<PAGE>
Page 1 of 17
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 27, 1999
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 [ ]
330,973,975 shares of common stock were outstanding as of
April 23, 1999.
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> March 27, June 27, March 28,
1999 1998 1998
---------- --------- -----------
(Unaudited) (Audited) (Unaudited)
ASSETS
----------
<S> <C> <C> <C>
Current assets
Cash $ 112,493 $ 110,288 $ 94,901
Accounts and notes receivable,
less allowances of $45,315,
$20,081 and $37,659 1,307,672 1,215,610 1,178,393
Inventories 859,473 790,501 777,723
Deferred taxes 35,066 37,073 28,560
Prepaid expenses 30,757 26,595 26,949
---------- ---------- ----------
Total current assets 2,345,461 2,180,067 2,106,526
Plant and equipment at cost,
less depreciation 1,207,955 1,151,054 1,113,362
Goodwill and intangibles,
less amortization 304,516 307,959 241,533
Other assets 161,777 141,109 138,593
---------- ---------- ----------
Total other assets 466,293 449,068 380,126
---------- ---------- ----------
Total assets $4,019,709 $3,780,189 $3,600,014
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Notes payable $ 14,196 $ 42,333 $ 73,102
Accounts payable 1,025,561 849,159 888,454
Accrued expenses 324,388 292,255 265,874
Accrued income taxes 7,793 25,523 27,465
Current maturities of long-term
debt 111,551 114,920 14,686
---------- --------- ----------
Total current liabilities 1,483,489 1,324,190 1,269,581
Long-term debt 913,632 867,017 747,803
Deferred taxes 224,511 232,193 210,772
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 shares 382,587 382,587 382,587
Paid-in capital 446 --- ---
Retained earnings 1,948,327 1,796,488 1,729,446
---------- ---------- ----------
2,331,360 2,179,075 2,112,033
Less cost of treasury stock,
51,221,957, 47,578,288 and
44,297,815 shares 933,283 822,286 740,175
---------- ---------- ----------
Total shareholders' equity 1,398,077 1,356,789 1,371,858
---------- ---------- ----------
Total liabilities and
shareholders' equity $4,019,709 $3,780,189 $3,600,014
========== ========== ==========
<FN>
Note: The June 27, 1998 balance sheet has been taken from the audited
financial statements at that date.
4
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 27, March 28, March 27, March 28,
1999 1998 1999 1998
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Sales $ 12,604,182 $ 11,326,162 $ 4,164,877 $ 3,711,822
Costs and expenses
Cost of sales 10,298,004 9,248,908 3,402,463 3,035,112
Operating expenses 1,849,822 1,662,057 625,111 557,136
Interest expense 53,742 42,810 18,414 15,170
Other, net 322 (246) (93) 179
------------ ----------- ------------ ------------
Total costs and expenses 12,201,890 10,953,529 4,045,895 3,607,597
------------ ----------- ------------ ------------
Earnings before income taxes 402,292 372,633 118,982 104,225
Income taxes 156,894 145,327 46,403 40,648
------------ ------------ ------------ ------------
Earnings before cumulative
effect of accounting change 245,398 227,306 72,579 63,577
Cumulative effect of
accounting change --- (28,053) --- ---
____________ ____________ ____________ ____________
Net earnings $ 245,398 $ 199,253 $ 72,579 $ 63,577
============ ============ ============ ============
Earnings before
accounting change:
Basic earnings per share $ 0.74 $ 0.67 $ 0.22 $ 0.19
============ ============ ============ ============
Diluted earnings per
share $ 0.73 $ 0.66 $ 0.22 $ 0.19
============ ============ ============ ============
Cumulative effect of
accounting change:
Basic earnings per share $ --- $ (0.08) $ --- $ ---
============ ============ ============ ============
Diluted earnings per
share $ --- $ (0.08) $ --- $ ---
============ ============ ============ ============
Net earnings:
Basic earnings per share $ 0.74 $ 0.58 $ 0.22 $ 0.19
============ ============ ============ ============
Diluted earnings per
share $ 0.73 $ 0.58 $ 0.22 $ 0.19
============ ============ ============ ============
Average shares outstanding 333,748,999 341,632,614 332,512,637 339,626,373
============ ============ ============ ============
Diluted average shares
outstanding 337,518,140 344,505,263 336,475,686 343,230,897
============ ============ ============ ============
Dividends paid per
common share $ 0.28 $ 0.24 $ 0.10 $ 0.09
============ ============ ============ ============
5
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS - (Unaudited)
(In Thousands)
39- Week Period Ended
------------------------
March 27, March 28,
1999 1998
--------- ----------
Cash flows from operating activities:
Net earnings $ 245,398 $ 199,253
Add non-cash items:
Cumulative effect of accounting change --- 28,053
Depreciation and amortization 150,963 133,510
Deferred tax (benefit) (5,675) (27,985)
Provision for losses on accounts receivable 20,016 16,750
Additional investment in certain assets
and liabilities:
(Increase) in receivables (112,078) (130,141)
(Increase) in inventories (68,972) (43,941)
(Increase) in prepaid expenses (4,162) (5,520)
Increase in accounts payable 176,402 60,861
Increase in accrued expenses 32,133 24,946
(Decrease) increase in accrued
income taxes (17,730) 9,724
(Increase) in other assets (30,946) (8,626)
-------- --------
Net cash provided by operating activities 385,349 256,884
-------- --------
Cash flows from investing activities:
Additions to plant and equipment (211,154) (179,014)
Sales and retirements of plant
and equipment 17,012 4,783
-------- --------
Net cash used for investing activities (194,142) (174,231)
-------- --------
Cash flows from financing activities:
Bank and commercial paper (repayments)
borrowings (192,964) 124,636
Other debt borrowings (repayments) 208,073 (2,217)
Common stock reissued from treasury 29,978 28,107
Treasury stock purchases (140,530) (175,519)
Dividends paid (93,559) (80,455)
-------- --------
Net cash used for financing activities (189,002) (105,448)
-------- --------
Net increase (decrease) in cash 2,205 (22,795)
Cash at beginning of period 110,288 117,696
-------- --------
Cash at end of period $ 112,493 $ 94,901
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 40,568 $ 31,335
Income taxes 174,776 143,782
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, 5,115,000
shares were purchased through April 23, 1999.
Results of Operations
---------------------
Sales increased 11.3% during the 39 weeks and
12.2% in the third quarter of Fiscal 1999
over comparable periods of the prior year.
Cost of sales also increased 11.3% during the
39 weeks and 12.1% in the third quarter of
Fiscal 1999 which is in line with the sales
increases. Real sales growth for the 39 weeks
of Fiscal 1999 of about 8.4% resulted primarily
from volume growth and was over three points
higher than the same period last year, after
adjusting for a 1.3% increase due to acquisitions
and an increase due to food cost inflation of
about 1.5%, due primarily to higher cost of dairy
and poultry products. Real growth for the
quarter was 10.6%, after adjusting 1.2% for
acquisitions and 0.4% for food cost inflation.
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%.
7
Pretax earnings and net earnings increased about
8% for the 39 weeks before the accounting change
in the same period of the previous year and
14% for the quarter. The increases were 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
10.4%and 10.6%, respectively, for the 39 weeks
before the accounting change and 15.8%, for
the quarter. The increases were caused by
the factors discussed above, along with the
decrease in average shares outstanding for
the periods presented, 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.
For the period ended December 27, 1997, the
Company 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, the Company
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.
8
The following table sets forth the computation of
basic and diluted earnings per share:
39-Week Period Ended 13-Week Period Ended
============================== ===============================
March 27, March 27, March 27, March 28,
1999 1998 1999 1998
============= ============= ============= ==============
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings
per share--income available
to common shareholders $ 245,398,000 $ 199,253,000 $ 72,579,000 $ 63,577,000
Effect of dilutive
securities - - - - - - - - - - - -
------------- ------------- ------------- --------------
Numerator for diluted
earnings per share --
income available to common
shareholders $ 245,398,000 $ 199,253,000 $ 72,579,000 $ 63,577,000
============= ============= ============= ==============
Denominator:
Denominator for basic
earnings per share --
weighted-average shares 333,748,999 341,632,614 332,512,637 339,626,373
Effect of dilutive
securities:
Employee and director
stock options 3,769,141 2,872,649 3,963,049 3,604,524
------------- ------------- ------------- --------------
Denominator for diluted
earnings per share --
adjusted weighted-average
shares and assumed
conversions 337,518,140 344,505,263 336,475,686 343,230,897
============= ============= ============= ==============
Basic earnings per share $ 0.74 $ 0.58 $ 0.22 $ 0.19
============= ============= ============= ==============
Diluted earnings per share $ 0.73 $ 0.58 $ 0.22 $ 0.19
============= ============= ============= ==============
9
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 them 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 and year 2000 compliance and
potential 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.
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.
10
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 debt obligations. At
March 27, 1999 the Company had
outstanding $129,971,000 of commercial
paper with maturities through March 29,
1999. The Company's remaining long-term
debt obligations of $783,661,000 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
11
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 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.
12
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 May 5, 1999,
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.
13
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,
Finance and Administration
Date: May 5, 1999
14
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.
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.
15
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.
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 May 5, 1999, re unaudited
financial statements. 16
27 Sysco Corporation and its Consolidated
Subsidiaries Financial Data Schedule 17
</TABLE>
<PAGE>
16
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
March 27, 1999 and March 28, 1998, and the
related consolidated results of operations
for the thirty-nine week and thirteen week
periods then ended and consolidated cash
flows for the thirty-nine week periods 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 5, 1999
17
<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> 3-MOS
<FISCAL-YEAR-END> JUL-03-1999
<PERIOD-END> Mar-27-1999
<CASH> 112,493
<SECURITIES> 0
<RECEIVABLES> 1,352,987
<ALLOWANCES> (45,315)
<INVENTORY> 859,473
<CURRENT-ASSETS> 2,345,461
<PP&E> 2,283,410
<DEPRECIATION> (1,075,455)
<TOTAL-ASSETS> 4,019,709
<CURRENT-LIABILITIES> 1,483,489
<BONDS> 913,632
<COMMON> 382,587
0
0
<OTHER-SE> 1,015,490
<TOTAL-LIABILITY-AND-EQUITY> 4,019,709
<SALES> 12,604,182
<TOTAL-REVENUES> 12,604,182
<CGS> 10,298,004
<TOTAL-COSTS> 12,201,890
<OTHER-EXPENSES> 322
<LOSS-PROVISION> 20,016
<INTEREST-EXPENSE> 53,742
<INCOME-PRETAX> 402,292
<INCOME-TAX> 156,894
<INCOME-CONTINUING> 245,398
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 245,398
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.73
</TABLE>
