewisville,Dallas, Texas; Norman, Oklahoma;
Baraboo, WisconsinWisconsin; and Jersey City, New Jersey. Total expenditures in fiscal
20032005 are expected to increasedecrease slightly to the range of $450,000,000$475,000,000 to
$500,000,000 due to completion of several major replacements and fold-outs in
fiscal 2004. Fiscal 2005 expenditures will include the continuation of the
fold-out program; facility, fleet and other equipment replacements and
expansions; and the company's supply chain initiatives.
ExpendituresNational Supply Chain project; and investments in
technology. Cash expenditures for acquisitions of businesses were $79,247,000 in
fiscal 2004, $209,010,000 in fiscal 2003 and $234,618,000 in fiscal 2002,
$10,363,0002002.
The National Supply Chain project is expected to create a more efficient
and effective supply chain infrastructure for SYSCO, its suppliers and its
customers. The project entails the implementation of regional distribution
centers, which will aggregate inventory demand to optimize the supply chain
activities for certain products from all SYSCO operating companies in the
region. The project is expected to achieve lower costs of inventory,
transportation, product handling and transaction processing in addition to
lowering working capital and future facility expansion needs at the operating
companies. The Northeast Redistribution Center is expected to be operational in
the third quarter of fiscal 2005. The center will receive and distribute food
and food-related products to SYSCO operating companies in the Northeast,
creating benefits for customers and suppliers, as well as for SYSCO. Fiscal 2004
capital expenditures related to the National Supply Chain project were
$107,822,000, bringing the total amount of capital expenditures on the project
since inception to $152,254,000.
Cash used for financing activities was $641,851,000 in fiscal 2001, and $211,901,0002004,
$550,528,000 in fiscal 2000.2003, and $359,984,000 in fiscal 2002. In February 2000,July 2002, the
company filed withBoard authorized the Securitiesrepurchase of an additional 20,000,000 shares, which was
completed during fiscal 2004. In September 2003, the Board authorized the
repurchase of an additional 20,000,000 shares. The number of shares acquired and
Exchange
Commissiontheir cost during the past three fiscal years was 16,454,300 shares for
$608,506,000 in fiscal 2004, 16,500,000 shares for $478,471,000 in fiscal 2003,
and 18,000,000 shares for $473,558,000 in fiscal 2002. An additional 670,000
shares have been purchased at a shelf registration statement covering 5,700,000cost of $22,770,000 through August 20, 2004,
resulting in 11,938,900 shares remaining available for repurchase as authorized
by the Board as of common
stock to be offered from time to timethat date.
Dividends paid were $309,540,000 in connection with
9
acquisitions. This registration statement was amendedfiscal 2004, $261,854,000 in fiscal
2003, and $213,275,000 in fiscal 2002. SYSCO began paying the current quarterly
dividend rate of $0.13 per share in January 2001 to include2004, an additional 1,100,000 shares. No additional shares may be issued under this
registration statement.increase from the $0.11 per
share that became effective in January 2003. In May 2004, SYSCO declared its
regular quarterly dividend for the first quarter of fiscal 2005 of $0.13 per
share, which was paid in July 2004. In September 2004, SYSCO also declared its
regular quarterly dividend for the second quarter of fiscal 2005 of $0.13 per
share, payable in October 2004.
In November 2000, the company filed with the Securities and Exchange
Commission a shelf registration statement covering 30,000,000 shares of common
stock to be offered from time to time in connection with acquisitions. As of
June 29, 2002, 29,477,835August 20, 2004, 29,447,835 shares remained available for issuance under this
registration statement.
Cash used for financing activities was $359,984,000 in fiscal 2002,
$639,858,000 in fiscal 2001In June 1998, the company filed with the Securities and $239,509,000 in fiscal 2000. In September 2001,
the Board authorized the repurchase of an additional 16,000,000 shares. Under
this authorization, 5,563,200 shares remained available for repurchase at June
29, 2002. In July 2002, the Board authorized the repurchase of an additional
20,000,000 shares. The number of shares acquired and their cost for the past
three years were 18,000,000 shares for $473,558,000 in fiscal 2002, 16,000,000
shares for $428,196,000 in fiscal 2001 and 11,320,800 shares for $186,296,000 in
fiscal 2000.
Dividends paid were $213,275,000 in fiscal 2002, $173,701,000 in fiscal
2001 and $145,418,000 in fiscal 2000. SYSCO began paying the current quarterly
dividend rate of $0.09 per share in January 2002, an increase from the $0.07 per
share that became effective in February 2001.
In April 2002, SYSCO issued $200,000,000 principal amount of 4.75% notes
due July 30, 2005 underExchange Commission
a shelf registration statement filedcovering $500,000,000 in June 1998. These
notes, which were priced at 99.8% of par, are unsecured and are not subject to
any sinking fund requirement. They 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 insure that the note holders are
not penalized by early redemption. Proceeds from the notes were used to pay down
borrowings under the company's commercial paper program.debt securities. As of
August 24, 2002,20, 2004, there was $425,000,000 in principal amount outstanding under
the previously
filed registration statement, leaving $75,000,000 available for issuance.
Concurrent with the issuance of these notes, SYSCO entered into an interest
rate swap agreement with a notional amount of $200,000,000 whereby SYSCO
receives a fixed rate equal to 4.75% per anum and pays a benchmark interest rate
of six-month LIBOR in arrears less 84.5 basis points.20
In May 2002, SYSCO International, Co., a wholly-owned subsidiary ofMarch 2004, SYSCO issued 4.60% notes totaling $200,000,000 principal amount of 6.10% notes due June 1, 2012March 15,
2014 in a private offering. These notes, which were priced at 99.7% of par, are fully and
unconditionally guaranteed by SYSCO Corporation and are not subject to any
sinking fund requirement. They include registration rights and a redemption
provision which allows SYSCO International, Co. to retire the notes at any time
prior to maturity at the greater of par plus accrued interest or an amount
designed to insure that the note holders are not penalized by the early
redemption. SYSCO International, Co. and SYSCO have filed a registration
statement with the Securities and Exchange Commission covering an identical
series of notes to be issued in exchange for the unregistered notes outstanding.
The proceedsProceeds from the 6.10% notes were utilized to repayretire
commercial paper borrowings issued by SYSCO International, Co.borrowings. The fixed rate of interest on these notes was
effectively converted to fundvariable rates of interest through the acquisitioninterest rate
swap agreements entered into in April and May of a
Canadian broadline foodservice business.2004.
SYSCO has uncommitted bank lines of credit, which provideprovided for unsecured
borrowings for working capital of up to $125,000,000,$95,000,000, of which none was
outstanding at June 29, 2002as of July 3, 2004 and $30,640,000$17,000,000 was outstanding at June 30, 2001.as of August 20,
2004.
SYSCO has a commercial paper program in the United States which wasis
supported by a bank credit facility in the amount of $300,000,000 as of June 29,
2002 maturing in fiscal 2004. In September, the company entered into a new
revolving loan agreement in the amount of $450,000,000, maturing in
fiscal 2008. SYSCO also has a commercial paper program in Canada which is
supported by a bank credit facility in the amount of CAD $100,000,000, in Canadian dollars maturing
in fiscal 2003.2005. During fiscal 2004, 2003 and 2002, 2001 and 2000,aggregate commercial paper
and short-term bank borrowings ranged from approximately $73,102,000 to
$478,114,000, $55,813,000 to $495,703,000, and $51,472,000 to $538,362,000,
$157,631,000 to $411,790,000, and $199,028,000 to $469,094,000,
respectively. Commercial paper borrowings were $63,293,000$73,834,000 as of June 29, 2002July 3, 2004
and $54,040,000$48,503,000 as of August 24, 2002.20, 2004. The company intends to settle outstanding
commercial paper borrowings when they come due by issuing additional commercial paperdebt or
retiring them utilizing cash generated from operations.
10
The net cash provided by operations less cash utilized for capital
expenditures, the stock repurchase program, cash dividends and other uses
resulted in net long-termTotal debt at July 3, 2004 was $1,468,160,000, of $1,176,307,000 at June 29, 2002. After
adjusting for the interest rate swap,which approximately 82% of the long-term debt is60%
was at fixed rates averaging 6.61%5.2% and the remainder iswas at floating rates
averaging 1.3%.4.0%, as adjusted for the effect of the interest rate swaps
outstanding as of July 3, 2004. SYSCO continues to have borrowing capacity
available and alternative financing arrangements are evaluated as appropriate.
As part of normal business activities, SYSCO issues letters of credit
through major banking institutions as required by certain vendor and insurance
agreements. As of July 3, 2004 and June 28, 2003, letters of credit outstanding
were $11,001,000 and $14,610,000, respectively.
In summary, SYSCO believes that through continual monitoring and management
of assets, together with the availability of additional capital in the financial
markets, it will meet its cash requirements while maintaining proper liquidity
for normal operating purposes.
CONTRACTUAL OBLIGATIONS
AND COMMERCIAL COMMITMENTS
The following table sets forth certain information concerning SYSCO's
obligations and commitments to make contractual future payments under contracts, such as
debt and lease agreements, and under contingent commitments.payments:
PAYMENTS DUE BY PERIOD
---------------------------------------------------------------------------------------------------------------------------------------------
TOTAL OVER
OBLIGATIONS 0-1 YEAR 1-21-3 YEARS 2-3 YEARS 3-4 YEARS 4-53-5 YEARS 5 YEARS
----------- -------- --------- -------------------- --------- --------- --------
(IN THOUSANDS)
Short-term debt and commercial paper...........paper.... $ 66,36073,834 $ 66,360 $ -- $ --73,834 $ -- $ -- $ --
Long-term debt............... 1,179,351 7,743 18,694 152,587 402,409 102,667 495,251debt.......................... 1,363,193 157,845 511,738 3,578 690,032
Capital lease obligations.... 10,710 6,011 3,146 419 96 102 936obligations............... 31,133 4,988 5,936 1,756 18,453
Long-term non-capitalized leases..................... 277,713 51,680 44,353 36,315 30,296 22,712 92,357leases........ 257,083 56,750 80,934 43,854 75,545
Deferred compensation................... 73,159 4,383 9,405 7,174 52,197
Purchase obligations.................... 637,179 637,179 -- -- --
---------- -------- ------- -------- -------- --------------- --------
Total contractual cash obligations................ $1,534,134 $131,794 $66,193 $189,321 $432,801 $125,481 $588,544obligations...... $2,435,581 $934,979 $608,013 $56,362 $836,227
========== ======== ======= ======== ======== ======== ========
Outstanding letters of
credit..................... $ 15,619 $ 15,619 $ -- $ -- $ -- $ -- $ --
========== ======== ======= ======== ======== ======== ========
SALES
Sales increased 7.2% in fiscal 2002, 12.8% in fiscal 2001 and 10.8% in
fiscal 2000. The annual sales increases were attributable to a varietyestimate of
factors, including the progress of our Customers Are Really Everything to SYSCO
(C.A.R.E.S.) customer relationship initiatives, a persistent focus on increasing
sales to marketing associate-served customers, the continuing recognition by
customers of the quality and value of SYSCO Brand products, the overall growth
in the foodservice industry and acquisitions. After adjusting for food cost
increases and acquisitions, real sales growth was approximately 2.7% in 2002.
Acquisitions represented 3.4% of sales increases for fiscal 2002 and food cost
inflation was 1.1%.
After adjusting for food cost increases and acquisitions, real sales growth
was approximately 5.8% in fiscal 2001. Acquisitions represented 4.5% of total
sales in fiscal 2001 and food cost inflation was approximately 2.5%. After
adjusting for food cost increases, acquisitions and adjusting for the extra week
in fiscal 1999, real sales growth was approximately 9% in fiscal 2000.
Acquisitions represented 3.5% of sales increases in fiscal 2000 and food cost
inflation was approximately 0.4% for fiscal 2000.
The lower sales growth in 2002 was attributable to the overall softness in
the economy and comparisons to sales increases in fiscal 2001 which were among
the highest in SYSCO's history. The quarterly real sales growth trends
experienced by the company were 1.7%, 0.7%, 2.7% and 5.2% for the first, second,
third and fourth quarter of fiscal 2002, respectively, over comparable quarters
in fiscal 2001.
Industry sources estimate the total foodservice market experienced real
growth of approximately 0.5% in calendar year 2001 and 2.9% in calendar year
2000.
11
Sales for fiscal 2000 through 2002 were as follows:
FISCAL YEAR SALES % INCREASE
- ----------- --------------- ----------
2002.............................................. $23,350,504,000 7.2%
2001.............................................. 21,784,497,000 12.8
2000.............................................. 19,303,268,000 10.8
A comparison of the sales mix in the principal product categories during
the last three years is presented below:
2002 2001 2000
---- ---- ----
Canned and dry products..................................... 19% 19% 21%
Fresh and frozen meats...................................... 18 18 17
Frozen fruits, vegetables, bakery and other................. 13 13 14
Poultry..................................................... 10 10 10
Dairy products.............................................. 9 9 9
Fresh produce............................................... 9 9 7
Paper and disposables....................................... 8 8 8
Seafoods.................................................... 6 6 6
Beverage products........................................... 3 3 3
Janitorial products......................................... 2 2 2
Equipment and smallwares.................................... 2 2 2
Medical supplies............................................ 1 1 1
--- --- ---
100% 100% 100%
=== === ===
A comparison of sales by type of customer during the last three years is
presented below:
2002 2001 2000
---- ---- ----
Restaurants................................................. 63% 64% 65%
Hospitals and nursing homes................................. 10 11 10
Schools and colleges........................................ 6 6 6
Hotels and motels........................................... 6 5 5
All other................................................... 15 14 14
--- --- ---
100% 100% 100%
=== === ===
COST OF SALES
Cost of sales increased approximately 6.9% in fiscal 2002, 11.9% in fiscal
2001 and 10.1% in fiscal 2000. The rate of increases were less than the rate of
sales increases leading to improved gross margins. The rate of increase is
influenced by SYSCO's overall customer and product mix, economies realized in
purchasing and higher sales of SYSCO Brand products.
OPERATING EXPENSES
Operating expenses include the costs of warehousing and delivering products
as well as selling and administrative expenses. These expenses as a percent of
sales were 14.8% for fiscal 2002 and 2001 and 14.7% for fiscal 2000. Changes in
the percentage relationship of operating expenses to sales result from an
interplay of several economic influences, including customer mix. Inflationary
increases in operating costs generally have been offset through improved
productivity.
Operating expenses in fiscal 2002 were negatively impacted by increased
costs realized during the initial operating periods of fold-outs in Sacramento,
California; Columbia, South Carolina and Las Vegas, Nevada.
12
In addition, the increase in marketing associate-served sales is accompanied by
higher expenses to serve these customers. In fiscal 2000, expenses were incurred
in connection with the closing of a facility and one-time non-recurring costs
associated with the completion of the SYSCO Uniform Systems implementation. The
sum of the costs related to fiscal 2000 were approximately $13,000,000.
INTEREST EXPENSE
Interest expense for the year decreased $8,879,000 or approximately 12.4%
below fiscal 2001, which had increased $944,000 or approximately 1.3% over
fiscal 2000. The decrease in interest expense in fiscal 2002 was primarily due
to decreases in interest rates for short-term and commercial paper borrowings.
Interest expense in fiscal 2000 included interest income in the amount of
$3,000,000 related to a Federal income tax refund on an amended return. After
adjusting for the refund, interest expense in the fiscal 2001 period decreased
$2,056,000 or approximately 2.8%. This decrease was due primarily to decreased
borrowings. Interest capitalized during construction periods for the past three
years was $3,746,000 in fiscal 2002, $2,995,000 in fiscal 2001 and $964,000 in
fiscal 2000.
OTHER, NET
Other, net was $2,805,000 income in fiscal 2002, an increase of $2,906,000
from the $101,000 expense in fiscal 2001. Fiscal 2001's expense of $101,000
decreased $1,421,000 from the $1,522,000 expense in fiscal 2000. Changes between
the years result from fluctuations in miscellaneous activities, primarily gains
and losses on the sale of surplus facilities.
EARNINGS BEFORE INCOME TAXES
Earnings before income taxes rose $134,215,000, or approximately 13.9%
above fiscal 2001 which had increased $229,047,000, or approximately 31.1%, over
fiscal 2000. Fiscal 2000 increased $143,721,000, or approximately 24.2% over
fiscal 1999. Additional sales and realization of operating efficiencies
contributed to the increases as well as the company's success in its continued
efforts to increase sales to the company's higher margin territorial street
customers and increasingly higher sales of SYSCO Brand products, both of which
generally yield higher margins.
PROVISION FOR INCOME TAXES
The effective tax rate was 38.25% in fiscal 2002 and 2001 and 38.5% in
fiscal 2000.
EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Fiscal 2002 represents the twenty-sixth consecutive year of increased
earnings before the cumulative effect of an accounting change. Earnings before
cumulative effect of an accounting change rose $82,878,000 or approximately
13.9% above fiscal 2001, which had increased $143,280,000 or approximately 31.6%
over fiscal 2000. Fiscal 2000 increased $91,358,000 or approximately 25.2% over
fiscal 1999. The increases were caused by additional sales, operating
efficiencies and other factors discussed above.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In the first quarter of fiscal 2000, SYSCO recorded a one-time, after-tax,
non-cash charge of $8,041,000 to comply with the required adoption of AICPA
Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-up
Activities." SOP 98-5 required the writeoff of any unamortized costs of start-up
activities and organization costs.
NET EARNINGS
Net earnings for the year increased $82,878,000 or approximately 13.9%
above fiscal 2001, which had increased $151,321,000 or approximately 34.0% over
fiscal 2000. Fiscal 2000 increased $83,317,000 or approximately 23.0% over
fiscal 1999.
13
RETURN ON SHAREHOLDERS' EQUITY
The return on average shareholders' equity was approximately 31% in fiscal
2002 and fiscal 2001 and 30% in fiscal 2000. Since its inception SYSCO has
averaged in excess of an 18% return on shareholders' equity before the
cumulative effect of accounting changes.
BROADLINE SEGMENT
Broadline segment sales increased by 5.8% in fiscal 2002 as compared to
fiscal 2001 and by 8.8% in fiscal 2001 as compared to fiscal 2000. The fiscal
2002 and 2001 sales growth was due primarily to increased sales to marketing
associate-served customers as well as increased sales of SYSCO Brand products.
Broadline segment sales as a percentage of total SYSCO sales decreased from
83.1% in fiscal 2001 to 82.1% in fiscal 2002 and from 86.2% in fiscal 2000 to
83.1% in fiscal 2001. The decreases in fiscal 2002 and fiscal 2001 were due
primarily to acquisitions of specialty meat, lodging industry product and
produce companies in the Other segments and greater percentage growth of
specialty meat, lodging industry companies and SYGMA segment as a percentage of
overall SYSCO sales.
Earnings before income taxes from the Broadline segment increased by 12.4%
in fiscal 2002 as compared to fiscal 2001 and by 25.6% in fiscal 2001 as
compared to fiscal 2000. The increases in earnings before income taxes for
fiscal 2002 and fiscal 2001 were driven by increased sales to marketing
associate-served customers as well as increases in sales of SYSCO Brand
products, both of which generally yield higher margins. Completion of the
installation of SYSCO Uniform Systems in the second quarter of fiscal 2000 also
impacted pretax earnings with increased efficiencies and productivity.
SYGMA SEGMENT
SYGMA segment sales increased by 10.6% in fiscal 2002 as compared to fiscal
2001 and 12.2% in fiscal 2001 as compared to fiscal 2000. The fiscal 2002 and
2001 sales growth was due primarily to sales growth in SYGMA's existing customer
base. SYGMA segment sales as a percentage of total SYSCO sales increased from
11.1% in fiscal 2001 to 11.4% in fiscal 2002 and decreased from 11.2% in fiscal
2000 to 11.1% in fiscal 2001. The decrease in fiscal 2001 was due to the
acquisition of specialty meat, lodging industry product and produce companies in
the Other segments.
Earnings before income taxes for the segment increased by 41.2% in fiscal
2002 as compared to fiscal 2001 and 213.3% in fiscal 2001 as compared to fiscal
2000. The increases in fiscal 2002 and fiscal 2001 were due to operating
efficiencies and improved labor costs realized during the current fiscal year.
OTHER SEGMENTS
The Other segment sales increased by 23.9% in fiscal 2002 as compared to
fiscal 2001 and 157.7% in fiscal 2001 as compared to fiscal 2000. Other Segment
sales as a percentage of total SYSCO sales increased from 6.3% in fiscal 2001 to
7.3% in fiscal 2002 and from 2.8% in fiscal 2000 to 6.3% in fiscal 2001. The
increases were due primarily to the timing of future payments under the Executive Deferred
Compensation Plan involves the use of certain assumptions, including retirement
ages and payout periods. For purposes of this table, purchase obligations
include agreements for purchases of product in the normal course of business,
for which all significant terms have been confirmed. Such amounts included in
the table above are based on estimates.
Certain acquisitions made duringinvolve contingent consideration, typically payable
only in the periods presented.
Earnings before income taxes increased by 15.5%event that certain operating results are attained or certain
outstanding contingencies are resolved. Aggregate contingent
21
consideration amounts outstanding as of July 3, 2004 included approximately
1,273,000 shares of SYSCO's common stock and $61,614,000 in fiscal 2002 as compared
to fiscal 2001 and 98.7%cash. These amounts
are not included in fiscal 2001 as compared to fiscal 2000. The
increases were due primarily to the timing of acquisitions made during the
periods presented. In fiscal 2002, earnings were negatively impacted by the
downturn in demand in travel and resort destination cities which are serviced by
certain of the specialty companies.table above.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, sales and
expenses in the accompanying financial statements. Significant accounting
policespolicies employed by SYSCO are presented in the notes to the financial
statements.
14
Critical accounting policies are those that are most important to the
portrayal of the company's financial condition and results of operations. These
policies require management's most difficult, subjective or complex judgments, often
employing the use of estimates about the effect of matters that are inherently
uncertain. Senior management has reviewed with the Audit Committee of the Board
of Directors the development and selection of the critical accounting estimates
and this related disclosure. SYSCO's most critical accounting policies pertain
to the allowance for doubtful accounts receivable, self-insurance programs,
pension plans and accounting for business combinations.
Allowance for Doubtful Accounts
Receivable
SYSCO evaluates the collectibility of accounts receivable and determines
the appropriate reserve for doubtful accounts based on a combination of factors.
In circumstances where we arethe company is aware of a specific customer's inability
to meet its financial obligation, to us, we record a specific reserveallowance for bad debtsdoubtful accounts is
recorded to reduce the net recognized receivable to the net amount we reasonably expectexpected to collect and write-off such amounts at the end of each fiscal year.be
collected. In addition, we recognize reservesallowances are recorded for all other receivables based
on analysis of historical trends of write-offs and recoveries. The company
utilizes specific criteria to determine uncollectible receivables to be written
off, including bankruptcy, accounts referred to outside parties for collection
and accounts past due over specified periods. If the financial condition of
ourSYSCO's customers were to deteriorate, additional reservesallowances may be required.
Self-Insurance Program
SYSCO maintains a self-insurance program covering portions of workers'
compensation, group medical, general liability and vehicle liability costs. The
amounts in excess of the self-insured levels are fully insured. Self-insurance
accrualsinsured by third party
insurers. Liabilities associated with these risks are based onestimated in part by
considering historical claims filedexperience, demographic factors, severity factors
and include an estimate for significant
claims incurred but not reported.other actuarial assumptions. Projections of future loss expenses are
inherently uncertain because of the random nature of insurance claims
occurrences and could be significantly affected if future occurrences and claims
differ from these assumptions and historical trends. In an attempt to mitigate
ourthe risks of workers' compensation, vehicle and general liability claims, we
have implemented safety
procedures and awareness programs.programs have been implemented.
Pension Plans
SYSCO maintains defined benefit and defined contribution retirement plans
for its employees. The company also contributes to various multi-employer plans
under collective bargaining agreements. The defined benefit pension plans paySYSCO maintains a qualified retirement
plan (Retirement Plan) for its employees which pays benefits to employees at
retirement, using formulas based on a participant's years of service and
compensation. SYSCO also maintains a non-qualified, unfunded SupplementarySupplemental
Executive Retirement Plan (SERP) forwhich provides additional retirement benefits
to certain key employees. In order to meet its obligations under the SERP, the
company maintains life insurance policies on the lives of participants. SYSCO is
the sole owner and beneficiary of such policies, which are excluded from plan
assets in arriving at prepaid (accrued) benefit cost. Cash surrender values of
such policies were $71,418,000$87,104,000 at July 3, 2004 and $74,730,000 at June 29, 2002 and $79,083,000 at June 30, 2001.28, 2003.
SYSCO accounts for its defined benefit pension plans in accordance with
SFASStatement of Financial Accounting Standards (SFAS) No. 87, "Employers'
Accounting for Pensions"Pensions," as amended by SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits -- an amendment
22
of FASB Statements No. 87, 88, and 106." These statements require that the
amounts recognized in the financial statements be determined on an actuarial
basis which includebasis. Three of the more critical assumptions regardingin the expected rate of return on plan
assets, aactuarial calculations are
the discount rate for determining the current value of plan benefits, and the
assumption for the rate of increase in future compensation levels as well
as other assumptions.and the
expected rate of return on plan assets.
For guidance in determining the discount rate, SYSCO looks atrefers to rates of
return on high-quality fixed-income investments. Thisinvestments, including, among other items,
Moody's long-term AA corporate bond yields. The discount rate utilized by SYSCO
was 6.25% and 6.00% as of July 3, 2004 and June 28, 2003, respectively. The
discount rate assumption is reviewed annually and revised as deemed appropriate,
as it was at July 3, 2004, when the discount rate was 7.25%increased to 6.25% from
6.00% and 7.50%
asat June 28, 2003 when the discount rate was reduced to 6.00% from
7.25%.
The discount rate assumption utilized impacts the recorded amount of net
pension costs. The 1.25% decrease in the discount rate used at June 29, 2002 and June 30, 2001, respectively.28, 2003
increased SYSCO's net pension costs for fiscal 2004 by approximately
$37,000,000. The increase in the discount rate of 0.25% at July 3, 2004 will
decrease SYSCO's net pension costs for fiscal 2005 by approximately $9,500,000.
SYSCO looks to actual plan experience in determining the rates of increase
in compensation levels. SYSCO used a plan specific age-related set of rates
(equivalent to a single rate of 5.89%), for the Retirement Plan, as of July 3,
2004 and June 28, 2003. The SERP assumes annual salary increases of 10% through
fiscal 2007 and 7% thereafter as of July 3, 2004 and annual salary increases of
8% through fiscal 2005 and 7% thereafter as of June 29, 2002 and June 30, 2001.28, 2003.
The expected long-term rate of return on plan assets of the Retirement Plan
was 9.50%9.00% and 10.50%9.50% as of June 29, 2002July 3, 2004 and June 30,
2001,28, 2003, respectively. Management believes that this assumption is reasonable based
on the investment policy andThe
expectations of future returns forare derived from a mathematical asset model that
incorporates assumptions as to the various asset classes in which trust assets are invested.class returns, reflecting a
combination of rigorous historical performance analysis and the forward-looking
views of the financial markets regarding the yield on long-term bonds and the
historical returns of the major stock markets. Although not determinative of
future returns, the effective annual rate of return on plan assets, developed
using geometric/compound averaging, was 9.9%approximately 10.6%, 9.3%8.5%, 3.6% and
a negative 2.2%21.9% over the ten-year, five-year20-year, 10-year, 5-year and one-year1-year periods ended December 31,
2001,2003, respectively. In addition, in nine of the last fifteen years, the actual
return on plan assets has exceeded 9.00%. The rate of return assumption is
reviewed annually and revised as deemed appropriate.
15
appropriate, as it was for fiscal 2004
when the expected return was reduced to 9.00% from 9.50%.
The performanceexpected return on plan assets impacts the recorded amount of the stock market in 2002 and 2001 resulted in a declinenet
pension costs. The 0.50% decrease in the valueassumed rate of return in fiscal 2004
increased SYSCO's net pension costs for fiscal 2004 by approximately $3,400,000.
A 1.0% increase (decrease) in the assets heldassumed rate of return for fiscal 2005 would
decrease (increase) SYSCO's net pension costs for fiscal 2005 by the pension plans. As a result, the company
was required to reflect a minimumapproximately
$9,200,000.
Minimum pension liability of $65,435,000, net of tax,
as of June 29, 2002 and $5,624,000, net of tax, as of June 30, 2001.adjustments are recorded so that the recorded
pension liability is at least equal to the accumulated benefit obligation.
Minimum pension liability adjustments are non-cash adjustments that are
reflected as an increase (or decrease) in the pension liability and onan
offsetting charge to shareholders' equity, net of tax, through comprehensive
loss ratherincome (or loss).
During fiscal 2004, a minimum pension liability adjustment of $266,075,000
was recorded as a debit to the company's net pension balance as of July 3, 2004.
Of this adjustment, $267,535,000 was recorded to reverse all minimum pension
liability adjustments recorded in prior years related to the Retirement Plan. At
July 3, 2004, the fair value of plan assets of the Retirement Plan exceeded the
accumulated benefit obligation, eliminating the need for a minimum pension
liability adjustment. The change in the company's funded position related to the
Retirement Plan was due primarily to the better than expected return on plan
assets in fiscal 2004 of approximately $111,127,000 as compared to an expected
return of approximately $61,148,000, voluntary contribution to the qualified
pension trust in fiscal 2004 of $160,000,000 and the increase in the discount
rate at July 3, 2004 to 6.25%. At July 3, 2004, the accumulated benefit
obligation of the SERP continued to exceed the fair value of plan assets and
required an additional minimum pension liability adjustment of $1,460,000 during
fiscal 2004 to increase the accrued pension cost related to the SERP.
23
During fiscal 2003, a minimum pension liability adjustment of $193,819,000
was recorded as a credit to the company's net income.pension balance as of June 28,
2003. This adjustment was due to the company's accumulated benefit obligations
exceeding the fair value of plan assets for both the Retirement Plan and the
SERP and was due to lower than expected returns on plan assets and the decrease
in the discount rate at June 28, 2003 to 6.00%.
Amounts reflected in accumulated other comprehensive income (loss) related
to minimum pension liability, net of tax, were ($20,733,000) as of July 3, 2004,
and ($185,118,000) as of June 28, 2003.
The company's prepaid benefitpension cost prior to the recognition of the
additional minimum pension liability was $1,063,000$142,620,000 and $91,340,000 at July 3,
2004 and June 29, 2002 and its
accrued benefit cost prior to the recognition of the additional minimum pension
liability was $30,736,000 at June 30, 2001.28, 2003, respectively. Included in arriving at accrued benefit
cost as of July 3, 2004 and June 28, 2003, respectively, are $236,852,000$454,468,000 and
$493,829,000 in deferred net actuarial losses resulting from the variance of
actual experience from that projected by actuarial assumptions. A portion of
this unrecognized loss is amortized and recognized in accordance with SFAS No.
87 in net pension expensecosts over time.
The company recognized net pension costs of $114,232,000, net of an
expected asset return of $61,148,000, $74,288,000, net of an expected asset
return of $46,462,000, and $51,336,000, and $30,359,000net of an expected asset return of
$43,053,000 for fiscal years 2004, 2003 and 2002, respectively. Changes in the
assumptions together with the normal growth of the plan and 2001,the impact of
actuarial losses from prior periods, increased net pension costs $39,944,000 in
fiscal 2004 and is expected to decrease net pension costs in fiscal 2005 by
approximately $7,374,000.
The company made cash contributions to its pension plans of $165,512,000
and $164,565,000 in fiscal years 2004 and 2003, respectively, including
voluntary contributions to the Retirement Plan of $160,000,000 in each of fiscal
2004 and fiscal 2003. In fiscal 2005, as in the previous years, contributions to
the Retirement Plan will not be required to meet ERISA minimum funding
requirements but the company anticipates that it will make voluntary
contributions of approximately $80,000,000. The estimated fiscal 2005
contributions to fund benefit payments for the SERP and other post-retirement
plans are $6,294,000 and $362,000, respectively.
Accounting for Business Combinations
Goodwill and intangible assets represent the excess of consideration over
the fair value of tangible net assets acquired. Certain assumptions and
estimates are employed in determining the fair value of assets acquired,
including goodwill and other intangible assets, as well as determining the
allocation of goodwill to the appropriate reporting unit. In addition, SYSCO
assesses the recoverability of these intangibles by determining whether the amortization of these intangibles over their remaining lives can be recovered
through undiscounted future net cash flowsfair
values of the acquired operations. The
amount of impairment, if any, is measured by the amount in which the carrying
amountsapplicable reporting units exceed the projected discounted future operating cash flows. SYSCO will
adopt SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets" in
fiscal year 2003 which discontinues the amortization of goodwill and indefinite
life intangibles and requires an annual test of impairment based on a comparison
of fair value totheir carrying values. The
evaluation of impairment under both the
existing rules and SFAS No. 142fair value requires the use of projections, estimates and
assumptions as to the future performance of the operations.operations in performing a
discounted cash flow analysis, as well as assumptions regarding sales and
earnings multiples that would be applied in comparable acquisitions in the
industry. Actual results could differ from these assumptions and projections,
resulting in the company revising its assumptions and, if required, recognizing
an impairment loss.
Based on a preliminary assessment,
SYSCO does not believe its goodwill is impaired and does not expect to record a
charge from the adoption of SFAS No. 142.
New Accounting Standards
In fiscal 2000,NEW ACCOUNTING STANDARDS
SYSCO adopted the AICPA Statementprovisions of Position 98-1 (SOP
98-1), "AccountingEmerging Issues Task Force (EITF) Issue No.
00-21, "Revenue Arrangements with Multiple Deliverables," effective at the
beginning of fiscal 2004. EITF 00-21 addresses how to account for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1revenue
arrangements with multiple deliverables and provides guidance with respectrelating to accountingwhen
such arrangements should be divided into components for the
various types of costs incurred for computer software developed or obtained for
SYSCO's use.revenue recognition
purposes. The adoption of SOP 98-1this consensus did not have a significant effectmaterial impact on
SYSCO's consolidated results of operations or financial position.
In fiscal 2001,statements.
SYSCO adopted the Financialprovisions of FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities, an Interpretation of Accounting Standards Board's
(FASB) StatementResearch Bulletin
(ARB) No. 51," effective at the beginning of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instrumentsfiscal 2004. This interpretation
introduces a new consolidation model, the variable interests model, which
determines control (and consolidation) based on potential variability in gains
and Hedging Activities," SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities -- Deferrallosses of the Effective
Dateentity being
24
evaluated for consolidation. The adoption of SFAS No. 133," and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities -- an amendment of SFAS No. 133."
These statements outline the accounting treatment for all derivative activity
and their adoptionthis interpretation did not have a
significant effectmaterial impact on SYSCO's consolidated results of operations or financial position.
In fiscal 2001,statements.
SYSCO adopted the Securities and Exchange Commission Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition." SAB 101 provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements. The adoption of SAB 101 had no effect on SYSCO's consolidated
results of operations or financial position.
In June 2001, SYSCO adopted SFAS No. 141, "Accounting for Business
Combinations." SFAS No. 141 requires that all business combinations be accounted
for using the purchase method of accounting and prohibits the
pooling-of-interests method for business combinations initiated after June 20,
2001. SYSCO is
16
adopting the provisions of SFAS No. 142,150, "Accounting for GoodwillCertain
Financial Instruments with Characteristics of Both Liabilities and Other
Intangible Assets"Equity,"
effective withat the beginning of fiscal year 2003. As a
result, the amortization of goodwill and indefinite life intangibles will be
discontinued. Goodwill and indefinite life intangibles arising from business
combinations after June 30, 2001 are also not amortized. The recoverability of
goodwill and intangibles will be assessed annually or as needed by determining
whether the fair value of the applicable reporting units exceed their carrying
values. SYSCO has six months from the date it adopts2004. SFAS No. 142 to test150 establishes standards
for cumulative effecthow an issuer classifies and measures certain financial instruments with
characteristics of a change in accounting principle. Thereafter, any
impairment losses will be included, net of tax, within the results of continuing
operations. Management has completed its preliminary assessment of the impact
that theboth liabilities and equity. The adoption of SFAS No. 142 will have on the company's consolidated
financial statements and believes that goodwill isthis statement
did not impaired. Goodwill
amortization, after tax, recognized by SYSCO was $14,533,000 in 2002,
$12,089,000 in 2001 and $7,812,000 in 2000.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long -- Lived Assets." SFAS 144 supersedes SFAS 121
and the portion of the Accounting Principle Board Opinion No. 30 that deals with
disposal of a business segment. Management does not expect SFAS 144, which is
effective for fiscal 2003, to have a material effect on SYSCO's consolidated financial statements.
SYSCO adopted the resultsdisclosure provisions of operations.SFAS No. 132 (revised 2003),
"Employers' Disclosures about Pensions and Other Postretirement Benefits," in
the third quarter of fiscal 2004. The standard requires that companies provide
additional financial statement disclosures for defined benefit plans in annual
and interim financial statements, which are found under the discussion of
"Employee Benefit Plans" in the Notes to Consolidated Financial Statements.
In March 2004, the FASB issued an Exposure Draft, "Share-Based Payment, an
Amendment of Statements No. 123 and 95." The proposed change in accounting would
replace existing requirements under SFAS No. 123, "Accounting for Stock-Based
Compensation" and APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the proposal, all forms of share-based payments to employees,
including employee stock options, would be expensed, recognizing the cost in the
income statement. The expense of each award would generally be measured at fair
value at the grant date. As proposed, SYSCO would have to adopt the new
statement beginning in Fiscal 2006. The adoption of this proposed standard is
expected to have a material impact on SYSCO's consolidated financial statements,
as the company currently accounts for its stock compensation plans using the
intrinsic value method provided by APB No. 25 and thus has not recorded any
compensation expense with respect to stock option grants to date.
RISK FACTORS
Low Margin Business; Inflation and Economic Sensitivity
The foodservice distribution industry is characterized by relatively high
inventory turnover with relatively low profit margins. SYSCO makes a significant
portion of its sales at prices that are based on the cost of products it sells
plus a percentage markup. As a result, SYSCO's profit levels may be negatively
impacted during periods of food priceproduct cost deflation, even though SYSCO's gross
profit percentage may remain relatively constant. Prolonged periods of product
cost inflation may also have a negative impact on the company's profit margins
and earnings to the extent such product cost increases are not passed on to
customers due to resistance to higher prices. The foodservice industry is
sensitive to national and regional economic conditions. Inflation, fuel costs
and other factors affecting consumer confidence and the frequency and amount
spent by consumers for food prepared away from home may negatively impact
SYSCO's sales and operating results. SYSCO's operating results are also
sensitive to, and may be adversely affected by, other factors, including
difficulties with the collectability of accounts receivable, inventory
control, competitive price
pressures, severe weather conditions and unexpected increases in fuel or other
transportation-related costs. Although these factors have not had a material
adverse impact on SYSCO's past operations, there can be no assurance that one or
more of these factors will not adversely affect future operating results.
Leverage and Debt Service
Because historically a substantial part of SYSCO's growth has been the
result of acquisitions and capital expansion, SYSCO's continued growth depends,
in large part, on its ability to continue this expansion. As a result, its
inability to finance acquisitions and capital expenditures through borrowed
funds could restrict its ability to expand. Moreover, any default under the
documents governing the indebtedness of SYSCO could have a significant adverse
effect on the market value of SYSCO's common stock. Further, SYSCO's leveraged
position may also increase its vulnerability to competitive pressures.
25
Product Liability Claims
SYSCO, like any other seller of food, faces the risk of exposure to product
liability claims in the event that the use of products sold by the company
causes injury or illness. With respect to product liability claims, SYSCO
believes it has sufficient primary or excess umbrella liability insurance.
However, this insurance may not continue to be available at a reasonable cost,
or, if available, may not be adequate to cover all of SYSCO's liabilities. SYSCO
generally seeks contractual indemnification and insurance coverage from parties
supplying its products, but this indemnification or insurance coverage is
limited, as a practical matter, to the creditworthiness of the indemnifying
party and the insured limits of any insurance provided by suppliers. If SYSCO
does not have adequate insurance or contractual indemnification available,
product liability relating to defective products could materially reduce SYSCO's
net incomeearnings and earnings per share.
17
Interruption of Supplies
SYSCO obtains substantially all of its foodservice and related products
from third party suppliers. For the most part, SYSCO does not have long-term
contracts with its suppliers committing them to provide products to SYSCO.
Although SYSCO's purchasing volume can provide leverage when dealing with
suppliers, suppliers may not provide the foodservice products and supplies
needed by SYSCO in the quantities requested. Because SYSCO does not control the
actual production of the products it sells, it is also subject to delays caused
by interruption in production based on conditions outside its control. These
conditions include job actions or strikes by employees of suppliers, weather,
crop conditions, transportation interruptions, and natural disasters or other
catastrophic events. SYSCO's inability to obtain adequate supplies of its
foodservice and related products as a result of any of the foregoing factors or
otherwise, could mean that SYSCO could not fulfill its obligations to customers,
and customers may turn to other distributors.
Labor Relations
As of June 29, 2002,July 3, 2004, approximately 9,7009,100 employees at 5051 operating companies
were members of 59 different local unions associated with the International
Brotherhood of Teamsters and other labor organizations. In fiscal 2003, 142005, 12
agreements covering approximately 2,1301,900 employees will expire. Failure of the
operating companies to effectively renegotiate these contracts could result in
work stoppages. Although SYSCO's operating subsidiaries have not experienced any
significant labor disputes or work stoppages to date, and SYSCO believes they
have satisfactory relationships with their unions, a work stoppage due to
failure of one or more operating subsidiaries to renegotiate a union contract,
or otherwise, could have a material adverse effect on SYSCO.
Integration of Acquired Companies
If SYSCO is unable to integrate acquired businesses successfully and
realize anticipated economic, operational and other benefits in a timely manner,
its profitability may decrease. Integration of an acquired business may be more
difficult when SYSCO acquires a business in a market in which it has limited or
no expertise, or with a corporate culture different from SYSCO's. If SYSCO is
unable to integrate acquired businesses successfully, it may incur substantial
costs and delays in increasing its customer base. In addition, the failure to
integrate acquisitions successfully may divert management's attention from
SYSCO's existing business and may damage SYSCO's relationships with its key
customers and suppliers.
Charter and Stockholder Rights Plan
Under its Restated Certificate of Incorporation, SYSCO's Board of Directors
is authorized to issue up to 1.5 million shares of preferred stock without
stockholder approval. Issuance of these shares could make it more difficult for
anyone to acquire SYSCO without approval of the Board of Directors, depending on
the rights and preferences of the stock issued. In addition, if anyone attempts
to acquire SYSCO without approval of the Board of Directors of SYSCO, the
stockholders of SYSCO have the right to purchase preferred stock of SYSCO
pursuant to its Stockholder Rights Plan, which could result in substantial
dilution to a potential
26
acquiror. The existence of either of these provisions could deter hostile
takeover attempts that might result in an acquisition of SYSCO that could
otherwise have been financially beneficial to SYSCO's stockholders.
FORWARD-LOOKING STATEMENTS
Certain statements made herein that look forward in time or express
management's expectations or beliefs with respect to the occurrence of future
events are forward-looking statements under the Private Securities Litigation
Reform Act of 1995. They include statements about SYSCO's ability to increase
its market share and sales, long-term debt to capitalization target ratios,
anticipated capital expenditures, timing and expected benefits of the National
Supply Chain initiative and related regional distribution centers, and SYSCO's
ability to meet future cash requirements and remain profitable.
These statements are based on management's current expectations and
estimates; actual results may differ materially due in part to the risk factors
discussed above. In addition, SYSCO's ability to increase its market share and
sales, meet future cash requirements and remain profitable could be affected by
conditions
18
in the economy and the industry and internal factors such as the
ability to control expenses. The ability to meet long-term debt to
capitalization target ratios may also be affected by share repurchases, cash
flow, acquisitions and internal growth.
ITEM 7A. 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
the market interest rates reflected in the fair value of the debt and to the risk
that the company may need to refinance maturing debt with new debt.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 the
interest rates affecting the fair value of such instruments, potential increases
in interest expense due to market increases in floating interest rates and the
creditworthiness of the counterparties in such transactions.
At June 29, 2002,July 3, 2004, the company had outstanding one interest rate swap agreement whereby SYSCO
exchanged the fixed interest payments on the $200,000,000 principal amount of
4.75% notes for floating interest payments. At June 29, 2002 the company had
outstanding $63,293,000$73,834,000 of commercial
paper at variable rates of interest with maturities through September 3, 2002.October 7, 2004. The
company's total long-term debt obligations of $1,190,061,000$1,394,326,000 were primarily at
fixed rates of interest. In addition, the company has entered into interest except for
$200,000,000rate
swap agreements totaling $500,000,000 in notional amount whereby the company
receives interest payments at fixed rate debt swapped to a floating raterates of interest and pays interest at
variable rates. The following tables present the company's interest rate
position as discussed above.
19of July 3, 2004. All amounts are stated in U.S. dollar equivalents.
27
INTEREST RATE POSITION AS OF JULY 3, 2004
PRINCIPAL AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST RATE
-----------------------------------------------------------------------------------------
FAIR
2005 2006 2007 2008 2009 THEREAFTER TOTAL VALUE
-------- -------- -------- -------- ------ ---------- ---------- ----------
(IN THOUSANDS)
U.S. $ Denominated:
Fixed Rate Debt...... $162,734 $417,062 $105,093 $ 3,226 $1,442 $675,498 $1,365,055 $1,424,411
Average Interest
Rate............. 6.3% 4.1% 7.1% 7.9% 5.5% 5.9% 5.5%
Floating Rate Debt... $ -- $ -- $ -- $ -- $ -- $ 15,000 $ 15,000 $ 15,000
Average Interest
Rate............. -- -- -- -- -- 1.4% 1.4%
Canadian $
Denominated:
Fixed Rate Debt...... $ 99 $ 196 $ 287 $ 316 $ 350 $ 18,453 $ 19,701 $ 20,558
Average Interest
Rate............. 9.4% 9.8% 9.8% 9.8% 9.8% 9.8% 9.8%
Floating Rate Debt... $ 73,834 $ -- $ -- $ -- $ -- $ -- $ 73,834 $ 73,834
Average Interest
Rate............. 2.2% -- -- -- -- -- 2.2%
INTEREST RATE POSITION AS OF JULY 3, 2004
NOTIONAL AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST SWAP RATE
-----------------------------------------------------------------------------------------
FAIR
2005 2006 2007 2008 2009 THEREAFTER TOTAL VALUE
-------- -------- -------- -------- ------ ---------- ---------- ----------
(IN THOUSANDS)
Interest Rate Swaps
Related to Debt:
Pay variable/receive
fixed.............. $ -- $ -- $200,000 $100,000 $ -- $ -- $ 300,000 $ (4,964)
Average variable rate
paid:
Rate A plus........ -- -- 0.46% 0.43% -- -- 0.45%
Fixed rate
received........... -- -- 7.00% 7.25% -- -- 7.08%
Pay variable/receive
fixed.............. $ -- $ -- $ -- $ -- $ -- $200,000 $ 200,000 $ (466)
Average variable rate
paid:
Rate B minus....... -- -- -- -- -- 0.62% 0.62%
Fixed rate
received........... -- -- -- -- -- 4.60% 4.60%
- ---------------
Rate A -- six-month LIBOR averaged over a six month period
Rate B -- six-month LIBOR in arrears
28
At June 28, 2003 the company had outstanding $151,748,000 of commercial
paper at variable rates of interest with maturities through October 2, 2003. The
company's total long-term debt obligations of $1,270,414,000 were primarily at
fixed rates of interest. At June 28, 2003, the company had no interest rate swap
agreements outstanding. The following table presents the company's interest rate
position as of June 28, 2003. All amounts are stated in U.S. dollar equivalents.
INTEREST RATE POSITION AS OF JUNE 28, 2003
PRINCIPAL AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST RATE
-------------------------------------------------------------------------------------------------
FAIR
2004 2005 2006 2007 2008 THEREAFTER TOTAL VALUE
-------- -------- -------- -------- ------- ---------- ---------- ----------
(IN THOUSANDS)
U.S. $ Denominated:
Fixed Rate Debt....... $ 20,616 $157,328 $420,390 $103,380 $ 4,015 $478,236 $1,183,965 $1,319,714
Average Interest
Rate.............. 5.3% 6.5% 4.0% 7.2% 7.9% 6.4% 5.6%
Floating Rate Debt.... $ -- $ -- $ -- $ -- $49,926 $ 15,000 $ 64,926 $ 64,926
Average Interest
Rate.............. -- -- -- -- 1.2% 1.3% 1.3%
Canadian $
Denominated:
Fixed Rate Debt....... $ 331 $ 286 $ 377 $ 475 $ 512 $ 19,542 $ 21,523 $ 23,991
Average Interest
Rate.............. 6.5% 6.0% 7.1% 7.5% 7.6% 9.5% 9.3%
Floating Rate Debt.... $101,822 $ -- $ -- $ -- $ -- $ -- $ 101,822 $ 101,822
Average Interest
Rate.............. 3.4% -- -- -- -- -- 3.4%
The company does not believe that its foreign operations expose it to
significant foreign exchange risk, since the exposure is limited primarily to
Canada which historically has had stable exchange rates, and for which the
amounts are not material on an overall basis to SYSCO.
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SYSCO CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Consolidated Financial Statements:
Report of Management on InternalIndependent Registered Public Accounting Controls...... 21
Report of Independent Auditors............................ 22Firm... 31
Consolidated Balance Sheets............................... 2332
Consolidated Results of Operations........................ 2433
Consolidated Shareholders' Equity......................... 2534
Consolidated Cash Flows................................... 26
Summary of Accounting Policies............................ 27
Additional35
Notes to Consolidated Financial Information.......................... 30Statements................ 36
Schedule:
II -- Valuation and Qualifying Accounts................... S-1
All other schedules are omitted because they are not applicable or the
information is set forth in the consolidated financial statements or notes
thereto.
20
REPORT OF MANAGEMENT ON INTERNAL ACCOUNTING CONTROLS
July 31, 2002
The management of SYSCO is responsible for the preparation and integrity of
the consolidated financial statements of the company. The accompanying
consolidated financial statements have been prepared by the management of the
company, in accordance with generally accepted accounting principles, using
management's best estimates and judgment where necessary. Financial information
appearing throughout this Annual Report is consistent with that in the
consolidated financial statements.
To help fulfill its responsibility, management maintains a system of
internal controls designed to provide reasonable assurance that assets are
safeguarded against loss or unauthorized use and that transactions are executed
in accordance with management's authorizations and are reflected accurately in
the company's records. The concept of reasonable assurance is based on the
recognition that the cost of maintaining a system of internal accounting
controls should not exceed benefits expected to be derived from the system.
SYSCO believes that its long-standing emphasis on the highest standards of
conduct and ethics, embodied in comprehensive written policies, serves to
reinforce its system of internal controls.
The company's operations review function monitors the operation of the
internal control system and reports findings and recommendations to management
and the Board of Directors. It also oversees actions taken to address control
deficiencies and seeks opportunities for improving the effectiveness of the
system.
Ernst & Young, LLP, independent auditors, has been engaged to express an
opinion regarding the fair presentation of the company's financial condition and
operating results. As part of their audit of the company's financial statements,
Ernst & Young, LLP considered the company's system of internal controls to the
extent they deemed necessary to determine the nature, timing and extent of their
audit tests.
The Board of Directors oversees the company's financial reporting through
its Audit Committee which consists entirely of outside directors. The Audit
Committee selects and engages the independent auditors annually. The Audit
Committee reviews both the scope of the accountants' audit and recommendations
from both the independent auditors and the internal operations review function
for improvements in internal controls. The independent auditors have unlimited
access to the Audit Committee and from time to time confer with them without
management representation.
SYSCO recognizes its responsibility to conduct business in accordance with
high ethical standards. This responsibility is reflected in a comprehensive code
of business conduct that, among other things, addresses potentially conflicting
outside business interests of company employees and provides guidance as to the
proper conduct of business activities. Ongoing communications and review
programs are designed to help ensure compliance with this code.
The company believes that its system of internal controls is effective and
adequate to accomplish the objectives discussed above.
/s/ CHARLES H. COTROS /s/ JOHN K. STUBBLEFIELD, JR.
- ----------------------------------------------------- -----------------------------------------------------
Charles H. Cotros John K. Stubblefield, Jr.
Chairman and Chief Executive Officer Executive Vice President,
Finance and Administration
2130
REPORT OF INDEPENDENT AUDITORSREGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors and Shareholders
SYSCO Corporation
We have audited the accompanying consolidated balance sheets of SYSCO
Corporation (a Delaware corporation) and subsidiaries as of June 29, 2002July 3, 2004 and
June 30, 2001,28, 2003, and the related statements of consolidated results of operations,
shareholders' equity and cash flows for each of the three years in the period
ended June 29, 2002.July 3, 2004. Our audits also included the financial statement schedule at
Item 15(a), No. 2. These financial statements and schedule are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditingthe standards generally
accepted inof the United States.Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
SYSCO Corporation and subsidiaries as of June 29, 2002July 3, 2004 and June 30, 2001,28, 2003, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 29, 2002July 3, 2004 in conformity with accounting principlesU.S. generally
accepted in the United States.accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Houston, Texas
JulyAugust 16, 2004
31 2002
22
SYSCO
CONSOLIDATED BALANCE SHEETS
JULY 3, 2004 JUNE 29, 2002 JUNE 30, 2001
-------------28, 2003
------------ -------------
(IN THOUSANDS EXCEPT FOR
SHARE DATA)
ASSETS
Current assets
Cash...................................................... $ 230,439199,706 $ 135,743337,447
Accounts and notes receivable, less allowances of $30,338$34,175
and $43,112............................................ 1,760,827 1,650,130$35,005............................................. 2,189,127 2,009,627
Inventories............................................... 1,117,869 1,042,277
Deferred taxes............................................ 34,188 7,1281,404,410 1,230,080
Prepaid expenses.......................................... 41,966 40,45654,903 52,380
Prepaid income taxes...................................... 3,265 --
---------- ----------
Total current assets.............................. 3,185,289 2,875,734assets............................... 3,851,411 3,629,534
Plant and equipment at cost, less depreciation.............. 1,697,782 1,516,7782,166,809 1,922,660
Other assets
Goodwill and intangibles, less amortization............... 922,222 768,8371,218,700 1,113,960
Restricted cash........................................... 169,326 83,807
Prepaid pension cost...................................... 243,996 --
Other..................................................... 184,460 191,638197,390 186,560
---------- ----------
Total other assets................................ 1,106,682 960,475assets................................. 1,829,412 1,384,327
---------- ----------
Total assets...................................... $5,989,753 $5,352,987assets................................................ $7,847,632 $6,936,521
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable............................................. $ 66,36073,834 $ 30,640101,822
Accounts payable.......................................... 1,349,330 1,271,8171,742,578 1,637,505
Accrued expenses.......................................... 768,317 653,908724,970 624,451
Income taxes.............................................. 41,596 123,332-- 9,193
Deferred taxes............................................ 422,419 307,211
Current maturities of long-term debt...................... 13,754 23,267162,833 20,947
---------- ----------
Total current liabilities......................... 2,239,357 2,102,964liabilities.......................... 3,126,634 2,701,129
Other liabilities
Long-term debt.............................................. 1,176,307 961,421debt............................................ 1,231,493 1,249,467
Deferred taxes.............................................. 441,570 188,067taxes............................................ 686,705 498,396
Other long-term liabilities............................... 238,294 289,998
---------- ----------
Total other liabilities............................ 2,156,492 2,037,861
Contingencies
Shareholders' equity
Preferred stock, par value $1 per share
Authorized 1,500,000 shares, issued none...............none................ -- --
Common stock, par value $1 per share
Authorized shares 2,000,000,000 at July 3, 2004,
1,000,000,000 shares,at June 28, 2003; issued 765,174,900
shares.................................................shares................................................ 765,175 765,175
Paid-in capital........................................... 217,891 186,818332,041 249,235
Retained earnings......................................... 2,869,417 2,415,160
Other3,959,714 3,373,853
Accumulated other comprehensive loss.................................. (65,435) (5,624)income (loss)............. 17,640 (152,381)
---------- ----------
3,787,048 3,361,5295,074,570 4,235,882
Less cost of treasury stock, 111,634,603128,639,869 and 100,037,236
shares................................................. 1,654,529 1,260,994121,517,325
shares.................................................. 2,510,064 2,038,351
---------- ----------
Total shareholders' equity........................ 2,132,519 2,100,535equity......................... 2,564,506 2,197,531
---------- ----------
Total liabilities and shareholders' equity........ $5,989,753 $5,352,987equity.................. $7,847,632 $6,936,521
========== ==========
See Summary of Accounting Policies and AdditionalNotes to Consolidated Financial Information.
23Statements
32
SYSCO
CONSOLIDATED RESULTS OF OPERATIONS
YEAR ENDED
--------------------------------------------
JULY 3, 2004
(53 WEEKS) JUNE 28, 2003 JUNE 29, 2002
JUNE 30, 2001 JULY 1, 2000------------ ------------- ------------- ------------
(IN THOUSANDS EXCEPT FOR SHARE DATA)
Sales................................................. $29,335,403 $26,140,337 $23,350,504 $21,784,497 $19,303,268
Costs and expenses
Cost of sales....................................... 23,661,514 20,979,556 18,722,163 17,513,138 15,649,551
Operating expenses.................................. 4,141,230 3,836,507 3,467,379 3,232,827 2,843,755
Interest expense.................................... 69,880 72,234 62,897 71,776 70,832
Other, net.......................................... (12,365) (8,347) (2,805) 101 1,522
----------- ----------- -----------
Total costs and expenses.................... 27,860,259 24,879,950 22,249,634 20,817,842 18,565,660
----------- ----------- -----------
Earnings before income taxes.......................... 1,475,144 1,260,387 1,100,870 966,655 737,608
Income taxes.......................................... 567,930 482,099 421,083 369,746 283,979
----------- ----------- -----------
Earnings before cumulative effect of accounting
change.............................................. 679,787 596,909 453,629
Cumulative effect of accounting change................ -- -- (8,041)
----------- ----------- -----------
Net earnings.......................................... $ 679,787907,214 $ 596,909778,288 $ 445,588679,787
=========== =========== ===========
Earnings before accounting change:
Basic earnings per share............................ $ 1.03 $ 0.90 $ 0.69
Diluted earnings per share.......................... 1.01 0.88 0.68
Cumulative effect of accounting change:
Basic earnings per share............................ -- -- (0.01)
Diluted earnings per share.......................... -- -- (0.01)
Net earnings:
Basic earnings per share............................ $ 1.41 $ 1.20 $ 1.03 0.90 0.68
Diluted earnings per share.......................... 1.37 1.18 1.01 0.88 0.67
See Summary of Accounting Policies and AdditionalNotes to Consolidated Financial Information.
24Statements
33
SYSCO
CONSOLIDATED SHAREHOLDERS' EQUITY
ACCUMULATED
COMMON STOCK OTHER TREASURY STOCK
---------------------- PAID-IN RETAINED COMPREHENSIVE ------------------------
SHARES AMOUNT CAPITAL EARNINGS LOSSINCOME (LOSS) SHARES AMOUNT
----------- -------- -------- ---------- ------------- ----------- ----------
(IN THOUSANDS EXCEPT FOR SHARE DATA)
Balance at July 3, 1999........... 382,587,450 $382,587 $ 872 $1,999,093 $ -- 52,915,065 $ 988,331
Net earnings for year ended
July 1, 2000.................... 445,588
Dividends declared................ (152,427)
Treasury stock purchases.......... 5,660,400 186,296
Treasury stock issued for
acquisitions.................... 69,794 (4,984,497) (98,362)
Stock options exercised........... (7,526) (1,163,222) (20,104)
Employees' Stock Purchase Plan.... 9,446 (943,530) (18,585)
Management Incentive Plan......... 4,381 (381,553) (7,352)
----------- -------- -------- ---------- -------- ----------- ----------
Balance at July 1, 2000........... 382,587,450 $382,587 $ 76,967 $2,292,254 $ -- 51,102,663 $1,030,224
Net earnings for year ended
June 30,
2001................... 596,909
Dividends declared................ (180,702)
Treasury stock purchases.......... 16,000,000 428,196
Treasury stock issued for
acquisitions.................... 184,357 (12,025,208) (136,696)
Stock options exercised........... (11,099) (3,677,972) (34,529)
Employees' Stock Purchase Plan.... 16,713 (1,630,208) (17,770)
Management Incentive Plan......... 9,167 (834,702) (8,431)
Minimum pension liability
adjustment, net of tax of
$3,484.......................... (5,624)
2-for-1 stock split............... 382,587,450 382,588 (89,287) (293,301) 51,102,663
----------- -------- -------- ---------- -------- ----------- ----------
Balance at June 30, 2001.......... 765,174,900 $765,175 $186,818 $2,415,160 $ (5,624) 100,037,236 $1,260,994
Net earnings for year
ended June 29, 2002...................2002.... 679,787
Dividends declared................declared....... (225,530)
Treasury stock
purchases..........purchases.............. 18,000,000 473,558
Treasury stock issued for
acquisitions....................acquisitions........... 12,517 (1,116,303) (12,251)
Stock options
exercised...........exercised.............. (10,750) (2,650,714) (32,837)
Employees' Stock Purchase
Plan....Plan................... 17,030 (1,784,529) (24,104)
Management Incentive
Plan.........Plan................... 12,276 (851,087) (10,831)
Minimum pension liability
adjustment, net of tax of
$37,049.........................adjustment............. (59,811)
----------- -------- -------- ---------- ----------------- ----------- ----------
Balance at June 29,
2002..........2002................... 765,174,900 $765,175 $217,891 $2,869,417 $(65,435)$ (65,435) 111,634,603 $1,654,529
Net earnings for year
ended June 28, 2003.... 778,288
Dividends declared....... (273,852)
Treasury stock
purchases.............. 16,500,000 478,471
Treasury stock issued for
acquisitions........... 6,984 (951,127) (9,270)
Disqualifying
dispositions........... 8,386
Stock options
exercised.............. (8,895) (2,918,905) (42,588)
Employees' Stock Purchase
Plan................... 14,410 (1,886,090) (29,809)
Management Incentive
Plan................... 10,459 (861,156) (12,982)
Minimum pension liability
adjustment............. (119,683)
Foreign currency
translation
adjustment............. 32,737
----------- -------- -------- ---------- --------- ----------- ----------
Balance at June 28,
2003................... 765,174,900 $765,175 $249,235 $3,373,853 $(152,381) 121,517,325 $2,038,351
Net earnings for year
ended July 3, 2004..... 907,214
Dividends declared....... (321,353)
Treasury stock
purchases.............. 16,884,300 623,653
Treasury stock issued for
acquisitions........... 21,582 (2,007,089) (20,411)
Disqualifying
dispositions........... 26,763
Stock options
exercised.............. 4,007 (5,193,289) (86,745)
Employees' Stock Purchase
Plan................... 18,540 (1,620,535) (28,833)
Management Incentive
Plan................... 11,914 (940,843) (15,951)
Minimum pension liability
adjustment............. 164,385
Foreign currency
translation
adjustment............. 5,636
----------- -------- -------- ---------- --------- ----------- ----------
Balance at July 3,
2004................... 765,174,900 $765,175 $332,041 $3,959,714 $ 17,640 128,639,869 $2,510,064
=========== ======== ======== ========== ================= =========== ==========
See Summary of Accounting Policies and AdditionalNotes to Consolidated Financial Information.
25Statements
34
SYSCO
CONSOLIDATED CASH FLOWS
YEAR ENDED
-----------------------------------------------------------------------------------------
JULY 3, 2004
(53 WEEKS) JUNE 28, 2003 JUNE 29, 2002
JUNE 30, 2001 JULY 1, 2000
------------------------- ------------- -------------
(IN THOUSANDS)
Cash flows from operating activities:
Net earnings.........................................earnings.............................................. $ 679,787907,214 $ 596,909778,288 $ 445,588679,787
Add non-cash items:
Cumulative effect of accounting change............ -- -- 8,041
Depreciation and amortization.....................amortization.......................... 283,595 273,142 278,251 248,240 220,661
Deferred tax provision (benefit)..................provision................................. 608,152 481,330 263,492 6,199 (25,528)
Provision for losses on receivables...............receivables.................... 27,377 27,133 25,904 21,740 27,082
Additional investment in certain assets and liabilities,
net of effect of businesses acquired:
(Increase) in receivables.........................receivables.............................. (177,058) (218,150) (32,360) (87,616) (105,935)
(Increase) in inventories.........................inventories.............................. (162,502) (69,959) (17,804)
(50,938) (56,943)
(Increase) decrease in prepaid expenses...........expenses......................... (2,183) (9,509) (680)
6,547 3,378
(Decrease) increaseIncrease (decrease) in accounts payable...........payable................ 95,874 237,360 (357)
33,377 105,790
(Decrease) increaseIncrease (decrease) in accrued expenses...........expenses and other
long-term liabilities................................ 26,488 (85,294) (23,403)
73,737 122,480
(Decrease) increase in accrued income taxes...............taxes..................... (392,197) (33,121) (81,736)
106,047 16,254
(Increase) decrease in other assets...............assets............................. (25,238) (8,380) (6,114)
982 (52,142)
---------- --------- ------------------- ----------
Net cash provided by operating activities............activities................. 1,189,522 1,372,840 1,084,980
955,224 708,726
---------- --------- ------------------- ----------
Cash flows from investing activities:
Additions to plant and equipment.....................equipment.......................... (530,086) (435,637) (416,393) (341,138) (266,413)
Proceeds from sales of plant and equipment...........equipment................ 15,851 14,629 20,711 12,750 18,922
Acquisition of businesses, net of cash acquired......acquired........... (79,247) (209,010) (234,618)
(10,363) (211,901)Increase in restricted cash............................... (90,329) (51,807) (32,000)
---------- --------- ------------------- ----------
Net cash used for investing activities............... (630,300) (338,751) (459,392)activities.................... (683,811) (681,825) (662,300)
---------- --------- ------------------- ----------
Cash flows from financing activities:
Bank and commercial paper (repayments) borrowings....borrowings......... (77,849) 85,224 (143,593) (72,055) 51,810
Other debt borrowings (repayments)........................................... 185,087 (12,098) 384,114
(41,417) (11,947)Cash from termination of interest rate swap............... 1,305 15,359 --
Common stock reissued from treasury..................treasury....................... 167,652 101,312 86,328 75,511 52,342
Treasury stock purchases.............................purchases.................................. (608,506) (478,471) (473,558)
(428,196) (186,296)
Dividends paid.......................................paid............................................ (309,540) (261,854) (213,275)
(173,701) (145,418)
---------- --------- ------------------- ----------
Net cash used for financing activities...............activities.................... (641,851) (550,528) (359,984)
(639,858) (239,509)
---------- --------- ------------------- ----------
Effect of exchange rates on cash............................ (1,601) (1,479) --
---------- ---------- ----------
Net (decrease) increase (decrease) in cash........................ 94,696 (23,385) 9,825cash............................. (137,741) 139,008 62,696
Cash at beginning of year..............................year................................... 337,447 198,439 135,743
159,128 149,303
---------- --------- ------------------- ----------
Cash at end of year....................................year......................................... $ 230,439199,706 $ 135,743337,447 $ 159,128198,439
========== ========= =================== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest..........................................Interest............................................... $ 68,481 $ 69,103 $ 61,354
$ 71,791 $ 70,977
Income taxes......................................taxes........................................... 344,414 28,747 239,792 251,567 272,022
See Summary of Accounting Policies and AdditionalNotes to Consolidated Financial Information.
26Statements
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF ACCOUNTING POLICIES
BUSINESS AND CONSOLIDATION
SYSCOSysco Corporation (SYSCO)(SYSCO or the company) is engaged in the marketing and
distribution of a wide range of food and related products primarily to the
foodservice or "food-prepared-away-from-home" industry. These services are
performed for about
415,000approximately 400,000 customers from 142150 distribution facilities
located throughout the United States and Canada.
The accompanying financial statements include the accounts of SYSCO and its
subsidiaries. All significant intercompany transactions and account balances
have been eliminated. Certain amounts in the prior years have been reclassified
to conform to the fiscal 2002 presentation including the reflection of dividends
on a declared versus paid basis.2004 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that affect
the reported amounts of assets, liabilities, sales and expenses. Actual results
could differ from the estimates used.
EarningsACCOUNTS RECEIVABLE
Accounts receivable consist primarily of acquisitionstrade receivables from customers
and receivables from suppliers for marketing or incentive programs. SYSCO
evaluates the collectibility of accounts receivable and determines the
appropriate reserve for doubtful accounts based on a combination of factors. In
circumstances where the company is aware of a specific customer's inability to
meet its financial obligation to SYSCO, a specific allowance for doubtful
accounts is recorded to reduce the receivable to the net amount reasonably
expected to be collected. In addition, allowances are recorded for all other
receivables based on an analysis of historical trends of write-offs and
recoveries. The company utilizes specific criteria to determine uncollectible
receivables to be written off including bankruptcy, accounts referred to outside
parties for collection and accounts past due over specified periods. The
allowance for doubtful accounts receivable was $34,175,000 as purchases are included in SYSCO's
results of operations from the dateJuly 3, 2004
and $35,005,000 as of acquisition.June 28, 2003. Customer accounts written off, net of
recoveries, were $28,485,000 or 0.10% of sales, $24,771,000 or 0.09% of sales,
and $26,068,000 or 0.11% of sales for fiscal 2004, 2003 and 2002, respectively.
INVENTORIES
Inventories consistconsisting primarily of finished goods include food and related
products held for resale and are valued at the lower of cost (first-in,
first-out method) or market. Elements of costs include the purchase price of the
product and freight charges to deliver the product to the company's warehouses
and are net of certain cash or non-cash consideration received from vendors (see
"Vendor Consideration").
PLANT AND EQUIPMENT
Capital additions, improvements and major renewalsreplacements are classified as
plant and equipment and are carried at cost. Depreciation is recorded using the
straight-line method, which reduces the book value of each asset in equal
amounts over its estimated useful life. Maintenance, repairs and minor
renewalsreplacements are charged to earnings when they are incurred. Upon the
disposition of an asset, its accumulated depreciation is deducted from the
original cost, and any gain or loss is reflected in current earnings.
Applicable interest charges incurred during the construction of new
facilities and development of software for internal use are capitalized as one
of the elements of cost and are amortized over the assets' estimated useful
lives. Interest capitalized during construction
periods for the past three years was $7,495,000 in 2004,
$5,244,000 in 2003 and $3,746,000 in 2002, $2,995,000 in 2001, and
$964,000 in 2000.2002.
36
A summary of plant and equipment, including the related accumulated
depreciation, appears below:
ESTIMATED
JULY 3, 2004 JUNE 29, 2002 JUNE 30, 200128, 2003 USEFUL LIVES
--------------- --------------- ------------
Plant and equipment, at costcost:
Land................................. $ 131,188,000186,628,000 $ 119,021,000174,959,000
Buildings and improvements........... 1,390,712,000 1,202,701,0001,774,870,000 1,567,768,000 10-40 years
Equipment............................ 1,695,043,000 1,572,161,000Fleet, equipment and software........ 2,021,326,000 1,860,410,000 3-20 years
--------------- ---------------
3,216,943,000 2,893,883,0003,982,824,000 3,603,137,000
Accumulated depreciation............... (1,519,161,000) (1,377,105,000)(1,816,015,000) (1,680,477,000)
--------------- ---------------
Net plant and equipment................ $ 1,697,782,0002,166,809,000 $ 1,516,778,0001,922,660,000
=============== ===============
Depreciation expense for the past three years was $273,030,000 in 2004,
$263,480,000 in 2003 and $243,498,000 in 2002.
LONG-LIVED ASSETS
Management reviews long-lived assets for indicators of impairment whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. Cash flows expected to be generated by the related assets are
estimated over the asset's useful life based on updated projections. If the
evaluation indicates that the carrying amount of the asset may not be
recoverable, the potential impairment is measured based on a projected
discounted cash flow model.
GOODWILL AND INTANGIBLES
Goodwill and intangibles represent the excess of cost over the fair value
of tangible net assets acquired. Goodwill and intangibles arising from
acquisitions initiated on or prior to June 30, 2001Intangibles with definite lives are amortized
over 25their useful lives. Goodwill is assigned to 40
years using the straight-line method. Goodwill and intangibles arisingreporting units that are
expected to benefit from acquisitions initiated after
27
June 30, 2001 are not amortized. See New Accounting Standards for further
discussion.the synergies of the combination. The company reviewsrecoverability of
goodwill and intangibles to evaluate whetheris assessed annually, or more frequently as needed when
events or changes have occurred that would suggest an impairment of carrying
value. SYSCO assesses the recoverability of these intangiblesvalue, by determining whether the fair values of the applicable reporting units
exceed their carrying values. The evaluation of fair value requires the use of
projections, estimates and assumptions as to the future performance of the
operations in performing a discounted cash flow analysis, as well as assumptions
regarding sales and earnings multiples that would be applied in comparable
acquisitions.
Goodwill and intangibles allocated by reportable segment are as follows:
JULY 3, 2004 JUNE 28, 2003
-------------- --------------
Broadline............................................. $ 658,075,000 $ 626,931,000
SYGMA................................................. 61,851,000 34,435,000
Other................................................. 498,774,000 452,594,000
-------------- --------------
Total................................................. $1,218,700,000 $1,113,960,000
============== ==============
The above amounts are presented net of accumulated amortization of
$145,975,000 and $141,731,000 as of July 3, 2004 and June 28, 2003,
respectively.
In accordance with Statement of Financial Accounting Standards (SFAS) No.
142, "Accounting for Goodwill and Other Intangible Assets," adopted in fiscal
2003, goodwill and intangibles with indefinite lives
37
are not amortized. The following table provides comparative net earnings and
earnings per share had the non-amortization provision of SFAS No. 142 been in
effect for all periods presented:
2004
(53 WEEKS) 2003 2002
------------ ------------ ------------
Net earnings:
Reported net earnings.................... $907,214,000 $778,288,000 $679,787,000
Goodwill amortization, net of taxes...... -- -- 14,533,000
------------ ------------ ------------
Adjusted net earnings.................... $907,214,000 $778,288,000 $694,320,000
============ ============ ============
Basic earnings per share:
Reported basic earnings per share........ $ 1.41 $ 1.20 $ 1.03
Goodwill amortization, net of taxes...... -- -- 0.02
------------ ------------ ------------
Adjusted basic earnings per share........ $ 1.41 $ 1.20 $ 1.05
============ ============ ============
Diluted earnings per share:
Reported diluted earnings per share...... $ 1.37 $ 1.18 $ 1.01
Goodwill amortization, net of taxes...... -- -- 0.02
------------ ------------ ------------
Adjusted diluted earnings per share...... $ 1.37 $ 1.18 $ 1.03
============ ============ ============
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of all Canadian subsidiaries are translated at
current exchange rates. Related translation adjustments are recorded as a
component of accumulated other comprehensive income.
REVENUE RECOGNITION
The company recognizes revenue from the sale of a product when it is
considered to be realized or realizable and earned. The company determines these
intangibles over their remaining lives canrequirements to be recovered through undiscounted future net cash flows ofmet at the acquired operations.
The amount of impairment, if any, is measured by the amount inpoint at which the carrying amounts exceedproduct is delivered to the
projected discounted future operatingcustomer. The company grants certain customers sales incentives such as rebates
or discounts and treats these as a reduction of sales at the time the sale is
recognized.
VENDOR CONSIDERATION
SYSCO recognizes consideration received from vendors when the services
performed in connection with the monies received are completed. There are
several types of cash flows.
Accumulated amortization at June 29, 2002, June 30, 2001 and July 1, 2000 was
$139,977,000, $116,439,000 and $96,862,000, respectively.
COSTS OF START-UP ACTIVITIESconsideration received from vendors. In many instances,
the vendor consideration is in the form of a specified amount per case or per
pound. In these instances, SYSCO will recognize the vendor consideration as a
reduction of cost of sales when the product is sold. In the first quartersituations where the
vendor consideration is not related directly to specific product purchases,
SYSCO will recognize these as a reduction of fiscal 2000,cost of sales when the earnings
process is complete, the related service is performed and the amounts realized.
In certain of these latter instances, the vendor consideration represents a
reimbursement of a specific incremental identifiable cost incurred by SYSCO. In
these cases, SYSCO recordedclassifies the consideration as a one-time, after-tax,
non-cash chargereduction of $8,041,000 to complythose costs
with any excess funds classified as a reduction of cost of sales and recognizes
these in the required adoption of AICPA
Statement of Position 98-5 (SOP 98-5), "Reporting onperiod where the Costs of Start-up
Activities." SOP 98-5 requires the write-off of any unamortized costs of
start-up activities and organization costs. Such costs are now expensed as
incurred.incurred and related services performed.
INSURANCE PROGRAM
SYSCO maintains a self-insurance program covering portions of workers'
compensation, group medical, general and vehicle liability costs. The amounts in
excess of the self-insured levels are fully insured. Self-insurance accrualsinsured by third party insurers.
Liabilities associated with these risks are basedestimated in part by considering
historical claims experience, demographic factors, severity factors and other
actuarial assumptions.
38
STOCK-BASED COMPENSATION
SYSCO accounts for its stock compensation plans using the intrinsic value
method provided by Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations under which no
compensation cost has been recognized for stock option grants.
Options issued before September 2001 generally vest over a five-year period
beginning on claims filedthe date of grant if certain operating performance measures are
attained, or will vest fully nine and an estimate for significant claims incurred but not
reported.
REVENUE RECOGNITION
The company recognizes revenueone-half years from the saledate of a product at the time the
product is deliveredgrant to
the customer.extent not previously vested. Options issued in September 2001 and after
generally vest ratably over a specified five-year period.
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 of SFAS No. 123, "Accounting for Stock-Based
Compensation," for all periods presented:
2004
(53 WEEKS) 2003 2002
------------ ------------ ------------
Net earnings:
Reported net earnings.................... $907,214,000 $778,288,000 $679,787,000
Stock-based compensation expense, net of
taxes................................. (61,484,000) (51,862,000) (37,344,000)
------------ ------------ ------------
Adjusted net earnings.................... $845,730,000 $726,426,000 $642,443,000
============ ============ ============
Basic earnings per share:
Reported basic earnings per share........ $ 1.41 $ 1.20 $ 1.03
Stock-based compensation expense, net of
taxes................................. (0.09) (0.08) (0.06)
------------ ------------ ------------
Adjusted basic earnings per share........ $ 1.32 $ 1.12 $ 0.97
============ ============ ============
Diluted earnings per share:
Reported diluted earnings per share...... $ 1.37 $ 1.18 $ 1.01
Stock-based compensation expense, net of
taxes................................. (0.09) (0.08) (0.06)
------------ ------------ ------------
Adjusted diluted earnings per share...... $ 1.28 $ 1.10 $ 0.95
============ ============ ============
The weighted average fair value of options granted was $6.74, $6.88 and
$8.81 per share during fiscal 2004, 2003 and 2002, respectively. The fair value
on the date of grant was estimated using the Black-Scholes option pricing model
with the following weighted average assumptions for each fiscal year:
2004 2003 2002
------- ------- -------
Dividend yield............................................ 1.49% 1.45% 1.26%
Expected volatility....................................... 22% 25% 22%
Risk-free interest rate................................... 3.2% 2.7% 4.8%
Expected life............................................. 5 years 5 years 8 years
The weighted average fair value of employee stock purchase rights issued
pursuant to the Employees' Stock Purchase Plan was $5.17, $4.14 and $3.96 per
share during fiscal 2004, 2003 and 2002, respectively. The fair value of the
stock purchase rights was calculated as the difference between the stock price
at date of issuance and the employee purchase price.
The pro forma presentation includes only options granted after 1995. The
pro forma effects for fiscal 2004, 2003 and 2002 are not necessarily indicative
of the pro forma effects in future years.
39
SHIPPING AND HANDLING COSTS
Shipping and handling costs include costs associated with the selection of
products and delivery to customers. Included in operating expenses are shipping
and handling costs of approximately $1,624,552,000 in fiscal 2004,
$1,505,360,000 in fiscal 2003, and $1,328,428,000 in fiscal 2002.
INCOME TAXES
SYSCO follows the liability method of accounting for income taxes as
required by the provisions of Statement of Financial Accounting Standards (SFAS)SFAS No. 109, "Accounting for Income Taxes."
CASH FLOW INFORMATION
For cash flow purposes, cash includes cash equivalents such as time
deposits, certificates of deposit, short-term investments and all highly liquid
instruments with original maturities of three months or less.
SHIPPING AND HANDLING COSTS
ShippingACQUISITIONS
During fiscal 2004, SYSCO or one of its subsidiaries acquired for cash
certain assets of two broadline foodservice operations, a specialty produce
distributor, and handling costs include costs associated with the selectionone quickservice operation. During fiscal 2003, SYSCO or one of
its subsidiaries acquired for cash a broadline foodservice operation, two
quickservice operations, a custom meat-cutting operation, a specialty
distributor of products to the Asian cuisine foodservice market and delivery to customers. Included in operating expenses are shippinga
distributor of paper and handling costs of approximately $1,328,428,000 in fiscal 2002,
$1,297,944,000 in fiscal 2001 and $1,140,116,000 in fiscal 2000.
ACQUISITIONSchemical products. During fiscal 2002, SYSCO acquired
for cash and/or stock a custom meat-cutting operation, a company that supplies
products to the lodging industry and acquired substantially all of the assets and certain
liabilities of a Canadian broadline foodservice operation.
InDuring fiscal 2004, in the aggregate, SYSCOthe company paid cash of $233,618,000$79,247,000
and issued 343,4682,007,089 shares with a value of $41,993,000 for acquisitions during
fiscal 2004 and for contingent consideration related to operations acquired in
previous fiscal years. In addition, escrowed funds related to certain
acquisitions in the former ownersamount of $4,810,000 were released to sellers during fiscal
2004.
Acquisitions of businesses are accounted for using the purchase method of
accounting and the financial statements include the results of the acquired
companies.
During fiscal 2001, SYSCO acquired for cash and/or stock, two custom
meat-cutting operations two broadline foodservice companiesfrom the respective dates they joined SYSCO. The acquisitions were
immaterial, individually and one company
that supplies productsin the aggregate, to the lodging industry. In the aggregate, SYSCO paid
cash of $8,848,000 and issued 12,399,957 shares to the former ownersconsolidated financial
statements.
The purchase price of the acquired companies. During fiscal 2002, SYSCO issued an additional 119,245
sharesentities is allocated to the former ownersnet assets
acquired and liabilities assumed based on the estimated fair value at the dates
of acquisition, with any excess of cost over the fair value of net assets
acquired, companies.
28
During fiscal 2000, SYSCO acquired for cash and/or stock, three custom
meat-cutting operations, two broadline foodservice companiesincluding intangibles, recognized as goodwill. The balances included
in the Consolidated Balance Sheets related to recent acquisitions are based upon
preliminary information and one specialty
produce company. In the aggregate, SYSCO paid cash of $211,901,000are subject to change when final asset and issued
9,968,994 sharesliability
valuations are obtained. Material changes to the former owners of the acquired companies. During fiscal
2001, SYSCO paid additional cash of $1,515,000 related to these acquisitions and
issued an additional 152,002 shares to former owners of the acquired companies.
During fiscal 2002, SYSCO paid additional cash of $1,000,000 related to these
acquisitions and issued an additional 703,311 shares to the former owners of the
acquired companies.preliminary allocations are not
anticipated by management.
Certain acquisitions involve contingent consideration typically payable
only in the event that certain operating results are attained or certain
outstanding contingencies are resolved. Aggregate contingent consideration
amounts outstanding as of June 29, 2002July 3, 2004 included approximately 4,135,0001,273,000 shares
and $1,857,000 with a total aggregate value of $87,586,000.
The transactions were accounted for using the purchase method of accounting
and the financial statements include the results of the acquired companies from
the respective dates they joined SYSCO. The acquisitions were immaterial,
individually and$61,614,000 in cash, which, if distributed, could result in the aggregate,recording of
up to the consolidated financial statements.
The purchase price was allocated$88,465,000 in additional goodwill. Such amounts typically are to the net assets acquired based on the
estimated fair value atbe paid
out over periods of up to five years from the date of acquisition. The balances included in the
Consolidated Balance Sheets related to the current year acquisitions are based
upon preliminary information and are subject to change when final asset and
liability valuations are obtained. Material changes to the preliminary
allocations are not anticipated by management.
DERIVATIVE FINANCIAL INSTRUMENTS
SYSCO manages its debt portfolio by targeting an overall desired position
of fixed and floating rates and may employ interest rate swaps from time to time
to achieve this goal. The company does not use derivative financial instruments
for trading or speculative purposes.
In March 2002, SYSCO entered into an interest rate swap agreement with a$200,000,000
aggregate notional amount of $200,000,000 related to the $200,000,000 aggregate principal
amount ofas a fair value hedge against 4.75% notes due July
30, 2005. The objectiveswap effectively converted the fixed interest rate on the notes into a
floating rate of six-month LIBOR in arrears less 84.5 basis points, which was
designated as
40
the respective benchmark interest rate on each of the interest payment dates
until maturity of the respective notes. In June 2003, SYSCO terminated this
agreement and received approximately $15,359,000, which represented the fair
value of the swap agreement at the time of termination.
In October 2003, SYSCO entered into $500,000,000 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 $200,000,000 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 which represented the fair value of the
swap agreement at the time of termination.
In April 2004 and May 2004, SYSCO entered into two interest rate swaps each
with $100,000,000 aggregate notional amount as fair value hedges against the
4.60% Senior Notes due March 2014. The swaps effectively convert the fixed rate
on these notes into floating rates of six-month LIBOR in arrears less 52 and 72
basis points, respectively, which were designated as the respective benchmark
interest rates on each of the interest payment dates until maturity of the
notes.
The terms of the swap agreements and the hedged items are such transaction is to
protectthat the
debthedges are considered perfectly effective against changes in the fair value of
the debt due to changes in the benchmark interest rate, which has been designated as six-month LIBOR in arrears less 84.5
basis points. Underrates over their terms. As a
result, the interest rate swap agreement, SYSCO receivesshortcut method provided by SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," is applied and there is no need to
periodically reassess the fixed
rate equal to 4.75% per annum and pays the benchmark interest rate. SYSCO has
designated its interest rate swap agreement as a fair value hedgeeffectiveness of the underlying debt.hedges during the terms of the
swaps. Interest expense on the debt is adjusted to include payments made or
received under the hedge agreement.agreements. The recordedfair value of the swap
agreement (not material in amount) and the related debt areswaps is carried as
an asset or a liability on the Consolidated Balance SheetsSheet and the carrying value
of the hedged debt is adjusted accordingly. The fair values of SYSCO's interest
rate swaps are the estimated amounts the company would receive or pay to
terminate the agreements as of the reporting dates. As of July 3, 2004, the fair
value of the outstanding swaps was a loss of $5,430,000, which is reflected in
Other Long-term Liabilities on the Consolidated Balance Sheet, and the carrying
amount of the related debt has been decreased by the same amount. There were no
outstanding swaps as of June 28, 2003.
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
fair value.termination. This increase in the carrying value of the debt is amortized as a
reduction of interest expense over the remaining term of the debt.
NEW ACCOUNTING STANDARDS
In fiscal 2000, SYSCO adopted the AICPA Statementprovisions of Position 98-1 (SOP
98-1), "AccountingEmerging Issues Task Force (EITF) Issue No.
00-21, "Revenue Arrangements with Multiple Deliverables," effective at the
beginning of fiscal 2004. EITF 00-21 addresses how to account for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1revenue
arrangements with multiple deliverables and provides guidance with respectrelating to accountingwhen
such arrangements should be divided into components for the
various types of costs incurred for computer software developed or obtained for
SYSCO's use.revenue recognition
purposes. The adoption of SOP 98-1this consensus did not have a significant effectmaterial impact on
SYSCO's consolidated results of operations or financial position.
In fiscal 2001,statements.
SYSCO adopted the Financialprovisions of FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities, an Interpretation of Accounting Standards Board's
(FASB) StatementResearch Bulletin
(ARB) No. 51," effective at the beginning of Financial Accounting Standard (SFAS) No. 133, "Accounting
for Derivative Instrumentsfiscal 2004. This interpretation
introduces a new consolidation model, the variable interests model, which
determines control (and consolidation) based on potential variability in gains
and Hedging Activities," SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities -- Deferrallosses of the Effective
Dateentity being evaluated for consolidation. The adoption of SFAS No. 133," and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities -- an amendment of SFAS No. 133."
These statements outline the accounting treatment for all derivative activity
and their adoptionthis
interpretation did not have a significant effectmaterial impact on SYSCO's consolidated results of operations or financial
position.
In fiscal 2001,statements.
SYSCO adopted the Securities and Exchange Commission Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition." SAB 101 provides
guidance on the recognition, presentation
29
and disclosure of revenue in financial statements. The adoption of SAB 101 had
no effect on SYSCO's consolidated results of operations or financial position.
In June 2001, SYSCO adopted SFAS No. 141, "Accounting for Business
Combinations." SFAS No. 141 requires that all business combinations be accounted
for using the purchase method of accounting and prohibits the
pooling-of-interests method for business combinations initiated after June 30,
2001. SYSCO is adopting the provisions of SFAS No. 142,150, "Accounting for GoodwillCertain
Financial Instruments with Characteristics of Both Liabilities and Other Intangible Assets"Equity,"
effective withat the beginning of fiscal year 2003.
As a result, the amortization of goodwill and indefinite life intangibles will
be discontinued. Goodwill and indefinite life intangibles arising from business
combinations after June 30, 2001 are also not amortized. The recoverability of
goodwill and intangibles will be assessed annually or as needed by determining
whether the fair value of the applicable reporting units exceed their carrying
values. SYSCO has six months from the date it adopts2004. SFAS No. 142 to test150 establishes standards
for impairmenthow an issuer classifies and any impairment charge resulting from the initial applicationmeasures certain financial instruments with
characteris-
41
tics of the new rule must be classified as the cumulative effect of a change in
accounting principle. Thereafter, any impairment losses will be included, net of
tax, within the results of continuing operations. Management has completed its
preliminary assessment of the impact that theboth liabilities and equity. The adoption of SFAS No. 142 will have
on the company's consolidated financial statements and believes that its
goodwill isthis statement did not impaired. Goodwill amortization, after tax, recognized by SYSCO
was $14,533,000 in 2002, $12,089,000 in 2001 and $7,812,000 in 2000.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS 121 and
the portion of the Accounting Principle Board Opinion No. 30 that deals with
disposal of a business segment. Management does not expect SFAS 144, which is
effective for fiscal 2003, to have
a material effect on SYSCO's consolidated financial statements.
SYSCO adopted the resultsdisclosure provisions of operations.SFAS No. 132 (revised 2003),
"Employers' Disclosures about Pensions and Other Postretirement Benefits," in
the third quarter of fiscal 2004. The standard requires that companies provide
additional financial statement disclosures for defined benefit plans in annual
and interim financial statements, which are found under the discussion of
"Employee Benefit Plans."
In March 2004, the FASB issued an Exposure Draft, "Share-Based Payment, an
Amendment of Statements No. 123 and 95." The proposed change in accounting would
replace existing requirements under SFAS No. 123, "Accounting for Stock-Based
Compensation" and APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the proposal, all forms of share-based payments to employees,
including employee stock options, would be expensed, recognizing the cost in the
income statement. The expense of each award would generally be measured at fair
value at the grant date. As proposed, SYSCO would have to adopt the new
statement beginning in fiscal 2006. The adoption of this proposed standard is
expected to have a material impact on SYSCO's consolidated financial statements,
as the company currently accounts for its stock compensation plans using the
intrinsic value method provided by APB No. 25 and thus has not recorded any
compensation expense with respect to stock option grants to date.
ADDITIONAL FINANCIAL INFORMATION
INCOME TAXES
The income tax provisions for each fiscal year consist of the following:
2004
(53 WEEKS) 2003 2002 2001 2000
------------ ------------ ------------
FederalUnited States federal income taxes.......................taxes......... $473,757,000 $408,902,000 $372,498,000
$322,837,000 $262,333,000
State, local and localforeign income taxes...............taxes...... 94,173,000 73,197,000 48,585,000 46,909,000 21,646,000
------------ ------------ ------------
Total...................................... $567,930,000 $482,099,000 $421,083,000 $369,746,000 $283,979,000
============ ============ ============
Included in the income taxes charged to earnings are net deferred tax
provisions of $263,492,000,$608,152,000, $481,330,000, and $6,199,000$263,492,000 in fiscal 2004, 2003
and 2002, and 2001,
respectively, and a deferred tax benefit of $25,528,000 in fiscal 2000.respectively. The deferred tax provisions (benefits) result from the effects of
net changes during the year in deferred tax assets and liabilities arising from
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. 30In
addition to the deferred tax provision, changes in the deferred tax liability
balances from June 28, 2003 to July 3, 2004 were also impacted by minimum
pension liability adjustments (see "Employee Benefit Plans") and the
reclassification of deferred supply chain distributions from current deferred
tax liabilities to accrued income taxes based on the timing of when payments
related to these items become payable.
United States income taxes have not been provided on undistributed earnings
of Canadian subsidiaries. The company intends to permanently reinvest the
unremitted earnings of its Canadian subsidiaries in those businesses outside of
the United States and, therefore, has not provided for deferred income taxes on
such unremitted foreign earnings.
42
Significant components of SYSCO's deferred tax assets and liabilities are
as follows:
JULY 3, 2004 JUNE 29, 2002 JUNE 30, 2001
-------------28, 2003
-------------- -------------
Net long-term deferred tax liabilities:liabilities (assets):
Deferred cooperative distributions..................... $266,673,000supply chain distributions.................. $ --340,737,000 $321,388,000
Excess tax depreciation and basis differences of
assets.............................................. 264,696,000 248,461,000assets............................................ 373,369,000 301,515,000
Casualty insurance..................................... (27,759,000) (21,523,000)insurance................................... (30,479,000) (27,169,000)
Deferred compensation.................................. (20,423,000) (17,364,000)
Other.................................................. (41,617,000) (21,507,000)
------------compensation................................ (31,343,000) (27,489,000)
Pension.............................................. 33,610,000 (86,859,000)
Other................................................ 811,000 17,010,000
-------------- ------------
Total net long-term deferred tax
liabilities................. 441,570,000 188,067,000
------------liabilities................................ 686,705,000 498,396,000
-------------- ------------
Net current deferred tax assets:
Receivables............................................ 19,681,000 7,533,000
Inventory.............................................. 18,706,000 (7,906,000)
Other.................................................. (4,199,000) 7,501,000
------------liabilities (assets):
Deferred supply chain distributions.................. 473,970,000 409,662,000
Receivables.......................................... (23,123,000) (18,980,000)
Inventory............................................ (23,738,000) (19,181,000)
Net operating tax loss carryforward.................. (68,501,000) (104,342,000)
Other................................................ (4,690,000) (10,106,000)
-------------- ------------
Total net current deferred tax assets...................... 34,188,000 7,128,000liabilities
before valuation allowances................ 353,918,000 257,053,000
Valuation allowances................................. 68,501,000 50,158,000
-------------- ------------
------------
NetTotal net current deferred tax liabilities............................. $407,382,000 $180,939,000
============liabilities... 422,419,000 307,211,000
-------------- ------------
Total net deferred tax liabilities..................... $1,109,124,000 $805,607,000
============== ============
TheDeferred supply chain distributions are classified as current or deferred
tax liabilities based on when the related income tax payments will become
payable. Fiscal 2004 was the first fiscal year that these supply chain
distributions were recognized in taxable income since the company has had taxable earnings during each yearbegan
deferring these items for tax purposes as a result of the reorganization of its
33-year
existencesupply chain in fiscal year 2001. As a result of the impact of these items and
knowsother temporary differences, including the utilization of no reason such profitability should not continue.
Consequently, SYSCOU.S. federal net
operating loss carryforwards, excess tax depreciation and pension contributions,
taxes paid during fiscal 2004 increased to $344,414,000 as compared to
$28,747,000 in fiscal 2003.
In fiscal 2003, the company had a U.S. federal net operating tax loss
primarily as a result of the deferral of the supply chain distributions. This
net operating loss carryforward was fully utilized in fiscal 2004. In addition,
the company had state and Canadian net operating losses at July 3, 2004 and June
28, 2003, respectively. The net operating losses outstanding at July 3, 2004
expire in fiscal years 2005 through 2020. A valuation allowance of $68,501,000
and $50,158,000 was recorded as of July 3, 2004 and June 28, 2003, respectively,
as management believes that it is more likely than not that the entire
benefitbenefits of
existing differencesthese state and Canadian tax loss carryforwards will not be realized and therefore no valuation
allowance has been established for deferred tax assets.through
future taxable income.
Reconciliations of the statutory Federalfederal income tax rate to the effective
income tax rates for each fiscal year are as follows:
2004 2003 2002 2001 2000
----- ----- -----
Statutory FederalUnited States statutory federal income tax rate...........................rate............. 35.00% 35.00% 35.00%
State and local income taxes, net of Federalfederal income tax
benefit................................................... 3.21 3.07 2.42
2.63 3.00
Other....................................................... 0.29 0.18 0.83 0.62 0.50
----- ----- -----
38.50% 38.25% 38.25% 38.50%
===== ===== =====
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
The allowance for doubtful accounts receivabledetermination of the company's overall effective tax rate requires the
use of estimates. The effective tax rate is a combination of income earned and
taxed in the various U.S. federal and state, as well as Canadian
43
federal and provincial jurisdictions. Jurisdictional tax law changes,
increases/decreases in permanent differences between book and tax items, tax
credits and the company's change in earnings from these taxing jurisdictions all
affect the overall effective tax rate.
RESTRICTED CASH
SYSCO is required by its insurers to collateralize the self-insured portion
of its workers' compensation and liability claims. SYSCO has chosen to satisfy
these collateral requirements by depositing funds in insurance trusts. In
addition, in certain acquisitions, SYSCO has placed funds into escrow to be
disbursed to certain sellers in the event that specified operating results are
attained or contingencies resolved.
A summary of restricted cash balances appears below:
JULY 3, 2004 JUNE 28, 2003
------------ -------------
Funds deposited in insurance trusts....................... $147,329,000 $57,000,000
Escrow funds related to acquisitions...................... 21,997,000 26,807,000
------------ -----------
Total..................................................... $169,326,000 $83,807,000
============ ===========
The increase in restricted cash from June 28, 2003 to July 3, 2004 was
$30,338,000 asprimarily due to the deposit of June
29, 2002$90,000,000 in insurance trusts due to a change
in underwriting requirements adopted by an insurer regarding the percentage of
overall risks required to be collateralized and $43,112,000 asto meet the collateral
requirements of June 30, 2001.a new insurer. Escrowed funds related to certain acquisitions in
the amount of $4,810,000 were released to sellers during fiscal 2004.
SHAREHOLDERS' EQUITY
On November 3, 20007, 2003, SYSCO's shareholders approved an amendment to SYSCO's
restated Certificate of Incorporation to increase the Boardnumber of Directors declared a 2-for-1shares of common
stock split
effected by a 100% stock dividend paid on December 15, 2000that SYSCO will have the authority to shareholdersissue to two billion shares, an
increase from the previous authorization of record on November 15, 2000. All share and per share data in these financial
statements have been restated to reflect the stock split.one billion shares.
Basic earnings per share have been computed by dividing net earnings by 661,808,432 in 2002, 665,551,228 in 2001 and 659,164,948 in 2000, which
represents the
weighted average number of shares of common stock outstanding during thosefor each
respective years.year. Diluted earnings per share have been computed by dividing net
earnings by 673,445,783 in 2002, 677,949,351 in 2001 and
669,555,856 in 2000, which represents the weighted average number of shares of common stock outstanding
during those respective years adjusted for the diluteddilutive effect of stock options
outstanding using the treasury stock method.
A reconciliation of the numerators and the denominators of the basic and
diluted per share computations for the periods presented follows:
2004
(53 WEEKS) 2003 2002
------------ ------------ ------------
Numerator:
Income available to common
shareholders.......................... $907,214,000 $778,288,000 $679,787,000
============ ============ ============
Denominator:
Weighted-average basic shares
outstanding........................... 642,688,614 650,600,652 661,808,432
Dilutive effect of employee and director
stock options......................... 19,230,620 10,934,730 11,637,351
------------ ------------ ------------
Weighted-average diluted shares
outstanding........................... 661,919,234 661,535,382 673,445,783
============ ============ ============
Basic earnings per share................... $ 1.41 $ 1.20 $ 1.03
Diluted earnings per share................. 1.37 1.18 1.01
The number of options which were not included in the diluted earnings per
share calculation because the effect would have been anti-dilutive was
approximately zero, 13,620,000 and 365,000 for fiscal 2004, 2003 and 2002,
respectively.
44
Dividends declared were $321,353,000, $273,852,000 and $225,530,000 in
fiscal 2004, 2003 and 2002, respectively. Included in dividends declared for
each year were dividends declared but not yet paid at year end of approximately
$83,000,000, $71,000,000 and $59,000,000, in fiscal 2004, 2003 and 2002,
respectively.
In May 1986, the Board of Directors adopted a Warrant Dividend Plan
designed to protect against those unsolicited attempts to acquire control of
SYSCO that the Board believes are not in the best interests of the shareholders.
In May 1996, the Board of Directors adopted an Amended and Restated Rights
Agreement (the Plan) to replace the Warrant Dividend Plan and, among other
things, extend the expiration of the Plan through May 2006. The Board adopted
further amendments in May 1999. The Plan provides for an initial dividend
distribution (which took place in 1996) and subsequent issuances of Preferred
Stock Purchase Rights (Rights) concurrently with future common share issuances
such that, prior to any adjustments, each outstanding share of SYSCO common
stock would be associated with one Right. After adjustments for common stock
splits, there is now one quarter of a Right associated with each common share.
The Rights will not be exercisable until a public announcement is made that
a party has acquired 10% or more of SYSCO's common stock or a party makes a
tender offer for 10% or more of its common stock, without Board approval (each a
Trigger Event). Currently, following occurrence of a Trigger Event, each whole
Right would, upon exercise, entitle its holder to purchase one two-thousandth of
a share of Series A Junior Participating Preferred Stock (Preferred) at an
exercise price of $175. The terms are subject to adjustment upon certain future
events. In addition to the foregoing, subject to limited exceptions, if a public
announcement is made that a party has acquired 10% or more of SYSCO's common
stock, a Rightholder may, for a limited time, purchase $350 worth of Preferred
for a purchase price of $175. In the event of a merger or other business
combination transaction not approved by the Board, each Right effectively
entitles the holder to purchase $350 worth of stock of the surviving company for
a purchase price of $175.
The Rights may be redeemed by SYSCO at a price of $0.01 per Right at any
time before a party acquires 10% of SYSCO's common stock. Unless sooner redeemed
or exercised, the Rights will expire at close of business May 31, 2006. As a
result of the Rights distribution, 450,000 of the 1,500,000 authorized preferred
shares have been reserved for issuance as Series A Junior Participating
Preferred Stock.
OTHER COMPREHENSIVE INCOME
Comprehensive income is net earnings plus certain other items that are
recorded directly to shareholders' equity.
The only such item currently
applicable tofollowing table provides a summary of the company relates to minimum pension liability. Comprehensivechanges in accumulated other
comprehensive income was $619,976,000, $591,285,000 and $445,588,000 at June 29, 2002, June
30, 2001 and July 1, 2000, respectively.
31(loss) for the years presented:
MINIMUM PENSION FOREIGN CURRENCY
LIABILITY TRANSLATION TOTAL
--------------- ---------------- -------------
Balance at June 30, 2001............... $ (5,624,000) $ -- $ (5,624,000)
Minimum pension liability adjustment,
net of tax of ($37,049,000).......... (59,811,000) -- (59,811,000)
------------- ----------- -------------
Balance at June 29, 2002............... (65,435,000) -- (65,435,000)
Minimum pension liability adjustment,
net of tax of ($74,136,000).......... (119,683,000) -- (119,683,000)
Foreign currency translation
adjustment........................... -- 32,737,000 32,737,000
------------- ----------- -------------
Balance at June 28, 2003............... (185,118,000) 32,737,000 (152,381,000)
Minimum pension liability adjustment,
net of tax of $101,689,000........... 164,385,000 -- 164,385,000
Foreign currency translation
adjustment........................... -- 5,636,000 5,636,000
------------- ----------- -------------
Balance at July 3, 2004................ $ (20,733,000) $38,373,000 $ 17,640,000
============= =========== =============
45
The following table provides a summary of the components of other
comprehensive income for the years presented:
2004
(53 WEEKS) 2003 2002
-------------- ------------- ------------
Net earnings............................ $ 907,214,000 $ 778,288,000 $679,787,000
Minimum pension liability adjustment.... 164,385,000 (119,683,000) (59,811,000)
Foreign currency translation
adjustment............................ 5,636,000 32,737,000 --
-------------- ------------- ------------
Other comprehensive income.............. $1,077,235,000 $ 691,342,000 $619,976,000
============== ============= ============
DEBT
SYSCO has uncommitted bank lines of credit, which provideprovided for unsecured
borrowings for working capital of up to $125,000,000$95,000,000. There were no borrowings
outstanding under these lines of which none was
outstanding atcredit as of July 3, 2004 or June 29, 2002 and $30,640,000 was outstanding at June 30, 2001.28, 2003.
SYSCO's debt consists of the following:
JULY 3, 2004 JUNE 29, 2002 JUNE 30, 200128, 2003
-------------- --------------
Commercial paper, interest averaging 2.6% in 20022.1% as of July
3, 2004 and 4.2% in 2001........................................2.7% as of June 28, 2003................ $ 63,293,00073,834,000 $ 179,313,000151,748,000
Senior notes, interest at 6.5%, maturing in 2005...... 149,733,000 149,643,000fiscal
2005................................................ 149,915,000 149,823,000
Senior notes, interest at 7.0%, maturing in 2006...... 200,000,000fiscal
2006................................................ 197,151,000 200,000,000
Senior notes, interest at 4.75%, maturing in 2006...... 199,569,000 --fiscal
2006................................................ 207,739,000 215,068,000
Senior notes, interest at 7.25%, maturing in 2007..... 99,813,000 99,774,000fiscal
2007................................................ 97,776,000 99,851,000
Senior notes, interest at 6.1%, maturing in 2012...... 199,366,000fiscal
2012................................................ 200,749,000 199,431,000
Senior notes, interest at 4.6%, maturing in fiscal
2014................................................ 199,423,000 --
Debentures, interest at 7.16%, maturing in 2027.......fiscal
2027................................................ 50,000,000 50,000,000
Debentures, interest at 6.5%, maturing in 2029........ 224,381,000 224,359,000fiscal
2029................................................ 224,427,000 224,404,000
Industrial Revenue Bonds, mortgages and other debt,
interest averaging 5.1% in 20025.5% as of July 3, 2004 and 6.2% in 2001,6.0%
as of June 28, 2003, maturing at various dates to
2026................... 70,266,000 112,239,000fiscal 2026......................................... 67,146,000 81,911,000
-------------- --------------
Total debt............................................ 1,256,421,000 1,015,328,0001,468,160,000 1,372,236,000
Less current maturities and short-term debt........... (80,114,000) (53,907,000)(236,667,000) (122,769,000)
-------------- --------------
Net long-term debt.................................... $1,176,307,000 $ 961,421,000$1,231,493,000 $1,249,467,000
============== ==============
The principal payments required to be made on debt during the next five
years are shown below:
FISCAL YEAR AMOUNT
- ----------- ------------
2003........................................................ $ 80,114,000
2004........................................................ 21,840,000
2005........................................................ 153,006,000$236,667,000
2006........................................................ 402,505,000414,409,000
2007........................................................ 102,769,000103,265,000
2008........................................................ 3,542,000
2009........................................................ 1,792,000
SYSCO hadhas a revolving loan agreement in the amount of $300,000,000 as of
June 29, 2002 maturing in fiscal 2004 which supported the company's U.S.
commercial paper program. There were no U.S. commercial paper borrowings
outstanding at June 29, 2002. In September 2002, the company entered into a new revolving loan agreement in the amount of $450,000,000,
maturing in fiscal 2008.2008, which supports the company's United States commercial
paper program. It is the company's intent to continue to refinance this facility
on a long-term basis. As a result, the commercial paper borrowings supported by
this agreement have been classified as long-term debt. The United States
commercial paper borrowings outstanding at July 3, 2004 and June 28, 2003 were
zero and $49,926,000, respectively.
46
SYSCO also has a revolving loan agreement in the amount of $100,000,000 in
Canadian dollars (CAD), maturing in fiscal 20032005, which supports the company's
Canadian commercial paper program. The Canadian commercial paper borrowings
outstanding at July 3, 2004 and June 29, 200228, 2003 were CAD $99,252,000$97,768,000 ($63,293,00073,834,000
in U.S. dollars). and CAD $137,078,000 ($101,822,000 in U.S. dollars),
respectively.
In June 1995, SYSCO issued 6.5% senior notes totaling $150,000,000 due June
12, 2005, under a $500,000,000 shelf registration filed with the Securities and
Exchange Commission. These notes, which were priced at 99.4% of par, are
unsecured, not redeemable prior to maturity and are not subject to any sinking
fund requirement. In May 1996, SYSCO issued 7.0% senior notes totaling
$200,000,000 due May 1, 2006, under this shelf registration. These notes, which
were priced at par, are unsecured, not redeemable prior to maturity and are not
subject to any sinking fund requirement. In April 1997, in two separate
offerings, SYSCO drew down the remaining $150,000,000 of the $500,000,000 shelf
registration. SYSCO issued 7.16% debentures totaling $50,000,000 due April 15,
2027. These debentures were priced at par, are unsecured, are not subject to any
sinking fund requirement and are redeemable at the option of the holder on April
15, 2007, but otherwise 32
are not redeemable prior to maturity. At that time, SYSCO also issued
7.25% senior notes totaling $100,000,000 due April 15, 2007. These notes were
priced at 99.611% of par and are unsecured, not redeemable prior to maturity and
not subject to any sinking fund requirement.
In June 1998, SYSCO filed with the Securities and Exchange Commission
another $500,000,000 shelf registration of debt securities. In July 1998, SYSCO
issued 6.5% debentures totaling $225,000,000 under the shelf registration, due
on August 1, 2028. These debentures were priced at 99.685% of par, are
unsecured, are not subject to any sinking fund requirement and include a
redemption provision which allows SYSCO to retire the debentures at any time
prior to maturity at the greater of par plus accrued interest or an amount
designed to ensure that the debenture holders are not penalized by the early
redemption. Proceeds from the debentures were used to retire commercial paper
borrowings.
In April 2002, SYSCO issued 4.75% notes totaling $200,000,000 under thisthe
1998 shelf registration, due on July 30, 2005. These notes, which were priced at
99.8% 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.
Concurrent with the issuance of these notes, SYSCO entered into an
interest rate swap agreement with a notional amount of $200,000,000 whereby
SYSCO receives a fixed rate equal to 4.75% per annum and pays a benchmark
interest rate of six-month LIBOR in arrears less 84.5 basis points.
In May 2002, SYSCO International, Co., a wholly-owned subsidiary of SYSCO,
issued 6.10% notes totaling $200,000,000 due June 1, 2012 in a private offering.
These notes, which were priced at 99.7% of par, were fully and unconditionally
guaranteed by Sysco Corporation, were not subject to any sinking fund
requirement, included registration rights for the note holders, and included a
redemption provision which allowed SYSCO International, Co. 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 were not penalized by the early
redemption. In December 2002, SYSCO International, Co. completed a registered
exchange offer for these notes. In the exchange offer, all of the outstanding
$200,000,000 notes were exchanged for new notes which are identical in all
respects to the outstanding notes except that the new notes are registered under
the Securities Act of 1933. The new notes are fully and unconditionally
guaranteed by Sysco Corporation. The proceeds from these notes were utilized to
repay commercial paper issued by SYSCO Corporation,International, Co. to fund the
acquisition of a Canadian broadline foodservice business.
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 include registration rights for the note holders, and include a
redemption provision which allows SYSCO International, Co. 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. SYSCO International, Co. and SYSCO have filed a registration
statement withProceeds
from the Securities and Exchange Commission covering an identical
series of notes to be issued in exchange for the unregistered notes outstanding.
The proceeds from these notes were utilized to repayretire commercial paper issued by
SYSCO International, Co. to fund the acquisition of a Canadian broadline
foodservice business.
Theborrowings.
SYSCO's Industrial Revenue Bonds have varying structures. Final maturities
range from one to 2422 years and certain of the bonds provide SYSCO the right to
redeem (or call) the bonds at various dates. These call
47
provisions generally provide the bondholder a premium in the early call years,
declining to par value as the bonds approach maturity.
Net long-termTotal debt at June 29, 2002July 3, 2004 was $1,176,307,000. After adjusting$1,468,160,000, of which approximately 60%
was at fixed rates averaging 5.2% with an average life of 8 years, and the
remainder was at floating rates averaging 4.0%, as adjusted for the effect of
the interest rate swap, 82% of the long-term debt is fixedswaps outstanding at rates averaging 6.61% with an average life of 12 years, while the remainder is
financed at floating rates averaging 1.3%.July 3, 2004. Certain loan agreements
contain typical debt covenants to protect noteholders, including provisions to
maintain tangible net worth in excess ofthe company's long-term debt to total capital ratio below a specified
level. SYSCO was in compliance with all debt covenants at June 29, 2002.July 3, 2004.
The fair value of SYSCO's total long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the company for debt of the same remaining maturities. The fair value
of total long-term debt approximates $1,241,246,000approximated $1,459,969,000 at July 3, 2004 and
$1,408,631,000 at June 29, 2002 and
$990,390,000 at June 30, 2001.28, 2003, respectively.
As part of normal business activities, SYSCO issues letters of credit
through major banking institutions as required by certain vendor and insurance
agreements. As of June 29, 2002July 3, 2004 and June 30, 2001,28, 2003, letters of credit outstanding
were $15,619,000$11,001,000 and $42,129,000,$14,610,000, respectively.
LEASES
Although SYSCO normally purchases assets, it has obligations under capital
and operating leases for certain distribution facilities, vehicles and
computers. Total rental expense under operating leases was 33
$86,842,000,
$83,597,000, and $64,130,000 $59,833,000 and $44,015,000 in fiscal 2002, 20012004, 2003 and 2000,2002, respectively.
Contingent rentals, subleases and assets and obligations under capital leases
are not significant.
Aggregate minimum lease payments under existing non-capitalized long-term
leases are as follows:
FISCAL YEAR AMOUNT
- ----------- -----------
2003........................................................ $51,680,000
2004........................................................ 44,353,000
2005........................................................ 36,315,000$56,750,000
2006........................................................ 30,296,00047,125,000
2007........................................................ 22,712,00033,809,000
2008........................................................ 25,518,000
2009........................................................ 18,336,000
Later years................................................. 92,357,00075,545,000
STOCKSTOCK-BASED COMPENSATION PLANS
Employee Incentive Stock Option Plan
The Employee Incentive Stock Option Plan adopted in fiscal 1982 provided
for the issuance of options to purchase SYSCO common stock to officers and key
personnel of the company and its subsidiaries at the market price at the date of
grant, as adjusted for stock splits. No further grants will be made under this
plan which expired in November 1991 and was replaced by the 1991 Stock Option
Plan.
The following summary presents information with regard to options under
this plan:
OPTIONS EXERCISABLE OPTIONS OUTSTANDING
------------------------------ ---------------------------
MAXIMUM WEIGHTED SHARES WEIGHTED
SHARES AVERAGE EXERCISE UNDER AVERAGE EXERCISE
EXERCISABLE PRICE PER SHARE OPTION PRICE PER SHARE
----------- ---------------- -------- ----------------
Balance at July 3, 1999................... 715,056 $4.97 715,056 $4.97
Exercised............................... (321,478) 4.89
--------
Balance at July 1, 2000................... 393,578 5.04 393,578 5.04
Cancelled............................... (4,000) 5.56
Exercised............................... (281,200) 4.83
--------
Balance at June 30, 2001.................. 108,378 5.56$5.56 108,378 5.56
Cancelled............................... --$5.56
Exercised............................... (108,378) 5.56
--------
Balance at June 29, 2002.................. --
========
All activity under this plan concluded in fiscal 2002.
48
1991 Stock Option Plan
The 1991 Stock Option Plan (1991 Plan) was adopted in fiscal 1992 and
originally reserved 12,000,000 shares of SYSCO common stock for options to
directors, officers and key personnel of the company and its subsidiaries at the
market price at the date of grant. The 1991 Plan provided for the issuance of
options qualified as incentive stock options under the Internal Revenue Code of
1986, options which are not so qualified and stock appreciation rights. Vesting
requirements for awards under this plan vary by individual grant and include a
combination of both time-based and performance-based vesting. The contractual
life of all options granted under this plan is 10 years. During fiscal 1996, the
shareholders approved an amendment to the 1991 Plan for an additional 32,000,000
shares to be made available for future grants of options. No stock appreciation
rights were issued under this plan. No further grants will be made under this
plan, which expired in November 2000 and was replaced by the 2000 Stock
Incentive Plan.
34
The following summary presents information with regard to options under the
1991 Plan:
OPTIONS EXERCISABLE OPTIONS OUTSTANDING
------------------------------ -----------------------------
MAXIMUM WEIGHTED SHARES WEIGHTED
SHARES AVERAGE EXERCISE UNDER AVERAGE EXERCISE
EXERCISABLE PRICE PER SHARE OPTION PRICE PER SHARE
----------- ---------------- ---------- ----------------
Balance at July 3, 1999................. 5,726,188 $ 7.16 17,539,498 $ 8.20
Granted............................... 4,950,784 16.33
Cancelled............................. (946,688) 8.78
Exercised............................. (2,312,126) 7.36
----------
Balance at July 1, 2000................. 6,175,254 7.56 19,231,468 10.36
Granted............................... 5,674,910 20.98
Cancelled............................. (459,626) 16.74
Exercised............................. (3,651,651) 8.57
----------
Balance at June 30, 2001................ 9,095,187 $ 9.02 20,795,101 13.43
Granted............................... -- --$13.43
Cancelled............................. (307,362) 17.28
Exercised............................. (2,548,393) 10.52
----------
Balance at June 29, 2002................ 11,251,541 $11.3811.38 17,939,346 $13.7813.78
Cancelled............................. (224,261) 16.33
Exercised............................. (2,686,279) 11.76
----------
Balance at June 28, 2003................ 11,514,379 13.01 15,028,806 14.12
Cancelled............................. (120,053) 15.25
Exercised............................. (3,334,121) 12.13
----------
Balance at July 3, 2004................. 10,020,584 $14.50 11,574,632 $14.68
==========
The following table summarizes information about options outstanding under
the 1991 Plan as of June 29, 2002:July 3, 2004:
OPTIONS EXERCISABLE OPTIONS OUTSTANDING
----------------------------- -----------------------------------------------------
WEIGHTED WEIGHTED AVERAGE WEIGHTED
AVERAGE EXERCISE REMAINING CONTRACTUAL AVERAGE EXERCISE
RANGE OF EXERCISE PRICEPRICES SHARES PRICE PER SHARE SHARES LIFE (YRS) PRICE PER SHARE
- ----------------------------------------------- ---------- ---------------- ---------- --------------------- ----------------
$6.31$6.38 to $8.75........ 6,198,5413,174,767 $ 7.74 6,894,627 3.658.01 3,631,126 2.22 $ 7.788.01
$10.94 to $16.28...... 3,517,841 14.35 3,881,472 4.83 14.47
$17.25 to $20.97...... 5,053,000 15.85 11,044,719 7.29 17.533,327,976 20.86 4,062,034 6.16 20.84
---------- ----------
Balance at
June 29,
2002................ 11,251,541 $11.38 17,939,346 5.89 $13.78July 3, 2004........ 10,020,584 $14.50 11,574,632 4.48 $14.68
========== ==========
2000 Stock Incentive Plan
The 2000 Stock Incentive Plan (2000 Plan) was adopted in fiscal 2001 and
provides for option grants and other stock basedstock-based awards to directors, officers
and other employees of the company and its subsidiaries at the market price at
the date of grant. The 2000 Plan reserves 40,000,000 shares of SYSCO common
stock, plus any shares of common stock which were available for grants under the
1991 Plan but which were not utilized prior to its expiration (approximately
8,504,000 shares) and any shares issued under the 1991 Plan that are forfeited,
expire or are canceledcancelled (approximately 4,220,0004,565,000 shares at June 29, 2002)as of July 3, 2004) and to the extent authorized
by the Board of Directors,
up to 10,000,000 shares of common stock which arehave been reacquired by the
company in the open market or in private transactions after November 3, 2000.
The 2000 Plan provides for the issuance of options qualified as
49
incentive stock options under the Internal Revenue Code of 1986, options which
are not so qualified, stock appreciation rights and other stock basedstock-based awards.
Vesting requirements for awards under this plan vary by individual grant and
include a combination of both time-based and performance-based vesting. The
contractual life of all options granted under this plan through July 3, 2004 is
10 years. To date, the company has issued stock options but no stock
appreciation rights under the 2000 Plan. 35
As of July 3, 2004, there were
9,388,820 remaining shares authorized and available for grant. In September
2004, approximately 8,632,750 options were granted to employees.
The following summary presents information with regard to options under the
2000 Plan:
OPTIONS EXERCISABLE OPTIONS OUTSTANDING
------------------------------ -----------------------------
MAXIMUM WEIGHTED SHARES WEIGHTED
SHARES AVERAGE EXERCISE UNDER AVERAGE EXERCISE
EXERCISABLE PRICE PER SHARE OPTION PRICE PER SHARE
----------- ---------------- ---------- ----------------
Granted................................. -- $26.16 150,000 $26.16
----------
Balance at June 30, 2001................ -- 26.16$26.16 150,000 26.16$26.16
Granted................................. 30,514,910 27.81
Cancelled............................... (445,805) 27.79
----------
Balance at June 29, 2002................ 18,448,383 $27.792,422,383 27.77 30,219,105 $27.8027.80
Granted................................. 13,650,211 30.57
Cancelled............................... (1,332,640) 28.48
Exercised............................... (292,313) 27.79
----------
Balance at June 28, 2003................ 5,391,843 27.78 42,244,363 28.67
Granted................................. 13,344,746 31.77
Cancelled............................... (1,097,937) 29.45
Exercised............................... (2,223,216) 28.15
----------
Balance at July 3, 2004................. 21,420,393 $28.89 52,267,956 $29.47
==========
The following table summarizes information about options outstanding at June 29, 2002 under
the 2000 Plan have exercise
prices ranging fromas of July 3, 2004:
OPTIONS EXERCISABLE OPTIONS OUTSTANDING
----------------------------- -----------------------------------------------------
WEIGHTED WEIGHTED AVERAGE WEIGHTED
AVERAGE EXERCISE REMAINING CONTRACTUAL AVERAGE EXERCISE
RANGE OF EXERCISE PRICES SHARES PRICE PER SHARE SHARES LIFE (YRS) PRICE PER SHARE
- ------------------------ ---------- ---------------- ---------- --------------------- ----------------
$26.16 to $29.82...... 14,000,452 $27.78 26,495,252 7.20 $27.80
$30.57 to $34.73...... 7,419,941 30.98 25,772,704 8.70 31.18
---------- ----------
Balance at July 3,
2004................ 21,420,393 $28.89 52,267,956 7.94 $29.47
========== ==========
The total number of options granted under the 2000 Plan was 13,344,746,
13,650,211 and 30,514,910 in fiscal years 2004, 2003 and 2002, respectively.
During fiscal 2004, 2,482,000 options were granted to $29.82approximately 2,400
non-executive employees based on tenure, 821,000 options were granted to 17
executive officers and have10,041,746 options were granted to approximately 2,000
other key employees. During fiscal 2003, 2,311,000 options were granted to
approximately 2,300 non-executive employees based on tenure, 942,000 options
were granted to 17 executive officers and 10,397,211 options were granted to
approximately 2,000 other key employees. During fiscal 2002, 16,265,000 options
were granted to approximately 8,800 non-executive employees based on tenure,
1,239,000 options were granted to 17 executive officers and 13,010,910 were
granted to approximately 2,300 other key employees. The number of options
granted in fiscal 2002 was significantly higher than the number of options
granted in fiscal 2003 and fiscal 2004. Part of this increase was due to a weighted average remaining
contractual life of eight years.new
program instituted in fiscal 2002 that provides for stock options to be granted
to all non-executive employees who meet certain tenure requirements.
50
1993 and 1996 Guest Supply Stock Incentive Plans
Prior to March 2001, Guest Supply, Inc. maintained the 1993 Stock Option
Plan and the 1996 Long-Term Incentive Plan (Guest Supply Plans). In connection
with SYSCO's acquisition of Guest Supply in March 2001, all outstanding options
exercisable to purchase Guest Supply common stock were converted into options to
purchase shares of SYSCO common stock. The number of shares underlying such
options, as well as the exercise price, were adjusted pursuant to the terms of
the Merger Agreement and Plan of Reorganization dated January 22, 2001. These
options are fully vested and expire in ten10 years from the original grant date. No
new options will be issued under any of the Guest Supply Plans.
The following summary presents information with regard to options under the
Guest Supply Plans:
OPTIONS EXERCISABLE OPTIONS OUTSTANDING
------------------------------ -----------------------------------------------------
MAXIMUM WEIGHTED SHARES WEIGHTED
SHARES AVERAGE EXERCISE UNDER AVERAGE EXERCISE
EXERCISABLE PRICE PER SHARE OPTION PRICE PER SHARE
----------- ---------------- --------------- ----------------
Granted.................................... 571,920 $11.04 571,920 $11.04
Exercised.................................. (9,564) 13.50
-------
Balance at June 30, 2001...................2001.................. 562,356 11.00$11.00 562,356 11.00
Exercised..................................$11.00
Exercised................................. (95,637) 11.89
---------------
Balance at June 29, 2002...................2002.................. 466,719 $10.8210.82 466,719 $10.82
=======10.82
Exercised................................. (134,251) 7.11
--------
Balance at June 28, 2003.................. 332,468 12.31 332,468 12.31
Exercised................................. (102,780) 10.35
--------
Balance at July 3, 2004................... 229,688 $13.19 229,688 $13.19
========
The following table summarizes information about options outstanding under
the Guest Supply Plans as of June 29, 2002:July 3, 2004:
OPTIONS EXERCISABLE OPTIONS OUTSTANDING
-------------------------- --------------------------------------------------
WEIGHTED WEIGHTED AVERAGE WEIGHTED
AVERAGE EXERCISE REMAINING CONTRACTUAL AVERAGE EXERCISE
RANGE OF EXERCISE PRICEPRICES SHARES PRICE PER SHARE SHARES LIFE (YRS) PRICE PER SHARE
- ----------------------------------------------- ------- ---------------- ------- --------------------- ----------------
$4.88$10.00 to $12.03........... 337,609 $ 8.69 337,609 2.36 $ 8.69
$14.84$14.84.......... 139,898 $10.91 139,898 4.20 $10.91
$15.95 to $18.43.......... 129,110 16.38 129,110 5.14 16.3889,790 16.75 89,790 3.55 16.75
------- -------
Balance at June 29,
2002.................... 466,719 $10.82 466,719 3.13 $10.82July 3, 2004... 229,688 $13.19 229,688 3.95 $13.19
======= =======
Non-Employee Directors Stock Option Plan and Non-Employee Directors Stock Plan
The Non-Employee Directors Stock Option Plan adopted in fiscal 1996
permitted the issuance of up to 800,000 shares of common stock to non-employee
directors. As of June 29, 2002, options for 272,000 shares, net of
cancellations, had been granted to nine non-employee directors under this plan,
72,000 shares had been
36
exercised and 200,000 shares were available for exercise. No further grants will be made under this plan, which was replaced by
the Non-Employee Directors Stock Plan.
Non-Employee Directors Stock Plan
The Non-Employee Directors Stock Plan adopted in fiscal 1999 permits the
issuance of up to 800,000 shares of common stock to non-employee directors.
Under this plan, non-employee directors may receive a one time retainer stock award
of 4,000 shares when first elected as a non-employee director and an annual grant of options
to purchase shares of common stock providedif certain earnings goals are met. Vesting
requirements for awards under these plans vary by individual grant and include a
combination of both time-based and performance-based vesting. The contractual
life of all options granted under these plans through July 3, 2004 is 10 years.
As of June 29, 2002,July 3, 2004, options for 296,000a total of 744,000 shares hadhave been granted
under these plans, of which 166,664 have been exercised, 32,000 have been
cancelled and 418,936 are available for exercise. As of July 3, 2004, there were
231,734 remaining shares authorized and available for grant under the
Non-Employee Directors Stock Plan. In September 2004, 72,000 options were
granted to twelvenon-employee directors.
51
The following table summarizes information about options outstanding under
both of the Non-Employee Director Plans as of July 3, 2004:
OPTIONS EXERCISABLE OPTIONS OUTSTANDING
-------------------------- --------------------------------------------------
WEIGHTED WEIGHTED AVERAGE WEIGHTED
AVERAGE EXERCISE REMAINING CONTRACTUAL AVERAGE EXERCISE
RANGE OF EXERCISE PRICES SHARES PRICE PER SHARE SHARES LIFE (YRS) PRICE PER SHARE
- ------------------------ ------- ---------------- ------- --------------------- ----------------
$6.38 to $8.53............ 108,000 $ 7.70 108,000 1.58 $ 7.70
$10.00 to $13.75.......... 104,000 12.02 104,000 3.89 12.02
$19.56 to $25.56.......... 163,736 23.24 189,336 6.38 23.45
$30.45 to $33.94.......... 43,200 31.22 144,000 8.71 31.54
------- -------
Balance at July 3, 2004... 418,936 $17.27 545,336 5.57 $20.29
======= =======
In addition to the options summarized in the tables above, one-time
retainer awards of restricted stock were granted to new non-employee directors
in the amount of 4,000 shares with a fair value at date of grant of $34.12 per
share in fiscal 2004, 4,000 shares with a fair value at date of grant of $31.47
per share in fiscal 2003 and 4,000 shares with a fair value at date of grant of
$24.82 per share in fiscal 2002.
Non-employee directors may also elect to receive up to 50% of their annual
directors' fees in SYSCO common stock. As a result of such elections, a total of
11,640, 12,496 and 13,950 shares with a weighted-average grant date fair value
of $30.82, $28.73 and $26.55 per share were issued in fiscal 2004, 2003 and
2002, respectively.
In total, 128,266 shares of restricted stock have been issued to
non-employee directors under this plan, 18,664 shares have been
exercised and 151,450 shares are available for exercise.the Non-Employee Directors Stock Plan.
Employees' Stock Purchase Plan
SYSCO has an Employees' Stock Purchase Plan which permits employees (other
than directors) to invest by means of periodic payroll deductions in SYSCO
common stock at 85% of the closing price on the last business day of each
calendar quarter. During fiscal 2002, 1,821,9462004, 1,620,535 shares of SYSCO common stock
were purchased by the participants as compared to 1,619,0011,886,090 shares purchased in
fiscal 20012003 and 1,820,7521,784,529 shares purchased in fiscal 2000.2002. The total number of
shares which may be sold pursuant to the plan may not exceed 68,000,000 shares,
of which 11,486,7058,447,356 remained available at June 29, 2002.
Accounting Issues Relating to all Plans
Options issued before September 2001 may vest overJuly 3, 2004. In July 2004, 417,059
shares were purchased by participants.
Management Incentive Compensation
SYSCO has a five-year period
beginning on the date of grant if certain operatingManagement Incentive Plan that compensates key management
personnel for specific performance measures are
attained, or will vest fully nineachievements. The bonuses earned and one-half years from the date of grant to
the extent not previously vested. Options issued in September 2001 and after
generally vest ratably over a specified five-year period.
SYSCO accounts for these plansexpensed
under APB Opinion No. 25 and related
interpretations under which no compensation cost has been recognized. Had
compensation cost for these plans been determined using the fair value method of
SFAS No. 123, SYSCO's pro forma net earnings and diluted earnings per share
would have been $642,443,000 and $0.96this plan were $77,494,000 in fiscal 2002, $585,503,000 and $0.862004, $62,486,000 in fiscal 20012003 and
$437,773,000 and $0.65 in fiscal 2000. The disclosure
requirements of SFAS No. 123 are applicable to options granted after 1995. The
pro forma effects for fiscal 2002, 2001 and 2000 are not necessarily indicative
of the pro forma effects in future years.
The weighted average fair value of options granted was $8.81 and $7.98
during fiscal 2002 and 2001, 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$51,981,000 in fiscal 2002 and 2001,
respectively: dividend yieldwere paid in the following fiscal year in both
cash and stock at the election of 1.26%each participant. A total of 940,843 shares,
861,156 shares and 1.33%; expected volatility of 22% and
24%; risk-free interest rates of 4.8% and 6.0%; and expected lives of eight
years.
The weighted average851,087 shares at a fair value of employee stock purchase rights$29.55, $27.22 and $27.15
were issued was $3.96pursuant to this plan in fiscal 2004, 2003 and $3.73 during2002, respectively,
for bonuses earned in the preceding fiscal 2002years. As of July 3, 2004, there were
5,347,274 remaining shares that may be issued under the Management Incentive
Plan. In August 2004, 1,001,624 shares were issued in payment for the bonuses
earned in fiscal 2004 elected to be received in stock. Participants in the
Management Incentive Plan also have the option to defer portions of their salary
and 2001, respectively. The fair value ofbonuses pursuant to the stock purchase rights was calculated as the difference between the stock
price at date of issuance and the employee purchase price.Executive Deferred Compensation Plan.
52
EMPLOYEE BENEFIT PLANS
SYSCO has defined benefit and defined contribution retirement plans for its
employees. Also, the company contributes to various multi-employer plans under
collective bargaining agreements.agreements and provides certain health care benefits to
eligible retirees and their dependents.
SYSCO maintains a qualified retirement plan (Retirement Plan) that pays
benefits to employees at retirement, using formulas based on a participant's
years of service and compensation.
The defined contribution 401(k) plan provides that under certain
circumstances the company may make matching contributions of up to 50% of the
first 6% of a participant's compensation. SYSCO's contributioncontributions to this plan
waswere $27,390,000 in 2004, $24,102,000 in 2003, and $23,421,000 in 2002, $9,561,000 in 2001 and $15,899,000 in 2000. The defined
benefit pension plans pay benefits to employees at retirement using formulas
based on a participant's years of service and compensation.
37
SYSCO also has a Management Incentive Plan that compensates key management
personnel for specific performance achievements. The awards under this plan were
$51,981,000 in 2002, $52,540,000 in 2001 and $40,977,000 in 2000 and were paid
in both cash and stock.2002.
In addition to receiving benefits upon retirement under the company's
defined benefit plan, participants in the Management Incentive Plan (see
"Management Incentive Compensation" under "Stock Based Compensation Plans") will
receive benefits under a Supplemental Executive Retirement Plan (SERP). This
plan is a nonqualified, unfunded supplementary retirement plan. In order to meet
its obligations under the SERP, SYSCO maintains life insurance policies on the
lives of the participants with carrying values of $71,418,000$87,104,000 at July 3, 2004
and $74,730,000 at June 29, 2002 and $79,083,000 at June 30, 2001.28, 2003. These policies are not included as plan assets
or in the funded status amounts in the table below. SYSCO is the sole owner and
beneficiary of such policies. Projected benefit obligations and accumulated
benefit obligations for the SERP were $145,884,000$269,815,000 and $92,220,000,$153,652,000,
respectively, as of July 3, 2004 and $209,416,000 and $128,071,000,
respectively, as of June 29, 200228, 2003.
The company made cash contributions to its pension plans of $165,512,000
and $111,412,000$164,565,000 in fiscal years 2004 and $70,648,000,2003, respectively, including
$160,000,000 in voluntary contributions to the Retirement Plan in both fiscal
2004 and 2003. In fiscal 2005, as in previous years, contributions to the
Retirement Plan will not be required to meet ERISA minimum funding requirements,
yet the company anticipates it will make voluntary contributions of
June 30, 2001.
In additionapproximately $80,000,000. The company's contributions to providing pension benefits, SYSCO provides certain health
care benefits to eligible retireesthe SERP and their dependentsother
post-retirement plans are made in the United States.amounts needed to fund current year
benefit payments. The estimated fiscal 2005 contributions to fund benefit
payments for the SERP and other post-retirement plans are $6,294,000 and
$362,000, respectively.
Estimated future benefit payments are as follows:
OTHER
POSTRETIREMENT
PENSION BENEFITS PLANS
---------------- --------------
2005..................................................... $ 22,336,000 $ 362,000
2006..................................................... 23,254,000 401,000
2007..................................................... 26,398,000 470,000
2008..................................................... 30,767,000 535,000
2009..................................................... 35,743,000 607,000
Subsequent five years.................................... 295,280,000 4,057,000
53
The funded status of the defined benefit plans is as follows (including the
SERP benefit obligations but excluding from plan assets the cash surrender
values of life insurance policies from plan assets)policies):
PENSION BENEFITS OTHER POSTRETIREMENT PLANS
----------------------------- --------------------------------------------------------------- ----------------------------------
JULY 3, 2004 JUNE 29, 200228, 2003 JULY 3, 2004 JUNE 30, 2001 JUNE 29, 2002 JUNE 30, 2001
------------- ------------- ------------- -------------28, 2003
--------------- ---------------- --------------- ----------------
Change in benefit obligation:
Benefit obligation at beginning of
year...............................year.............................. $1,028,352,000 $ 576,759,000708,829,000 $ 433,323,0006,836,000 $ 4,391,000 $ 3,615,0005,270,000
Service cost......................... 46,085,000 36,365,000 263,000 218,000cost........................ 74,934,000 51,806,000 422,000 318,000
Interest cost........................ 42,679,000 34,194,000 321,000 283,000
Amendments........................... 1,901,000 5,320,000cost....................... 61,162,000 50,809,000 402,000 372,000
Amendments.......................... 2,155,000 4,246,000 -- --
Actuarial loss....................... 58,933,000 83,231,000 295,000 342,000loss...................... 48,316,000 229,408,000 516,000 1,007,000
Actual expenses...................... (3,280,000) (3,201,000)expenses..................... (4,456,000) (3,443,000) -- --
Settlements.......................... (1,128,000)Settlements......................... -- 2,401,000 -- --
Total disbursements.................. (13,120,000) (12,472,000) -- (67,000)
------------- -------------disbursements................. (18,106,000) (15,704,000) (180,000) (131,000)
-------------- -------------- ----------- -----------
Benefit obligation at end of year.... 708,829,000 576,760,000 5,270,000 4,391,000
------------- -------------year... 1,192,357,000 1,028,352,000 7,996,000 6,836,000
-------------- -------------- ----------- -----------
Change in plan assets:
Fair value of plan assets at
beginning of year.................. 416,372,000 391,631,000year................. 605,202,000 456,231,000 -- --
Actual return on plan assets......... (26,877,000) (2,327,000)assets........ 111,127,000 3,553,000 -- --
Employer contribution................ 83,136,000 42,743,000 -- 67,000contribution............... 165,512,000 164,565,000 180,000 131,000
Actual expenses...................... (3,280,000) (3,201,000)expenses..................... (4,456,000) (3,443,000) -- --
Total disbursements.................. (13,120,000) (12,472,000) -- (67,000)
------------- -------------disbursements................. (18,106,000) (15,704,000) (180,000) (131,000)
-------------- -------------- ----------- -----------
Fair value of plan assets at end of
year............................... 456,231,000 416,374,000year.............................. 859,279,000 605,202,000 -- --
------------- --------------------------- -------------- ----------- -----------
Funded status........................ (252,598,000) (160,386,000) (5,270,000) (4,391,000)status....................... (333,078,000) (423,150,000) (7,996,000) (6,836,000)
Unrecognized net actuarial loss
(gain)............................. 236,852,000 113,348,000 (2,394,000) (2,830,000)............................ 454,468,000 493,829,000 (708,000) (1,263,000)
Unrecognized net (asset) obligation due to
initial application of SFAS No.
87............................. (273,000) (1,120,000) 1,687,000 1,840,00087/106............................ -- 279,000 1,381,000 1,534,000
Unrecognized prior service cost...... 17,082,000 17,422,000 1,599,000 1,801,000
------------- -------------cost..... 21,230,000 20,382,000 1,196,000 1,397,000
-------------- -------------- ----------- -----------
Net amount recognized................recognized............... $ 1,063,000142,620,000 $ (30,736,000) $(4,378,000) $(3,580,000)
============= =============91,340,000 $(6,127,000) $(5,168,000)
============== ============== =========== ===========
3854
Additional information related to SYSCO's defined benefit plans is as
follows:
JULY 3, 2004 JUNE 29, 2002 JUNE 30, 200128, 2003
------------- ---------------------------
Net amount recognized consists of:
Prepaid pension cost........................................ $ --243,996,000 $ 12,557,000--
Accrued benefit liability................................... (122,597,000) (70,648,000)
------------- ------------
Accrued benefit cost........................................ (122,597,000) (58,091,000)(153,652,000) (229,109,000)
Intangible asset............................................ 17,693,000 18,247,00018,563,000 20,661,000
Accumulated other comprehensive loss........................ 105,967,000 9,108,00033,713,000 299,788,000
------------- --------------------------
Net amount recognized....................................... $ 1,063,000 $(30,736,000)142,620,000 $ 91,340,000
============= ==========================
Plans with accumulated benefit obligation in excess of fair
value of plan assets:
Projected benefit obligation................................ $ 708,829,000 $111,412,000269,815,000 $1,028,352,000
Accumulated benefit obligation.............................. 578,828,000 70,648,000
Fair value of plan assets at end of year.................... 456,231,000 --
Plans with fair value of plan assets in excess of
accumulated benefit obligation:
Projected benefit obligation................................ $ -- $465,348,000
Accumulated benefit obligation.............................. -- 401,192,000153,652,000 834,310,000
Fair value of plan assets at end of year.................... -- 416,374,000605,202,000
Additional information:
Accumulated benefit obligation.............................. $ 954,875,000 $ 834,310,000
(Decrease) increase in minimum liability included in other
comprehensive income...................................... (266,075,000) 193,819,000
The performance ofMinimum pension liability adjustments result when the stock market in 2002 and 2001 resulted in a decline
inaccumulated benefit
obligation exceeds the fair value of plan assets and are recorded so that the
assets held by the company'srecorded pension plans. As a result, the
company was required to reflectliability is at a minimum pension liability of $65,435,000, net
of tax, as of June 29, 2002 and $5,624,000, net of tax, as of June 30, 2001.equal to the accumulated benefit
obligation. Minimum pension liability adjustments are noncashnon-cash adjustments that
are reflected as an increase (or decrease) in the pension liability and an
offsetting charge to shareholders' equity, net of tax, through comprehensive
lossincome (or loss) rather than net income.
Amounts reflected in accumulated other comprehensive income (loss) related
to minimum pension liability, net of tax, were ($20,733,000) as of July 3, 2004,
and ($185,118,000) as of June 28, 2003.
As a result of changes in assumptions together with the normal growth of
the plan, the impact of losses from prior periods and the amount and timing of
contributions, net pension costs increased $39,944,000 in fiscal 2004 and is
expected to decrease in fiscal 2005 by approximately $7,374,000. The components
of net pension costs for each fiscal year are as follows:
PENSION BENEFITS
------------------------------------------
2004
(53 WEEKS) 2003 2002
------------ ------------ ------------
Service cost....................................... $ 74,934,000 $ 51,806,000 $ 46,085,000
Interest cost...................................... 61,162,000 50,809,000 42,679,000
Expected return on plan assets..................... (61,148,000) (46,462,000) (43,053,000)
Amortization of prior service cost................. 1,308,000 3,346,000 1,814,000
Recognized net actuarial loss...................... 37,697,000 15,341,000 4,658,000
Amortization of net transition obligation.......... 279,000 (552,000) (847,000)
------------ ------------ ------------
Net pension costs.................................. $114,232,000 $ 74,288,000 $ 51,336,000
============ ============ ============
55
The components of other postretirement benefit costs for each fiscal year
are as follows:
OTHER POSTRETIREMENT PLANS
----------------------------------
2004
(53 WEEKS) 2003 2002
---------- --------- ---------
Service cost.............................................. $ 422,000 $ 318,000 $ 263,000
Interest cost............................................. 402,000 372,000 321,000
Expected return on plan assets............................ -- -- --
Amortization of prior service cost........................ 202,000 202,000 202,000
Recognized net actuarial gain............................. (40,000) (123,000) (141,000)
Amortization of net transition obligation................. 153,000 153,000 153,000
---------- --------- ---------
Net other postretirement benefit costs.................... $1,139,000 $ 922,000 $ 798,000
========== ========= =========
Multi-employer pension costs were $29,479,000, $27,808,000, and $27,511,000
in fiscal 2004, 2003 and 2002, respectively.
Weighted-average assumptions used to valuedetermine benefit obligations at
year endyear-end were:
PENSION BENEFITS OTHER POSTRETIREMENT PLANS
----------------------------- --------------------------------------------------------- ----------------------------
JULY 3, 2004 JUNE 29, 200228, 2003 JULY 3, 2004 JUNE 30, 2001 JUNE 29, 2002 JUNE 30, 200128, 2003
------------ ------------- ------------- ------------------------- -------------
Weighted-average assumptions asDiscount rate................................ 6.25% 6.00% 6.25% 6.00%
Rate of year
end:compensation increase -- Retirement
Plan....................................... 5.89 5.89 -- --
For determining the benefit obligations at year-end, the SERP calculations
assume annual salary increases of 10% through fiscal 2007 and 7% thereafter as
of July 3, 2004 and annual salary increases of 8% through fiscal 2005 and 7%
thereafter as of June 28, 2003.
Weighted-average assumptions used to determine net pension costs and other
postretirement benefit costs for each fiscal year were:
OTHER
PENSION BENEFITS POSTRETIREMENT PLANS
--------------------- --------------------
2004 2003 2002 2004 2003 2002
---- ---- ----- ---- ---- ----
Discount rate..............................rate................................... 6.00% 7.25% 7.50% 6.00% 7.25% 7.50%
Expected rate of return....................return......................... 9.00 9.50 10.50 -- -- --
Rate of compensation increase..............increase --
Retirement Plan............................... 5.89 4.505.89 5.89 -- -- --
For determining net pension costs for each fiscal year, the SERP calculations
assume annual salary increases of 8% through fiscal 2005 and 7% thereafter for
fiscal 2004, 2003 and 2002.
The measurement date for the pension and other postretirement benefit plans
is June 30.
A healthcare cost trend rate is not used in the calculations because SYSCO
subsidizes the cost of postretirement medical coverage by a fixed dollar amount
with the retiree responsible for the cost of coverage in excess of the subsidy,
including all future cost increases.
39For guidance in determining the discount rate, SYSCO refers to rates of
return on high-quality fixed-income investments, including, among other items,
Moody's long-term AA corporate bond yields. The discount rate utilized by SYSCO
was 6.25% and 6.00% as of July 3, 2004 and June 28, 2003, respectively. The
discount rate assumption is reviewed annually and revised as deemed appropriate.
The expected long-term rate of return on plan assets is derived from a
mathematical asset model that incorporates assumptions as to the various asset
class returns, reflecting a combination of rigorous historical performance
analysis and the forward-looking views of the financial markets regarding the
yield on long-term bonds and the historical returns of the major stock markets.
The rate of return assumption is reviewed annually and revised as deemed
appropriate.
56
SYSCO's investment objectives target a mix of investments that can
potentially achieve an above-average rate of return. SYSCO has determined that
this strategy is appropriate due to the relatively low ratio of retirees as a
percentage of participants, low average years of participant service and low
average age of participants and is willing to accept the above-average level of
short-term risk and variability in returns to attempt to achieve a higher level
of long-term returns. As a result, the company's strategy targets a mix of
investments which include 70% stocks (including a mix of large capitalization
U.S. stocks, small to mid-capitalization U.S. stocks and international stocks)
and 30% fixed income investments and cash equivalents.
The componentspercentage of net pension costs arethe fair value of plan assets by asset category is as
follows:
PENSION BENEFITS
--------------------------------------------JULY 3, 2004 JUNE 29, 2002 JUNE 30, 2001 JULY 1, 200028, 2003
------------ ------------- ------------- ------------
Service cost....................................... $ 46,085,000 $ 36,365,000 $ 35,451,000
Interest cost...................................... 42,679,000 34,194,000 29,109,000
Expected return on plan assets..................... (42,039,000) (40,504,000) (34,168,000)
Amortization of prior service cost................. 800,000 479,000 (625,000)
Recognized net actuarial loss...................... 4,658,000 672,000 628,000
Amortization of net transition obligation.......... (847,000) (847,000) (847,000)
------------ ------------ ------------
Net pension costs.................................. $ 51,336,000 $ 30,359,000 $ 29,548,000
============ ============ ============Equity securities........................................... 70.5% 70.3%
Debt securities............................................. 29.5 29.7
----- -----
Total....................................................... 100.0% 100.0%
===== =====
The components of other postretirement benefit costs are as follows:
OTHER POSTRETIREMENT PLANS
--------------------------------------------
JUNE 29, 2002 JUNE 30, 2001 JULY 1, 2000
------------- ------------- ------------
Service cost............................................ $ 263,000 $ 218,000 $ 145,000
Interest cost........................................... 321,000 283,000 150,000
Expected return on plan assets.......................... -- -- --
Amortization of prior service cost...................... 202,000 202,000 72,000
Recognized net actuarial gain........................... (141,000) (173,000) (194,000)
Amortization of net transition obligation............... 153,000 153,000 153,000
--------- --------- ---------
Net other postretirement benefit costs.................. $ 798,000 $ 683,000 $ 326,000
========= ========= =========
Multi-employer pension costs were $27,511,000, $26,246,000 and $23,540,000
in 2002, 2001 and 2000, respectively.
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 position
or results of operations of the company when ultimately concluded.
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 ownedwholly-owned subsidiary
of SYSCO. In May 2002, SYSCO International, Co. issued, in a private offering,
$200,000,000 of 6.10% notes due in 2012 (See "Debt"). SYSCO International, Co.
and SYSCO have filed a registration statement withIn December 2002, these
notes were exchanged for substantially identical notes in an exchange offer
registered under the Securities and Exchange
Commission covering an identical seriesAct of notes to be issued in exchange for
the unregistered notes outstanding.1933. These notes are fully and
unconditionally guaranteed by SYSCO. SYSCO International, Co. is a holding
company with no significant sources of income or assets, other than its equity
interests in its subsidiaries and interest income from loans made to its
subsidiaries. The proceeds from the issuance of the 6.10% notes were used to
repay commercial paper issued to fund the fiscal 2002 acquisition of a Canadian
broadline foodservice operation.
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), 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 arewere
operated as divisions of SYSCO.SYSCO prior to 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. The accompanying financial information includes the
balances and results of SYSCO International, Co. from the date of its inception
in February 2002.
4057
CONDENSED CONSOLIDATING BALANCE SHEET
-- JUNE 29, 2002JULY 3, 2004
------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
Current assets............assets................ $ 558,259119,526 $ 10,01034 $ 2,617,0203,731,851 $ -- $3,185,289$3,851,411
Investment in subsidiaries............ 5,279,299 204,064 194,854 (5,678,217)subsidiaries.... 8,678,729 260,501 173,986 (9,113,216) --
Plant and equipment, net..................... 271,971net...... 114,385 -- 1,425,8112,052,424 -- 1,697,7822,166,809
Other assets.............. 196,320 1,418 908,944assets.................. 594,811 -- 1,106,6821,234,601 -- 1,829,412
---------- -------- ----------- ----------- ----------
Total assets.............. $6,305,849 $215,492assets.................. $9,507,451 $260,535 $ 5,146,629 $(5,678,217) $5,989,7537,192,862 $(9,113,216) $7,847,632
========== ======== =========== =========== ==========
Current liabilities.......liabilities........... $ 790,631374,144 $ 64,55474,948 $ 1,384,1722,677,542 $ -- $2,239,357$3,126,634
Intercompany payables
(receivables)........... 2,353,921 (47,508) (2,306,413)............... 5,298,927 (14,924) (5,284,003) -- --
Long-term debt............ 933,028 199,366 43,913debt................ 981,476 199,496 50,521 -- 1,176,3071,231,493
Other liabilities......... 95,750liabilities............. 326,771 -- 345,820598,228 -- 441,570924,999
Shareholders' equity...... 2,132,519 (920) 5,679,137 (5,678,217) 2,132,519equity.......... 2,526,133 1,015 9,150,574 (9,113,216) 2,564,506
---------- -------- ----------- ----------- ----------
Total liabilities and
shareholders' equity.... $6,305,849 $215,492equity........ $9,507,451 $260,535 $ 5,146,629 $(5,678,217) $5,989,7537,192,862 $(9,113,216) $7,847,632
========== ======== =========== =========== ==========
CONDENSED CONSOLIDATING BALANCE SHEET
-- JUNE 30, 200128, 2003
------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
Current assets............assets................ $ 512,884203,219 $ 549 $ 3,425,766 $ -- $ 2,362,850 $ -- $2,875,734$3,629,534
Investment in subsidiaries............ 4,505,917 -- -- (4,505,917)subsidiaries.... 7,529,006 213,247 217,315 (7,959,568) --
Plant and equipment, net..................... 249,656net...... 84,023 -- 1,267,1221,838,637 -- 1,516,7781,922,660
Other assets.............. 203,228assets.................. 254,047 2,135 1,128,145 -- 757,247 -- 960,4751,384,327
---------- ----------------- ----------- ----------- ----------
Total assets.............. $5,471,685assets.................. $8,070,295 $215,931 $ -- $ 4,387,219 $(4,505,917) $5,352,9876,609,863 $(7,959,568) $6,936,521
========== ================= =========== =========== ==========
Current liabilities.......liabilities........... $ 749,103171,437 $ 72,399 $ 2,457,293 $ -- $ 1,353,861 $ -- $2,102,964$2,701,129
Intercompany payables
(receivables)........... 1,678,252 -- (1,678,252)............... 4,508,096 (57,185) (4,450,911) -- --
Long-term debt............ 909,679debt................ 989,899 199,431 60,137 -- 51,7421,249,467
Other liabilities............. 236,069 -- 961,421
Other liabilities......... 34,116552,325 -- 153,951 -- 188,067788,394
Shareholders' equity...... 2,100,535 -- 4,505,917 (4,505,917) 2,100,535equity.......... 2,164,794 1,286 7,991,019 (7,959,568) 2,197,531
---------- ----------------- ----------- ----------- ----------
Total liabilities and
shareholders' equity.... $5,471,685equity........ $8,070,295 $215,931 $ -- $ 4,387,219 $(4,505,917) $5,352,9876,609,863 $(7,959,568) $6,936,521
========== ================= =========== =========== ==========
4158
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THEYEAR ENDED JULY 3, 2004
(53 WEEKS)
------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
Sales........................ $ -- $ -- $29,335,403 $ -- $29,335,403
Cost of sales................ -- -- 23,661,514 -- 23,661,514
Operating expenses........... 118,937 109 4,022,184 -- 4,141,230
Interest expense (income).... 255,708 13,923 (199,751) -- 69,880
Other, net................... (372) (1,028) (10,965) -- (12,365)
---------- -------- ----------- ----------- -----------
Total costs and expenses..... 374,273 13,004 27,472,982 -- 27,860,259
---------- -------- ----------- ----------- -----------
Earnings (loss) before income
taxes...................... (374,273) (13,004) 1,862,421 -- 1,475,144
Income tax (benefit)
provision.................. (144,095) (5,007) 717,032 -- 567,930
Equity in earnings of
subsidiaries............... 1,137,392 5,267 -- (1,142,659) --
---------- -------- ----------- ----------- -----------
Net earnings (loss).......... $ 907,214 $ (2,730) $ 1,145,389 $(1,142,659) $ 907,214
========== ======== =========== =========== ===========
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
YEAR ENDED JUNE 28, 2003
------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
Sales........................ $1,651,729 $ -- $24,488,608 $ -- $26,140,337
Cost of sales................ 1,278,537 -- 19,701,019 -- 20,979,556
Operating expenses........... 377,861 975 3,457,671 -- 3,836,507
Interest expense (income).... 355,192 10,586 (293,544) -- 72,234
Other, net................... 272 -- (8,619) -- (8,347)
---------- -------- ----------- ----------- -----------
Total costs and expenses..... 2,011,862 11,561 22,856,527 -- 24,879,950
---------- -------- ----------- ----------- -----------
Earnings (loss) before income
taxes...................... (360,133) (11,561) 1,632,081 -- 1,260,387
Income tax (benefit)
provision.................. (137,751) (4,422) 624,272 -- 482,099
Equity in earnings of
subsidiaries............... 1,000,670 7,204 -- (1,007,874) --
---------- -------- ----------- ----------- -----------
Net earnings................. $ 778,288 $ 65 $ 1,007,809 $(1,007,874) $ 778,288
========== ======== =========== =========== ===========
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
YEAR ENDED JUNE 29, 2002
------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
Sales......................... $3,120,292 $ -- $20,230,212 $ -- $23,350,504
Cost of sales................. 2,430,815 -- 16,291,348 -- 18,722,163
Operating expenses............ 554,731 103 2,912,545 -- 3,467,379
Interest expense (income)..... 271,616 1,386 (210,105) -- 62,897
Other, net.................... 83 -- (2,888) -- (2,805)
---------- ------- ----------- --------- -----------
Total costs and expenses...... 3,257,245 1,489 18,990,900 -- 22,249,634
---------- ------- ----------- --------- -----------
Earnings (loss) before income
taxes....................... (136,953) (1,489) 1,239,312 -- 1,100,870
Income tax (benefit)
provision................... (52,385) (569) 474,037 -- 421,083
Equity in earnings of
subsidiaries................ 764,355 2,139 -- -- (764,355)(766,494) --
---------- ------- ----------- --------- -----------
Net earnings.................. $ 679,787 $ (920)1,219 $ 765,275 $(764,355)$(766,494) $ 679,787
========== ======= =========== ========= ===========
59
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THECASH FLOWS
YEAR ENDED JUNE 29, 2001
------------------------------------------------------------------------------JULY 3, 2004
(53 WEEKS)
--------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
Sales......................... $2,987,807 $ -- $18,796,690 $ -- $21,784,497
Cost of sales................. 2,339,835 -- 15,173,303 -- 17,513,138
Operating expenses............ 536,595 -- 2,696,232 -- 3,232,827
Interest expense (income)..... 233,603 -- (161,827) -- 71,776
Other, net.................... 1,285 -- (1,184) -- 101
---------- ------- ----------- --------- -----------
Total costs and expenses...... 3,111,318 -- 17,706,524 -- 20,817,842
---------- ------- ----------- --------- -----------
Earnings before income
taxes....................... (123,511) -- 1,090,166 -- 966,655
Income tax (benefit)
provision................... (47,243) -- 416,989 -- 369,746
Equity in earnings of
subsidiaries................ 673,177 -- -- (673,177) --
---------- ------- ----------- --------- -----------
Net earnings.................. $ 596,909 $ -- $ 673,177 $(673,177) $ 596,909
========== ======= =========== ========= ===========
42
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 29, 2000
------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
Sales......................... $2,789,342 $ -- $16,513,926 $ -- $19,303,268
Cost of sales................. 2,203,919 -- 13,445,632 -- 15,649,551
Operating expenses............ 491,874 -- 2,351,881 -- 2,843,755
Interest expense (income)..... 178,318 -- (107,486) -- 70,832
Other, net.................... 835 -- 687 -- 1,522
---------- --------- ----------- --------- -----------
Total costs and expenses...... 2,874,946 -- 15,690,714 -- 18,565,660
---------- --------- ----------- --------- -----------
Earnings before income
taxes....................... (85,604) -- 823,212 -- 737,608
Income tax (benefit)
provision................... (32,958) -- 316,937 -- 283,979
Equity in earnings of
subsidiaries................ 506,275 -- -- (506,275) --
Cumulative effect of
accounting change........... (8,041) -- -- -- (8,041)
---------- --------- ----------- --------- -----------
Net earnings.................. $ 445,588 $ -- $ 506,275 $(506,275) $ 445,588
========== ========= =========== ========= ===========
CONDENSED CONSOLIDATING CASH FLOWS
FOR THE YEAR ENDED JUNE 29, 2002
-----------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
--------- ------------- ------------------- ------------
------------
(IN THOUSANDS)
Net cash provided by (used for):
Operating activities............activities................... $(171,732) $ 90,129 $ (1,081) $ 995,932 $-- $1,084,98024,676 $1,336,578 $1,189,522
Investing activities............ (70,038) (222,420) (337,842)activities................... (193,274) -- (630,300)(490,537) (683,811)
Financing activities............ (584,151) 262,586 (38,419) -- (359,984)
Intercompany activity........... 648,675 (29,079) (619,596)activities................... (597,137) (27,923) (16,791) (641,851)
Exchange rate on cash.................. -- -- (1,601) (1,601)
Intercompany activity.................. 843,607 2,733 (846,340) --
--------- --------- --------- ----------- ---------- ----------
Net increase(decrease) in cash............ 84,615 10,006 75 -- 94,696cash................. (118,536) (514) (18,691) (137,741)
Cash at the beginning of the period........................ 39,832 -- 95,911 -- 135,743period.... 206,043 514 130,890 337,447
--------- --------- --------- ----------- ---------- ----------
Cash at the end of the period...period.......... $ 124,44787,507 $ 10,006-- $ 95,986 $--112,199 $ 230,439199,706
========= ========= ========= =========== ========== ==========
CONDENSED CONSOLIDATING CASH FLOWS
FOR THE YEAR ENDED JUNE 29, 2001
-----------------------------------------------------------------------------28, 2003
---------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
------------------- ------------- ------------------- ------------
------------
(IN THOUSANDS)
Net cash provided by (used for):
Operating activities............activities................... $ 27,693 $--(180,033) $(28,100) $ 927,531 $-- $ 955,2241,580,973 $1,372,840
Investing activities............ (96,319)activities................... (307,303) -- (242,432) -- (338,751)(374,522) (681,825)
Financing activities............ (601,623) -- (38,235) -- (639,858)
Intercompany activity........... 649,609 -- (649,609)activities................... (576,747) 38,594 (12,375) (550,528)
Exchange rate on cash.................. -- -- ---------(1,479) (1,479)
Intercompany activity.................. 1,177,679 (19,986) (1,157,693) --
--------- --- ------------------- -------- ----------- ----------
Net decreaseincrease (decrease) in cash............ (20,640) -- (2,745) -- (23,385)cash........ 113,596 (9,492) 34,904 139,008
Cash at the beginning of the period........................ 60,472 -- 98,656 -- 159,128
--------- -- --------- --- ---------period.... 92,447 10,006 95,986 198,439
---------- -------- ----------- ----------
Cash at the end of the period...period.......... $ 39,832 $--206,043 $ 95,911 $--514 $ 135,743
========= == ========= === =========130,890 $ 337,447
========== ======== =========== ==========
43
CONDENSED CONSOLIDATING CASH FLOWS
FOR THE YEAR ENDED JUNE 29, 2000
-----------------------------------------------------------------------------2002
--------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
--------- ------------- ------------------- ------------
------------
(IN THOUSANDS)
Net cash provided by (used for):
Operating activities............activities................... $ 12,697 $--90,129 $ 696,029 $--(1,081) $ 708,726995,932 $1,084,980
Investing activities............ (243,316) -- (216,076) -- (459,392)activities................... (102,038) (222,420) (337,842) (662,300)
Financing activities............ (228,972) -- (10,537) -- (239,509)activities................... (584,151) 262,586 (38,419) (359,984)
Intercompany activity........... 462,302 -- (462,302) --activity.................. 648,675 (29,079) (619,596) --
--------- --- --------- --- --------- ----------
Net increase in cash............ 2,711 -- 7,114 -- 9,825cash................... 52,615 10,006 75 62,696
Cash at the beginning of the period........................ 57,761period.... 39,832 -- 91,542 -- 149,30395,911 135,743
--------- --- --------- --- --------- ----------
Cash at the end of the period...period.......... $ 60,472 $--92,447 $ 98,656 $--10,006 $ 159,12895,986 $ 198,439
========= === ========= === ========= ==========
60
BUSINESS SEGMENT INFORMATION
SYSCO provides food and other products to the foodservice or
"food-prepared-away-from-home" industry. SYSCO's operating segments are
comprised of separate operating companies or a group of operating companies
which are managed as one by the company's chief operating decision maker. Under
the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131), theThe company has aggregated its operating companies into fivea number of
segments, based upon the economic characteristics of each
operating company, of which only Broadline and SYGMA are reportable segments.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 SYSCO's 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 ourcertain chain restaurant
customer locations. "Other" financial information is attributable to SYSCO's threethe
company's other segments, including the company's specialty produce, custom-cut
meat, Asian cuisine foodservice and lodging industry and meatproducts segments. SYSCO'sThe
company's Canadian operations are insignificantnot significant for geographical disclosure
purposes.
The accounting policies for the segments are the same as those disclosed by
SYSCO. 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.
4461
The following table sets forth the financial information for SYSCO's
business segments:
FISCAL YEAR
ENDED
--------------------------------------------
JUNE 29,-------------------------------------------
2004
(53 WEEKS) 2003 2002
JUNE 30, 2001 JULY 1, 2000
------------- ------------- --------------------------- ----------- -----------
(IN THOUSANDS)
Sales:
Broadline...........................................Broadline......................................... $23,718,955 $21,489,862 $19,163,449
$18,106,842 $16,643,578
SYGMA...............................................SYGMA............................................. 3,548,693 2,916,174 2,671,110
2,415,840 2,154,043
Other...............................................Other............................................. 2,383,692 2,003,060 1,707,229
1,377,987 534,750
Intersegment sales..................................sales................................ (315,937) (268,759) (191,284) (116,172) (29,103)
----------- ----------- -----------
Total.......................................Total............................................. $29,335,403 $26,140,337 $23,350,504 $21,784,497 $19,303,268
=========== =========== ===========
Earnings before income taxes
Broadline...........................................taxes:
Broadline......................................... $ 1,459,945 $ 1,276,059 $ 1,131,234
$ 1,006,213 $ 800,932
SYGMA...............................................SYGMA............................................. 25,543 23,838 23,045
16,319 5,208
Other...............................................Other............................................. 79,502 51,163 48,840 42,288 21,283
----------- ----------- -----------
Total segments......................................segments.................................... 1,564,990 1,351,060 1,203,119 1,064,820 827,423
Unallocated corporate expenses......................expenses.................... (89,846) (90,673) (102,249) (98,165) (89,815)
----------- ----------- -----------
Total.......................................Total............................................. $ 1,100,8701,475,144 $ 966,6551,260,387 $ 737,6081,100,870
=========== =========== ===========
Depreciation and amortization:
Broadline...........................................Broadline......................................... $ 221,699 $ 213,877 $ 200,881
$ 189,058 $ 180,256
SYGMA...............................................SYGMA............................................. 18,684 17,479 16,237
14,492 13,987
Other...............................................Other............................................. 18,698 17,669 19,181 13,150 2,577
----------- ----------- -----------
Total segments......................................segments.................................... 259,081 249,025 236,299
216,700 196,820
Corporate...........................................Corporate......................................... 24,514 24,117 41,952 31,540 23,841
----------- ----------- -----------
Total.......................................Total............................................. $ 278,251283,595 $ 248,240273,142 $ 220,661278,251
=========== =========== ===========
Capital expenditures:
Broadline...........................................Broadline......................................... $ 342,374 $ 338,346 $ 361,284
$ 288,934 $ 227,834
SYGMA...............................................SYGMA............................................. 24,475 17,898 20,941
16,996 21,061
Other...............................................Other............................................. 33,782 18,519 13,634 14,327 7,583
----------- ----------- -----------
Total segments......................................segments.................................... 400,631 374,763 395,859
320,257 256,478
Corporate...........................................Corporate......................................... 129,455 60,874 20,534 20,881 9,935
----------- ----------- -----------
Total.......................................Total............................................. $ 416,393530,086 $ 341,138435,637 $ 266,413416,393
=========== =========== ===========
Assets:
Broadline...........................................Broadline......................................... $ 4,792,595 $ 4,513,533 $ 3,983,216
$ 3,550,584 $ 3,302,796
SYGMA...............................................SYGMA............................................. 240,418 190,406 176,093
172,899 180,811
Other...............................................Other............................................. 588,275 501,236 424,982 425,376 238,761
----------- ----------- -----------
Total segments......................................segments.................................... 5,621,288 5,205,175 4,584,291
4,148,859 3,722,368
Corporate...........................................Corporate......................................... 2,226,344 1,731,346 1,405,462 1,204,128 1,007,777
----------- ----------- -----------
Total.......................................Total............................................. $ 5,989,7537,847,632 $ 5,352,9876,936,521 $ 4,730,1455,989,753
=========== =========== ===========
4562
The sales mix for the principal product categories during the three years
ended June 29, 2002for each fiscal year is
as follows:
YEAR ENDED
--------------------------------------------
JUNE 29,2004
(53 WEEKS) 2003 2002
JUNE 30, 2001 JULY 1, 2000
------------- ------------- ----------------------- ----------- -----------
(IN THOUSANDS)
Fresh and frozen meats................................ $ 5,533,217 $ 4,671,794 $ 4,169,232
Canned and dry products............................... $5,370,859 4,966,046 4,382,840 $ 4,212,677 $ 3,998,358
Fresh and frozen meats................................ 4,169,232 3,848,523 3,311,323
Frozen fruits, vegetables, bakery and other........... 3,946,468 3,607,449 3,104,442
2,925,615 2,686,012
Poultry............................................... 3,166,806 2,666,831 2,346,308 2,156,847 1,968,632
Dairy products........................................ 2,766,425 2,264,145 2,139,739 1,905,596 1,734,472
Fresh produce......................................... 2,329,638 2,228,954 1,990,071 1,939,222 1,341,613
Paper and disposables................................. 2,225,532 2,053,362 1,840,534
1,708,697 1,473,905
Seafood............................................... 1,559,133 1,474,140 1,332,539 1,330,880 1,216,421
Beverage products..................................... 928,073 809,562 728,624
666,320 616,454Janitorial products................................... 655,305 591,663 543,168
Equipment and smallwares.............................. 625,801 592,234 593,741 534,217 469,419
Janitorial products................................... 543,168 405,662 325,513
Medical supplies...................................... 228,146 214,157 179,266 150,241 161,146
----------- ----------- -----------
Total.......................................Total................................................. $29,335,403 $26,140,337 $23,350,504 $21,784,497 $19,303,268
=========== =========== ===========
4663
QUARTERLY RESULTS (UNAUDITED)
Financial information for each quarter in the years ended June 29, 2002July 3, 2004 and
June 30, 2001:28, 2003 is set forth below:
FISCAL QUARTER ENDED
----------------------------------------------------
2002JULY 3 FISCAL YEAR
2004 SEPTEMBER 2927 DECEMBER 2927 MARCH 30 JUNE 29 FISCAL YEAR27 (14 WEEKS) (53 WEEKS)
- ---- ------------ ----------- ---------- ---------- -----------
(IN THOUSANDS EXCEPT FOR SHARE DATA)
Sales.......................... $5,828,678 $5,590,966 $5,620,324 $6,310,536 $23,350,504$7,134,281 $7,036,520 $7,025,585 $8,139,017 $29,335,403
Cost of sales.................. 4,683,617 4,481,655 4,510,059 5,046,832 18,722,1635,753,767 5,669,399 5,684,192 6,554,156 23,661,514
Operating expenses............. 864,456 836,355 851,668 914,900 3,467,3791,024,336 996,853 1,008,493 1,111,548 4,141,230
Interest expense............... 15,864 16,513 14,318 16,202 62,89718,631 16,376 15,737 19,136 69,880
Other, net..................... (769) (290) (877) (869) (2,805)(1,983) (7,052) (1,250) (2,080) (12,365)
---------- ---------- ---------- ---------- -----------
Earnings before income taxes... 265,510 256,733 245,156 333,471 1,100,870339,530 360,944 318,413 456,257 1,475,144
Income taxes................... 101,558 98,200 93,772 127,553 421,083130,719 138,963 122,589 175,659 567,930
---------- ---------- ---------- ---------- -----------
Net earnings................... $ 163,952208,811 $ 158,533221,981 $ 151,384195,824 $ 205,918280,598 $ 679,787907,214
========== ========== ========== ========== ===========
Per share:
Basic net earnings........... $ 0.32 $ 0.34 $ 0.31 $ 0.44 $ 1.41
Diluted net earnings......... $ 0.24 $ 0.24 $ 0.23 $ 0.31 $ 1.01
Cash dividends............... 0.07 0.07 0.09 0.09 0.32 0.34 0.30 0.43 1.37
Dividends declared........... 0.11 0.13 0.13 0.13 0.50
Market price -- high/low..... 30-22 27-24 30-25 30-26 30-2234-29 38-31 41-35 40-35 41-29
FISCAL QUARTER ENDED
----------------------------------------------------
20012003 SEPTEMBER 3028 DECEMBER 3028 MARCH 3129 JUNE 3028 FISCAL YEAR
- ---- ------------ ----------- ---------- ---------- -----------
(IN THOUSANDS EXCEPT FOR SHARE DATA)
(IN THOUSANDS EXCEPT FOR SHARE DATA)
Sales.......................... $5,360,174 $5,290,530 $5,344,496 $5,789,297 $21,784,497$6,424,422 $6,348,797 $6,395,278 $6,971,840 $26,140,337
Cost of sales.................. 4,322,784 4,250,987 4,301,029 4,638,338 17,513,1385,154,704 5,097,716 5,144,473 5,582,663 20,979,556
Operating expenses............. 787,497 795,674 800,156 849,500 3,232,827960,635 937,290 962,459 976,123 3,836,507
Interest expense............... 17,401 18,034 18,498 17,843 71,77616,828 17,503 18,276 19,627 72,234
Other, net..................... (633) 46 (879) 1,567 101(3,412) (2,606) (2,661) 332 (8,347)
---------- ---------- ---------- ---------- -----------
Earnings before income taxes... 233,125 225,789 225,692 282,049 966,655295,667 298,894 272,731 393,095 1,260,387
Income taxes................... 89,170 86,365 86,327 107,884 369,746113,093 114,327 104,320 150,359 482,099
---------- ---------- ---------- ---------- -----------
Net earnings................... $ 143,955182,574 $ 139,424184,567 $ 139,365168,411 $ 174,165242,736 $ 596,909778,288
========== ========== ========== ========== ===========
Per share:
Basic net earnings........... $ 0.28 $ 0.28 $ 0.26 $ 0.38 $ 1.20
Diluted net earnings......... $ 0.21 $ 0.21 $ 0.21 $0.28 0.28 0.26 $ 0.88
Cash dividends............... 0.06 0.06 0.07 0.07 0.260.37 1.18
Dividends declared........... 0.09 0.11 0.11 0.11 0.42
Market price -- high/low..... 24-19 30-22 30-20 30-22 30-1931-21 33-28 31-23 32-25 33-21
PERCENTAGE INCREASES -- 20022004 VS. 2001:2003:
Sales.......................... 9% 6% 5% 9% 7%11% 11% 10% 17% 12%
Earnings before income taxes... 14 14 9 18 1415 21 17 16 17
Net earnings................... 14 20 16 16 17
Basic net earnings per share... 14 921 19 16 18 14
Diluted net earnings per
share........................ 14 14 10 1921 15 16 16
4764
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Information concerning a changeNone.
ITEM 9A. CONTROLS AND PROCEDURES
As of July 3, 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 July 3, 2004 in accountantsproviding 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 Form 8-K dated March 27, 2002.management noted that no changes occurred during the
fourth quarter of fiscal 2004 that materially affected, or would be reasonably
likely to materially affect, the company's internal controls over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
Except as otherwise indicated, the information required by Items 10, 11, 12
and 13 is included in the company's definitive proxy statement which was filed
pursuant to Regulation 14A under the Securities Exchange Act of 1934 on
September 23, 2002 and such portions of said proxy statement are hereby
incorporated by reference thereto.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Executive OfficersThe information required by this item is included in Part I (Item 4A)our proxy statement
for the 2004 Annual Meeting of this Form 10-K (page 7).Stockholders under the following captions, and is
incorporated herein by reference thereto: "Election of Directors," "Executive
Officers," "Section 16(a) Beneficial Ownership Reporting Compliance," "Report of
the Audit Committee" and "Corporate Governance."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included in our proxy statement
for the 2004 Annual Meeting of Stockholders under the following captions, and is
incorporated herein by reference thereto: "Director Compensation" and "Executive
Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this item is included in our proxy statement
for the 2004 Annual Meeting of Stockholders under the following captions, and is
incorporated herein by reference thereto: "Stock Ownership" and "Equity
Compensation Plan Information."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included in our proxy statement
for the 2004 Annual Meeting of Stockholders under the following caption, and is
incorporated herein by reference thereto: "Certain Relationships."
ITEM 14. CONTROLSPRINCIPAL ACCOUNTANT FEES AND PROCEDURES
Item 307(a)SERVICES
The information required by this item is included in our proxy statement
for the 2004 Annual Meeting of Regulation S-KStockholders under the following caption, and is
not applicable pursuantincorporated herein by reference thereto: "Fees Paid to Transition
Provisions of Securities Exchange Act of 1934 Release 34-46427 because this
report covers a period ended prior to the effective date of Rule 13a-14. As a
result, the evaluation called for by Item 307(b) has not yet been completed. For
a discussion of the effectiveness and adequacy of the Company's internal
accounting controls as of July 31, 2002, see "Report of Management on Internal
Accounting Controls" at page 21.Independent Public
Accountants."
65
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed, or incorporated by reference, as
part of this Form 10-K:
1. All financial statements. See index to Consolidated Financial
Statements on page 2030 of this Form 10-K.
2. Financial Statement Schedule. See page 20S-1 of this Form 10-K.
3. 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) -- Amended and Restated Bylaws of Sysco Corporation dated
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) -- Sixth Amendment and Restatement of Competitive Advance and
Revolving Credit Facility Agreement dated May 31, 1996,
incorporated by reference to Exhibit 4(a) to Form 10-K in
the year ended June 27, 1996 (File No. 1-6544).
48
4(b) -- Agreement and Seventh Amendment to Competitive Advance and
Revolving Credit Facility Agreement dated as of June 27,
1997, incorporated by reference to Exhibit 4(a) to Form 10-K
for the year ended June 28, 1997 (File No. 1-6544).
4(c) -- Agreement and Eighth Amendment to Competitive Advance and
Revolving Credit Facility Agreement dated as of June 22,
1998, incorporated by reference to Exhibit 4(c) to Form 10-K
for the year ended July 3, 1999 (File No. 1-6544).
4(d) -- 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(e) -- 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(f) -- 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(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
Exhibit 4(g) to Form 10-K for the year ended June 28, 1997
(File No. 1-6544).
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
Exhibit 4(h) to Form 10-K for the year ended June 28,1997
(File No. 1-6544).
4(i) -- 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. 1-6544).
66
4(j) -- Agreement and Ninth Amendment to Competitive Advance and
Revolving Credit Facility Agreement dated as of December 1,
1999, incorporated by reference to Exhibit 4(j) to Form 10-Q
for the quarter ended January 1, 2000 (File No. 1-6544).
4(k) -- Sixth Supplemental Indenture dated April 5, 2002 between
Sysco Corporation and Wachovia Bank, National Association,
incorporated by reference to Exhibit 4.1 to Form 8-K dated
April 5, 2002.
4(l) -- 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(m) -- 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 filed on May 13, 2003
(File No. 1-6544).
4(n) -- Seventh Supplemental Indenture, including form of Note,
dated March 5, 2004 between SYSCO Corporation, as Issuer,
and Wachovia Bank, National Association (formerly First
Union National Bank of North Carolina), as Trustee,
incorporated by reference to Exhibit 4(j) to Form 10-Q for
the quarter ended March 27, 2004 (File No. 1-6544).
10(a)+ -- Amended and Restated Sysco Corporation Executive Deferred
Compensation Plan, incorporated by reference to Exhibit
10(a) to Form 10-K for the year ended July 1, 1995 (File No.
1-6544).
10(b)+ -- Fifth Amended and Restated Sysco Corporation Supplemental
Executive Retirement Plan, incorporated by reference to
Exhibit 10(b) to Form 10-K for the year ended June 28, 1997
(File No. 1-6544).
10(c)+ -- Sysco Corporation Employee Incentive Stock Option Plan,
incorporated by reference to Exhibit 10(c) to Form 10-K for
the year ended July 3, 1999 (File No. 1-6544).
10(d)+ -- Sysco Corporation 1995 Management Incentive Plan,
incorporated by reference to Exhibit 10(e) to Form 10-K for
the year ended July 1, 1995 (File No. 1-6544).
10(e)+ -- Sysco Corporation 1991 Stock Option Plan, incorporated by
reference to Exhibit 10(e) to Form 10-K for the year ended
July 3, 1999 (File No. 1-6544).
10(f)+ -- Amendments to Sysco Corporation 1991 Stock Option Plan dated
effective September 4, 1997, incorporated by reference to
Exhibit 10(f) to Form 10-K for the year ended June 28, 1997
(File No. 1-6544).
10(g)+ -- Amendments to Sysco Corporation 1991 Stock Option Plan dated
effective November 5, 1998, incorporated by reference to
Exhibit 10(g) to Form 10-K for the year ended July 3, 1999
(File No. 1-6544).
49
10(h)+ -- Sysco Corporation Amended and Restated Non-Employee
Directors Stock Option Plan, incorporated by reference to
Exhibit 10(g) to Form 10-K for the year ended June 28, 1997
(File No. 1-6544).
10(i)+ -- Amendment to the Amended and Restated Non-Employee Directors
Stock Option Plan dated effective November 5, 1998,
incorporated by reference to Exhibit 10(i) to Form 10-K for
the year ended July 3, 1999 (File No. 1-6544).
10(j)+ -- Sysco Corporation Non-Employee Directors Stock Plan,
incorporated by reference to Appendix A of the 1998 Proxy
Statement (File No. 1-6544).
10(k) -- Amended and Restated Shareholder Rights Agreement,
incorporated by reference to Registration Statement on Form
8-A/A, filed May 29, 1996 (File No. 1-6544).
10(l) -- Amendment to the Amended and Restated Shareholder Rights
Agreement dated as of May 20, 1996, incorporated by
reference to Exhibit 1 to Registration Statement on Form
8-A/A, filed July 16, 1999 (File No. 1-6544).
10(m)+ -- Sysco Corporation Split Dollar Life Insurance Plan,
incorporated by reference to Exhibit 10(m) to Form 10-Q for
the quarter ended January 1, 2000 (File No. 1-6544).
67
10(n)+ -- Executive Compensation Adjustment Agreement -- Bill M.
Lindig, incorporated by reference to Exhibit 10(n) to Form
10-Q for the quarter ended January 1, 2000 (File No.
1-6544).
10(o)+ -- Executive Compensation Adjustment Agreement -- Charles H.
Cotros, incorporated by reference to Exhibit 10(o) to Form
10-Q for the quarter ended January 1, 2000 (File No.
1-6544).
10(p)+ -- First Amendment to Fifth Amended and Restated Sysco
Corporation Supplemental Executive Retirement Plan dated
effective June 29, 1997, incorporated by reference to
Exhibit 10(p) to Form 10-Q for the quarter ended January 1,
2000 (File No. 1-6544).
10(q)+ -- First Amendment to Amended and Restated Sysco Corporation
Executive Deferred Compensation Plan dated effective June
29, 1997, incorporated by reference to Exhibit 10(q) to Form
10-Q for the quarter ended January 1, 2000 (File No.
1-6544).
10(r)+ -- First Amendment to Sysco Corporation 1995 Management
Incentive Plan dated effective June 29, 1997, incorporated
by reference to Exhibit 10(r) to Form 10-Q for the quarter
ended January 1, 2000 (File No. 1-6544).
10(s)+ -- 2000 Management Incentive Plan, incorporated by reference to
Appendix A to Proxy Statement filed September 25, 2000 (File
No. 1-6544).
10(t)+ -- 2000 Stock Incentive Plan, incorporated by reference to
Appendix B to Proxy Statement filed on September 25, 2000
(File No. 1-6544).
10(u)+ -- Amended and Restated Non-Employee Directors Stock Plan,
incorporated by reference to Appendix B to Proxy Statement
filed on September 24, 2001 (File No. 1-6544).
10(v)+ -- Second Amendment dated as of May 10, 2000, to the Fifth
Amended and Restated SYSCO Corporation Supplemental
Executive Retirement Plan, incorporated by reference to
Exhibit 10(a) to Form 10-Q for the quarter ended September
30, 2000 filed on November 13, 2000 (File No. 1-6544).
10(w)+ -- Second Amendment dated as of May 10, 2000, to Amended and
Restated SYSCO Corporation Executive Deferred Compensation
Plan, incorporated by reference to Exhibit 10(b) to Form
10-Q for the quarter ended September 30, 2000 filed on
November 13, 2000 (File No. 1-6544).
10(x)+ -- First Amendment dated as of May 10, 2000 to Amended and
Restated SYSCO Corporation Board of Directors Deferred
Compensation Plan, incorporated by reference to Exhibit
10(c) to Form 10-Q for the quarter ended September 30, 2000
filed on November 13, 2000 (File No. 1-6544).
10(y)+ -- First Amendment, dated September 1, 2000, to the Executive
Compensation Adjustment Agreement between Sysco and Charles
H. Cotros, incorporated by reference to Exhibit 10(d) to
Form 10-Q for the quarter ended September 30, 2000 filed on
November 13, 2000 (File No. 1-6544).
10(z)+# -- Equity Deferral Plan dated April 1, 2002.
50
2002, incorporated by
reference to Exhibit 10(z) to Form 10-K for the year ended
June 29, 2002 filed on September 25, 2002 (File No. 1-6544).
10(aa)+# -- Second Amended and Restated Board of Directors Deferred
Compensation Plan dated April 1, 2002.
2002, incorporated by
reference to Exhibit 10(aa) to Form 10-K for the year ended
June 29, 2002 filed on September 25, 2002 (File No. 1-6544).
10(bb)+# -- First Amendment to Second Amended and Restated Board of
Directors Deferred Compensation Plan dated July 12, 2002.2002,
incorporated by reference to Exhibit 10(bb) to Form 10-K for
the year ended June 29, 2002 filed on September 25, 2002
(File No. 1-6544).
10(cc)+# -- Second Amended and Restated Executive Deferred Compensation
Plan dated April 1, 2002.2002, incorporated by reference to
Exhibit 10(cc) to Form 10-K for the year ended June 29, 2002
filed on September 25, 2002 (File No. 1-6544).
10(dd)+# -- First Amendment to Second Amended and Restated Executive
Deferred Compensation Plan dated July 12, 2002.2002, incorporated
by reference to Exhibit 10(dd) to Form 10-K for the year
ended June 29, 2002 filed on September 25, 2002 (File No.
1-6544).
10(ee)+# -- Third Amendment to Fifth Amended and Restated Supplemental
Executive Retirement Plan dated July 12, 2002.2002, incorporated
by reference to Exhibit 10(dd) to Form 10-K for the year
ended June 29, 2002 filed on September 25, 2002 (File No.
1-6544).
68
10(ff)+ -- Retiree Equity Deferral Plan Effective November 22, 2002,
incorporated by reference to Exhibit 10(a) to Form 10-Q for
the quarter ended December 28, 2002 filed on February 10,
2003 (File No. 1-6544).
10(gg)+# -- Second Amendment to Second Amended and Restated Executive
Deferred Compensation Agreement effective July 9, 2004.
10(hh)+# -- Fourth Amendment to Fifth Amended and Restated Supplemental
Executive Retirement Plan effective July 9, 2004.
10(ii)+# -- Executive Severance Agreement dated July 6, 2004 between
SYSCO Corporation and Richard J. Schnieders.
10(jj)+# -- Form of Executive Severance Agreement between SYSCO
Corporation and each of Thomas E. Lankford (dated July 12,
2004), John K. Stubblefield, Jr. (dated July 6, 2004),
Kenneth F. Spitler (dated July 14, 2004) and Larry J.
Accardi (dated August 18, 2004).
10(kk)+# -- Form of First Amendment dated September 3, 2004 to Executive
Severance Agreement between SYSCO Corporation and each of
Richard J. Schnieders, Thomas E. Lankford, John K.
Stubblefield, Jr., Kenneth F. Spitler and Larry J. Accardi.
10(ll)+ -- 2004 Long-Term Incentive Cash Plan dated September 3, 2004,
incorporated by reference to Exhibit 10(a) to Form 8-K filed
on September 10, 2004 (File No. 1-6544).
10(mm)+ -- Form of Performance Unit Grant Agreement issued to executive
officers effective September 3, 2004 under the Long-Term
Incentive Cash Plan, incorporated by reference to Exhibit
10(b) to Form 8-K filed on September 10, 2004 (File No.
1-6544).
10(nn)+ -- Form of Stock Option Grant Agreement issued to executive
officers on September 2, 2004 under the 2000 Stock Incentive
Plan, incorporated by reference to Exhibit 10(a) to Form 8-K
filed on September 9, 2004 (File No. 1-6544).
10(oo)+ -- Form of Stock Option Grant Agreement issued to non-employee
directors on September 3, 2004 under the Non-Employee
Directors Stock Plan, incorporated by reference to Exhibit
10(b) to Form 8-K filed on September 9, 2004 (File No.
1-6544).
10(pp)+# -- Form of Stock Option Grant Agreement issued to executive
officers on August 31, 1995 under the 1991 Stock Option
Plan.
10(qq)+# -- Form of Stock Option Grant Agreement issued to executive
officers on September 5, 1996 under the 1991 Stock Option
Plan.
10(rr)+# -- Form of Stock Option Grant Agreement issued to executive
officers on September 4, 1997 under the 1991 Stock Option
Plan.
10(ss)+# -- Form of Stock Option Grant Agreement issued to executive
officers on September 3, 1998 under the 1991 Stock Option
Plan.
10(tt)+# -- Form of Stock Option Grant Agreement issued to executive
officers on September 2, 1999 under the 1991 Stock Option
Plan.
10(uu)+# -- Form of Stock Option Grant Agreement issued to executive
officers on September 7, 2000 under the 1991 Stock Option
Plan.
10(vv)+# -- Form of Stock Option Grant Agreement issued to executive
officers on September 11, 2001 under the 2000 Stock
Incentive Plan.
10(ww)+# -- Form of Stock Option Grant Agreement issued to executive
officers on September 11, 2001 under the 2000 Stock
Incentive Plan.
10(xx)+# -- Form of Stock Option Grant Agreement issued to executive
officers on September 12, 2002 under the 2000 Stock
Incentive Plan.
10(yy)+# -- Form of Stock Option Grant Agreement issued to executive
officers on September 11, 2003 under the 2000 Stock
Incentive Plan.
21# -- Subsidiaries of the Registrant.
23# -- Independent Public Accountants' Consent.
99(a)31(a)# -- CEO Certification Pursuant to Section 906302 of the
Sarbanes-Oxley Act of 2002.
99(b)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.
69
32(b)# -- CFO Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- ---------------
+ Executive Compensation Arrangement pursuant to 601(b)(10)(iii)(A) of
Regulation S-K
# Filed Herewith
(b) The following reports on Form 8-K were filed during the fourth quarter
of fiscal 2002:
1. On April 17, 2002, the company filed a Form 8-K announcing the
issuance of 4.75% notes due July 30, 2005.
2. On April 24, 2002, the company filed a Form 8-K announcing the
results of its third quarter ended March 29, 2002.
3. On May 31, 2002, the company filed a Form 8-K announcing the
issuance by Sysco International, Co. of 6.10% notes due June 1, 2012.
5170
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Sysco Corporation has duly caused this Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, on this 25th16th
day of September, 2002.2004.
SYSCO CORPORATION
By /s/ CHARLES H. COTROS
--------------------------------------
Charles H. CotrosRICHARD J. SCHNIEDERS
------------------------------------
Richard J. Schnieders
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated and on the date indicated above.
PRINCIPAL EXECUTIVE, FINANCIAL & ACCOUNTING OFFICERS:
/s/ CHARLES H. COTROSRICHARD J. SCHNIEDERS Chairman of the Board and Chief Executive
- -------------------------------------------------------------------------------------------------- Officer Charles H. Cotros(principal executive officer)
Richard J. Schnieders
/s/ JOHN K. STUBBLEFIELD, JR. Executive Vice President, Finance and
- -------------------------------------------------------------------------------------------------- Administration
John K. Stubblefield, Jr. (principal financial and accounting officer)
DIRECTORS:
/s/ JOHN W. ANDERSON /s/ RICHARD G. MERRILL
- -------------------------------------------- --------------------------------------------
John W. Anderson Richard G. Merrill
/s/ COLIN G. CAMPBELL /s/ FRANK H. RICHARDSON
- -------------------------------------------- -------------------------------------------------------------------------------------------------- ---------------------------------------------
Colin G. Campbell Frank H. Richardson
/s/ CHARLES H. COTROSJUDITH B. CRAVEN /s/ RICHARD J. SCHNIEDERS
- -------------------------------------------- --------------------------------------------
Charles H. Cotros------------------------------------------------------ ---------------------------------------------
Judith B. Craven Richard J. Schnieders
/s/ JUDITH B. CRAVENJONATHAN GOLDEN /s/ PHYLLIS S. SEWELL
- -------------------------------------------- --------------------------------------------
Judith B. Craven------------------------------------------------------ ---------------------------------------------
Jonathan Golden Phyllis S. Sewell
/s/ JONATHAN GOLDENJOSEPH A. HAFNER, JR. /s/ JOHN K. STUBBLEFIELD, JR.
------------------------------------------------------ ---------------------------------------------
Joseph A. Hafner, Jr. John K. Stubblefield, Jr.
/s/ THOMAS E. LANKFORD /s/ RICHARD G. TILGHMAN
------------------------------------------------------ ---------------------------------------------
Thomas E. Lankford Richard G. Tilghman
/s/ RICHARD G. MERRILL /s/ JACKIE M. WARD
- -------------------------------------------- --------------------------------------------
Jonathan Golden------------------------------------------------------ ---------------------------------------------
Richard G. Merrill Jackie M. Ward
/s/ THOMAS E. LANKFORD
- --------------------------------------------
Thomas E. Lankford
52
CERTIFICATIONS
I, Charles H. Cotros, certify that:
1. I have reviewed this annual report on Form 10-K of Sysco
Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report.
Date: September 25, 2002
/s/ CHARLES H. COTROS
--------------------------------------
Charles H. Cotros
Chairman and Chief Executive Officer
I, John K. Stubblefield, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Sysco
Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report.
Date: September 25, 2002
/s/ JOHN K. STUBBLEFIELD, JR.
--------------------------------------
John K. Stubblefield, Jr.
Executive Vice President, Finance and
Administration
[PARAGRAPHS 4, 5 AND 6 ARE OMITTED PURSUANT TO THE TRANSITION PROVISIONS OF
SECURITIES EXCHANGE ACT OF 1934 RELEASE 34-46427 BECAUSE THIS ANNUAL REPORT ON
FORM 10-K COVERS A PERIOD ENDED PRIOR TO THE EFFECTIVE DATE OF RULE 13A-14.]
5371
SYSCO CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE(1) DESCRIBE(2) PERIOD
------------ ----------------------- ----------- -------------- ----------- -----------
For year ended July
1, 2000............ Allowance $24,095,000 $27,082,000 $ 16,332,000 $24,881,000 $42,628,000
for doubtful
accounts
For year ended June
30, 2001........... Allowance $42,628,000 $21,740,000 $ 1,789,000 $23,045,000 $43,112,000
for doubtful
accounts
For year ended June
29, 2002........... Allowance $43,112,000 $25,904,000 $(12,610,000) $26,068,000 $30,338,000
for doubtful
accounts
For year ended June
28, 2003........... Allowance $30,338,000 $27,133,000 $ 2,305,000 $24,771,000 $35,005,000
for doubtful
accounts
For year ended July
3, 2004............ Allowance $35,005,000 $27,392,000 $ 263,000 $28,485,000 $34,175,000
for doubtful
accounts
- ---------------
(1) Allowance accounts resulting from acquisitions and other adjustments.
(2) Customer accounts written off, net of recoveries.
S-1
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
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) -- Amended and Restated Bylaws of Sysco Corporation dated
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) -- Sixth Amendment and Restatement of Competitive Advance and
Revolving Credit Facility Agreement dated May 31, 1996,
incorporated by reference to Exhibit 4(a) to Form 10-K in
the year ended June 27, 1996 (File No. 1-6544).
4(b) -- Agreement and Seventh Amendment to Competitive Advance and
Revolving Credit Facility Agreement dated as of June 27,
1997, incorporated by reference to Exhibit 4(a) to Form 10-K
for the year ended June 28, 1997 (File No. 1-6544).
4(c) -- Agreement and Eighth Amendment to Competitive Advance and
Revolving Credit Facility Agreement dated as of June 22,
1998, incorporated by reference to Exhibit 4(c) to Form 10-K
for the year ended July 3, 1999 (File No. 1-6544).
4(d) -- 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(e) -- 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(f) -- 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(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
Exhibit 4(g) to Form 10-K for the year ended June 28, 1997
(File No. 1-6544).
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
Ex-
hibitExhibit 4(h) to Form 10-K for the year ended June 28,1997
(File No. 1-6544).
4(i) -- 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. 1-6544).
4(j) -- Agreement and Ninth Amendment to Competitive Advance and
Revolving Credit Facility Agreement dated as of December 1,
1999, incorporated by reference to Exhibit 4(j) to Form 10-Q
for the quarter ended January 1, 2000 (File No. 1-6544).
4(k) -- Sixth Supplemental Indenture dated April 5, 2002 between
Sysco Corporation and Wachovia Bank, National Association,
incorporated by reference to Exhibit 4.1 to Form 8-K dated
April 5, 2002.
4(l) -- 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).
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
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4(m) -- 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 filed on May 13, 2003
(File No. 1-6544).
4(n) -- Seventh Supplemental Indenture, including form of Note,
dated March 5, 2004 between SYSCO Corporation, as Issuer,
and Wachovia Bank, National Association (formerly First
Union National Bank of North Carolina), as Trustee,
incorporated by reference to Exhibit 4(j) to Form 10-Q for
the quarter ended March 27, 2004 (File No. 1-6544).
10(a)+ -- Amended and Restated Sysco Corporation Executive Deferred
Compensation Plan, incorporated by reference to Exhibit
10(a) to Form 10-K for the year ended July 1, 1995 (File No.
1-6544).
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
10(b)+ -- Fifth Amended and Restated Sysco Corporation Supplemental
Executive Retirement Plan, incorporated by reference to
Exhibit 10(b) to Form 10-K for the year ended June 28, 1997
(File No. 1-6544).
10(c)+ -- Sysco Corporation Employee Incentive Stock Option Plan,
incorporated by reference to Exhibit 10(c) to Form 10-K for
the year ended July 3, 1999 (File No. 1-6544).
10(d)+ -- Sysco Corporation 1995 Management Incentive Plan,
incorporated by reference to Exhibit 10(e) to Form 10-K for
the year ended July 1, 1995 (File No. 1-6544).
10(e)+ -- Sysco Corporation 1991 Stock Option Plan, incorporated by
reference to Exhibit 10(e) to Form 10-K for the year ended
July 3, 1999 (File No. 1-6544).
10(f)+ -- Amendments to Sysco Corporation 1991 Stock Option Plan dated
effective September 4, 1997, incorporated by reference to
Exhibit 10(f) to Form 10-K for the year ended June 28, 1997
(File No. 1-6544).
10(g)+ -- Amendments to Sysco Corporation 1991 Stock Option Plan dated
effective November 5, 1998, incorporated by reference to
Exhibit 10(g) to Form 10-K for the year ended July 3, 1999
(File No. 1-6544).
10(h)+ -- Sysco Corporation Amended and Restated Non-Employee
Directors Stock Option Plan, incorporated by reference to
Exhibit 10(g) to Form 10-K for the year ended June 28, 1997
(File No. 1-6544).
10(i)+ -- Amendment to the Amended and Restated Non-Employee Directors
Stock Option Plan dated effective November 5, 1998,
incorporated by reference to Exhibit 10(i) to Form 10-K for
the year ended July 3, 1999 (File No. 1-6544).
10(j)+ -- Sysco Corporation Non-Employee Directors Stock Plan,
incorporated by reference to Appendix A of the 1998 Proxy
Statement (File No. 1-6544).
10(k) -- Amended and Restated Shareholder Rights Agreement,
incorporated by reference to Registration Statement on Form
8-A/A, filed May 29, 1996 (File No. 1-6544).
10(l) -- Amendment to the Amended and Restated Shareholder Rights
Agreement dated as of May 20, 1996, incorporated by
reference to Exhibit 1 to Registration Statement on Form
8-A/A, filed July 16, 1999 (File No. 1-6544).
10(m)+ -- Sysco Corporation Split Dollar Life Insurance Plan,
incorporated by reference to Exhibit 10(m) to Form 10-Q for
the quarter ended January 1, 2000 (File No. 1-6544).
10(n)+ -- Executive Compensation Adjustment Agreement -- Bill M.
Lindig, incorporated by reference to Exhibit 10(n) to Form
10-Q for the quarter ended January 1, 2000 (File No.
1-6544).
10(o)+ -- Executive Compensation Adjustment Agreement -- Charles H.
Cotros, incorporated by reference to Exhibit 10(o) to Form
10-Q for the quarter ended January 1, 2000 (File No.
1-6544).
10(p)+ -- First Amendment to Fifth Amended and Restated Sysco
Corporation Supplemental Executive Retirement Plan dated
effective June 29, 1997, incorporated by reference to
Exhibit 10(p) to Form 10-Q for the quarter ended January 1,
2000 (File No. 1-6544).
10(q)+ -- First Amendment to Amended and Restated Sysco Corporation
Executive Deferred Compensation Plan dated effective June
29, 1997, incorporated by reference to Exhibit 10(q) to Form
10-Q for the quarter ended January 1, 2000 (File No.
1-6544).
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
10(r)+ -- First Amendment to Sysco Corporation 1995 Management
Incentive Plan dated effective June 29, 1997, incorporated
by reference to Exhibit 10(r) to Form 10-Q for the quarter
ended January 1, 2000 (File No. 1-6544).
10(s)+ -- 2000 Management Incentive Plan, incorporated by reference to
Appendix A to Proxy Statement filed September 25, 2000 (File
No. 1-6544).
10(t)+ -- 2000 Stock Incentive Plan, incorporated by reference to
Appendix B to Proxy Statement filed on September 25, 2000
(File No. 1-6544).
10(u)+ -- Amended and Restated Non-Employee Directors Stock Plan,
incorporated by reference to Appendix B to Proxy Statement
filed on September 24, 2001 (File No. 1-6544).
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
10(v)+ -- Second Amendment dated as of May 10, 2000, to the Fifth
Amended and Restated SYSCO Corporation Supplemental
Executive Retirement Plan, incorporated by reference to
Ex-
hibitExhibit 10(a) to Form 10-Q for the quarter ended September
30, 2000 filed on November 13, 2000 (File No. 1-6544).
10(w)+ -- Second Amendment dated as of May 10, 2000, to Amended and
Restated SYSCO Corporation Executive Deferred Compensation
Plan, incorporated by reference to Exhibit 10(b) to Form
10-Q for the quarter ended September 30, 2000 filed on
November 13, 2000 (File No. 1-6544).
10(x)+ -- First Amendment dated as of May 10, 2000 to Amended and
Restated SYSCO Corporation Board of Directors Deferred
Compensation Plan, incorporated by reference to Exhibit
10(c) to Form 10-Q for the quarter ended September 30, 2000
filed on November 13, 2000 (File No. 1-6544).
10(y)+ -- First Amendment, dated September 1, 2000, to the Executive
Compensation Adjustment Agreement between Sysco and Charles
H. Cotros, incorporated by reference to Exhibit 10(d) to
Form 10-Q for the quarter ended September 30, 2000 filed on
November 13, 2000 (File No. 1-6544).
10(z)+# -- Equity Deferral Plan dated April 1, 2002.2002, incorporated by
reference to Exhibit 10(z) to Form 10-K for the year ended
June 29, 2002 filed on September 25, 2002 (File No. 1-6544).
10(aa)+# -- Second Amended and Restated Board of Directors Deferred
Compensation Plan dated April 1, 2002.2002, incorporated by
reference to Exhibit 10(aa) to Form 10-K for the year ended
June 29, 2002 filed on September 25, 2002 (File No. 1-6544).
10(bb)+# -- First Amendment to Second Amended and Restated Board of
Directors Deferred Compensation Plan dated July 12, 2002.2002,
incorporated by reference to Exhibit 10(bb) to Form 10-K for
the year ended June 29, 2002 filed on September 25, 2002
(File No. 1-6544).
10(cc)+# -- Second Amended and Restated Executive Deferred Compensation
Plan dated April 1, 2002.2002, incorporated by reference to
Exhibit 10(cc) to Form 10-K for the year ended June 29, 2002
filed on September 25, 2002 (File No. 1-6544).
10(dd)+# -- First Amendment to Second Amended and Restated Executive
Deferred Compensation Plan dated July 12, 2002.2002, incorporated
by reference to Exhibit 10(dd) to Form 10-K for the year
ended June 29, 2002 filed on September 25, 2002 (File No.
1-6544).
10(ee)+# -- Third Amendment to Fifth Amended and Restated Supplemental
Executive Retirement Plan dated July 12, 2002.2002, incorporated
by reference to Exhibit 10(dd) to Form 10-K for the year
ended June 29, 2002 filed on September 25, 2002 (File No.
1-6544).
10(ff)+ -- Retiree Equity Deferral Plan Effective November 22, 2002,
incorporated by reference to Exhibit 10(a) to Form 10-Q for
the quarter ended December 28, 2002 filed on February 10,
2003 (File No. 1-6544).
10(gg)+# -- Second Amendment to Second Amended and Restated Executive
Deferred Compensation Agreement effective July 9, 2004.
10(hh)+# -- Fourth Amendment to Fifth Amended and Restated Supplemental
Executive Retirement Plan effective July 9, 2004.
10(ii)+# -- Executive Severance Agreement dated July 6, 2004 between
SYSCO Corporation and Richard J. Schnieders.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
10(jj)+# -- Form of Executive Severance Agreement between SYSCO
Corporation and each of Thomas E. Lankford (dated July 12,
2004), John K. Stubblefield, Jr. (dated July 6, 2004),
Kenneth F. Spitler (dated July 14, 2004) and Larry J.
Accardi (dated August 18, 2004).
10(kk)+# -- Form of Amendment dated September 3, 2004 to Executive
Severance Agreement between SYSCO Corporation and each of
Richard J. Schnieders, Thomas E. Lankford, John K.
Stubblefield, Jr., Kenneth F. Spitler and Larry J. Accardi.
10(ll)+ -- 2004 Long-Term Incentive Cash Plan dated September 3, 2004,
incorporated by reference to Exhibit 10(a) to Form 8-K filed
on September 10, 2004 (File No. 1-6544).
10(mm)+ -- Form of Performance Unit Grant Agreement issued to executive
officers effective September 3, 2004 under the Long-Term
Incentive Cash Plan, incorporated by reference to Exhibit
10(b) to Form 8-K filed on September 10, 2004 (File No.
1-6544).
10(nn)+ -- Form of Stock Option Grant Agreement issued to executive
officers on September 2, 2004 under the 2000 Stock Incentive
Plan, incorporated by reference to Exhibit 10(a) to Form 8-K
filed on September 9, 2004 (File No. 1-6544).
10(oo)+ -- Form of Stock Option Grant Agreement issued to non-employee
directors on September 3, 2004 under the Non-Employee
Directors Stock Plan, incorporated by reference to Exhibit
10(b) to Form 8-K filed on September 9, 2004 (File No.
1-6544).
10(pp)+# -- Form of Stock Option Grant Agreement issued to executive
officers on August 31, 1995 under the 1991 Stock Option
Plan.
10(qq)+# -- Form of Stock Option Grant Agreement issued to executive
officers on September 5, 1996 under the 1991 Stock Option
Plan.
10(rr)+# -- Form of Stock Option Grant Agreement issued to executive
officers on September 4, 1997 under the 1991 Stock Option
Plan.
10(ss)+# -- Form of Stock Option Grant Agreement issued to executive
officers on September 3, 1998 under the 1991 Stock Option
Plan.
10(tt)+# -- Form of Stock Option Grant Agreement issued to executive
officers on September 2, 1999 under the 1991 Stock Option
Plan.
10(uu)+# -- Form of Stock Option Grant Agreement issued to executive
officers on September 7, 2000 under the 1991 Stock Option
Plan.
10(vv)+# -- Form of Stock Option Grant Agreement issued to executive
officers on September 11, 2001 under the 2000 Stock
Incentive Plan.
10(ww)+# -- Form of Stock Option Grant Agreement issued to executive
officers on September 11, 2001 under the 2000 Stock
Incentive Plan.
10(xx)+# -- Form of Stock Option Grant Agreement issued to executive
officers on September 12, 2002 under the 2000 Stock
Incentive Plan.
10(yy)+# -- Form of Stock Option Grant Agreement issued to executive
officers on September 11, 2003 under the 2000 Stock
Incentive Plan.
21# -- Subsidiaries of the Registrant.
23# -- Independent Public Accountants' Consent.
99(a)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 ActAct. of 2002.
99(b)32(b)# -- CFO Certification Pursuant to Section 906 of the
Sarbanes-Oxley ActAct. of 2002.
- ---------------
+ Executive Compensation Arrangement pursuant to 601(b)(10)(iii)(A) of
Regulation S-K
# Filed Herewith