UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 27, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-6544
SYSCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1648137
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
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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.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)
644,708,897 shares of common stock were outstanding as of January 30, 2004.
TABLE OF CONTENTS
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 21
Item 4. Controls and Procedures 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 26
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share Data)
Dec. 27, 2003 June 28, 2003 Dec. 28, 2002
------------- ------------- -------------
(unaudited) (unaudited)
ASSETS
Current assets
Cash $ 232,595 $ 337,447 $ 128,574
Accounts and notes receivable, less
allowances of $55,744, $35,005 and $54,748 2,086,107 2,009,627 1,878,315
Inventories 1,359,886 1,230,080 1,270,604
Prepaid expenses 60,201 52,380 63,286
------------ ------------ ------------
Total current assets 3,738,789 3,629,534 3,340,779
Plant and equipment at cost, less depreciation 2,029,718 1,922,660 1,804,691
Other assets
Goodwill and intangibles, less amortization 1,166,336 1,113,960 1,055,271
Restricted cash 170,877 83,807 84,056
Other assets 199,857 186,560 199,190
------------ ------------ ------------
Total other assets 1,537,070 1,384,327 1,338,517
------------ ------------ ------------
Total assets $ 7,305,577 $ 6,936,521 $ 6,483,987
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 124,609 $ 101,822 $ 64,612
Accounts payable 1,645,948 1,637,505 1,408,475
Accrued expenses 589,394 624,451 571,291
Income taxes 172,420 9,193 25,462
Deferred taxes 190,175 307,211 158,719
Current maturities of long-term debt 12,322 20,947 22,341
------------ ------------ ------------
Total current liabilities 2,734,868 2,701,129 2,250,900
Other liabilities
Long-term debt 1,395,981 1,249,467 1,394,647
Deferred taxes 524,989 498,396 461,312
Other long-term liabilities 283,915 289,998 176,012
------------ ------------ ------------
Total other liabilities 2,204,885 2,037,861 2,031,971
Contingencies
Shareholders' equity
Preferred stock, par value $1 per share
Authorized 1,500,000 shares, issued none -- -- --
Common stock, par value $1 per share
Authorized shares 2,000,000,000 at
Dec. 27, 2003, 1,000,000,000 at
June 28, 2003 and Dec. 28, 2002;
issued 765,174,900 shares 765,175 765,175 765,175
Paid-in capital 290,744 249,235 240,170
Retained earnings 3,649,583 3,373,853 3,105,487
Other comprehensive loss (142,027) (152,381) (65,435)
------------ ------------ ------------
4,563,475 4,235,882 4,045,397
Less cost of treasury stock, 122,970,398,
121,517,325 and 115,951,100 shares 2,197,651 2,038,351 1,844,281
------------ ------------ ------------
Total shareholders' equity 2,365,824 2,197,531 2,201,116
------------ ------------ ------------
Total liabilities and shareholders' equity $ 7,305,577 $ 6,936,521 $ 6,483,987
============ ============ ============
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Note: The June 28, 2003 balance sheet has been derived from the audited financial statements at that date.
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
------------------------------ ------------------------------
Dec. 27, 2003 Dec. 28, 2002 Dec. 27, 2003 Dec. 28, 2002
------------- ------------- ------------- -------------
Sales $ 14,170,801 $ 12,773,219 $ 7,036,520 $ 6,348,797
Costs and expenses
Cost of sales 11,423,166 10,252,420 5,669,399 5,097,716
Operating expenses 2,021,189 1,897,925 996,853 937,290
Interest expense 35,007 34,331 16,376 17,503
Other, net (9,035) (6,018) (7,052) (2,606)
------------- ------------- ------------- -------------
Total costs and expenses 13,470,327 12,178,658 6,675,576 6,049,903
------------- ------------- ------------- -------------
Earnings before income taxes 700,474 594,561 360,944 298,894
Income taxes 269,682 227,420 138,963 114,327
------------- ------------- ------------- -------------
Net earnings $ 430,792 $ 367,141 $ 221,981 $ 184,567
============= ============= ============= =============
Net earnings:
Basic earnings per share $ 0.67 $ 0.56 $ 0.34 $ 0.28
============= ============= ============= =============
Diluted earnings per share $ 0.65 $ 0.55 $ 0.34 $ 0.28
============= ============= ============= =============
Average shares outstanding 645,301,941 653,240,266 644,723,466 652,030,164
============= ============= ============= =============
Diluted shares outstanding 660,127,514 664,304,371 661,632,986 664,083,274
============= ============= ============= =============
Dividends declared per common share $ 0.24 $ 0.20 $ 0.13 $ 0.11
============= ============= ============= =============
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SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In Thousands)
26 - Week Period Ended
-----------------------------
Dec. 27, 2003 Dec. 28, 2002
------------- -------------
Operating activities:
Net earnings $ 430,792 $ 367,141
Add non-cash items:
Depreciation and amortization 138,679 133,437
Deferred tax provision 265,053 213,488
Provision for losses on receivables 14,895 15,908
Additional investment in certain assets and liabilities, net
of effect of businesses acquired:
(Increase) in receivables (73,428) (98,222)
(Increase) in inventories (120,215) (130,767)
(Increase) in prepaid expenses (7,755) (21,251)
Increase in accounts payable 3,905 38,411
(Decrease) in accrued expenses and other
long-term liabilities (75,854) (42,346)
(Decrease) in accrued income taxes (186,649) (12,091)
(Increase) in other assets (24,644) (7,171)
------------ ------------
Net cash provided by operating activities 364,779 456,537
------------ ------------
Investing activities:
Additions to plant and equipment (248,697) (217,799)
Proceeds from sales of plant and equipment 9,815 7,976
Acquisition of businesses, net of cash acquired (33,703) (168,244)
Increase in restricted cash (90,000) (52,056)
------------ ------------
Net cash used for investing activities (362,585) (430,123)
------------ ------------
Financing activities:
Bank and commercial paper borrowings 182,739 208,102
Other debt repayments (12,964) (5,255)
Common stock reissued from treasury 86,337 62,650
Treasury stock purchases (218,149) (243,381)
Dividends paid (142,501) (118,395)
------------ ------------
Net cash used for financing activities (104,538) (96,279)
------------ ------------
Effect of exchange rates on cash (2,508) --
------------ ------------
Net decrease in cash (104,852) (69,865)
Cash at beginning of period 337,447 198,439
------------ ------------
Cash at end of period $ 232,595 $ 128,574
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 36,598 $ 34,492
Income taxes 190,761 29,120
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SYSCO CORPORATION and its Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements have been prepared by the company, without audit, with the exception of the June 28, 2003 consolidated balance sheet which was taken from the audited financial statements included in the company's Fiscal 2003 Annual Report on Form 10-K. The financial statements include consolidated balance sheets, consolidated results of operations and consolidated cash flows. Certain amounts in the prior periods presented have been reclassified to conform to the fiscal 2004 presentation, including other long-term liabilities related to pension and deferred compensation plans previously classified as accrued expenses. In the opinion of management, all adjustments, which consist of normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows for all periods presented, have been made.
These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the company's Fiscal 2003 Annual Report on Form 10-K.
A review of the financial information herein has been made by Ernst & Young LLP, independent auditors, in accordance with established professional standards and procedures for such a review. A report from Ernst & Young LLP concerning their review is included as Exhibit 15(a).
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
26-Week Period Ended 13-Week Period Ended
----------------------------- -----------------------------
Dec. 27, 2003 Dec. 28, 2002 Dec. 27, 2003 Dec. 28, 2002
------------- ------------- ------------- -------------
Numerator:
Numerator for earnings per share --
income available to common shareholders $ 430,792,000 $ 367,141,000 $ 221,981,000 $ 184,567,000
============= ============= ============= =============
Denominator:
Denominator for basic earnings per share --
weighted-average shares 645,301,941 653,240,266 644,723,466 652,030,164
Effect of dilutive securities:
Employee and director stock options 14,825,573 11,064,105 16,909,520 12,053,110
------------- ------------- ------------- -------------
Denominator for diluted earnings per share --
Adjusted weighted-average shares 660,127,514 664,304,371 661,632,986 664,083,274
============= ============= ============= =============
Basic earnings per share $ 0.67 $ 0.56 $ 0.34 $ 0.28
============= ============= ============= =============
Diluted earnings per share $ 0.65 $ 0.55 $ 0.34 $ 0.28
============= ============= ============= =============
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3. RESTRICTED CASH
SYSCO is required by its insurers to collateralize a part of the self-insured portion of its workers' compensation and liability claims. SYSCO has chosen to satisfy these collateral requirements by depositing funds in insurance trusts. The increase in restricted cash from June 28, 2003 to December 27, 2003 was primarily due to the deposit of an additional $90,000,000 in insurance trusts due to a change in underwriting requirements adopted by the insurers regarding the percentage of the overall risks required to be collateralized and to meet the collateral requirements of a new insurer.
In certain acquisitions, SYSCO has placed funds into escrow to be disbursed to the sellers in the event that specified operating results are attained or contingencies resolved. Escrowed funds related to certain acquisitions were released to the sellers during the twenty-six weeks ended December 27, 2003.
4. DEBT
As of December 27, 2003, SYSCO had uncommitted bank lines of credit which provided for unsecured borrowings for working capital of up to $95,000,000, of which $30,000,000 was outstanding.
As of December 27, 2003, SYSCO's outstanding borrowings under its commercial paper programs were $304,455,000. During the twenty-six week period ended December 27, 2003, commercial paper and short-term bank borrowings ranged from approximately $79,458,000 to $370,447,000.
5. ACQUISITIONS
In September 2003, SYSCO acquired certain assets of the Stockton, California foodservice operations of Smart & Final, Inc.
In September 2003, a subsidiary of SYSCO acquired certain assets of Luzo Foodservice Corporation, located in New Bedford, Massachusetts.
The balances included in the Consolidated Balance Sheets related to acquisitions made in the last twelve months are based upon preliminary information and are subject to change when final asset and liability valuations are obtained. Material changes to the preliminary allocations are not anticipated by management.
Certain acquisitions involve contingent consideration payable in the event that specified operating results are attained. Aggregate contingent consideration amounts outstanding as of December 27, 2003 included approximately 1,902,000 shares of common stock and $27,961,000 in cash, which, if distributed, could result in the company recording up to $68,673,000 in additional goodwill. Such amounts typically are to be paid out over periods of up to five years from the date of acquisition.
6. DERIVATIVE FINANCIAL INSTRUMENTS
In October 2003, SYSCO entered into $500 million aggregate notional amount of interest rate swaps as a fair value hedge against the 7.00% Senior Notes due May 2006, 7.25% Senior Notes due April 2007 and 6.10% Senior Notes due June 2012. The swaps effectively convert the fixed interest rate on each of the three series of notes into a floating rate of six-month LIBOR averaged over a six month period plus a margin of 461, 430 and 171 basis points, respectively, which were designated as the respective benchmark interest rates on each of the interest payment dates until maturity of the respective notes.
The terms of the swap agreements and the hedged items are such that the hedges are considered perfectly effective against changes in the fair value of the debt due to changes in the benchmark interest rate over their term. As a result, the shortcut method provided by Statement of Financial Accounting Standards (SFAS) No. 133 is applied and there is no need to periodically reassess the effectiveness of the hedges during the terms of the swaps. Interest expense on the debt is adjusted to include payments made or received under the hedge agreements. The market value of the swaps is carried as an asset or a liability on the consolidated balance sheet and the carrying value of the hedged debt is adjusted accordingly. As of December 27, 2003, the market value of the swaps was a loss of $6,080,000 which is reflected in Other Long-term Liabilities on the Consolidated Balance Sheet and the carrying amount of the related debt has been decreased by the same amount.
7. INCOME TAXES
The changes in the net deferred tax liability and accrued income tax balances from June 28, 2003 to December 27, 2003 were primarily due to the reclassification of certain deferred tax liabilities related to a portion of previously deferred supply chain distributions to accrued income taxes and to the payment of taxes. The reclassification reflects the inclusion in the company's taxable income for fiscal 2004 of these previously deferred supply chain distributions. Fiscal year 2004 is the first period that these supply chain distributions are recognized in taxable income since the company began deferring these items for tax purposes as a result of the reorganization of its supply chain in fiscal year 2002. Taxes paid during the twenty-six week period ended December 27, 2003 increased to $190,761,000 as compared to $29,120,000 during the comparable period in the prior year, primarily as a result of the factors described above.
The effective tax rate in fiscal 2004 is 38.50%, an increase of 0.25% from the effective tax rate of 38.25% in fiscal 2003. The increase in the effective tax rate is attributable to increased state income taxes.
8. STOCK BASED COMPENSATION
SYSCO accounts for its stock option plans and the employee stock purchase plan using the intrinsic value method of accounting provided under APB Opinion No. 25 and related interpretations under which no compensation cost has been recognized.
The following table provides comparative pro forma net earnings and earnings per share had compensation cost for these plans been determined using the fair value method as set forth in SFAS No. 123 for all periods presented:
26-Week Period Ended 13-Week Period Ended
---------------------------------- ----------------------------------
Dec. 27, 2003 Dec. 28, 2002 Dec. 27, 2003 Dec. 28, 2002
--------------- --------------- --------------- ---------------
Net earnings:
Reported net earnings $ 430,792,000 $ 367,141,000 $ 221,981,000 $ 184,567,000
Stock based compensation expense, net of taxes
(29,927,000) (24,991,000) (15,742,000) (13,381,000)
--------------- --------------- --------------- ---------------
Adjusted net earnings $ 400,865,000 $ 342,150,000 $ 206,239,000 $ 171,186,000
=============== =============== =============== ===============
Basic earnings per share:
Reported earnings per share $ 0.67 $ 0.56 $ 0.34 $ 0.28
Stock based compensation expense, net of taxes
(0.05) (0.04) (0.02) (0.02)
--------------- --------------- --------------- ---------------
Adjusted earnings per share $ 0.62 $ 0.52 $ 0.32 $ 0.26
=============== =============== =============== ===============
Diluted earnings per share:
Reported earnings per share $ 0.65 $ 0.55 $ 0.34 $ 0.28
Stock based compensation expense, net of taxes
(0.04) (0.03) (0.03) (0.02)
--------------- --------------- --------------- ---------------
Adjusted earnings per share $ 0.61 $ 0.52 $ 0.31 $ 0.26
=============== =============== =============== ===============
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The weighted average fair value of options granted was $6.74 and $6.88 during the twenty-six weeks ended December 27, 2003 and December 28, 2002, respectively. The fair value was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the twenty-six weeks ended December 27, 2003 and December 28, 2002, respectively: dividend yield of 1.49% and 1.45%; expected volatility of 22% and 25%; average risk-free interest rates of 3.2% and 2.7%; and expected lives of 5 years.
The weighted average fair value of employee stock purchase rights issued was $4.70 and $4.17 during the twenty-six weeks ended December 27, 2003 and December 28, 2002, respectively. The fair value of the stock purchase rights was calculated as the difference between the stock price at date of issuance and the employee purchase price.
The pro forma presentation applies the fair value method to options and stock purchase rights granted after 1995. The pro forma effects for the periods presented are not necessarily indicative of the pro forma effects in future years.
9. COMPREHENSIVE INCOME
Comprehensive income is net earnings plus certain other items that are recorded directly to shareholders' equity. The amounts recorded as other comprehensive income primarily related to foreign currency translation adjustments of $10,743,000 and $9,605,000 for the thirteen weeks and twenty-six weeks ended December 27, 2003, respectively. Comprehensive income was $232,724,000 and $184,567,000 for the thirteen weeks ended December 27, 2003 and December 28, 2002, respectively, and $441,146,000 and $367,141,000 for the twenty-six weeks ended December 27, 2003 and December 28, 2002, respectively.
10. CONTINGENCIES
SYSCO is engaged in various legal proceedings which have arisen but have not been fully adjudicated. These proceedings, in the opinion of management, will not have a material adverse effect upon the consolidated financial statements of the company when ultimately concluded.
11. NEW ACCOUNTING STANDARDS
SYSCO adopted the provisions of SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity," effective at the beginning of fiscal 2004. The adoption of SFAS No. 150 has not had a material effect on the company's consolidated financial statements.
The Financial Accounting Standards Board issued SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits." The standard requires that companies provide additional financial statement disclosures for defined benefit plans. These disclosure requirements become effective for SYSCO's financial statements for the third quarter of fiscal 2004.
12. SHAREHOLDERS' EQUITY
On November 7, 2003, SYSCO's shareholders approved the adoption of an amendment to SYSCO's Restated Certificate of Incorporation to increase the number of shares of common stock that SYSCO will have the authority to issue to two billion shares, an increase from the previous authorization of one billion shares.
13. BUSINESS SEGMENT INFORMATION
The company has aggregated its operating companies into a number of segments, of which only Broadline and SYGMA are reportable segments as defined in SFAS No. 131. Broadline operating companies distribute a full line of food products and a wide variety of non-food products to both our traditional and chain restaurant customers. SYGMA operating companies distribute a full line of food products and a wide variety of non-food products to some of our chain restaurant customer locations. "Other" financial information is attributable to the company's other segments, including the company's specialty produce, custom-cut meat, Asian foodservice and hotel supply segments. The company's Canadian operations are not significant for geographical disclosure purposes.
Intersegment sales represent specialty produce and meat company products distributed by the Broadline and SYGMA operating companies. The segment results include allocation of centrally incurred costs for shared services that eliminate upon consolidation. Centrally incurred costs are allocated based upon the relative level of service used by each operating company.
26-Weeks Ended 13-Weeks Ended
---------------------------------- ----------------------------------
Dec. 27, 2003 Dec. 28, 2002 Dec. 27, 2003 Dec. 28, 2002
--------------- --------------- --------------- ---------------
Sales (in thousands):
Broadline $ 11,508,476 $ 10,548,934 $ 5,681,387 $ 5,227,677
SYGMA 1,688,102 1,419,918 863,539 710,334
Other 1,133,333 927,004 571,873 475,654
Intersegment sales (159,110) (122,637) (80,279) (64,868)
--------------- --------------- --------------- ---------------
Total $ 14,170,801 $ 12,773,219 $ 7,036,520 $ 6,348,797
=============== =============== =============== ===============
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26-Weeks Ended 13-Weeks Ended
---------------------------------- ----------------------------------
Dec. 27, 2003 Dec. 28, 2002 Dec. 27, 2003 Dec. 28, 2002
--------------- --------------- --------------- ---------------
Earnings before income taxes
(in thousands):
Broadline $ 700,459 $ 603,632 $ 357,047 $ 303,409
SYGMA 11,266 10,616 5,925 5,378
Other 35,529 24,278 20,364 12,296
--------------- --------------- --------------- ---------------
Total segments 747,254 638,526 383,336 321,083
Unallocated corporate expenses (46,780) (43,965) (22,392) (22,189)
--------------- --------------- --------------- ---------------
Total $ 700,474 $ 594,561 $ 360,944 $ 298,894
=============== =============== =============== ===============
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Dec. 27, 2003 June 28, 2003 Dec. 28, 2002
--------------- --------------- ---------------
Assets (in thousands):
Broadline $ 4,700,779 $ 4,513,533 $ 4,269,652
SYGMA 230,214 190,406 187,993
Other 512,851 501,236 470,970
--------------- --------------- ---------------
Total segments 5,443,844 5,205,175 4,928,615
Corporate 1,861,733 1,731,346 1,555,372
--------------- --------------- ---------------
Total $ 7,305,577 $ 6,936,521 $ 6,483,987
=============== =============== ===============
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14. SUPPLEMENTAL GUARANTOR INFORMATION
SYSCO International, Co. is an unlimited liability company organized under the laws of the Province of Nova Scotia, Canada and is a wholly-owned subsidiary of SYSCO. SYSCO International, Co. issued $200,000,000 of 6.10% notes due in 2012. These notes are fully and unconditionally guaranteed by SYSCO.
The following condensed consolidating financial statements present separately the financial position, results of operations and cash flows of the parent guarantor (SYSCO), the subsidiary issuer (SYSCO International) and all other non-guarantor subsidiaries of SYSCO (Other Non-Guarantor Subsidiaries) on a combined basis and eliminating entries. The financial information for SYSCO includes corporate activities as well as certain operating companies which were operated as divisions of SYSCO prior to the third quarter of fiscal 2003. Beginning with the third quarter of fiscal 2003, these divisions have been operated as subsidiaries and their results from that point in time are included in the Other Non-Guarantor Subsidiaries column. The accompanying financial information includes the balances and results of SYSCO International, Co. from the date of its inception in February 2002.
CONDENSED CONSOLIDATING BALANCE SHEET -- DECEMBER 27, 2003
-------------------------------------------------------------------------------------
OTHER
SYSCO 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 .......... $ 308,624 $ 105,347 $ 2,320,897 $ -- $ 2,734,868
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 ............ 196,367 -- 612,537 -- 808,904
Shareholders' equity
(deficit) .................. 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
============== ============== ============== ============== ==============
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CONDENSED CONSOLIDATING BALANCE SHEET -- JUNE 28, 2003
-------------------------------------------------------------------------------------
OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
-------------- -------------- -------------- -------------- --------------
(IN THOUSANDS)
Current assets ............... $ 203,219 $ 549 $ 3,425,766 $ -- $ 3,629,534
Investment in
subsidiaries ............... 7,529,006 213,247 217,315 (7,959,568) --
Plant and equipment, net .... 84,023 -- 1,838,637 -- 1,922,660
Other assets ................. 254,047 2,135 1,128,145 -- 1,384,327
-------------- -------------- -------------- -------------- --------------
Total assets ................. $ 8,070,295 $ 215,931 $ 6,609,863 $ (7,959,568) $ 6,936,521
============== ============== ============== ============== ==============
Current liabilities .......... $ (15,010) $ 72,399 $ 2,643,740 $ -- $ 2,701,129
Intercompany payables
(receivables) .............. 4,694,543 (57,185) (4,637,358) -- --
Long-term debt ............... 989,899 199,431 60,137 -- 1,249,467
Other liabilities ............ 236,069 -- 552,325 -- 788,394
Shareholders' equity
(deficit) .................. 2,164,794 1,286 7,991,019 (7,959,568) 2,197,531
-------------- -------------- -------------- -------------- --------------
Total liabilities and
shareholders' equity ....... $ 8,070,295 $ 215,931 $ 6,609,863 $ (7,959,568) $ 6,936,521
============== ============== ============== ============== ==============
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CONDENSED CONSOLIDATING BALANCE SHEET --DECEMBER 28, 2002
-------------------------------------------------------------------------------------
OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
-------------- -------------- -------------- -------------- --------------
(IN THOUSANDS)
Current assets ............... $ 490,169 $ 4 $ 2,850,606 $ -- $ 3,340,779
Investment in
subsidiaries ............... 5,748,761 207,535 212,044 (6,168,340) --
5,748,761
Plant and equipment, net .... 292,741 -- 1,511,950 -- 1,804,691
Other assets ................. 292,771 1,343 1,044,403 -- 1,338,517
-------------- -------------- -------------- -------------- --------------
Total assets ................. $ 6,824,442 $ 208,882 $ 5,619,003 $ (6,168,340) $ 6,483,987
============== ============== ============== ============== ==============
Current liabilities .......... $ 676,913 $ 74,166 $ 1,499,821 $ -- $ 2,250,900
Intercompany payables
(receivables) .............. 2,538,596 (60,259) (2,478,337) -- --
Long-term debt ............... 1,155,902 199,399 39,346 -- 1,394,647
Other liabilities ............ 251,915 -- 385,409 -- 637,324
Shareholders' equity
(deficit) .................. 2,201,116 (4,424) 6,172,764 (6,168,340) 2,201,116
-------------- -------------- -------------- -------------- --------------
Total liabilities and
shareholders' equity ....... $ 6,824,442 $ 208,882 $ 5,619,003 $ (6,168,340) $ 6,483,987
============== ============== ============== ============== ==============
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CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE 26-WEEK PERIOD ENDED DECEMBER 27, 2003
-------------------------------------------------------------------------------------
OTHER
SYSCO 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 (loss) .......... $ 430,792 $ 2,029 $ 545,738 $ (547,767) $ 430,792
============== ============== ============== ============== ==============
|
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE 26-WEEK PERIOD ENDED DECEMBER 28, 2002
-------------------------------------------------------------------------------------
OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
-------------- -------------- -------------- -------------- --------------
(IN THOUSANDS)
Sales ........................ $ 1,651,729 $ -- $ 11,121,490 $ -- $ 12,773,219
Cost of sales ................ 1,278,537 -- 8,973,883 -- 10,252,420
Operating expenses ........... 313,327 606 1,583,992 -- 1,897,925
Interest expense (income) .... 151,764 5,101 (122,534) -- 34,331
Other, net ................... 127 -- (6,145) -- (6,018)
-------------- -------------- -------------- -------------- --------------
Total costs and expenses ..... 1,743,755 5,707 10,429,196 -- 12,178,658
-------------- -------------- -------------- -------------- --------------
Earnings (losses) before
income taxes ................. (92,026) (5,707) 692,294 -- 594,561
Income tax (benefit)
provision .................... (35,200) (2,183) 264,803 -- 227,420
Equity in earnings of
Subsidiaries ............... 423,967 -- -- (423,967) --
-------------- -------------- -------------- -------------- --------------
Net earnings ................. $ 367,141 $ (3,524) $ 427,491 $ (423,967) $ 367,141
============== ============== ============== ============== ==============
|
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE 13-WEEK PERIOD ENDED DECEMBER 27, 2003
-------------------------------------------------------------------------------------
OTHER
SYSCO 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 (loss) .......... $ 221,981 $ 1,507 $ 274,152 $ (275,659) $ 221,981
============== ============== ============== ============== ==============
|
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
FOR THE 13-WEEK PERIOD ENDED DECEMBER 28, 2002
-------------------------------------------------------------------------------------
OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
-------------- -------------- -------------- -------------- --------------
(IN THOUSANDS)
Sales ........................ $ 803,835 $ -- $ 5,544,962 $ -- $ 6,348,797
Cost of sales ................ 622,904 -- 4,474,812 -- 5,097,716
Operating expenses ........... 147,064 290 789,936 -- 937,290
Interest expense (income) .... 76,145 2,565 (61,207) -- 17,503
Other, net ................... 164 (1) (2,769) -- (2,606)
-------------- -------------- -------------- -------------- --------------
Total costs and expenses ..... 846,277 2,854 5,200,772 -- 6,049,903
-------------- -------------- -------------- -------------- --------------
Earnings (losses) before
income taxes ................. (42,442) (2,854) 344,190 -- 298,894
Income tax (benefit)
provision .................. (16,234) (1,092) 131,653 -- 114,327
Equity in earnings of
Subsidiaries ............... 210,775 -- -- (210,775) --
-------------- -------------- -------------- -------------- --------------
Net earnings ................. $ 184,567 $ (1,762) $ 212,537 $ (210,775) $ 184,567
============== ============== ============== ============== ==============
|
CONDENSED CONSOLIDATING CASH FLOWS
FOR THE 26-WEEK PERIOD ENDED DECEMBER 27, 2003
-------------------------------------------------------------------
OTHER
SYSCO 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 increase (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
============== ============== ============== ==============
|
CONDENSED CONSOLIDATING CASH FLOWS
FOR THE 26-WEEK PERIOD ENDED DECEMBER 28, 2002
-------------------------------------------------------------------
OTHER
SYSCO NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES TOTALS
-------------- -------------- -------------- --------------
(IN THOUSANDS)
Net cash provided by (used for):
Operating activities ............... $ (13,602) $ 4,844 $ 465,295 $ 456,537
Investing activities ............... (253,213) -- (176,910) (430,123)
Financing activities ............... (90,674) 1,352 (6,957) (96,279)
Intercompany activity .............. 308,995 (16,202) (292,793) --
-------------- -------------- -------------- --------------
Net increase (decrease) in cash .... (48,494) (10,006) (11,365) (69,865)
Cash at the beginning of the
period ........................... 92,448 10,006 95,985 198,439
-------------- -------------- -------------- --------------
Cash at the end of the
period ........................... $ 43,954 $ -- $ 84,620 $ 128,574
============== ============== ============== ==============
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
HIGHLIGHTS
Sales increased 10.9% for the twenty-six weeks and 10.8% for the second quarter of fiscal 2004 over the comparable prior year periods. Gross margins as a percent to sales for both the twenty-six weeks and second quarter of fiscal 2004 decreased as compared to last year due to the changes in customer mix, segment mix, product mix and inflation. Expenses as a percent to sales for both the twenty-six weeks and second quarter of fiscal 2004 decreased as compared to last year due to operating efficiencies and operating costs increasing at lower rates than product cost inflation. As a result of these factors, net earnings increased 17.3% for the twenty-six weeks and 20.3% for the second fiscal quarter of fiscal 2004 over the comparable prior year periods. Expenses were negatively impacted by increased pension costs and expenses incurred in connection with the National Supply Chain initiative. During the twenty-six week period, the company also recorded a gain related to the cash surrender value of life insurance assets.
OVERVIEW
SYSCO distributes food and food related products to the foodservice industry including restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. SYSCO's operations are located throughout the United States and Canada and include broadline companies, specialty produce companies, custom-cut meat operations, Asian foodservice, hotel supply operations and SYGMA, the company's chain restaurant distribution subsidiary.
The company estimates that the North American foodservice market together with the non-food and hotel amenity markets available to SYSCO is approximately $200 billion annually and that SYSCO serves about 13% of this available market. The foodservice or food-prepared-away-from-home market represents approximately one-half of the total retail food purchases in the United States. This share has grown from about 37% thirty years ago as food purchases in the foodservice industry have grown more rapidly than food purchased 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; general aging of the population; growing affluence; and the increasing demand for the variety, convenience and entertainment afforded by the proliferation of restaurants and other foodservice operations. Industry statisticians and demographers expect these general trends to continue, although they may not continue at the same pace.
General economic conditions and consumer confidence can have an effect on the frequency and amount spent by consumers for food prepared away from home and therefore on SYSCO. However, we have consistently grown at a faster rate than the overall industry and have grown our market share in this fragmented industry.
The company intends to continue to expand its market share and grow earnings through strategies which include:
o Sales strategy: Increasing sales through new customer sales and additional penetration of existing customers, customer retention, expansion through foldouts (new operating companies created in established markets previously served by other SYSCO operating companies) and a disciplined acquisition program.
o Profitable sales growth: Stratification of customers based on profitability and potential and managing the profitability of or exiting, low profit or unprofitable
customers. More stringent analysis of customers' purchasing
potential before opening new accounts.
o Brand management: Leveraging brand strength to grow sales and profitability while ensuring strict quality control processes and providing greater value to customers.
o Productivity: Deploying the latest technology and leveraging best business practices to improve operating efficiencies and leverage expenses to sales growth.
o Sales force effectiveness: Selective recruiting and training of marketing associates. Introduction of a business development and review functions as we proceed with our sales force transformation of providing greater value to our customers.
o Supply chain optimization: Creating a more efficient and effective supply chain infrastructure through the National Supply Chain initiative.
The company's National Supply Chain initiative is intended to optimize the supply chain activities for certain products from SYSCO's operating companies in each respective region and as a result, lower inventory and operating costs, reduce working capital requirements and reduce future facility expansion needs at SYSCO's operating companies while providing greater value to our suppliers and customers. The company expects to build from five to ten regional distribution centers over a period of ten years. The first regional distribution center in the Northeast is expected to be operational during fiscal 2005.
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
-------------------------------- ---------------------------------
Dec. 27, 2003 Dec. 28, 2002 Dec. 27, 2003 Dec. 28, 2002
-------------- -------------- -------------- --------------
Sales 100.0% 100.0% 100.0% 100.0%
Costs and Expenses
Cost of sales 80.6 80.2 80.6 80.3
Operating expenses 14.3 14.8 14.2 14.8
Interest expense 0.2 0.3 0.2 0.3
Other, net 0.0 0.0 (0.1) (0.1)
-------------- -------------- -------------- --------------
Total costs and expenses 95.1 95.3 94.9 95.3
-------------- -------------- -------------- --------------
Earnings before income taxes 4.9 4.7 5.1 4.7
Income taxes 1.9 1.8 1.9 1.8
-------------- -------------- -------------- --------------
Net earnings 3.0% 2.9% 3.2% 2.9%
============== ============== ============== ==============
|
The following table sets forth the change in the components of the Results of Operations expressed as a percentage increase or decrease over the comparable period in the prior year:
% Increase (Decrease)
---------------------------------
26-Week Period 13-Week Period
-------------- --------------
Sales 10.9% 10.8%
Costs and Expenses
Cost of sales 11.4 11.2
Operating expenses 6.5 6.4
Interest expense 2.0 (6.4)
Other, net 50.1 170.6
-------------- --------------
Total costs and expenses 10.6 10.3
-------------- --------------
Earnings before income taxes 17.8 20.8
Income taxes 18.6 21.5
-------------- --------------
Net earnings 17.3% 20.3%
============== ==============
Basic earnings per share 19.6% 21.4%
Diluted earnings per share 18.2 21.4
Average shares outstanding (1.2) (1.1)
Diluted shares outstanding (0.6) (0.4)
|
SALES Sales increased 10.9% during the twenty-six weeks and 10.8% in the second quarter of fiscal 2004 over the comparable periods of the prior year. This compares to sales increases of 11.9% during the twenty-six weeks and 13.6% in the second quarter of fiscal 2003 over the comparable prior year periods. Acquisitions represented 1.3% of the sales growth for the first twenty-six weeks of fiscal 2004 and 0.8% for the second quarter of fiscal 2004, as compared to 6.2% and 3.2%, respectively, for the comparable periods in the prior year. Also contributing to sales growth was estimated product cost increases, an internal measure of inflation, of 6.0% during the first twenty-six weeks of fiscal 2004 and 7.3% during the second quarter of fiscal 2004 over the comparable periods in the prior year. The company estimated its product costs decreased by 1.6% during the first twenty-six weeks of fiscal 2003 and 0.9% during the second quarter of fiscal 2003 from the comparable periods in the prior year. SYSCO generally expects to pass product cost increases to its customers; however, the actual amount of inflation reflected as sales price increases is difficult to quantify.
COST OF SALES Cost of sales increased 11.4% in the first twenty-six weeks and 11.2% in the second quarter of fiscal 2004 over the comparable periods of the prior year. Management believes that cost of sales as a percentage to sales was impacted by several factors including change in customer mix, segment mix, product mix and inflation; the specific impact of each is difficult to quantify. Contract customer sales in the Broadline segment, which traditionally yield lower gross margins, coupled with lower expenses, than marketing associate-served sales, grew faster than sales to marketing associate-served sales over the comparable period in the prior year. Sales at the SYGMA and the Other segments, which traditionally have lower margins than the Broadline segment, grew faster than sales at the Broadline segment. In the area of product mix, meat sales, continued to grow as a percentage of overall sales and also experienced a high rate of cost increases. Meat products typically generate higher prices and higher gross margin dollars per case. However, meat products result in lower gross margins as a percentage of sales. Therefore, increased sales of these products had the effect of decreasing overall gross margins as a percentage of sales even as gross margin dollars were maintained or increased. Product cost increases at rates higher than historic trends also had the impact of reducing gross margins as a percentage of sales as gross profit dollars are earned on a higher sales dollar base.
OPERATING EXPENSES Operating expenses increased 6.5% in the first twenty-six weeks and 6.4% in the second quarter of fiscal 2004 over the comparable periods of the prior year. Improved operating efficiencies as demonstrated by improving trends in key expense metrics tracked at the broadline operating companies including pieces sold per delivery, product line items sold per delivery, pieces per trip and pieces per error contributed to the decreases in operating expenses as a percentage to sales. Short-term increases in product costs and the resulting increased sales price per item also impacted expenses as a percentage to sales favorably as operating costs increased at a lower rate.
Operating expenses were also favorably impacted by the recognition in income of $16,784,000 in the first twenty-six weeks and $12,218,000 in the second quarter of fiscal 2004 to adjust the carrying value of life insurance assets to their cash surrender value as compared to the recognition of a loss of $9,885,000 and a gain of $5,584,000 in the comparable periods in fiscal 2003, respectively. Operating expenses were negatively impacted by increases in net periodic pension cost of $18,045,000 in the first twenty-six weeks and $8,772,000 in the second quarter of fiscal 2004 as compared to the comparable periods in fiscal 2003. Operating expenses related to the National Supply Chain initiative increased $7,494,000 in the first twenty-six weeks and $4,782,000 in the second quarter of fiscal 2004 as compared to the comparable periods in the prior year.
OTHER, NET Other net income increased to $9,035,000 in the first twenty-six weeks of fiscal 2004 and $6,018,000 in the second quarter of fiscal 2004. The company recognized a gain on the sale of a facility of approximately $5,700,000 in the second quarter of fiscal 2004.
PRETAX AND NET EARNINGS Pretax earnings increased 17.8% for the first twenty-six weeks and 20.8% for the second quarter of fiscal 2004 over the comparable periods of the prior year. Net earnings increased 17.3% for the first twenty-six weeks and 20.3% for the second quarter of fiscal 2004 over the comparable periods of the prior year. These increases were due to the factors discussed above.
EARNINGS PER SHARE Basic earnings per share increased 19.6% for the first twenty-six weeks and 21.4% for the second quarter of fiscal 2004 over the comparable periods of the prior year. Diluted earnings per share increased 18.2% for the first twenty-six weeks and 21.4% for the second quarter of fiscal 2004 over the comparable periods of the prior year. These increases were the result of factors discussed above as well as a net reduction of shares outstanding due to share repurchases, offset by an increase in the dilutive effect of employee and director stock options.
SEGMENT RESULTS
The following table sets forth the change in the selected financial data of each of the company's reportable segments expressed as a percentage increase over the comparable period in the prior year and should be read in conjunction with Business Segment Information (Footnote No. 13) in the Notes to Consolidated Financial Statements:
% Increase
------------------------------------------------------------
26-Week Period 13-Week Period
---------------------------- ----------------------------
Earnings Earnings
before before
Sales taxes Sales taxes
------------ ------------ ------------ ------------
Broadline 9.1% 16.0% 8.7% 17.7%
SYGMA 18.9 6.1 21.6 10.2
Other 22.3 46.3 20.2 65.6
|
The following table sets forth sales and earnings before income taxes of each of the company's reportable segments expressed as a percentage of the respective consolidated total and should be read in conjunction with Business Segment Information (Footnote No. 13) in the Notes to Consolidated Financial Statements:
% of Total
------------------------------------------------------------
26-Week Period 13-Week Period
---------------------------- ----------------------------
Earnings Earnings
before before
Sales taxes Sales taxes
------------ ------------ ------------ ------------
Broadline
81.2% 100.0% 80.7% 98.9%
SYGMA 11.9 1.6 12.3 1.6
Other 8.0 5.1 8.1 5.7
Intersegment sales (1.1) (1.1)
Unallocated corporate expenses (6.7) (6.2)
---------- ------------ ----------- ------------
Total 100.0% 100.0% 100.0% 100.0%
========== ============ =========== ============
|
BROADLINE SEGMENT The Broadline segment sales increased 9.1% for the twenty-six weeks and 8.7% for the second quarter of fiscal 2004 over the comparable periods of the prior year. Acquisitions represented 0.4% of the sales growth for the first twenty-six weeks and zero percent for the second quarter of fiscal 2004. These increases were due to increased sales to marketing associate-served customers and multi-unit customers, including increased sales of SYSCO Brand products. These increases were reflected in increased sales to the company's existing customer base and to new customers. Marketing associate-served sales as a percentage of broadline sales in the U.S. decreased to 53.6% and 54.8% for the twenty-six weeks and thirteen weeks ended December 27, 2003, respectively, as compared to 53.8% and 55.1%, respectively for the comparable prior year periods. This decrease was due to the increase in sales to national contract customers exceeding the increase in sales to marketing associate-served customers. SYSCO Brand sales as a percentage of broadline sales in the U.S. remained consistent with comparable prior year periods at 49.0% for both the twenty-six weeks and thirteen weeks ended December 27, 2003.
Pretax earnings for the Broadline segment increased 16.0% for the twenty-six weeks and 17.7% for second quarter of fiscal 2004 over the comparable periods of the prior year. These increases were primarily due to increases in sales and expense controls resulting in lower expenses as a percentage to sales.
SYGMA SEGMENT SYGMA segment sales increased 18.9% for the twenty-six weeks and 21.6% for the second quarter of fiscal 2004 over the comparable periods of the prior year. Acquisitions represented 3.3% of the sales growth for the first twenty-six weeks and 1.9% for the second quarter of fiscal 2004. These increases were primarily due to sales to new customers, sales growth in SYGMA's existing customer base and the acquisitions of Pronamic and the Denver operations of Marriott Distribution Services, Inc.
Pretax earnings for the SYGMA segment increased 6.1% for the twenty-six weeks and 10.2% for the second quarter of fiscal 2004 over the comparable periods of the prior year. This increase was primarily due to increases in sales and expense controls resulting in lower expenses as a percentage to sales.
OTHER SEGMENTS Sales for the Other segments, which include the company's specialty businesses, increased 22.3% for the twenty-six weeks and 20.2% for the second quarter of fiscal 2004 over the comparable periods of the prior year. Acquisitions represented 8.7% of the sales growth for the first twenty-six weeks and 7.4% for the second quarter of fiscal 2004. These increases were due to increased sales to the existing customer base, sales to new customers, the acquisition of Asian Foods, Inc. and increased intersegment sales to SYSCO Broadline companies.
Pretax earnings for the Other segments increased 46.3% for the twenty-six weeks and 65.6% for the second quarter of fiscal 2004 over the comparable periods of the prior year. These increases were primarily due to increases in sales and expense controls resulting in lower expenses as a percentage to sales.
LIQUIDITY AND CAPITAL RESOURCES
The company generated $364,779,000 in net cash from operations for the twenty-six week period ended December 27, 2003, compared with $456,537,000 for the comparable period in fiscal 2003. Cash flow from operations for the twenty-six week period ended December 27, 2003 was negatively impacted by increases in accounts receivable balances of $73,428,000 and inventory balances of $120,215,000. A contributor to the increase in accounts receivable balances was sales to national contract customers which represented a larger percentage of
total SYSCO sales for December 2003 as compared to June 2003. This is due to normal sales patterns where sales to national contract customers as a group are traditionally higher in December as compared to June due to openings of educational facilities. In addition, the growth in sales to national contract customers outpaced the growth in SYSCO's overall sales. National contract customer payment terms are traditionally longer than the overall SYSCO average; thus, the increased sales to this group of customers caused the accounts receivable balances at December 2003 to increase. In addition, the fiscal second quarter ends in a holiday period which typically slows down customer payment cycles. The company has also historically experienced elevated inventory levels during this holiday period. The company showed improvements in working capital metrics for the fiscal quarter ended December 27, 2003 as accounts receivable, inventory and accounts payable days sales outstanding and accounts payable leverage ratios all showed improvement as compared to the same period last year.
The decrease in accrued expenses and other long-term liabilities of $75,854,000 for the twenty-six weeks was primarily due to an increase in pension contributions of $40,000,000 during the twenty-six week period ended December 27, 2003. In addition, the company's 401K contributions of approximately $28,800,000 were made in the second quarter in fiscal 2004 as compared to contributions of $24,100,000 made in the first quarter of fiscal 2003.
Taxes paid during the twenty-six week period ended December 27, 2003 were $190,761,000 as compared to $29,120,000 during the comparable period in the prior year. The increase in taxes paid was due to the company's inclusion in taxable income for fiscal 2004 of supply chain distributions deferred in prior years. Fiscal year 2004 is the first period that these supply chain distributions are recognized in taxable income since the company began deferring these items for tax purposes as a result of the reorganization of its supply chain in fiscal year 2002.
The company expects the net cash flow impact of the deferral of supply chain distributions in fiscal 2004 and beyond to be incrementally positive when compared to what would have been paid in taxes on an annual basis without the deferral. This is due to the company's expectations that its volume of purchases through this structure will continue to grow.
Total capital expenditures in fiscal 2004 are expected to be approximately $490,000,000. Projected capital expenditures include the continuation of the fold-out program; facility, fleet and other equipment replacements and expansions; and the National Supply Chain project. Expenditures in the twenty-six week period ended December 27, 2003 related to the company's National Supply Chain project totaled $73,075,000 of which $55,782,000 was capitalized. Total expenditures on the project since inception are $154,285,000 of which $100,214,000 have been capitalized. The Northeast Redistribution Center is expected to be operational during fiscal 2005.
During the twenty-six week period ended December 27, 2003 a total of 6,293,700 shares were repurchased at a cost of $218,149,000 as compared to 8,199,700 shares at a cost of $243,381,000 for the comparable period in fiscal 2003. An additional 979,900 shares at a cost of $36,407,000 have been purchased through January 30, 2004 resulting in 21,789,600 shares remaining available for repurchase as authorized by the Board as of that date.
Dividends paid in the twenty-six week period ended December 27, 2003 were $142,501,000, or $0.22 per share, as compared to $118,395,000, or $0.18 per share, in the comparable period of fiscal 2003. In November 2003, SYSCO declared its regular quarterly dividend for the third quarter of fiscal 2004, increasing it to $0.13 per share, which was paid in January 2004.
Long-term debt to capitalization ratio was 37.1% at December 27, 2003, within the company's long-term 35% to 40% target range.
As of December 27, 2003, SYSCO's borrowings under its commercial paper programs were $304,455,000. Such borrowings were $317,089,000 as of January 30, 2004. During the twenty-six week period ended December 27, 2003, commercial paper and short-term bank borrowings ranged from approximately $79,458,000 to $370,447,000.
Cash generated from operations is first allocated to working capital requirements. Any remaining cash generated from operations, as supplemented by commercial paper and other bank borrowings, may, at the discretion of management, be applied towards investments in facilities, fleet and other equipment; cash dividends; acquisitions fitting within the company's overall growth strategy; and the share repurchase program. Management believes that the company's cash flows from operations, as well as the availability of additional capital under its existing commercial paper programs, bank lines of credit, debt shelf registration and its ability to access capital from financial markets in the future, will be sufficient to meet its cash requirements while maintaining proper liquidity for normal operating purposes.
FORWARD-LOOKING STATEMENTS
Certain statements made herein are forward-looking statements under the Private Securities Litigation Reform Act of 1995. They include statements regarding potential future repurchases under the share repurchase program; market risks; industry growth; the impact of ongoing legal proceedings; the timing, expected cost savings and other benefits of the National Supply Chain project, including the Northeast Redistribution Center; anticipated capital expenditures; the ability to increase market share and grow earnings; sales growth; growth strategies 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; SYSCO's leverage and debt risks; the successful completion of acquisitions and integration of acquired companies; competitive price pressures; the ultimate outcome of litigation; potential impact of product liability claims; the risk of interruption of supplies due to lack of long-term contracts, severe weather, work stoppages or otherwise; labor issues; construction schedules; management's allocation of capital and the timing of capital purchases; risks relating to the successful completion and operation of the National Supply Chain project including the Northeast Redistribution Center; and internal factors such as the ability to control expenses and successfully execute growth strategies.
In addition, share repurchases could be affected by market prices for the company's securities as well as management's decision to utilize its capital for other purposes. The effect of market risks could be impacted by future borrowing levels and certain economic factors such as interest rates. For a more detailed discussion of these and other factors that could cause actual results to differ from those contained in the forward-looking statements, see the company's Annual Report on Form 10-K for the fiscal year ended June 28, 2003.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
SYSCO does not utilize financial instruments for trading purposes. SYSCO's use of debt directly exposes the company to interest rate risk. Floating rate debt, where the interest rate fluctuates periodically, exposes the company to short-term changes in market interest rates. Fixed rate debt, where the interest rate is fixed over the life of the instrument, exposes the company to changes in market interest rates reflected in the fair value of the debt and to the risk the company may need to refinance maturing debt with new debt at a higher rate.
SYSCO manages its debt portfolio to achieve an overall desired position of fixed and floating rates and may employ interest rate swaps as a tool to achieve that goal. The major risks from interest rate derivatives include changes in interest rates affecting the fair value of such instruments, potential increases in interest expense due to market increases in floating interest rates and the creditworthiness of the counterparties in such transactions. In October 2003, SYSCO entered into $500 million aggregate notional amount of interest rate swaps as a fair value hedge against the 7.00% Senior Notes due May 2006, 7.25% Senior Notes due April 2007 and 6.10% Senior Notes due June 2012. The swaps effectively convert the fixed interest rate on each of the three series of notes into a floating rate of six-month LIBOR averaged over a six month period plus a margin of 461, 430 and 171 basis points, respectively.
At December 27, 2003, the company had a total of $834,455,000 in debt at variable rates of interest including commercial paper with maturities through April 22, 2004 and $500,000,000 in fixed rate debt swapped to floating rate as discussed above. The company's remaining debt obligations of $698,457,000 were at fixed rates of interest.
Item 4. Controls and Procedures
As of December 27, 2003, 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 December 27, 2003 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 2004 that materially affected, or would be reasonably likely to materially affect, the company's internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
SYSCO is engaged in various legal proceedings which have arisen but have not been fully adjudicated. These proceedings, in the opinion of management, will not have a material adverse effect upon the consolidated financial statements of the company when ultimately concluded.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities
In December 2003, a total of 65,123 Dividend Access Shares, convertible on a one-for-one basis into SYSCO shares, were issued to the former shareholders of North Douglas Distributors ("North Douglas") pursuant to the terms of an escrow agreement executed in connection with SYSCO's acquisition of North Douglas in December 2000.
In October 2003, a total of 64,024 shares of Common Stock were issued to the former shareholders of Newport Meat Company ("Newport") pursuant to the terms of an escrow agreement executed in connection with SYSCO's acquisition of Newport in July 1999.
All of the above issuances were made pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
SYSCO held its 2003 Annual Meeting of Stockholders on November 7, 2003. Four directors, Jonathan Golden, Joseph A. Hafner, Jr., Thomas E. Lankford and Richard J. Schnieders, were elected for a three-year term, and one director, John K. Stubblefield, Jr. was elected for a one-year term. Directors whose terms continued after the meeting included Colin G. Campbell, Judith B. Craven, Richard G. Merrill, Frank H. Richardson, Phyllis S. Sewell, Richard G. Tilghman and Jackie M. Ward.
Other matters voted on included:
o The Board's proposal to approve the adoption of an amendment to SYSCO's Restated Certificate of Incorporation to increase the number of shares of Common Stock that SYSCO will have the authority to issue to two billion (2,000,000,000);
o The Board's proposal to approve the 2003 Stock Incentive Plan; and
o A shareholder proposal requesting that the Board review the Company's policies for food products containing genetically engineered ingredients and report to shareholders by March 2004.
The voting results were as follows:
NUMBER OF VOTES CAST
------------------------------------------------
Matter Broker
Voted Upon For Against/Withheld Abstain Non-Votes
---------------------------------- -------------- ---------------- -------------- --------------
Election of Directors
Jonathan Golden 399,122,428 144,246,997 n/a n/a
Joseph A. Hafner, Jr. 511,920,624 31,448,800 n/a n/a
Thomas E. Lankford 406,118,302 137,251,123 n/a n/a
Richard J. Schnieders 403,846,701 139,522,724 n/a n/a
John K. Stubblefield 530,470,503 12,898,922 n/a n/a
-------------- -------------- -------------- --------------
Amendment to Restated Certificate of
Incorporation 502,291,841 37,664,431 3,413,152 n/a
-------------- -------------- -------------- --------------
2003 Stock Incentive Plan 193,385,359 256,958,366 10,007,175 83,018,525
-------------- -------------- -------------- --------------
Shareholder Proposal on
Genetically Engineered
Food Products 34,337,578 392,609,981 33,403,341 83,018,525
-------------- -------------- -------------- --------------
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Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
3(a) Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(a) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544).
3(b) Bylaws, as amended and restated February 8, 2002, incorporated by reference to 3(b) Exhibit 3(b) to Form 10-Q for the quarter ended December 29, 2001 (File No. 1-6544).
3(c) Form of Amended Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, incorporated by reference to Exhibit 3(c) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544).
3(d) Certificate of Amendment of Certificate of Incorporation increasing authorized shares, incorporated by reference to Exhibit 3(d) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544).
*3(e) Certificate of Amendment to Restated Certificate of Incorporation increasing authorized shares.
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).
*15(a) Report from Ernst & Young LLP dated February 9, 2004, re: unaudited financial statements.
*15(b) Acknowledgment letter from Ernst & Young LLP.
*31(a) CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31(b) CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32(a) CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32(b) CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Filed herewith.
(b) Reports on Form 8-K:
1. On October 27, 2003, the company filed a current report on Form 8-K announcing under Items 7 and 12 thereof the results of its first quarter ended September 27, 2003.
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 9, 2004
By /s/ JOHN K. STUBBLEFIELD, JR.
--------------------------------------
John K. Stubblefield, Jr.
Executive Vice President,
Finance & Administration
Date: February 9, 2004
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EXHIBIT INDEX
NO. DESCRIPTION
---------- ------------------------------------------------------------
3(a) Restated Certificate of Incorporation, incorporated by
reference to Exhibit 3(a) to Form 10-K for the year ended
June 28, 1997 (File No. 1-6544).
3(b) Bylaws, as amended and restated February 8, 2002,
incorporated by reference to Exhibit 3(b) to Form 10-Q for
the quarter ended December 29, 2001 (File No. 1-6544).
3(c) Form of Amended Certificate of Designation, Preferences and
Rights of Series A Junior Participating Preferred Stock,
incorporated by reference to Exhibit 3(c) to Form 10-K for
the year ended June 29, 1996 (File No. 1-6544).
3(d) Certificate of Amendment of Certificate of Incorporation
increasing authorized shares, incorporated by reference to
Exhibit 3(d) to Form 10-Q for the quarter ended January 1,
2000 (File No. 1-6544).
*3(e) Certificate of Amendment to Restated Certificate of
Incorporation increasing authorized shares.
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).
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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).
*15(a) Report from Ernst & Young LLP dated February 9, 2004, re:
unaudited financial statements.
*15(b) Acknowledgment letter from Ernst & Young LLP.
*31(a) CEO Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
*31(b) CFO Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
*32(a) CEO Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*32(b) CFO Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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* Filed herewith.
Exhibit 3(e)
CERTIFICATE OF AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
OF SYSCO CORPORATION
Pursuant to the provisions of Section 242 of the General Corporation Law of the State of Delaware, SYSCO CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify:
1. That the Board of Directors of the Corporation has adopted resolutions
setting forth and declaring advisable the following amendment to Article FOURTH,
Section A, of the Restated Certificate of Incorporation of the Corporation:
"FOURTH: A. The total number of shares of stock which the corporation shall have the authority to issue is Two Billion One Million Five Hundred Thousand (2,001,500,000) shares, consisting of One Million Five Hundred Thousand (1,500,000) shares of Preferred Stock with a par value of One Dollar ($1.00) each, and Two Billion (2,000,000,000) shares of Common Stock with a par value of One Dollar ($1.00) each. The corporation may issue fractional shares of stock, which will be entitled to proportionate dividends, voting and liquidation rights."
2. That such amendment has been duly adopted by the affirmative vote of the holders of a majority of all of the outstanding stock entitled to vote thereon in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to Restated Certificate of Incorporation to be executed by its authorized officer this 9th day of December, 2003.
SYSCO CORPORATION
By: /s/ MICHAEL C. NICHOLS
----------------------------------------
Name: Michael C. Nichols
Title: Vice President, General Counsel
and Corporate Secretary
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Exhibit 15(a)
INDEPENDENT ACCOUNTANT'S REVIEW REPORT
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 December 27, 2003 and December 28, 2002, and the related statements of consolidated results of operations for the thirteen and twenty-six week periods and cash flows for the twenty-six week period then ended. These financial statements are the responsibility of the company's management.
We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. 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 generally accepted in the United States, 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 accounting principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of Sysco Corporation and subsidiaries as of June 28, 2003, 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 11, 2003, 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 June 28, 2003, 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 9, 2004
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Exhibit 15(b)
February 9, 2004
To Shareholders and Board of Directors
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, 333-50842 and 333-98489) 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 9, 2004 relating to the unaudited consolidated interim financial statements of Sysco Corporation that are included in its Form 10-Q for the quarter ended December 27, 2003.
Very truly yours,
/s/ Ernst & Young LLP Houston, Texas |
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 9, 2004
/s/ RICHARD J. SCHNIEDERS
------------------------------------
Richard J. Schnieders
Chairman and Chief Executive Officer
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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 9, 2004
/s/ JOHN K. STUBBLEFIELD, JR.
-------------------------------------
John K. Stubblefield, Jr.
Executive Vice President, Finance and
Administration
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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 December 27, 2003 ("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 9, 2004
/s/ RICHARD J. SCHNIEDERS
------------------------------------
Richard J. Schnieders
Chairman and Chief Executive Officer
|
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 Administration, 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 December 27, 2003 ("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 9, 2004
/s/ JOHN K. STUBBLEFIELD, JR.
-------------------------------------
John K. Stubblefield, Jr.
Executive Vice President, Finance and
Administration
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