<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 March 28, 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 [ ]
337,582,062 shares of common stock were outstanding as of
April 24, 1998.
<PAGE>
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 28, 1997
consolidated balance sheet which was taken from
the audited financial statements included in the
Company's Fiscal 1997 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 year have
been reclassified to conform to the current
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 1997 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.
<PAGE>
3
<TABLE>
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share Data)
<CAPTION> March 28, June 28, March 29,
1998 1997 1997
----------- ---------- -----------
(Unaudited) (Audited) (Unaudited)
ASSETS
----------
<S> <C> <C> <C>
Current assets
Cash $ 94,901 $ 117,696 $ 84,093
Accounts and notes receivable,
less allowances of $37,659,
$17,240 and $39,402 1,178,393 1,065,002 1,075,408
Inventories 777,723 733,782 745,304
Deferred taxes 28,560 23,720 30,595
Prepaid expenses 26,949 21,429 24,405
---------- ---------- ----------
Total current assets 2,106,526 1,961,629 1,959,805
Plant and equipment at cost,
less depreciation 1,113,362 1,058,432 1,034,711
Goodwill and intangibles, less
amortization 241,533 247,423 249,375
Other assets 138,593 166,339 164,678
---------- ---------- ----------
Total other assets 380,126 413,762 414,053
__________ __________ __________
Total assets $3,600,014 $3,433,823 $3,408,569
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Notes payable $ 73,102 $ 14,267 $ 13,103
Accounts payable 888,454 827,593 827,322
Accrued expenses 265,874 240,928 241,939
Accrued income taxes 27,465 17,741 33,563
Current maturities of
long-term debt 14,686 13,285 9,525
---------- --------- ----------
Total current liabilities 1,269,581 1,113,814 1,125,452
Long-term debt 747,803 685,620 623,158
Deferred taxes 210,772 233,917 222,080
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 and
191,293,725 shares 382,587 191,294 191,294
Paid-in capital --- 32,258 33,391
Retained earnings 1,729,446 1,771,548 1,706,749
---------- ---------- ----------
2,112,033 1,995,100 1,931,434
Less cost of treasury stock,
44,297,815, 37,710,916 and
31,988,076 shares 740,175 594,628 493,555
---------- ---------- ----------
Total shareholders' equity 1,371,858 1,400,472 1,437,879
---------- ---------- ----------
Total liabilities and
shareholders' equity $3,600,014 $3,433,823 $3,408,569
========== ========== ==========
<FN>
Note: The June 28, 1997 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. Certain prior period
amounts have been reclassified to conform to the current presentation.
</TABLE>
<PAGE>
4
<TABLE>
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In Thousands Except for Share Data)
<CAPTION> 39-Week Period Ended 13-Week Period Ended
---------------------------- -----------------------------
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Sales $ 11,326,162 $ 10,759,905 $ 3,711,822 $ 3,470,334
Costs and expenses
Cost of sales 9,248,908 8,827,840 3,035,112 2,844,881
Operating expenses 1,662,057 1,550,986 557,136 512,563
Interest expense 42,810 34,385 15,170 11,580
Other, net (246) 48 179 307
------------ ----------- ------------ ------------
Total costs and expenses 10,953,529 10,413,259 3,607,597 3,369,331
------------ ----------- ------------ ------------
Earnings before income taxes 372,633 346,646 104,225 101,003
Income taxes 145,327 135,192 40,648 39,391
------------ ------------ ------------ ------------
Earnings before cumulative
effect of accounting change 227,306 211,454 63,577 61,612
Cumulative effect of
accounting change (28,053) --- --- ---
____________ ____________ ____________ ____________
Net earnings $ 199,253 $ 211,454 $ 63,577 $ 61,612
============ ============ ============ ============
Earnings before
accounting change:
Basic earnings per share $ 0.67 $ 0.59 $ 0.19 $ 0.17
============ ============ ============ ============
Diluted earnings per
share $ 0.66 $ 0.59 $ 0.19 $ 0.17
============ ============ ============ ============
Cumulative effect of
accounting change, net of
income taxes:
Basic earnings per share $ (0.08) $ --- $ --- $ ---
============ ============ ============ ============
Diluted earnings per
share $ (0.08) $ --- $ --- $ ---
============ ============ ============ ============
Net earnings:
Basic earnings per share $ 0.58 $ 0.59 $ 0.19 $ 0.17
============ ============ ============ ============
Diluted earnings per
share $ 0.58 $ 0.59 $ 0.19 $ 0.17
============ ============ ============ ============
Average shares outstanding 341,632,614 356,666,498 339,626,373 353,068,030
============ ============ ============ ============
Diluted average shares
outstanding 344,505,263 358,193,800 343,230,897 354,667,704
============ ============ ============ ============
Dividends paid per
common share $ 0.24 $ 0.21 $ 0.09 $ 0.08
============ ============ ============ ============
Note: All share information has been adjusted for the 2-for-1
stock split on March 20, 1998
(/Table)
<PAGE>
5
</TABLE>
<TABLE>
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS - (Unaudited)
(In Thousands)
<CAPTION> 39-Week Period Ended
------------------------
March 28, March 29,
1998 1997
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 199,253 $ 211,454
Add non-cash items:
Cumulative effect of accounting change 28,053 ---
Depreciation and amortization 133,510 118,904
Deferred tax provision (27,985) (7,631)
Provision for losses on accounts receivable 16,750 18,595
Additional investment in certain assets
and liabilities net of effect of business
acquired:
(Increase) in receivables (130,141) (47,660)
(Increase) in inventories (43,941) (18,405)
(Increase) in prepaid expenses (5,520) (5,510)
Increase in accounts payable 60,861 42,874
Increase in accrued expenses 24,946 28,523
Increase in accrued income taxes 9,724 10,233
(Increase) in other assets (8,626) (8,804)
--------- ---------
Net cash provided by operating activities 256,884 342,573
Cash flows from investing activities:
Additions to plant and equipment (179,014) (149,072)
Sales and retirements of plant and
equipment 4,783 1,878
Acquisition of business --- (5,330)
--------- ---------
Net cash used for investing activities (174,231) (152,524)
Cash flows from financing activities:
Bank and commercial paper borrowings 124,636 33,005
Other debt (repayments) borrowings (2,217) 1,533
Common stock reissued from treasury 28,107 22,551
Treasury stock purchases (175,519) (197,510)
Dividends paid (80,455) (73,294)
--------- ---------
Net cash used for financing activities (105,448) (213,715)
--------- ---------
Net (decrease) in cash (22,795) (23,666)
Cash at beginning of period 117,696 107,759
--------- ---------
Cash at end of period $ 94,901 $ 84,093
========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 31,335 $ 26,026
Income taxes 143,782 134,716
</TABLE>
<PAGE>
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 11 of the Company's Fiscal 1997
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 was continued through
early Fiscal 1998, resulting in the repurchase
60,000,000 shares of common stock. In July
1997, the Board of Directors authorized the
repurchase of 12,000,000 additional shares.
Under this latest authorization, 7,354,500
shares were purchased through March 28, 1998.
Results of Operations
---------------------
Sales increased 5.3% during the 39 weeks and 7.0%
in the third quarter of Fiscal 1998 over comparable
periods of the prior year. Cost of sales also
increased 4.8% during the 39 weeks and 6.7% in the
third quarter of Fiscal 1998 which is in line
with the sales increases. Real sales growth for
the 39 weeks of Fiscal 1998 was 5.4% after
eliminating the effects of approximately 0.1%
food cost deflation. Real sales growth for the
quarter was 6.3%, with food cost inflation
measuring 0.7%. The third quarter return to
inflation was principally reflected in higher
costs for dairy items, seafood and produce.
Operating expenses for the periods presented
remained approximately the same as a percent of
sales.
Interest expense in the current periods presented
increased over the prior periods due to increased
borrowings primarily related to the Company's
share repurchase program.
Income taxes for the periods presented reflect
an effective rate of 39%.
<PAGE>
7
Pretax earnings and earnings before accounting
change increased about 7.5% for the 39 weeks
and 3.2% for the 13 weeks over the prior
year due to the factors discussed above as
well as the Company's continued efforts to
increase sales to its traditional territorial
street customers.
Basic and diluted earnings per share before
accounting change increased about 14% and
12% for the 39 weeks, respectively, over the
prior year due to the factors discussed above,
coupled with the decrease in average shares
outstanding for the periods presented,
reflecting purchases of shares made through
the Company's share repurchase program.
For the 13 weeks basic and diluted earnings
per share before accounting change increased
about 12% over the prior year for the same
reasons discussed above.
Summary of Accounting Policies
==============================
For the period ended December 27, 1997,
SYSCO recorded a one-time, after-tax,
non-cash charge of $28 million to comply
with a new consensus ruling by the Emerging
Issues Task Force of the Financial
Accounting Standards Board (EITF Issue
No. 97-13), requiring reengineering costs
associated with computer system development
to be expensed as they are incurred. Prior
to this change, SYSCO had capitalized
business process reengineering costs incurred
in connection with its SYSCO Uniform Systems
information systems redevelopment project in
accordance with generally accepted accounting
principles.
In 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards No. 128, Earnings per Share. Statement
128 replaced the previously reported primary
and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share
excludes any dilutive effects of options.
Diluted earnings per share under Statement 128
is very similar to the previously reported
earnings per share. Earnings per share amounts
for each period have been presented and
restated to conform to the Statement 128
requirements.
A reconciliation of basic and diluted earnings
per share follows on the next page.
<PAGE>
8
<TABLE>
The following table sets forth the computation of
basic and diluted earnings per share:
<CAPTION> 39-Week Period Ended 13-Week Period Ended
============================== ===============================
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
============= ============= ============= ==============
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings
per share--income available
to common shareholders $ 199,253,000 $ 211,454,000 $ 63,577,000 $ 61,612,000
Effect of dilutive
securities - - - - - - - - - - - -
------------- ------------- ------------- --------------
Numerator for diluted
earnings per share --
income available to common
shareholders $ 199,253,000 $ 211,454,000 $ 63,577,000 $ 61,612,000
============= ============= ============= ==============
Denominator:
Denominator for basic
earnings per share --
weighted-average shares 341,632,614 356,666,498 339,626,373 353,068,030
Effect of dilutive
securities:
Employee incentive stock
options 2,872,649 1,527,302 3,604,524 1,599,674
------------- ------------- ------------- --------------
Denominator for diluted
earnings per share --
adjusted weighted-average
shares and assumed
conversions 344,505,263 358,193,800 343,230,897 354,667,704
============= ============= ============= ==============
Basic earnings per share $ 0.58 $ 0.59 $ 0.19 $ 0.17
============= ============= ============= ==============
Diluted earnings per share $ 0.58 $ 0.59 $ 0.19 $ 0.17
============= ============= ============= ==============
(/Table)
In March 1998, the AICPA issued Statement of Position
(SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use.
The SOP provides guidance with respect to accounting
for the various types of costs incurred for computer
software developed or obtained for SYSCO's use.
SYSCO is required to and will adopt SOP 98-1 in
the first quarter of fiscal 2000 and believes that
adoption will not have a significant effect on its
consolidated financial statements.
In April of 1998, the AICPA issued SOP 98-5,
Reporting on the Costs of Start-Up Activities.
At adoption, SOP 98-5 requires SYSCO to write-off
any unamortized start-up costs as a cumulative
effect of a change in accounting principle and,
going forward, expense all start-up activity
costs as they are incurred. SYSCO is required
to and will adopt SOP 98-5 in the first quarter
of fiscal 2000 and believes that adoption will
not have a significant effect on its consolidated
financial statements.
<PAGE>
9
Year 2000
- ---------
SYSCO is working to address the potential impact
of the Year 2000 on its computerized information
systems and operations. Based on the accumulation
of preliminary information, costs of addressing
potential issues are not expected to have a
material adverse impact on SYSCO's consolidated
financial statements. However, if SYSCO, its
customers or its vendors are unable to resolve
Year 2000 processing issues in a timely manner,
a material financial risk could result.
Accordingly, SYSCO is devoting the neccessary
resources to resolve significant Year 2000
issues in a timely manner.
------------
Statements made herein regarding management's
estimates, sales increases, customer mix,
product cost inflation/deflation, consistency
and predictability of earnings growth,
continuation of the share repurchase program
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. Industry growth, sales
increases, customer mix, product cost
inflation/deflation, the consistency and
predictability of earnings growth and potential
Year 2000 costs could be affected by conditions
in the economy, the industry and internal
factors that may alter planned results.
Furthermore, potential Year 2000 costs could
be affected by the ability of SYSCO's customers
and vendors to effectively address Year 2000
issues. The share repurchase could be
affected by market prices of the Company's
stock as well as management's decision to
utilize its capital for other purposes.
PART II. OTHER INFORMATION
-------------------------
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
<PAGE>
10
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3(a) Restated Certificate of Incorporation,
as amended, 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.
<PAGE>
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.
15 Letter from Arthur Andersen LLP dated
May 11, 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.
<PAGE>
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 &
Chief Financial Officer
Date: May 11, 1998
<PAGE>
13
</TABLE>
<TABLE>
EXHIBIT INDEX
----------------------
<CAPTION> SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ----- ----------------------------------------- -------------
<S> <C> <C>
3(a) Restated Certificate of Incorporation,
as amended, 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.
<PAGE>
14
<CAPTION> SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ----- ----------------------------------------- -------------
<S> <C> <C>
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 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(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.
15 Letter from Arthur Andersen LLP dated
May 11, 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 sheet
of Sysco Corporation (a Delaware corporation)
and its consolidated subsidiaries as of
March 28, 1998, and the related consolidated
results of operations for the thirty-nine week
and thirteen week period and cash flows for
the thirty-nine 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
May 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from Item 1. Financial Statements and is
qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-END> MAR-28-1998
<CASH> 94,901
<SECURITIES> 0
<RECEIVABLES> 1,216,052
<ALLOWANCES> (37,659)
<INVENTORY> 777,723
<CURRENT-ASSETS> 2,106,526
<PP&E> 2,075,976
<DEPRECIATION> (962,614)
<TOTAL-ASSETS> 3,600,014
<CURRENT-LIABILITIES> 1,269,581
<BONDS> 747,803
<COMMON> 382,587
0
0
<OTHER-SE> 989,271
<TOTAL-LIABILITY-AND-EQUITY> 3,600,014
<SALES> 11,326,162
<TOTAL-REVENUES> 11,326,162
<CGS> 9,248,908
<TOTAL-COSTS> 10,953,529
<OTHER-EXPENSES> (246)
<LOSS-PROVISION> 16,750
<INTEREST-EXPENSE> 42,810
<INCOME-PRETAX> 372,633
<INCOME-TAX> 145,327
<INCOME-CONTINUING> 227,306
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 28,053
<NET-INCOME> 199,253
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.58
</TABLE>
