10-Q 1 h81699e10-q.txt SYSCO CORPORATION - DATED SEPTEMBER 30, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- --------- Commission file number 1-6544 SYSCO CORPORATION (Exact name of registrant as specified in its charter) Delaware 74-1648137 (State or other jurisdiction of (IRS employer incorporation or organization) identification number) 1390 Enclave Parkway Houston, Texas 77077-2099 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (281) 584-1390 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] 334,222,489 shares of common stock were outstanding as of October 27, 2000. 2 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements The following consolidated financial statements have been prepared by the Company, without audit, with the exception of the July 1, 2000 consolidated balance sheet which was taken from the audited financial statements included in the Company's Fiscal 2000 Annual Report on Form 10-K. The financial statements include consolidated balance sheets, consolidated results of operations and consolidated cash flows. In the opinion of management, all adjustments, which consist of normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows for all periods presented, have been made. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Fiscal 2000 Annual Report on Form 10-K. A review of the financial information herein has been made by Arthur Andersen LLP, independent public accountants, in accordance with established professional standards and procedures for such a review. A letter from Arthur Andersen LLP concerning their review is included as Exhibit 15(a). 3 3 SYSCO CORPORATION and its Consolidated Subsidiaries CONSOLIDATED BALANCE SHEETS (In Thousands Except for Share Data)
Sept. 30, 2000 July 1, 2000 Oct. 2, 1999 -------------- ------------ ------------ (Unaudited) (Audited) (Unaudited) ASSETS Current assets Cash $ 117,575 $ 159,128 $ 143,831 Accounts and notes receivable, less allowances of $38,264, $27,628 and $29,567 1,595,725 1,519,038 1,450,881 Inventories 997,143 937,899 910,746 Deferred taxes 77,714 72,041 35,789 Prepaid expenses 45,091 45,109 34,283 ---------- ---------- ---------- Total current assets 2,833,248 2,733,215 2,575,530 Plant and equipment at cost, less depreciation 1,362,632 1,344,693 1,245,926 Other assets Goodwill and intangibles, less amortization 502,997 503,039 402,364 Other 232,633 233,008 175,170 ---------- ---------- ---------- Total other assets 735,630 736,047 577,534 ---------- ---------- ---------- Total assets $4,931,510 $4,813,955 $4,398,990 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable $ 57,838 $ 31,109 $ 139,027 Accounts payable 1,248,268 1,186,721 1,090,708 Accrued expenses 519,839 527,233 390,271 Accrued income taxes 90,699 17,914 33,407 Current maturities of long-term debt 19,166 19,958 19,773 ---------- ---------- ---------- Total current liabilities 1,935,810 1,782,935 1,673,186 Long-term debt 874,883 1,023,642 1,055,168 Deferred taxes 246,170 245,810 234,735 Shareholders' equity Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none -- -- -- Common stock, par value $1 per share Authorized 1,000,000,000 shares, issued 382,587,450 shares 382,587 382,587 382,587 Paid-in capital 88,066 76,967 35,221 Retained earnings 2,436,209 2,332,238 2,096,731 ---------- ---------- ---------- 2,906,862 2,791,792 2,514,539 Less cost of treasury stock, 50,372,203, 51,102,663 and 53,267,646 shares 1,032,215 1,030,224 1,078,638 ---------- ---------- ---------- Total shareholders' equity 1,874,647 1,761,568 1,435,901 ---------- ---------- ---------- Total liabilities and shareholders' equity $4,931,510 $4,813,955 $4,398,990 ========== ========== ==========
Note: The July 1, 2000 balance sheet has been taken from the audited financial statements at that date. 4 4 SYSCO CORPORATION and its Consolidated Subsidiaries CONSOLIDATED RESULTS OF OPERATIONS (Unaudited) (In Thousands Except for Share Data)
13 - Week Period Ended -------------------------------- Sept. 30, 2000 Oct. 2, 1999 -------------- ------------- Sales $ 5,360,174 $ 4,657,034 Costs and expenses Cost of sales 4,322,784 3,793,200 Operating expenses 787,497 674,244 Interest expense 17,401 17,944 Other, net (633) (189) ------------- ------------- Total costs and expenses 5,127,049 4,485,199 ------------- ------------- Earnings before income taxes 233,125 171,835 Income taxes 89,170 66,156 ------------- ------------- Earnings before cumulative effect of accounting change 143,955 105,679 Cumulative effect of accounting change -- (8,041) ------------- ------------- Net earnings $ 143,955 $ 97,638 ============= ============= Earnings before accounting change: Basic earnings per share $ 0.43 $ 0.32 ============= ============= Diluted earnings per share $ 0.43 $ 0.32 ============= ============= Cumulative effect of accounting change: Basic earnings per share $ -- $ (0.02) ============= ============= Diluted earnings per share $ -- $ (0.02) ============= ============= Net earnings: Basic earnings per share $ 0.43 $ 0.30 ============= ============= Diluted earnings per share $ 0.43 $ 0.29 ============= ============= Average shares outstanding 332,025,934 328,925,219 ============= ============= Diluted average shares outstanding 337,092,765 333,487,155 ============= ============= Dividends paid per common share $ 0.12 $ 0.10 ============= =============
5 5 SYSCO CORPORATION and its Consolidated Subsidiaries CONSOLIDATED CASH FLOWS (Unaudited) (In Thousands)
13 - Week Period Ended ---------------------------- Sept. 30, 2000 Oct. 2, 1999 -------------- ------------ Cash flows from operating activities: Net earnings $ 143,955 $ 97,638 Add non-cash items: Cumulative effect of accounting change -- 8,041 Depreciation and amortization 59,712 52,908 Deferred tax benefit (5,313) (1,596) Provision for losses on accounts receivable 8,195 5,979 Additional investment in certain assets and liabilities, net of effect of businesses acquired: (Increase) in receivables (84,882) (94,941) (Increase) in inventories (59,244) (45,907) Decrease (increase) in prepaid expenses 18 (4,169) Increase in accounts payable 61,547 62,435 (Decrease) increase in accrued expenses (7,394) 13,159 Increase in accrued income taxes 72,785 31,747 (Increase) in other assets (3,134) (29,459) --------- --------- Net cash provided by operating activities 186,245 95,835 --------- --------- Cash flows from investing activities: Additions to plant and equipment (70,750) (59,266) Proceeds from sales of plant and equipment 473 5,391 Acquisition of businesses, net of cash acquired (1,423) (60,437) --------- --------- Net cash used for investing activities (71,700) (114,312) --------- --------- Cash flows from financing activities: Bank and commercial paper (repayments) borrowings (121,504) 186,502 Other debt (repayments) (1,318) (4,678) Common stock reissued from treasury 35,545 21,115 Treasury stock purchases (28,837) (156,959) Dividends paid (39,984) (32,975) --------- --------- Net cash provided by (used for) financing activities (156,098) 13,005 --------- --------- Net decrease in cash (41,553) (5,472) Cash at beginning of period 159,128 149,303 --------- --------- Cash at end of period $ 117,575 $ 143,831 ========= ========= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 12,138 $ 12,586 Income taxes 18,178 22,423
6 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The liquidity and capital resources discussion included in Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company's Fiscal 2000 Annual Report on Form 10-K remains applicable, other than as described below. In Fiscal 1992, the Company began a common stock repurchase program which continued into the first quarter of Fiscal 2000, resulting in the cumulative repurchase of 80,000,000 shares of common stock. The Board of Directors authorized the repurchase of an additional 8,000,000 shares in July 1999. Under this latest authorization, 4,899,600 shares were purchased through September 30, 2000, including 681,200 shares bought in the first quarter of Fiscal 2001. The increase in treasury stock purchases in the period ended September 30, 2000 primarily reflects shares repurchased for acquisitions. In November 2000, the Board authorized the repurchase of an additional 8,000,000 shares. As of September 30, 2000, SYSCO's borrowings under its commercial paper program were $99,637,000. Such borrowings were $255,248,000 as of October 28, 2000. During the 13-week period ended September 30, 2000, commercial paper and short-term bank borrowings ranged from approximately $157,631,000 to $291,977,000. Long-term debt to capitalization ratio was 31.8% at September 30, 2000, less than the 35% to 40% target ratio, due to strong cash flow from operations and relatively low share repurchases. Results of Operations Sales and cost of sales for the first quarter increased about 15.1% and 14.0%, respectively, over the same quarter of the prior year. Real sales growth for the quarter was 8.2%, after adjusting overall sales growth by 5.25% for acquisitions and 1.69% for food cost inflation primarily due to higher costs for fresh and frozen meat and paper and disposables. Operating expenses for the periods presented remained approximately the same as a percent of sales. 7 7 Interest expense in the current period decreased over the prior period due to decreased borrowings. Income taxes for the periods presented reflect an effective rate of 38.25% this year compared to 38.5% last year. Pretax earnings and net earnings before the accounting change increased 35.7% and 36.2%, respectively, over the prior year. The increases were due to the factors discussed above as well as the Company's success in its continued efforts to increase sales to the Company's territorial street customers and increasing sales of SYSCO brand products, both of which generate higher margins. Basic and diluted earnings per share before the accounting change increased 34.4% over the same period last year due to the factors discussed above. A reconciliation of basic and diluted earnings per share after the accounting change follows. The following table sets forth the computation of basic and diluted earnings per share after the accounting change:
13 - Week Period Ended ------------------------------ Sept. 30, 2000 Oct. 2, 1999 -------------- ------------ Numerator: Numerator for basic earnings per share -- income available to common shareholders $143,955,000 $ 97,638,000 ============ ============ Denominator: Denominator for basic earnings per share -- weighted-average shares 332,025,934 328,925,219 Effect of dilutive securities: Employee and director stock options 5,066,831 4,561,936 ------------ ------------ Denominator for diluted earnings per share -- adjusted weighted-average shares and assumed conversions 337,092,765 333,487,155 ============ ============ Basic earnings per share $ 0.43 $ 0.30 ============ ============ Diluted earnings per share $ 0.43 $ 0.29 ============ ============
8 8 Acquisitions 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, and 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 North America based distributor of produce. The transactions were accounted for using the purchase method of accounting and the accompanying financial statements for the 13 weeks ended September 30, 2000 include the results of the acquired companies from the respective dates they joined SYSCO. There was no material effect, individually or in the aggregate, on SYSCO's consolidated operating results or financial position from these transactions. The purchase price was allocated to the net assets acquired based on the estimated fair value at the date of acquisition. The balances included in the Consolidated Financial Position related to 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. New Accounting Pronouncements In the first quarter of Fiscal 2001, SYSCO adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The adoption of SFAS No. 133 did not have a significant effect on SYSCO's consolidated results of operations or financial position. In December 1999, the Securities and Exchange Commission staff released Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." The SAB provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SYSCO is required to and will adopt SAB 101 in the fourth quarter of fiscal 2001 and believes that adoption will not have a significant effect on its consolidated results of operations or financial position. 9 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk SYSCO does not utilize financial instruments for trading purposes and holds no derivative financial instruments which could expose the Company to significant market risk. SYSCO's exposure to market risk for changes in interest rates relates primarily to its long-term obligations. At September 30, 2000, the Company had outstanding $99,637,000 of commercial paper at variable rates of interest with maturities through November 9, 2000. The Company's remaining long-term debt obligations of $775,246,000 were primarily at fixed rates of interest. Because a relatively small portion of the Company's long-term debt bears interest at variable rates, SYSCO has no significant cash flow exposure due to interest rate changes for long-term debt obligations. 10 10 Forward-Looking Statements Statements made herein regarding continuation of the share repurchase program and SYSCO's market risks are forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties and are based on current expectations and management's estimates; actual results may differ materially. Share repurchases could be affected by market prices of the Company's stock as well as management's decision to utilize its capital for other purposes. The effect of market risks could be impacted by future borrowing levels and certain economic factors, such as interest rates. Those risks and uncertainties that could impact these statements include the risks relating to the foodservice industry's relatively low profit margins and sensitivity to economic conditions, SYSCO's leverage and debt risks and other risks detailed in the Company's Fiscal 2000 Annual Report on Form 10-K. PART II. OTHER INFORMATION Item 1. Legal Proceedings SYSCO is engaged in various legal proceedings which have arisen but have not been fully adjudicated. These proceedings, in the opinion of management, will not have a material adverse effect upon the consolidated financial position or results of operations of the Company when ultimately concluded. Item 2. Changes in Securities and Use of Proceeds. None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None 11 11 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 3(a) Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(a) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 3(b) Bylaws, as amended May 12, 1999, incorporated by reference to Exhibit 3(b) to Form 10-K for the year ended July 3, 1999 (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). 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 for 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). 12 12 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. 1-6554). 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). *10(a) Second Amendment dated as of May 10, 2000, to the Fifth Amended and Restated SYSCO Corporation Supplemental Executive Retirement Plan. *10(b) Second Amendment dated as of May 10, 2000, to Amended and Restated SYSCO Corporation Executive Deferred Compensation Plan. *10(c) First Amendment dated as of May 10, 2000, to Amended and Restated SYSCO Corporation Board of Directors Deferred Compensation Plan. 13 13 *10(d) First Amendment, dated September 1, 2000, to the Executive Compensation Adjustment Agreement between Sysco and Charles H. Cotros. *15(a) Letter from Arthur Andersen LLP dated November 10, 2000, re: unaudited financial statements. *15(b) Acknowledgement letter from Arthur Andersen LLP. *27 Financial Data Schedule ---------- * Filed herewith. (b) Reports on Form 8-K: On August 3, 2000, the Company filed a Form 8-K to attach a press release dated August 2, 2000 announcing results of operations for the fiscal year ended July 1, 2000 (File No. 1-6544). 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SYSCO CORPORATION (Registrant) By /s/ JOHN K. STUBBLEFIELD, JR. ----------------------------- John K. Stubblefield, Jr. Executive Vice President, Finance & Administration Date: November 10, 2000 15 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3(a) Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(a) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 3(b) Bylaws, as amended May 12, 1999, incorporated by reference to Exhibit 3(b) to Form 10-K for the year ended July 3, 1999 (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). 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 for 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).
16 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. 1-6554). 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).
17 *10(a) Second Amendment dated as of May 10, 2000, to the Fifth Amended and Restated SYSCO Corporation Supplemental Executive Retirement Plan. *10(b) Second Amendment dated as of May 10, 2000, to Amended and Restated SYSCO Corporation Executive Deferred Compensation Plan. *10(c) First Amendment dated as of May 10, 2000, to Amended and Restated SYSCO Corporation Board of Directors Deferred Compensation Plan. *10(d) First Amendment, dated September 1, 2000, to the Executive Compensation Adjustment Agreement between Sysco and Charles H. Cotros. *15(a) Letter from Arthur Andersen LLP dated November 10, 2000, re: unaudited financial statements. *15(b) Acknowledgement letter from Arthur Andersen LLP. *27 Financial Data Schedule
---------- * Filed herewith.