-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VX0ZhgGkqo+nMGCW4i881Rkldv1nS+sNAQSSifD1zCm68zdKSI8/UoeUUTdKnLNl KWe6f9WinlOGUmkvONwoPg== 0000950129-05-001156.txt : 20050210 0000950129-05-001156.hdr.sgml : 20050210 20050210170121 ACCESSION NUMBER: 0000950129-05-001156 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20050101 FILED AS OF DATE: 20050210 DATE AS OF CHANGE: 20050210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYSCO CORP CENTRAL INDEX KEY: 0000096021 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 741648137 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06544 FILM NUMBER: 05593855 BUSINESS ADDRESS: STREET 1: 1390 ENCLAVE PKWY CITY: HOUSTON STATE: TX ZIP: 77077 BUSINESS PHONE: 2815841390 MAIL ADDRESS: STREET 1: 1390 ENCLAVE PKWY CITY: HOUSTON STATE: TX ZIP: 77077 10-Q 1 h22326e10vq.txt SYSCO CORPORATION - JANUARY 1, 2005 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 1, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission file number 1-6544 SYSCO CORPORATION (Exact name of registrant as specified in its charter) Delaware 74-1648137 (State or other jurisdiction of (IRS employer incorporation or organization) identification number)
1390 Enclave Parkway Houston, Texas 77077-2099 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (281) 584-1390 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yes X No ----- ----- 636,906,775 shares of common stock were outstanding as of January 29, 2005. TABLE OF CONTENTS
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures about Market Risk 23 Item 4. Controls and Procedures 23 PART II. OTHER INFORMATION Item 1. Legal Proceedings 24 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24 Item 3. Defaults Upon Senior Securities 24 Item 4. Submission of Matters to a Vote of Security Holders 25 Item 5. Other Information 25 Item 6. Exhibits 26 Signatures 28
1 PART I - FINANCIAL INFORMATION Item 1. Financial Statements SYSCO CORPORATION and its Consolidated Subsidiaries CONSOLIDATED BALANCE SHEETS (In Thousands Except for Share Data)
Jan. 1, 2005 July 3, 2004 Dec. 27, 2003 ------------ ------------ ------------- (unaudited) (unaudited) ASSETS Current assets Cash $ 152,926 $ 199,706 $ 232,595 Accounts and notes receivable, less allowances of $55,713, $34,175 and $55,744 2,167,931 2,189,127 2,086,107 Inventories 1,546,007 1,404,410 1,359,886 Prepaid expenses 64,714 54,903 60,201 Prepaid income taxes -- 3,265 -- ---------- ---------- ---------- Total current assets 3,931,578 3,851,411 3,738,789 Plant and equipment at cost, less depreciation 2,232,172 2,166,809 2,029,718 Other assets Goodwill and intangibles, less amortization 1,258,716 1,218,700 1,166,336 Restricted cash 185,660 169,326 170,877 Prepaid pension cost 289,464 243,996 -- Other assets 203,297 197,390 199,857 ---------- ---------- ---------- Total other assets 1,937,137 1,829,412 1,537,070 ---------- ---------- ---------- Total assets $8,100,887 $7,847,632 $7,305,577 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable $ 67,153 $ 73,834 $ 124,609 Accounts payable 1,684,567 1,742,578 1,645,948 Accrued expenses 626,651 724,970 583,559 Income taxes 239,984 -- 172,420 Deferred taxes 183,748 422,419 190,175 Current maturities of long-term debt 367,853 162,833 12,322 ---------- ---------- ---------- Total current liabilities 3,169,956 3,126,634 2,729,033 Other liabilities Long-term debt 1,101,852 1,231,493 1,395,981 Deferred taxes 716,977 686,705 524,989 Other long-term liabilities 268,878 238,294 289,750 ---------- ---------- ---------- Total other liabilities 2,087,707 2,156,492 2,210,720 Contingencies Shareholders' equity Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none -- -- -- Common stock, par value $1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares 765,175 765,175 765,175 Paid-in capital 364,738 332,041 290,744 Retained earnings 4,239,352 3,959,714 3,649,583 Other comprehensive loss 52,813 17,640 (142,027) ---------- ---------- ---------- 5,422,078 5,074,570 4,563,475 Less cost of treasury stock, 128,629,507, 128,639,869 and 122,970,398 shares 2,578,854 2,510,064 2,197,651 ---------- ---------- ---------- Total shareholders' equity 2,843,224 2,564,506 2,365,824 ---------- ---------- ---------- Total liabilities and shareholders' equity $8,100,887 $7,847,632 $7,305,577 ========== ========== ==========
Note: The July 3, 2004 balance sheet has been derived from the audited financial statements at that date. 2 SYSCO CORPORATION and its Consolidated Subsidiaries CONSOLIDATED RESULTS OF OPERATIONS (Unaudited) (In Thousands Except for Share and Per Share Data)
26-Week Period Ended 13-Week Period Ended ---------------------------- ---------------------------- Jan. 1, 2005 Dec. 27, 2003 Jan. 1, 2005 Dec. 27, 2003 ------------ ------------- ------------ ------------- Sales $ 14,863,182 $ 14,170,801 $ 7,331,257 $ 7,036,520 Costs and expenses Cost of sales 12,028,446 11,423,166 5,933,515 5,669,399 Operating expenses 2,060,331 2,021,189 1,004,919 996,853 Interest expense 35,465 35,007 17,766 16,376 Other, net (3,662) (9,035) (1,693) (7,052) ------------ ------------ ------------ ------------ Total costs and expenses 14,120,580 13,470,327 6,954,507 6,675,576 ------------ ------------ ------------ ------------ Earnings before income taxes 742,602 700,474 376,750 360,944 Income taxes 284,045 269,682 144,107 138,963 ------------ ------------ ------------ ------------ Net earnings $ 458,557 $ 430,792 $ 232,643 $ 221,981 ============ ============ ============ ============ Net earnings: Basic earnings per share $ 0.72 $ 0.67 $ 0.36 $ 0.34 ============ ============ ============ ============ Diluted earnings per share $ 0.70 $ 0.65 $ 0.36 $ 0.34 ============ ============ ============ ============ Average shares outstanding 638,403,789 645,301,941 638,638,789 644,723,466 ============ ============ ============ ============ Diluted shares outstanding 652,448,434 660,127,514 652,993,142 661,632,986 ============ ============ ============ ============ Dividends declared per common share $ 0.28 $ 0.24 $ 0.15 $ 0.13 ============ ============ ============ ============
3 SYSCO CORPORATION and its Consolidated Subsidiaries CONSOLIDATED CASH FLOWS (Unaudited) (In Thousands)
26-Week Period Ended ---------------------------- Jan. 1, 2005 Dec. 27, 2003 ------------ ------------- Operating activities: Net earnings $ 458,557 $ 430,792 Add non-cash items: Depreciation and amortization 150,294 138,679 Deferred tax provision 265,289 265,053 Provision for losses on receivables 15,019 14,895 Additional investment in certain assets and liabilities, net of effect of businesses acquired: Decrease (increase) in receivables 32,612 (73,428) (Increase) in inventories (123,510) (120,215) (Increase) in prepaid expenses (9,378) (7,755) (Decrease) increase in accounts payable (78,330) 3,905 (Decrease) in accrued expenses (107,609) (69,771) (Decrease) in accrued income taxes (224,079) (186,649) (Increase) in other assets (7,689) (24,644) (Decrease) in other long-term liabilities and prepaid pension cost, net (9,453) (6,083) --------- --------- Net cash provided by operating activities 361,723 364,779 --------- --------- Investing activities: Additions to plant and equipment (205,585) (248,697) Proceeds from sales of plant and equipment 7,331 9,815 Acquisition of businesses, net of cash acquired (33,439) (33,703) Increase in restricted cash (16,334) (90,000) --------- --------- Net cash used for investing activities (248,027) (362,585) --------- --------- Financing activities: Bank and commercial paper (repayments) borrowings (6,881) 182,739 Other debt borrowings (repayments) 68,973 (12,964) Common stock reissued from treasury 103,168 86,337 Treasury stock purchases (154,858) (218,149) Dividends paid (166,234) (142,501) --------- --------- Net cash used for financing activities (155,832) (104,538) --------- --------- Effect of exchange rates on cash (4,644) (2,508) --------- --------- Net decrease in cash (46,780) (104,852) Cash at beginning of period 199,706 337,447 --------- --------- Cash at end of period $ 152,926 $ 232,595 ========= ========= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 34,841 $ 36,598 Income taxes 237,694 190,761
4 SYSCO CORPORATION and its Consolidated Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The consolidated financial statements have been prepared by the company, without audit, with the exception of the July 3, 2004 consolidated balance sheet which was taken from the audited financial statements included in the company's Fiscal 2004 Annual Report on Form 10-K. The financial statements include consolidated balance sheets, consolidated results of operations and consolidated cash flows. Certain amounts in the prior periods presented have been reclassified to conform to the fiscal 2005 presentation. In the opinion of management, all adjustments, which consist of normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the company's Fiscal 2004 Annual Report on Form 10-K. A review of the financial information herein has been made by Ernst & Young LLP, independent auditors, in accordance with established professional standards and procedures for such a review. A report from Ernst & Young LLP concerning their review is included as Exhibit 15(a). 2. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
26-Week Period Ended 13-Week Period Ended ---------------------------- ---------------------------- Jan. 1, 2005 Dec. 27, 2003 Jan. 1, 2005 Dec. 27, 2003 ------------ ------------- ------------ ------------- Numerator: Numerator for earnings per share -- income available to common shareholders $458,557,000 $430,792,000 $232,643,000 $221,981,000 ============ ============ ============ ============ Denominator: Denominator for basic earnings per share -- weighted-average shares 638,403,789 645,301,941 638,638,789 644,723,466 Effect of dilutive securities: Employee and director stock options 14,044,645 14,825,573 14,354,353 16,909,520 ------------ ------------ ------------ ------------ Denominator for diluted earnings per share -- Adjusted weighted-average shares 652,448,434 660,127,514 652,993,142 661,632,986 ============ ============ ============ ============ Basic earnings per share $ 0.72 $ 0.67 $ 0.36 $ 0.34 ============ ============ ============ ============ Diluted earnings per share $ 0.70 $ 0.65 $ 0.36 $ 0.34 ============ ============ ============ ============
5 3. RESTRICTED CASH SYSCO is required by its insurers to collateralize a part of the self-insured portion of its workers' compensation and liability claims. SYSCO has chosen to satisfy these collateral requirements by depositing funds in insurance trusts. In October 2004, SYSCO deposited approximately $16,000,000 in additional funds in a trust to satisfy ongoing collateral requirements. In addition, for certain acquisitions, SYSCO has placed funds into escrow to be disbursed to the sellers in the event that specified operating results are attained or contingencies are resolved. A summary of restricted cash balances appears below:
Jan. 1, 2005 July 3, 2004 Dec. 27, 2003 ------------ ------------ ------------- Funds deposited in insurance trusts $163,663,000 $147,329,000 $147,000,000 Escrow funds related to acquisitions 21,997,000 21,997,000 23,877,000 ------------ ------------ ------------ Total $185,660,000 $169,326,000 $170,877,000 ============ ============ ============
4. DEBT As of January 1, 2005, SYSCO had uncommitted bank lines of credit which provide for unsecured borrowings for working capital of up to $95,000,000. Outstanding borrowings on these lines of credit were $4,000,000 as of January 1, 2005. As of January 1, 2005, SYSCO's outstanding borrowings under its commercial paper programs were $133,149,000. During the 26-week period ended January 1, 2005, commercial paper and short-term bank borrowings ranged from approximately $46,327,000 to $253,384,000. Included in current maturities of long-term debt at January 1, 2005 are the 6.5% Senior Notes due June 2005 and the 4.75% Senior Notes due July 2005. It is the company's intention to fund the repayment of these notes at maturity through issuances of commercial paper, senior notes, cash flow from operations or a combination thereof. 5. ACQUISITIONS During the first 26 weeks of fiscal 2005, in the aggregate, the company paid cash of $33,439,000 and issued 178,625 shares with a value of $3,414,000 for acquisitions during fiscal 2005 and for contingent consideration related to operations acquired in previous fiscal years. Acquisitions during fiscal 2005 were immaterial, individually and in the aggregate, to the consolidated financial statements. Acquisitions of businesses are accounted for using the purchase method of accounting and the financial statements of SYSCO include the results of the acquired companies from the respective dates they joined SYSCO. The purchase price of the acquired operations is allocated to the net assets acquired and liabilities assumed based on the estimated fair value at the dates of acquisition with any excess of cost over the fair value of net assets acquired, including intangibles, recognized as goodwill. The purchase price allocations related to recent acquisitions are based upon preliminary information and may be subject to change when final asset and liability 6 valuations are obtained. Material changes to the preliminary allocations are not anticipated by management. Certain acquisitions involve contingent consideration typically payable only in the event that specified operating results are attained. Aggregate contingent consideration amounts outstanding as of January 1, 2005 included approximately 1,095,000 shares and $84,326,000 in cash, which, if distributed, could result in recording of up to $107,762,000 in additional goodwill. Such amounts typically are to be paid out over periods of up to five years from the date of acquisition. 6. DERIVATIVE FINANCIAL INSTRUMENTS As of January 1, 2005, SYSCO had interest rate swaps outstanding with a notional amount of $500,000,000. The fair value of the outstanding swaps was $2,785,000, which is reflected in Other Assets on the Consolidated Balance Sheet, and the carrying amount of the related debt has been increased by the same amount in accordance with the shortcut method provided by Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." In February 2005, SYSCO terminated $500,000,000 aggregate notional amount of interest rate swaps which were fair value hedges against the 7.00% Senior Notes due May 2006, 7.25% Senior Notes due April 2007 and 4.60% Senior Notes due March 2014 and received approximately $5,300,000, which represented the fair value of the swap agreements at the time of termination. A corresponding amount will be reflected as an increase in the carrying value of the related debt to reflect the fair value at termination. This increase in the carrying value of the debt will be amortized as a reduction of interest expense over the remaining term of the debt. 7. INCOME TAXES Reflected in the changes in the net deferred tax liability and prepaid/accrued income tax balances from July 3, 2004 to January 1, 2005 is the reclassification of deferred tax liabilities related to supply chain distributions to accrued income taxes. This reclassification reflects the tax payments to be made this fiscal year related to previously deferred supply chain distributions. The effective tax rate in fiscal 2005 is 38.25%, a decrease of 0.25% from the effective tax rate of 38.50% in fiscal 2004. The determination of the company's overall effective tax rate requires the use of estimates. The effective tax rate reflects a combination of income earned and taxed in the various U.S. federal and state, as well as Canadian federal and provincial jurisdictions. Jurisdictional tax law changes, increases/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. 8. STOCK BASED COMPENSATION SYSCO accounts for its stock option plans and the employee stock purchase plan using the intrinsic value method of accounting provided under APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations under which no compensation expense has been recognized for stock option grants. 7 The following table provides comparative pro forma net earnings and earnings per share had compensation expense for these plans been determined using the fair value method of SFAS No. 123, "Accounting for Stock-Based Compensation," for all periods presented. The pro forma presentation includes only options granted after 1995 in accordance with SFAS 123. The pro forma effects for the periods presented are not necessarily indicative of the pro forma effects in future years.
26-Week Period Ended 13-Week Period Ended ---------------------------- ---------------------------- Jan. 1, 2005 Dec. 27, 2003 Jan. 1, 2005 Dec. 27, 2003 ------------ ------------- ------------ ------------- Net earnings: Reported net earnings $458,557,000 $430,792,000 $232,643,000 $221,981,000 Stock based compensation expense, net of taxes (47,414,000) (40,762,000) (23,943,000) (21,863,000) ------------ ------------ ------------ ------------ Adjusted net earnings $411,143,000 $390,030,000 $208,700,000 $200,118,000 ============ ============ ============ ============ Basic earnings per share: Reported earnings per share $ 0.72 $ 0.67 $ 0.36 $ 0.34 Stock based compensation expense, net of taxes (0.08) (0.07) (0.03) (0.03) ------------ ------------ ------------ ------------ Adjusted earnings per share $ 0.64 $ 0.60 $ 0.33 $ 0.31 ============ ============ ============ ============ Diluted earnings per share: Reported earnings per share $ 0.70 $ 0.65 $ 0.36 $ 0.34 Stock based compensation expense, net of taxes (0.07) (0.06) (0.04) (0.04) ------------ ------------ ------------ ------------ Adjusted earnings per share $ 0.63 $ 0.59 $ 0.32 $ 0.30 ============ ============ ============ ============
The weighted average fair value of options granted was $7.10 and $6.74 during the 26 weeks ended January 1, 2005 and December 27, 2003, respectively. The fair value was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for each period presented:
26-Week Period Ended ---------------------------- Jan. 1, 2005 Dec. 27, 2003 ------------ ------------- Dividend yield 1.45% 1.49% Expected volatility 22% 22% Risk-free interest rate 3.4% 3.2% Expected life 5 years 5 years
The weighted average fair value of employee stock purchase rights issued was $4.89 and $4.70 during the 26 weeks ended January 1, 2005 and December 27, 2003, respectively. The fair value of the stock purchase rights was calculated as the difference between the stock price at date of issuance and the employee purchase price. 8 9. COMPREHENSIVE INCOME Comprehensive income is net earnings plus certain other items that are recorded directly to shareholders' equity. The following table provides a summary of the components of other comprehensive income for the periods presented:
26-Week Period Ended 13-Week Period Ended ---------------------------- ---------------------------- Jan. 1, 2005 Dec. 27, 2003 Jan. 1, 2005 Dec. 27, 2003 ------------ ------------- ------------ ------------- Net earnings $458,557,000 $430,792,000 $232,643,000 $221,981,000 Minimum pension liability adjustment -- 749,000 -- -- Foreign currency translation adjustment 35,173,000 9,605,000 18,660,000 10,743,000 ------------ ------------ ------------ ------------ Other comprehensive income $493,730,000 $441,146,000 $251,303,000 $232,724,000 ============ ============ ============ ============
10. CONTINGENCIES SYSCO is engaged in various legal proceedings which have arisen but have not been fully adjudicated. These proceedings, in the opinion of management, will not have a material adverse effect upon the consolidated financial statements of the company when ultimately concluded. 11. NEW ACCOUNTING STANDARDS On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)), which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123). SFAS 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees (APB Opinion 25), and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative under the new standard. SYSCO must adopt Statement 123(R) no later than July 3, 2005. Early adoption is permitted in periods in which financial statements have not yet been issued. SYSCO expects to adopt SFAS 123(R) on July 3, 2005. SFAS 123(R) allows for two transition methods. The basic difference between the two methods is that the modified-prospective transition method does not require restatement of prior periods, whereas the modified-retrospective transition method will require restatement. As permitted by SFAS 123, the company currently accounts for share-based payments to employees using APB Opinion 25's intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options or stock issuances under the employee stock purchase plan. Although the full impact of the company's adoption of SFAS 123(R)'s fair value method has not yet been determined, the company expects that it will have a significant impact on its results of operations. The disclosure in the footnotes to the company's consolidated financial statements under Stock-Based Compensation of pro forma net income and earnings per share as if the company had recognized compensation cost for share based payments under SFAS 123 for periods prior to fiscal 2006 is not necessarily indicative of the potential impact of recognizing compensation cost for share based payments under SFAS 123(R) in future periods. The potential impact of adopting SFAS 123(R) is dependent on levels of share-based payments granted, the specific option pricing model utilized to determine fair value and the transition methodology selected. 9 12. BUSINESS SEGMENT INFORMATION The company has aggregated its operating companies into a number of segments, of which only Broadline and SYGMA are reportable segments as defined in SFAS No. 131. Broadline operating companies distribute a full line of food products and a wide variety of non-food products to both our traditional and chain restaurant customers. SYGMA operating companies distribute a full line of food products and a wide variety of non-food products to some of our chain restaurant customer locations. "Other" financial information is attributable to the company's other segments, including the company's specialty produce, custom-cut meat, Asian cuisine foodservice and lodging industry products segments. The company's Canadian operations are not significant for geographical disclosure purposes. Intersegment sales represent specialty produce and meat company products distributed by the Broadline and SYGMA operating companies. The segment results include allocation of centrally incurred costs for shared services that eliminate upon consolidation. Centrally incurred costs are allocated based upon the relative level of service used by each operating company.
26-Week Period Ended 13-Week Period Ended ---------------------------- ---------------------------- Jan. 1, 2005 Dec. 27, 2003 Jan. 1, 2005 Dec. 27, 2003 ------------ ------------- ------------ ------------- Sales (in thousands): Broadline $ 11,943,304 $11,508,476 $5,847,942 $5,681,387 SYGMA 1,857,201 1,688,102 941,421 863,539 Other 1,225,124 1,133,333 626,458 571,873 Intersegment sales (162,447) (159,110) (84,564) (80,279) ------------ ----------- ---------- ---------- Total $ 14,863,182 $14,170,801 $7,331,257 $7,036,520 ============ =========== ========== ==========
26-Week Period Ended 13-Week Period Ended ---------------------------- ---------------------------- Jan. 1, 2005 Dec. 27, 2003 Jan. 1, 2005 Dec. 27, 2003 ------------ ------------- ------------ ------------- Earnings before income taxes (in thousands): Broadline $729,932 $684,726 $360,616 $345,622 SYGMA 7,634 11,012 3,871 5,738 Other 39,888 34,730 22,791 19,754 -------- -------- -------- -------- Total segments 777,454 730,468 387,278 371,114 Unallocated corporate expenses (34,852) (29,994) (10,528) (10,170) -------- -------- -------- -------- Total $742,602 $700,474 $376,750 $360,944 ======== ======== ======== ========
Jan. 1, 2005 July 3, 2004 Dec. 27, 2003 ------------ ------------ ------------- Assets (in thousands): Broadline $4,924,815 $4,792,595 $4,700,779 SYGMA 284,235 240,418 230,214 Other 631,371 588,275 512,851 ---------- ---------- ---------- Total segments 5,840,421 5,621,288 5,443,844 Corporate 2,260,466 2,226,344 1,861,733 ---------- ---------- ---------- Total $8,100,887 $7,847,632 $7,305,577 ========== ========== ==========
10 13. SUPPLEMENTAL GUARANTOR INFORMATION SYSCO International, Co. is an unlimited liability company organized under the laws of the Province of Nova Scotia, Canada and is a wholly-owned subsidiary of SYSCO. In May 2002, SYSCO International, Co. issued $200,000,000 of 6.10% notes due in 2012. These notes are fully and unconditionally guaranteed by SYSCO. The following condensed consolidating financial statements present separately the financial position, results of operations and cash flows of the parent guarantor (SYSCO), the subsidiary issuer (SYSCO International) and all other non-guarantor subsidiaries of SYSCO (Other Non-Guarantor Subsidiaries) on a combined basis and eliminating entries.
CONDENSED CONSOLIDATING BALANCE SHEET JANUARY 1, 2005 ------------------------------------------------------------------------------- SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ----------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) Current assets .............. $ 97,392 $ 14 $ 3,834,172 $ -- $3,931,578 Investment in subsidiaries ............. 9,253,746 289,461 155,062 (9,698,269) -- Plant and equipment, net .... 131,032 -- 2,101,140 -- 2,232,172 Other assets ................ 663,434 -- 1,273,703 -- 1,937,137 ----------- -------- ----------- ----------- ---------- Total assets ................ $10,145,604 $289,475 $ 7,364,077 $(9,698,269) $8,100,887 =========== ======== =========== =========== ========== Current liabilities ......... $ 610,576 $ 64,344 $ 2,495,036 $ -- $3,169,956 Intercompany payables (receivables) ............ 5,535,449 22,950 (5,558,399) -- -- Long-term debt .............. 851,729 199,528 50,595 -- 1,101,852 Other liabilities ........... 378,172 -- 607,683 -- 985,855 Shareholders' equity ........ 2,769,678 2,653 9,769,162 (9,698,269) 2,843,224 ----------- -------- ----------- ----------- ---------- Total liabilities and shareholders' equity ..... $10,145,604 $289,475 $ 7,364,077 $(9,698,269) $8,100,887 =========== ======== =========== =========== ==========
CONDENSED CONSOLIDATING BALANCE SHEET JULY 3, 2004 ------------------------------------------------------------------------------- SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ----------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) Current assets .............. $ 119,526 $ 34 $ 3,731,851 $ -- $3,851,411 Investment in subsidiaries ............. 8,678,729 260,501 173,986 (9,113,216) -- Plant and equipment, net .... 114,385 -- 2,052,424 -- 2,166,809 Other assets ................ 594,811 -- 1,234,601 -- 1,829,412 ---------- -------- ----------- ----------- ---------- Total assets ................ $9,507,451 $260,535 $ 7,192,862 $(9,113,216) $7,847,632 ========== ======== =========== =========== ========== Current liabilities ......... $ 374,144 $ 74,948 $ 2,677,542 $ -- $3,126,634 Intercompany payables (receivables) ............ 5,298,927 (14,924) (5,284,003) -- -- Long-term debt .............. 981,476 199,496 50,521 -- 1,231,493 Other liabilities ........... 326,771 -- 598,228 -- 924,999 Shareholders' equity ........ 2,526,133 1,015 9,150,574 (9,113,216) 2,564,506 ---------- -------- ----------- ----------- ---------- Total liabilities and shareholders' equity ..... $9,507,451 $260,535 $ 7,192,862 $(9,113,216) $7,847,632 ========== ======== =========== =========== ==========
11
CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 27, 2003 ------------------------------------------------------------------------------- SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ----------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) Current assets .............. $ 155,342 $ 14 $ 3,583,433 $ -- $3,738,789 Investment in subsidiaries ............. 8,074,934 260,264 172,711 (8,507,909) -- Plant and equipment, net .... 118,907 -- 1,910,811 -- 2,029,718 Other assets ................ 347,491 2,077 1,187,502 -- 1,537,070 ---------- --------- ----------- ----------- ---------- Total assets ................ $8,696,674 $ 262,355 $ 6,854,457 $(8,507,909) $7,305,577 ========== ========= =========== =========== ========== Current liabilities ......... $ 302,789 $ 105,347 $ 2,320,897 $ -- $2,729,033 Intercompany payables (receivables) ............ 4,728,093 (45,927) (4,682,166) -- -- Long-term debt .............. 1,140,108 199,463 56,410 -- 1,395,981 Other liabilities ........... 202,202 -- 612,537 -- 814,739 Shareholders' equity ........ 2,323,482 3,472 8,546,779 (8,507,909) 2,365,824 ---------- --------- ----------- ----------- ---------- Total liabilities and shareholders' equity ..... $8,696,674 $ 262,355 $ 6,854,457 $(8,507,909) $7,305,577 ========== ========= =========== =========== ==========
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS 26-WEEK PERIOD ENDED JANUARY 1, 2005 ------------------------------------------------------------------------------- SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ----------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) Sales ....................... $ -- $ -- $ 14,863,182 $ -- $14,863,182 Cost of sales ............... -- -- 12,028,446 -- 12,028,446 Operating expenses .......... 33,719 58 2,026,554 -- 2,060,331 Interest expense (income) ... 149,518 5,378 (119,431) -- 35,465 Other, net .................. (160) -- (3,502) -- (3,662) --------- ------- ------------ --------- ----------- Total costs and expenses .... 183,077 5,436 13,932,067 -- 14,120,580 --------- ------- ------------ --------- ----------- Earnings (losses) before income taxes ............. (183,077) (5,436) 931,115 -- 742,602 Income tax (benefit) provision ................ (70,027) (2,079) 356,151 -- 284,045 Equity in earnings of Subsidiaries ............. 571,607 3,772 -- (575,379) -- --------- ------- ------------ --------- ----------- Net earnings ................ $ 458,557 $ 415 $ 574,964 $(575,379) $ 458,557 ========= ======= ============ ========= ===========
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS 26-WEEK PERIOD ENDED DECEMBER 27, 2003 ------------------------------------------------------------------------------- SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ----------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) Sales ....................... $ -- $ -- $14,170,801 $ -- $14,170,801 Cost of sales ............... -- -- 11,423,166 -- 11,423,166 Operating expenses .......... 58,896 56 1,962,237 -- 2,021,189 Interest expense (income) ... 121,651 7,421 (94,065) -- 35,007 Other, net .................. (192) (928) (7,915) -- (9,035) --------- ------- ----------- --------- ----------- Total costs and expenses .... 180,355 6,549 13,283,423 -- 13,470,327 --------- ------- ----------- --------- ----------- Earnings (losses) before income taxes ............. (180,355) (6,549) 887,378 -- 700,474 Income tax (benefit) provision ................ (69,437) (2,521) 341,640 -- 269,682 Equity in earnings of Subsidiaries ............. 541,710 6,057 -- (547,767) -- --------- ------- ----------- --------- ----------- Net earnings ................ $ 430,792 $ 2,029 $ 545,738 $(547,767) $ 430,792 ========= ======= =========== ========= ===========
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS 13-WEEK PERIOD ENDED JANUARY 1, 2005 ------------------------------------------------------------------------------- SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ----------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) Sales ....................... $ -- $ -- $7,331,257 $ -- $ 7,331,257 Cost of sales ............... -- -- 5,933,515 -- 5,933,515 Operating expenses .......... 10,010 29 994,880 -- 1,004,919 Interest expense (income) ... 75,392 2,314 (59,940) -- 17,766 Other, net .................. 5 -- (1,698) -- (1,693) -------- ------- ---------- --------- ----------- Total costs and expenses .... 85,407 2,343 6,866,757 -- 6,954,507 -------- ------- ---------- --------- ----------- Earnings (losses) before income taxes ............. (85,407) (2,343) 464,500 -- 376,750 Income tax (benefit) provision ................ (32,668) (896) 177,671 -- 144,107 Equity in earnings of Subsidiaries ............. 285,382 1,244 -- (286,626) -- -------- ------- ---------- --------- ----------- Net earnings (loss) ......... $232,643 $ (203) $ 286,829 $(286,626) $ 232,643 ======== ======= ========== ========= ===========
12
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS 13-WEEK PERIOD ENDED DECEMBER 27, 2003 ------------------------------------------------------------------------------- SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ----------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) Sales ....................... $ -- $ -- $7,036,520 $ -- $7,036,520 Cost of sales ............... -- -- 5,669,399 -- 5,669,399 Operating expenses .......... 21,341 20 975,492 -- 996,853 Interest expense (income) ... 60,596 3,711 (47,931) -- 16,376 Other, net .................. 91 (928) (6,215) -- (7,052) -------- ------- ---------- --------- ---------- Total costs and expenses .... 82,028 2,803 6,590,745 -- 6,675,576 -------- ------- ---------- --------- ---------- Earnings (losses) before income taxes ............. (82,028) (2,803) 445,775 -- 360,944 Income tax (benefit) provision ................ (31,581) (1,079) 171,623 -- 138,963 Equity in earnings of Subsidiaries ............. 272,428 3,231 -- (275,659) -- -------- ------- ---------- --------- ---------- Net earnings ................ $221,981 $ 1,507 $ 274,152 $(275,659) $ 221,981 ======== ======= ========== ========= ==========
CONDENSED CONSOLIDATING CASH FLOWS 26-WEEK PERIOD ENDED JANUARY 1, 2005 ---------------------------------------------------------------- SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES TOTALS ----------- ------------- ------------------- ------------ (IN THOUSANDS) Net cash provided by (used for): Operating activities .............. $ (63,840) $ (3,260) $ 428,823 $ 361,723 Investing activities .............. (43,126) -- (204,901) (248,027) Financing activities .............. (143,841) (10,649) (1,342) (155,832) Effect of exchange rate on cash ........................... -- -- (4,644) (4,644) Intercompany activity ............. 236,679 13,909 (250,588) -- --------- -------- --------- --------- Net decrease in cash .............. (14,128) -- (32,652) (46,780) Cash at the beginning of the period ......................... 87,507 -- 112,199 199,706 --------- -------- --------- --------- Cash at the end of the period ......................... $ 73,379 $ -- $ 79,547 $ 152,926 ========= ======== ========= =========
CONDENSED CONSOLIDATING CASH FLOWS 26-WEEK PERIOD ENDED DECEMBER 27, 2003 ---------------------------------------------------------------- SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES TOTALS ----------- ------------- ------------------- ------------ (IN THOUSANDS) Net cash provided by (used for): Operating activities .............. $(120,854) $ 663 $ 484,970 $ 364,779 Investing activities .............. (132,075) -- (230,510) (362,585) Financing activities .............. (86,419) (7,181) (10,938) (104,538) Effect of exchange rate on cash ........................... -- -- (2,508) (2,508) Intercompany activity ............. 269,716 6,004 (275,720) -- --------- ------- --------- --------- Net decrease in cash .............. (69,632) (514) (34,706) (104,852) Cash at the beginning of the period ......................... 206,043 514 130,890 337,447 --------- ------- --------- --------- Cash at the end of the period ......................... $ 136,411 $ -- $ 96,184 $ 232,595 ========= ======= ========= =========
13 14. EMPLOYEE BENEFIT PLANS The components of net benefit cost for the 26-week periods presented are as follows:
Pension Benefits Other Postretirement Plans ---------------------------- ---------------------------- Jan. 1, 2005 Dec. 27, 2003 Jan. 1, 2005 Dec. 27, 2003 ------------ ------------- ------------ ------------- Service cost $ 40,642,000 $ 37,466,000 $239,000 $211,000 Interest cost 36,913,000 30,582,000 244,000 201,000 Expected return on plan assets (41,306,000) (30,574,000) -- -- Amortization of prior service cost 880,000 654,000 101,000 101,000 Recognized net actuarial loss (gain) 16,302,000 18,849,000 -- (20,000) Amortization of net transition obligation -- 139,000 77,000 77,000 ------------ ------------ -------- -------- Net periodic benefit cost $ 53,431,000 $ 57,116,000 $661,000 $570,000 ============ ============ ======== ========
The components of net benefit cost for the 13-week periods presented are as follows:
Pension Benefits Other Postretirement Plans ---------------------------- ---------------------------- Jan. 1, 2005 Dec. 27, 2003 Jan. 1, 2005 Dec. 27, 2003 ------------ ------------- ------------ ------------- Service cost $ 20,320,000 $ 18,733,000 $119,000 $106,000 Interest cost 18,457,000 15,291,000 122,000 100,000 Expected return on plan assets (20,653,000) (15,287,000) -- -- Amortization of prior service cost 440,000 326,000 51,000 51,000 Recognized net actuarial loss (gain) 8,151,000 9,425,000 -- (10,000) Amortization of net transition obligation -- 70,000 38,000 38,000 ------------ ------------ -------- -------- Net periodic benefit cost $ 26,715,000 $ 28,558,000 $330,000 $285,000 ============ ============ ======== ========
SYSCO's contributions to its defined benefit plans were $83,048,000 and $82,637,000 during the 26-week periods ended January 1, 2005 and December 27, 2003, respectively. SYSCO does not expect to make significant additional contributions during the remainder of fiscal 2005, whereas total contributions in fiscal 2004 were $165,512,000. 15. MANAGEMENT INCENTIVE COMPENSATION In September 2004, SYSCO adopted the 2004 Long-Term Incentive Cash Plan (the Cash Plan) under which key employees have the opportunity to earn cash incentive payments based on a performance period of at least three years. In September 2004, performance units were awarded under the Cash Plan to approximately 172 employees, which could result in a maximum aggregate payout after the three-year performance period which includes fiscal years 2005 through 2007 of $23,454,000. 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This discussion should be read in conjunction with our financial statements as of July 3, 2004, and the fiscal year then ended, and Management's Discussion and Analysis of Financial Condition and Results of Operations, both contained in our Annual Report on Form 10-K for the fiscal year ended July 3, 2004. HIGHLIGHTS Sales increased 4.9% for the first 26 weeks and 4.2% for the second quarter of fiscal 2005 over the comparable prior year periods. Gross margins as a percent of sales for both the first 26 weeks and second quarter of fiscal 2005 decreased from the comparable prior year periods due to the impact of product cost increases and changes in customer mix and segment mix. Operating expenses as a percent of sales for both the first 26 weeks and the second quarter of fiscal 2005 decreased from the comparable prior year periods due to operating efficiencies and operating costs increasing at lower rates than the sales price increases driven by product cost increases. Primarily as a result of these factors, net earnings increased 6.4% for the first 26 weeks and 4.8% for the second quarter of fiscal 2005 over the comparable prior year periods. Management believes that prolonged periods of rising product costs together with general economic conditions, including increased fuel costs, contributed to the softness in the foodservice market and thus a slowing of SYSCO's sales growth beginning in the latter half of the fourth quarter of fiscal 2004 and continuing in fiscal 2005. The company continues to focus on customer account penetration and expense controls, including managing labor costs, 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, and SYGMA, the company's chain restaurant distribution subsidiary. The company estimates that it serves more than 14% of an approximately $207 billion annual foodservice market that includes the North American foodservice, non-food and hotel amenity, furniture and textile markets. The foodservice, or food-prepared-away-from-home, market represents approximately one-half of the total 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 affect the frequency and amount spent by consumers for food prepared away from home and in turn can impact SYSCO's 15 sales. We have historically grown at a faster rate than the overall industry and have grown our market share in this fragmented industry. The company intends to continue to expand its market share and grow earnings through strategies which include: - Profitable sales growth: In addition to expansion through foldouts (new operating companies created in established markets previously served by other SYSCO operating companies) and a disciplined acquisition program, refining the use of customer purchasing potential and profitability data in targeting new customers, deepening relationships with existing customers, tailoring products and services and 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 implementing 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 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 products from SYSCO's operating companies in each respective region and as a result, lower inventory and operating costs, working capital requirements and future facility expansion needs at SYSCO's operating companies while providing greater value to our suppliers and customers. The company expects to build from seven to nine regional distribution centers over a period of ten years. The first of which, the Northeast Redistribution Center located in Front Royal, Virginia, will begin distributing products to the company's broadline facility near Boston in February 2005, followed incrementally by 13 additional broadline companies in the Northeast region. The company expects that all 14 companies will be receiving products from the Northeast Redistribution Center by October 2005. The company expects to begin construction of its second regional redistribution facility, to be located in the Southeast, in fiscal 2006. Management estimates that additional expenses related to the Northeast Redistribution Center over what was incurred in fiscal 2004 will have a negative impact of $0.03 to $0.04 on earnings per share during fiscal 2005. In fiscal 2006, management estimates that the benefits of the project are expected to offset any further costs, and that there should be no additional negative impact, and perhaps a one-half cent contribution, to earnings per share. 16 RESULTS OF OPERATIONS The following table sets forth the components of the Results of Operations expressed as a percentage of sales for the periods indicated:
26-Week Period Ended 13-Week Period Ended ---------------------------- ---------------------------- Jan. 1, 2005 Dec. 27, 2003 Jan. 1, 2005 Dec. 27, 2003 ------------ ------------- ------------ ------------- Sales 100.0% 100.0% 100.0% 100.0% Costs and Expenses Cost of sales 80.9 80.6 80.9 80.6 Operating expenses 13.9 14.3 13.8 14.2 Interest expense 0.2 0.2 0.2 0.2 Other, net 0.0 0.0 0.0 (0.1) ----- ----- ----- ----- Total costs and expenses 95.0 95.1 94.9 94.9 ----- ----- ----- ----- Earnings before income taxes 5.0 4.9 5.1 5.1 Income taxes 1.9 1.9 1.9 1.9 ----- ----- ----- ----- Net earnings 3.1% 3.0% 3.2% 3.2% ===== ===== ===== =====
The following table sets forth the change in the components of the Results of Operations expressed as a percentage increase or decrease over the comparable period in the prior year:
26-Week Period 13-Week Period -------------- -------------- Sales 4.9% 4.2% Costs and Expenses Cost of sales 5.3 4.7 Operating expenses 1.9 0.8 Interest expense 1.3 8.5 Other, net (59.5) (76.0) ----- ----- Total costs and expenses 4.8 4.2 ----- ----- Earnings before income taxes 6.0 4.4 Income taxes 5.3 3.7 ----- ----- Net earnings 6.4% 4.8% ===== ===== Basic earnings per share 7.5% 5.9% Diluted earnings per share 7.7 5.9 Average shares outstanding (1.1) (0.9) Diluted shares outstanding (1.2) (1.3)
17 SALES Acquisitions contributed 0.6% to the overall sales growth rate for the first 26 weeks of fiscal 2005 and 0.7% for the second quarter of fiscal 2005. Estimated product cost increases were 4.7% during the first 26 weeks of fiscal 2005 and 3.8% during the second quarter of fiscal 2005. SYSCO generally expects to pass product cost increases to its customers; however, the actual amount of product cost increases reflected as increases in sales price is difficult to quantify. Management believes that prolonged periods of rising product costs together with general economic conditions, including increased fuel costs, contributed to the softness in the foodservice market and thus a slowing of SYSCO's sales growth beginning in the latter half of the fourth quarter of fiscal 2004 and continuing in fiscal 2005. Additionally, the company continues its focus on profitable sales growth. One part of this strategy involves being more selective with respect to which customers we serve, including managing the profitability of, or exiting, unprofitable customers and refining the use of customer purchasing potential and profitability data in targeting new customers. The company continues to see reductions in sales to unprofitable customers over the comparable prior year periods. GROSS MARGINS The decline in gross margins as a percentage of sales in the first 26 weeks and second quarter of fiscal 2005, as compared to the comparable prior year periods, was experienced in substantially all of the company's segments. Management believes that this gross margin decline was caused by several factors, including product cost increases, changes in segment mix and pricing pressure. Product cost increases in most of the product categories had the impact of reducing gross margins as a percentage of sales, as gross profit dollars are earned on a higher sales dollar base. Within the Broadline segment, gross margin as a percentage of sales on sales to multi-unit customers, where margins are contractually agreed to and are frequently fee-based, declined. Gross margins as a percentage of sales on sales to marketing-associate served customers, where marketing associates negotiate the price on each order, were maintained. Sales at the SYGMA segment, which traditionally have lower margins than Broadline segment sales, grew faster than sales at the Broadline segment. OPERATING EXPENSES The decrease in operating expenses as a percentage of sales was primarily attributable to improved operating efficiencies. For example, the Broadline segment continues to demonstrate improving trends in key expense metrics, including number of stops, miles driven per trip, pieces sold per delivery, product line items sold per delivery, pieces per trip and pieces per error. Increases in product costs and the resulting increased average sales price per item also favorably impacted expenses as a percentage of sales as operating costs increased at a lower rate. Operating expenses were also favorably impacted by the recognition in income of $14,195,000 in the first 26 weeks and $14,281,000 in the second quarter of fiscal 2005 to adjust the carrying value of life insurance assets to their cash surrender value. This compared to the recognition in income of $16,784,000 and $12,218,000 in the comparable periods of fiscal 2004, respectively. Operating expenses were negatively impacted by increased costs to deliver product to customers due to increased fuel costs of approximately $14,000,000 in the first 26 weeks and $8,500,000 in the second quarter of fiscal 2005 over comparable periods of fiscal 2004. The 18 impact of increasing fuel costs was partially offset by a reduction in both miles driven and number of stops. Operating expenses related to the National Supply Chain project were $12,211,000 in the first 26 weeks and $6,460,000 in the second quarter of fiscal 2005, as compared to $17,698,000 and $8,786,000 in the comparable periods of fiscal 2004. The company's focus on managing labor costs has resulted in a reduction of the number of associates by approximately 2,000 from July 3, 2004 to January 1, 2005. The company believes that this has resulted in the total number of associates being more aligned with the current sales volumes and as a result, has aided in the company's efforts to manage overall expenses. The company will adjust its workforce levels in the future as actual or expected sales volumes change. OTHER INCOME The company recognized a gain on the sale of a facility of approximately $5,700,000 in the second quarter of fiscal 2004. EARNINGS PER SHARE The increases in earnings per share were the result of factors discussed above, as well as a net reduction of shares outstanding due primarily to share repurchases. SEGMENT RESULTS The following table sets forth the change in the selected financial data of each of the company's reportable segments expressed as a percentage increase (decrease) over the comparable period in the prior year and should be read in conjunction with Business Segment Information (Footnote No. 12) in the Notes to Consolidated Financial Statements:
26-Week Period 13-Week Period ---------------- ---------------- Earnings Earnings before before Sales taxes Sales taxes ----- -------- ----- -------- Broadline 3.8% 6.6% 2.9% 4.3% SYGMA 10.0 (30.7) 9.0 (32.5) Other 8.1 14.9 9.5 15.4
The following tables set forth sales and earnings before income taxes of each of the company's reportable segments expressed as a percentage of the respective consolidated total and should be read in conjunction with Business Segment Information (Footnote No. 12) in the Notes to Consolidated Financial Statements:
26-Week Period Ended ----------------------------------- Jan. 1, 2005 Dec. 27, 2003 ---------------- ---------------- Earnings Earnings before before Sales taxes Sales taxes ----- -------- ----- -------- Broadline 80.4% 98.3% 81.2% 97.8% SYGMA 12.5 1.0 11.9 1.6 Other 8.2 5.4 8.0 4.9 Intersegment sales (1.1) (1.1) Unallocated corporate expenses (4.7) (4.3) ----- ----- ----- ----- Total 100.0% 100.0% 100.0% 100.0% ===== ===== ===== =====
19
13-Week Period Ended ----------------------------------- Jan. 1, 2005 Dec. 27, 2003 ---------------- ---------------- Earnings Earnings before before Sales taxes Sales taxes ----- -------- ----- -------- Broadline 79.8% 95.7% 80.7% 95.8% SYGMA 12.8 1.0 12.3 1.6 Other 8.5 6.0 8.1 5.4 Intersegment sales (1.1) (1.1) Unallocated corporate expenses (2.7) (2.8) ----- ----- ----- ----- Total 100.0% 100.0% 100.0% 100.0% ===== ===== ===== =====
BROADLINE SEGMENT Acquisitions did not have a material impact on sales growth for the Broadline segment for the first 26 weeks or for the second quarter of fiscal 2005. The sales increases were primarily due to increased sales to marketing associate-served customers and multi-unit customers, including increased sales of SYSCO Brand products and price increases primarily resulting from higher product costs. Marketing associate-served sales as a percentage of broadline sales in the U.S. were 53.7% and 52.9% for the first 26 weeks and second quarter of fiscal 2005, respectively, as compared to 53.7% and 52.5%, respectively, for the comparable prior year periods. SYSCO Brand sales as a percentage of broadline sales in the U.S. increased to 49.5% and 49.4% for the first 26 weeks and the second quarter of fiscal 2005, respectively, as compared to 49.0% and 49.0%, respectively, for the comparable prior year periods. The increases in earnings before income taxes for the Broadline segment were primarily due to increases in sales and increased operating efficiencies resulting in lower expenses as a percentage of sales. SYGMA SEGMENT Acquisitions contributed 2.8% to the overall sales growth rate for the SYGMA segment for the first 26 weeks and 2.9% for the second quarter of fiscal 2005. The remaining increase was due primarily to sales to new customers, sales growth in SYGMA's existing customer base related to new locations added by those customers, as well as increases in sales to existing locations, and price increases resulting primarily from higher product costs. Earnings before income taxes for the SYGMA segment decreased primarily as a result of the factors discussed below. During the fourth quarter of fiscal 2004 and the first quarter of fiscal 2005, SYGMA discontinued servicing a portion of its largest customer's locations due to that customer's geographic supply chain realignment. SYGMA is offsetting these lost sales by obtaining sales from additional locations from this customer and obtaining new business from other customers. The new business is being added throughout fiscal 2005. In many cases, this new business is being served out of different SYGMA locations than those that originally served the discontinued business. As a result, during fiscal 2004 and fiscal 2005, SYGMA's operating profits have been impacted by increased operating expenses as it transitioned its operations to serve this new business. In addition, SYGMA's gross margins as a percent of sales in fiscal 2005 have declined from the comparable period in fiscal 2004 due to product cost increases and lower agreed upon pricing with its customers. These trends in gross margins are expected to continue throughout fiscal 2005. However, the company expects that SYGMA will continue to be a profitable segment. 20 LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities, as supplemented by commercial paper and other bank borrowings, may, at the discretion of management, be applied towards investments in facilities, fleet and other equipment; cash dividends; acquisitions fitting within the company's overall growth strategy; and the share repurchase program. Operating Activities Cash flow from operations in the first 26 weeks of fiscal 2005 was negatively impacted by increases in inventory balances of $123,510,000 and decreases in accounts payable balances of $78,330,000, offset by a decrease in accounts receivable balances of $32,612,000. Inventory balances are impacted by many factors including current and anticipated sales volumes and changes in product mix, and purchases in anticipation of product availability and product cost increases. The company has also historically experienced elevated inventory levels during the holiday period that the second quarter ends in. Sales in the last weeks of the quarter are at lower volumes due to the holiday period which can build inventory levels. In addition, purchasing levels are typically increased in anticipation of increased sales volumes from the re-opening of schools. Accounts payable balances were impacted by several factors including changes in product mix and changes in payment terms. Sales to multi-unit customers, whose payment terms are traditionally longer than the overall SYSCO average, typically represent a larger percentage of total SYSCO sales (and thus receivable balances) in December as compared to June. These seasonable changes in customer mix traditionally result in higher accounts receivable balances. In addition, the fiscal second quarter ends in a holiday period which can slow customer payments. In fiscal 2005, improvements in receivable collections more than offset these factors. Also impacting cash flow from operations was a decrease in accrued expenses of $107,609,000. Accrued amounts related to bonus and incentive payments to employees decreased approximately $95,600,000 during the first 26 weeks of fiscal 2005. This decrease reflects the payment of annual incentive based bonuses for fiscal 2004 which were paid in early fiscal 2005, offset by accruals for fiscal 2005 incentive based bonuses. The company's contributions to its defined benefit plans were $83,048,000 and $82,637,000 during the 26-week periods ended January 1, 2005 and December 27, 2003, respectively. SYSCO does not expect to make significant additional contributions during the remainder of fiscal 2005, whereas total contributions in fiscal 2004 were $165,512,000. Investing Activities Total capital expenditures in fiscal 2005 are expected to be approximately $400,000,000 to $450,000,000. Projected capital expenditures include the continuation of the fold-out program; facility, fleet and other equipment replacements and expansions; the company's National Supply Chain project; and investments in technology. Expenditures in the first 26 weeks of fiscal 2005 related to the company's National Supply Chain project totaled $38,524,000, of which $26,313,000 was capitalized. Total expenditures on the project since inception are $256,311,000, of which $178,567,000 have been capitalized. 21 Financing Activities During the first 26 weeks of fiscal 2005, a total of 4,430,200 shares were repurchased at a cost of $154,858,000, as compared to 6,293,700 shares at a cost of $218,149,000 for the comparable period in fiscal 2004. An additional 1,976,000 shares at a cost of $72,016,000 have been purchased through January 29, 2005, resulting in 6,202,700 shares remaining available for repurchase as authorized by the Board as of that date. The company made two regular quarterly dividend payments during the first 26 weeks of fiscal 2005, each at $0.13 per share. In November 2004, SYSCO declared its regular quarterly dividend for the third quarter of fiscal 2005, increasing it to $0.15 per share, which was paid in January 2005. As of January 1, 2005, SYSCO's borrowings under its commercial paper programs were $133,149,000. Such borrowings were $122,116,000 as of January 29, 2005. During the 26-week period ended January 1, 2005, commercial paper and short-term bank borrowings ranged from approximately $46,327,000 to $253,384,000. As of January 1, 2005, SYSCO had uncommitted bank lines of credit, which provide for unsecured borrowings for working capital of up to $95,000,000, of which $4,000,000 was outstanding at January 1, 2005. Such borrowings were $24,500,000 as of January 29, 2005. Included in current maturities of long-term debt are the 6.5% Senior Notes due June 2005 and the 4.75% Senior Notes due July 2005. It is the company's intention to fund the repayment of these notes at maturity through issuances of commercial paper, senior notes, cash flow from operations or a combination thereof. The long-term debt to capitalization ratio was 34.1% at January 1, 2005, which is slightly below the company's long-term 35% to 40% target range. For purposes of calculating this ratio, long-term debt includes both the current maturities and long-term portion. Management believes that the company's cash flows from operations, as well as the availability of additional capital under its existing commercial paper programs, bank lines of credit, debt shelf registration and its ability to access capital from financial markets in the future, will be sufficient to meet its cash requirements while maintaining proper liquidity for normal operating purposes. CRITICAL ACCOUNTING POLICIES Critical accounting policies are those that are most important to the portrayal of the company's financial position and results of operations. These policies require management's most subjective judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. SYSCO's most critical accounting policies pertain to the allowance for doubtful accounts, self-insurance programs, pension plans and accounting for business combinations, and are described in Item 7 of the company's Annual Report on Form 10-K for the year ended July 3, 2004. There were no changes in critical accounting policies during the second quarter of fiscal 2005. 22 NEW ACCOUNTING STANDARDS On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)), which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123). SFAS 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees (APB Opinion 25), and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative under the new standard. SYSCO must adopt Statement 123(R) no later than July 3, 2005. Early adoption is permitted in periods in which financial statements have not yet been issued. SYSCO expects to adopt SFAS 123(R) on July 3, 2005. SFAS 123(R) allows for two transition methods. The basic difference between the two methods is that the modified-prospective transition method does not require restatement of prior periods, whereas the modified-retrospective transition method will require restatement. As permitted by SFAS 123, the company currently accounts for share-based payments to employees using APB Opinion 25's intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options or stock issuances under the employee stock purchase plan. Although the full impact of the company's adoption of SFAS 123(R)'s fair value method has not yet been determined, the company expects that it will have a significant impact on its results of operations. The disclosure in the footnotes to the company's consolidated financial statements under Stock-Based Compensation of pro forma net income and earnings per share as if the company had recognized compensation cost for share based payments under SFAS 123 for periods prior to fiscal 2006 is not necessarily indicative of the potential impact of recognizing compensation cost for share based payments under SFAS 123(R) in future periods. The potential impact of adopting SFAS 123(R) is dependent on levels of share-based payments granted, the specific option pricing model utilized to determine fair value and the transition methodology selected. FORWARD-LOOKING STATEMENTS Certain statements made herein are forward-looking statements under the Private Securities Litigation Reform Act of 1995. They include statements regarding potential future repurchases under the share repurchase program; market risks; industry growth; the impact of ongoing legal proceedings; the timing, expected cost savings and other benefits, including the expected impact on earnings per share of the National Supply Chain project, including the Northeast Redistribution Center; anticipated capital expenditures; the ability to increase market share and grow earnings; sales growth; growth strategies; the impact of discontinued business at the SYGMA segment and SYGMA's ability to offset such impact with additional business; SYSCO's ability to refinance current maturities of long-term debt; and SYSCO's ability to meet its cash requirements while maintaining proper liquidity. These statements involve risks and uncertainties and are based on management's current expectations and estimates; actual results may differ materially. Those risks and uncertainties that could impact these statements include the risks relating to the foodservice distribution industry's relatively low profit margins and sensitivity to general economic conditions, including the current economic environment; changing customer needs; SYSCO's leverage and debt risks; the successful completion of acquisitions and integration of acquired companies; the effect of competition on SYSCO and its customers; the ultimate outcome of litigation; potential impact of product liability claims; the risk of interruption of supplies due to lack of long-term 23 contracts, severe weather, work stoppages or otherwise; labor issues; construction schedules; management's allocation of capital and the timing of capital purchases; risks relating to the successful completion and operation of the national supply chain project including the Northeast Redistribution Center; and internal factors such as the ability to improve efficiencies, control expenses and successfully execute growth strategies. In addition, share repurchases could be affected by market prices for the company's securities as well as management's decision to utilize its capital for other purposes. The effect of market risks could be impacted by future borrowing levels and economic factors such as interest rates. For a more detailed discussion of these and other factors that could cause actual results to differ from those contained in the forward-looking statements, see the company's Annual Report on Form 10-K for the fiscal year ended July 3, 2004. Item 3. Quantitative and Qualitative Disclosures about Market Risk SYSCO does not utilize financial instruments for trading purposes. SYSCO's use of debt directly exposes the company to interest rate risk. Floating rate debt, where the interest rate fluctuates periodically, exposes the company to short-term changes in market interest rates. Fixed rate debt, where the interest rate is fixed over the life of the instrument, exposes the company to changes in market interest rates reflected in the fair value of the debt and to the risk the company may need to refinance maturing debt with new debt at a higher rate. SYSCO manages its debt portfolio to achieve an overall desired position of fixed and floating rates and may employ interest rate swaps as a tool to achieve that goal. The major risks from interest rate derivatives include changes in interest rates affecting the fair value of such instruments, potential increases in interest expense due to market increases in floating interest rates and the creditworthiness of the counterparties in such transactions. At January 1, 2005, the company had outstanding $133,149,000 of commercial paper at variable rates of interest with maturities through April 20, 2005. The company's long-term debt obligations of $1,469,705,000 were primarily at fixed rates of interest. Also at January 1, 2005, the company had interest rate swap agreements outstanding totaling $500,000,000 in notional amount whereby the company received interest payments at fixed rates of interest and paid interest at variable rates. In February 2005, the company terminated all outstanding swap agreements. Item 4. Controls and Procedures As of January 1, 2005, an evaluation was performed under the supervision and with the participation of the company's management, including the CEO and CFO, of the effectiveness of the design and operation of the company's disclosure controls and procedures. Based on that evaluation, the company's management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of January 1, 2005 in providing reasonable assurances that material information required to be disclosed is included on a timely basis in the reports it files with the Securities and Exchange Commission. Furthermore, the company's management noted that no changes occurred during the second quarter of fiscal 2005 that materially affected, or would be reasonably likely to materially affect, the company's internal controls over financial reporting. 24 PART II. OTHER INFORMATION Item 1. Legal Proceedings SYSCO is engaged in various legal proceedings which have arisen but have not been fully adjudicated. These proceedings, in the opinion of management, will not have a material adverse effect upon the consolidated financial statements of the company when ultimately concluded. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds SYSCO made the following share repurchases during the second quarter of fiscal 2005: ISSUER PURCHASES OF EQUITY SECURITIES
(C) TOTAL NUMBER OF SHARES PURCHASED AS (D) MAXIMUM NUMBER (B) AVERAGE PART OF PUBLICLY OF SHARES THAT MAY YET (A) TOTAL NUMBER OF PRICE PAID PER ANNOUNCED PLANS OR BE PURCHASED UNDER PERIOD SHARES PURCHASED SHARE PROGRAMS THE PLANS OR PROGRAMS ------ ------------------- -------------- ------------------- ---------------------- Month #1 Oct. 3 - Oct. 30 2,558 $30.13 0 11,128,700 Month #2 Oct. 31 - Nov. 27 865,995 35.06 850,000 10,278,700 Month #3 Nov. 28 - Jan. 1 2,143,466 36.27 2,100,000 8,178,700 --------- ------ --------- ---------- Total 3,012,019 35.92 2,950,000 8,178,700 ========= ====== ========= ==========
In the above table, the total number of shares purchased includes shares purchased as part of a publicly announced share repurchase program, as well as shares tendered by individuals in connection with stock option exercises. On September 12, 2003, the company announced that the Board of Directors approved the repurchase of 20,000,000 shares. In July 2004, the Board of Directors authorized the company to enter into agreements from time to time to extend its ongoing repurchase program to include repurchases during company announced "blackout periods" of such securities in compliance with Rule 10b5-1 promulgated under the Exchange Act. On November 23, 2004, the company entered into a stock purchase plan with Banc of America Securities LLC to purchase shares of SYSCO common stock pursuant to Rules 10b5-1 and 10b-18 under the Exchange Act. Subject to certain conditions, the shares will be purchased during the period between December 1, 2004 and August 16, 2005, including during company "blackout" periods. Item 3. Defaults upon Senior Securities None 25 Item 4. Submission of Matters to a Vote of Security Holders SYSCO held its 2004 Annual Meeting of Stockholders on November 12, 2004. Four directors, Colin G. Campbell, John M. Cassaday, John K. Stubblefield, Jr., and Jackie M. Ward, were elected for a three-year term. Directors whose terms continued after the meeting included Judith B. Craven, Jonathan Golden, Joseph A. Hafner, Jr., Thomas E. Lankford, Richard G. Merrill, Richard J. Schnieders, Phyllis S. Sewell, and Richard G. Tilghman. Other matters voted on included: _ Ratification of the appointment of Ernst & Young LLP as SYSCO's independent accountants for fiscal 2005; _ Approval of the 2004 Stock Option Plan; and _ Approval of the payment of compensation to certain executive officers pursuant to the 2004 Long-Term Incentive Cash Plan. A shareholder proposal requesting that the Board review and report on the Company's policies for food products containing genetically engineered ingredients was not presented at the meeting and a vote was not taken. The final voting results were as follows:
Number of Votes Cast Matter ------------------------------------------ Broker Voted Upon For Against/Withheld Abstain Non-Votes ---------- ----------- ---------------- --------- ---------- Election of Directors Colin G. Campbell 534,275,894 24,957,830 n/a n/a John M. Cassaday 535,252,010 23,981,714 n/a n/a John K. Stubblefield, Jr. 537,057,348 22,176,376 n/a n/a Jackie M. Ward 538,124,340 21,109,384 n/a n/a Ratification of Independent 541,587,426 14,098,823 3,547,475 n/a Accountants 2004 Stock Option Plan 385,505,136 81,697,148 4,882,378 87,149,061 2004 Long-Term Incentive 514,331,019 39,722,220 5,180,485 n/a Cash Plan
Item 5. Other Information On November 11, 2004, the Board of Directors determined to increase the annual retainer for those non-employee directors who chair the Audit Committee, the Compensation and Stock Option Committee, the Finance Committee and the Corporate Governance and Nominating Committee from $65,000 to $70,000. Such increase was effective January 1, 2005. 26 Item 6. Exhibits 3(a) Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(a) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 3(b) Bylaws, as amended and restated February 8, 2002, incorporated by reference to Exhibit 3(b) to Form 10-Q for the quarter ended December 29, 2001 (File No. 1-6544). 3(c) Form of Amended Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, incorporated by reference to Exhibit 3(c) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). 3(d) Certificate of Amendment of Certificate of Incorporation increasing authorized shares, incorporated by reference to Exhibit 3(d) to Form10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 3(e) Certificate of Amendment to Restated Certificate of Incorporation increasing authorized shares. 4(a) Senior Debt Indenture, dated as of June 15, 1995, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-3 filed June 6, 1995 (File No. 33-60023). 4(b) First Supplemental Indenture, dated June 27, 1995, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, as amended, incorporated by reference to Exhibit 4(e) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). 4(c) Second Supplemental Indenture, dated as of May 1, 1996, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, as amended, incorporated by reference to Exhibit 4(f) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). 4(d) Third Supplemental Indenture, dated as of April 25, 1997, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(g) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 4(e) Fourth Supplemental Indenture, dated as of April 25, 1997, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(h) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 4(f) Fifth Supplemental Indenture, dated as of July 27, 1998, between Sysco Corporation and First Union National Bank, Trustee, incorporated by reference to Exhibit 4 (h) to Form 10-K for the year ended June 27, 1998 (File No. 1-6554). 4(g) Sixth Supplemental Indenture, including form of Note, dated April 5, 2002 between SYSCO Corporation, as Issuer, and Wachovia Bank, National
27 Association (formerly First Union National Bank of North Carolina), as Trustee, incorporated by reference to Exhibit 4.1 to Form 8-K dated April 5, 2002 (File No. 1-6544). 4(h) Indenture dated May 23, 2002 between SYSCO International, Co., SYSCO Corporation and Wachovia Bank, National Association, incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-4 filed August 21, 2002 (File No. 333-98489). 4(i) Credit Agreement dated September 13, 2002 by and among SYSCO Corporation, JPMorgan Chase Bank, individually and as Administrative Agent, the Co-Syndication Agents named therein and the other financial institutions party thereto, incorporated by reference to Exhibit 4(i) to Form 10-Q for the quarter ended September 28, 2002 (File No. 1-6544). 4(j) Seventh Supplemental Indenture, including form of Note, dated March 5, 2004 between SYSCO Corporation, as Issuer, and Wachovia Bank, National Association (formerly First Union National Bank of North Carolina), as Trustee, incorporated by reference to Exhibit 4(j) to Form 10-Q for the quarter ended March 27, 2004 (File No. 1-6544). *10(a)+ Form of Retainer Stock Agreement for issuance to Non-Employee Directors under the Non-Employee Directors Stock Plan. *10(b)+ Supplemental Performance Based Bonus Plan dated November 11, 2004. *10(c)+ Description of Compensation Arrangements with Named Executive Officers. *10(d)+ Description of Compensation Arrangements with Non-Employee Directors. *15(a) Report from Ernst & Young LLP dated February 10, 2005, re: unaudited financial statements. *15(b) Acknowledgment letter from Ernst & Young LLP. *31(a) CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31(b) CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32(a) CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32(b) CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- ---------- + Executive Compensation Arrangement pursuant to 601(b)(10)(iii)(A) of Regulation S-K * Filed herewith. 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SYSCO CORPORATION (Registrant) By /s/ RICHARD J. SCHNIEDERS ------------------------------------- Richard J. Schnieders Chairman and Chief Executive Officer Date: February 10, 2005 By /s/ JOHN K. STUBBLEFIELD, JR. ------------------------------------- John K. Stubblefield, Jr. Executive Vice President, Finance and Chief Financial Officer Date: February 10, 2005 EXHIBIT INDEX
NO. DESCRIPTION --- ----------- 3(a) Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(a) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 3(b) Bylaws, as amended and restated February 8, 2002, incorporated by reference to Exhibit 3(b) to Form 10-Q for the quarter ended December 29, 2001 (File No. 1-6544). 3(c) Form of Amended Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, incorporated by reference to Exhibit 3(c) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). 3(d) Certificate of Amendment of Certificate of Incorporation increasing authorized shares, incorporated by reference to Exhibit 3(d) to Form10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 3(e) Certificate of Amendment to Restated Certificate of Incorporation increasing authorized shares. 4(a) Senior Debt Indenture, dated as of June 15, 1995, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-3 filed June 6, 1995 (File No. 33-60023). 4(b) First Supplemental Indenture, dated June 27, 1995, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, as amended, incorporated by reference to Exhibit 4(e) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). 4(c) Second Supplemental Indenture, dated as of May 1, 1996, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, as amended, incorporated by reference to Exhibit 4(f) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). 4(d) Third Supplemental Indenture, dated as of April 25, 1997, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(g) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 4(e) Fourth Supplemental Indenture, dated as of April 25, 1997, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(h) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544).
4(f) Fifth Supplemental Indenture, dated as of July 27, 1998, between Sysco Corporation and First Union National Bank, Trustee, incorporated by reference to Exhibit 4 (h) to Form 10-K for the year ended June 27, 1998 (File No. 1-6554). 4(g) Sixth Supplemental Indenture, including form of Note, dated April 5, 2002 between SYSCO Corporation, as Issuer, and Wachovia Bank, National Association (formerly First Union National Bank of North Carolina), as Trustee, incorporated by reference to Exhibit 4.1 to Form 8-K dated April 5, 2002 (File No. 1-6544). 4(h) Indenture dated May 23, 2002 between SYSCO International, Co., SYSCO Corporation and Wachovia Bank, National Association, incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-4 filed August 21, 2002 (File No. 333-98489). 4(i) Credit Agreement dated September 13, 2002 by and among SYSCO Corporation, JPMorgan Chase Bank, individually and as Administrative Agent, the Co-Syndication Agents named therein and the other financial institutions party thereto, incorporated by reference to Exhibit 4(i) to Form 10-Q for the quarter ended September 28, 2002 (File No. 1-6544). 4(j) Seventh Supplemental Indenture, including form of Note, dated March 5, 2004 between SYSCO Corporation, as Issuer, and Wachovia Bank, National Association (formerly First Union National Bank of North Carolina), as Trustee, incorporated by reference to Exhibit 4(j) to Form 10-Q for the quarter ended March 27, 2004 (File No. 1-6544). *10(a)+ Form of Retainer Stock Agreement for issuance to Non-Employee Directors under the Non-Employee Directors Stock Plan. *10(b)+ Supplemental Performance Based Bonus Plan dated November 11, 2004. *10(c)+ Description of Compensation Arrangements with Named Executive Officers. *10(d)+ Description of Compensation Arrangements with Non-Employee Directors. *15(a) Report from Ernst & Young LLP dated February 10, 2005, re: unaudited financial statements. *15(b) Acknowledgment letter from Ernst & Young LLP. *31(a) CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31(b) CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32(a) CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32(b) CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- -------- + Executive Compensation Arrangement pursuant to 601(b)(10)(iii)(A) of Regulation S-K * Filed herewith. EX-10.A 2 h22326exv10wa.txt FORM OF RETAINER STOCK AGREEMENT Exhibit 10(a) SYSCO CORPORATION AMENDED AND RESTATED NON-EMPLOYEE DIRECTORS STOCK PLAN RETAINER STOCK AWARD AGREEMENT This Retainer Stock Award Agreement ("Agreement") was made and entered into as of __________________ ("Date of Grant"), by and between Sysco Corporation, a Delaware corporation (hereinafter "SYSCO") and ________________________, a director of SYSCO (hereinafter "Director"). W I T N E S S E T H: WHEREAS, the Board of Directors of SYSCO has adopted, and SYSCO's stockholders have approved, the Sysco Corporation Amended and Restated Non-Employee Directors Stock Plan (the "Plan"), the purpose of which is to promote the interests of SYSCO and its stockholders by enhancing SYSCO's ability to attract and retain the services of experienced and knowledgeable directors and by encouraging such directors to acquire an increased proprietary interest in SYSCO through the ownership of common stock, $1.00 par value, of SYSCO ("Common Stock"); and WHEREAS, the Plan provides that each non-employee director shall receive a retainer stock award; and WHEREAS, Director desires to continue to serve on the Board of Directors of SYSCO and to accept said retainer stock award in accordance with the terms and provisions of the Plan and this agreement; NOW, THEREFORE, in consideration of the foregoing, the parties agree as follows: 1. GRANT OF RETAINER STOCK AWARD. SYSCO grants to Director 4,000 shares of restricted Common Stock (the "Retainer Stock Award"). The Retainer Stock Award shall be subject to vesting as set forth in the Plan and summarized below: (a) One-third of the Retainer Stock Award shall vest two years from the Date of Grant if the average increase in after-tax basic earnings per share of Common Stock ("EPS") over the two most recent fiscal years ending prior to the second anniversary of the Date of Grant is 10% or more. (b) An additional one-third of the Retainer Stock Award shall vest after four years from the Date of Grant if the average increase in EPS over the two most recent fiscal years ending prior to the fourth anniversary of the Date of Grant is 10% or more, and if the first third of the Retainer Stock Award did not vest under subparagraph (a) above, the first third will also vest if the average increase in EPS over the four most recent fiscal years ending prior to the fourth anniversary of the Date of Grant is 10% or more. (c) The final one-third of the Retainer Stock Award shall vest after six years from the Date of Grant if the average increase in EPS over the two most recent fiscal years ending prior to the sixth anniversary of the Date of Grant is 10% or more. (d) Notwithstanding the foregoing, 100% of the Retainer Stock Award shall vest if the average increase in EPS over the six most recent fiscal years ending prior to the sixth anniversary of the Date of Grant is 10% or more. (e) Any unvested portion of a Retainer Stock Award shall vest upon the occurrence of a Change in Control. For purposes of this Agreement, "Change in Control" means that a person or persons who are acting together for the purpose of acquiring an equity interest in SYSCO acquire beneficial ownership (as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of 20% or more of the outstanding Common Stock. 2. RESTRICTION ON TRANSFER. The restricted Common Stock granted as a Retainer Stock Award and this Agreement shall not be sold, pledged, assigned, transferred, or encumbered prior to the time the Retainer Stock Award vests as described above. 3. DEPOSIT WITH SYSCO. Each certificate of Restricted Stock awarded hereunder shall be registered in the name of the Director and left on deposit with SYSCO with a Stock Power endorsed in blank during the Restricted Period. 4. CERTAIN RIGHTS OF DIRECTOR. Director, as owner of shares of restricted Common Stock granted as a Retainer Stock Award, shall have all the rights of a stockholder, including, but not limited to, the right to vote such shares and the right to receive all dividends paid with respect to such shares; provided, that all such rights shall be forfeited in respect to any portion of the Retainer Stock Award as of the date all or any portion of such award is forfeited. 5. FORFEITURE UPON TERMINATION. Except as set forth below and unless otherwise determined by the Board, if Director ceases to be a Non-Employee Director (as defined in the Plan) prior to vesting of any portion of a Retainer Stock Award, Director shall forfeit the portion of the Retainer Stock Award which is not vested on the date he ceases to be a Non-Employee Director; provided, however, that unless otherwise determined by the Board, if (a) Director serves out her term but does not stand for re-election at the end thereof or (b) Director shall retire from service on the Board (for reasons other than death) prior to the expiration of her term and on or after the date he attains age 71, Director's Retainer Stock Award shall remain in effect, vest, become exercisable and expire as if Director had remained a Non-Employee Director of the Corporation. Upon the death of Director, the unvested portion of the Retainer Stock Award shall be automatically forfeited. 6. ADJUSTMENT TO AWARD IN CERTAIN EVENTS. In the event of a change in the capitalization of SYSCO due to a stock split, stock dividend, recapitalization, merger, consolidation, combination, or similar event, the aggregate shares subject to the plan and the terms of this Agreement shall be adjusted to reflect such change. 2 7. CHANGE IN CONTROL. If a Change in Control (as defined above) occurs prior to the time all Common Stock covered by this Retainer Stock Award vests, all restrictions shall lapse and all Common Stock granted under this Restricted Stock Award shall be fully vested. 8. NO COMPROMISE WITH REGULATORY AUTHORITY. Notwithstanding any other provision of this Agreement, Director agrees that SYSCO shall not be obligated to deliver any shares of Common Stock or make any cash payment, if counsel to SYSCO determines such exercise, delivery or payment would violate any law or regulation of any governmental authority or agreement between SYSCO and any national securities exchange upon which the Common Stock is listed. 9. PLAN CONTROLS. In the event of a conflict between the terms of this Agreement and the plan, the Plan shall be the controlling document. 10. END OF RESTRICTIONS; DELIVERY OF STOCK. If all terms and conditions of this Agreement are complied with in full, all restrictions on the Restricted Stock referred to herein shall lapse and the Director shall receive such stock. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. SYSCO CORPORATION By: ------------------------------------ Chairman and Chief Executive Officer DIRECTOR ---------------------------------------- ---------------------------------------- 3 EX-10.B 3 h22326exv10wb.txt SUPPLEMENTAL PERFORMANCE BASED BONUS PLAN Exhibit 10(b) SYSCO CORPORATION 2004 SUPPLEMENTAL PERFORMANCED-BASED BONUS PLAN 1. Purpose of the Plan. The purpose of this Plan is to increase stockholder value and to advance the interests of the Company and its subsidiaries by aligning a portion of the CEO's overall compensation package with those key performance goals and objectives used in connection with the CEO's annual performance evaluation, and by making adjustments to the CEO's compensation as set forth in the Plan, providing financial incentives for performance that "exceeds expectations," and disincentives for performance that is "below expectations." 2. Establishment of Performance Goals. The Committee shall from time to time establish certain performance goals by which to measure the performance of the CEO (the "PERFORMANCE GOALS"). 3. Evaluation of Performance. (a) After the end of the Fiscal Year, the Committee, jointly with the Corporate Governance and Nomination Committee of the Board, shall complete an evaluation of the CEO's performance for such Fiscal Year, including an evaluation of the CEO's performance against the Performance Goals. Based on the evaluation with respect to the Performance Goals, the compensation of the CEO will be adjusted, in the sole discretion of the Committee, as follows: (i) If the CEO's performance "exceeds expectations," the CEO will be entitled to receive a cash bonus under the Plan of up to 25% of the CEO's MIP Bonus (the "PERFORMANCE BONUS") with respect to that Fiscal Year; (ii) If the CEO's performance is "below expectations," the CEO's MIP Bonus will be reduced by up to 25% of such MIP Bonus; and (iii) If the CEO's performance "meets expectations," the CEO will neither receive a Performance Bonus nor have his or her MIP Bonus reduced. 4. Administration of Plan. The Plan shall be administered by the Committee. In administering the Plan, the Committee will determine the Performance Goals, establish the methods and procedures for measuring performance, and determine the payment date and methods and procedures for payment of the Performance Bonus under the Plan. Further, the Committee may, from time to time, change or waive requirements of the Plan, to conform with the law, to meet special circumstances not anticipated or covered in the Plan, or to carry on successful operation of the Plan, and in connection therewith, the Committee shall have the full power and authority to: (a) Prescribe, amend and rescind rules and regulations relating to the Plan, establish procedures deemed appropriate for the Plan's administration, and make any and all other determinations not herein specifically authorized which may be necessary or advisable for its effective administration; and (b) Make any amendments to or modifications of the Plan which may be required or necessary to make the Plan set forth herein comply with the provisions of any laws, federal or state, or any regulations issued thereunder, or the rules and requirements of any exchange on which the Company's securities may be trading, and to cause the Company at its expense to take any action related to the Plan which may be required under such laws or regulations. Notwithstanding anything herein to the contrary, the Committee may, unless otherwise prohibited from doing so by the Board or the Committee's charter, delegate any administrative function it may deem necessary or appropriate to employees of the Company or its subsidiaries or to third parties; provided that in no event may the Committee delegate any decisions with respect to CEO compensation, except to the extent specifically authorized by the Committee's charter. 5. Term. This Plan shall continue indefinitely until terminated by the Committee; provided, however, that the Committee may, in its sole discretion, choose not to establish performance goals or establish a bonus program with respect to any Fiscal Year in which the Plan is in effect. 6. Withdrawal or Amendment. The Committee may at any time withdraw or amend the Plan. 7. Miscellaneous. (a) Plan Funding. The Plan shall at all times be unfunded and no provision shall at any time be made with respect to segregating any assets of the Company or its subsidiaries for payment of any benefits under the Plan. (b) No Contract of Employment. The existence of this Plan, as in effect at any time or from time to time, shall not be deemed to constitute a contract of employment between the Company and the CEO, nor shall it constitute a right to remain in the employ of the Company. (c) Governing Law. The laws of the State of Delaware (excluding its principles relating to conflicts of laws) shall govern the Plan. (d) Successors. All obligations of the Company under the Plan shall be binding upon and inure to the benefit of any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise. (e) Third Parties. Nothing expressed or implied in this Plan is intended or may be construed to give any person other than the CEO any rights or remedies under this Plan. 8. Certain Defined Terms. When used in the Plan, the following terms shall have the following meanings: "BOARD OF DIRECTORS" means the Board of Directors of the Company. "CEO" means the Chief Executive Officer of the Company. -2- "COMMITTEE" means the Compensation and Stock Option Committee of the Board of Directors. "COMPANY" means Sysco Corporation, a Delaware corporation. "EDCP" means the Sysco Corporation Executive Deferred Compensation Plan, as amended as restated. "FISCAL YEAR" means the fiscal year of the Company. "MIP" means the Sysco Corporation 2000 Management Incentive Plan, as amended and restated. "MIP BONUS" means the bonus earned by the CEO under the MIP for the Fiscal Year for which the CEO's performance is being evaluated for purposes of the Plan as determined by the Committee in its sole discretion. "PLAN" means this Sysco Corporation 2004 Supplemental Performance-Based Bonus Plan. -3- EX-10.C 4 h22326exv10wc.txt DESCRIPTION OF COMPENSATION ARRANGEMENTS- EXECUTIVE OFFICERS Exhibit 10(c) Summary of Compensation Arrangements with Named Executive Officers As of January 1, 2005 The following summarizes the current cash compensation and benefits received by the Company's Chief Executive Officer and its other four most highly compensated executive officers (the "Named Executive Officers") as of January 1, 2005. It is intended to be a summary of existing oral, at will, arrangements, and in no way is intended to provide any additional rights to any of the Named Executive Officers. Base Salaries The executive officers of the Company serve at the discretion of the Board of Directors. The Compensation and Stock Option Committee of the Board (the "Committee") reviews and determines the salaries that are paid to the Company's executive officers, including the Named Executive Officers, as of January 1, 2005: - ------------------------------------------------------------------------------------------- ----------------- Richard J. Schnieders, Chairman and Chief Executive Officer $975,000 - ------------------------------------------------------------------------------------------- ----------------- Thomas E. Lankford, President and Chief Operating Officer $725,000 - ------------------------------------------------------------------------------------------- ----------------- John K. Stubblefield, Jr., Executive Vice President of Finance and Chief Financial Officer $545,000 - ------------------------------------------------------------------------------------------- ----------------- Larry J. Accardi, Executive Vice President, Contract Sales, and President, Specialty $525,000 Distribution Companies - ------------------------------------------------------------------------------------------- ----------------- Kenneth F. Spitler, Executive Vice President, and President, Food Service Operations $525,000 - ------------------------------------------------------------------------------------------- -----------------
The Named Executive Officers are also eligible to participate in the Company's executive and regular benefit plans and programs, as described below. All executive benefit plans and agreements have been filed as exhibits to the Company's Exchange Act filings. Information regarding these plans and agreements, as well as compensation paid or earned during fiscal 2004, is included in the Company's 2004 Proxy Statement. Management Incentive Plan The Named Executive Officers are eligible to receive an annual incentive bonus under the SYSCO Corporation Management Incentive Plan (the "MIP"). Supplemental Performance-Based Bonus Plan for Chief Executive Officer Mr. Schnieders is eligible to participate in a Supplemental Performance-Based Bonus Plan which may result in an upward or downward adjustment to the amount of any annual incentive bonus earned under the MIP. Stock Election and Matching Grant Participants in the MIP, including the Named Executive Officers, may voluntarily elect to receive up to 40% of their annual incentive bonus in the form of SYSCO Common Stock, based on a per-share price equal to the closing price on the New York Stock Exchange of SYSCO Common Stock on the last trading day of the fiscal year for which the MIP bonus is calculated. If such election is made, the participant is awarded additional matching shares on the basis of one additional share for each two shares received in accordance with the foregoing calculation. Participants who elect to receive a portion of their bonus in Common Stock in lieu of cash and receive additional matching shares are entitled to receive additional cash equal to the product of: o the value of such matching shares received by the participant (based on the closing price of such shares on the last trading day of the fiscal year), and o the effective tax rate applicable to SYSCO. -1- Deferred Compensation Election MIP participants, including the Named Executive Officers, may defer up to 40% of their annual incentive bonus (without considering any election to receive a portion of the bonus in stock) under the Executive Deferred Compensation Plan ("EDCP"). They may also elect to defer all or a portion of their salary under the EDCP. For deferrals of up to 20% of the annual incentive bonus, the EDCP provides for SYSCO to credit the participant's deferred compensation account in an amount equal to 50% of the amount deferred. Stock Options The Named Executive Officers are eligible to receive options under SYSCO's stock option plans, including the 2004 Stock Option Plan approved by shareholders on November 12, 2004, in such amounts and with such terms and conditions as determined by the Committee at the time of grant. Long-Term Incentive Cash Plan The Named Executive Officers are eligible to participate in the SYSCO Corporation 2004 Long-Term Incentive Cash Plan. Supplemental Executive Retirement Plan MIP participants, including the Named Executive Officers, are also eligible to participate in a Supplemental Executive Retirement Plan (the "SERP"). Equity Deferral Plan MIP participants, including the Named Executive Officers, are eligible to participate in the Equity Deferral Plan ("EDP") pursuant to which the gain on the exercise of certain non-qualified stock options may be deferred. Severance Agreements The Named Executive Officers have Severance Agreements with the Company. Other Benefits The Named Executive Officers also participate in SYSCO's regular employee benefit programs, which include a defined benefit retirement plan, a 401(k) plan with Company match, group medical and dental coverage, group life insurance and other group benefit plans. They are also provided with additional life insurance benefits, as well as long-term disability coverage. -2- EX-10.D 5 h22326exv10wd.txt DESCRIPTION OF COMPENSATION ARRANGEMENTS - NON-EMPLOYEE DIRECTORS Exhibit 10(d) Summary of Compensation Arrangements with Non-Employee Directors As of January 1, 2005 The following summarizes the current cash compensation and benefits received by the Company's non-employee directors as of January 1, 2005. It is intended to be a summary of existing oral, at will, arrangements, and in no way is intended to provide any additional rights to any non-employee director. Fees Non-employee directors receive an annual retainer fee of $60,000, which is paid on a quarterly basis. The respective chairmen of the Audit Committee, Compensation and Stock Option Committee, Corporate Governance and Nominating Committee and Finance Committee receive an additional annual retainer fee of $10,000. All non-employee directors are entitled to reimbursement of expenses for all services as a director, including committee participation or special assignments. Non-employee directors also receive meeting attendance fees, as follows: o For committee meetings held in conjunction with regular Board meetings, committee chairmen who attend in person (or who participate by telephone because of illness or the inability to travel) will receive $1,500 and committee members who attend in person (or who participate by telephone because of illness or the inability to travel) will receive $1,000; o For special committee meetings (not held in conjunction with regular Board meetings), committee chairmen who attend in person or who participate by telephone will receive $1,500 and committee members who attend in person or who participate by telephone will receive $1,000; and o For special Board meetings, all non-employee directors who attend in person or who participate by telephone will receive $1,000. Directors Deferred Compensation Plan Non-employee directors may defer all or a portion of their annual retainer and meeting attendance fees under the Directors Deferred Compensation Plan. Non-Employee Directors Stock Plan All non-employee directors are eligible to participate in the Non-Employee Directors Stock Plan. Options. Under this Plan, non-employee directors are eligible to receive stock options if, for the immediately preceding fiscal year, we have achieved after-tax basic earnings per share of 10% over the previous year. The size of individual grants and vesting terms are set by the Board at the time of grant. During the second quarter of fiscal 2005, we granted options to purchase 8,000 shares to John M. Cassaday upon his election to the Board on November 12, 2004. These options have an exercise price of $35.06, vest ratably over a five-year period and expire seven years after the date of grant. Non-employee directors are also eligible to participate in the Company's Equity Deferral Plan described on page 20 of our 2004 Proxy Statement. Elected Shares. This Plan also permits each non-employee director to elect to receive up to one-half of his or her annual retainer in Common Stock, in which case we will provide a matching grant of 50% of the number of shares received as a portion of the retainer. Retainer Shares. In addition, as of the date of each year's annual meeting, each newly elected director who has not previously received a retainer award is granted a one-time retainer award of 4,000 shares. Mr. Cassaday received a retainer stock award of 4,000 shares upon his election to the Board on November 12, 2004. The Directors Deferred Compensation Plan and Non-Employee Directors Stock Plan, as amended, have been filed as exhibits to the Company's Exchange Act filings. Additional information regarding these plans is also included in the Company's 2004 Proxy Statement. EX-15.A 6 h22326exv15wa.txt REPORT FROM ERNST & YOUNG LLP Exhibit 15(a) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Sysco Corporation: We have reviewed the accompanying consolidated balance sheets of Sysco Corporation (a Delaware corporation) and its subsidiaries as of January 1, 2005 and December 27, 2003, and the related statements of consolidated results of operations for the 13-week and 26-week periods and cash flows for the 26-week periods then ended. These financial statements are the responsibility of the company's management. We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting. We have previously audited, in accordance with auditing standards the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Sysco Corporation and subsidiaries as of July 3, 2004, and the related consolidated results of operations, shareholders' equity and cash flows for the year then ended (not presented herein) and in our report dated August 16, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of July 3, 2004, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Ernst & Young LLP ---------------------------------------- Houston, Texas February 10, 2005 EX-15.B 7 h22326exv15wb.txt ACKNOWLEDGEMENT LETTER FROM ERNST & YOUNG LLP Exhibit 15(b) To the Board of Directors and Shareholders of Sysco Corporation: We are aware of the incorporation by reference in the Registration Statements on Form S-3 (333-52897), Form S-4 (333-30050, 333-53510 and 333-50842) and Form S-8 (33-10906, 2-76096, 33-45804, 33-45820, 333-01259, 333-01255, 333-01257, 333-27405, 333-66987, 333-49840 and 333-58276) of Sysco Corporation of our report dated February xx, 2005 relating to the unaudited consolidated interim financial statements of Sysco Corporation that are included in its Form 10-Q for the quarter ended January 1, 2005. /s/ Ernst & Young LLP ---------------------------------------- Houston, Texas February 10, 2005 EX-31.A 8 h22326exv31wa.txt CEO CERTIFICATION PURSUANT TO SECTION 302 Exhibit 31(a) CERTIFICATION I, Richard J. Schnieders, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Sysco Corporation; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this report. 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date:February 10, 2005 /s/ RICHARD J. SCHNIEDERS ---------------------------------------- Richard J. Schnieders Chairman and Chief Executive Officer EX-31.B 9 h22326exv31wb.txt CFO CERTIFICATION PURSUANT TO SECTION 302 Exhibit 31(b) CERTIFICATION I, John K. Stubblefield, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Sysco Corporation; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this report. 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 10, 2005 /s/ JOHN K. STUBBLEFIELD, JR. ---------------------------------------- John K. Stubblefield, Jr. Executive Vice President, Finance and Chief Financial Officer EX-32.A 10 h22326exv32wa.txt CEO CERTIFICATION PURSUANT TO SECTION 906 Exhibit 32(a) CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Richard J. Schnieders, Chairman and Chief Executive Officer of Sysco Corporation (the "company"), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: 1. The company's Quarterly Report on Form 10-Q for the quarterly period ended January 1, 2005 ("Quarterly Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and 2. All of the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the company. Date: February 10, 2005 /s/ RICHARD J. SCHNIEDERS ---------------------------------------- Richard J. Schnieders Chairman and Chief Executive Officer EX-32.B 11 h22326exv32wb.txt CFO CERTIFICATION PURSUANT TO SECTION 906 Exhibit 32(b) CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, John K. Stubblefield, Jr., Executive Vice President, Finance and Chief Financial Officer, of Sysco Corporation (the "company"), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: 1. The company's Quarterly Report on Form 10-Q for the quarterly period ended January 1, 2005 ("Quarterly Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and 2. All of the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the company. Date: February 10, 2005 /s/ JOHN K. STUBBLEFIELD, JR. ---------------------------------------- John K. Stubblefield, Jr. Executive Vice President, Finance and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----