-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
R44ncfbvCY3XGSZFqo+Nm3mv01CwZOH6/H7RWpmMnaYUbwf4R5EjvDyJpXkMPuYz
yt7otjbRq9WV5AnDkYzJ9w==
<SEC-DOCUMENT>0000950129-03-004791.txt : 20030926
<SEC-HEADER>0000950129-03-004791.hdr.sgml : 20030926
<ACCEPTANCE-DATETIME>20030926124846
ACCESSION NUMBER: 0000950129-03-004791
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20030628
FILED AS OF DATE: 20030926
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: SYSCO CORP
CENTRAL INDEX KEY: 0000096021
STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140]
IRS NUMBER: 741648137
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-06544
FILM NUMBER: 03911712
BUSINESS ADDRESS:
STREET 1: 1390 ENCLAVE PKWY
CITY: HOUSTON
STATE: TX
ZIP: 77077
BUSINESS PHONE: 2815841390
MAIL ADDRESS:
STREET 1: 1390 ENCLAVE PKWY
CITY: HOUSTON
STATE: TX
ZIP: 77077
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>h09159e10vk.txt
<DESCRIPTION>SYSCO CORPORATION - DATED JUNE 28, 2003
<TEXT>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
<Table>
<C> <S>
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 28, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
</Table>
COMMISSION FILE NUMBER 1-6544
SYSCO CORPORATION
(Exact name of registrant as specified in its charter)
<Table>
<S> <C>
DELAWARE 74-1648137
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
1390 ENCLAVE PARKWAY 77077-2099
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)
</Table>
Registrant's Telephone Number, Including Area Code: (281) 584-1390
Securities Registered Pursuant to Section 12(b) of the Act:
<Table>
<Caption>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C>
Common Stock, $1.00 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
</Table>
Securities Registered Pursuant to Section 12(g) of the Act: NONE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.) [X]
The aggregate market value of the voting stock of the registrant held by
stockholders who were not affiliates (as defined by regulations of the
Securities and Exchange Commission) of the registrant was approximately
$19,101,745,000 at December 27, 2002 (based on the closing sales price on the
New York Stock Exchange Composite Tape on December 27, 2002, as reported by The
Wall Street Journal (Southwest Edition)). At September 9, 2003, the registrant
had issued and outstanding an aggregate of 648,520,955 shares of its common
stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the proxy statement to be filed with the Securities and Exchange
Commission no later than 120 days after the end of the fiscal year covered by
this Form 10-K are incorporated by reference into Part III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<Table>
<Caption>
PAGE NO.
--------
<S> <C> <C>
PART I.
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 6
Item 3. Legal Proceedings........................................... 7
Item 4. Submission of Matters to a Vote of Security Holders......... 8
Item 4A. Executive Officers of the Registrant........................ 8
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 9
Item 6. Selected Financial Data..................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 23
Item 8. Financial Statements and Supplementary Data................. 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 55
Item 9A. Controls and Procedures..................................... 55
PART III.
Item 10. Directors and Executive Officers of the Registrant.......... 55
Item 11. Executive Compensation...................................... 55
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 55
Item 13. Certain Relationships and Related Transactions.............. 55
Item 14. Principal Accountant Fees and Services...................... 55
PART IV.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 55
Signatures............................................................ 59
</Table>
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
Sysco Corporation, acting through its subsidiaries and divisions
(collectively referred to as "SYSCO" or the "company"), is the largest North
American distributor of food and food related products to the foodservice or
"food-prepared-away-from-home" industry. Founded in 1969, SYSCO provides its
products and services to approximately 420,000 customers, including restaurants,
healthcare and educational facilities, lodging establishments and other
foodservice customers.
SYSCO, which was formed when the stockholders of nine companies exchanged
their stock for SYSCO common stock, commenced operations in March 1970. Since
its formation, the company has grown from $115 million to over $26 billion in
annual sales both through internal expansion of existing operations and
acquisitions of formerly independent companies. Through the end of fiscal 2003,
SYSCO had acquired seventy-three companies or divisions of companies.
In August 2003, SYSCO signed a definitive agreement to acquire certain
assets of the Stockton, California foodservice operations from Smart & Final,
Inc. The transaction was completed in September 2003.
In May 2003, SYSCO acquired the paper and chemical products distributor
Reed Distributors, Inc. located in Lewiston, Maine. In April 2003, SYSCO
acquired the specialty meat-cutting division of the Colorado Boxed Beef Company
and its affiliated broadline foodservice operation, J&B Foodservice located in
Auburndale, Florida. In December 2002, SYSCO acquired certain assets of the
Denver operations of Marriott Distribution Services, Inc., a wholly owned
subsidiary of Marriott International, Inc. In November 2002, SYSCO acquired
Asian Foods, Inc., a specialty distributor of products and services to the Asian
foodservice market located in St. Paul, Minnesota and Kansas City, Missouri. In
October 2002, SYSCO acquired the net assets of Pronamics, the quick-service
distribution division of priszm brandz. In October 2002, SYSCO acquired Abbott
Foods, Inc., an independently owned broadline foodservice distributor located in
Columbus, Ohio.
In March 2002, SYSCO acquired substantially all of the assets and certain
liabilities of the SERCA Foodservice operations of Sobeys, Inc. headquartered in
Toronto, Ontario with operations across Canada. In September 2001, SYSCO
acquired Franklin Supply Company, a supplier of housekeeping and other operating
supplies to the lodging industry headquartered in Louisburg, North Carolina. In
July 2001, the company acquired Fulton Provision Co., a specialty meat company
based in Portland, Oregon.
In May 2001, the company acquired HRI Supply, Inc. a broadline foodservice
distributor located in Kelowna, British Columbia. 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 January 2001, SYSCO acquired certain operations of the
Freedman Companies, a specialty meat supplier based in Houston, Texas. In
December 2000, SYSCO acquired North Douglas Distributors, Ltd., a broadline
foodservice distributor operating on Vancouver Island, British Columbia and the
Albert M. Briggs Company, a specialty meat distributor in Washington, D.C.
SYSCO is organized under the laws of Delaware. The address and telephone
number of the company's executive offices are 1390 Enclave Parkway, Houston,
Texas 77077-2099, (281) 584-1390. This annual report on Form 10-K, as well as
all other reports filed or furnished by SYSCO pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, are available free of charge on SYSCO's
website at www.sysco.com as soon as reasonably practicable after they are
electronically filed with or furnished to the Securities and Exchange
Commission.
OPERATING SEGMENTS
SYSCO provides food and other products to the foodservice or
"food-prepared-away-from-home" industry. Under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclo-
1
<PAGE>
sures about Segments of an Enterprise and Related Information," the company has
aggregated its operating companies into a number of segments, of which only
Broadline and SYGMA are reportable segments as defined in SFAS No. 131.
Broadline operating companies distribute a full line of food products and a wide
variety of non-food products to both our traditional and chain restaurant
customers. SYGMA operating companies distribute a full line of food products and
a wide variety of non-food products to some of our chain restaurant customer
locations. "Other" financial information is attributable to the company's other
segments, including the company's specialty produce, meat and lodging industry
products segments. The company's specialty produce companies distribute fresh
produce and, on a limited basis, other foodservice products. Specialty meat
companies distribute custom-cut fresh steaks, and other meat, seafood and
poultry products. Our lodging industry products company distributes personal
care guest amenities, housekeeping supplies, room accessories and textiles to
the lodging industry.
CUSTOMERS AND PRODUCTS
The foodservice industry consists of two major customer
types -- "traditional" and "chain restaurant." Traditional foodservice customers
include restaurants, hospitals, schools, hotels and industrial caterers. SYSCO's
chain restaurant customers include regional pizza and national hamburger,
chicken and steak chain operations.
Services to the company's traditional foodservice and chain restaurant
customers are supported by similar physical facilities, vehicles, materials
handling equipment and techniques, and administrative and operating staffs.
Products distributed by the company include a full line of frozen foods,
such as meats, fully prepared entrees, fruits, vegetables and desserts, and a
full line of canned and dry goods, fresh meats, imported specialties and fresh
produce. The company also supplies a wide variety of nonfood items, including
paper products such as disposable napkins, plates and cups; tableware such as
china and silverware; restaurant and kitchen equipment and supplies; medical and
surgical supplies; and cleaning supplies. SYSCO's operating companies distribute
both nationally-branded merchandise and products packaged under SYSCO's private
brands.
The company believes that prompt and accurate delivery of orders, close
contact with customers and the ability to provide a full array of products and
services to assist customers in their foodservice operations are of primary
importance in the marketing and distribution of products to the traditional
customers. SYSCO's operating companies offer daily delivery to certain customer
locations and have the capability of delivering special orders on short notice.
Through the more than 13,150 sales and marketing representatives of SYSCO and
its operating companies, SYSCO stays informed of the needs of its customers and
acquaints them with new products and services. SYSCO's operating companies also
provide ancillary services relating to foodservice distribution such as
providing customers with product usage reports and other data, menu-planning
advice, food safety training, contract services for installing kitchen
equipment, installation and service of beverage dispensing machines and
assistance in inventory control, as well as access to various third party
services designed to add value to our customers' businesses.
No single foodservice customer accounted for as much as 10% of SYSCO's
sales for its fiscal year ended June 28, 2003. Approximately 4% of traditional
foodservice sales during fiscal 2003 resulted from a process of competitive
bidding. There are no material long-term contracts with any traditional
foodservice customer that may not be cancelled by either party at its option.
SYSCO's sales to chain restaurant customers consist of a variety of food
products necessitated by the increasingly broad menus of chain restaurants. The
company believes that consistent product quality and timely and accurate service
are important factors in the selection of a chain restaurant supplier. One chain
restaurant customer (Wendy's International, Inc.) accounted for 5% of SYSCO's
sales for its fiscal year ended June 28, 2003. Although this customer represents
approximately 45% of the SYGMA segment sales, the company does not believe that
the loss of this customer would have a material adverse effect on SYSCO as a
whole. There are no material long-term contracts with any chain restaurant
customer that may not be cancelled by either party at its option.
2
<PAGE>
Based upon available information, the company estimates that sales by type
of customer during the past three fiscal years were as follows:
<Table>
<Caption>
FISCAL FISCAL FISCAL
TYPE OF CUSTOMER 2003 2002 2001
- ---------------- ------ ------ ------
<S> <C> <C> <C>
Restaurants................................................. 63% 63% 64%
Hospitals and nursing homes................................. 10 10 11
Schools and colleges........................................ 6 6 6
Hotels and motels........................................... 6 6 5
Other....................................................... 15 15 14
--- --- ---
Totals.................................................... 100% 100% 100%
=== === ===
</Table>
SOURCES OF SUPPLY
SYSCO estimates that it purchases from thousands of independent sources,
none of which individually account for more than 5% of the company's purchases.
These sources of supply consist generally of large corporations selling brand
name and private label merchandise and independent private label processors and
packers. Generally, purchasing is carried out through centrally developed
purchasing programs and direct purchasing programs established by the company's
various operating companies. The company continually develops relationships with
suppliers but has no material long-term purchase commitments with any supplier.
In the second quarter of fiscal 2002, SYSCO began restructuring its supply
chain. This National Supply Chain initiative, which reorganizes SYSCO's supply
chain, involved the creation of the Baugh Supply Chain Cooperative that handles
product procurement and the construction of regional distribution centers which
will aggregate inventory demand to optimize the supply chain activities for
certain products from all SYSCO operating companies in the region. This National
Supply Chain initiative is expected to create a more efficient and effective
supply chain infrastructure for SYSCO, its suppliers and its customers.
The use of regional distribution centers is expected to result in lower
costs of inventory, transportation, product handling and transaction processing
in addition to lowering working capital and future facility expansion needs at
the operating companies. Construction is underway on the first regional
distribution center, the Northeast Redistribution Center located in Front Royal,
Virginia. When complete, the center will receive and distribute food and
food-related products to SYSCO's operating companies in the Northeast.
The Baugh Supply Chain Cooperative, through its staff of 450 persons,
administers a consolidated product procurement program designed to develop,
obtain and assure consistent quality food and nonfood products. The program
covers the purchasing and marketing of SYSCO Brand merchandise, as well as
private label and national brand merchandise, encompassing substantially all
product lines. The operating companies are all members of the cooperative and
can choose to purchase product through the cooperative or directly from
suppliers.
CORPORATE HEADQUARTERS' SERVICES
SYSCO's corporate staff, consisting of approximately 600 persons, makes
available a number of services to the company's operating companies. These
persons possess experience and expertise in, among other areas, accounting and
finance, cash management, information technology, employee benefits, engineering
and insurance. The corporate office also makes available legal, marketing and
tax compliance services as well as warehousing and distribution services, which
provide assistance in space utilization, energy conservation, fleet management
and work flow.
CAPITAL IMPROVEMENTS
To maximize productivity and customer service, the company continues to
construct and modernize its distribution facilities. During fiscal 2003, 2002
and 2001, approximately $436,000,000, $416,000,000 and $341,000,000,
respectively, were invested in facility expansions, fleet additions and other
capital asset
3
<PAGE>
enhancements. The company estimates its capital expenditures in fiscal 2004
should be in the range of $490,000,000 to $510,000,000. During the three years
ended June 28, 2003, capital expenditures were financed primarily by internally
generated funds, the company's commercial paper program and bank borrowings. The
company expects to finance its fiscal 2004 capital expenditures from the same
sources.
EMPLOYEES
As of June 28, 2003, SYSCO and its operating companies had approximately
47,400 full-time employees, approximately 20% of whom were represented by
unions, primarily the International Brotherhood of Teamsters. Contract
negotiations are handled locally. Collective bargaining agreements covering
approximately 11% of the company's union employees expire during fiscal 2004.
SYSCO considers its labor relations to be satisfactory.
COMPETITION
The business of SYSCO is competitive with numerous companies engaged in
foodservice distribution. While competition is encountered primarily from local
and regional distributors, a few companies compete with SYSCO on a national
basis. The company believes that, although price and customer contact are
important considerations, the principal competitive factor in the foodservice
industry is the ability to deliver a wide range of quality products and related
services on a timely and dependable basis. Although SYSCO's share of the
foodservice industry market in the United States and Canada was an estimated 13%
as of June 28, 2003, SYSCO believes, based upon industry trade data, that its
sales to the North American "food-prepared-away-from-home" industry were the
largest of any foodservice distributor during fiscal 2003. While adequate
industry statistics are not available, the company believes that in most
instances its local operations are among the leading distributors of food and
related nonfood products to foodservice customers in their respective trading
areas.
GOVERNMENT REGULATION
As a marketer and distributor of food products, SYSCO is subject to the
Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder by
the U.S. Food and Drug Administration ("FDA"). The FDA regulates manufacturing
and holding requirements for foods through its current good manufacturing
practice regulations, specifies the standards of identity for certain foods and
prescribes the format and content of certain information required to appear on
food product labels. For certain product lines, SYSCO is also subject to the
Federal Meat Inspection Act, the Poultry Products Inspection Act, the Perishable
Agricultural Commodities Act and regulations promulgated thereunder by the U.S.
Department of Agriculture ("USDA"). The USDA imposes standards for product
quality and sanitation including the inspection and labeling of meat and poultry
products and the grading and commercial acceptance of produce shipments from the
company's suppliers. The company and its products are also subject to state and
local regulation through such measures as the licensing of its facilities,
enforcement by state and local health agencies of state and local standards for
the company's products and regulation of the company's trade practices in
connection with the sale of its products. SYSCO's facilities are generally
inspected at least annually by state and/or federal authorities. These
facilities are also subject to inspections and regulations issued pursuant to
the Occupational Safety and Health Act by the U.S. Department of Labor, which
require the company to comply with certain manufacturing, health and safety
standards to protect its employees from accidents and to establish hazard
communication programs to transmit information on the hazards of certain
chemicals present in products distributed by the company.
The company is also subject to regulation by numerous federal, state and
local regulatory agencies, including but not limited to the U.S. Department of
Labor, which sets employment practice standards for workers, and the U.S.
Department of Transportation, which regulates transportation of perishable and
hazardous materials and waste, and similar state and local agencies.
The company's distribution facilities have tanks for the storage of diesel
fuel and other petroleum products which are subject to laws regulating such
storage tanks. Other federal, state and local provisions
4
<PAGE>
relating to the protection of the environment or the discharge of materials do
not materially impact the company's use or operation of its facilities.
Compliance with these laws has not had and is not anticipated to have a
material effect on the capital expenditures, earnings or competitive position of
SYSCO.
GENERAL
SYSCO has numerous trademarks which are of significant importance to the
company. The loss of the SYSCO(R) trademark would have a material adverse effect
on SYSCO's results of operations.
SYSCO is not engaged in material research and development activities
relating to the development of new products or the improvement of existing
products.
Sales of the company do not generally fluctuate on a seasonal basis;
therefore, the business of the company is not deemed to be seasonal.
As of June 28, 2003, SYSCO and its operating companies operated 162
facilities throughout the United States and Canada, of which 145 were principal
distribution facilities.
5
<PAGE>
ITEM 2. PROPERTIES
The table below shows the number of distribution facilities and self-serve
centers occupied by SYSCO in each state or province and the aggregate cubic
footage devoted to cold and dry storage as of June 28, 2003.
<Table>
<Caption>
NUMBER OF COLD STORAGE DRY STORAGE
FACILITIES (THOUSANDS (THOUSANDS SEGMENTS
LOCATION AND CENTERS CUBIC FEET) CUBIC FEET) SERVED *
- -------- ----------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Alabama...................................... 2 2,907 2,394 BL
Alaska....................................... 1 236 475 BL
Arizona...................................... 1 2,819 3,348 BL
Arkansas..................................... 1 1,631 2,830 BL
California................................... 15 19,926 27,016 BL,S,O
Colorado..................................... 3 4,697 5,438 BL,S,O
Connecticut.................................. 1 2,489 2,737 BL
District of Columbia......................... 1 335 30 O
Florida...................................... 13 17,846 21,074 BL,S,O
Georgia...................................... 5 5,265 8,680 O
Hawaii....................................... 1 -- 258 O
Idaho........................................ 1 1,004 1,171 BL
Illinois..................................... 4 3,926 7,419 BL,S,O
Indiana...................................... 2 2,909 2,250 BL,O
Iowa......................................... 1 1,314 4,148 BL
Kansas....................................... 1 2,762 5,107 BL
Kentucky..................................... 1 2,330 2,648 BL
Louisiana.................................... 1 2,577 3,254 BL
Maine........................................ 1 1,508 1,916 BL
Maryland..................................... 5 6,754 7,793 BL,O
Massachusetts................................ 2 6,570 5,750 BL,S
Michigan..................................... 4 5,565 8,482 BL,S,O
Minnesota.................................... 2 4,522 4,307 BL,O
Mississippi.................................. 1 2,125 2,690 BL
Missouri..................................... 2 1,368 1,996 BL,O
Montana...................................... 1 2,043 1,830 BL
Nebraska..................................... 1 1,844 2,206 BL
Nevada....................................... 2 2,749 3,092 BL,O
New Jersey................................... 3 3,085 10,952 BL,O
New Mexico................................... 1 2,182 1,855 BL
New York..................................... 5 6,802 10,236 BL
North Carolina............................... 4 3,976 9,107 BL,S,O
Ohio......................................... 9 8,992 16,458 BL,S,O
Oklahoma..................................... 2 2,797 3,768 BL,S
Oregon....................................... 3 4,085 3,866 BL,S,O
Pennsylvania................................. 4 7,294 8,806 BL,S
South Carolina............................... 1 2,271 2,362 BL
South Dakota................................. 1 2 123 BL
Tennessee.................................... 4 7,915 9,759 BL
Texas........................................ 14 16,144 20,201 BL,S,O
</Table>
6
<PAGE>
<Table>
<Caption>
NUMBER OF COLD STORAGE DRY STORAGE
FACILITIES (THOUSANDS (THOUSANDS SEGMENTS
LOCATION AND CENTERS CUBIC FEET) CUBIC FEET) SERVED *
- -------- ----------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Utah......................................... 1 3,840 3,936 BL
Virginia..................................... 2 4,820 4,342 BL
Washington................................... 1 3,795 3,147 BL
Wisconsin.................................... 3 6,509 6,732 BL
Alberta, Canada.............................. 3 4,380 4,375 BL
British Columbia, Canada..................... 8 3,866 4,568 BL,O
Manitoba, Canada............................. 1 1,135 860 BL
New Brunswick, Canada........................ 2 1,172 1,031 BL
Newfoundland, Canada......................... 2 744 669 BL
Nova Scotia, Canada.......................... 2 744 710 BL
Ontario, Canada.............................. 8 8,986 10,129 BL,S,O
Quebec, Canada............................... 1 716 1,218 BL
Saskatchewan, Canada......................... 1 1,271 750 BL
--- ------- -------
Total................................... 162 217,544 280,299
=== ======= =======
</Table>
- ---------------
* Segments served include Broadline (BL), SYGMA (S) and Other (O).
SYSCO owns approximately 386,000,000 cubic feet of its distribution
facilities and self-serve centers (or 77.4% of the total cubic feet), and the
remainder is occupied under leases expiring at various dates from fiscal 2004 to
fiscal 2023, exclusive of renewal options. Certain of the facilities owned by
the company are either subject to mortgage indebtedness or industrial revenue
bond financing arrangements totaling $24,096,000 at June 28, 2003. Such mortgage
indebtedness and industrial revenue bond financing arrangements mature at
various dates to 2026.
The company owns its approximately 188,000 square foot headquarters office
complex in Houston, Texas and leases approximately 201,000 square feet of
additional office space in Houston, Texas.
Facilities in Rocky Hills, Connecticut; Halfmoon, New York; Miami, Florida;
Little Rock, Arkansas; Palmetto, Florida; Cleveland, Ohio; San Antonio, Texas;
and Billings, Montana (which in the aggregate accounted for approximately 9.8%
of fiscal 2003 sales) are operating near capacity and the company is currently
constructing expansions or replacements for these distribution facilities. New
distribution facilities are also under construction in Fargo, North Dakota and
Ventura County, California. In addition, the company's first regional
distribution center is under construction in Front Royal, Virginia.
As of June 28, 2003, SYSCO's fleet of approximately 8,570 delivery vehicles
consisted of tractor and trailer combinations, vans and panel trucks, most of
which are either wholly or partially refrigerated for the transportation of
frozen or perishable foods. The company owns approximately 87% of these vehicles
and leases the remainder.
ITEM 3. 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.
7
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the executive officers of SYSCO, each of whom serves at
the discretion of the Board and holds the office opposite his or her name below
until the meeting of the Board of Directors immediately preceding the next
Annual Meeting of Stockholders or until his or her successor has been elected or
qualified. Executive officers who also serve as directors, serve as directors
until expiration of their terms or until their successors have been elected and
qualified. Each officer listed below has been employed by the company for at
least the past five years.
<Table>
<Caption>
SERVED IN THIS
NAME OF OFFICER CAPACITY POSITION SINCE AGE
- --------------- ------------------------------- -------------- ---
<S> <C> <C> <C>
Richard J. Schnieders.......... Chairman and Chief Executive 2003 55
Officer;
Director 2000
Larry J. Accardi............... Executive Vice President, 2000 54
Merchandising Services and
Multi-Unit Sales;
President, Specialty 2002
Distribution
Kenneth J. Carrig.............. Senior Vice President, 1999 46
Administration
James C. Graham................ Senior Vice President, 2000 53
Foodservice Operations
William Holden................. Senior Vice President, 2003 58
Foodservice Operations
James E. Lankford.............. Senior Vice President, 2000 50
Foodservice Operations
Thomas E. Lankford............. President and Chief Operating 2003 56
Officer;
Director 2000
Gregory K. Marshall............ Senior Vice President, SYSCO; 1984 56
CEO, The SYGMA Network
Michael C. Nichols............. Vice President and General 1999 51
Counsel;
Corporate Secretary 2002
Larry G. Pulliam............... Senior Vice President, 2002 47
Merchandising Services
Diane D. Sanders............... Vice President and Treasurer 1994 54
Stephen F. Smith............... Senior Vice President, 2002 53
Foodservice Operations
Bruce L. Soltis................ Senior Vice President, 2002 58
Foodservice Operations
Kenneth F. Spitler............. Executive Vice President, 2003 54
Foodservice Operations
John K. Stubblefield, Jr. ..... Executive Vice President, 2000 57
Finance and Administration;
Director 2003
James D. Wickus................ Senior Vice President, 1995 61
Foodservice Operations
</Table>
8
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal market for SYSCO's Common Stock (SYY) is the New York Stock
Exchange. The table below sets forth the high and low sales prices per share for
SYSCO's Common Stock as reported on the New York Stock Exchange Composite Tape
and the cash dividends declared for the periods indicated.
<Table>
<Caption>
COMMON STOCK
PRICES
--------------- DIVIDENDS DECLARED
HIGH LOW PER SHARE
------ ------ ------------------
<S> <C> <C> <C>
Fiscal 2002:
First Quarter.................................... $29.86 $21.75 $0.07
Second Quarter................................... 27.22 23.85 0.09
Third Quarter.................................... 30.35 25.28 0.09
Fourth Quarter................................... 29.94 25.76 0.09
Fiscal 2003:
First Quarter.................................... $31.37 $21.25 $0.09
Second Quarter................................... 32.58 28.01 0.11
Third Quarter.................................... 30.89 22.90 0.11
Fourth Quarter................................... 31.50 24.83 0.11
</Table>
The number of record owners of SYSCO's Common Stock as of September 9, 2003
was 15,442.
In August 2002, a total of 24,868 shares of Common Stock were issued to
three retired employees pursuant to the company's Management Incentive Plan
which was approved by shareholders on November 3, 2000. In each case, the shares
had been elected to be received in lieu of a portion of the individual's cash
bonus earned during fiscal 2002 and prior to retirement. The shares were issued
pursuant to Section 4(2) of the Securities Act of 1933, as amended, in a
transaction that did not involve any public offering.
In October 2001 and September 2002, a total of 64,450 and 128,902 shares,
respectively, were released to the former shareholders of Buckhead Beef Company
("Buckhead") pursuant to the terms of an escrow agreement executed in connection
with SYSCO's acquisition of Buckhead in August 1999.
In October 2001, a total of 64,024 shares were released to the former
shareholders of Newport Meat Company ("Newport") pursuant to the terms of an
escrow agreement executed in connection with SYSCO's acquisition of Newport in
July 1999.
In October 2001 and October 2002, a total of 47,060 and 47,056 shares,
respectively, were released to the former shareholders of Malcolm Meats Company
("Malcolm") pursuant to the terms of an escrow agreement executed in connection
with SYSCO's acquisition of Malcolm in November 1999.
In October 2002, a total of 26,034 Dividend Access Shares, convertible on a
one-for-one basis into SYSCO shares, were released to the former owners of HRI
Supply, Ltd. ("HRI") pursuant to the terms of an escrow agreement executed in
connection with SYSCO's acquisition of HRI in May 2001.
In March 2003, a total of 537,777 shares were released to the former
shareholders of FreshPoint Holdings, Inc. ("FreshPoint") pursuant to the terms
of an escrow agreement executed in connection with SYSCO's acquisition of
FreshPoint in March 2000.
In April 2002 and February 2003, a total of 35,520 and 35,520 Dividend
Access Shares, respectively, convertible on a one-for-one basis into SYSCO
shares, were released to the former shareholders of North Douglas Distributors
("North Douglas") pursuant to the terms of an escrow agreement executed in
connection with SYSCO's acquisition of North Douglas in December 2000.
All of the above issuances were made pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
In July 2001, a total of 111,997 shares were issued to the former
shareholders of North Douglas upon the conversion of Dividend Access Shares
issued in connection with SYSCO's acquisition of North Douglas in
9
<PAGE>
December 2000. In June 2001, a total of 58,000 shares were issued to the former
shareholders of HRI upon the conversion of Dividend Access Shares issued in
connection with SYSCO's acquisition of HRI in May 2001. The foregoing shares
were issued pursuant to the exemption from registration contained in Section
3(a)(9) of the Securities Act of 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA
<Table>
<Caption>
FISCAL YEAR ENDED
-------------------------------------------------------------------
1999(2)
2003(1) 2002 2001(2) 2000(2),(3) (53 WEEKS)
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<S> <C> <C> <C> <C> <C>
Sales....................... $26,140,337 $23,350,504 $21,784,497 $19,303,268 $17,422,815
Earnings before income
taxes..................... 1,260,387 1,100,870 966,655 737,608 593,887
Income taxes................ 482,099 421,083 369,746 283,979 231,616
----------- ----------- ----------- ----------- -----------
Earnings before cumulative
effect of accounting
change.................... 778,288 679,787 596,909 453,629 362,271
Cumulative effect of
accounting change......... -- -- -- (8,041) --
----------- ----------- ----------- ----------- -----------
Net earnings................ $ 778,288 $ 679,787 $ 596,909 $ 445,588 $ 362,271
=========== =========== =========== =========== ===========
Earnings before accounting
change:
Basic earnings per
share.................. $ 1.20 $ 1.03 $ 0.90 $ 0.69 $ 0.54
Diluted earnings per
share.................. 1.18 1.01 0.88 0.68 0.54
Cumulative effect of
accounting change:
Basic earnings per
share.................. -- -- -- (0.01) --
Diluted earnings per
share.................. -- -- -- (0.01) --
Net earnings:
Basic earnings per
share.................. 1.20 1.03 0.90 0.68 0.54
Diluted earnings per
share.................. 1.18 1.01 0.88 0.67 0.54
Dividends declared per
share..................... 0.42 0.34 0.27 0.23 0.20
Total assets................ 6,936,521 5,989,753 5,352,987 4,730,145 4,081,205
Capital expenditures........ 435,637 416,393 341,138 266,413 286,687
Long-term debt.............. $ 1,249,467 $ 1,176,307 $ 961,421 $ 1,023,642 $ 997,717
Shareholders' equity........ 2,197,531 2,132,519 2,100,535 1,721,584 1,394,221
----------- ----------- ----------- ----------- -----------
Total capitalization........ $ 3,446,998 $ 3,308,826 $ 3,061,956 $ 2,745,226 $ 2,391,938
=========== =========== =========== =========== ===========
Ratio of long-term debt to
capitalization............ 36.2% 35.6% 31.4% 37.3% 41.7%
</Table>
- ---------------
(1) SYSCO adopted the provisions of SFAS No. 142, "Accounting for Goodwill and
Other Intangible Assets," effective at the beginning of fiscal year 2003. As
a result, the amortization of goodwill was discontinued.
(2) The per share data for fiscal 2001 and prior years reflect the 2-for-1 stock
split of December 15, 2000.
(3) In fiscal 2000, SYSCO recorded a one-time, after-tax, non-cash charge of
$8,041 to comply with the required adoption of AICPA SOP 98-5, "Reporting on
the Costs of Start-up Activities."
10
<PAGE>
ITEM 7. 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
throughout the United States and Canada. The company intends to continue to
expand its market share through profitable sales growth, foldouts and
acquisitions. The company also strives to increase the effectiveness of its
marketing associates, its consolidated buying programs 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.
SYSCO's operations historically have produced significant cash flow. 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 compatible with the company's overall
growth strategy. Any remaining cash generated from operations may, at the
discretion of management, be applied toward a portion of the cost of the share
repurchase program, while the remainder of the cost may be financed with
additional long-term debt. SYSCO's share repurchase program is used primarily to
offset shares issued under various employee benefit and compensation plans, for
acquisitions and to reduce shares outstanding, which may have the net effect of
increasing earnings per share. Management targets a long-term debt to total
capitalization ratio between 35% and 40%. The ratio may exceed the target range
from time to time due to borrowings incurred in order to fund acquisitions and
internal growth opportunities and due to fluctuations in the timing and amount
of share repurchases. The ratio also may fall below the target range due to
strong cash flow from operations and fluctuations in the timing and amount of
share repurchases. This ratio was 36.2% and 35.6% at June 28, 2003 and June 29,
2002, respectively.
The company generated net cash from operations of $1,372,840,000 in fiscal
2003, $1,084,980,000 in fiscal 2002, and $955,224,000 in fiscal 2001. The
overall increases in operating results contributed to the annual increases in
cash flows from operations. In addition, several factors also contributed to the
increase in cash flow from operations. 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 customers. The new structure results in
the deferral of certain federal and state income tax payments and is reflected
in the increase in net deferred taxes. Tax payments made during the year of
$28,747,000 were $211,045,000 less than tax payments made in the prior year.
This decrease is primarily due to the deferrals discussed above as well as the
impact of other temporary differences and the timing and amount of tax payments.
The company estimates the cash flow savings from this deferral in fiscal 2003 to
be approximately $410,000,000 as compared to approximately $267,000,000 in
fiscal 2002. The company expects the positive cash flow impact of deferrals in
fiscal 2004 and beyond to be less than fiscal 2003 levels, as it will begin
making payments related to these deferrals in fiscal 2004. The company expects
the net cash flow impact of deferrals in fiscal 2004 and beyond to be
incrementally positive when compared to what would have been paid on an annual
basis without the deferral due to the company's belief that its volume through
the new structure will continue to grow. In addition, a federal tax payment of
$75,000,000 normally due in the fourth quarter of 2001 was deferred until the
first quarter of 2002 as allowed by the Internal Revenue Service, due to the
Texas tropical storm Allison disaster, and is reflected in the decrease of
accrued income taxes in fiscal 2002.
Cash flow from operations for fiscal 2003 was positively impacted by
increases in accounts payable balances offset by increases in accounts
receivable and inventory balances and decreases in accrued expenses and other
liabilities. Increased sales volumes over the comparable periods contributed to
the increase in accounts receivable balances. SYSCO has also experienced sales
increases with national contract customers that have outpaced the sales
increases from marketing associate-served customers. National contract
customers' payment terms are traditionally longer than the SYSCO average. In
addition, SYSCO had approximately $37,000,000 in receivables past due at
year-end from a U.S. military contractor that have since been paid. The
increased sales volumes also contributed to the increase in inventory balances.
The increase in accounts payable balances was partially due to the increased
inventory balances and was significantly aided by an increase in accounts
payable days outstanding over the comparable period. A contributor to the
decrease in
11
<PAGE>
accrued expenses and other liabilities was the increase in pension contributions
from $83,136,000 in fiscal 2002 to $164,565,000 in fiscal 2003.
Cash used for investing activities was $681,825,000 in fiscal 2003,
$662,300,000 in fiscal 2002, and $338,751,000 in fiscal 2001. Expenditures for
facilities, fleet and other equipment were $435,637,000 in fiscal 2003,
$416,393,000 in fiscal 2002, and $341,138,000 in fiscal 2001. The increase in
fiscal 2003 over fiscal 2002 was primarily due to the construction of fold-out
facilities in Las Vegas, Nevada and Ventura, California, replacement facilities
in Cleveland, Ohio; Dallas, Texas; and Miami, Florida and the Northeast
Redistribution Center in Front Royal, Virginia (first phase of the National
Supply Chain initiative). The increase in fiscal 2002 over fiscal 2001 was
primarily due to the construction of fold-out facilities located in Sacramento,
California; Columbia, South Carolina; and Las Vegas, Nevada. Fiscal 2002
expenditures also included costs incurred on the construction or expansion of
facilities in Dallas, Texas; Norman, Oklahoma; Baraboo, Wisconsin; and Jersey
City, New Jersey. Total expenditures in fiscal 2004 are expected to increase to
the range of $490,000,000 to $510,000,000 due to the continuation of the
fold-out program; facility, fleet and other equipment replacements and
expansions; the company's supply chain initiatives; and investments in
technology. Expenditures for acquisitions of businesses were $209,010,000 in
fiscal 2003, $234,618,000 in fiscal 2002, and $10,363,000 in fiscal 2001.
The National Supply Chain project is expected to create a more efficient
and effective supply chain infrastructure for SYSCO, its suppliers and its
customers. The project entails the implementation of regional distribution
centers, which will aggregate inventory demand to optimize the supply chain
activities for certain products from all SYSCO operating companies in the
region. The project is expected to achieve lower costs of inventory,
transportation, product handling and transaction processing in addition to
lowering working capital and future facility expansion needs at the operating
companies. The Northeast Redistribution Center is expected to be operational in
the summer of 2004. The center will receive and distribute food and food-related
products to SYSCO operating companies in the Northeast, creating benefits for
customers and suppliers, as well as for SYSCO.
In November 2000, the company filed with the Securities and Exchange
Commission a shelf registration statement covering 30,000,000 shares of common
stock to be offered from time to time in connection with acquisitions. As of
June 28, 2003, 29,477,835 shares remained available for issuance under this
registration statement.
Cash used for financing activities was $550,528,000 in fiscal 2003,
$359,984,000 in fiscal 2002, and $639,858,000 in fiscal 2001. In September 2001,
the Board authorized the repurchase of an additional 16,000,000 shares, which
was completed during fiscal 2003. In July 2002, the Board authorized the
repurchase of an additional 20,000,000 shares. Under this authorization,
9,063,200 shares remained available for purchase at June 28, 2003. In September
2003, the Board authorized the repurchase of an additional 20,000,000 shares.
The number of shares acquired and their cost during the past three fiscal years
was 16,500,000 shares for $478,471,000 in fiscal 2003, 18,000,000 shares for
$473,558,000 in fiscal 2002, and 16,000,000 shares for $428,196,000 in fiscal
2001.
Dividends paid were $261,854,000 in fiscal 2003, $213,275,000 in fiscal
2002, and $173,701,000 in fiscal 2001. SYSCO began paying the current quarterly
dividend rate of $0.11 per share in January 2003, an increase from the $0.09 per
share that became effective in January 2002. In May 2003, SYSCO declared its
regular quarterly dividend for the first quarter of fiscal 2004 of $0.11 per
share, which was paid in July 2003. In September 2003, SYSCO also declared its
regular quarterly dividend for the second quarter of fiscal 2004 of $0.11 per
share, payable in October 2003.
In April 2002, SYSCO issued $200,000,000 principal amount of 4.75% notes
due July 30, 2005 under a shelf registration statement filed in June 1998. These
notes, which were priced at 99.8% of par, are unsecured and are not subject to
any sinking fund requirement. They include a redemption provision which allows
SYSCO to retire the notes at any time prior to maturity at the greater of par
plus accrued interest or an amount designed to insure that the note holders are
not penalized by early redemption. Proceeds from the notes were used to pay down
borrowings under the company's commercial paper program. As of August 29,
12
<PAGE>
2003, there was $425,000,000 in principal amount outstanding under the
previously filed 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
received a fixed rate equal to 4.75% per annum and paid a benchmark interest
rate of six-month LIBOR in arrears less 84.5 basis points. In June 2003, SYSCO
terminated this swap agreement and received approximately $15,359,000
representing the fair value of the swap agreement at the time of termination. A
corresponding amount is reflected as an increase in the carrying value of the
related debt to reflect its fair value at termination. This increase in the
carrying value of the debt is being amortized as a reduction of interest expense
over the remaining term of the debt.
In May 2002, SYSCO International, Co., a wholly-owned subsidiary of SYSCO,
issued 6.10% notes totaling $200,000,000 due June 1, 2012 in a private offering.
These notes, which were priced at 99.7% of par, were fully and unconditionally
guaranteed by Sysco Corporation, were not subject to any sinking fund
requirement, included registration rights for the note holders, and included a
redemption provision which allowed SYSCO International, Co. to retire the notes
at any time prior to maturity at the greater of par plus accrued interest or an
amount designed to insure that the note holders were not penalized by the early
redemption. In December 2002, SYSCO International, Co. completed a registered
exchange offer for these notes. In the exchange offer, all of the outstanding
$200,000,000 notes were exchanged for new notes which are identical in all
respects to the outstanding notes except that the new notes are registered under
the Securities Act of 1933. The new notes are fully and unconditionally
guaranteed by Sysco Corporation. The proceeds from these notes were utilized to
repay commercial paper borrowings issued by SYSCO International, Co. to fund the
acquisition of a Canadian broadline foodservice business.
SYSCO has uncommitted bank lines of credit, which provided for unsecured
borrowings for working capital of up to $95,000,000 at June 28, 2003 and up to
$125,000,000 at June 29, 2002. There were no borrowings outstanding under these
lines of credit as of June 28, 2003 or August 29, 2003.
SYSCO has a commercial paper program in the United States which was
supported by a bank credit facility in the amount of $450,000,000 as of June 28,
2003 maturing in fiscal 2008. SYSCO also has a commercial paper program in
Canada which is supported by a bank credit facility in the amount of
$100,000,000 in Canadian dollars maturing in fiscal 2004. During fiscal 2003,
2002 and 2001, commercial paper and short-term bank borrowings ranged from
approximately $55,813,000 to $495,703,000, $51,472,000 to $538,362,000, and
$157,631,000 to $411,790,000, respectively. Commercial paper borrowings were
$151,748,000 as of June 28, 2003 and $92,755,000 as of August 29, 2003. The
company intends to settle outstanding commercial paper borrowings when they come
due by issuing additional debt or retiring them utilizing cash generated from
operations.
Total debt at June 28, 2003 was $1,372,236,000, of which approximately 88%
was at fixed rates averaging 5.7% and the remainder was at floating rates
averaging 2.5%. SYSCO continues to have borrowing capacity available and
alternative financing arrangements are evaluated as appropriate.
In summary, SYSCO believes that through continual monitoring and management
of assets together with the availability of additional capital in the financial
markets, it will meet its cash requirements while maintaining proper liquidity
for normal operating purposes.
13
<PAGE>
CONTRACTUAL OBLIGATIONS
The following table sets forth certain information concerning SYSCO's
obligations to make future payments under contracts, such as debt and lease
agreements:
<Table>
<Caption>
PAYMENTS DUE BY PERIOD
---------------------------------------------------------------------------------
TOTAL OVER
OBLIGATIONS 0-1 YEAR 1-2 YEARS 2-3 YEARS 3-4 YEARS 4-5 YEARS 5 YEARS
----------- -------- --------- --------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Short-term debt and
commercial paper.......... $ 151,748 $101,822 $ -- $ -- $ -- $ 49,926 $ --
Long-term debt.............. 1,186,960 15,514 152,881 418,103 102,913 4,094 493,455
Capital lease obligations... 33,528 5,433 4,733 2,664 942 433 19,323
Long-term non-capitalized
leases.................... 270,288 53,673 45,706 38,041 27,317 20,830 84,721
---------- -------- -------- -------- -------- -------- --------
Total contractual cash
obligations............... $1,642,524 $176,442 $203,320 $458,808 $131,172 $ 75,283 $597,499
========== ======== ======== ======== ======== ======== ========
</Table>
Included in other long-term liabilities of $289,998,000 as of June 28, 2003
are Sysco's obligations related to pension and deferred compensation plans.
SALES
Sales increased 11.9% in fiscal 2003, 7.2% in fiscal 2002 and 12.8% in
fiscal 2001. The annual sales increases were attributable to a variety of
factors, including the progress of SYSCO's Customers Are Really Everything to
SYSCO (C.A.R.E.S.) customer relationship initiatives, a persistent focus on
increasing sales to marketing associate-served customers, the continuing
recognition by customers of the quality and value of SYSCO Brand products, the
overall growth in the foodservice industry and acquisitions. Real sales growth,
calculated as total sales growth less non-comparable acquisitions and adjusted
for internally estimated product cost inflation or deflation, was approximately
6.7% in fiscal 2003. Acquisitions represented 5.2% of sales increases for fiscal
2003 and there was no inflation or deflation. Product costs trended upward
during the last half of the fiscal year, reversing the deflationary pressures
experienced during the first half of the year, resulting in a flat rate for the
entire year. Real sales growth is a non-GAAP financial measure as defined by the
Securities and Exchange Commission. Management believes it is a useful indicator
of the company's organic growth without regard to acquisitions and inflation.
After adjusting for acquisitions and inflation, real sales growth was
approximately 2.7% in 2002. Acquisitions represented 3.4% of sales increases for
fiscal 2002 and inflation was 1.1%. After adjusting for acquisitions and
inflation, real sales growth was approximately 5.8% in fiscal 2001. Acquisitions
represented 4.5% of total sales in fiscal 2001 and inflation was approximately
2.5%. The lower sales growth in 2002 was attributable to the overall softness in
the economy and comparisons to sales increases in fiscal 2001.
Industry sources estimate the total foodservice market experienced a real
sales decline of approximately 0.3% in calendar year 2002 and zero real sales
growth in calendar year 2001.
SYSCO's sales for fiscal 2001 through 2003 were as follows:
<Table>
<Caption>
FISCAL YEAR SALES % INCREASE
- ----------- --------------- ----------
<S> <C> <C>
2003.............................................. $26,140,337,000 11.9%
2002.............................................. 23,350,504,000 7.2
2001.............................................. 21,784,497,000 12.8
</Table>
14
<PAGE>
A comparison of the sales mix in the principal product categories during
the last three years is presented below:
<Table>
<Caption>
2003 2002 2001
---- ---- ----
<S> <C> <C> <C>
Canned and dry products..................................... 19% 19% 19%
Fresh and frozen meats...................................... 18 18 18
Frozen fruits, vegetables, bakery and other................. 14 13 13
Poultry..................................................... 10 10 10
Dairy products.............................................. 9 9 9
Fresh produce............................................... 8 9 9
Paper and disposables....................................... 8 8 8
Seafoods.................................................... 6 6 6
Beverage products........................................... 3 3 3
Janitorial products......................................... 2 2 2
Equipment and smallwares.................................... 2 2 2
Medical supplies............................................ 1 1 1
--- --- ---
100% 100% 100%
=== === ===
</Table>
A comparison of sales by type of customer during the last three years is
presented below:
<Table>
<Caption>
2003 2002 2001
---- ---- ----
<S> <C> <C> <C>
Restaurants................................................. 63% 63% 64%
Hospitals and nursing homes................................. 10 10 11
Schools and colleges........................................ 6 6 6
Hotels and motels........................................... 6 6 5
All other................................................... 15 15 14
--- --- ---
100% 100% 100%
=== === ===
</Table>
COST OF SALES
Cost of sales increased approximately 12.1% in fiscal 2003, 6.9% in fiscal
2002 and 11.9% in fiscal 2001. In fiscal 2003, the increase in cost of sales
resulted in gross margins as a percent of sales decreasing 0.08 percentage
points compared to the prior year. This decrease was primarily attributable to
two factors. First, multi-unit sales growth of 13.3% was greater than marketing
associate-served sales growth of 10.5%. Multi-unit sales tend to have lower
gross margins (coupled with lower expenses) than marketing associate-served
sales. Secondly, fresh-cut meat sales grew as a percentage of overall sales. As
these are higher price and lower gross margin percentage products, this had the
effect of decreasing overall gross margins as a percent of sales even as gross
margin dollars increased. In 2002 and 2001, the rate of increase in cost of
sales was less than the rate of sales increase leading to improved gross
margins. The rate of increase in gross margins is influenced by SYSCO's overall
customer and product mix, economies realized in purchasing and higher sales of
SYSCO Brand products.
OPERATING EXPENSES
Operating expenses include the costs of warehousing and delivering products
as well as selling and administrative expenses. These expenses as a percent of
sales were 14.7% for fiscal 2003 and 14.8% for fiscal 2002 and 2001. Changes in
the percentage relationship of operating expenses to sales result from an
interplay of several factors, including customer mix. Inflationary increases in
operating costs generally have been offset through improved productivity.
15
<PAGE>
The decrease in expenses in fiscal 2003 was primarily attributable to
improved operating efficiencies as demonstrated by improving trends in key
expense metrics including pieces sold per delivery and product line items sold
per delivery. These operating expense improvements were partially offset by
increases in net pension costs of $22,952,000 and by increases in expenses
incurred in connection with the National Supply Chain initiative of $5,996,000.
Operating expenses in fiscal 2002 were negatively impacted by increased
costs 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
Interest expense for fiscal 2003 increased $9,337,000, or approximately
14.8% over fiscal 2002, which had decreased $8,879,000, or approximately 12.4%
below fiscal 2001. The increase in interest expense in fiscal 2003 was primarily
due to increased borrowings, partially offset by decreases in interest rate
levels. The decrease in interest expense in fiscal 2002 was primarily due to
decreases in interest rates for short-term and commercial paper borrowings.
Interest capitalized during construction periods for the past three years was
$5,244,000 in fiscal 2003, $3,746,000 in fiscal 2002 and $2,995,000 in fiscal
2001.
OTHER, NET
Other, net was income of $8,347,000 in fiscal 2003, an increase of
$5,542,000 from the income of $2,805,000 in fiscal 2002. Fiscal 2002's income of
$2,805,000 increased $2,906,000 from the $101,000 expense in fiscal 2001.
Changes between the years result from fluctuations in miscellaneous activities,
primarily gains and losses on the sale of surplus facilities.
EARNINGS BEFORE INCOME TAXES
Earnings before income taxes in fiscal 2003 rose $159,517,000, or
approximately 14.5% above fiscal 2002 which had increased $134,215,000, or
approximately 13.9%, over fiscal 2001. Additional sales and realization of
operating efficiencies contributed to the increases.
PROVISION FOR INCOME TAXES
The effective tax rate was 38.25% in fiscal 2003, 2002 and 2001. SYSCO
anticipates an effective tax rate of 38.50% in fiscal 2004. The increase is
attributable to the increasing effective rates of state income taxes.
NET EARNINGS
Fiscal 2003 represents the twenty-seventh consecutive year of increased net
earnings. Net earnings rose $98,501,000 or approximately 14.5% above fiscal
2002, which had increased $82,878,000 or approximately 13.9% over fiscal 2001.
The increases were caused by additional sales, operating efficiencies and other
factors discussed above.
RETURN ON AVERAGE SHAREHOLDERS' EQUITY
The return on average shareholders' equity was approximately 36% in fiscal
2003 and 31% in fiscal 2002 and fiscal 2001. Since its inception, SYSCO has
averaged in excess of an 18% return on average shareholders' equity before the
cumulative effect of accounting changes.
BROADLINE SEGMENT
Broadline segment sales increased by 12.1% in fiscal 2003 as compared to
fiscal 2002 and by 5.8% in fiscal 2002 as compared to fiscal 2001. The fiscal
2003 and 2002 sales growth was due primarily to increased sales to marketing
associate-served and multi-unit customers, including increased sales of SYSCO
Brand products, as well as the acquisition of a Canadian broadline foodservice
operation. The sales growth was obtained through
16
<PAGE>
increased sales to the existing customer base as well as the acquisition of new
customers. Broadline segment sales as a percentage of total SYSCO sales
increased to 82.2% in fiscal 2003 from 82.1% in fiscal 2002 which decreased from
83.1% in fiscal 2001. The increase in fiscal 2003 was due primarily to the
acquisition of a Canadian broadline foodservice operation. The decrease in
fiscal 2002 was due primarily to acquisitions of specialty meat, lodging
industry product and produce companies in the Other segments and greater
percentage growth of specialty meat, lodging industry companies and SYGMA
segment as a percentage of overall SYSCO sales.
Earnings before income taxes for the Broadline segment increased by 12.8%
in fiscal 2003 as compared to fiscal 2002 and by 12.4% in fiscal 2002 as
compared to fiscal 2001. The increases in earnings before income taxes for
fiscal 2003 and fiscal 2002 were driven by improved operating efficiencies as
well as increased sales to multi-unit and marketing associate-served customers
and increases in sales of SYSCO Brand products.
SYGMA SEGMENT
SYGMA segment sales increased by 9.2% in fiscal 2003 as compared to fiscal
2002 and 10.6% in fiscal 2002 as compared to fiscal 2001. The fiscal 2003 sales
growth was primarily due to sales growth in SYGMA's existing customer base as
well as the acquisition of two quickservice operations. Sales growth in fiscal
2002 was due primarily to sales growth in SYGMA's existing customer base. SYGMA
segment sales as a percentage of total SYSCO sales decreased to 11.2% in fiscal
2003 from 11.4% in fiscal 2002 which increased from 11.1% in fiscal 2001. The
decrease in fiscal 2003 was due to the sales growth in the Broadline and Other
segments.
Earnings before income taxes for the SYGMA segment increased by 3.4% in
fiscal 2003 as compared to fiscal 2002 and 41.2% in fiscal 2002 as compared to
fiscal 2001. The increase in fiscal 2003 was primarily due to increased sales.
The increase in fiscal 2002 was due to operating efficiencies and improved labor
productivity realized during the fiscal year.
OTHER SEGMENTS
Other segment sales increased by 17.3% in fiscal 2003 as compared to fiscal
2002 and 23.9% in fiscal 2002 as compared to fiscal 2001. Other segment sales as
a percentage of total SYSCO sales increased to 7.7% in fiscal 2003 from 7.3% in
fiscal 2002 which increased from 6.3% in fiscal 2001. The increase in fiscal
2003 was primarily attributable to sales growth in our custom meat-cutting
operations as well as the timing of acquisitions made during the year. The
increase in fiscal 2002 was due primarily to the timing of acquisitions made
during the year.
Earnings before income taxes for the Other segment increased by 4.8% in
fiscal 2003 as compared to fiscal 2002 and 15.5% in fiscal 2002 as compared to
fiscal 2001. The increase in fiscal 2003 was due primarily to the acquisition of
a specialty distributor of products to the Asian foodservice market, increased
earnings from increased gross margins and operating efficiencies at the
company's specialty produce operations, and increased earnings from increased
sales and gross margins at the company's specialty lodging industry products
operations. These were offset by expenses incurred on a start-up operation
supplying the health care industry and decreased earnings at the company's
specialty meat-cutting operations. This decrease was primarily attributable to
decreased gross margins as meat costs increased in a highly inflationary period.
Gross margin percentages on products priced on a mark-up per pound basis are
difficult to maintain during inflationary periods. The increase in fiscal 2002
was due primarily to the timing of acquisitions made during the periods
presented but was offset by a decrease due to the downturn in demand in travel
and resort destination cities which are serviced by certain of the specialty
companies.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, sales and
expenses in the accompanying financial statements. Significant accounting
polices employed by SYSCO are presented in the notes to the financial
statements.
17
<PAGE>
Critical accounting policies are those that are most important to the
portrayal of the company's financial condition and results of operations. These
policies require management's most subjective or complex judgments, often
employing the use of estimates about the effect of matters that are inherently
uncertain. Senior management has reviewed with the Audit Committee of the Board
of Directors the development and selection of the critical accounting estimates
and this related disclosure. SYSCO's most critical accounting policies pertain
to the allowance for doubtful accounts receivable, self-insurance programs,
pension plans and accounting for business combinations.
Allowance for Doubtful Accounts Receivable
SYSCO evaluates the collectibility of accounts receivable and determines
the appropriate reserve for doubtful accounts based on a combination of factors.
In circumstances where the company is aware of a specific customer's inability
to meet its financial obligation, a specific allowance for doubtful accounts is
recorded to reduce the receivable to the net amount reasonably expected to be
collected. In addition, allowances are recorded for all other receivables based
on analysis of historical trends of write-offs and recoveries. The company
utilizes specific criteria to determine uncollectible receivables to be written
off including bankruptcy, accounts referred to outside parties for collection
and accounts past due over specified periods. If the financial condition of
SYSCO's customers were to deteriorate, additional allowances may be required.
Self-Insurance Program
SYSCO maintains a self-insurance program covering portions of workers'
compensation, group medical, general liability and vehicle liability costs. The
amounts in excess of the self-insured levels are fully insured. Liabilities
associated with these risks are estimated in part by considering historical
claims experience, demographic factors, severity factors and other actuarial
assumptions. Projections of future loss expenses are inherently uncertain
because of the random nature of insurance claims occurrences and could be
significantly affected if future occurrences and claims differ from these
assumptions and historical trends. In an attempt to mitigate the risks of
workers' compensation, vehicle and general liability claims, safety procedures
and awareness programs have been implemented.
Pension Plans
SYSCO maintains defined benefit and defined contribution retirement plans
for its employees. The company also contributes to various multi-employer plans
under collective bargaining agreements. The defined benefit pension plans pay
benefits to employees at retirement using formulas based on a participant's
years of service and compensation. SYSCO also maintains a non-qualified,
unfunded Supplementary Executive Retirement Plan (SERP) for key employees. In
order to meet its obligations under the SERP, the company maintains life
insurance policies on the lives of participants. SYSCO is the sole owner and
beneficiary of such policies, which are excluded from plan assets in arriving at
prepaid (accrued) benefit cost. Cash surrender values of such policies were
$74,730,000 at June 28, 2003 and $71,418,000 at June 29, 2002.
SYSCO accounts for its defined benefit pension plans in accordance with
Statement of Financial Accounting Standards (SFAS) No. 87, "Employers'
Accounting for Pensions," as amended by SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits -- an amendment of FASB
Statements No. 87, 88, and 106." These statements require that the amounts
recognized in the financial statements be determined on an actuarial basis.
Three of the more critical assumptions in the actuarial calculations are the
discount rate for determining the current value of plan benefits, the assumption
for the rate of increase in future compensation levels and the expected rate of
return on plan assets.
For guidance in determining the discount rate, SYSCO refers to rates of
return on high-quality fixed-income investments, including, among other items,
Moody's long-term AA corporate bond yields. The discount rate utilized by SYSCO
was 6.00% and 7.25% as of June 28, 2003 and June 29, 2002, respectively. The
discount rate assumption is reviewed annually and revised as deemed appropriate,
as it was at June 28,
18
<PAGE>
2003, when the discount rate was reduced to 6.00% from 7.25% and at June 29,
2002 when the discount rate was reduced to 7.25% from 7.50%.
The discount rate assumption utilized impacts the recorded amount of
pension expense. The 0.25% decrease in the discount rate used at June 29, 2002
increased SYSCO's net pension expense for fiscal 2003 by approximately
$5,500,000. The decrease in the discount rate of 1.25% at June 28, 2003 will
increase SYSCO's pension expense for fiscal 2004 by approximately $35,300,000.
SYSCO looks to actual plan experience in determining the rates of increase
in compensation levels. SYSCO used a plan specific age-related set of rates
(equivalent to a single rate of 5.89%), as of June 28, 2003 and June 29, 2002.
The expected long-term rate of return on plan assets was 9.00% and 9.50% as
of June 28, 2003 and June 29, 2002, respectively. The expectations of future
returns are derived from a mathematical asset model that incorporates
assumptions as to the various asset class returns, reflecting a combination of
rigorous historical performance analysis and the forward-looking views of the
financial markets regarding the yield on long-term bonds and the historical
returns of the major stock markets. Although not determinative of future
returns, the effective annual rate of return on plan assets, developed using
geometric/compound averaging, was 12.1%, 7.5%, 2.7% and a negative 14.3% over
the twenty-year, ten-year, five-year and one-year periods ended December 31,
2002, respectively. In addition, in nine of the last fifteen years, the actual
return on plan assets has exceeded 9.50%. The rate of return assumption is
reviewed annually and revised as deemed appropriate as it was at June 28, 2003
when the expected return was reduced to 9.00% from 9.50% and at June 29, 2002
when the expected return was reduced to 9.50% from 10.50%.
The expected return on plan assets impacts the recorded amount of pension
expense. The 1% decrease in the assumed rate of return increased SYSCO's net
pension expense for fiscal 2003 by approximately $4,900,000. The decrease in the
expected return of 0.50% at June 28, 2003 will increase SYSCO's net pension
expense for fiscal 2004 by approximately $3,400,000.
Amortization of unrecognized net asset losses increased pension expense for
fiscal year 2003 by approximately $5,800,000 and is expected to further increase
pension expense for fiscal year 2004 by approximately $4,200,000.
Changes in assumptions regarding the discount rate together with actual
returns on plan assets below the expected return assumptions resulted in the
company being required to reflect a cumulative adjustment to other comprehensive
income with respect to minimum pension liability of $185,118,000, net of tax, as
of June 28, 2003 and $65,435,000, net of tax, as of June 29, 2002. Minimum
pension liability adjustments are non-cash adjustments that are reflected as an
increase in the pension liability and an offsetting charge to shareholders'
equity, net of tax, through comprehensive loss rather than net income.
The company's prepaid pension cost prior to the recognition of the
additional minimum pension liability was $91,340,000 and $1,063,000 at June 28,
2003 and June 29, 2002, respectively. Included in arriving at accrued benefit
cost as of June 28, 2003 and June 29, 2002, respectively, are $493,829,000 and
$236,852,000 in deferred net actuarial losses resulting from the variance of
actual experience from that projected by actuarial assumptions. A portion of
this unrecognized loss is amortized and recognized in accordance with SFAS No.
87 in pension expense over time.
The company recognized net pension costs of $74,288,000, net of an expected
asset return of $44,061,000, and $51,336,000, net of an expected asset return of
$42,039,000, for fiscal years 2003 and 2002, respectively. Changes in the
assumptions together with the normal growth of the plan and the impact of losses
from prior periods, increased net pension cost $22,952,000 in fiscal 2003 and is
expected to increase fiscal 2004 by $39,900,000.
The company's cash contributions to its pension plans were $164,565,000 and
$83,136,000 in fiscal years 2003 and 2002, respectively. For the past several
years no contributions have been required to be made to the qualified pension
trust, as determined by government regulations; however, SYSCO has chosen to
voluntarily
19
<PAGE>
make contributions. In fiscal 2004, contributions to the qualified pension trust
will also not be required as determined by government regulations.
Accounting for Business Combinations
Goodwill and intangible assets represent the excess of consideration over
the fair value of tangible net assets acquired. Certain assumptions and
estimates are employed in determining the fair value of assets acquired,
including goodwill and other intangible assets, as well as determining the
allocation of goodwill to the appropriate reporting unit. In addition, SYSCO
assesses the recoverability of these intangibles by determining whether the fair
values of the applicable reporting units exceed their carrying values. The
evaluation of fair value requires the use of projections, estimates and
assumptions as to the future performance of the operations in performing a
discounted cash flow analysis as well as assumptions regarding sales and
earnings multiples that would be applied in comparable acquisitions in the
industry. Actual results could differ from these assumptions and projections
resulting in the company revising its assumptions and, if required, recognizing
an impairment loss.
NEW ACCOUNTING STANDARDS
SYSCO adopted the provisions of SFAS No. 142, "Accounting for Goodwill and
Other Intangible Assets," effective at the beginning of fiscal 2003. As a
result, the amortization of goodwill was discontinued. Management completed its
assessment of the impact that the adoption of SFAS No. 142 had on the company's
consolidated financial statements and determined that there was no impairment to
the carrying value of goodwill. Had goodwill amortization been discontinued for
all the fiscal years reported, SYSCO's pro forma net earnings and diluted
earnings per share were $778,288,000 and $1.18 in fiscal 2003, $694,320,000 and
$1.03 in fiscal 2002 and $608,998,000 and $0.90 in fiscal 2001.
SYSCO adopted the provisions of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," effective in fiscal 2003. The
adoption of SFAS No. 144 has not had a material effect on the company's
consolidated financial statements.
SYSCO has adopted the provisions of Financial Accounting Standards Board
(FASB) Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." This interpretation requires certain guarantees to be recorded at fair
value and also requires a guarantor to make certain disclosures regarding
guarantees. This interpretation's initial recognition and initial measurement
provisions are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. The disclosure requirements became effective
for SYSCO's financial statements for the third quarter of fiscal 2003. The
adoption of this interpretation did not have a material impact on SYSCO's
consolidated financial statements or disclosures.
SYSCO adopted the disclosure provisions of SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure," in the third quarter of
fiscal 2003. SFAS No. 148 provides alternative methods of transition to SFAS No.
123, "Accounting for Stock-Based Compensation," fair value method of accounting
for stock-based employee compensation if a company elects to adopt these
provisions. SFAS No. 148 also specifies required disclosures of an entity's
accounting policy with respect to stock-based employee compensation on reported
net income and earnings per share in annual and interim financial statements.
SYSCO has adopted the provisions of the Emerging Issues Task Force (EITF)
Issue No. 02-16, "Accounting by a Customer (including a Reseller) for Cash
Consideration Received from a Vendor." The provisions of EITF No. 02-16 are
effective for fiscal periods beginning after December 15, 2002 with certain
provisions effective for arrangements entered into after November 21, 2002.
SYSCO's historical accounting policies are consistent with the provisions of
EITF No. 02-16 and thus SYSCO chose to adopt this accounting policy during the
third quarter of fiscal 2003. EITF No. 02-16 provides guidance as to the
recognition and classification of monies received from vendors. The adoption of
this consensus did not have an impact on SYSCO's consolidated financial
statements.
20
<PAGE>
SYSCO adopted the provisions of the EITF Issue 02-17, "Recognition of
Customer Relationship Intangible Assets Acquired in a Business Combination,"
effective October 2002. EITF No. 02-17 addresses the intangible asset
recognition criteria of SFAS No. 141, "Business Combinations," and provides that
an intangible asset related to customer relationship intangibles may exist even
though the relationship is not evidenced by a contract. The adoption of this
consensus did not have a material impact on SYSCO's consolidated financial
statements.
In November 2002, the EITF reached a consensus on Issue No. 00-21,
"Multiple-Deliverable Revenue Arrangements." EITF No. 00-21 addresses how to
account for revenue arrangements with multiple deliverables and provides
guidance relating to when such arrangements should be divided into components
for revenue recognition purposes. The consensus will be effective for agreements
entered into in fiscal 2004 with early adoption permitted. The adoption of this
consensus will not have a material impact on SYSCO's consolidated financial
statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research Bulletin
(ARB) No. 51." This interpretation introduces a new consolidation model, the
variable interests model, which determines control (and consolidation) based on
potential variability in gains and losses of the entity being evaluated for
consolidation. The interpretation's consolidation provisions apply immediately
to variable interests in variable interest entities (VIE's) created after
January 31, 2003 and apply in the first fiscal year or interim period beginning
after June 15, 2003 to VIE's acquired before February 1, 2003. The adoption of
this interpretation will not have a material impact on SYSCO's consolidated
financial statements.
RISK FACTORS
Low Margin Business; Economic Sensitivity
The foodservice distribution industry is characterized by relatively high
inventory turnover with relatively low profit margins. SYSCO makes a significant
portion of its sales at prices that are based on the cost of products it sells
plus a percentage markup. As a result, SYSCO's profit levels may be negatively
impacted during periods of product cost deflation, even though SYSCO's gross
profit percentage may remain relatively constant. Product cost inflation could
also have a negative impact on profit margins if SYSCO is unable to raise prices
to its customers at the same rate its costs increase. The foodservice industry
is sensitive to national and regional economic conditions. SYSCO's operating
results are also sensitive to, and may be adversely affected by, other factors,
including difficulties with the collectability of accounts receivable, inventory
control, competitive price pressures, severe weather conditions and unexpected
increases in fuel or other transportation-related costs. Although these factors
have not had a material adverse impact on SYSCO's past operations, there can be
no assurance that one or more of these factors will not adversely affect future
operating results.
Leverage and Debt Service
Because historically a substantial part of SYSCO's growth has been the
result of acquisitions and capital expansion, SYSCO's continued growth depends,
in large part, on its ability to continue this expansion. As a result, its
inability to finance acquisitions and capital expenditures through borrowed
funds could restrict its ability to expand. Moreover, any default under the
documents governing the indebtedness of SYSCO could have a significant adverse
effect on the market value of SYSCO's common stock. Further, SYSCO's leveraged
position may also increase its vulnerability to competitive pressures.
Product Liability Claims
SYSCO, like any other seller of food, faces the risk of exposure to product
liability claims in the event that the use of products sold by the company
causes injury or illness. With respect to product liability claims, SYSCO
believes it has sufficient primary or excess umbrella liability insurance.
However, this insurance may not continue to be available at a reasonable cost,
or, if available, may not be adequate to cover all of SYSCO's liabilities. SYSCO
generally seeks contractual indemnification and insurance coverage from parties
supplying
21
<PAGE>
its products, but this indemnification or insurance coverage is limited, as a
practical matter, to the creditworthiness of the indemnifying party and the
insured limits of any insurance provided by suppliers. If SYSCO does not have
adequate insurance or contractual indemnification available, product liability
relating to defective products could materially reduce SYSCO's net earnings and
earnings per share.
Interruption of Supplies
SYSCO obtains substantially all of its foodservice products from third
party suppliers. For the most part, SYSCO does not have long-term contracts with
its suppliers committing them to provide products to SYSCO. Although SYSCO's
purchasing volume can provide leverage when dealing with suppliers, suppliers
may not provide the foodservice products and supplies needed by SYSCO in the
quantities requested. Because SYSCO does not control the actual production of
the products it sells, it is also subject to delays caused by interruption in
production based on conditions outside its control. These conditions include job
actions or strikes by employees of suppliers, weather, crop conditions,
transportation interruptions, and natural disasters or other catastrophic
events. SYSCO's inability to obtain adequate supplies of its foodservice
products as a result of any of the foregoing factors or otherwise, could mean
that SYSCO could not fulfill its obligations to customers, and customers may
turn to other distributors.
Labor Relations
As of June 28, 2003, approximately 9,500 employees at 49 operating
companies were members of 58 different local unions associated with the
International Brotherhood of Teamsters and other labor organizations. In fiscal
2004, 10 agreements covering approximately 1,070 employees will expire. Failure
of the operating companies to effectively renegotiate these contracts could
result in work stoppages. Although SYSCO's operating subsidiaries have not
experienced any significant labor disputes or work stoppages to date, and SYSCO
believes they have satisfactory relationships with their unions, a work stoppage
due to failure of one or more operating subsidiaries to renegotiate a union
contract, or otherwise, could have a material adverse effect on SYSCO.
Integration of Acquired Companies
If SYSCO is unable to integrate acquired businesses successfully and
realize anticipated economic, operational and other benefits in a timely manner,
its profitability may decrease. Integration of an acquired business may be more
difficult when SYSCO acquires a business in a market in which it has limited or
no expertise, or with a corporate culture different from SYSCO's. If SYSCO is
unable to integrate acquired businesses successfully, it may incur substantial
costs and delays in increasing its customer base. In addition, the failure to
integrate acquisitions successfully may divert management's attention from
SYSCO's existing business and may damage SYSCO's relationships with its key
customers and suppliers.
Charter and Stockholder Rights Plan
Under its Restated Certificate of Incorporation, SYSCO's Board of Directors
is authorized to issue up to 1.5 million shares of preferred stock without
stockholder approval. Issuance of these shares could make it more difficult for
anyone to acquire SYSCO without approval of the Board of Directors, depending on
the rights and preferences of the stock issued. In addition, if anyone attempts
to acquire SYSCO without approval of the Board of Directors of SYSCO, the
stockholders of SYSCO have the right to purchase preferred stock of SYSCO
pursuant to its Stockholder Rights Plan, which could result in substantial
dilution to a potential acquiror. The existence of either of these provisions
could deter hostile takeover attempts that might result in an acquisition of
SYSCO that could otherwise have been financially beneficial to SYSCO's
stockholders.
FORWARD-LOOKING STATEMENTS
Certain statements made herein that look forward in time or express
management's expectations or beliefs with respect to the occurrence of future
events are forward-looking statements under the Private Securities Litigation
Reform Act of 1995. They include statements about SYSCO's ability to increase
its
22
<PAGE>
market share and sales, long-term debt to capitalization target ratios,
anticipated capital expenditures, timing and expected benefits of the National
Supply Chain initiative and related regional distribution centers, and SYSCO's
ability to meet future cash requirements and remain profitable.
These statements are based on management's current expectations and
estimates; actual results may differ materially due in part to the risk factors
discussed above. In addition, SYSCO's ability to increase its market share and
sales, meet future cash requirements and remain profitable could be affected by
conditions in the economy and the industry and internal factors such as the
ability to control expenses. The ability to meet long-term debt to
capitalization target ratios may also be affected by share repurchases, cash
flow, acquisitions and internal growth.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
SYSCO does not utilize financial instruments for trading purposes. SYSCO's
use of debt directly exposes the company to interest rate risk. Floating rate
debt, where the interest rate fluctuates periodically, exposes the company to
short-term changes in market interest rates. Fixed rate debt, where the interest
rate is fixed over the life of the instrument, exposes the company to changes in
market interest rates reflected in the fair value of the debt and to the risk
that the company may need to refinance maturing debt with new debt at a higher
rate.
SYSCO manages its debt portfolio to achieve an overall desired position of
fixed and floating rates and may employ interest rate swaps as a tool to achieve
that goal. The major risks from interest rate derivatives include changes in the
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 June 28, 2003,
the company had no interest rate swap agreements outstanding. At June 28, 2003
the company had outstanding $151,748,000 of commercial paper at variable rates
of interest with maturities through October 2, 2003. The company's long-term
debt obligations of $1,249,467,000 were primarily at fixed rates of interest.
The following table presents principal cash flows and related
weighted-average interest rates by expected maturity dates. All amounts are
stated in U.S. dollar equivalents.
<Table>
<Caption>
FISCAL YEAR
------------------------------------------------------------------------------------------
FAIR
2004 2005 2006 2007 2008 THEREAFTER TOTAL VALUE
-------- -------- -------- -------- ------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. $ Denominated:
Fixed Rate Debt...... $ 20,616 $157,328 $420,390 $103,380 $ 4,015 $478,236 $1,183,965 $1,319,714
Average Interest
Rate............. 5.3% 6.5% 4.0% 7.2% 7.9% 6.4% 5.6%
Floating Rate Debt... $ -- $ -- $ -- $ -- $49,926 $ 15,000 $ 64,926 $ 64,926
Average Interest
Rate............. -- -- -- -- 1.2% 1.3% 1.3%
Canadian $
Denominated:
Fixed Rate Debt...... $ 331 $ 286 $ 377 $ 475 $ 512 $ 19,542 $ 21,523 $ 23,991
Average Interest
Rate............. 6.5% 6.0% 7.1% 7.5% 7.6% 9.5% 9.3%
Floating Rate Debt... $101,822 $ -- $ -- $ -- $ -- $ -- $ 101,822 $ 101,822
Average Interest
Rate............. 3.4% -- -- -- -- -- 3.4%
</Table>
The company does not believe that its operations in Canada exposes it to
significant foreign exchange risk.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SYSCO CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
<S> <C>
Consolidated Financial Statements:
Report of Independent Auditors............................ 25
Consolidated Balance Sheets............................... 26
Consolidated Results of Operations........................ 27
Consolidated Shareholders' Equity......................... 28
Consolidated Cash Flows................................... 29
Notes to Consolidated Financial Statements................ 30
Schedule:
II -- Valuation and Qualifying Accounts................... S-1
</Table>
All other schedules are omitted because they are not applicable or the
information is set forth in the consolidated financial statements or notes
thereto.
24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Sysco Corporation
We have audited the accompanying consolidated balance sheets of Sysco
Corporation (a Delaware corporation) and subsidiaries as of June 28, 2003 and
June 29, 2002, and the related statements of consolidated results of operations,
shareholders' equity and cash flows for each of the three years in the period
ended June 28, 2003. Our audits also included the financial statement schedule
at Item 15(a), No. 2. These financial statements and schedule are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Sysco Corporation and subsidiaries as of June 28, 2003 and June 29, 2002, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended June 28, 2003 in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in the Notes to the Consolidated Financial Statements,
effective June 30, 2002, Sysco Corporation adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets".
ERNST & YOUNG LLP
Houston, Texas
August 11, 2003
25
<PAGE>
SYSCO
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
JUNE 28, 2003 JUNE 29, 2002
------------- -------------
(IN THOUSANDS EXCEPT FOR
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets
Cash...................................................... $ 337,447 $ 198,439
Accounts and notes receivable, less allowances of $35,005
and $30,338............................................ 2,009,627 1,760,827
Inventories............................................... 1,230,080 1,117,869
Deferred taxes............................................ -- 34,188
Prepaid expenses.......................................... 52,380 41,966
---------- ----------
Total current assets.............................. 3,629,534 3,153,289
Plant and equipment at cost, less depreciation.............. 1,922,660 1,697,782
Other assets
Goodwill and intangibles, less amortization............... 1,113,960 922,222
Restricted cash........................................... 83,807 32,000
Other..................................................... 186,560 184,460
---------- ----------
Total other assets................................ 1,384,327 1,138,682
---------- ----------
Total assets................................................ $6,936,521 $5,989,753
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable............................................. $ 101,822 $ 66,360
Accounts payable.......................................... 1,637,505 1,349,330
Accrued expenses.......................................... 624,451 599,324
Income taxes.............................................. 9,193 41,596
Deferred taxes............................................ 307,211 --
Current maturities of long-term debt...................... 20,947 13,754
---------- ----------
Total current liabilities......................... 2,701,129 2,070,364
Other liabilities
Long-term debt............................................ 1,249,467 1,176,307
Deferred taxes............................................ 498,396 441,570
Other long-term liabilities............................... 289,998 168,993
---------- ----------
Total other liabilities........................... 2,037,861 1,786,870
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
shares................................................. 765,175 765,175
Paid-in capital........................................... 249,235 217,891
Retained earnings......................................... 3,373,853 2,869,417
Other comprehensive loss.................................. (152,381) (65,435)
---------- ----------
4,235,882 3,787,048
Less cost of treasury stock, 121,517,325 and 111,634,603
shares................................................. 2,038,351 1,654,529
---------- ----------
Total shareholders' equity........................ 2,197,531 2,132,519
---------- ----------
Total liabilities and shareholders' equity.................. $6,936,521 $5,989,753
========== ==========
</Table>
See Notes to Consolidated Financial Statements
26
<PAGE>
SYSCO
CONSOLIDATED RESULTS OF OPERATIONS
<Table>
<Caption>
YEAR ENDED
---------------------------------------------
JUNE 28, 2003 JUNE 29, 2002 JUNE 30, 2001
------------- ------------- -------------
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<S> <C> <C> <C>
Sales................................................. $26,140,337 $23,350,504 $21,784,497
Costs and expenses
Cost of sales....................................... 20,979,556 18,722,163 17,513,138
Operating expenses.................................. 3,836,507 3,467,379 3,232,827
Interest expense.................................... 72,234 62,897 71,776
Other, net.......................................... (8,347) (2,805) 101
----------- ----------- -----------
Total costs and expenses.................... 24,879,950 22,249,634 20,817,842
----------- ----------- -----------
Earnings before income taxes.......................... 1,260,387 1,100,870 966,655
Income taxes.......................................... 482,099 421,083 369,746
----------- ----------- -----------
Net earnings.......................................... $ 778,288 $ 679,787 $ 596,909
=========== =========== ===========
Net earnings:
Basic earnings per share............................ $ 1.20 $ 1.03 $ 0.90
Diluted earnings per share.......................... 1.18 1.01 0.88
</Table>
See Notes to Consolidated Financial Statements
27
<PAGE>
SYSCO
CONSOLIDATED SHAREHOLDERS' EQUITY
<Table>
<Caption>
COMMON STOCK OTHER TREASURY STOCK
---------------------- PAID-IN RETAINED COMPREHENSIVE ------------------------
SHARES AMOUNT CAPITAL EARNINGS LOSS SHARES AMOUNT
----------- -------- -------- ---------- ------------- ----------- ----------
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 2000.............. 382,587,450 $382,587 $ 76,967 $2,292,254 $ -- 51,102,663 $1,030,224
Net earnings for year ended June 30,
2001............................... 596,909
Dividends declared................... (180,702)
Treasury stock purchases............. 16,000,000 428,196
Treasury stock issued for
acquisitions....................... 184,357 (12,025,208) (136,696)
Stock options exercised.............. (11,099) (3,677,972) (34,529)
Employees' Stock Purchase Plan....... 16,713 (1,630,208) (17,770)
Management Incentive Plan............ 9,167 (834,702) (8,431)
Minimum pension liability
adjustment......................... (5,624)
2-for-1 stock split.................. 382,587,450 382,588 (89,287) (293,301) 51,102,663
----------- -------- -------- ---------- --------- ----------- ----------
Balance at June 30, 2001............. 765,174,900 $765,175 $186,818 $2,415,160 $ (5,624) 100,037,236 $1,260,994
Net earnings for year ended June 29,
2002............................... 679,787
Dividends declared................... (225,530)
Treasury stock purchases............. 18,000,000 473,558
Treasury stock issued for
acquisitions....................... 12,517 (1,116,303) (12,251)
Stock options exercised.............. (10,750) (2,650,714) (32,837)
Employees' Stock Purchase Plan....... 17,030 (1,784,529) (24,104)
Management Incentive Plan............ 12,276 (851,087) (10,831)
Minimum pension liability
adjustment......................... (59,811)
----------- -------- -------- ---------- --------- ----------- ----------
Balance at June 29, 2002............. 765,174,900 $765,175 $217,891 $2,869,417 $ (65,435) 111,634,603 $1,654,529
Net earnings for year ended June 28,
2003............................... 778,288
Dividends declared................... (273,852)
Treasury stock purchases............. 16,500,000 478,471
Treasury stock issued for
acquisitions....................... 6,984 (951,127) (9,270)
Disqualifying dispositions........... 8,386
Stock options exercised.............. (8,895) (2,918,905) (42,588)
Employees' Stock Purchase Plan....... 14,410 (1,886,090) (29,809)
Management Incentive Plan............ 10,459 (861,156) (12,982)
Minimum pension liability
adjustment......................... (119,683)
Foreign currency translation
adjustment......................... 32,737
----------- -------- -------- ---------- --------- ----------- ----------
Balance at June 28, 2003............. 765,174,900 $765,175 $249,235 $3,373,853 $(152,381) 121,517,325 $2,038,351
=========== ======== ======== ========== ========= =========== ==========
</Table>
See Notes to Consolidated Financial Statements
28
<PAGE>
SYSCO
CONSOLIDATED CASH FLOWS
<Table>
<Caption>
YEAR ENDED
---------------------------------------------
JUNE 28, 2003 JUNE 29, 2002 JUNE 30, 2001
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 778,288 $ 679,787 $ 596,909
Add non-cash items:
Depreciation and amortization.......................... 273,142 278,251 248,240
Deferred tax provision................................. 481,330 263,492 6,199
Provision for losses on receivables.................... 27,133 25,904 21,740
Additional investment in certain assets and liabilities,
net of effect of businesses acquired:
(Increase) in receivables.............................. (218,150) (32,360) (87,616)
(Increase) in inventories.............................. (69,959) (17,804) (50,938)
(Increase) decrease in prepaid expenses................ (9,509) (680) 6,547
Increase (decrease) in accounts payable................ 237,360 (357) 33,377
(Decrease) increase in accrued expenses and other
long-term liabilities................................ (85,294) (23,403) 73,737
(Decrease) increase in income taxes.................... (33,121) (81,736) 106,047
(Increase) decrease in other assets.................... (8,380) (6,114) 982
---------- ---------- ---------
Net cash provided by operating activities................. 1,372,840 1,084,980 955,224
---------- ---------- ---------
Cash flows from investing activities:
Additions to plant and equipment.......................... (435,637) (416,393) (341,138)
Proceeds from sales of plant and equipment................ 14,629 20,711 12,750
Acquisition of businesses, net of cash acquired........... (209,010) (234,618) (10,363)
Increase in restricted cash............................... (51,807) (32,000) --
---------- ---------- ---------
Net cash used for investing activities.................... (681,825) (662,300) (338,751)
---------- ---------- ---------
Cash flows from financing activities:
Bank and commercial paper borrowings (repayments)......... 85,224 (143,593) (72,055)
Other debt (repayments) borrowings........................ (12,098) 384,114 (41,417)
Cash from termination of interest rate swap............... 15,359 -- --
Common stock reissued from treasury....................... 101,312 86,328 75,511
Treasury stock purchases.................................. (478,471) (473,558) (428,196)
Dividends paid............................................ (261,854) (213,275) (173,701)
---------- ---------- ---------
Net cash used for financing activities.................... (550,528) (359,984) (639,858)
---------- ---------- ---------
Effect of exchange rates on cash............................ (1,479) -- --
---------- ---------- ---------
Net increase (decrease) in cash............................. 139,008 62,696 (23,385)
Cash at beginning of year................................... 198,439 135,743 159,128
---------- ---------- ---------
Cash at end of year......................................... $ 337,447 $ 198,439 $ 135,743
========== ========== =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................... $ 69,103 $ 61,354 $ 71,791
Income taxes........................................... 28,747 239,792 251,567
</Table>
See Notes to Consolidated Financial Statements
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF ACCOUNTING POLICIES
BUSINESS AND CONSOLIDATION
Sysco Corporation (SYSCO) is engaged in the marketing and distribution of a
wide range of food and related products to the foodservice or
"food-prepared-away-from-home" industry. These services are performed for
approximately 420,000 customers from 145 distribution facilities located
throughout the United States and Canada.
The accompanying financial statements include the accounts of SYSCO and its
subsidiaries. All significant intercompany transactions and account balances
have been eliminated. Certain amounts in the prior years have been reclassified
to conform to the fiscal 2003 presentation, including restricted cash previously
classified as cash and cash equivalents and other long-term liabilities related
to pension and deferred compensation plans previously classified as accrued
expenses.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that affect
the reported amounts of assets, liabilities, sales and expenses. Actual results
could differ from the estimates used.
ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of trade receivables from customers
and receivables from suppliers for marketing or incentive programs. SYSCO
evaluates the collectibility of accounts receivable and determines the
appropriate reserve for doubtful accounts based on a combination of factors. In
circumstances where the company is aware of a specific customer's inability to
meet its financial obligation to SYSCO, a specific allowance for doubtful
accounts is recorded to reduce the receivable to the net amount reasonably
expected to be collected. In addition, allowances are recorded for all other
receivables based on an analysis of historical trends of write-offs and
recoveries. The company utilizes specific criteria to determine uncollectible
receivables to be written off including bankruptcy, accounts referred to outside
parties for collection and accounts past due over specified periods. The
allowance for doubtful accounts receivable was $35,005,000 as of June 28, 2003
and $30,338,000 as of June 29, 2002. Customer accounts written off, net of
recoveries, were $24,771,000 or 0.09% of sales, $26,068,000 or 0.11% of sales,
and $23,045,000 or 0.11% of sales for fiscal 2003, 2002 and 2001, respectively.
INVENTORIES
Inventories consisting primarily of finished goods include food and related
products held for resale and are valued at the lower of cost (first-in,
first-out method) or market. Elements of costs include the purchase price of the
product and freight charges to deliver the product to the company's warehouses
and are net of certain cash or non-cash consideration received from vendors (see
"Vendor Consideration").
PLANT AND EQUIPMENT
Capital additions, improvements and major renewals are classified as plant
and equipment and are carried at cost. Depreciation is recorded using the
straight-line method, which reduces the book value of each asset in equal
amounts over its estimated useful life. Maintenance, repairs and minor renewals
are charged to earnings when they are incurred. Upon the disposition of an
asset, its accumulated depreciation is deducted from the original cost, and any
gain or loss is reflected in current earnings.
Applicable interest charges incurred during the construction of new
facilities are capitalized as one of the elements of cost and are amortized over
the assets' estimated useful lives. Interest capitalized during construction
periods for the past three years was $5,244,000 in 2003, $3,746,000 in 2002 and
$2,995,000 in 2001.
30
<PAGE>
A summary of plant and equipment, including the related accumulated
depreciation, appears below:
<Table>
<Caption>
ESTIMATED
JUNE 28, 2003 JUNE 29, 2002 USEFUL LIVES
--------------- --------------- ------------
<S> <C> <C> <C>
Plant and equipment, at cost
Land................................... $ 174,959,000 $ 131,188,000
Buildings and improvements............. 1,567,768,000 1,390,712,000 10-40 years
Equipment.............................. 1,860,410,000 1,695,043,000 3-20 years
--------------- ---------------
3,603,137,000 3,216,943,000
Accumulated depreciation................. (1,680,477,000) (1,519,161,000)
--------------- ---------------
Net plant and equipment.................. $ 1,922,660,000 $ 1,697,782,000
=============== ===============
</Table>
GOODWILL AND INTANGIBLES
Goodwill and intangibles represent the excess of cost over the fair value
of tangible net assets acquired. Intangibles with definite lives are amortized
over their useful lives. Goodwill and intangibles with indefinite lives are not
amortized. The recoverability of goodwill and intangibles is assessed annually
or more frequently, as needed, by determining whether the fair values of the
applicable reporting units exceed their carrying values. The company updates its
analysis of the recoverability of goodwill and intangibles when events or
changes have occurred that would suggest an impairment of carrying value.
Accumulated amortization of goodwill and intangibles was $141,731,000 and
$139,977,000 as of June 28, 2003 and June 29, 2002, respectively.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of all Canadian subsidiaries are translated at
current exchange rates. Related translation adjustments are recorded as a
component of other accumulated comprehensive income.
REVENUE RECOGNITION
The company recognizes revenue from the sale of a product when it is
considered to be realized or realizable and earned. The company determines these
requirements to be met at the point at which the product is delivered to the
customer. The company grants certain customers sales incentives such as rebates
or discounts and treats these as a reduction of sales at the time the sale is
recognized.
VENDOR CONSIDERATION
SYSCO recognizes consideration received from vendors when the services
performed in connection with the monies received are completed. There are
several types of cash consideration received from vendors. In many instances,
the vendor consideration is in the form of a specified amount per case or per
pound. In these instances, SYSCO will recognize the vendor consideration as a
reduction of cost of sales when the product is sold. In the situations where the
vendor consideration is not related directly to specific product purchases,
SYSCO will recognize these as a reduction of cost of sales when the earnings
process is complete, the related service is performed and the amounts realized.
In certain of these latter instances, the vendor consideration represents a
reimbursement of a specific incremental identifiable cost incurred by SYSCO in
selling the vendor's product. In these cases, SYSCO classifies the consideration
as a reduction of those costs with any excess funds classified as a reduction of
cost of sales and recognizes these in the period where the costs are incurred
and related services performed.
INSURANCE PROGRAM
SYSCO maintains a self-insurance program covering portions of workers'
compensation, group medical, general and vehicle liability costs. The amounts in
excess of the self-insured levels are fully insured. Liabilities
31
<PAGE>
associated with these risks are estimated in part by considering historical
claims experience, demographic factors, severity factors and other actuarial
assumptions.
STOCK-BASED COMPENSATION
SYSCO accounts for its stock compensation plans under Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations under which no compensation cost has been recognized.
Options issued before September 2001 may vest over a five-year period
beginning on the date of grant if certain operating performance measures are
attained, or will vest fully nine and one-half years from the date of grant to
the extent not previously vested. Options issued in September 2001 and after
generally vest ratably over a specified five-year period.
The following table provides comparative pro forma net earnings and
earnings per share had compensation cost for these plans been determined using
the fair value method of Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation," for all periods presented:
<Table>
<Caption>
YEAR ENDED
---------------------------------------------
JUNE 28, 2003 JUNE 29, 2002 JUNE 30, 2001
------------- ------------- -------------
<S> <C> <C> <C>
Net earnings:
Net earnings............................. $778,288,000 $679,787,000 $596,909,000
Stock-based compensation expense, net of
taxes................................. (51,862,000) (37,344,000) (11,406,000)
------------ ------------ ------------
Pro forma net earnings................... $726,426,000 $642,443,000 $585,503,000
============ ============ ============
Basic earnings per share:
Basic earnings per share................. $ 1.20 $ 1.03 $ 0.90
Stock-based compensation expense, net of
taxes................................. (0.08) (0.06) (0.02)
------------ ------------ ------------
Pro forma basic earnings per share....... $ 1.12 $ 0.97 $ 0.88
============ ============ ============
Diluted earnings per share:
Diluted earnings per share............... $ 1.18 $ 1.01 $ 0.88
Stock-based compensation expense, net of
taxes................................. (0.08) (0.06) (0.02)
------------ ------------ ------------
Pro forma diluted earnings per share..... $ 1.10 $ 0.95 $ 0.86
============ ============ ============
</Table>
The weighted average fair value of options granted was $6.88 and $8.81
during fiscal 2003 and 2002, respectively. The fair value was estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in fiscal 2003 and 2002,
respectively: dividend yield of 1.45% and 1.26%; expected volatility of 25% and
22%; risk-free interest rates of 2.7% and 4.8%; and expected lives of five years
and eight years.
The weighted average fair value of employee stock purchase rights issued
pursuant to the Employees' Stock Purchase Plan was $4.14 and $3.96 during fiscal
2003 and 2002, respectively. The fair value of the stock purchase rights was
calculated as the difference between the stock price at date of issuance and the
employee purchase price.
The pro forma presentation includes options granted after 1995. The pro
forma effects for fiscal 2003, 2002, and 2001 are not necessarily indicative of
the pro forma effects in future years.
32
<PAGE>
SHIPPING AND HANDLING COSTS
Shipping and handling costs include costs associated with the selection of
products and delivery to customers. Included in operating expenses are shipping
and handling costs of approximately $1,505,360,000 in fiscal 2003,
$1,328,428,000 in fiscal 2002, and $1,297,944,000 in fiscal 2001.
INCOME TAXES
SYSCO follows the liability method of accounting for income taxes as
required by the provisions of SFAS No. 109, "Accounting for Income Taxes."
CASH FLOW INFORMATION
For cash flow purposes, cash includes cash equivalents such as time
deposits, certificates of deposit, short-term investments and all highly liquid
instruments with original maturities of three months or less.
ACQUISITIONS
During fiscal 2003, SYSCO or one of its subsidiaries acquired for cash a
broadline foodservice operation, two quickservice operations, a custom
meat-cutting operation, a specialty distributor of products to the Asian
foodservice market and a distributor of paper and chemical products. During
fiscal 2002, SYSCO acquired for cash and/or stock a custom meat-cutting
operation, a company that supplies products to the lodging industry and
substantially all of the assets and certain liabilities of a Canadian broadline
foodservice operation. During fiscal 2001, SYSCO acquired for cash and/or stock
two custom meat-cutting operations, two broadline foodservice companies and one
company that supplies products to the lodging industry.
During fiscal 2003, in the aggregate, the company paid cash of $209,010,000
and issued 951,127 shares for acquisitions during fiscal 2003 and for contingent
consideration and restructuring costs related to operations acquired in previous
fiscal years.
Acquisitions of businesses are accounted for using the purchase method of
accounting and the financial statements include the results of the acquired
operations from the respective dates they joined SYSCO. The acquisitions were
immaterial, individually and in the aggregate, to the consolidated financial
statements.
The purchase price of the acquired entities was allocated to the net assets
acquired and liabilities assumed based on the estimated fair value at the dates
of acquisition, with any excess of cost over the fair value of net assets
acquired (including intangibles) recognized as goodwill. The balances included
in the Consolidated Balance Sheets related to the fiscal 2003 acquisitions are
based upon preliminary information and are subject to change when final asset
and liability valuations are obtained. Material changes to the preliminary
allocations are not anticipated by management.
During the third quarter of fiscal 2003, SYSCO recorded $16,300,000 as
additional cost of the acquisition of a Canadian broadline foodservice operation
and as accrued expenses. These costs relate to plans to exit activities of the
acquired operations and primarily consist of termination of leases on facilities
and equipment and the involuntary termination of employees.
Certain acquisitions involve contingent consideration typically payable
only in the event that certain operating results are attained or certain
outstanding contingencies are resolved. Aggregate contingent consideration
amounts outstanding as of June 28, 2003 included approximately 3,503,000 shares
and $31,111,000 in cash, which, if distributed, could result in the recording of
up to $100,548,000 in additional goodwill. Such amounts typically are to be paid
out over periods of up to five years from the date of acquisition.
In August 2003, SYSCO signed a definitive agreement to acquire certain
assets of the Stockton, California foodservice operations from Smart & Final,
Inc. The transaction was completed in September 2003.
33
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS
SYSCO manages its debt portfolio by targeting an overall desired position
of fixed and floating rates and may employ interest rate swaps from time to time
to achieve this goal. The company does not use derivative financial instruments
for trading or speculative purposes.
In March 2002, SYSCO entered into an interest rate swap agreement with a
notional amount of $200,000,000 related to the $200,000,000 aggregate principal
amount of 4.75% notes due July 30, 2005. The objective of such transaction was
to protect the debt against changes in fair value due to changes in the
benchmark interest rate, which was designated as six-month LIBOR in arrears less
84.5 basis points. Under the interest rate swap agreement, SYSCO received a
fixed rate equal to 4.75% per annum and paid the benchmark interest rate. SYSCO
designated its interest rate swap agreement as a fair value hedge of the
underlying debt. Interest expense on the debt was adjusted to include payments
made or received under the hedge agreement. In June 2003, SYSCO terminated this
swap agreement and received approximately $15,359,000 representing the fair
value of the swap agreement at the time of termination. A corresponding amount
is reflected as an increase in the carrying value of the related debt to reflect
its fair value at termination. This increase in the carrying value of the debt
is being amortized as a reduction of interest expense over the remaining term of
the debt.
NEW ACCOUNTING STANDARDS
SYSCO adopted the provisions of SFAS No. 142, "Accounting for Goodwill and
Other Intangible Assets," effective at the beginning of fiscal 2003. As a
result, the amortization of goodwill was discontinued. Management completed its
assessment of the impact that the adoption of SFAS No. 142 had on the company's
consolidated financial statements and determined that there was no impairment to
the carrying value of goodwill.
The following table provides comparative net earnings and earnings per
share had the non-amortization provision been in effect for all periods
presented:
<Table>
<Caption>
YEAR ENDED
---------------------------------------------
JUNE 28, 2003 JUNE 29, 2002 JUNE 30, 2001
------------- ------------- -------------
<S> <C> <C> <C>
Net earnings:
Net earnings............................. $778,288,000 $679,787,000 $596,909,000
Goodwill amortization, net of taxes...... -- 14,533,000 12,089,000
------------ ------------ ------------
Adjusted net earnings.................... $778,288,000 $694,320,000 $608,998,000
============ ============ ============
Basic earnings per share:
Basic earnings per share................. $ 1.20 $ 1.03 $ 0.90
Goodwill amortization, net of taxes...... -- 0.02 0.02
------------ ------------ ------------
Adjusted basic earnings per share........ $ 1.20 $ 1.05 $ 0.92
============ ============ ============
Diluted earnings per share:
Diluted earnings per share............... $ 1.18 $ 1.01 $ 0.88
Goodwill amortization, net of taxes...... -- 0.02 0.02
------------ ------------ ------------
Adjusted diluted earnings per share...... $ 1.18 $ 1.03 $ 0.90
============ ============ ============
</Table>
SYSCO adopted the provisions of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," effective in fiscal 2003. The
adoption of SFAS No. 144 has not had a material effect on the company's
consolidated financial statements.
SYSCO has adopted the provisions of Financial Accounting Standards Board
(FASB) Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." This interpretation requires certain guarantees to be recorded at fair
34
<PAGE>
value and also requires a guarantor to make certain disclosures regarding
guarantees. This interpretation's initial recognition and initial measurement
provisions are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. The disclosure requirements became effective
for SYSCO's financial statements for the third quarter of fiscal 2003. The
adoption of this interpretation did not have a material impact on SYSCO's
consolidated financial statements or disclosures.
SYSCO adopted the disclosure provisions of SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure," in the third quarter of
fiscal 2003. SFAS No. 148 provides alternative methods of transition to SFAS No.
123, "Accounting for Stock-Based Compensation," fair value method of accounting
for stock-based employee compensation if a company elects to adopt these
provisions. SFAS No. 148 also specifies required disclosures of an entity's
accounting policy with respect to stock-based employee compensation on reported
net earnings and earnings per share in annual and interim financial statements.
SYSCO has adopted the provisions of the Emerging Issues Task Force (EITF)
Issue No. 02-16, "Accounting by a Customer (including a Reseller) for Cash
Consideration Received from a Vendor." The provisions of EITF No. 02-16 are
effective for fiscal periods beginning after December 15, 2002 with certain
provisions effective for arrangements entered into after November 21, 2002. EITF
No. 02-16 provides guidance as to the recognition and classification of monies
received from vendors. SYSCO's historical accounting policies are consistent
with the provisions of EITF No. 02-16 and thus SYSCO chose to adopt this
accounting policy during the third quarter of fiscal 2003. The adoption of this
consensus did not have an impact on SYSCO's consolidated financial statements.
SYSCO adopted the provisions of the EITF Issue 02-17, "Recognition of
Customer Relationship Intangible Assets Acquired in a Business Combination,"
effective October 2002. EITF No. 02-17 addresses the intangible asset
recognition criteria of SFAS No. 141, "Business Combinations," and provides that
an intangible asset related to customer relationship intangibles may exist even
though the relationship is not evidenced by a contract. The adoption of this
consensus did not have a material impact on SYSCO's consolidated financial
statements.
In November 2002, the EITF reached a consensus on Issue No. 00-21,
"Multiple-Deliverable Revenue Arrangements." EITF No. 00-21 addresses how to
account for revenue arrangements with multiple deliverables and provides
guidance relating to when such arrangements should be divided into components
for revenue recognition purposes. The consensus will be effective for agreements
entered into in fiscal 2004 with early adoption permitted. The adoption of this
consensus will not have a material impact on SYSCO's consolidated financial
statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research Bulletin
(ARB) No. 51." This interpretation introduces a new consolidation model, the
variable interests model, which determines control (and consolidation) based on
potential variability in gains and losses of the entity being evaluated for
consolidation. The interpretation's consolidation provisions apply immediately
to variable interests in variable interest entities (VIE's) created after
January 31, 2003 and apply in the first fiscal year or interim period beginning
after June 15, 2003 to VIE's acquired before February 1, 2003. The adoption of
this interpretation will not have a material impact on SYSCO's consolidated
financial statements.
35
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
INCOME TAXES
The income tax provisions consist of the following:
<Table>
<Caption>
2003 2002 2001
------------ ------------ ------------
<S> <C> <C> <C>
United States federal income taxes......... $408,902,000 $372,498,000 $322,837,000
State, local and foreign income taxes...... 73,197,000 48,585,000 46,909,000
------------ ------------ ------------
Total...................................... $482,099,000 $421,083,000 $369,746,000
============ ============ ============
</Table>
Included in the income taxes charged to earnings are net deferred tax
provisions of $481,330,000, $263,492,000, and $6,199,000 in fiscal 2003, 2002
and 2001, respectively. The deferred tax provisions result from the effects of
net changes during the year in deferred tax assets and liabilities arising from
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
United States income taxes have not been provided on undistributed earnings
of Canadian subsidiaries. The company intends to permanently reinvest the
unremitted earnings of its Canadian subsidiaries in those businesses outside of
the United States and, therefore, has not provided for deferred income taxes on
such unremitted foreign earnings.
Significant components of SYSCO's deferred tax assets and liabilities are
as follows:
<Table>
<Caption>
JUNE 28, 2003 JUNE 29, 2002
------------- -------------
<S> <C> <C>
Net long-term deferred tax liabilities (assets):
Deferred supply chain distributions.................... $321,388,000 $266,673,000
Excess tax depreciation and basis differences of
assets.............................................. 301,515,000 264,696,000
Casualty insurance..................................... (27,169,000) (27,759,000)
Deferred compensation.................................. (27,489,000) (20,423,000)
Pension................................................ (86,859,000) (43,587,000)
Other.................................................. 17,010,000 1,970,000
------------ ------------
Total net long-term deferred tax liabilities
(assets)..................................... 498,396,000 441,570,000
------------ ------------
Net current deferred tax liabilities (assets):
Deferred supply chain distributions.................... 409,662,000 --
Receivables............................................ (18,980,000) (19,681,000)
Inventory.............................................. (19,181,000) (18,706,000)
Net operating tax loss carryforward.................... (54,184,000) --
Other.................................................. (10,106,000) 4,199,000
------------ ------------
Total net current deferred tax liabilities
(assets)..................................... 307,211,000 (34,188,000)
------------ ------------
Total net deferred tax liabilities....................... $805,607,000 $407,382,000
============ ============
</Table>
The increase in net deferred tax liability balances from June 29, 2002 to
June 28, 2003 was primarily due to the deferral of federal and state income tax
payments resulting from the company's reorganization of its supply chain. The
increase in total deferred tax liability balances related to this item was
approximately $464,377,000 for the year ended June 28, 2003. A portion of the
deferral related to this item was classified as a current deferred tax liability
as of June 28, 2003 due to the timing of when the related income tax payments
will become payable.
The company has had taxable earnings during each year of its 34-year
existence except for fiscal 2003. In fiscal 2003, the company had a net
operating tax loss primarily as a result of the deferral of the supply chain
distributions. These deferrals will reverse in fiscal 2004. The company knows of
no reason that it will not have
36
<PAGE>
taxable earnings in future years. Consequently, SYSCO believes that it is more
likely than not that the entire benefit of existing differences will be realized
and therefore no valuation allowance has been established for deferred tax
assets.
Reconciliations of the statutory federal income tax rate to the effective
income tax rates are as follows:
<Table>
<Caption>
2003 2002 2001
----- ----- -----
<S> <C> <C> <C>
United States statutory federal income tax rate............. 35.00% 35.00% 35.00%
State and local income taxes, net of federal income tax
benefit................................................... 3.07 2.42 2.63
Other....................................................... 0.18 0.83 0.62
----- ----- -----
38.25% 38.25% 38.25%
===== ===== =====
</Table>
RESTRICTED CASH
SYSCO is required by its insurers to collateralize the self-insured portion
of its workers' compensation and liability claims. Previously, the collateral
requirements were met by issuing letters of credit. These letters of credit were
replaced with funds deposited in an insurance trust. In addition, in certain
acquisitions, SYSCO has placed funds into escrow to be disbursed to certain
sellers in the event that certain operating results are attained or certain
contingencies are resolved. The increase in restricted cash from June 29, 2002
to June 28, 2003 was due to the timing of depositing funds to replace letters of
credit as they expired and to the depositing of funds into escrow relating to
recent acquisitions.
SHAREHOLDERS' EQUITY
Basic earnings per share have been computed by dividing net earnings by the
weighted average number of shares of common stock outstanding during those
respective years. Diluted earnings per share have been computed by dividing net
earnings by the weighted average number of shares of common stock outstanding
during those respective years adjusted for the dilutive effect of stock options
outstanding using the treasury stock method.
A reconciliation of the numerators and the denominators of the basic and
diluted per share computations for the periods presented follows:
<Table>
<Caption>
2003 2002 2001
------------ ------------ ------------
<S> <C> <C> <C>
Numerator:
Income available to common
shareholders.......................... $778,288,000 $679,787,000 $596,909,000
============ ============ ============
Denominator:
Weighted-average basic shares
outstanding........................... 650,600,652 661,808,432 665,551,228
Dilutive effect of employee and director
stock options......................... 10,934,730 11,637,351 12,398,123
------------ ------------ ------------
Weighted-average diluted shares
outstanding........................... 661,535,382 673,445,783 677,949,351
============ ============ ============
Basic earnings per share................... $ 1.20 $ 1.03 $ 0.90
Diluted earnings per share................. 1.18 1.01 0.88
</Table>
The number of options which were not included in the diluted earnings per
share calculation because the effect would have been antidilutive was
approximately 13,620,000, 365,000 and zero for fiscal 2003, 2002 and 2001,
respectively.
Comprehensive income is net earnings plus certain other items that are
recorded directly to shareholders' equity. The amounts recorded to other
comprehensive loss with respect to minimum pension liability were $119,683,000,
net of tax of $74,136,000, for the year ended June 28, 2003, $59,811,000, net of
tax of $37,049,000, for the year ended June 29, 2002 and $5,624,000, net of tax
of $3,484,000, for the year ended June 30, 2001. The amount recorded to other
comprehensive loss related to foreign currency translation
37
<PAGE>
adjustment was a gain of $32,737,000 for the year ended June 28, 2003.
Comprehensive income was $691,342,000, $619,976,000 and $591,285,000 for the
fiscal years ended June 28, 2003, June 29, 2002 and June 30, 2001, respectively.
DEBT
SYSCO has uncommitted bank lines of credit, which provided for unsecured
borrowings for working capital of up to $95,000,000 at June 28, 2003 and up to
$125,000,000 at June 29, 2002. There were no borrowings outstanding under these
lines of credit as of June 28, 2003 or June 29, 2002.
SYSCO's debt consists of the following:
<Table>
<Caption>
JUNE 28, 2003 JUNE 29, 2002
-------------- --------------
<S> <C> <C>
Commercial paper, interest averaging 2.7% in 2003 and
2.6% in 2002........................................ $ 151,748,000 $ 63,293,000
Senior notes, interest at 6.5%, maturing in 2005...... 149,823,000 149,733,000
Senior notes, interest at 7.0%, maturing in 2006...... 200,000,000 200,000,000
Senior notes, interest at 4.75% maturing in 2006...... 215,068,000 199,569,000
Senior notes, interest at 7.25%, maturing in 2007..... 99,851,000 99,813,000
Senior notes, interest at 6.1%, maturing in 2012...... 199,431,000 199,366,000
Debentures, interest at 7.16%, maturing in 2027....... 50,000,000 50,000,000
Debentures, interest at 6.5%, maturing in 2029........ 224,404,000 224,381,000
Industrial Revenue Bonds, mortgages and other debt,
interest averaging 6.0% in 2003 and 5.1% in 2002,
maturing at various dates to 2026................... 81,911,000 70,266,000
-------------- --------------
Total debt............................................ 1,372,236,000 1,256,421,000
Less current maturities and short-term debt........... (122,769,000) (80,114,000)
-------------- --------------
Net long-term debt.................................... $1,249,467,000 $1,176,307,000
============== ==============
</Table>
The principal payments required to be made on debt during the next five
years are shown below:
<Table>
<Caption>
FISCAL YEAR AMOUNT
- ----------- ------------
<S> <C>
2004........................................................ $122,769,000
2005........................................................ 157,614,000
2006........................................................ 420,767,000
2007........................................................ 103,855,000
2008........................................................ 54,453,000
</Table>
SYSCO has a revolving loan agreement in the amount of $450,000,000 as of
June 28, 2003 maturing in fiscal 2008 which supports the company's United States
commercial paper program. It is the company's intent to continue to refinance
this facility on a long-term basis. As a result, the commercial paper borrowings
supported by this agreement have been classified as long-term debt. United
States commercial paper borrowings outstanding at June 28, 2003 were
$49,926,000.
SYSCO also has a revolving loan agreement in the amount of $100,000,000 in
Canadian dollars (CAD) maturing in fiscal 2004 which supports the company's
Canadian commercial paper program. The Canadian commercial paper borrowings
outstanding at June 28, 2003 were CAD $137,078,000 ($101,822,000 in U.S.
dollars).
In June 1995, SYSCO issued 6.5% senior notes totaling $150,000,000 due June
12, 2005, under a $500,000,000 shelf registration filed with the Securities and
Exchange Commission. These notes, which were priced at 99.4% of par, are
unsecured, not redeemable prior to maturity and are not subject to any sinking
fund requirement. In May 1996, SYSCO issued 7.0% senior notes totaling
$200,000,000 due May 1, 2006, under
38
<PAGE>
this shelf registration. These notes, which were priced at par, are unsecured,
not redeemable prior to maturity and are not subject to any sinking fund
requirement. In April 1997, in two separate offerings, SYSCO drew down the
remaining $150,000,000 of the $500,000,000 shelf registration. SYSCO issued
7.16% debentures totaling $50,000,000 due April 15, 2027. These debentures were
priced at par, are unsecured, are not subject to any sinking fund requirement
and are redeemable at the option of the holder on April 15, 2007, but otherwise
are not redeemable prior to maturity. At that time, SYSCO issued 7.25% senior
notes totaling $100,000,000 due April 15, 2007. These notes were priced at
99.611% of par and are unsecured, not redeemable prior to maturity and not
subject to any sinking fund requirement.
In June 1998, SYSCO filed with the Securities and Exchange Commission
another $500,000,000 shelf registration of debt securities. In July 1998, SYSCO
issued 6.5% debentures totaling $225,000,000 under the shelf registration, due
on August 1, 2028. These debentures were priced at 99.685% of par, are
unsecured, are not subject to any sinking fund requirement and include a
redemption provision which allows SYSCO to retire the debentures at any time
prior to maturity at the greater of par plus accrued interest or an amount
designed to ensure that the debenture holders are not penalized by the early
redemption. Proceeds from the debentures were used to retire commercial paper
borrowings.
In April 2002, SYSCO issued 4.75% notes totaling $200,000,000 under this
shelf registration, due on July 30, 2005. 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 at the greater of par plus accrued interest or an amount
designed to ensure that the note holders are not penalized by the early
redemption. Proceeds from the notes were 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 received a fixed rate equal to 4.75% per annum and paid a benchmark
interest rate of six-month LIBOR in arrears less 84.5 basis points. In June
2003, SYSCO terminated this swap agreement and received approximately
$15,359,000 representing the fair value of the swap agreement at the time of
termination. A corresponding amount is reflected as an increase in the carrying
value of the related debt to reflect its fair value at termination. This
increase in the carrying value of the debt is being amortized as a reduction of
interest expense over the remaining term of the debt.
In May 2002, SYSCO International, Co., a wholly-owned subsidiary of SYSCO,
issued 6.10% notes totaling $200,000,000 due June 1, 2012 in a private offering.
These notes, which were priced at 99.7% of par, were fully and unconditionally
guaranteed by Sysco Corporation, were not subject to any sinking fund
requirement, included registration rights for the note holders, and included a
redemption provision which allowed SYSCO International, Co. to retire the notes
at any time prior to maturity at the greater of par plus accrued interest or an
amount designed to ensure that the note holders were not penalized by the early
redemption. In December 2002, SYSCO International, Co. completed a registered
exchange offer for these notes. In the exchange offer, all of the outstanding
$200,000,000 notes were exchanged for new notes which are identical in all
respects to the outstanding notes except that the new notes are registered under
the Securities Act of 1933. The new notes are fully and unconditionally
guaranteed by Sysco Corporation. The proceeds from these notes were utilized to
repay commercial paper issued by SYSCO International, Co. to fund the
acquisition of a Canadian broadline foodservice business.
SYSCO's Industrial Revenue Bonds have varying structures. Final maturities
range from one to 23 years and certain of the bonds provide SYSCO the right to
redeem (or call) the bonds at various dates. These call provisions generally
provide the bondholder a premium in the early call years, declining to par value
as the bonds approach maturity.
Total debt at June 28, 2003 was $1,372,236,000, of which approximately 88%
was at fixed rates averaging 5.7% with an average life of 10 years, and the
remainder was at floating rates averaging 2.5%. Certain loan agreements contain
typical debt covenants to protect noteholders, including provisions to maintain
the company's indebtedness to capitalization ratio (as defined in the agreement)
below a specified level. SYSCO was in compliance with all debt covenants at June
28, 2003.
The fair value of SYSCO's total long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the company for debt of the same remaining
39
<PAGE>
maturities. The fair value of total long-term debt approximated $1,510,453,000
at June 28, 2003 and $1,241,246,000 at June 29, 2002.
As part of normal business activities, SYSCO issues letters of credit
through major banking institutions as required by certain vendor and insurance
agreements. As of June 28, 2003 and June 29, 2002, letters of credit outstanding
were $14,610,000 and $15,619,000, respectively.
LEASES
Although SYSCO normally purchases assets, it has obligations under capital
and operating leases for certain distribution facilities, vehicles and
computers. Total rental expense under operating leases was $83,597,000,
$64,130,000, and $59,833,000 in fiscal 2003, 2002 and 2001, respectively.
Contingent rentals, subleases and assets and obligations under capital leases
are not significant.
Aggregate minimum lease payments under existing non-capitalized long-term
leases are as follows:
<Table>
<Caption>
FISCAL YEAR AMOUNT
- ----------- -----------
<S> <C>
2004........................................................ $53,673,000
2005........................................................ 45,706,000
2006........................................................ 38,041,000
2007........................................................ 27,317,000
2008........................................................ 20,830,000
Later years................................................. 84,721,000
</Table>
STOCK-BASED COMPENSATION PLANS
Employee Incentive Stock Option Plan
The Employee Incentive Stock Option Plan adopted in fiscal 1982 provided
for the issuance of options to purchase SYSCO common stock to officers and key
personnel of the company and its subsidiaries at the market price at the date of
grant, as adjusted for stock splits. No further grants will be made under this
plan which expired in November 1991 and was replaced by the 1991 Stock Option
Plan.
The following summary presents information with regard to options under
this plan:
<Table>
<Caption>
OPTIONS EXERCISABLE OPTIONS OUTSTANDING
------------------------------ ---------------------------
MAXIMUM WEIGHTED SHARES WEIGHTED
SHARES AVERAGE EXERCISE UNDER AVERAGE EXERCISE
EXERCISABLE PRICE PER SHARE OPTION PRICE PER SHARE
----------- ---------------- -------- ----------------
<S> <C> <C> <C> <C>
Balance at July 1, 2000................... 393,578 $5.04 393,578 $5.04
Cancelled............................... (4,000) 5.56
Exercised............................... (281,200) 4.83
--------
Balance at June 30, 2001.................. 108,378 5.56 108,378 5.56
Cancelled............................... --
Exercised............................... (108,378) 5.56
--------
Balance at June 29, 2002.................. --
========
</Table>
All activity under this plan concluded in fiscal 2002.
1991 Stock Option Plan
The 1991 Stock Option Plan (1991 Plan) was adopted in fiscal 1992 and
originally reserved 12,000,000 shares of SYSCO common stock for options to
directors, officers and key personnel of the company and its subsidiaries at the
market price at the date of grant. The 1991 Plan provided for the issuance of
options qualified as incentive stock options under the Internal Revenue Code of
1986, options which are not
40
<PAGE>
so qualified and stock appreciation rights. During fiscal 1996, the shareholders
approved an amendment to the 1991 Plan for an additional 32,000,000 shares to be
made available for future grants of options. No stock appreciation rights were
issued under this plan. No further grants will be made under this plan, which
expired in November 2000 and was replaced by the 2000 Stock Incentive Plan.
The following summary presents information with regard to options under the
1991 Plan:
<Table>
<Caption>
OPTIONS EXERCISABLE OPTIONS OUTSTANDING
------------------------------ -----------------------------
MAXIMUM WEIGHTED SHARES WEIGHTED
SHARES AVERAGE EXERCISE UNDER AVERAGE EXERCISE
EXERCISABLE PRICE PER SHARE OPTION PRICE PER SHARE
----------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Balance at July 1, 2000................. 6,175,254 $ 7.56 19,231,468 $10.36
Granted............................... 5,674,910 20.98
Cancelled............................. (459,626) 16.74
Exercised............................. (3,651,651) 8.57
----------
Balance at June 30, 2001................ 9,095,187 9.02 20,795,101 13.43
Granted............................... -- --
Cancelled............................. (307,362) 17.28
Exercised............................. (2,548,393) 10.52
----------
Balance at June 29, 2002................ 11,251,541 11.38 17,939,346 13.78
Granted............................... -- --
Cancelled............................. (224,261) 16.33
Exercised............................. (2,686,279) 11.76
----------
Balance at June 28, 2003................ 11,514,379 $13.01 15,028,806 $14.12
==========
</Table>
The following table summarizes information about options outstanding under
the 1991 Plan as of June 28, 2003:
<Table>
<Caption>
OPTIONS EXERCISABLE OPTIONS OUTSTANDING
----------------------------- -----------------------------------------------------
WEIGHTED WEIGHTED AVERAGE WEIGHTED
AVERAGE EXERCISE REMAINING CONTRACTUAL AVERAGE EXERCISE
RANGE OF EXERCISE PRICES SHARES PRICE PER SHARE SHARES LIFE (YRS) PRICE PER SHARE
- ------------------------ ---------- ---------------- ---------- --------------------- ----------------
<S> <C> <C> <C> <C> <C>
$6.38 to $8.75........ 4,971,308 $ 7.84 5,441,141 2.99 $ 7.85
$10.94 to $16.28...... 4,023,386 14.41 4,714,188 5.83 14.39
$17.25 to $20.97...... 2,519,685 20.96 4,873,477 7.18 20.84
---------- ----------
Balance at June 28,
2003................ 11,514,379 $13.01 15,028,806 5.24 $14.12
========== ==========
</Table>
2000 Stock Incentive Plan
The 2000 Stock Incentive Plan (2000 Plan) was adopted in fiscal 2001 and
provides for option grants and other stock-based awards to directors, officers
and other employees of the company and its subsidiaries at the market price at
the date of grant. The 2000 Plan reserves 40,000,000 shares of SYSCO common
stock, plus any shares of common stock which were available for grants under the
1991 Plan but which were not utilized prior to its expiration (approximately
8,504,000 shares) and any shares issued under the 1991 Plan that are forfeited,
expire or are cancelled (approximately 4,445,000 shares as of June 28, 2003) and
up to 10,000,000 shares of common stock which have been reacquired by the
company in the open market or in private transactions after November 3, 2000.
The 2000 Plan provides for the issuance of options qualified as incentive stock
options under the Internal Revenue Code of 1986, options which are not so
qualified, stock appreciation rights and other stock-based awards. To date, the
company has issued stock options but no stock appreciation rights under the 2000
Plan.
41
<PAGE>
The following summary presents information with regard to options under the
2000 Plan:
<Table>
<Caption>
OPTIONS EXERCISABLE OPTIONS OUTSTANDING
------------------------------ -----------------------------
MAXIMUM WEIGHTED SHARES WEIGHTED
SHARES AVERAGE EXERCISE UNDER AVERAGE EXERCISE
EXERCISABLE PRICE PER SHARE OPTION PRICE PER SHARE
----------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Granted.................................. $26.16 150,000 $26.16
----------
Balance at June 30, 2001................. -- 26.16 150,000 26.16
Granted.................................. 30,514,910 27.81
Cancelled................................ (445,805) 27.79
----------
Balance at June 29, 2002................. 2,422,383 27.77 30,219,105 27.80
Granted.................................. 13,650,211 30.57
Cancelled................................ (1,332,640) 28.48
Exercised................................ (292,313) 27.79
----------
Balance at June 28, 2003................. 5,391,843 $27.78 42,244,363 $28.67
==========
</Table>
The following table summarizes information about options outstanding under
the 2000 Plan as of June 28, 2003:
<Table>
<Caption>
OPTIONS EXERCISABLE OPTIONS OUTSTANDING
---------------------------- -----------------------------------------------------
WEIGHTED WEIGHTED AVERAGE WEIGHTED
AVERAGE EXERCISE REMAINING CONTRACTUAL AVERAGE EXERCISE
RANGE OF EXERCISE PRICES SHARES PRICE PER SHARE SHARES LIFE (YRS) PRICE PER SHARE
- ------------------------ --------- ---------------- ---------- --------------------- ----------------
<S> <C> <C> <C> <C> <C>
$26.16 to $28.14....... 5,377,843 $27.77 28,696,452 8.21 $27.78
$29.61 to $31.90....... 14,000 30.57 13,547,911 9.21 30.56
--------- ----------
Balance at June 28,
2003................. 5,391,843 $27.78 42,244,363 8.53 $28.67
========= ==========
</Table>
On a combined basis, the total number of options granted under the 1991
Plan and 2000 Plan were 13,650,211, 30,514,910 and 5,824,910 in fiscal years
2003, 2002 and 2001, respectively. The number of options granted in fiscal 2002
was significantly higher than the number of options granted in fiscal 2003, 2001
and in prior years. Part of this increase was due to a new program instituted in
fiscal 2002 that provides for stock options to be granted to all non-executive
employees who meet certain tenure requirements. During the first year of the
program, 16,265,000 options were granted to approximately 8,800 employees. In
addition, the number of options granted overall was increased in connection with
certain compensation adjustments resulting in 1,239,000 options being granted to
17 executive officers and 13,010,910 options being granted to approximately
2,300 other key employees. During fiscal 2003, 2,311,000 options were granted to
approximately 2,300 non-executive employees based on tenure, 942,000 options
were granted to 17 executive officers and 10,397,211 options were granted to
approximately 2,000 other key employees.
1993 and 1996 Guest Supply Stock Incentive Plans
Prior to March 2001, Guest Supply, Inc. maintained the 1993 Stock Option
Plan and the 1996 Long-Term Incentive Plan (Guest Supply Plans). In connection
with SYSCO's acquisition of Guest Supply in March 2001, all outstanding options
exercisable to purchase Guest Supply common stock were converted into options to
purchase shares of SYSCO common stock. The number of shares underlying such
options, as well as the exercise price, were adjusted pursuant to the terms of
the Merger Agreement and Plan of Reorganization dated January 22, 2001. These
options are fully vested and expire in 10 years from the original grant date. No
new options will be issued under any of the Guest Supply Plans.
42
<PAGE>
The following summary presents information with regard to options under the
Guest Supply Plans:
<Table>
<Caption>
OPTIONS EXERCISABLE OPTIONS OUTSTANDING
------------------------------ ---------------------------
MAXIMUM WEIGHTED SHARES WEIGHTED
SHARES AVERAGE EXERCISE UNDER AVERAGE EXERCISE
EXERCISABLE PRICE PER SHARE OPTION PRICE PER SHARE
----------- ---------------- -------- ----------------
<S> <C> <C> <C> <C>
Granted................................... 571,920 $11.04 571,920 $11.04
Exercised................................. (9,564) 13.50
--------
Balance at June 30, 2001.................. 562,356 11.00 562,356 11.00
Exercised................................. (95,637) 11.89
--------
Balance at June 29, 2002.................. 466,719 10.82 466,719 10.82
Exercised................................. (134,251) 7.11
--------
Balance at June 28, 2003.................. 332,468 $12.31 332,468 $12.31
========
</Table>
The following table summarizes information about options outstanding under
the Guest Supply Plans as of June 28, 2003:
<Table>
<Caption>
OPTIONS EXERCISABLE OPTIONS OUTSTANDING
-------------------------- --------------------------------------------------
WEIGHTED WEIGHTED AVERAGE WEIGHTED
AVERAGE EXERCISE REMAINING CONTRACTUAL AVERAGE EXERCISE
RANGE OF EXERCISE PRICES SHARES PRICE PER SHARE SHARES LIFE (YRS) PRICE PER SHARE
- ------------------------ ------- ---------------- ------- --------------------- ----------------
<S> <C> <C> <C> <C> <C>
$10.00 to $14.84.......... 241,853 $10.65 241,853 3.39 $10.65
$15.95 to $18.43.......... 90,615 16.76 90,615 4.58 16.76
------- -------
Balance at June 28,
2003.................... 332,468 $12.31 332,468 3.72 $12.31
======= =======
</Table>
Non-Employee Directors Stock Option Plan
The Non-Employee Directors Stock Option Plan adopted in fiscal 1996
permitted the issuance of up to 800,000 shares of common stock to non-employee
directors. As of June 28, 2003, options for 304,000 shares have been granted
under this plan, 32,000 shares have been cancelled, 96,000 shares have been
exercised and 176,000 shares are available for exercise. No further grants will
be made under this plan, which was replaced by the Non-Employee Directors Stock
Plan.
Non-Employee Directors Stock Plan
The Non-Employee Directors Stock Plan adopted in fiscal 1999 permits the
issuance of up to 800,000 shares of common stock to non-employee directors.
Under this plan, non-employee directors receive a one time retainer stock award
of 4,000 shares when first elected as a non-employee director and may receive an
annual grant of options to purchase shares of common stock if certain earnings
goals are met. As of June 28, 2003, options for 368,000 shares have been granted
to under this plan, 50,664 shares have been exercised and 170,124 shares are
available for exercise.
Employees' Stock Purchase Plan
SYSCO has an Employees' Stock Purchase Plan which permits employees (other
than directors) to invest by means of periodic payroll deductions in SYSCO
common stock at 85% of the closing price on the last business day of each
calendar quarter. During fiscal 2003, 1,886,090 shares of SYSCO common stock
were purchased by the participants as compared to 1,784,529 purchased in fiscal
2002 and 1,630,208 purchased in fiscal 2001. The total number of shares which
may be sold pursuant to the plan may not exceed 68,000,000 shares, of which
10,067,901 remained available at June 28, 2003.
43
<PAGE>
EMPLOYEE BENEFIT PLANS
SYSCO has defined benefit and defined contribution retirement plans for its
employees. Also, the company contributes to various multi-employer plans under
collective bargaining agreements and provides certain health care benefits to
eligible retirees and their dependents.
The defined contribution 401(k) plan provides that under certain
circumstances the company may make matching contributions of up to 50% of the
first 6% of a participant's compensation. SYSCO's contributions to this plan
were $24,102,000 in 2003, $23,421,000 in 2002, and $9,561,000 in 2001. The
defined benefit pension plans pay benefits to employees at retirement using
formulas based on a participant's years of service and compensation.
SYSCO also has a Management Incentive Plan that compensates key management
personnel for specific performance achievements. The awards earned under this
plan were $62,486,000 in 2003, $51,981,000 in 2002, and $52,540,000 in 2001 and
were paid in the following fiscal year in both cash and stock. In addition to
receiving benefits upon retirement under the company's defined benefit plan,
participants in the Management Incentive Plan will receive benefits under a
Supplemental Executive Retirement Plan (SERP). This plan is a nonqualified,
unfunded supplementary retirement plan. In order to meet its obligations under
the SERP, SYSCO maintains life insurance policies on the lives of the
participants with carrying values of $74,730,000 at June 28, 2003 and
$71,418,000 at June 29, 2002. These policies are not included as plan assets nor
in the funded status amounts in the table below. SYSCO is the sole owner and
beneficiary of such policies. Projected benefit obligations and accumulated
benefit obligations for the SERP were $209,416,000 and $128,071,000,
respectively, as of June 28, 2003 and $145,884,000 and $92,220,000,
respectively, as of June 29, 2002.
44
<PAGE>
The funded status of the defined benefit plans is as follows (including the
SERP benefit obligations but excluding the cash surrender values of life
insurance policies from plan assets):
<Table>
<Caption>
PENSION BENEFITS OTHER POSTRETIREMENT PLANS
------------------------------ -----------------------------
JUNE 28, 2003 JUNE 29, 2002 JUNE 28, 2003 JUNE 29, 2002
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of
year................................... $ 708,829,000 $ 576,759,000 $ 5,270,000 $ 4,391,000
Service cost............................. 51,806,000 46,085,000 318,000 263,000
Interest cost............................ 50,809,000 42,679,000 372,000 321,000
Amendments............................... 4,246,000 1,901,000 -- --
Actuarial loss........................... 229,408,000 58,933,000 1,007,000 295,000
Actual expenses.......................... (3,443,000) (3,280,000) -- --
Settlements.............................. 2,401,000 (1,128,000) -- --
Total disbursements...................... (15,704,000) (13,120,000) (131,000) --
-------------- ------------- ----------- -----------
Benefit obligation at end of year........ 1,028,352,000 708,829,000 6,836,000 5,270,000
-------------- ------------- ----------- -----------
Change in plan assets:
Fair value of plan assets at beginning of
year................................... 456,231,000 416,372,000 -- --
Actual return on plan assets............. 3,553,000 (26,877,000) -- --
Employer contribution.................... 164,565,000 83,136,000 131,000 --
Actual expenses.......................... (3,443,000) (3,280,000) -- --
Total disbursements...................... (15,704,000) (13,120,000) (131,000) --
-------------- ------------- ----------- -----------
Fair value of plan assets at end of
year................................... 605,202,000 456,231,000 -- --
-------------- ------------- ----------- -----------
Funded status............................ (423,150,000) (252,598,000) (6,836,000) (5,270,000)
Unrecognized net actuarial loss (gain)... 493,829,000 236,852,000 (1,263,000) (2,394,000)
Unrecognized net obligation (asset) due
to initial application of SFAS No.
87..................................... 279,000 (273,000) 1,534,000 1,687,000
Unrecognized prior service cost.......... 20,382,000 17,082,000 1,397,000 1,599,000
-------------- ------------- ----------- -----------
Net amount recognized.................... $ 91,340,000 $ 1,063,000 $(5,168,000) $(4,378,000)
============== ============= =========== ===========
</Table>
Additional information related to SYSCO's defined benefit plans is as
follows:
<Table>
<Caption>
JUNE 28, 2003 JUNE 29, 2002
-------------- -------------
<S> <C> <C>
Net amount recognized consists of:
Accrued benefit liability................................... $ (229,109,000) $(122,597,000)
Intangible asset............................................ 20,661,000 17,693,000
Accumulated other comprehensive loss........................ 299,788,000 105,967,000
-------------- -------------
Net amount recognized....................................... $ 91,340,000 $ 1,063,000
============== =============
Plans with accumulated benefit obligation in excess of fair
value of plan assets:
Projected benefit obligation................................ $1,028,352,000 $ 708,829,000
Accumulated benefit obligation.............................. 834,310,000 578,828,000
Fair value of plan assets at end of year.................... 605,202,000 456,231,000
</Table>
Changes in assumptions regarding the discount rate together with actual
returns on plan assets below the expected return assumptions resulted in the
company being required to reflect a cumulative adjustment to other comprehensive
income with respect to minimum pension liability of $185,118,000, net of tax, as
of June 28, 2003 and $65,435,000, net of tax, as of June 29, 2002. Minimum
pension liability adjustments are
45
<PAGE>
non-cash adjustments that are reflected as an increase in the pension liability
and an offsetting charge to shareholders' equity, net of tax, through
comprehensive loss rather than net income.
As a result of changes in the assumptions together with the normal growth
of the plan and the impact of losses from prior periods, net pension cost
increased $22,952,000 in fiscal 2003 and is expected to increase $39,900,000 in
fiscal 2004.
The company's cash contributions to its pension plans were $164,565,000 and
$83,136,000 in fiscal years 2003 and 2002, respectively. For the past several
years no contributions have been required to be made to the qualified pension
trust, as determined by government regulations; however, SYSCO has chosen to
voluntarily make contributions. In fiscal 2004, contributions to the qualified
pension trust will also not be required as determined by government regulations.
The assumptions as of fiscal year-end were:
<Table>
<Caption>
PENSION BENEFITS OTHER POSTRETIREMENT PLANS
----------------------------- -----------------------------
JUNE 28, 2003 JUNE 29, 2002 JUNE 28, 2003 JUNE 29, 2002
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Discount rate.............................. 6.00% 7.25% 6.00% 7.25%
Expected rate of return.................... 9.00 9.50 -- --
Rate of compensation increase.............. 5.89 5.89 -- --
</Table>
A healthcare cost trend rate is not used in the calculations because SYSCO
subsidizes the cost of postretirement medical coverage by a fixed dollar amount
with the retiree responsible for the cost of coverage in excess of the subsidy,
including all future cost increases.
The components of net pension costs are as follows:
<Table>
<Caption>
PENSION BENEFITS
---------------------------------------------
JUNE 28, 2003 JUNE 29, 2002 JUNE 30, 2001
------------- ------------- -------------
<S> <C> <C> <C>
Service cost....................................... $ 51,806,000 $ 46,085,000 $ 36,365,000
Interest cost...................................... 50,809,000 42,679,000 34,194,000
Expected return on plan assets..................... (46,462,000) (43,053,000) (40,504,000)
Amortization of prior service cost................. 3,346,000 1,814,000 479,000
Recognized net actuarial loss...................... 15,341,000 4,658,000 672,000
Amortization of net transition obligation.......... (552,000) (847,000) (847,000)
------------ ------------ ------------
Net pension costs.................................. $ 74,288,000 $ 51,336,000 $ 30,359,000
============ ============ ============
</Table>
The components of other postretirement benefit costs are as follows:
<Table>
<Caption>
OTHER POSTRETIREMENT PLANS
---------------------------------------------
JUNE 28, 2003 JUNE 29, 2002 JUNE 30, 2001
------------- ------------- -------------
<S> <C> <C> <C>
Service cost........................................... $ 318,000 $ 263,000 $ 218,000
Interest cost.......................................... 372,000 321,000 283,000
Expected return on plan assets......................... -- -- --
Amortization of prior service cost..................... 202,000 202,000 202,000
Recognized net actuarial gain.......................... (123,000) (141,000) (173,000)
Amortization of net transition obligation.............. 153,000 153,000 153,000
--------- --------- ---------
Net other postretirement benefit costs................. $ 922,000 $ 798,000 $ 683,000
========= ========= =========
</Table>
Multi-employer pension costs were $27,808,000, $27,511,000, and $26,246,000
in fiscal 2003, 2002 and 2001, respectively.
46
<PAGE>
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.
SUPPLEMENTAL GUARANTOR INFORMATION
SYSCO International, Co. is an unlimited liability company organized under
the laws of the Province of Nova Scotia, Canada and is a wholly-owned subsidiary
of SYSCO. In May 2002, SYSCO International, Co. issued, in a private offering,
$200,000,000 of 6.10% notes due in 2012 (See "Debt"). In December 2002, these
notes were exchanged for substantially identical notes in an exchange offer
registered under the Securities Act of 1933. These notes are fully and
unconditionally guaranteed by SYSCO. SYSCO International, Co. is a holding
company with no significant sources of income or assets, other than its equity
interests in its subsidiaries and interest income from loans made to its
subsidiaries. The proceeds from the issuance of the 6.10% notes were used to
repay commercial paper issued to fund the fiscal 2002 acquisition of a Canadian
broadline foodservice operation.
The following condensed consolidating financial statements present
separately the financial position, results of operations and cash flows of the
parent guarantor (SYSCO), the subsidiary issuer (SYSCO International), all other
non-guarantor subsidiaries of SYSCO (Other Non-Guarantor Subsidiaries) on a
combined basis and eliminating entries. The financial information for SYSCO
includes corporate activities as well as certain operating companies which were
operated as divisions of SYSCO prior to fiscal 2003. Beginning with the third
quarter of fiscal 2003, these divisions have been operated as subsidiaries and
their results from that point in time are included in the Other Non-Guarantor
Subsidiaries column. The accompanying financial information includes the
balances and results of SYSCO International, Co. from the date of its inception
in February 2002.
<Table>
<Caption>
CONDENSED CONSOLIDATING BALANCE SHEET -- JUNE 28, 2003
------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets............... $ 203,219 $ 549 $ 3,425,766 $ -- $ 3,629,534
Investment in subsidiaries... 7,529,006 213,247 217,315 (7,959,568) --
Plant and equipment, net..... 84,023 -- 1,838,637 -- 1,922,660
Other assets................. 254,047 2,135 1,128,145 -- 1,384,327
---------- --------- ----------- ----------- -----------
Total assets................. $8,070,295 $ 215,931 $ 6,609,863 $(7,959,568) $ 6,936,521
========== ========= =========== =========== ===========
Current liabilities.......... $ (15,010) $ 72,399 $ 2,643,740 $ -- $ 2,701,129
Intercompany payables
(receivables).............. 4,694,543 (57,185) (4,637,358) -- --
Long-term debt............... 989,899 199,431 60,137 -- 1,249,467
Other liabilities............ 236,069 -- 552,325 -- 788,394
Shareholders' equity......... 2,164,794 1,286 7,991,019 (7,959,568) 2,197,531
---------- --------- ----------- ----------- -----------
Total liabilities and
shareholders' equity....... $8,070,295 $ 215,931 $ 6,609,863 $(7,959,568) $ 6,936,521
========== ========= =========== =========== ===========
</Table>
47
<PAGE>
<Table>
<Caption>
CONDENSED CONSOLIDATING BALANCE SHEET -- JUNE 29, 2002
------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets............... $ 526,259 $ 10,010 $ 2,617,020 $ -- $ 3,153,289
Investment in subsidiaries... 5,279,299 206,203 194,854 (5,680,356) --
Plant and equipment, net..... 271,971 -- 1,425,811 -- 1,697,782
Other assets................. 228,320 1,418 908,944 -- 1,138,682
---------- --------- ----------- ----------- -----------
Total assets................. $6,305,849 $ 217,631 $ 5,146,629 $(5,680,356) $ 5,989,753
========== ========= =========== =========== ===========
Current liabilities.......... $ 621,638 $ 64,554 $ 1,384,172 $ -- $ 2,070,364
Intercompany payables
(receivables).............. 2,353,921 (47,508) (2,306,413) -- --
Long-term debt............... 933,028 199,366 43,913 -- 1,176,307
Other liabilities............ 264,743 -- 345,820 -- 610,563
Shareholders' equity......... 2,132,519 1,219 5,679,137 (5,680,356) 2,132,519
---------- --------- ----------- ----------- -----------
Total liabilities and
shareholders' equity....... $6,305,849 $ 217,631 $ 5,146,629 $(5,680,356) $ 5,989,753
========== ========= =========== =========== ===========
</Table>
<Table>
<Caption>
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
YEAR ENDED JUNE 28, 2003
------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales........................ $1,651,729 $ -- $24,488,608 $ -- $26,140,337
Cost of sales................ 1,278,537 -- 19,701,019 -- 20,979,556
Operating expenses........... 377,861 975 3,457,671 -- 3,836,507
Interest expense (income).... 355,192 10,586 (293,544) -- 72,234
Other, net................... 272 -- (8,619) -- (8,347)
---------- --------- ----------- ----------- -----------
Total costs and expenses..... 2,011,862 11,561 22,856,527 -- 24,879,950
---------- --------- ----------- ----------- -----------
Earnings (loss) before income
taxes...................... (360,133) (11,561) 1,632,081 -- 1,260,387
Income tax (benefit)
provision.................. (137,751) (4,422) 624,272 -- 482,099
Equity in earnings of
subsidiaries............... 1,000,670 7,204 -- (1,007,874) --
---------- --------- ----------- ----------- -----------
Net earnings................. $ 778,288 $ 65 $ 1,007,809 $(1,007,874) $ 778,288
========== ========= =========== =========== ===========
</Table>
48
<PAGE>
<Table>
<Caption>
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
YEAR ENDED JUNE 29, 2002
------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales........................ $3,120,292 $ -- $20,230,212 $ -- $23,350,504
Cost of sales................ 2,430,815 -- 16,291,348 -- 18,722,163
Operating expenses........... 554,731 103 2,912,545 -- 3,467,379
Interest expense (income).... 271,616 1,386 (210,105) -- 62,897
Other, net................... 83 -- (2,888) -- (2,805)
---------- --------- ----------- ----------- -----------
Total costs and expenses..... 3,257,245 1,489 18,990,900 -- 22,249,634
---------- --------- ----------- ----------- -----------
Earnings (loss) before income
taxes...................... (136,953) (1,489) 1,239,312 -- 1,100,870
Income tax (benefit)
provision.................. (52,385) (569) 474,037 -- 421,083
Equity in earnings of
subsidiaries............... 764,355 2,139 -- (766,494) --
---------- --------- ----------- ----------- -----------
Net earnings................. $ 679,787 $ 1,219 $ 765,275 $ (766,494) $ 679,787
========== ========= =========== =========== ===========
</Table>
<Table>
<Caption>
CONDENSED CONSOLIDATING RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 2001
------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales........................ $2,987,807 $ -- $18,796,690 $ -- $21,784,497
Cost of sales................ 2,339,835 -- 15,173,303 -- 17,513,138
Operating expenses........... 536,595 -- 2,696,232 -- 3,232,827
Interest expense (income).... 233,603 -- (161,827) -- 71,776
Other, net................... 1,285 -- (1,184) -- 101
---------- --------- ----------- ----------- -----------
Total costs and expenses..... 3,111,318 -- 17,706,524 -- 20,817,842
---------- --------- ----------- ----------- -----------
Earnings (loss) before income
taxes...................... (123,511) -- 1,090,166 -- 966,655
Income tax (benefit)
provision.................. (47,243) -- 416,989 -- 369,746
Equity in earnings of
subsidiaries............... 673,177 -- -- (673,177) --
---------- --------- ----------- ----------- -----------
Net earnings................. $ 596,909 $ -- $ 673,177 $ (673,177) $ 596,909
========== ========= =========== =========== ===========
</Table>
49
<PAGE>
<Table>
<Caption>
CONDENSED CONSOLIDATING CASH FLOWS
YEAR ENDED JUNE 28, 2003
------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used
for):
Operating activities......... $ (366,480) $ (28,100) $ 1,767,420 $ -- $ 1,372,840
Investing activities......... (307,303) -- (374,522) -- (681,825)
Financing activities......... (576,747) 38,594 (12,375) -- (550,528)
Exchange rate on cash........ -- -- (1,479) -- (1,479)
Intercompany activity........ 1,364,126 (19,986) (1,344,140) -- --
---------- --------- ----------- ----------- -----------
Net increase in cash......... 113,596 (9,492) 34,904 -- 139,008
Cash at the beginning of the
period..................... 92,447 10,006 95,986 -- 198,439
---------- --------- ----------- ----------- -----------
Cash at the end of the
period..................... $ 206,043 $ 514 $ 130,890 $ -- $ 337,447
========== ========= =========== =========== ===========
</Table>
<Table>
<Caption>
CONDENSED CONSOLIDATING CASH FLOWS
YEAR ENDED JUNE 29, 2002
------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used
for):
Operating activities......... $ 90,129 $ (1,081) $ 995,932 $ -- $ 1,084,980
Investing activities......... (102,038) (222,420) (337,842) -- (662,300)
Financing activities......... (584,151) 262,586 (38,419) -- (359,984)
Intercompany activity........ 648,675 (29,079) (619,596) -- --
---------- --------- ----------- ----------- -----------
Net increase in cash......... 52,615 10,006 75 -- 62,696
Cash at the beginning of the
period..................... 39,832 -- 95,911 -- 135,743
---------- --------- ----------- ----------- -----------
Cash at the end of the
period..................... $ 92,447 $ 10,006 $ 95,986 $ -- $ 198,439
========== ========= =========== =========== ===========
</Table>
<Table>
<Caption>
CONDENSED CONSOLIDATING CASH FLOWS
YEAR ENDED JUNE 30, 2001
------------------------------------------------------------------------------
SYSCO OTHER NON-GUARANTOR CONSOLIDATED
SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS
---------- ------------- ------------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used
for):
Operating activities......... $ 27,693 $ -- $ 927,531 $ -- $ 955,224
Investing activities......... (96,319) -- (242,432) -- (338,751)
Financing activities......... (601,623) -- (38,235) -- (639,858)
Intercompany activity........ 649,609 -- (649,609) -- --
---------- --------- ----------- ----------- -----------
Net decrease in cash......... (20,640) -- (2,745) -- (23,385)
Cash at the beginning of the
period..................... 60,472 -- 98,656 -- 159,128
---------- --------- ----------- ----------- -----------
Cash at the end of the
period..................... $ 39,832 $ -- $ 95,911 $ -- $ 135,743
========== ========= =========== =========== ===========
</Table>
50
<PAGE>
BUSINESS SEGMENT INFORMATION
The company has aggregated its operating companies into a number of
segments, of which only Broadline and SYGMA are reportable segments as defined
in SFAS No. 131. Broadline operating companies distribute a full line of food
products and a wide variety of non-food products to both traditional and chain
restaurant customers. SYGMA operating companies distribute a full line of food
products and a wide variety of non-food products to certain chain restaurant
customer locations. "Other" financial information is attributable to the
company's other segments, including the company's specialty produce, meat and
lodging industry products segments. The company's Canadian operations are not
significant for geographical disclosure purposes.
The accounting policies for the segments are the same as those disclosed by
SYSCO. 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.
51
<PAGE>
The following table sets forth the financial information for SYSCO's
business segments:
<Table>
<Caption>
YEAR ENDED
---------------------------------------------
JUNE 28, 2003 JUNE 29, 2002 JUNE 30, 2001
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales:
Broadline........................................... $21,489,862 $19,163,449 $18,106,842
SYGMA............................................... 2,916,174 2,671,110 2,415,840
Other............................................... 2,003,060 1,707,229 1,377,987
Intersegment sales.................................. (268,759) (191,284) (116,172)
----------- ----------- -----------
Total....................................... $26,140,337 $23,350,504 $21,784,497
=========== =========== ===========
Earnings before income taxes:
Broadline........................................... $ 1,276,059 $ 1,131,234 $ 1,006,213
SYGMA............................................... 23,838 23,045 16,319
Other............................................... 51,163 48,840 42,288
----------- ----------- -----------
Total segments...................................... 1,351,060 1,203,119 1,064,820
Unallocated corporate expenses...................... (90,673) (102,249) (98,165)
----------- ----------- -----------
Total....................................... $ 1,260,387 $ 1,100,870 $ 966,655
=========== =========== ===========
Depreciation and amortization:
Broadline........................................... $ 213,877 $ 200,881 $ 189,058
SYGMA............................................... 17,479 16,237 14,492
Other............................................... 17,669 19,181 13,150
----------- ----------- -----------
Total segments...................................... 249,025 236,299 216,700
Corporate........................................... 24,117 41,952 31,540
----------- ----------- -----------
Total....................................... $ 273,142 $ 278,251 $ 248,240
=========== =========== ===========
Capital expenditures:
Broadline........................................... $ 338,346 $ 361,284 $ 288,934
SYGMA............................................... 17,898 20,941 16,996
Other............................................... 18,519 13,634 14,327
----------- ----------- -----------
Total segments...................................... 374,763 395,859 320,257
Corporate........................................... 60,874 20,534 20,881
----------- ----------- -----------
Total....................................... $ 435,637 $ 416,393 $ 341,138
=========== =========== ===========
Assets:
Broadline........................................... $ 4,513,533 $ 3,983,216 $ 3,550,584
SYGMA............................................... 190,406 176,093 172,899
Other............................................... 501,236 424,982 425,376
----------- ----------- -----------
Total segments...................................... 5,205,175 4,584,291 4,148,859
Corporate........................................... 1,731,346 1,405,462 1,204,128
----------- ----------- -----------
Total....................................... $ 6,936,521 $ 5,989,753 $ 5,352,987
=========== =========== ===========
</Table>
52
<PAGE>
The sales mix for the principal product categories during the three years
ended June 28, 2003 is as follows:
<Table>
<Caption>
YEAR ENDED
---------------------------------------------
JUNE 28, 2003 JUNE 29, 2002 JUNE 30, 2001
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Canned and dry products............................... $ 4,966,046 $ 4,382,840 $ 4,212,677
Fresh and frozen meats................................ 4,671,794 4,169,232 3,848,523
Frozen fruits, vegetables, bakery and other........... 3,607,449 3,104,442 2,925,615
Poultry............................................... 2,666,831 2,346,308 2,156,847
Dairy products........................................ 2,264,145 2,139,739 1,905,596
Fresh produce......................................... 2,228,954 1,990,071 1,939,222
Paper and disposables................................. 2,053,362 1,840,534 1,708,697
Seafood............................................... 1,474,140 1,332,539 1,330,880
Beverage products..................................... 809,562 728,624 666,320
Equipment and smallwares.............................. 592,234 593,741 534,217
Janitorial products................................... 591,663 543,168 405,662
Medical supplies...................................... 214,157 179,266 150,241
----------- ----------- -----------
Total....................................... $26,140,337 $23,350,504 $21,784,497
=========== =========== ===========
</Table>
53
<PAGE>
QUARTERLY RESULTS (UNAUDITED)
Financial information for each quarter in the years ended June 28, 2003 and
June 29, 2002 is set forth below:
<Table>
<Caption>
QUARTER ENDED
------------------------------------------------------------------
2003 SEPTEMBER 28 DECEMBER 28 MARCH 29 JUNE 28 FISCAL YEAR
- ---- ------------ ----------- ---------- ---------- -----------
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<S> <C> <C> <C> <C> <C>
Sales.......................... $6,424,422 $6,348,797 $6,395,278 $6,971,840 $26,140,337
Cost of sales.................. 5,154,704 5,097,716 5,144,473 5,582,663 20,979,556
Operating expenses............. 960,635 937,290 962,459 976,123 3,836,507
Interest expense............... 16,828 17,503 18,276 19,627 72,234
Other, net..................... (3,412) (2,606) (2,661) 332 (8,347)
---------- ---------- ---------- ---------- -----------
Earnings before income taxes... 295,667 298,894 272,731 393,095 1,260,387
Income taxes................... 113,093 114,327 104,320 150,359 482,099
---------- ---------- ---------- ---------- -----------
Net earnings................... $ 182,574 $ 184,567 $ 168,411 $ 242,736 $ 778,288
========== ========== ========== ========== ===========
Per share:
Basic net earnings........... $ 0.28 $ 0.28 $ 0.26 $ 0.38 $ 1.20
Diluted net earnings......... 0.28 0.28 0.26 0.37 1.18
Dividends declared........... 0.09 0.11 0.11 0.11 0.42
Market price -- high/low..... 31-21 33-28 31-23 32-25 33-21
</Table>
<Table>
<Caption>
QUARTER ENDED
------------------------------------------------------------------
2002 SEPTEMBER 29 DECEMBER 29 MARCH 30 JUNE 29 FISCAL YEAR
- ---- ------------ ----------- ---------- ---------- -----------
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<S> <C> <C> <C> <C> <C>
Sales.......................... $5,828,678 $5,590,966 $5,620,324 $6,310,536 $23,350,504
Cost of sales.................. 4,683,617 4,481,655 4,510,059 5,046,832 18,722,163
Operating expenses............. 864,456 836,355 851,668 914,900 3,467,379
Interest expense............... 15,864 16,513 14,318 16,202 62,897
Other, net..................... (769) (290) (877) (869) (2,805)
---------- ---------- ---------- ---------- -----------
Earnings before income taxes... 265,510 256,733 245,156 333,471 1,100,870
Income taxes................... 101,558 98,200 93,772 127,553 421,083
---------- ---------- ---------- ---------- -----------
Net earnings................... $ 163,952 $ 158,533 $ 151,384 $ 205,918 $ 679,787
========== ========== ========== ========== ===========
Per share:
Basic net earnings........... $ 0.25 $ 0.24 $ 0.23 $ 0.31 $ 1.03
Diluted net earnings......... 0.24 0.24 0.23 0.31 1.01
Dividends declared........... 0.07 0.09 0.09 0.09 0.34
Market price -- high/low..... 30-22 27-24 30-25 30-26 30-22
PERCENTAGE INCREASES -- 2003 VS. 2002:
Sales.......................... 10% 14% 14% 10% 12%
Earnings before income taxes... 11 16 11 18 14
Net earnings................... 11 16 11 18 14
Basic net earnings per share... 12 17 13 23 17
Diluted net earnings per
share........................ 17 17 13 19 17
</Table>
54
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
As of June 28, 2003, an evaluation was performed under the supervision and
with the participation of the company's management, including the CEO and CFO,
of the effectiveness of the design and operation of the company's disclosure
controls and procedures. Based on that evaluation, the company's management,
including the CEO and CFO, concluded that the company's disclosure controls and
procedures were effective as of June 28, 2003 in providing reasonable assurances
that material information required to be disclosed is included on a timely basis
in the reports it files with the Securities and Exchange Commission.
PART III
Except as otherwise indicated, the information required by Items 10, 11,
12, 13 and 14 will be included in the company's definitive proxy statement to be
filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 no
later than 120 days after the end of the fiscal year covered by this Form 10-K
and such portions of said proxy statement are hereby incorporated by reference
thereto.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Executive Officers is included in Part I (Item 4A)
of this Form 10-K (page 8).
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed, or incorporated by reference, as
part of this Form 10-K:
1. All financial statements. See index to Consolidated Financial
Statements on page 24 of this Form 10-K.
2. Financial Statement Schedule. See page S-1 of this Form 10-K.
3. Exhibits.
<Table>
<S> <C> <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) -- Amended and Restated Bylaws of Sysco Corporation dated
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).
</Table>
55
<PAGE>
<Table>
<S> <C> <C>
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 in
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. 1-6544).
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 dated April 5, 2002 between
Sysco Corporation and Wachovia Bank, National Association,
incorporated by reference to Exhibit 4.1 to Form 8-K dated
April 5, 2002.
4(l) -- Indenture dated May 23, 2002 between Sysco International,
Co., Sysco Corporation and Wachovia Bank, National
Association, incorporated by reference to Exhibit 4.1 to
Registration Statement on Form S-4 filed August 21, 2002
(File No. 333-98489).
4(m) -- Credit Agreement dated September 13, 2002 by and among SYSCO
Corporation, JPMorgan Chase Bank, individually and as
Administrative Agent, the Co-Syndication Agents named
therein and the other financial institutions party thereto,
incorporated by reference to Exhibit 4(i) to Form 10-Q for
the quarter ended September 28, 2002 filed on May 13, 2003
(File No. 1-6544).
10(a)+ -- Amended and Restated Sysco Corporation Executive Deferred
Compensation Plan, incorporated by reference to Exhibit
10(a) to Form 10-K for the year ended July 1, 1995 (File No.
1-6544).
10(b)+ -- Fifth Amended and Restated Sysco Corporation Supplemental
Executive Retirement Plan, incorporated by reference to
Exhibit 10(b) to Form 10-K for the year ended June 28, 1997
(File No. 1-6544).
10(c)+ -- Sysco Corporation Employee Incentive Stock Option Plan,
incorporated by reference to Exhibit 10(c) to Form 10-K for
the year ended July 3, 1999 (File No. 1-6544).
10(d)+ -- Sysco Corporation 1995 Management Incentive Plan,
incorporated by reference to Exhibit 10(e) to Form 10-K for
the year ended July 1, 1995 (File No. 1-6544).
10(e)+ -- Sysco Corporation 1991 Stock Option Plan, incorporated by
reference to Exhibit 10(e) to Form 10-K for the year ended
July 3, 1999 (File No. 1-6544).
</Table>
56
<PAGE>
<Table>
<S> <C> <C>
10(f)+ -- Amendments to Sysco Corporation 1991 Stock Option Plan dated
effective September 4, 1997, incorporated by reference to
Exhibit 10(f) to Form 10-K for the year ended June 28, 1997
(File No. 1-6544).
10(g)+ -- Amendments to Sysco Corporation 1991 Stock Option Plan dated
effective November 5, 1998, incorporated by reference to
Exhibit 10(g) to Form 10-K for the year ended July 3, 1999
(File No. 1-6544).
10(h)+ -- Sysco Corporation Amended and Restated Non-Employee
Directors Stock Option Plan, incorporated by reference to
Exhibit 10(g) to Form 10-K for the year ended June 28, 1997
(File No. 1-6544).
10(i)+ -- Amendment to the Amended and Restated Non-Employee Directors
Stock Option Plan dated effective November 5, 1998,
incorporated by reference to Exhibit 10(i) to Form 10-K for
the year ended July 3, 1999 (File No. 1-6544).
10(j)+ -- Sysco Corporation Non-Employee Directors Stock Plan,
incorporated by reference to Appendix A of the 1998 Proxy
Statement (File No. 1-6544).
10(k) -- Amended and Restated Shareholder Rights Agreement,
incorporated by reference to Registration Statement on Form
8-A/A, filed May 29, 1996 (File No. 1-6544).
10(l) -- Amendment to the Amended and Restated Shareholder Rights
Agreement dated as of May 20, 1996, incorporated by
reference to Exhibit 1 to Registration Statement on Form
8-A/A, filed July 16, 1999 (File No. 1-6544).
10(m)+ -- Sysco Corporation Split Dollar Life Insurance Plan,
incorporated by reference to Exhibit 10(m) to Form 10-Q for
the quarter ended January 1, 2000 (File No. 1-6544).
10(n)+ -- Executive Compensation Adjustment Agreement -- Bill M.
Lindig, incorporated by reference to Exhibit 10(n) to Form
10-Q for the quarter ended January 1, 2000 (File No.
1-6544).
10(o)+ -- Executive Compensation Adjustment Agreement -- Charles H.
Cotros, incorporated by reference to Exhibit 10(o) to Form
10-Q for the quarter ended January 1, 2000 (File No.
1-6544).
10(p)+ -- First Amendment to Fifth Amended and Restated Sysco
Corporation Supplemental Executive Retirement Plan dated
effective June 29, 1997, incorporated by reference to
Exhibit 10(p) to Form 10-Q for the quarter ended January 1,
2000 (File No. 1-6544).
10(q)+ -- First Amendment to Amended and Restated Sysco Corporation
Executive Deferred Compensation Plan dated effective June
29, 1997, incorporated by reference to Exhibit 10(q) to Form
10-Q for the quarter ended January 1, 2000 (File No.
1-6544).
10(r)+ -- First Amendment to Sysco Corporation 1995 Management
Incentive Plan dated effective June 29, 1997, incorporated
by reference to Exhibit 10(r) to Form 10-Q for the quarter
ended January 1, 2000 (File No. 1-6544).
10(s)+ -- 2000 Management Incentive Plan, incorporated by reference to
Appendix A to Proxy Statement filed September 25, 2000 (File
No. 1-6544).
10(t)+ -- 2000 Stock Incentive Plan, incorporated by reference to
Appendix B to Proxy Statement filed on September 25, 2000
(File No. 1-6544).
10(u)+ -- Amended and Restated Non-Employee Directors Stock Plan,
incorporated by reference to Appendix B to Proxy Statement
filed on September 24, 2001 (File No. 1-6544).
10(v)+ -- Second Amendment dated as of May 10, 2000, to the Fifth
Amended and Restated SYSCO Corporation Supplemental
Executive Retirement Plan, incorporated by reference to
Exhibit 10(a) to Form 10-Q for the quarter ended September
30, 2000 filed on November 13, 2000 (File No. 1-6544).
10(w)+ -- Second Amendment dated as of May 10, 2000, to Amended and
Restated SYSCO Corporation Executive Deferred Compensation
Plan, incorporated by reference to Exhibit 10(b) to Form
10-Q for the quarter ended September 30, 2000 filed on
November 13, 2000 (File No. 1-6544).
</Table>
57
<PAGE>
<Table>
<S> <C> <C>
10(x)+ -- First Amendment dated as of May 10, 2000 to Amended and
Restated SYSCO Corporation Board of Directors Deferred
Compensation Plan, incorporated by reference to Exhibit
10(c) to Form 10-Q for the quarter ended September 30, 2000
filed on November 13, 2000 (File No. 1-6544).
10(y)+ -- First Amendment, dated September 1, 2000, to the Executive
Compensation Adjustment Agreement between Sysco and Charles
H. Cotros, incorporated by reference to Exhibit 10(d) to
Form 10-Q for the quarter ended September 30, 2000 filed on
November 13, 2000 (File No. 1-6544).
10(z)+ -- Equity Deferral Plan dated April 1, 2002, incorporated by
reference to Exhibit 10(z) to Form 10-K for the year ended
June 29, 2002 filed on September 25, 2002 (File No. 1-6544).
10(aa)+ -- Second Amended and Restated Board of Directors Deferred
Compensation Plan dated April 1, 2002, incorporated by
reference to Exhibit 10(aa) to Form 10-K for the year ended
June 29, 2002 filed on September 25, 2002 (File No. 1-6544).
10(bb)+ -- First Amendment to Second Amended and Restated Board of
Directors Deferred Compensation Plan dated July 12, 2002,
incorporated by reference to Exhibit 10(bb) to Form 10-K for
the year ended June 29, 2002 filed on September 25, 2002
(File No. 1-6544).
10(cc)+ -- Second Amended and Restated Executive Deferred Compensation
Plan dated April 1, 2002, incorporated by reference to
Exhibit 10(cc) to Form 10-K for the year ended June 29, 2002
filed on September 25, 2002 (File No. 1-6544).
10(dd)+ -- First Amendment to Second Amended and Restated Executive
Deferred Compensation Plan dated July 12, 2002, incorporated
by reference to Exhibit 10(dd) to Form 10-K for the year
ended June 29, 2002 filed on September 25, 2002 (File No.
1-6544).
10(ee)+ -- Third Amendment to Fifth Amended and Restated Supplemental
Executive Retirement Plan dated July 12, 2002, incorporated
by reference to Exhibit 10(dd) to Form 10-K for the year
ended June 29, 2002 filed on September 25, 2002 (File No.
1-6544).
10(ff)+ -- Retiree Equity Deferral Plan Effective November 22, 2002,
incorporated by reference to Exhibit 10(a) to Form 10-Q for
the quarter ended December 28, 2002 filed on February 10,
2003 (File No. 1-6544).
21# -- Subsidiaries of the Registrant.
23# -- Independent Public Accountants' Consent.
31(a)# -- CEO Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31(b)# -- CFO Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32(a)# -- CEO Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32(b)# -- CFO Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
</Table>
- ---------------
+ Executive Compensation Arrangement pursuant to 601(b)(10)(iii)(A) of
Regulation S-K
# Filed Herewith
(b) The following reports on Form 8-K were filed during the fourth quarter
of fiscal 2003:
On April 28, 2003, the company filed a Form 8-K announcing the results
of its third quarter ended March 29, 2003.
58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Sysco Corporation has duly caused this Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, on this 24th
day of September, 2003.
SYSCO CORPORATION
By /s/ RICHARD J. SCHNIEDERS
------------------------------------
Richard J. Schnieders
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated and on the date indicated above.
PRINCIPAL EXECUTIVE, FINANCIAL & ACCOUNTING OFFICERS:
<Table>
<S> <C>
/s/ RICHARD J. SCHNIEDERS Chairman of the Board and Chief Executive
- -------------------------------------------- Officer
Richard J. Schnieders
/s/ JOHN K. STUBBLEFIELD, JR. Executive Vice President, Finance and
- -------------------------------------------- Administration
John K. Stubblefield, Jr.
</Table>
DIRECTORS:
<Table>
<S> <C>
/s/ COLIN G. CAMPBELL /s/ RICHARD J. SCHNIEDERS
- -------------------------------------------- --------------------------------------------
Colin G. Campbell Richard J. Schnieders
/s/ JUDITH B. CRAVEN /s/ PHYLLIS S. SEWELL
- -------------------------------------------- --------------------------------------------
Judith B. Craven Phyllis S. Sewell
/s/ JONATHAN GOLDEN /s/ JOHN K. STUBBLEFIELD, JR.
- -------------------------------------------- --------------------------------------------
Jonathan Golden John K. Stubblefield, Jr.
/s/ THOMAS E. LANKFORD /s/ RICHARD G. TILGHMAN
- -------------------------------------------- --------------------------------------------
Thomas E. Lankford Richard G. Tilghman
/s/ RICHARD G. MERRILL /s/ JACKIE M. WARD
- -------------------------------------------- --------------------------------------------
Richard G. Merrill Jackie M. Ward
/s/ FRANK H. RICHARDSON
- --------------------------------------------
Frank H. Richardson
</Table>
59
<PAGE>
SYSCO CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<Table>
<Caption>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE(1) DESCRIBE(2) PERIOD
------------ ------------ ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
For year ended June
30, 2001........... Allowance $42,628,000 $21,740,000 $ 1,789,000 $23,045,000 $43,112,000
for doubtful
accounts
For year ended June
29, 2002........... Allowance $43,112,000 $25,904,000 $(12,610,000) $26,068,000 $30,338,000
for doubtful
accounts
For year ended June
28, 2003........... Allowance $30,338,000 $27,133,000 $ 2,305,000 $24,771,000 $35,005,000
for doubtful
accounts
</Table>
- ---------------
(1) Allowance accounts resulting from acquisitions and other adjustments.
(2) Customer accounts written off, net of recoveries.
S-1
<PAGE>
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <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) -- Amended and Restated Bylaws of Sysco Corporation dated
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 in
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. 1-6544).
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 dated April 5, 2002 between
Sysco Corporation and Wachovia Bank, National Association,
incorporated by reference to Exhibit 4.1 to Form 8-K dated
April 5, 2002.
4(l) -- Indenture dated May 23, 2002 between Sysco International,
Co., Sysco Corporation and Wachovia Bank, National
Association, incorporated by reference to Exhibit 4.1 to
Registration Statement on Form S-4 filed August 21, 2002
(File No. 333-98489).
4(m) -- Credit Agreement dated September 13, 2002 by and among SYSCO
Corporation, JPMorgan Chase Bank, individually and as
Administrative Agent, the Co-Syndication Agents named
therein and the other financial institutions party thereto,
incorporated by reference to Exhibit 4(i) to Form 10-Q for
the quarter ended September 28, 2002 filed on May 13, 2003
(File No. 1-6544).
</Table>
<PAGE>
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
10(a)+ -- Amended and Restated Sysco Corporation Executive Deferred
Compensation Plan, incorporated by reference to Exhibit
10(a) to Form 10-K for the year ended July 1, 1995 (File No.
1-6544).
10(b)+ -- Fifth Amended and Restated Sysco Corporation Supplemental
Executive Retirement Plan, incorporated by reference to
Exhibit 10(b) to Form 10-K for the year ended June 28, 1997
(File No. 1-6544).
10(c)+ -- Sysco Corporation Employee Incentive Stock Option Plan,
incorporated by reference to Exhibit 10(c) to Form 10-K for
the year ended July 3, 1999 (File No. 1-6544).
10(d)+ -- Sysco Corporation 1995 Management Incentive Plan,
incorporated by reference to Exhibit 10(e) to Form 10-K for
the year ended July 1, 1995 (File No. 1-6544).
10(e)+ -- Sysco Corporation 1991 Stock Option Plan, incorporated by
reference to Exhibit 10(e) to Form 10-K for the year ended
July 3, 1999 (File No. 1-6544).
10(f)+ -- Amendments to Sysco Corporation 1991 Stock Option Plan dated
effective September 4, 1997, incorporated by reference to
Exhibit 10(f) to Form 10-K for the year ended June 28, 1997
(File No. 1-6544).
10(g)+ -- Amendments to Sysco Corporation 1991 Stock Option Plan dated
effective November 5, 1998, incorporated by reference to
Exhibit 10(g) to Form 10-K for the year ended July 3, 1999
(File No. 1-6544).
10(h)+ -- Sysco Corporation Amended and Restated Non-Employee
Directors Stock Option Plan, incorporated by reference to
Exhibit 10(g) to Form 10-K for the year ended June 28, 1997
(File No. 1-6544).
10(i)+ -- Amendment to the Amended and Restated Non-Employee Directors
Stock Option Plan dated effective November 5, 1998,
incorporated by reference to Exhibit 10(i) to Form 10-K for
the year ended July 3, 1999 (File No. 1-6544).
10(j)+ -- Sysco Corporation Non-Employee Directors Stock Plan,
incorporated by reference to Appendix A of the 1998 Proxy
Statement (File No. 1-6544).
10(k) -- Amended and Restated Shareholder Rights Agreement,
incorporated by reference to Registration Statement on Form
8-A/A, filed May 29, 1996 (File No. 1-6544).
10(l) -- Amendment to the Amended and Restated Shareholder Rights
Agreement dated as of May 20, 1996, incorporated by
reference to Exhibit 1 to Registration Statement on Form
8-A/A, filed July 16, 1999 (File No. 1-6544).
10(m)+ -- Sysco Corporation Split Dollar Life Insurance Plan,
incorporated by reference to Exhibit 10(m) to Form 10-Q for
the quarter ended January 1, 2000 (File No. 1-6544).
10(n)+ -- Executive Compensation Adjustment Agreement -- Bill M.
Lindig, incorporated by reference to Exhibit 10(n) to Form
10-Q for the quarter ended January 1, 2000 (File No.
1-6544).
10(o)+ -- Executive Compensation Adjustment Agreement -- Charles H.
Cotros, incorporated by reference to Exhibit 10(o) to Form
10-Q for the quarter ended January 1, 2000 (File No.
1-6544).
10(p)+ -- First Amendment to Fifth Amended and Restated Sysco
Corporation Supplemental Executive Retirement Plan dated
effective June 29, 1997, incorporated by reference to
Exhibit 10(p) to Form 10-Q for the quarter ended January 1,
2000 (File No. 1-6544).
10(q)+ -- First Amendment to Amended and Restated Sysco Corporation
Executive Deferred Compensation Plan dated effective June
29, 1997, incorporated by reference to Exhibit 10(q) to Form
10-Q for the quarter ended January 1, 2000 (File No.
1-6544).
10(r)+ -- First Amendment to Sysco Corporation 1995 Management
Incentive Plan dated effective June 29, 1997, incorporated
by reference to Exhibit 10(r) to Form 10-Q for the quarter
ended January 1, 2000 (File No. 1-6544).
10(s)+ -- 2000 Management Incentive Plan, incorporated by reference to
Appendix A to Proxy Statement filed September 25, 2000 (File
No. 1-6544).
10(t)+ -- 2000 Stock Incentive Plan, incorporated by reference to
Appendix B to Proxy Statement filed on September 25, 2000
(File No. 1-6544).
10(u)+ -- Amended and Restated Non-Employee Directors Stock Plan,
incorporated by reference to Appendix B to Proxy Statement
filed on September 24, 2001 (File No. 1-6544).
</Table>
<PAGE>
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
10(v)+ -- Second Amendment dated as of May 10, 2000, to the Fifth
Amended and Restated SYSCO Corporation Supplemental
Executive Retirement Plan, incorporated by reference to
Exhibit 10(a) to Form 10-Q for the quarter ended September
30, 2000 filed on November 13, 2000 (File No. 1-6544).
10(w)+ -- Second Amendment dated as of May 10, 2000, to Amended and
Restated SYSCO Corporation Executive Deferred Compensation
Plan, incorporated by reference to Exhibit 10(b) to Form
10-Q for the quarter ended September 30, 2000 filed on
November 13, 2000 (File No. 1-6544).
10(x)+ -- First Amendment dated as of May 10, 2000 to Amended and
Restated SYSCO Corporation Board of Directors Deferred
Compensation Plan, incorporated by reference to Exhibit
10(c) to Form 10-Q for the quarter ended September 30, 2000
filed on November 13, 2000 (File No. 1-6544).
10(y)+ -- First Amendment, dated September 1, 2000, to the Executive
Compensation Adjustment Agreement between Sysco and Charles
H. Cotros, incorporated by reference to Exhibit 10(d) to
Form 10-Q for the quarter ended September 30, 2000 filed on
November 13, 2000 (File No. 1-6544).
10(z)+ -- Equity Deferral Plan dated April 1, 2002, incorporated by
reference to Exhibit 10(z) to Form 10-K for the year ended
June 29, 2002 filed on September 25, 2002 (File No. 1-6544).
10(aa)+ -- Second Amended and Restated Board of Directors Deferred
Compensation Plan dated April 1, 2002, incorporated by
reference to Exhibit 10(aa) to Form 10-K for the year ended
June 29, 2002 filed on September 25, 2002 (File No. 1-6544).
10(bb)+ -- First Amendment to Second Amended and Restated Board of
Directors Deferred Compensation Plan dated July 12, 2002,
incorporated by reference to Exhibit 10(bb) to Form 10-K for
the year ended June 29, 2002 filed on September 25, 2002
(File No. 1-6544).
10(cc)+ -- Second Amended and Restated Executive Deferred Compensation
Plan dated April 1, 2002, incorporated by reference to
Exhibit 10(cc) to Form 10-K for the year ended June 29, 2002
filed on September 25, 2002 (File No. 1-6544).
10(dd)+ -- First Amendment to Second Amended and Restated Executive
Deferred Compensation Plan dated July 12, 2002, incorporated
by reference to Exhibit 10(dd) to Form 10-K for the year
ended June 29, 2002 filed on September 25, 2002 (File No.
1-6544).
10(ee)+ -- Third Amendment to Fifth Amended and Restated Supplemental
Executive Retirement Plan dated July 12, 2002, incorporated
by reference to Exhibit 10(dd) to Form 10-K for the year
ended June 29, 2002 filed on September 25, 2002 (File No.
1-6544).
10(ff)+ -- Retiree Equity Deferral Plan Effective November 22, 2002,
incorporated by reference to Exhibit 10(a) to Form 10-Q for
the quarter ended December 28, 2002 filed on February 10,
2003 (File No. 1-6544).
21# -- Subsidiaries of the Registrant.
23# -- Independent Public Accountants' Consent.
31(a)# -- CEO Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31(b)# -- CFO Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32(a)# -- CEO Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32(b)# -- CFO Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
</Table>
- ---------------
+ Executive Compensation Arrangement pursuant to 601(b)(10)(iii)(A) of
Regulation S-K
# Filed Herewith
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>3
<FILENAME>h09159exv21.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>
<PAGE>
.
.
.
EXHIBIT 21
SYSCO CORPORATION
ACTIVE AND INACTIVE SUBSIDIARIES
AS OF SEPTEMBER 19, 2003
<Table>
<Caption>
JURISDICTION
OF
ACTIVE SUBSIDIARIES INCORPORATION
<S> <C>
A.M. Briggs, Inc. Delaware
Baugh Supply Chain Cooperative, Inc. Delaware
Baugh Northeast Co-Op, Inc.(16) Delaware
Buckhead Beef Company Delaware
Freedman Meats, Inc. Delaware
*Freedman Food Service, Inc. Texas
*#Freedman Food Service of Austin, LP*** Texas
*Freedman Food Service of Dallas, Inc. Texas
*Freedman Food Service of Denver, Inc. Delaware
*#Freedman Food Service of San Antonio, LP*** Texas
*Freedman-KB, Inc. Delaware
FreshPoint Holdings, Inc. Delaware
*FreshPoint, Inc. Delaware
*FreshPoint Distribution, Inc. Delaware
*American Produce & Vegetable Co., Inc. Delaware
*Carnival Fruit Company, Inc. Florida
*FreshPoint of Southern California, Inc.(1) California
*Lee Ray-Tarantino Co., Inc. California
*Royal Foods Company, Inc. California
*Movsovitz & Sons of Florida, Inc. Florida
*Sunburst Foods, Inc. Delaware
*FreshPoint of Palm Beach, Inc. Florida
*FreshPoint of Atlanta, Inc.(3) Georgia
*P. Tavilla Co. (Miami) Inc. Florida
*Red's Market, Inc. Florida
*Produce America, Inc. Delaware
*Pacific Produce Co. Ltd. Alberta, Canada
* Sysco I&S Foodservices, Inc. Alberta, Canada
*FreshPoint of Denver, Inc. Colorado
*FreshPoint of Las Vegas, Inc. Delaware
Fulton Provision Co.(4) Delaware
Guest Supply, Inc. New Jersey
*Breckenridge-Remy Co. Delaware
*Franklin Supply Company(13) Delaware
*Guest Distribution Services, Inc. Delaware
*MacDonald Contract Sales, Inc.(5) Ontario, Canada
*Guest Supply Canada, Inc.(6) Canada
*Guest International Ltd. United Kingdom
*Guest Packaging, Inc. New Jersey
</Table>
<PAGE>
<Table>
<S> <C>
Hallsmith-Sysco Food Services, LLC(17) Delaware
INGENIUM Medical Supply Chain Solutions, Inc. Delaware
Malcolm Meats Company Delaware
Nobel/Sysco Food Services Company Colorado
*Sysco Food Services of New Mexico(18) Delaware
Pegler-Sysco Food Services Company Nebraska
*Pegler-Sysco Transportation Co. Nebraska
Regional Administrative Services, Inc. Delaware
SFS Shelf, LLC Delaware
Sysco Administrative Services, Inc. Delaware
#*Sysco Proprietary LP Texas
#*Sysco Services LP Texas
Sysco Canada, Company Nova Scotia
*Sysco Holdings of B.C., Inc. Canada
*North Douglas Sysco Food Services, Inc. Canada
*Sysco Holdings of Kelowna, Inc. Canada
*Sysco HRI Supply Ltd. Canada
*Sysco Holdings Limited New Brunswick
*Sysco Food Services of Central Ontario, Inc.(11) Ontario, Canada
Midwest Cooperative, Inc. Delaware
Southeast Cooperative, Inc. Delaware
Southwest Cooperative, Inc. Delaware
Western Cooperative, Inc. Delaware
Sysco Asian Foods, Inc. Delaware
Sysco eVentures, Inc. Delaware
Sysco Financial Services, LLC Delaware
*Sysco Finance, LP Delaware
*Hardin's-Sysco Food Services, LLC Delaware
*Lankford-Sysco Food Services, LLC Delaware
*Robert Orr-Sysco Food Services, LLC Delaware
*Sysco Food Services of New Orleans, LLC Delaware
*Sysco Texas Partners, Inc. Delaware
*Sysco Administrative Services II, Inc. Delaware
**Sysco Food Services of Austin, LP Delaware
**Sysco Food Services of Dallas, LP Delaware
**Sysco Food Services of Houston, LP Delaware
**Sysco Food Services of San Antonio, LP Delaware
Sysco Food Services of Albany, LLC(17) Delaware
Sysco Food Services of Arizona, Inc. Delaware
*Sysco Arizona Leasing, Inc. Delaware
Sysco Food Services of Arkansas, LLC Delaware
Sysco Food Services of Atlanta, LLC Delaware
Sysco Food Services of Baltimore, LLC(17) Delaware
Sysco Food Services of Baraboo, LLC (12;17) Delaware
Sysco Food Services of Central Alabama, Inc. Delaware
Sysco Food Services of Central California, Inc.(23) California
Sysco Food Services of Central Florida, Inc. Delaware
Sysco Food Services of Central Pennsylvania, LLC Delaware
Sysco Food Services of Charlotte, LLC Delaware
</Table>
<PAGE>
<Table>
<S> <C>
Sysco Food Services-Chicago, Inc. Delaware
Sysco Food Services of Cincinnati, LLC(17) Delaware
Sysco Food Services of Cleveland, Inc. Delaware
Sysco Food Services of Columbus, Inc.(21) Ohio
*Sysco Abbott Transportation Services, Ltd. Ohio
Sysco Food Services of Connecticut, LLC(17) Delaware
Sysco Food Services of Detroit, LLC Delaware
Sysco Food Services of Eastern Wisconsin, LLC(17) Delaware
Sysco Food Services of Grand Rapids, LLC Delaware
Sysco Food Services of Hampton Roads, Inc.(10) Delaware
Sysco Food Services of Idaho, Inc. Idaho
Sysco Food Services of Indianapolis, LLC Delaware
Sysco Food Services of Iowa, Inc. Delaware
Sysco Food Services of Jackson, LLC(17) Delaware
Sysco Food Services - Jacksonville, Inc. Delaware
Sysco Food Services of Jamestown, LLC(17) Delaware
Sysco Food Services of Kansas City, Inc. Missouri
Sysco Food Services of Las Vegas, Inc. Delaware
Sysco Food Services of Los Angeles, Inc. Delaware
Sysco Food Services of Metro New York, LLC(8) Delaware
Sysco Food Services of Minnesota, Inc. Delaware
Sysco Food Services of Montana, Inc. Delaware
Sysco Food Services of North Dakota, Inc. Delaware
Sysco Food Services of Northern New England, Inc. Maine
*Reed Distributors Maine
Sysco Food Services of Oklahoma, LLC(19) Delaware
Sysco Food Services of Philadelphia, LLC Delaware
Sysco Food Services of Pittsburgh, LLC(20) Delaware
Sysco Food Services of Portland, Inc. Delaware
Sysco Food Services of Sacramento, Inc. Delaware
Sysco Food Services of San Diego, Inc. Delaware
Sysco Food Services of San Francisco, Inc. California
Sysco Food Services of Seattle, Inc. Delaware
Sysco Food Services of South Florida, Inc. Delaware
Sysco Food Services of Southeast Florida, LLC Delaware
Sysco Food Services of St. Louis, LLC Delaware
Sysco Food Services of Syracuse, LLC(17) Delaware
Sysco Food Services of Vancouver, Inc.(7) B.C., Canada
#*Four Seasons Food Ltd. B.C., Canada
+The SYGMA Network of Canada
+Pronamic Distribution
Sysco Food Services of Ventura, Inc. Delaware
Sysco Food Services of Virginia, LLC Delaware
Sysco Food Services - West Coast Florida, Inc. Delaware
Sysco Intermountain Food Services, Inc. Delaware
Sysco/Louisville Food Services Co. Delaware
Sysco Merger Ohio, Inc.(14) Ohio
Sysco Merger Ohio II, Inc.(15) Delaware
Sysco Newport Meat Company Delaware
</Table>
<PAGE>
<Table>
<S> <C>
Sysco Resources, Inc. Delaware
Sysco Resources Southeast, Inc. Delaware
Sysco Resources Southwest, Inc. Delaware
Sysco Resources Midwest, Inc. Delaware
Sysco Resources West, Inc. Delaware
SYSCO International Co. Nova Scotia
>SFS Canada I LP Canada
SFS GP I, Inc. Canada
>SFS Canada II LP Canada
SFS GP II, Inc. Canada
Sysco Food Services of Canada, Inc.(24) Canada
=SYSCO Canada
=SYSCO Food Services of Canada
=SYSCO Quebec
=SYSCO Food Services of Quebec
=SYSCO Food Services of Calgary
=SYSCO Regina
=SYSCO Food Services of Regina
=SYSCO Food Services of Edmonton
=SYSCO Food Services of Winnipeg
=SYSCO Ventra
=SYSCO Food Services of Atlantic Canada
=SYSCO Food Services of Toronto
=SYSCO London
=SYSCO Kingston
=SYSCO Thunder Bay
=SYSCO Sturgeon Falls
The SYGMA Network, Inc. Delaware
Watson Sysco Food Services, Inc. Delaware
</Table>
<Table>
<Caption>
JURISDICTION
INACTIVE AND NAMESAVER OF
SUBSIDIARIES INCORPORATION
<S> <C>
DiPaolo/Sysco Food Services, Inc. (Name Saver) Ohio
Dowd Food Discount Corp. (Inactive) New Jersey
Food Service Transportation, Inc. (Inactive) Nebraska
FreshPoint of Houston, Inc. (Inactive) Delaware
FreshPoint of Washington D.C., Inc.(2) (Inactive) District of Columbia
Garden Cash & Carry, Inc. (Inactive) Delaware
Grants - Sysco Food Services, Inc. (Name Saver) Michigan
Olewine's Sysco Food Services Company (Name Saver) Delaware
Sysco Equipment & Furnishings Company (Inactive) Delaware
SyscoMed, Inc. (Inactive) Delaware
Sysco Food Services of Beaumont, Inc. (Inactive) Delaware
SYSCO Ontario Produce, Inc. (Inactive) Canada
SYSCO Ready Fresh Produce, Inc. (Inactive) Canada
2901 Polk, Inc. (Inactive) Texas
SYSCO SERCA Food Services - Atlantic, Inc. (Inactive)(25) Canada
SYSCO SERCA Food Services - West, Inc. (Inactive)(26) Canada
</Table>
<PAGE>
<Table>
<S> <C>
SYSCO SERCA Food Services of Ontario, Inc. (Inactive)(27) Canada
SYSCO SERCA Food Services of Quebec, Inc. (Inactive)(28) Canada
SFS SERCA Properties, Inc. (Inactive)(29) Canada
The SYGMA Network of Canada, Inc. (Inactive)(30) Ontario
Pronamic Distribution Inc. (Inactive)(31) Ontario
</Table>
* Second Tier Subsidiary
** Limited Partnerships whose parents are: Sysco Texas Partners, Inc. (1%)
and Sysco Administrative Services II, Inc. (99%)
*** Limited Partnerships whose parents are: Freedman Meats, Inc. (2%) and
Freedman-KB, Inc. (98%)
> Canadian Limited Partnership
# Multiple parents
= Registered names for SYSCO Food Services of Canada, Inc.
+ Registered names for SYSCO Food Services of Vancouver, Inc.
(1) F/k/a G&G Produce Company
(2) F/k/a Imperial Produce Co., Inc.
(3) F/k/a Mitt Parker Company, Incorporated
(4) F/k/a Sysco Food Services of Oregon, Inc.
(5) Dissolved 2/18/2002
(6) F/k/a Guest International (Canada) Ltd.
(7) F/k/a K.W. Food Distributors Ltd. (Konings)
(8) F/k/a Ritter Sysco Food Services, LLC
(9) F/k/a Sysco Food Services of South Carolina, LLC
(10) F/k/a Doughtie's Sysco Food Services, Inc.
(11) F/k/a Sysco Food Services of Ontario, Inc. which was formerly known as
Strano Sysco Food Services Ltd.
(12) F/k/a Baraboo-Sysco Food Services
(13) Merged into Breckenridge-Remy Co. 4/26/2002
(14) Merged into Abbott Foods, Inc. which then changed its name to Sysco Food
Services of Columbus, Inc. 10/15/2002
(15) Owns 1% interest of Sysco Abbott Transportation Services, Ltd.
(16) F/k/a Northeast Cooperative, Inc.
(17) Former Sysco Corp. Division, began operating as a Limited Liability Company
1/1/2003
(18) F/k/a Nobel/Sysco Food Services Co. - Southwest Division, will begin
operating as a Limited Liability Company 7/1/2003
(19) F/k/a Sysco Food Services of Oklahoma, Inc., converted to a Limited
Liability Company effective 12/31/2002
(20) F/k/a Sysco Food Services of Pittsburgh, Inc., merged with and into Sysco
Food Services of Pittsburgh, LLC effective 12/31/2002
(21) D/b/a Abbott Sysco Food Services
(22) Acquired 9/30/2002
(23) F/k/a Sysco Food Services of Modesto, Inc.
(24) F/k/a SYSCO SERCA Food Services, Inc.
(25) Amalgamated into Sysco Food Services of Canada, Inc.
(26) Amalgamated into Sysco Food Services of Canada, Inc.
(27) Amalgamated into Sysco Food Services of Canada, Inc.
(28) Amalgamated into Sysco Food Services of Canada, Inc.
(29) Amalgamated into Sysco Food Services of Canada, Inc.
(30) Amalgamated into Sysco Food Services of Vancouver, Inc.
(31) Amalgamated into Sysco Food Services of Vancouver, Inc.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>4
<FILENAME>h09159exv23.txt
<DESCRIPTION>INDEPENDENT PUBLIC ACCOUNTANTS' CONSENT
<TEXT>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
September 24, 2003
We consent to the incorporation by reference in the Registration Statements Form
S-3 (333-52897), Form S-4 (333-30050, 333-53510, 333-50842 and 333-98489) and
Form S-8 (33-10906, 2-76096, 33-45804, 33-45820, 333-01259, 333-01255,
333-01257, 333-27405, 333-66987, 333-49840 and 333-58276) of Sysco Corporation
of our report dated August 11, 2003 with respect to the consolidated financial
statements and schedules of Sysco Corporation included and/or incorporated by
reference in the Annual Report (Form 10-K) for the year ended June 28, 2003.
ERNST & YOUNG LLP
Houston, Texas
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.A
<SEQUENCE>5
<FILENAME>h09159exv31wa.txt
<DESCRIPTION>CEO CERTIFICATION PURSUANT TO SECTION 302
<TEXT>
<PAGE>
EXHIBIT 31(a)
CERTIFICATION
I, Richard J. Schnieders, certify that:
1. I have reviewed this annual report on Form 10-K of Sysco Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operation and cash flows
of the registrant as of, and for, the periods presented in this report.
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: September 24, 2003
/s/ RICHARD J. SCHNIEDERS
--------------------------------------------
Richard J. Schnieders
Chairman and Chief Executive Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.B
<SEQUENCE>6
<FILENAME>h09159exv31wb.txt
<DESCRIPTION>CFO CERTIFICATION PURSUANT TO SECTION 302
<TEXT>
<PAGE>
EXHIBIT 31(b)
CERTIFICATION
I, John K. Stubblefield, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Sysco Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operation and cash flows
of the registrant as of, and for, the periods presented in this report.
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: September 24, 2003
/s/ JOHN K. STUBBLEFIELD, JR.
--------------------------------------------
John K. Stubblefield, Jr.
Executive Vice President, Finance and
Administration
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.A
<SEQUENCE>7
<FILENAME>h09159exv32wa.txt
<DESCRIPTION>CEO CERTIFICATION PURSUANT TO SECTION 906
<TEXT>
<PAGE>
EXHIBIT 32(a)
CERTIFICATION PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, Richard J. Schnieders, Chairman and Chief Executive Officer of Sysco
Corporation (the "company"), certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the
best of my knowledge:
1. The company's Annual Report on Form 10-K for the fiscal year ended June
28, 2003 ("Annual Report") fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934; and
2. All of the information contained in the Annual Report fairly presents,
in all material respects, the financial condition and results of
operations of the company.
Date: September 24, 2003
/s/ RICHARD J. SCHNIEDERS
--------------------------------------------
Richard J. Schnieders
Chairman and Chief Executive Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.B
<SEQUENCE>8
<FILENAME>h09159exv32wb.txt
<DESCRIPTION>CFO CERTIFICATION PURSUANT TO SECTION 906
<TEXT>
<PAGE>
EXHIBIT 32(b)
CERTIFICATION PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, John K. Stubblefield, Jr., Executive Vice President, Finance and
Administration, of Sysco Corporation (the "company"), certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of my knowledge:
1. The company's Annual Report on Form 10-K for the fiscal year ended June
28, 2003 ("Annual Report") fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934; and
2. All of the information contained in the Annual Report fairly presents,
in all material respects, the financial condition and results of
operations of the company.
Date: September 24, 2003
/s/ JOHN K. STUBBLEFIELD, JR.
--------------------------------------------
John K. Stubblefield, Jr.
Executive Vice President, Finance and
Administration
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----