<PAGE>
Page 1 of 16
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 1998
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 Identification No.)
incorporation or organization)
1390 Enclave Parkway
Houston, Texas 77077-2099
(Address of principal executive offices)
(Zip code)
Registrant's telephone number, including area code: (281) 584-1390
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
334,088,349 shares of common stock were outstanding as of
October 23, 1998.
2
PART I. FINANCIAL INFORMATION
---------------------------------------------------
Item 1. Financial Statements
The following consolidated financial statements
have been prepared by the Company, without
audit, with the exception of the June 27, 1998,
consolidated balance sheet which was taken from
the audited financial statements included in the
Company's Fiscal 1998 Annual Report on Form
10-K. The financial statements include
consolidated balance sheets, consolidated
results of operations and consolidated cash
flows. In the opinion of management, all
adjustments, which consist of normal recurring
adjustments, necessary to present fairly the
financial position, results of operations
and cash flows for all periods presented,
have been made.
These financial statements should be read in
conjunction with the audited financial
statements and notes thereto included in the
Company's Fiscal 1998 Annual Report on Form
10-K.
A review of the financial information herein has
been made by Arthur Andersen LLP, independent
public accountants, in accordance with established
professional standards and procedures for such a
review. A letter from Arthur Andersen LLP
concerning their review is included as Exhibit 15.
3
<TABLE>
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share Data)
<CAPTION> Sept. 26, June 27, Sept 27,
1998 1998 1997
---------- --------- -----------
(Unaudited) (Audited) (Unaudited)
ASSETS
----------
<S> <C> <C> <C>
Current assets
Cash $ 108,264 $ 110,288 $ 88,509
Accounts and notes receivable,
less allowances of $27,609,
$20,081 and $23,229 1,313,797 1,215,610 1,205,697
Inventories 853,064 790,501 793,574
Deferred taxes 35,293 37,073 26,912
Prepaid expenses 28,892 26,595 27,109
---------- ---------- ----------
Total current assets 2,339,310 2,180,067 2,141,801
Plant and equipment at cost, less
depreciation 1,157,860 1,151,054 1,075,822
Other assets
Goodwill and intangibles, less
amortization 309,322 307,959 245,459
Other 152,769 141,109 172,395
---------- ---------- ----------
Total other assets 462,091 449,068 417,854
---------- ---------- ----------
Total assets $3,959,261 $3,780,189 $3,635,477
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Notes payable $ 13,770 $ 42,333 $ 16,438
Accounts payable 1,003,878 849,159 908,370
Accrued expenses 272,096 292,255 239,778
Accrued income taxes 59,581 25,523 58,334
Current maturities of long-term
debt 115,412 114,920 13,132
---------- --------- ----------
Total current liabilities 1,464,737 1,324,190 1,236,052
Long-term debt 873,057 867,017 752,573
Deferred taxes 227,024 232,193 240,398
Shareholders' equity
Preferred stock, par value
$1 per share
Authorized 1,500,000 shares,
issued none --- --- ---
Common stock, par value $1 per
share
Authorized 500,000,000 shares,
issued 382,587,450, 382,587 382,587 191,294
382,587,450 and 191,293,725
shares
Paid-in capital 2,271 --- 32,743
Retained earnings 1,852,758 1,796,488 1,825,787
---------- ---------- ----------
2,237,616 2,179,075 2,049,824
Less cost of treasury stock,
48,257,269, 47,978,288 and
20,134,890 shares 843,173 822,286 643,370
---------- ---------- ----------
Total shareholders' equity 1,394,443 1,356,789 1,406,454
---------- ---------- ----------
Total liabilities and
shareholders' equity $3,959,261 $3,780,189 $3,635,477
========== ========== ==========
<FN>
Note: The June 27, 1998 balance sheet has been taken from the audited
financial statements at that date. Share information has been adjusted
for the 2-for-1 stock split on March 20, 1998.
4
SYSCO Corporation and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In Thousands Except for Share Data)
13-Week Period Ended
----------------------------
Sept. 26, Sept. 27,
1998 1997
------------ -----------
Sales $ 4,192,630 $ 3,828,244
Costs and expenses
Cost of sales 3,426,045 3,130,883
Operating expenses 607,812 553,032
Interest expense 16,931 13,140
Other, net 170 (122)
------------ -----------
Total costs and expenses 4,050,958 3,696,933
------------ -----------
Earnings before income taxes 141,672 131,311
Income taxes 55,252 51,211
------------ ------------
Net earnings $ 86,420 $ 80,100
============ ============
Basic earnings per share $ 0.26 $ 0.23
============ ============
Diluted earnings per share $ 0.26 $ 0.23
============ ============
Average shares outstanding 334,849,272 343,684,554
============ ============
Diluted average shares
outstanding 338,184,255 345,725,156
============ ============
Dividends paid per common
share $ 0.09 $ 0.08
============ ============
Note: All share information has been adjusted for
the 2-for-1 stock split on March 20, 1998.
5
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS - (Unaudited)
(In Thousands)
13- Week Period Ended
------------------------
Sept. 26, Sept. 27,
1998 1997
-------- ---------
Cash flows from operating activities:
Net earnings $ 86,420 $ 80,100
Add non-cash items:
Depreciation and amortization 47,983 43,287
Deferred tax (benefit) provision (3,389) 3,289
Provision for losses on accounts receivable 5,688 4,711
Additional investment in certain assets
and liabilities:
(Increase) in receivables (103,875) (145,406)
(Increase) in inventories (62,563) (59,792)
(Increase) in prepaid expenses (2,297) (5,680)
Increase in accounts payable 154,719 80,777
(Decrease) in accrued expenses (20,159) (1,150)
Increase in accrued income taxes 34,058 40,593
(Increase) in other assets (14,725) (8,924)
-------- --------
Net cash provided by operating activities 121,860 31,805
-------- --------
Cash flows from investing activities:
Additions to plant and equipment (58,021) (56,660)
Proceeds from sales of plant and equipment 4,934 815
-------- --------
Net cash used for investing activities (53,087) (55,845)
-------- --------
Cash flows from financing activities:
Bank and commercial paper (repayments)
borrowings (243,472) 70,800
Other debt borrowings (repayments) 221,441 (1,829)
Common stock reissued from treasury 14,964 12,577
Treasury stock purchases (33,580) (60,834)
Dividends paid (30,150) (25,861)
-------- --------
Net cash used for financing activities (70,797) (5,147)
-------- --------
Net decrease in cash (2,024) (29,187)
Cash at beginning of period 110,288 117,696
-------- --------
Cash at end of period $ 108,264 $ 88,509
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 3,447 $ 9,828
Income taxes 19,421 7,064
6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
-------------------------------
The liquidity and capital resources discussion
included on page 12 of the Company's Fiscal 1998
Annual Report on Form 10-K remains applicable,
other than the common stock repurchase program
described below. All share information has been
adjusted for the 2-for-1 stock split on March 20,
1998.
In Fiscal 1992, the Company began a common stock
repurchase program which continued into the
first quarter of Fiscal 1999, resulting in
the repurchase of 72,000,000 shares of common
stock.
The Board of Directors authorized the repurchase
of an additional 8,000,000 shares in September,
1998. Under this latest authorization, 418,700
shares were purchased through September 26, 1998.
Results of Operations
---------------------
Sales and cost of sales increased about 9.5% and
9.4%, respectively, over the same quarter of the
prior year. Real sales growth of over 6%
resulted primarily from volume growth and was
a point higher than in the same quarter last
year, after adjusting for a 1.5% increase due
to acquisitions and an increase in food cost
inflation of about 2%, due primarily to higher
costs for dairy products.
Operating expenses for the periods presented
remained approximately the same as a percent of sales.
Interest expense in the current period increased over
the prior period due to increased borrowings.
Income taxes for the periods presented reflect an
effective rate of 39%.
Pretax earnings and net earnings increased about 8%
over the prior year due to the factors discussed
above as well as the Company's continued efforts
to increase sales to the Company's higher margin
territorial street customers.
Basic and diluted earnings per share increased
13% over the prior year due to the factors discussed
above, coupled with the decrease in average shares
outstanding for the quarter, reflecting purchases
of shares made through the Company's share
repurchase program. A reconciliation of basic
and diluted earnings per share follows on the
next page.
7
The following table sets forth the computation of
basic and diluted earnings per share:
13-Week Period Ended
----------------------------
Sept. 26, Sept. 27,
1998 1997
------------ -----------
Numerator:
Numerator for basic earnings
per share -- income available
to common shareholders $ 86,420,000 $ 80,100,000
Effect of dilutive securities --- ---
------------ ------------
Numerator for diluted earnings
per share -- income available
to common shareholders $ 86,420,000 $ 80,100,000
============ ============
Denominator:
Denominator for basic
earnings per share --
weighted-average shares 334,849,272 343,684,554
Effect of dilutive securities:
Employee and director stock
options 3,334,983 2,040,602
------------ ------------
Denominator for diluted
earnings per share --
adjusted weighted-average
shares and assumed
conversions 338,184,255 345,725,156
============ ============
Basic earnings per share $ 0.26 $ 0.23
============ ============
Diluted earnings per share $ 0.26 $ 0.23
============ ============
8
Year 2000
---------
In recent years, SYSCO has been replacing
and enhancing its information systems to
gain operational efficiencies. In addition,
a company-wide program has been underway to
prepare its information systems and
applications for the year 2000.
SYSCO has completed a comprehensive
assessment of the impact of the year 2000
on all of its information systems and
applications. SYSCO expects to make the
necessary revisions or upgrades to its
systems to render it year 2000 compliant.
Attention is also being focused on
compliance attainment efforts of, and key
interfaces with, suppliers and customers.
SYSCO could potentially experience
disruptions to some aspects of its
various activities and operations as a
result of non-compliant systems utilized
by SYSCO or unrelated third parties.
Contingency plans are therefore under
development to mitigate the extent of any
such potential disruption to business
operations. Based on preliminary
information, the costs to the company
of addressing potential year 2000 issues
are not expected to have a material
adverse impact on SYSCO's consolidated
results of operations or financial
position.
There can be no assurance that the
efforts or the contingency plans related
to the company's systems, or those of
other entities relied upon will be
successful or that any failure to
convert, upgrade or appropriately plan
for contingencies would not have a
material adverse effect on SYSCO.
--------------
Statements made herein regarding
continuation of the share repurchase
program, the expected level of capital
expenditures and potential year 2000
costs are forward-looking statements
under the Private Securities Litigation
Reform Act of 1995. They are based on
current expectations and actual results
may differ materially. Share
repurchases could be affected by
market prices of the company's stock
as well as management's decision to
utilize its capital for other purposes.
Capital expenditures could be affected
by management's allocation of capital
and the costs of capital items to be
constructed or acquired. Potential
year 2000 costs could be affected by
conditions in the economy, the industry
and internal factors that may alter
planned results. Futhermore, potential
year 2000 costs and compliance efforts
could be affected by the ability of
SYSCO's suppliers and customers to
effectively address year 2000 issues.
9
PART II. OTHER INFORMATION
---------------------------
Item 3. Quantitative and Qualitative Disclosures about Market
Risks
SYSCO does not utilize financial
instruments for trading purposes
and holds no derivative financial
instruments which could expose the
company to significant market risk.
SYSCO's exposure to market risk
for changes in interest rates
relates primarily to its long-term
obligations. At September 26, 1998
the company had outstanding $79,889,000
of commercial paper with maturities
through October 13, 1998. The
company's remaining long-term debt
obligations of $793,168,000 were
primarily at fixed rates of interest.
SYSCO has no significant cash flow
exposure due to interest rate changes
for long-term debt obligations.
Item 4. Submission of Matters to a Vote of
Security Holders
None
Item 5. Other Information
None
10
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
3(a) Restated Certificate of Incorporation
incorporated by reference to Form
10-K for the year ended June 28, 1997.
3(b) Bylaws, as amended, incorporated
by reference to Form 10-K for the
year ended July 2, 1994.
3(c) Amended Certificate of Designation,
incorporated by reference to Form
10-K for the year ended June 29, 1996.
4(a) Seventh Amendment and Restatement
of Competitive Advance and Revolving
Credit Facility Agreement dated as
of June 27, 1997 incorporated by
reference to Form 10-K for the year
ended June 28, 1997.
4(b) Sysco Corporation Note Agreement
dated as of June 1, 1989 incorporated
by reference to Form 10-K for the
year ended June 28, 1997.
4(c) Indenture, dated as of June 15, 1995,
between Sysco Corporation and First
Union National Bank of North
Carolina, Trustee, incorporated by
reference to Registration Statement
on Form S-3 (File No. 33-60023).
4(d) First Supplemental Indenture, dated
as of June 27, 1995, between Sysco
Corporation and First Union Bank of
North Carolina, Trustee as amended,
incorporated by reference to Form
10-K for the year ended June 29,
1996.
4(e) Second Supplemental Indenture,
dated as of May 1, 1996, between
Sysco Corporation and First Union
Bank of North Carolina, Trustee
as amended, incorporated by
reference to Form 10-K for the
year ended June 29, 1996.
4(f) Third Supplemented Indenture,
dated as of April 25, 1997, between
Sysco Corporation and First Union
National Bank of North Carolina,
Trustee incorporated by reference
to Form 10-K for the year ended
June 28, 1997.
11
4(g) 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 Form 10-K for the year ended
June 28, 1997.
4(h) Fifth Supplemental Indenture,
dated as of July 27, 1998 between
Sysco Corporation and First Union
National Bank of North Carolina,
Trustee incorporated by reference
to Form 10-K for the year ended
June 27, 1998.
15 Letter from Arthur Andersen LLP
dated November 4, 1998,
re unaudited financial statements.
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed
during the quarter for which this report
is filed.
12
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.
Senior Vice President and
Chief Financial Officer
Date: November 4, 1998
13
EXHIBIT INDEX
----------------------
SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ----- ----------------------------------------- -------------
3(a) Restated Certificate of Incorporation
incorporated by reference to Form 10-K
for the year ended June 28, 1997.
3(b) Bylaws, as amended, incorporated
by reference to Form 10-K for the
year ended July 2, 1994.
3(c) Amended Certificate of Designation,
incorporated by reference to Form
10-K for the year ended June 29, 1996.
4(a) Seventh Amendment and Restatement
of Competitive Advance and Revolving
Credit Facility Agreement dated as
of June 27, 1997 incorporated by
reference to Form 10-K for the year
ended June 28, 1997.
4(b) Sysco Corporation Note Agreement
dated as of June 1, 1989 incorporated
by reference to Form 10-K for the
year ended June 28, 1997.
4(c) Indenture, dated as of June 15, 1995,
between Sysco Corporation and First
Union National Bank of North Carolina,
Trustee, incorporated by reference
to Registration Statement on Form S-3
(File No. 33-60023).
4(d) First Supplemental Indenture, dated
as of June 27, 1995, between Sysco
Corporation and First Union Bank of
North Carolina, Trustee as amended,
incorporated by reference to Form
10-K for the year ended June 29, 1996.
14
4(e) Second Supplemental Indenture, dated
as of May 1, 1996, between Sysco
Corporation and First Union Bank of
North Carolina, Trustee as amended,
incorporated by reference to
Form 10-K for the year ended
June 29, 1996.
4(f) Third Supplemented Indenture,
dated as of April 25, 1997, between
Sysco Corporation and First Union
National Bank of North Carolina,
Trustee incorporated by reference
to Form 10-K for the year ended
June 28, 1997.
4(g) 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 Form 10-K for the year ended
June 28, 1997.
4(h) Fifth Supplemental Indenture,
dated as of July 27, 1998 between
Sysco Corporation and First Union
National Bank of North Carolina,
Trustee incorporated by reference
to Form 10-K for the year ended
June 27, 1998.
15 Letter from Arthur Andersen LLP
dated November 4, 1998, re unaudited
financial statements. 15
27 Sysco Corporation and its Consolidated
Subsidiaries Financial Data Schedule 16
</TABLE>
<PAGE>
15
Exhibit 15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Sysco Corporation:
We have reviewed the consolidated balance sheets
of Sysco Corporation (a Delaware corporation)
and its consolidated subsidiaries as of
September 26, 1998, and the related consolidated
results of operations and cash flows for the
thirteen week period then ended included in the
Company's Quarterly Report on Form 10-Q.
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 generally
accepted auditing standards, 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 financial statements referred to above for
them to be in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
November 4, 1998
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from the financial statements and is
qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-END> SEP-26-1998
<CASH> 108,264
<SECURITIES> 0
<RECEIVABLES> 1,341,406
<ALLOWANCES> (27,609)
<INVENTORY> 853,064
<CURRENT-ASSETS> 2,339,310
<PP&E> 2,188,698
<DEPRECIATION> (1,030,838)
<TOTAL-ASSETS> 3,959,261
<CURRENT-LIABILITIES> 1,464,737
<BONDS> 873,057
<COMMON> 382,587
0
0
<OTHER-SE> 1,011,856
<TOTAL-LIABILITY-AND-EQUITY> 3,959,261
<SALES> 4,192,630
<TOTAL-REVENUES> 4,192,630
<CGS> 3,426,045
<TOTAL-COSTS> 4,050,958
<OTHER-EXPENSES> 170
<LOSS-PROVISION> 5,688
<INTEREST-EXPENSE> 16,931
<INCOME-PRETAX> 141,672
<INCOME-TAX> 55,252
<INCOME-CONTINUING> 86,420
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,420
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
