<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>h96800e10-q.txt
<DESCRIPTION>SYSCO CORPORATION - DATED 3/30/2002
<TEXT>
<PAGE>
Page 1 of 19
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2002
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
_____ _____
663,360,408 shares of common stock were outstanding as of May 3, 2002.
<PAGE>
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share Data)
<TABLE>
<CAPTION>
Mar. 30, 2002 June 30, 2001 Mar. 31, 2001
------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 346,083 $ 135,743 $ 114,080
Accounts and notes receivable, less
allowances of $73,289, $43,112 and $72,413 1,625,314 1,650,130 1,626,264
Inventories 1,089,334 1,042,277 1,053,893
Deferred taxes 104,993 88,746 90,635
Prepaid expenses 52,133 40,456 45,060
----------- ----------- -----------
Total current assets 3,217,857 2,957,352 2,929,932
Plant and equipment at cost, less depreciation 1,646,465 1,516,778 1,482,760
Goodwill and intangibles, less amortization 774,694 768,837 706,617
Other assets 187,970 191,638 249,903
----------- ----------- -----------
Total other assets 962,664 960,475 956,520
----------- ----------- -----------
Total assets $ 5,826,986 $ 5,434,605 $ 5,369,212
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 271,195 $ 30,640 $ 32,304
Accounts payable 1,305,245 1,271,817 1,271,720
Accrued expenses 587,975 606,923 576,006
Accrued income taxes 65,351 123,332 59,570
Current maturities of long-term debt 11,400 23,267 16,935
----------- ----------- -----------
Total current liabilities 2,241,166 2,055,979 1,956,535
Long-term debt 877,035 961,421 1,048,464
Deferred taxes 428,169 269,685 239,705
Commitments and 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 1,000,000,000 shares, issued
765,174,900 765,175 765,175 765,175
Paid-in capital 213,748 186,818 183,483
Retained earnings 2,782,545 2,462,145 2,335,167
Other comprehensive loss (5,624) (5,624) --
----------- ----------- -----------
3,755,844 3,408,514 3,283,825
Less cost of treasury stock, 101,484,766,
100,037,236 and 92,630,991 shares 1,475,228 1,260,994 1,159,317
----------- ----------- -----------
Total shareholders' equity 2,280,616 2,147,520 2,124,508
----------- ----------- -----------
Total liabilities and shareholders' equity $ 5,826,986 $ 5,434,605 $ 5,369,212
=========== =========== ===========
</TABLE>
Note: The June 30, 2001 balance sheet has been derived from the audited
financial statements at that date.
<PAGE>
3
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In Thousands Except for Share and Per Share Data)
<TABLE>
<CAPTION>
39-Week Period Ended 13-Week Period Ended
------------------------------------ ------------------------------------
Mar. 30, 2002 Mar. 31, 2001 Mar. 30, 2002 Mar. 31, 2001
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 17,039,968 $ 15,995,200 $ 5,620,324 $ 5,344,496
Costs and expenses
Cost of sales 13,675,331 12,874,800 4,510,059 4,301,029
Operating expenses 2,552,479 2,383,327 851,668 800,156
Interest expense 46,695 53,933 14,318 18,498
Other, net (1,936) (1,466) (877) (879)
------------- ------------- ------------- -------------
Total costs and expenses 16,272,569 15,310,594 5,375,168 5,118,804
------------- ------------- ------------- -------------
Earnings before income taxes 767,399 684,606 245,156 225,692
Income taxes 293,530 261,862 93,772 86,327
------------- ------------- ------------- -------------
Net earnings $ 473,869 $ 422,744 $ 151,384 $ 139,365
============= ============= ============= =============
Net earnings:
Basic earnings per share $ 0.71 $ 0.64 $ 0.23 $ 0.21
============= ============= ============= =============
Diluted earnings per share $ 0.70 $ 0.62 $ 0.23 $ 0.21
============= ============= ============= =============
Average shares outstanding 663,289,299 664,748,107 661,144,231 666,107,144
============= ============= ============= =============
Diluted shares outstanding 675,028,798 676,663,476 672,528,949 677,731,150
============= ============= ============= =============
Dividends paid per common share $ 0.23 $ 0.19 $ 0.09 $ 0.07
============= ============= ============= =============
</TABLE>
<PAGE>
4
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
39 - Week Period Ended
--------------------------------
Mar. 30, 2002 Mar. 31, 2001
------------- -------------
<S> <C> <C>
Operating activities:
Net earnings $ 473,869 $ 422,744
Add non-cash items:
Depreciation and amortization 203,477 182,236
Deferred tax provision (benefit) 142,237 (29,117)
Provision for losses on accounts receivable 25,647 23,978
Additional investment in certain assets and liabilities,
net of effect of businesses acquired:
Decrease (increase) in receivables 3,251 (67,950)
(Increase) in inventories (43,691) (64,798)
(Increase) decrease in prepaid expenses (11,647) 1,869
Increase in accounts payable 31,683 37,301
(Decrease) increase in accrued expenses (19,976) 50,992
(Decrease) increase in accrued income taxes (57,981) 42,285
(Increase) decrease in other assets (2,554) 7,569
--------- ---------
Net cash provided by operating activities 744,315 607,109
--------- ---------
Investing activities:
Additions to plant and equipment (309,343) (245,593)
Proceeds from sales of plant and equipment 8,024 7,450
Acquisition of businesses, net of cash acquired (12,198) (9,345)
--------- ---------
Net cash used for investing activities (313,517) (247,488)
--------- ---------
Financing activities:
Bank and commercial paper borrowings 161,111 12,196
Other debt repayments (16,809) (40,132)
Common stock reissued from treasury 71,612 61,362
Treasury stock purchases (282,904) (311,581)
Dividends paid (153,469) (126,514)
--------- ---------
Net cash used for financing activities (220,459) (404,669)
--------- ---------
Net increase (decrease) in cash 210,340 (45,048)
Cash at beginning of period 135,743 159,128
--------- ---------
Cash at end of period $ 346,083 $ 114,080
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 44,082 $ 48,145
Income taxes 208,730 245,333
</TABLE>
<PAGE>
5
SYSCO CORPORATION and its Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The following consolidated financial statements have been
prepared by the Company, without audit, with the exception of
the June 30, 2001 consolidated balance sheet which was taken
from the audited financial statements included in the
Company's Fiscal 2001 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 2002 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 2001 Annual Report on Form 10-K.
A review of the financial information herein has been made by
Ernst & Young LLP, independent public accountants, 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:
<TABLE>
<CAPTION>
39-Week Period Ended 13-Week Period Ended
---------------------------------- ----------------------------------
Mar. 30, 2002 Mar. 31, 2001 Mar. 30, 2002 Mar. 31, 2001
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings per share --
income available to common shareholders $473,869,000 $422,744,000 $151,384,000 $139,365,000
============ ============ ============ ============
Denominator:
Denominator for basic earnings per share --
weighted-average shares 663,289,299 664,748,107 661,144,231 666,107,144
Effect of dilutive securities:
Employee and director stock options 11,739,499 11,915,369 11,384,718 11,624,006
------------ ------------ ------------ ------------
Denominator for diluted earnings per share --
adjusted for weighted-average shares 675,028,798 676,663,476 672,528,949 677,731,150
============ ============ ============ ============
Basic earnings per share $ 0.71 $ 0.64 $ 0.23 $ 0.21
============ ============ ============ ============
Diluted earnings per share $ 0.70 $ 0.62 $ 0.23 $ 0.21
============ ============ ============ ============
</TABLE>
<PAGE>
6
3. DEBT
As of March 30, 2002, SYSCO had uncommitted bank lines of
credit, which provide for unsecured borrowings for working
capital of up to $268,148,000, of which $27,884,000 was
outstanding at March 30, 2002.
As of March 30, 2002, SYSCO's borrowings under its commercial
paper programs were $343,180,000. During the thirty-nine week
period ended March 30, 2002, commercial paper and short-term
bank borrowings ranged from approximately $169,216,000 to
$538,362,000.
Included in short term notes payable and cash as of March 30,
2002, are approximately $243,311,000 in commercial paper
borrowings primarily incurred to finance the SERCA acquisition
which was funded in the beginning of the fourth quarter (See
Note 4). It is the Company's intention to replace these
commercial paper borrowings with long-term notes.
On June 3, 1998, the Company filed with the Securities and
Exchange Commission a $500,000,000 shelf registration of debt
securities. In April 2002, SYSCO issued 4.75% Notes totaling
$200,000,000 due July 30, 2005 under this shelf registration.
These notes, which were priced at 99.8% of par, are unsecured,
are not subject to any sinking fund requirement and include a
redemption provision which allows SYSCO to retire the notes at
any time prior to maturity with a make whole provision. The
proceeds from the 4.75% Notes are being utilized to retire
commercial paper borrowings.
Concurrent with the issuance of these notes, SYSCO entered
into an interest rate swap agreement with a notional amount of
$200,000,000 whereby SYSCO receives a fixed rate equal to
4.75% per annum and pays a benchmark interest rate of six
month LIBOR in arrears less 84.5 basis points.
SYSCO has designated its interest rate swap agreement as a
fair value hedge of the underlying debt. Interest expense on
the debt will be adjusted to include payments made or
received under the hedge agreement. The market value of the
swap agreement will be carried on the consolidated balance
sheet at fair value. The hedge is considered perfectly
effective against changes in the fair value of the debt due to
changes in the benchmark interest rate over its term. As a
result, the shortcut method under SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities" applies, the
carrying value of the debt being hedged is adjusted for the
market value of the swap, and there is no need to periodically
reassess the effectiveness of the hedge during the term of the
swap. Based on current interest rates for similar
transactions, the fair value of the interest rate swap
agreement is not material.
<PAGE>
7
4. ACQUISITIONS
In March 2001, SYSCO acquired Guest Supply, Inc. through an
exchange offer followed by a merger. Guest Supply is a
specialty distributor to the lodging industry headquartered in
Monmouth Junction, New Jersey.
In May 2001, SYSCO acquired HRI, a broadline foodservice
distributor operating in Kelowna, British Columbia.
In July 2001, SYSCO acquired Fulton Provision Company, a
specialty meat distributor located in Portland, Oregon.
In September 2001, Guest Supply, Inc., a SYSCO subsidiary,
acquired Franklin Supply Company, a supplier of housekeeping
and other operating supplies to the lodging industry
headquartered in Louisburg, North Carolina.
These transactions were accounted for using the purchase
method of accounting and the accompanying financial
statements include the results of the acquired companies from
the respective dates they joined SYSCO. There was no material
effect, individually or in the aggregate, on SYSCO's
consolidated operating results or financial position from
these transactions. Therefore, no proforma results of
operations have been provided.
The purchase price was allocated to the net assets acquired
based on the estimated fair value at the date of acquisition.
The balances included in the consolidated balance sheets
related to acquisitions are based upon preliminary information
and are subject to change when final purchase price
adjustments, asset and liability valuations are obtained.
Material changes to the preliminary allocations are not
anticipated by management.
Subsequent Acquisition
Effective March 30, 2002, SYSCO acquired substantially all of
the assets and certain liabilities of the SERCA Foodservice
operations of Sobeys Inc. for CAD $336.4 million in cash
(approximately US $210.5 million as of March 30, 2002). SERCA
Foodservice Inc. is a foodservice and equipment distributor
headquartered in Toronto, Ontario. This acquisition was funded
in the fourth quarter of fiscal 2002 and will be reflected in
the financial statements of SYSCO beginning March 31, 2002.
5. BUSINESS SEGMENT INFORMATION
The Company, through its 124 operating companies, provides
food and other products to the foodservice or
"food-prepared-away-from-home" industry. Each of our operating
companies generally represents a separate operating segment.
Under the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS No.
131), the Company has aggregated its operating companies into
five segments, of which only Broadline and SYGMA are
reportable segments as defined in
<PAGE>
8
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 three other segments,
including the Company's specialty produce, meat and lodging
industry products segments. The Company's Canadian operations
are insignificant for geographical disclosure purposes.
The accounting policies for the segments are the same as those
disclosed in the Company's fiscal 2001 Annual Report on Form
10-K. 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.
<TABLE>
<CAPTION>
39-Week Period Ended 13-Week Period Ended
----------------------------------- -----------------------------------
Mar. 30, 2002 Mar. 31, 2001 Mar. 30, 2002 Mar. 31, 2001
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales (in thousands):
Broadline $ 13,967,699 $ 13,354,002 $ 4,589,066 $ 4,421,787
SYGMA 1,956,650 1,783,469 648,925 587,089
Other 1,251,324 935,849 430,851 368,491
Intersegment sales (135,705) (78,120) (48,518) (32,871)
------------ ------------ ------------ ------------
Total $ 17,039,968 $ 15,995,200 $ 5,620,324 $ 5,344,496
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
39-Week Period Ended 13-Week Period Ended
-------------------------------- --------------------------------
Mar. 30, 2002 Mar. 31, 2001 Mar. 30, 2002 Mar. 31, 2001
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Earnings before income taxes
(in thousands):
Broadline $ 789,773 $ 715,354 $ 249,992 $ 233,239
SYGMA 14,928 10,297 5,149 4,659
Other 34,338 31,564 12,874 12,918
--------- --------- --------- ---------
Total segments 839,039 757,215 268,015 250,816
Unallocated corporate expenses (71,640) (72,609) (22,859) (25,124)
--------- --------- --------- ---------
Total $ 767,399 $ 684,606 $ 245,156 $ 225,692
========= ========= ========= =========
</TABLE>
<PAGE>
9
<TABLE>
<CAPTION>
Mar. 30, 2002 June 30, 2001 Mar. 31, 2001
------------- ------------- -------------
<S> <C> <C> <C>
Assets (in thousands):
Broadline $4,004,456 $3,571,464 $3,474,033
SYGMA 179,879 172,898 168,695
Other 429,362 425,376 412,385
---------- ---------- ----------
Total segments 4,613,697 4,169,738 4,055,113
Corporate 1,213,289 1,264,867 1,314,099
---------- ---------- ----------
Total $5,826,986 $5,434,605 $5,369,212
========== ========== ==========
</TABLE>
6. CONTINGENCIES
SYSCO is engaged in various legal proceedings which have
arisen but have not been fully adjudicated. These proceedings,
in the opinion of management, will not have a material adverse
effect upon the consolidated financial position or results of
operations of the company when ultimately concluded.
7. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued
SFAS No. 141, "Business Combinations" and SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 141 requires
that all business combinations be accounted for using the
purchase method of accounting for business combinations
initiated after June 30, 2001. According to SFAS No. 142,
goodwill that arises from business combinations after June 30,
2001 cannot be amortized. In addition, SFAS No. 142 requires
the discontinuation of goodwill amortization and the
amortization of intangible assets with indeterminate lives
effective the date SYSCO adopts the statement, which will be
July 1, 2002. SYSCO has six months from the date it adopts
SFAS No. 142 to test for impairment. Any impairment charge
resulting from the initial application of the new rule must be
classified as the cumulative effect of a change in accounting
principle. Thereafter, goodwill and intangible assets with
indeterminate lives should be tested for impairment annually
or as needed. Management is currently assessing, but has not
yet determined, the impact that the adoption of SFAS No. 142
will have on the Company's consolidated financial statements.
In August 2001, the Financial Accounting Standards Board
issued SFAS No. 144, "Accounting for Impairment or Disposal of
Long-Lived Assets." SFAS No. 144 addresses the financial
accounting and reporting for the impairment of the disposal of
long-lived assets. SYSCO will adopt SFAS No. 144 in the first
quarter of fiscal 2003 and believes that such adoption will
not have a material effect on its consolidated results of
operations or financial position.
<PAGE>
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
SYSCO provides marketing and distribution services to foodservice
customers and suppliers throughout the United States and Canada. The
Company intends to continue to expand its market share through
profitable sales growth, foldouts, acquisitions and constant emphasis
on the development of its consolidated buying programs. The Company
also strives to increase the effectiveness of its marketing
associates and the productivity of its warehousing and distribution
activities. These objectives require continuing investment. SYSCO's
resources include cash provided by operations and access to capital
from financial markets.
The Company generated $744,315,000 in net cash from operations for
the thirty-nine weeks of fiscal 2002, compared with $607,109,000 for
the comparable period in fiscal 2001. The overall increase in
operating results contributed to the increase in cash flows from
operations for the thirty-nine week period ended March 30, 2002 over
the comparable prior year period. During the second quarter of fiscal
2002, the Company began reorganizing its supply chain to maximize
consolidated efficiencies and increase the effectiveness of the
merchandising and procurement functions performed for the benefit of
our customers. The new structure results in the deferral of certain
federal and state income tax payments which amounted to approximately
$150,000,000 in the thirty-nine weeks ended March 30, 2002. The
Company expects that this deferral will continue throughout fiscal
2002 and fiscal 2003 and anticipates making tax payments related to
this deferral beginning in fiscal 2004. In addition, cash flows for
the thirty-nine weeks ended March 30, 2002 were negatively impacted
by the extension of a $75,000,000 estimated federal income tax
payment from the fourth quarter fiscal 2001 to the first quarter
fiscal 2002.
Cash flows used for investing activities increased by approximately
$66,029,000 for the thirty-nine weeks of fiscal 2002 over the
comparable prior year period. Expenditures for facilities, fleet and
other equipment were $309,343,000 in the thirty-nine week period
ended March 30, 2002, compared to $245,593,000 in the prior year
period, an increase of 26.0%. The increase is primarily due to the
construction and completion of new fold-out facilities located in
Sacramento, California and Columbia, South Carolina and the ongoing
construction of the fold-out facility in Las Vegas, Nevada. Total
expenditures in fiscal 2002 are expected to be in the range of
$400,000,000 to $425,000,000. The company expects its capital
expenditures in fiscal 2003 to increase due to the continuation of
the fold-out program; facility, fleet and other equipment
replacements and expansion; and the company's supply chain
initiatives.
In fiscal 1992, the Company began a common stock repurchase program
which continued into the third quarter of fiscal 2002, resulting in
the cumulative repurchase of 195,585,900 shares of common stock.
During the thirty-nine weeks ended March 30, 2002, the Company
repurchased 11,149,100 shares for $282,904,000. During the thirteen
weeks ended March 30, 2002, the Company repurchased 2,202,600 shares
for $64,248,000. The remaining number of shares available for
repurchase as of March 30, 2002 under the current Board authorization
was 12,414,100.
<PAGE>
11
As of March 30, 2002, SYSCO had uncommitted bank lines of credit,
which provide for unsecured borrowings for working capital of up to
$268,148,000, of which $27,884,000 was outstanding at March 30, 2002.
As of March 30, 2002, SYSCO's borrowings under its commercial paper
program were $343,180,000. Such borrowings were $294,833,000 as of
April 26, 2002. During the thirty-nine week period ended March 30,
2002, commercial paper and short-term bank borrowings ranged from
approximately $169,216,000 to $538,362,000.
Included in short term notes payable and cash as of March 30, 2002,
are approximately $243,311,000 in commercial paper borrowings
primarily incurred to finance the SERCA acquisition which was funded
in the beginning of the fourth quarter (See Note 4 to the Financial
Statements). It is the Company's intention to replace these
commercial paper borrowings with long-term notes.
Long-term debt to capitalization ratio was 27.8% at March 30, 2002,
less than the 35% to 40% target ratio. The ratio decreased from 30.9%
at June 30, 2001 and remains below the target rates due to strong
cash flows from operations which reduced the need to borrow monies.
The anticipated issuance of long-term notes should bring the ratio
closer to the target range.
On June 3, 1998, the Company filed with the Securities and Exchange
Commission a $500,000,000 shelf registration of debt securities. In
April 2002, SYSCO issued 4.75% Notes totaling $200,000,000 due July
30, 2005 under this shelf registration. These notes, which were
priced at 99.8% of par, are unsecured, are not subject to any sinking
fund requirement and include a redemption provision which allows
SYSCO to retire the notes at any time prior to maturity with a make
whole provision. The proceeds from the 4.75% Notes are being utilized
to retire commercial paper borrowings. As of May 13, 2002, there was
$425,000,000 in principal amount outstanding under this registration
statement, leaving $75,000,000 available for issuance.
Concurrent with the issuance of these notes, SYSCO entered into an
interest rate swap agreement with a notional amount of $200,000,000
whereby SYSCO receives a fixed rate equal to 4.75% per annum and pays
a benchmark interest rate of six months LIBOR in arrears less 84.5
basis points.
<PAGE>
12
Cash generated from operations is first allocated to working capital
requirements; investments in facilities, fleet and other equipment
required to meet customers' needs; cash dividends; and acquisitions
fitting within the company's overall growth strategy. Any remaining
cash generated from operations is applied toward a portion of the
cost of shares repurchased in the buyback program, while the
remainder of the cost may be financed with additional long-term debt.
Management believes that the Company's cash flows from operations, as
well as the availability of additional capital under its existing
commercial paper programs, 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.
Results of Operations
Sales increased 6.5% during the thirty-nine weeks and 5.2% in the
third quarter of fiscal 2002 over the comparable periods of the prior
year. Cost of sales also increased 6.2% during the thirty-nine weeks
and 4.9% in the third quarter of fiscal 2002. Internal sales growth
for the thirty-nine weeks of fiscal 2002 was 3.9% after adjusting for
a 2.6% sales increase due to acquisitions and real sales growth was
1.7% after further adjusting for food price increases of 2.2%. This
compares to 9.0% internal sales growth, after adjusting overall sales
growth by 5.0% for acquisitions and real sales growth of 6.9% after
adjusting for food price increases of 2.1% during the comparable
period ended March 31, 2001 as compared to the same period in 2000.
Internal sales growth for the quarter ended March 30, 2002 was
approximately 3.7% after eliminating the effects of 1.5% for
acquisitions and real sales growth was 2.7% after further adjusting
for food price increases of 1.0%. This compares to 8.0% internal
sales growth after adjusting overall sales growth by 5.2% for
acquisitions and real sales growth of 5.0% after adjusting for food
price increases of 3.0% during the comparable period ended March 31,
2001 as compared to the same period in 2000. The decrease in sales
growth during fiscal 2002 was attributable to overall softness in the
economy.
Operating expenses were 14.98% of sales for the thirty-nine weeks of
fiscal 2002 and 15.15% of sales for the third quarter of fiscal 2002.
This compares to 14.90% and 14.97%, respectively for comparable
periods in fiscal 2001. The increase in operating expenses as a
percent to sales in fiscal 2002 is primarily attributable to
increased operating expenses realized during the initial operating
periods of fold-outs in Sacramento, California; Columbia, South
Carolina and Las Vegas, Nevada. In addition, the increase in
marketing associate-served sales is accompanied by higher expenses to
serve these customers.
Interest expense decreased 13.4% during the thirty-nine weeks and
22.6% in the third quarter of fiscal 2002 over comparable periods of
the prior year, primarily due to decreases in interest rates for the
short-term and commercial paper borrowings.
Income taxes for the periods presented reflect an effective rate of
38.25%.
Pretax earnings and net earnings for the thirty-nine weeks of fiscal
2002 increased 12.1% over the prior year. Pretax earnings and net
earnings for the third quarter of fiscal 2002 increased 8.6% over the
prior year. The increases were due to the factors discussed above as
well as the Company's success in its continued efforts to increase
sales to the Company's territorial street customers and increasing
sales of SYSCO brand products, both of which generate higher margins.
<PAGE>
13
Basic earnings per share increased 10.9% and 9.5% for the thirty-nine
weeks and the thirteen weeks ended March 30, 2002, respectively, over
the comparable periods of the prior year. Diluted earnings per share
increased 12.9% and 9.5% for the thirty-nine weeks and thirteen weeks
ended March 30, 2002, respectively, over the comparable periods of
the prior year. The increases were the result of factors discussed
above.
Broadline Segment
The Broadline segment had 4.6% and 3.8% sales increases for the
thirty-nine weeks and thirteen weeks ended March 30, 2002,
respectively, as compared to sales for the comparable periods ended
March 31, 2001. These increases were reflected primarily in increased
sales to marketing associate-served customers including increased
sales of SYSCO brand products. Broadline segment sales as a
percentage of total SYSCO sales decreased from 83% for the
thirty-nine weeks and thirteen weeks ended March 31, 2001 to 82% for
the thirty-nine weeks and thirteen weeks ended March 30, 2002,
respectively. This decrease was due primarily to acquisitions of
specialty produce, meat and lodging industry product companies, which
are included in the Other segment.
Pretax earnings for the Broadline segment increased by 10.4% and 7.2%
for the thirty-nine weeks and thirteen weeks ended March 30, 2002,
respectively, over the comparable prior year periods. The increases
in pretax earnings were primarily a result of increases in sales to
marketing associate served customers and in sales of SYSCO brand
products, both of which generate higher margins.
SYGMA Segment
The SYGMA segment had sales increases of 9.7% and 10.5% for the
thirty-nine weeks and thirteen weeks ended March 30, 2002,
respectively, as compared to sales for the comparable periods ended
March 31, 2001. These increases were due primarily to sales growth in
SYGMA's existing customer base as well as the addition of new
customers. SYGMA segment sales as a percentage of total SYSCO sales
were 11.5% for the thirty-nine week period and the thirteen week
period ended March 30, 2002, respectively. SYGMA segment sales as a
percentage of total sales were 11.2% and 11.0%, respectively, for the
comparable periods ended March 31, 2001.
Pretax earnings for the SYGMA segment increased by 45.0% and 10.5%
for the thirty-nine weeks and thirteen weeks ended March 30, 2002,
respectively, over the comparable prior year periods. The increase
for the thirteen weeks and thirty-nine weeks ended March 30, 2002
compared to the comparable prior year periods was due to operating
efficiencies realized during the current fiscal year. In addition,
the second quarter of fiscal 2001 was negatively impacted by costs
incurred in connection with the consolidation of facilities into a
new facility.
<PAGE>
14
Other Segment
The Other segment had 33.7% and 16.9% sales increases for the
thirty-nine weeks and thirteen weeks ended March 30, 2002,
respectively, as compared to sales for the comparable periods ended
March 31, 2001. The increases were due primarily to the timing of
acquisitions made during the periods presented.
Pretax earnings for the Other segment increased by 8.8% for the
thirty-nine weeks of fiscal 2002 and decreased by 0.3% in the third
quarter as compared to prior year periods. Pretax earnings during the
thirty-nine weeks of fiscal 2002 were positively impacted due to the
timing of acquisitions. The decrease in pretax earnings in the third
quarter of fiscal 2002 was primarily due to the downturn in demand in
the travel and resort destination cities.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
SYSCO does not utilize financial instruments for trading. SYSCO's use
of debt directly exposes the Company to interest rate risk. Floating
rate debt, where the interest rate can be changed every year or less
over the life of the instrument, 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. SYSCO manages its debt portfolio to achieve an overall
desired position of fixed and floating rates and employs 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 March
30, 2002 the Company had outstanding $343,180,000 of commercial paper
at variable rates of interest with maturities through May 23, 2002.
The Company's remaining debt obligations of $816,450,000 were
primarily at fixed rates of interest.
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, the impact of ongoing legal
proceedings, anticipated capital expenditures, the ability to
increase market share, sales growth, the impact of tax deferrals, the
anticipated issuance of long term debt and the impact thereof, the
expected impact of the supply chain initiative, and SYSCO's ability
to meet 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 ultimate outcome of
<PAGE>
15
litigation; and internal factors such as the ability to control
expenses. 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 discussion of additional
factors that could cause actual results to differ from those
contained in the forward-looking statements, see SYSCO's Prospectus
Supplement dated March 26, 2002 as filed with the Securities and
Exchange Commission on March 28, 2002.
<PAGE>
16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
SYSCO is engaged in various legal proceedings which have arisen
but have not been fully adjudicated. These proceedings, in the
opinion of management, will not have a material adverse effect
upon the consolidated financial position or results of
operations of the Company when ultimately concluded.
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
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 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).
<PAGE>
17
4(a) Sixth Amendment and Restatement of Competitive
Advance and Revolving Credit Facility Agreement
dated May 31, 1996, incorporated by reference to
Exhibit 4(a) to Form 10-K for the year ended June
27, 1996 (File No. 1-6544).
4(b) Agreement and Seventh Amendment to Competitive
Advance and Revolving Credit Facility Agreement
dated as of June 27, 1997, incorporated by
reference to Exhibit 4(a) to Form 10-K for the year
ended June 28, 1997 (File No. 1-6544).
4(c) Agreement and Eighth Amendment to Competitive
Advance and Revolving Credit Facility Agreement
dated as of June 22, 1998, incorporated by
reference to Exhibit 4(c) to Form 10-K for the year
ended July 3, 1999 (File No. 1-6544).
4(d) Senior Debt Indenture, dated as of June 15, 1995,
between Sysco Corporation and First Union National
Bank of North Carolina, Trustee, incorporated by
reference to Exhibit 4(a) to Registration Statement
on Form S-3 filed June 6, 1995 (File No. 33-60023).
4(e) First Supplemental Indenture, dated June 27, 1995,
between Sysco Corporation and First Union National
Bank of North Carolina, Trustee, as amended,
incorporated by reference to Exhibit 4(e) to Form
10-K for the year ended June 29, 1996 (File No.
1-6544).
4(f) Second Supplemental Indenture, dated as of May 1,
1996, between Sysco Corporation and First Union
National Bank of North Carolina, Trustee, as
amended, incorporated by reference to Exhibit 4(f)
to Form 10-K for the year ended June 29, 1996 (File
No. 1-6544).
4(g) Third Supplemental Indenture, dated as of April 25,
1997, between Sysco Corporation and First Union
National Bank of North Carolina, Trustee,
incorporated by reference to Exhibit 4(g) to Form
10-K for the year ended June 28, 1997 (File No.
1-6544).
4(h) Fourth Supplemental Indenture, dated as of April
25, 1997, between Sysco Corporation and First Union
National Bank of North Carolina, Trustee,
incorporated by reference to Exhibit 4(h) to Form
10-K for the year ended June 28, 1997 (File No.
1-6544).
4(i) Fifth Supplemental Indenture, dated as of July 27,
1998, between Sysco Corporation and First Union
National Bank, Trustee, incorporated by reference
to Exhibit 4 (h) to Form 10-K for the year ended
June 27, 1998 (File No. 1-6554).
<PAGE>
18
4(j) Agreement and Ninth Amendment to Competitive
Advance and Revolving Credit Facility Agreement
dated as of December 1, 1999, incorporated by
reference to Exhibit 4(j) to Form 10-Q for the
quarter ended January 1, 2000 (File No. 1-6544).
4(k) Sixth Supplemental Indenture, 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).
*15(a) Report from Ernst & Young LLP dated May 13, 2002,
re: unaudited financial statements.
*15(b) Acknowledgement letter from Ernst & Young LLP.
----------
* Filed herewith.
(b) Reports on Form 8-K:
On March 27, 2002, SYSCO filed a Form 8-K to report a change in
principal accountants.
On January 16, 2002, SYSCO filed a Form 8-K to report the
results of its second fiscal quarter ended December 29, 2001.
<PAGE>
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYSCO CORPORATION
(Registrant)
By /s/ JOHN K. STUBBLEFIELD, JR.
-----------------------------
John K. Stubblefield, Jr.
Executive Vice President,
Finance & Administration
Date: May 14, 2002
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION
--- -----------
<S> <C>
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).
4(a) Sixth Amendment and Restatement of Competitive
Advance and Revolving Credit Facility Agreement
dated May 31, 1996, incorporated by reference to
Exhibit 4(a) to Form 10-K for the year ended June
27, 1996 (File No. 1-6544).
4(b) Agreement and Seventh Amendment to Competitive
Advance and Revolving Credit Facility Agreement
dated as of June 27, 1997, incorporated by
reference to Exhibit 4(a) to Form 10-K for the year
ended June 28, 1997 (File No. 1-6544).
4(c) Agreement and Eighth Amendment to Competitive
Advance and Revolving Credit Facility Agreement
dated as of June 22, 1998, incorporated by
reference to Exhibit 4(c) to Form 10-K for the year
ended July 3, 1999 (File No. 1-6544).
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4(d) Senior Debt Indenture, dated as of June 15, 1995,
between Sysco Corporation and First Union National
Bank of North Carolina, Trustee, incorporated by
reference to Exhibit 4(a) to Registration Statement
on Form S-3 filed June 6, 1995 (File No. 33-60023).
4(e) First Supplemental Indenture, dated June 27, 1995,
between Sysco Corporation and First Union National
Bank of North Carolina, Trustee, as amended,
incorporated by reference to Exhibit 4(e) to Form
10-K for the year ended June 29, 1996 (File No.
1-6544).
4(f) Second Supplemental Indenture, dated as of May 1,
1996, between Sysco Corporation and First Union
National Bank of North Carolina, Trustee, as
amended, incorporated by reference to Exhibit 4(f)
to Form 10-K for the year ended June 29, 1996 (File
No. 1-6544).
4(g) Third Supplemental Indenture, dated as of April 25,
1997, between Sysco Corporation and First Union
National Bank of North Carolina, Trustee,
incorporated by reference to Exhibit 4(g) to Form
10-K for the year ended June 28, 1997 (File No.
1-6544).
4(h) Fourth Supplemental Indenture, dated as of April
25, 1997, between Sysco Corporation and First Union
National Bank of North Carolina, Trustee,
incorporated by reference to Exhibit 4(h) to Form
10-K for the year ended June 28, 1997 (File No.
1-6544).
4(i) Fifth Supplemental Indenture, dated as of July 27,
1998, between Sysco Corporation and First Union
National Bank, Trustee, incorporated by reference
to Exhibit 4 (h) to Form 10-K for the year ended
June 27, 1998 (File No. 1-6554).
4(j) Agreement and Ninth Amendment to Competitive
Advance and Revolving Credit Facility Agreement
dated as of December 1, 1999, incorporated by
reference to Exhibit 4(j) to Form 10-Q for the
quarter ended January 1, 2000 (File No. 1-6544).
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4(k) 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).
*15(a) Report from Ernst & Young LLP dated May 13, 2002,
re: unaudited financial statements.
*15(b) Acknowledgement letter from Ernst & Young LLP.
</TABLE>
----------
* Filed herewith.
</TEXT>
</DOCUMENT>