e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One) |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended July 1, 2006 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-6544
Sysco Corporation
(Exact name of registrant as specified in its charter)
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Delaware |
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74-1648137 |
(State or other jurisdiction of
incorporation or organization) |
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(IRS employer
identification number) |
1390 Enclave Parkway
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77077-2099 |
Houston, Texas
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(Zip Code) |
(Address of principal executive offices)
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Registrants Telephone Number, Including Area Code:
(281) 584-1390
Securities Registered Pursuant to Section 12(b) of the
Act:
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Name of each exchange on |
Title of Each Class |
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which registered |
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Common Stock, $1.00 par value
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New York Stock Exchange |
Preferred Stock Purchase Rights
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New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the
Act:
None
Indicate by checkmark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by checkmark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
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
registrants 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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Exchange Act. (Check one):
Large Accelerated
Filer þ Accelerated
Filer o Non-accelerated
Filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the
Exchange
Act). Yes o No þ
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 $19,157,130,000 at
December 30, 2005 (based on the closing sales price on the
New York Stock Exchange Composite Tape on December 30,
2005, as reported by The Wall Street Journal (Southwest
Edition)). At August 26, 2006, the registrant had issued
and outstanding an aggregate of 619,613,777 shares of its
common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the companys 2006 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.
TABLE OF CONTENTS
PART I
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 related products primarily to the foodservice or
food-prepared-away-from-home industry. Founded in
1969, SYSCO provides its products and services to approximately
394,000 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 $32 billion in annual
sales, both through internal expansion of existing operations
and through acquisitions. Through the end of fiscal 2006, SYSCO
had acquired 137 companies or divisions of companies.
During fiscal 2006, SYSCO completed the following acquisitions:
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Desert Meats & Provisions, Inc., the largest
independent specialty meat distributor in the Las Vegas and
southern Nevada foodservice markets; |
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Thomas Brothers Produce, Inc., the largest independent produce
distributor in the state of Oklahoma; |
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City Produce, Inc. and a related group of companies, which
together comprise the largest independent produce distributor in
the Austin, San Antonio, Corpus Christi and Harlingen,
Texas foodservice markets; |
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Incredible Fresh Produce, a distributor of fresh produce
servicing southwest Florida; |
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A-One-A Produce & Dairy, Inc., the largest fresh
produce distributor in South Florida; |
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Western Foods, Inc., a broadline foodservice distributor located
in Little Rock, Arkansas; and |
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The Fowler & Huntting Company, Inc., a full-line fresh
fruit and vegetable distributor headquartered in Hartford,
Connecticut. |
SYSCO is organized under the laws of Delaware. The address and
telephone number of the companys 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 SYSCOs 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 related products to the foodservice or
food-prepared-away-from-home industry. Under the
provisions of Statement of Financial Accounting Standards
(SFAS) No. 131, Disclosures 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 chain
restaurant customer locations. Other financial
information is attributable to the companys other
segments, including the companys specialty produce,
custom-cut meat and lodging industry products segments. The
companys specialty produce companies distribute fresh
produce and, on a limited basis, other foodservice products.
Specialty meat companies distribute custom-cut fresh steaks,
other meat, seafood and poultry. Our lodging industry products
company distributes personal care guest amenities, equipment,
housekeeping supplies, room accessories and textiles to the
lodging industry. Selected financial data for each of the
companys reportable segments as well as financial
information concerning geographic areas can be found in
Note 17, Business Segment Information, in the Notes to
Consolidated Financial Statements in Item 8.
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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.
SYSCOs chain restaurant customers include regional and
national hamburger, sandwich, pizza, chicken, steak and other
chain operations.
Services to the companys traditional foodservice and chain
restaurant customers are supported by similar physical
facilities, vehicles, material 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; a full line of canned and dry foods;
fresh meats; imported specialties; and fresh produce. The
company also supplies a wide variety of non-food items,
including: paper products such as disposable napkins, plates and
cups; tableware such as china and silverware; cookware such as
pots, pans and utensils; restaurant and kitchen equipment and
supplies; and cleaning supplies. SYSCOs operating
companies distribute nationally-branded merchandise, as well as
products packaged under SYSCOs 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 traditional customers.
SYSCOs operating companies offer daily delivery to certain
customer locations and have the capability of delivering special
orders on short notice. Through the more than 13,900 sales and
marketing representatives and support staff of SYSCO and its
operating companies, SYSCO stays informed of the needs of its
customers and acquaints them with new products and services.
SYSCOs 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 and assistance in
inventory control, as well as access to various third party
services designed to add value to our customers businesses.
No single customer accounted for 10% or more of SYSCOs
total sales for its fiscal year ended July 1, 2006.
SYSCOs sales to chain restaurant customers consist of a
variety of food products. 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 (Wendys International, Inc.)
accounted for 5% of SYSCOs sales for its fiscal year ended
July 1, 2006. Although this customer represents
approximately 37% 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.
Based upon available information, the company estimates that
sales by type of customer during the past three fiscal years
were as follows:
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Type of Customer |
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2006 | |
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2005 | |
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2004 | |
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Restaurants
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63 |
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64 |
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64 |
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Hospitals and nursing homes
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10 |
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10 |
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Schools and colleges
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5 |
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Hotels and motels
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6 |
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Other
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16 |
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15 |
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15 |
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Totals
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100 |
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100 |
% |
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100 |
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Sources of Supply
SYSCO purchases from thousands of suppliers, none of which
individually accounts for more than 10% of the companys
purchases. These suppliers consist generally of large
corporations selling brand name and private label merchandise
and independent regional brand and private label processors and
packers. Generally, purchasing is carried out through centrally
developed purchasing programs and direct purchasing programs
established by the companys 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 a project to
restructure its supply chain (National Supply Chain project).
This project is intended to increase profitability by lowering
aggregate inventory levels, operating costs, and future facility
expansion needs at SYSCOs broadline operating companies
while providing greater value to our suppliers and customers.
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The National Supply Chain project involved the creation of the
Baugh Supply Chain Cooperative, Inc. (BSCC) which
administers a consolidated product procurement program designed
to develop, obtain and ensure consistent quality food and
non-food products. The program covers the purchasing and
marketing of SYSCO Brand merchandise as well as products from a
number of national brand suppliers, encompassing substantially
all product lines. The operating companies can choose to
purchase product from the suppliers participating in the
cooperatives programs or from other suppliers, although
SYSCO Brand products are only available to the operating
companies through the cooperatives programs.
The National Supply Chain project has three major supply change
initiatives actively underway. The first initiative involves the
construction and operation of regional distribution centers
which will aggregate inventory demand to optimize the supply
chain activities for certain products for all SYSCO broadline
operating companies in the region. The company expects to build
from seven to nine regional distribution centers (RDCs). The
first of these centers, the Northeast RDC located in Front
Royal, Virginia, opened during the third quarter of fiscal 2005.
SYSCO has purchased the sites for two additional RDCs. The
second initiative is the national transportation management
initiative which provides the capability to view and manage all
of SYSCOs inbound freight, both to RDCs and the operating
companies, as a network and not as individual locations. The
third initiative relates to inventory management software that
helps SYSCO forecast inventory demand and manage inventories
more effectively.
Working Capital Practices
SYSCOs growth is funded through a combination of cash flow
from operations, commercial paper issuances and long-term
borrowings. See the discussion in Liquidity and Capital
Resources in Managements Discussion and Analysis in
Item 7 regarding the companys liquidity, financial
position and sources and uses of funds.
Credit terms extended by SYSCO to its customers can vary from
cash on delivery to 30 days or more based on SYSCOs
assessment of the customers credit risk. SYSCO monitors
the customers accounts and will suspend shipments to
customers if necessary.
A majority of SYSCOs sales orders are filled within
24 hours of when the customers orders are placed.
SYSCO will generally maintain inventory on hand to be able to
meet customer demand. The level of inventory on hand will vary
by product depending on product shelf-life, supplier order
fulfillment lead times and customer demand. SYSCO also makes
purchases of product based on supply or pricing opportunities.
SYSCO takes advantage of suppliers cash discounts where
appropriate and otherwise generally receives payment terms from
its suppliers ranging from weekly to 30 days or more.
Corporate Headquarters Services
SYSCOs corporate staff makes available a number of
services to the companys operating companies. Members of
the corporate staff possess experience and expertise in, among
other areas, accounting and finance, cash management,
information technology, employee benefits, engineering and
insurance. The corporate office makes available legal,
marketing, payroll, human resources, information technology and
tax compliance services. The corporate office also makes
available 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 2006, 2005 and 2004, approximately
$514,751,000, $390,203,000 and $530,086,000, respectively, were
invested in facility expansions, fleet additions and other
capital asset enhancements. The company estimates its capital
expenditures in fiscal 2007 should be in the range of
$575,000,000 to $625,000,000. During the three years ended
July 1, 2006, capital expenditures were financed primarily
by internally generated funds, the companys commercial
paper program and bank and other borrowings. The company expects
to finance its fiscal 2007 capital expenditures from the same
sources.
Employees
As of July 1, 2006, SYSCO and its operating companies had
approximately 49,600 full-time employees, approximately 18%
of whom were represented by unions, primarily the International
Brotherhood of Teamsters. Contract negotiations are handled by
each individual operating company. Collective bargaining
agreements covering approximately 23% of the companys
union employees expire
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during fiscal 2007. SYSCO considers its labor relations to be
satisfactory. During fiscal 2006, the number of customer contact
associates increased 6% over the levels at the end of fiscal
2005. The company intends to continue increasing the number of
customer contact associates in fiscal 2007.
Competition
The business of SYSCO is competitive with numerous companies
engaged in foodservice distribution. Foodservice operators may
also choose to purchase products directly from retail outlets.
While competition is encountered primarily from local and
regional distributors, a few companies compete with SYSCO on a
national basis. The company believes that the principal
competitive factors in the foodservice industry are effective
customer contacts, the ability to deliver a wide range of
quality products and related services on a timely and dependable
basis and competitive prices. The company estimates that it
serves about 14% of an approximately $232 billion annual
market that includes the North American foodservice and hotel
amenity, furniture and textile markets. SYSCO believes, based
upon industry trade data, that its sales to the North American
food-prepared-away-from-home industry were the
highest of any foodservice distributor during fiscal 2006. 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 non-food products
to foodservice customers in their respective trading areas.
Government Regulation
As a marketer and distributor of food products, SYSCO is subject
to the U.S. Federal Food, Drug and Cosmetic Act and
regulations promulgated thereunder by the U.S. Food and
Drug Administration (FDA) and the Canadian Food and
Drugs Act and the regulations thereunder.
The FDA regulates manufacturing and holding requirements for
foods through its 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, the
Packers and Stockyard 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 companys suppliers. SYSCO is also
subject to the Public Health Security and Bioterrorism
Preparedness and Response Act of 2002, which imposes certain
registration and record keeping requirements on facilities that
manufacture, process, pack or hold food for human or animal
consumption.
In Canada, the Canadian Food Inspection Agency administers and
enforces the food safety and nutritional quality standards
established by Health Canada under the Canadian Food and Drugs
Act and under other related federal legislation, including the
Canada Agricultural Products Act, the Meat Inspection Act, the
Fish Inspection Act and the Consumer Packaging and Labeling Act
(as it relates to food). These laws regulate the processing,
storing, grading, packaging, marking, transporting and
inspection of certain SYSCO product lines as well as the
packaging, labeling, sale, importation and advertising of
pre-packaged and certain other products.
The company and its products are also subject to state,
provincial and local regulation through such measures as the
licensing of its facilities; enforcement by state, provincial
and local health agencies of state, provincial and local
standards for the companys products; and regulation of the
companys trade practices in connection with the sale of
its products. SYSCOs facilities are subject to inspections
and regulations issued pursuant to the U.S. Occupational
Safety and Health Act by the U.S. Department of Labor,
together with similar occupational health and safety laws in
each Canadian province. These regulations 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 also is subject to regulation by numerous U.S. and
Canadian federal, state, provincial and local regulatory
agencies, including, but not limited to, the
U.S. Department of Labor and each Canadian provincial
ministry of labour, which set employment practice standards for
workers, and the U.S. Department of Transportation and the
Canadian Transportation Agency, which regulate transportation of
perishable and hazardous materials and waste, and similar state,
provincial and local agencies.
Most of the companys distribution facilities have
ammonia-based refrigeration systems and tanks for the storage of
diesel fuel and other petroleum products which are subject to
laws regulating such systems and storage tanks. Other U.S. and
Canadian federal,
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state, provincial and local provisions relating to the
protection of the environment or the discharge of materials do
not materially impact the companys 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®
trademark would have a material adverse effect on SYSCOs
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.
The companys sales do not generally fluctuate
significantly on a seasonal basis; therefore, the business of
the company is not deemed to be seasonal.
As of July 1, 2006, SYSCO and its operating companies
operated 188 facilities throughout the United States and
Canada, of which 171 were principal distribution facilities.
Item 1A. Risk
Factors
Low Margin Business; Inflation and 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, SYSCOs profit levels may
be negatively impacted during periods of product cost deflation,
even though SYSCOs gross profit percentage may remain
relatively constant. Prolonged periods of product cost inflation
also may have a negative impact on the companys profit
margins and earnings to the extent such product cost increases
are not passed on to customers due to resistance to higher
prices and the timing needed to pass on such increases. The
foodservice industry is sensitive to national and regional
economic conditions. Inflation, fuel costs and other factors
affecting consumer confidence and the frequency and amount spent
by consumers for food prepared away from home may negatively
impact SYSCOs sales and operating results. SYSCOs
operating results are also sensitive to, and may be adversely
affected by, other factors, including difficulties collecting
accounts receivable, 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 SYSCOs past operations,
there can be no assurance that one or more of these factors will
not adversely affect future operating results.
Increased Fuel Costs
Increased fuel costs have recently had a negative impact on the
companys results of operations. The high cost of fuel can
negatively impact consumer confidence and discretionary spending
and thus reduce the frequency and amount spent by consumers for
food prepared away from home. The high cost of fuel can also
increase the price paid by SYSCO for products as well as the
costs incurred by SYSCO to deliver products to its customers.
These factors in turn negatively impact SYSCOs sales,
margins, operating expenses and operating results.
Interruption of Supplies and Increases in Product Costs
SYSCO obtains substantially all of its foodservice and related
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 SYSCOs
purchasing volume can provide leverage when dealing with
suppliers, suppliers may not provide the foodservice products
and supplies needed by SYSCO in the quantities and at the prices
requested. Because SYSCO does not control the actual production
of the products it sells, it also is subject to delays caused by
interruption in production and increases in product costs based
on conditions outside its control. These conditions include work
slowdowns, work interruptions, strikes or other job actions by
employees of suppliers, weather, crop conditions, transportation
interruptions, unavailability of fuel or increases in fuel
costs, competitive demands and natural disasters or other
catastrophic events (including, but not limited to, the outbreak
of avian flu or similar food-borne illnesses in the United
States and
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Canada). SYSCOs inability to obtain adequate supplies of
its foodservice and related 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.
Baugh Supply Chain Cooperative Structure
The National Supply Chain project involved the creation of BSCC
which administers a consolidated product procurement program to
develop, obtain and ensure consistent quality food and non-food
products. BSCC is a cooperative for income tax purposes. SYSCO
believes that the cooperative entity is appropriate for BSCC
based on the business operations of this affiliate and on the
legal structure applied. However, if the application of the
cooperative structure was to be disallowed by any federal, state
or local tax authority, SYSCO could be required to accelerate
the payment of a portion or all of its income tax liabilities
that it otherwise has deferred until future periods and be
liable for interest on such amounts. Amounts included as
deferred income tax liabilities related to BSCC deferred supply
chain distributions were $924,902,000 as of July 1, 2006.
If SYSCO was required to accelerate a significant portion of
these deferred tax liabilities, the company may be required to
raise additional capital through debt financing or the issuance
of equity or it may be required to forego or defer planned
capital expenditures or share repurchases or a combination
thereof and may be required to pay interest on amounts deferred.
Leverage and Debt Service
Because a substantial part of SYSCOs growth historically
has been the result of acquisitions and capital expansion,
SYSCOs 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
companys cash flows, as well as the market value of
SYSCOs common stock. Further, SYSCOs 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 SYSCOs liabilities. SYSCO generally seeks
contractual indemnification and insurance coverage from parties
supplying 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 SYSCOs net earnings and earnings
per share.
Reputation and Media Exposure
Maintaining a good reputation is critical to SYSCOs
business, particularly to selling SYSCO Brand products. Anything
that damages that reputation (whether or not justified),
including adverse publicity about the quality, safety or
integrity of the companys products, could quickly affect
its revenues and profits. Reports, whether true or not, of
food-borne illnesses (such as
e-coli, avian flu,
bovine spongiform encephalopathy, hepatitis A, trichinosis
or salmonella) and injuries caused by food tampering could also
severely injure the companys reputation. If patrons of the
companys restaurant customers become ill from food-borne
illnesses, the customers could be forced to temporarily close
restaurant locations and SYSCOs sales would be
correspondingly decreased. In addition, instances of food-borne
illnesses or food tampering or other health concerns, even those
unrelated to the use of SYSCO products, can result in negative
publicity about the food service distribution industry and cause
our sales to decrease dramatically.
Labor Relations and Availability of Qualified Labor
As of July 1, 2006, approximately 8,800 employees at
55 operating companies were members of 61 different
local unions associated with the International Brotherhood of
Teamsters and other labor organizations. In fiscal 2007,
16 agreements covering approximately 2,000 employees
will expire. Failure of the operating companies to effectively
renegotiate these contracts could result in work stoppages.
Although SYSCOs 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 multiple
operating subsidiaries to renegotiate union contracts could have
a material adverse effect on SYSCO.
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SYSCOs operations rely heavily on its employees,
particularly drivers, and any shortage of qualified labor could
significantly affect the companys business. Our recruiting
and retention efforts and efforts to increase productivity gains
may not be successful and there may be a shortage of qualified
drivers in future periods. Any such shortage would decrease
SYSCOs ability to effectively serve its customers. Such a
shortage would also likely lead to higher wages for employees
and a corresponding reduction in the companys revenue and
earnings.
Charter and Preferred Stock
Under its Restated Certificate of Incorporation, SYSCOs
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 existence of this
undesignated preferred stock could allow the Board of Directors
to adopt a shareholder rights plan without obtaining stockholder
approval, which could result in substantial dilution to a
potential acquiror. As a result, hostile takeover attempts that
might result in an acquisition of SYSCO that could otherwise
have been financially beneficial to SYSCOs stockholders
could be deterred.
Tax Audit
As of July 1, 2006, the companys 2003 and 2004
federal income tax returns were under audit by the Internal
Revenue Service (IRS). The company believes that it has
appropriate support for the positions taken on these tax returns
and has recorded a liability for its best estimate of the
probable loss on certain of these positions. However, if the IRS
disagrees with the positions taken by the company on its tax
returns, SYSCO could have additional tax liability, including
interest and penalties. If material, payment of such amounts
upon final adjudication of any disputes could have an adverse
effect on the companys financial results and cash flows.
Reliance on Technology
SYSCOs ability to decrease costs and increase profits, as
well as its ability to serve customers most effectively, depends
on the reliability of its technology network. The company uses
software and other technology systems to load trucks in the most
efficient manner to optimize the use of storage space and
minimize the time spent at each stop. Any disruption to these
computer systems could adversely impact SYSCOs customer
service, decrease the volume of its business and result in
increased costs. While SYSCO has invested and continues to
invest in technology security initiatives and disaster recovery
plans, these measures cannot fully insulate the company from
technology disruption that could result in adverse effects on
operations and profits.
Item 1B. Unresolved
Staff Comments
None.
7
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 July 1, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
Cold Storage | |
|
Dry Storage | |
|
|
|
|
Facilities | |
|
(Thousands | |
|
(Thousands | |
|
Segments |
Location |
|
and Centers | |
|
Cubic Feet) | |
|
Cubic Feet) | |
|
Served* |
|
|
| |
|
| |
|
| |
|
|
Alabama
|
|
|
3 |
|
|
|
5,086 |
|
|
|
6,443 |
|
|
BL |
Alaska
|
|
|
1 |
|
|
|
1,067 |
|
|
|
645 |
|
|
BL |
Arizona
|
|
|
1 |
|
|
|
2,901 |
|
|
|
3,190 |
|
|
BL |
Arkansas
|
|
|
2 |
|
|
|
2,549 |
|
|
|
2,958 |
|
|
BL,O |
California
|
|
|
19 |
|
|
|
27,309 |
|
|
|
34,157 |
|
|
BL, S, O |
Colorado
|
|
|
4 |
|
|
|
6,304 |
|
|
|
6,399 |
|
|
BL, S, O |
Connecticut
|
|
|
2 |
|
|
|
5,619 |
|
|
|
4,115 |
|
|
BL, O |
District of Columbia
|
|
|
1 |
|
|
|
335 |
|
|
|
30 |
|
|
O |
Florida
|
|
|
17 |
|
|
|
26,657 |
|
|
|
27,877 |
|
|
BL, S, O |
Georgia
|
|
|
6 |
|
|
|
5,654 |
|
|
|
14,937 |
|
|
BL, S, O |
Hawaii
|
|
|
1 |
|
|
|
|
|
|
|
258 |
|
|
O |
Idaho
|
|
|
2 |
|
|
|
2,023 |
|
|
|
2,366 |
|
|
BL |
Illinois
|
|
|
6 |
|
|
|
5,916 |
|
|
|
10,492 |
|
|
BL, S, O |
Indiana
|
|
|
2 |
|
|
|
3,905 |
|
|
|
1,822 |
|
|
BL, O |
Iowa
|
|
|
1 |
|
|
|
2,300 |
|
|
|
2,935 |
|
|
BL |
Kansas
|
|
|
1 |
|
|
|
4,003 |
|
|
|
3,894 |
|
|
BL |
Kentucky
|
|
|
1 |
|
|
|
2,330 |
|
|
|
2,648 |
|
|
BL |
Louisiana
|
|
|
1 |
|
|
|
3,265 |
|
|
|
2,994 |
|
|
BL |
Maine
|
|
|
1 |
|
|
|
1,507 |
|
|
|
2,121 |
|
|
BL |
Maryland
|
|
|
5 |
|
|
|
8,826 |
|
|
|
8,896 |
|
|
BL, O |
Massachusetts
|
|
|
2 |
|
|
|
5,605 |
|
|
|
7,798 |
|
|
BL, S |
Michigan
|
|
|
4 |
|
|
|
5,501 |
|
|
|
9,569 |
|
|
BL, S, O |
Minnesota
|
|
|
2 |
|
|
|
4,299 |
|
|
|
4,247 |
|
|
BL |
Mississippi
|
|
|
1 |
|
|
|
2,125 |
|
|
|
2,690 |
|
|
BL |
Missouri
|
|
|
2 |
|
|
|
2,182 |
|
|
|
2,709 |
|
|
BL, S |
Montana
|
|
|
1 |
|
|
|
3,288 |
|
|
|
2,538 |
|
|
BL |
Nebraska
|
|
|
1 |
|
|
|
1,712 |
|
|
|
2,108 |
|
|
BL |
Nevada
|
|
|
3 |
|
|
|
2,980 |
|
|
|
4,486 |
|
|
BL, O |
New Jersey
|
|
|
4 |
|
|
|
4,135 |
|
|
|
10,753 |
|
|
BL, O |
New Mexico
|
|
|
1 |
|
|
|
2,921 |
|
|
|
3,029 |
|
|
BL |
New York
|
|
|
5 |
|
|
|
7,433 |
|
|
|
10,436 |
|
|
BL |
North Carolina
|
|
|
6 |
|
|
|
5,440 |
|
|
|
11,478 |
|
|
BL, S, O |
North Dakota
|
|
|
1 |
|
|
|
821 |
|
|
|
1,188 |
|
|
BL |
Ohio
|
|
|
9 |
|
|
|
8,963 |
|
|
|
13,933 |
|
|
BL, S, O |
Oklahoma
|
|
|
4 |
|
|
|
3,747 |
|
|
|
4,148 |
|
|
BL, S, O |
Oregon
|
|
|
3 |
|
|
|
3,980 |
|
|
|
3,791 |
|
|
BL, S, O |
Pennsylvania
|
|
|
4 |
|
|
|
6,780 |
|
|
|
8,286 |
|
|
BL, S |
South Carolina
|
|
|
1 |
|
|
|
2,271 |
|
|
|
2,362 |
|
|
BL |
South Dakota
|
|
|
1 |
|
|
|
2 |
|
|
|
123 |
|
|
BL |
Tennessee
|
|
|
4 |
|
|
|
6,630 |
|
|
|
9,517 |
|
|
BL, O |
Texas
|
|
|
17 |
|
|
|
20,059 |
|
|
|
24,105 |
|
|
BL, S, O |
Utah
|
|
|
1 |
|
|
|
3,600 |
|
|
|
3,690 |
|
|
BL |
Virginia
|
|
|
3 |
|
|
|
13,162 |
|
|
|
10,091 |
|
|
BL |
Washington
|
|
|
1 |
|
|
|
4,004 |
|
|
|
2,950 |
|
|
BL |
Wisconsin
|
|
|
3 |
|
|
|
7,128 |
|
|
|
5,902 |
|
|
BL |
Alberta, Canada
|
|
|
2 |
|
|
|
4,090 |
|
|
|
3,982 |
|
|
BL |
British Columbia, Canada
|
|
|
8 |
|
|
|
3,896 |
|
|
|
4,649 |
|
|
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
|
|
|
1 |
|
|
|
735 |
|
|
|
704 |
|
|
BL |
Ontario, Canada
|
|
|
9 |
|
|
|
8,621 |
|
|
|
9,123 |
|
|
BL, S, O |
Quebec, Canada
|
|
|
1 |
|
|
|
716 |
|
|
|
1,209 |
|
|
BL |
Saskatchewan, Canada
|
|
|
1 |
|
|
|
1,271 |
|
|
|
750 |
|
|
BL |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
188 |
|
|
|
268,704 |
|
|
|
324,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Segments served include Broadline (BL), SYGMA (S) and Other (O). |
8
SYSCO owns approximately 464,285,000 cubic feet of its
distribution facilities and self-serve centers (or 78.3% of the
total cubic feet), and the remainder is occupied under leases
expiring at various dates from fiscal 2007 to fiscal 2041,
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
$15,789,000 at July 1, 2006. Such mortgage indebtedness and
industrial revenue bond financing arrangements mature at various
dates through fiscal 2026.
The company owns its approximately 175,000 square foot
headquarters office complex in Houston, Texas and leases
approximately 218,000 square feet of additional office
space in Houston, Texas. The company began the expansion of its
headquarters office complex in fiscal 2006, the first phase of
which is expected to be completed in the fall of 2006. Upon
completion of the first phase of the expansion, the
companys headquarters office complex will be approximately
325,000 and 150,000 owned and leased square feet,
respectively.
Facilities in Riviera Beach, Florida; Albuquerque, New Mexico;
and Columbia, South Carolina (which in the aggregate accounted
for approximately 2.6% of fiscal 2006 sales) are operating near
capacity and the company is currently constructing expansions or
replacements for these distribution facilities. The company has
also announced plans to construct new distribution facilities in
Knoxville, Tennessee and Longview, Texas. The company expects
its second regional redistribution facility, to be located in
Alachua, Florida, and will be operational in fiscal 2008. The
company has also purchased the site of its third regional
distribution facility to be built in Hamlet, Indiana.
As of July 1, 2006, SYSCOs fleet of approximately
8,900 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
in the normal course of business but have not been fully
adjudicated. These proceedings, in the opinion of management,
will not have a material adverse effect upon the consolidated
financial position or results of operations of the company when
ultimately concluded.
|
|
Item 4. |
Submission of Matters to a Vote of Security Holders |
None.
PART II
|
|
Item 5. |
Market for Registrants Common Equity and Related
Stockholder Matters |
The principal market for SYSCOs Common Stock (SYY) is the
New York Stock Exchange. The table below sets forth the high and
low sales prices per share for SYSCOs Common Stock as
reported on the New York Stock Exchange Composite Tape and the
cash dividends declared for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Prices | |
|
Dividends | |
|
|
| |
|
Declared | |
|
|
High | |
|
Low | |
|
Per Share | |
|
|
| |
|
| |
|
| |
Fiscal 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
36.00 |
|
|
$ |
29.48 |
|
|
$ |
0.13 |
|
|
Second Quarter
|
|
|
38.43 |
|
|
|
29.71 |
|
|
|
0.15 |
|
|
Third Quarter
|
|
|
37.83 |
|
|
|
32.57 |
|
|
|
0.15 |
|
|
Fourth Quarter
|
|
|
38.04 |
|
|
|
34.23 |
|
|
|
0.15 |
|
Fiscal 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
37.30 |
|
|
$ |
30.96 |
|
|
$ |
0.15 |
|
|
Second Quarter
|
|
|
33.59 |
|
|
|
29.98 |
|
|
|
0.17 |
|
|
Third Quarter
|
|
|
32.72 |
|
|
|
29.11 |
|
|
|
0.17 |
|
|
Fourth Quarter
|
|
|
32.15 |
|
|
|
29.11 |
|
|
|
0.17 |
|
The number of record owners of SYSCOs Common Stock as of
August 26, 2006 was 14,091.
9
On March 31, 2006, a total of 35,522 dividend access
shares, convertible on a
one-for-one basis into
SYSCO shares, were released by a Canadian subsidiary of the
company to the former shareholders of North Douglas
Distributors, Ltd. n/k/a North Douglas Sysco Food Services,
Inc. pursuant to the terms of an earnout agreement executed in
connection with Sysco Holdings of BC, Inc.s acquisition of
North Douglas Distributors, Ltd. in December 2000.
The above issuance was made pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act
of 1933, as amended.
SYSCO made the following share repurchases during the fourth
quarter of fiscal 2006:
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Total Number | |
|
|
|
|
|
|
|
|
of Shares | |
|
|
|
|
|
|
|
|
Purchased | |
|
(d) Maximum Number | |
|
|
|
|
|
|
as Part of | |
|
of Shares That May Yet | |
|
|
(a) Total Number | |
|
(b) Average Price | |
|
Publicly Announced | |
|
be Purchased Under | |
Period |
|
of Shares Purchased(1) | |
|
Paid Per Share | |
|
Plans or Programs | |
|
the Plans or Programs | |
|
|
| |
|
| |
|
| |
|
| |
Month #1
April 2 April 29
|
|
|
420,141 |
|
|
$ |
31.59 |
|
|
|
418,000 |
|
|
|
19,448,900 |
|
Month #2
April 30 May 27
|
|
|
133,354 |
|
|
|
30.04 |
|
|
|
110,000 |
|
|
|
19,338,900 |
|
Month #3
May 28 July 1
|
|
|
12,131 |
|
|
|
30.36 |
|
|
|
|
|
|
|
19,338,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
565,626 |
|
|
$ |
31.20 |
|
|
|
528,000 |
|
|
|
19,338,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The total number of shares purchased includes 2,141, 23,354 and
12,131 shares tendered by individuals in connection with
stock option exercises in Month #1, Month #2 and
Month #3, respectively. |
On February 18, 2005, the company announced that the Board
of Directors approved the repurchase of 20,000,000 shares.
On November 10, 2005, the company announced that the Board
of Directors approved the repurchase of an additional
20,000,000 shares upon the completion of the February 2005
program. Pursuant to these repurchase programs, shares may be
acquired in the open market or in privately negotiated
transactions at the companys discretion, subject to market
conditions and other factors. In July 2004, the Board of
Directors authorized the company to enter into agreements from
time to time to extend its ongoing repurchase program to include
repurchases during company announced blackout
periods of such securities in compliance with
Rule 10b5-1
promulgated under the Exchange Act.
On March 6, 2006, the company entered into a stock purchase
plan with Wells Fargo Securities, LLC to purchase up to
1,500,000 shares of SYSCO common stock as authorized under
the February 2005 and November 2005 repurchase programs pursuant
to Rules 10b5-1
and 10b-18 under the
Exchange Act. A total of 902,000 shares were purchased
between March 6, 2006 and May 2, 2006, including
during company blackout periods. By its terms, the
agreement terminated on May 2, 2006.
From July 2, 2006 through August, 26, 2006, an
additional 673,400 shares were purchased. As of
August 26, 2006, no shares remained available for
repurchase under the February 2005 repurchase program, and there
were 18,665,500 shares remaining available for repurchase
under the November 2005 repurchase program.
10
|
|
Item 6. |
Selected Financial Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year | |
|
|
| |
|
|
|
|
2004 | |
|
|
|
|
2006(1,2) | |
|
2005 | |
|
(53 Weeks) | |
|
2003(3) | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands except for share data) | |
Sales
|
|
$ |
32,628,438 |
|
|
$ |
30,281,914 |
|
|
$ |
29,335,403 |
|
|
$ |
26,140,337 |
|
|
$ |
23,350,504 |
|
Earnings before income taxes
|
|
|
1,394,946 |
|
|
|
1,525,436 |
|
|
|
1,475,144 |
|
|
|
1,260,387 |
|
|
|
1,100,870 |
|
Income taxes
|
|
|
548,906 |
|
|
|
563,979 |
|
|
|
567,930 |
|
|
|
482,099 |
|
|
|
421,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change
|
|
|
846,040 |
|
|
|
961,457 |
|
|
|
907,214 |
|
|
|
778,288 |
|
|
|
679,787 |
|
Cumulative effect of accounting change
|
|
|
9,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
855,325 |
|
|
$ |
961,457 |
|
|
$ |
907,214 |
|
|
$ |
778,288 |
|
|
$ |
679,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$ |
1.36 |
|
|
$ |
1.51 |
|
|
$ |
1.41 |
|
|
$ |
1.20 |
|
|
$ |
1.03 |
|
|
Diluted earnings per share
|
|
|
1.35 |
|
|
|
1.47 |
|
|
|
1.37 |
|
|
|
1.18 |
|
|
|
1.01 |
|
Net earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$ |
1.38 |
|
|
$ |
1.51 |
|
|
$ |
1.41 |
|
|
$ |
1.20 |
|
|
$ |
1.03 |
|
|
Diluted earnings per share
|
|
|
1.36 |
|
|
|
1.47 |
|
|
|
1.37 |
|
|
|
1.18 |
|
|
|
1.01 |
|
Dividends declared per share
|
|
|
0.66 |
|
|
|
0.58 |
|
|
|
0.50 |
|
|
|
0.42 |
|
|
|
0.34 |
|
Total assets
|
|
$ |
8,992,025 |
|
|
$ |
8,267,902 |
|
|
$ |
7,847,632 |
|
|
$ |
6,936,521 |
|
|
$ |
5,989,753 |
|
Capital expenditures
|
|
|
514,751 |
|
|
|
390,203 |
|
|
|
530,086 |
|
|
|
435,637 |
|
|
|
416,393 |
|
Current maturities of long-term debt
|
|
$ |
106,265 |
|
|
$ |
410,933 |
|
|
$ |
162,833 |
|
|
$ |
20,947 |
|
|
$ |
13,754 |
|
Long-term debt
|
|
|
1,627,127 |
|
|
|
956,177 |
|
|
|
1,231,493 |
|
|
|
1,249,467 |
|
|
|
1,176,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
1,733,392 |
|
|
|
1,367,110 |
|
|
|
1,394,326 |
|
|
|
1,270,414 |
|
|
|
1,190,061 |
|
Shareholders equity
|
|
|
3,052,284 |
|
|
|
2,758,839 |
|
|
|
2,564,506 |
|
|
|
2,197,531 |
|
|
|
2,132,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$ |
4,785,676 |
|
|
$ |
4,125,949 |
|
|
$ |
3,958,832 |
|
|
$ |
3,467,945 |
|
|
$ |
3,322,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of long-term debt to capitalization
|
|
|
36.2 |
% |
|
|
33.1 |
% |
|
|
35.2 |
% |
|
|
36.6 |
% |
|
|
35.8 |
% |
|
|
(1) |
In fiscal 2006, SYSCO recorded a one-time, after-tax, non-cash
increase to earnings of $9,285,000 as a result of changing the
measurement date of its pension and other postretirement benefit
plans from fiscal year-end to May 31st which represents a
change in accounting. The pro forma effects of retroactive
application of the change in the measurement date for fiscal
2005, 2004, 2003 and 2002 are not material. |
|
(2) |
SYSCO adopted the provisions of SFAS 123(R),
Share-Based Payment effective at the beginning of
fiscal 2006. As a result, the results of operations include
incremental share-based compensation cost over what would have
been recorded had the company continued to account for
share-based compensation under APB No. 25, Accounting
for Stock Issued to Employees. |
|
(3) |
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 and intangibles with indefinite lives
was discontinued. |
|
|
Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
Highlights
Sales increased 7.8% in fiscal 2006 over the prior year. Gross
margins as a percentage of sales were 19.28% for fiscal 2006, or
0.18% greater as a percentage of sales than the prior year.
Operating expenses as a percentage of sales for fiscal 2006
increased from the prior year, primarily due to incremental
share-based compensation expense; increased fuel costs and
increased pension costs, partially offset by lower management
performance-based incentive compensation. Interest expense
increased in fiscal 2006 over the prior year due to a
combination of increased borrowing rates and increased borrowing
levels. The increase in the effective tax rate for fiscal 2006
was due to the combination of the adoption of SFAS 123(R),
coupled with the impact of certain tax benefits recorded in
fiscal 2005. Primarily as a result of these factors, net
earnings before the cumulative effect of accounting change for
fiscal 2006 decreased 12.0% over the prior year.
The Northeast Redistribution Center (Northeast RDC) began
operations in the third quarter of fiscal 2005; therefore, the
net impact of the National Supply Chain project in fiscal 2006
includes both expenses incurred by the project as well as
certain direct benefits. Current direct benefits have been
realized in the areas of cost of sales and operating expenses.
Management estimates that expenses
11
and direct benefits related to the National Supply Chain project
had a net negative impact on earnings before income taxes of
approximately $40,000,000 during fiscal 2006.
In fiscal 2006, SYSCO adopted the provisions of FASB Statement
No. 123(R), Share-Based Payment,
(SFAS 123(R)) utilizing the modified-prospective transition
method under which prior period results have not been restated.
The results of operations for fiscal 2006 include incremental
share-based compensation cost over what would have been recorded
had the company continued to account for share-based
compensation under APB 25 of $118,038,000 ($105,810,000,
net of tax).
SYSCO adopted accounting pronouncement
EITF 04-13
Accounting for Purchases and Sales of Inventory With the
Same Counterparty,
(EITF 04-13) at
the beginning of the fourth quarter of fiscal 2006. The
accounting standard requires certain transactions, where
inventory is purchased by SYSCO from a customer and then resold
at a later date to the same customer (as defined), to be
presented in the income statement on a net basis. The impact of
adopting this new standard resulted in sales being reduced by
$99,803,000. Cost of sales were also reduced by the same amount
and thus net earnings are unaffected by the adoption of this
standard. SYSCO adopted this accounting pronouncement beginning
in the fourth quarter of fiscal 2006 and will apply it to
similar transactions prospectively. Prior years sales and
cost of sales have not been restated. Therefore, the calculation
of sales growth and the comparison of gross margins, operating
expenses and earnings as a percentage of sales between the two
years are affected.
In the first quarter of fiscal 2006, SYSCO recorded a cumulative
effect of a change in accounting, due to a change in the
measurement date for pension and other postretirement benefit
plans to assist the company in meeting accelerated SEC filing
dates, which increased net earnings for fiscal 2006 by
$9,285,000, net of tax.
General economic conditions, including fuel costs and their
impact on consumer spending, can have an impact on SYSCOs
sales growth. Management believes that SYSCOs continued
focus on customer account penetration through the use of
business reviews with customers, increases in the number of
customer contact personnel and efforts of the companys
marketing associates overcame these economic conditions and
contributed to the companys sales growth in fiscal 2006.
These economic conditions may continue to be a factor to
SYSCOs sales growth in future periods.
Overview
SYSCO distributes food and related products to restaurants,
healthcare and educational facilities, lodging establishments
and other foodservice customers. SYSCOs operations are
located throughout the United States and Canada and include
broadline companies, specialty produce companies, custom-cut
meat operations, hotel supply operations, and SYGMA, the
companys chain restaurant distribution subsidiary.
The company estimates that it serves about 14% of an
approximately $232 billion annual market that includes the
North American foodservice and hotel amenity, furniture and
textile markets. According to industry sources, the foodservice,
or food-prepared-away-from-home, market represents approximately
one-half of the total dollars spent on food purchases made at
the consumer level. This share grew from about 37% in 1972 to
about 50% in 1998 and has not changed materially since that time.
General economic conditions and consumer confidence can affect
the frequency of purchases and amounts spent by consumers for
food-prepared-away-from-home and in turn can impact SYSCOs
sales. SYSCO historically has grown at a faster rate than the
overall industry and has grown its market share in this
fragmented industry.
The company intends to continue to expand its market share and
grow earnings through strategies which include:
|
|
|
|
|
Sales growth: The company plans to grow sales by
gaining an increased share of products purchased by existing
customers, development of new customers, the use of foldouts
(new operating companies created in established markets
previously served by other SYSCO operating companies) and a
disciplined acquisition program. The company uses market
information to estimate the potential sales and profitability of
new and existing customers. Marketing resources, SYSCO Brand
products and value-added services provided by SYSCO can be
custom-tailored to the purchasing needs of customers.
Additionally, the investment of resources in any particular
account can be made in proportion to the accounts
potential profitability. |
|
|
|
Brand management: SYSCO Brand products are
manufactured by suppliers to meet the companys product
specifications using strict quality assurance standards.
Management believes that SYSCO Brand products provide a greater
value to customers and differentiate the company from its
competitors. Management also believes that SYSCO Brand products
generally provide higher profitability than national brand
products. |
12
|
|
|
|
|
Productivity gains: The companys investment in
warehousing and transportation technology and the implementation
of best business practices allows SYSCO to leverage operating
expenses relative to sales growth. |
|
|
|
Sales force effectiveness: The company invests in
the development and expansion of its customer contact resources
by hiring additional customer contact personnel through targeted
recruiting, hiring and promotion practices, effective use of
training programs and improved compensation systems. Expanded
business review and business development functions allow the
sales force to strengthen customer relationships and increase
sales. |
|
|
|
Supply chain management: The companys National
Supply Chain project and related organization is being developed
to reduce total supply chain costs, operating costs and working
capital requirements of the company. |
National Supply Chain Project
The companys National Supply Chain project is intended to
optimize the supply chain activities for products for
SYSCOs operating companies in each respective region and
is expected to result in increased sales and profitability. In
addition, it will lower inventory, operating costs, working
capital requirements and future facility expansion needs at
SYSCOs operating companies while providing greater value
to our suppliers and customers. The company expects to build
from seven to nine regional distribution centers in the United
States. The first of these centers, the Northeast RDC located in
Front Royal, Virginia, opened during the third quarter of fiscal
2005.
During fiscal 2006 management identified a number of operational
changes that they believed would make the Northeast RDC more
efficient and held case volumes constant while these changes
were being implemented. Additional case volume began to flow
through the Northeast RDC after implementing these changes and
case volumes continued to increase at a controlled and measured
pace. Management continues to believe that the long-term
economic objectives of the project will be achieved. The
long-term benefits expected to be realized from the National
Supply Chain project will be reflected in the sales, cost of
sales, operating expenses and interest expense line items in the
Results of Operations statement.
In January 2006, SYSCO completed the purchase of land in
Alachua, Florida for the future site of its second RDC, which
will service the companys five broadline operating
companies in Florida. This facility is expected to be
operational in fiscal 2008. The company has also purchased the
site for construction of a third RDC in Hamlet, Indiana.
Results of Operations
The following table sets forth the components of the Results of
Operations expressed as a percentage of sales for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
Sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Costs and Expenses
Cost of sales
|
|
|
80.7 |
|
|
|
80.9 |
|
|
|
80.7 |
|
|
Operating expenses
|
|
|
14.7 |
|
|
|
13.9 |
|
|
|
14.1 |
|
|
Interest expense
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
Other, net
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
95.7 |
|
|
|
95.0 |
|
|
|
95.0 |
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and cumulative effect of accounting
change
|
|
|
4.3 |
|
|
|
5.0 |
|
|
|
5.0 |
|
Income taxes
|
|
|
1.7 |
|
|
|
1.8 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change
|
|
|
2.6 |
|
|
|
3.2 |
|
|
|
3.1 |
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
2.6 |
% |
|
|
3.2 |
% |
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
13
The following table sets forth the change in the components of
the Results of Operations expressed as a percentage increase or
decrease over the prior year:
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Sales
|
|
|
7.8 |
% |
|
|
3.2 |
% |
Costs and Expenses
Cost of sales
|
|
|
7.5 |
|
|
|
3.5 |
|
|
Operating expenses
|
|
|
14.4 |
|
|
|
1.3 |
|
|
Interest expense
|
|
|
45.5 |
|
|
|
7.3 |
|
|
Other, net
|
|
|
(17.3 |
) |
|
|
(11.8 |
) |
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
8.6 |
|
|
|
3.2 |
|
|
|
|
|
|
|
|
Earnings before income taxes and cumulative effect of accounting
change
|
|
|
(8.6 |
) |
|
|
3.4 |
|
Income taxes
|
|
|
(2.7 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change
|
|
|
(12.0 |
) |
|
|
6.0 |
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
(11.0 |
)% |
|
|
6.0 |
% |
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change:
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
(9.9 |
)% |
|
|
7.1 |
% |
Diluted earnings per share
|
|
|
(8.2 |
) |
|
|
7.3 |
|
Net earnings:
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
(8.6 |
) |
|
|
7.1 |
|
Diluted earnings per share
|
|
|
(7.5 |
) |
|
|
7.3 |
|
Average shares outstanding
|
|
|
(2.3 |
) |
|
|
(1.0 |
) |
Diluted shares outstanding
|
|
|
(3.7 |
) |
|
|
(1.3 |
) |
Sales
Sales for fiscal 2006 were 7.8% greater than fiscal 2005.
Acquisitions contributed 1.4% to the overall sales growth rate
for fiscal 2006 and 0.8% for fiscal 2005. The adoption of
EITF 04-13 at the
beginning of the fourth quarter of fiscal 2006 reduced sales
growth in fiscal 2006 by 0.3%, or $99,803,000. Sales for fiscal
2005 were 3.2% greater than fiscal 2004, or 5.3% greater after
adjusting for the additional week in fiscal 2004. Because the
fourth quarter of fiscal 2004 contained an additional week as
compared to fiscal 2005, sales growth for fiscal years 2005 and
2004 are not directly comparable. In order to provide a more
comparable picture of sales growth, management believes that it
is appropriate to adjust the sales figures for fiscal 2004 by
the estimated impact of the additional week. As a result, sales
for fiscal 2004 presented in the table below are adjusted by
one-fourteenth of total sales for the fourth quarter. Set forth
below is a reconciliation of actual sales growth to adjusted
sales growth for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
(52 Weeks) | |
|
(52 Weeks) | |
|
(53 Weeks) | |
|
|
| |
|
| |
|
| |
Sales for the fiscal year
|
|
$ |
32,628,438,000 |
|
|
$ |
30,281,914,000 |
|
|
$ |
29,335,403,000 |
|
Estimated sales for the additional week
|
|
|
|
|
|
|
|
|
|
|
581,358,000 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted sales
|
|
$ |
32,628,438,000 |
|
|
$ |
30,281,914,000 |
|
|
$ |
28,754,045,000 |
|
|
|
|
|
|
|
|
|
|
|
Actual percentage increase
|
|
|
7.8 |
% |
|
|
3.2 |
% |
|
|
12.2 |
% |
Adjusted percentage increase
|
|
|
7.8 |
% |
|
|
5.3 |
% |
|
|
10.0 |
% |
SYSCO generally expects to pass product cost increases to its
customers; however, the actual amount of inflation reflected as
sales price increases is difficult to quantify. Estimated
product cost increases were 0.6% during fiscal 2006 as compared
to 3.5% during fiscal 2005.
14
SYSCOs continued focus on customer account penetration
through the use of business reviews with customers, increases in
the number of customer contact personnel and efforts of the
companys marketing associates contributed to the sales
growth in fiscal 2006. The number of customer contact personnel
has increased approximately 6% since the end of fiscal 2005.
Management believes that prolonged periods of rising product
costs together with general economic conditions, including the
impact of increased fuel costs on consumer spending, contributed
to the softness in the foodservice market and thus a slowing of
SYSCOs sales growth beginning in the latter half of the
fourth quarter of fiscal 2004 and continuing into the first half
of fiscal 2005. After adjusting for the additional week in
fiscal 2004, sales growth remained relatively stable over the
course of fiscal 2005. Management believes that the declining
rate of product cost increases over the course of fiscal 2005
has lessened the overall gross margin pressures experienced
during the year and has contributed to the underlying unit
growth in the latter half of fiscal 2005 and all of fiscal 2006.
Additionally, management believes that the continued focus on
the companys business review process has contributed to
unit sales growth.
Industry sources estimate the total foodservice market
experienced real sales growth of approximately 1.9% in calendar
year 2005 and 2.3% in calendar year 2004.
A comparison of the sales mix in the principal product
categories during the last three years is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
Fresh and frozen meats
|
|
|
19 |
% |
|
|
19 |
% |
|
|
19 |
% |
Canned and dry products
|
|
|
18 |
|
|
|
18 |
|
|
|
18 |
|
Frozen fruits, vegetables, bakery and other
|
|
|
14 |
|
|
|
14 |
|
|
|
14 |
|
Poultry
|
|
|
10 |
|
|
|
11 |
|
|
|
11 |
|
Dairy products
|
|
|
9 |
|
|
|
9 |
|
|
|
9 |
|
Fresh produce
|
|
|
9 |
|
|
|
8 |
|
|
|
8 |
|
Paper and disposables
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
Seafood
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
Beverage products
|
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
Equipment and smallwares
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
Janitorial products
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
Medical supplies
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
A comparison of sales by type of customer during the last three
years is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
Restaurants
|
|
|
63 |
% |
|
|
64 |
% |
|
|
64 |
% |
Hospitals and nursing homes
|
|
|
10 |
|
|
|
10 |
|
|
|
10 |
|
Schools and colleges
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
Hotels and motels
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
All other
|
|
|
16 |
|
|
|
15 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
Gross Margins
Gross margins as a percentage of sales were 19.3% for fiscal
2006, as compared to 19.1% for fiscal 2005. The adoption of
EITF 04-13
contributed 0.06% to the increase in gross margins as a
percentage of sales in fiscal 2006. Management believes that the
remaining gross margin increase was aided by several factors,
including low product cost inflation and effective merchandising.
Estimated product cost increases, an internal measure of
inflation, were 0.6% during fiscal 2006, as compared to 3.5%
during fiscal 2005. SYSCO generally expects to pass product cost
increases to its customers; however, during periods of rapidly
increasing product costs, price increases to customers generally
lag. This lag impacted gross margins in fiscal 2005 as discussed
below. Conversely, in fiscal 2006, the moderation of product
cost increases allowed SYSCO to be more effective in managing
pricing to its customers. This was achieved by maintaining
stable pricing and avoiding the absorption of significant
product cost increases before pricing to customers was adjusted.
The benefits realized by the National Supply Chain project and
better leveraging of our purchasing power resulted in lower
overall product costs.
15
Gross margins as a percentage of sales were 19.1% for fiscal
2005, as compared to 19.3% for fiscal 2004. Management believes
that this gross margin decline was caused by several factors,
including product cost increases, changes in segment mix,
customer mix and pricing pressure. The decline in gross margins
as a percentage of sales slowed during the course of fiscal 2005
due in part to a lessening of the rate of product cost increases
during the fiscal year. Product cost increases in most of the
product categories had the impact of reducing gross margins as a
percentage of sales. The gross margin reduction is generally due
to two reasons: i) the resulting higher sales dollar base
impacts the comparison of the ratio between the two years and
ii) price increases passed on to customers lag behind the
product cost increases incurred from vendors. In periods of
rising product costs, even when gross margin dollars are
maintained or slightly increased, the resulting gross margin
percentage of sales ratio will be lower than the prior year due
to the higher sales dollar base.
During periods of rapidly increasing product costs like those
experienced in fiscal 2005, price increases to customers
generally lag. In the case of marketing associate served
customers, marketing associates will generally encounter
resistance and may not be able to immediately raise prices. In
the case of multi-unit
customers, prices are agreed to contractually. The contracted
prices are fixed for periods of up to 30 days and thus
price increases to these customers will also lag. The contracted
prices are frequently also fee-based which results in the same
gross margin dollars with a higher sales price and therefore a
lower gross margin as a percentage of sales.
Changes in segment mix also contributed to the decline in gross
margins in fiscal 2005 when compared to the prior year. Sales at
the SYGMA segment, which traditionally have lower margins than
Broadline segment sales, grew faster than sales at the Broadline
segment. Changes in customer mix also contributed to the decline
in gross margins in fiscal 2005 when compared to the prior year.
Multi-unit customer
sales in the Broadline segment, which traditionally yield lower
gross margins and lower expenses than marketing associate-served
customer sales, grew faster, and thus represented a greater
percentage of total sales in fiscal 2005 than in fiscal 2004.
Management also believes that competitive pricing pressures
contributed to the decline in gross margins.
Operating Expenses
Operating expenses include the costs of warehousing and
delivering products as well as selling, administrative and
occupancy expenses. Changes in the percentage relationship of
operating expenses to sales result from an interplay of several
factors, including improved efficiencies, customer mix, and
product cost increases which result in increases in sales prices.
Operating expenses as a percentage of sales were 14.7% for
fiscal 2006, as compared to 13.9% for fiscal 2005. The increase
in operating expenses as a percentage of sales included
incremental share-based compensation, increased fuel costs,
increased pension costs and increased expenses associated with
the National Supply Chain project, partially offset by reduced
management performance based incentive bonuses.
Operating expenses for fiscal 2006 include incremental
share-based compensation cost of $118,038,000 resulting from the
adoption of SFAS 123(R) (See Note 13 to the
consolidated financial statements in Item 8). Fuel costs
increased $48,600,000 fiscal 2006 over the prior year. Net
pension costs increased $23,734,000 in fiscal 2006 over the
prior year. Operating expenses were reduced by the recognition
of a gain of $9,702,000 in fiscal 2006 to adjust the carrying
value of life insurance assets to their cash surrender value, as
compared to a gain of $13,803,000 in fiscal 2005. Management
performance based incentive bonuses were reduced by $27,270,000
in fiscal 2006 as compared to fiscal 2005.
Management estimates that expenses and direct benefits related
to the National Supply Chain project had a net negative impact
on earnings before income taxes of approximately $40,000,000
during fiscal 2006. Direct benefits from the National Supply
Chain project in fiscal 2006 were primarily realized in reduced
cost of sales. The long-term benefits expected to be realized
from the National Supply Chain project will be reflected in the
sales, cost of sales, operating expenses and interest expense
line items in the Results of Operations statement.
Operating expenses as a percentage of sales were 13.9% for
fiscal 2005, as compared to 14.1% for fiscal 2004. The decrease
in operating expenses as a percentage of sales was aided by
improved operating efficiencies. For example, the Broadline
segment continues to demonstrate improving trends in key expense
metrics, including miles driven per trip, pieces per stop and
pieces per error. Increases in product costs and the resulting
increased average sales price per item also favorably impacted
expenses as a percentage of sales as operating costs increased
at a lower rate than sales.
Operating expenses for fiscal 2005 were negatively impacted by
increased costs to deliver product to customers due to increased
fuel costs of approximately $31,000,000 over the prior year.
Operating expenses related to the National Supply Chain project
were $46,450,000 in fiscal 2005, as compared to $29,333,000 in
fiscal 2004. Also included in operating expenses was the
recognition of a
16
gain of $13,803,000 in fiscal 2005 to adjust the carrying value
of life insurance assets to their cash surrender value, as
compared to a gain of $19,124,000 in fiscal 2004. Operating
expenses were reduced by a reduction of management performance
based incentive bonuses of $26,989,000 and a decrease in net
pension cost of $7,374,000 in fiscal 2005 as compared to fiscal
2004.
In order to partially manage the volatility and uncertainty of
fuel costs, SYSCO from time to time will enter into forward
purchase commitments for a portion of SYSCOs projected
monthly diesel fuel requirements. Forward diesel fuel purchase
commitments outstanding as of July 1, 2006 and July 2,
2005, respectively, were not material.
Net pension costs for fiscal 2007 are expected to decrease
$53,900,000 from fiscal 2006 due primarily to an increase in the
discount rate utilized to determine net pension costs.
Interest Expense
The increase in interest expense of $34,100,000 in fiscal 2006
over fiscal 2005 was due to a combination of increased borrowing
rates and increased borrowing levels.
In fiscal 2006, commercial paper and short-term bank borrowing
rates increased over the prior year. Effective borrowing rates
on long-term debt also increased over the comparable prior year
period. In fiscal 2005, effective borrowing rates on long-term
debt were lowered through the use of
fixed-to-floating
interest rate swaps.
Higher overall borrowing levels are a result of the level of
share repurchases, increased working capital requirements driven
primarily by sales growth and continued capital investments in
the form of additions to plant and equipment and acquisitions of
new businesses.
The increase in interest expense of $5,120,000 in fiscal 2005
over fiscal 2004, was due to increased borrowing interest rates.
The increase in the companys overall borrowing interest
rates was primarily due to an increase in the percentage of the
companys debt with fixed interest rates in fiscal 2005 as
compared to fiscal 2004. In fiscal 2004, the companys debt
portfolio included a larger percentage of floating rate debt in
the form of either commercial paper issuances or fixed rate debt
converted to floating through interest rate swap agreements. In
addition, market interest rates increased during fiscal 2005.
Other, Net
Changes between the years result from fluctuations in
miscellaneous activities, primarily gains and losses on the sale
of surplus facilities.
Income Taxes
The effective tax rate was 39.35% in fiscal 2006, 36.97% in
fiscal 2005 and 38.50% in fiscal 2004.
The increase in the effective tax rate for fiscal 2006 was a
combination of the adoption of SFAS 123(R), which is
discussed in Note 13, Share-Based Compensation, and
Note 14, Income Taxes, to the Consolidated Financial
Statements in Item 8, and certain tax benefits recorded in
fiscal 2005. SYSCO recorded a tax benefit of $12,228,000, or
10.4% of the $118,038,000 in incremental share-based
compensation expense recorded in fiscal 2006, as a result of the
adoption of SFAS 123(R).
The income tax expense in fiscal 2005 was reduced by tax
benefits totaling $19,500,000 primarily related to the reversal
of a tax contingency accrual and to the reversal of valuation
allowances previously recorded on certain state net operating
loss carryforwards.
Net Earnings
Net earnings decreased 11.0% in fiscal 2006 over the prior year.
The decrease was due primarily to the factors discussed above.
In addition, in the first quarter of fiscal 2006, SYSCO recorded
a cumulative effect of a change in accounting due to a change in
the measurement date for pension and other postretirement
benefits, which increased net earnings for fiscal 2006 by
$9,285,000, net of tax.
The increases in net earnings in fiscal 2005 over fiscal 2004
were due to the factors discussed above. In addition, the
comparison of fiscal 2005s net earnings to fiscal 2004 was
negatively impacted by the additional 53rd week in fiscal
2004.
17
Earnings Per Share
Basic earnings per share and diluted earnings per share
decreased 8.6% and 7.5%, respectively, in fiscal 2006 over the
prior year. These decreases were due primarily to the result of
factors discussed above, partially offset by a net reduction in
shares outstanding. The net reduction in average shares
outstanding used to calculate basic earnings per share is
primarily due to share repurchases. The net reduction in diluted
shares outstanding is primarily due to share repurchases, the
exclusion of certain options from the diluted share calculation
due to their anti-dilutive effect and a modification of the
treasury stock method calculation utilized to compute the
dilutive effect of stock options as a result of the adoption of
SFAS 123(R). This modification results in lower diluted
shares outstanding than would have been calculated had
compensation cost not been recorded for stock options and stock
issuances under the Employees Stock Purchase Plan.
Basic earnings per share and diluted earnings per share
increased 7.1% and 7.3%, respectively, in fiscal 2005 over prior
year. The increases in earnings per share were the result of
factors discussed above, as well as a net reduction of shares
outstanding due primarily to share repurchases.
Return on Average Shareholders Equity
The return on average shareholders equity was
approximately 30% in fiscal 2006, 35% in fiscal 2005 and 39% in
fiscal 2004. The lower return in fiscal 2006 was impacted by the
reduction in earnings resulting from the adoption of
SFAS 123(R) as discussed above. The higher return in fiscal
2004 was primarily due to the impact of minimum pension
liability adjustments to shareholders equity. Since its
inception, SYSCO has averaged approximately 20% return on
average shareholders equity.
Segment Results
The following table sets forth the change in the selected
financial data of each of the companys reportable segments
expressed as a percentage increase over the prior year and
should be read in conjunction with Business Segment Information
in Note 17 to the Consolidated Financial Statements in
Item 8:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
|
|
Earnings | |
|
|
|
Earnings | |
|
|
Sales | |
|
Before Taxes | |
|
Sales | |
|
Before Taxes | |
|
|
| |
|
| |
|
| |
|
| |
Broadline
|
|
|
5.8 |
% |
|
|
1.9 |
% |
|
|
1.7 |
% |
|
|
5.0 |
% |
SYGMA
|
|
|
10.8 |
|
|
|
(55.4 |
) |
|
|
10.4 |
|
|
|
(28.1 |
) |
Other
|
|
|
23.4 |
|
|
|
28.6 |
|
|
|
8.4 |
|
|
|
11.7 |
|
The following table sets forth sales and earnings before taxes
of each of the companys reportable segments expressed as a
percentage of the respective consolidated total and should be
read in conjunction with Business Segment Information in
Note 17 to the Consolidated Financial Statements in
Item 8:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Earnings | |
|
|
|
Earnings | |
|
|
|
Earnings | |
|
|
Sales | |
|
Before Taxes | |
|
Sales | |
|
Before Taxes | |
|
Sales | |
|
Before Taxes | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Broadline
|
|
|
78.7 |
% |
|
|
110.8 |
% |
|
|
80.1 |
% |
|
|
99.4 |
% |
|
|
81.3 |
% |
|
|
97.9 |
% |
SYGMA
|
|
|
13.3 |
|
|
|
0.6 |
|
|
|
12.9 |
|
|
|
1.2 |
|
|
|
12.1 |
|
|
|
1.7 |
|
Other
|
|
|
9.2 |
|
|
|
7.9 |
|
|
|
8.1 |
|
|
|
5.6 |
|
|
|
7.7 |
|
|
|
5.2 |
|
Intersegment sales
|
|
|
(1.2 |
) |
|
|
|
|
|
|
(1.1 |
) |
|
|
|
|
|
|
(1.1 |
) |
|
|
|
|
Unallocated corporate expenses
|
|
|
|
|
|
|
(19.3 |
) |
|
|
|
|
|
|
(6.2 |
) |
|
|
|
|
|
|
(4.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The company does not allocate share-based compensation related
to stock option grants, issuances of stock pursuant to the
Employees Stock Purchase Plan and restricted stock grants
to non-employee directors and corporate officers. The increase
in unallocated corporate expenses as a percentage of
consolidated earnings before taxes in fiscal 2006 over fiscal
2005 is primarily attributable to these items. See further
discussion of Share-Based Compensation in Note 13 to the
Consolidated Financial Statements in Item 8.
18
Broadline Segment
Sales for fiscal 2006 were 5.8% greater than fiscal 2005. The
adoption of
EITF 04-13 in the
fourth quarter of fiscal 2006 reduced sales growth in fiscal
2006 by 0.2%, or $57,211,000. Sales for fiscal 2005 were 1.7%
greater than fiscal 2004. Acquisitions contributed 0.1% to the
overall sales growth rate for both fiscal 2006 and fiscal 2005.
Management believes that SYSCOs continued focus on
customer account penetration through the use of business reviews
with customers, increases in the number of customer contact
personnel and efforts of the companys marketing associates
contributed to the sales growth in fiscal 2006.
The fiscal 2005 sales growth was primarily due to increased
sales to marketing associate-served customers and
multi-unit customers,
including increased sales of SYSCO Brand products and increases
in both sales prices and unit volumes. The comparison of fiscal
2005 sales to fiscal 2004 is negatively impacted by the
additional week in fiscal 2004.
The decrease of Broadline segment sales as a percentage of total
SYSCO sales in fiscal 2006 and fiscal 2005 was due primarily to
strong sales growth in the SYGMA and other segments outpacing
the Broadline sales growth, as well as the contributions to
sales growth from the acquisitions of specialty meat, specialty
produce and SYGMA operations during fiscal 2006 and fiscal 2005.
Marketing associate-served sales as a percentage of Broadline
sales in the U.S. remained the same at 54.0% in fiscal 2006
and 2005. SYSCO Brand sales as a percentage of Broadline sales
in the U.S. decreased to 55.4% for fiscal 2006 as compared
to 57.4% in fiscal 2005.
The increase in earnings before income taxes for fiscal 2006
were primarily due to increases in sales partially offset by
higher fuel costs and the continued investment in the National
Supply Chain project.
The increase in earnings before income taxes for fiscal 2005 was
primarily due to increases in sales and increased operating
efficiencies aided by lower expenses as a percentage of sales.
Factors contributing to the lower expenses as a percentage of
sales were reduced performance based management incentive
compensation and decreased net periodic pension costs, which
overcame higher fuel costs and increased expenditures related to
the National Supply Chain project. The comparison of fiscal
2005s earnings before income taxes to fiscal 2004 was also
negatively impacted by the additional 53rd week in fiscal
2004.
SYGMA Segment
Sales for fiscal 2006 were 10.8% greater than fiscal 2005. The
adoption of
EITF 04-13 in the
fourth quarter of fiscal 2006 reduced sales growth in fiscal
2006 by 1.1%, or $42,560,000. Sales for fiscal 2005 were 10.4%
greater than fiscal 2004. Acquisitions contributed 0.5% to the
overall sales growth rate for fiscal 2006 and 2.6% for fiscal
2005. Fiscal 2006 growth was due primarily to sales to new
customers and sales growth in SYGMAs existing customer
base related to new locations added by those customers, each of
which temporarily increases SYGMAs cost to service the
customers. In addition, certain customers were transferred from
Broadline operations to be serviced by SYGMA operations,
contributing to the sales increase.
Fiscal 2005 sales growth was due primarily to sales to new
customers, sales growth in SYGMAs existing customer base
related to new locations added by those customers, as well as
increases in sales to existing locations, price increases
resulting primarily from higher product costs and sales from
acquisitions. The comparison of fiscal 2005 sales to fiscal 2004
is negatively impacted by the additional week in fiscal 2004.
The decrease in earnings before income taxes in fiscal 2006 was
due to several factors. Certain of SYGMAs customers have
experienced a slowdown in their business. This in turn results
in lower cases per delivery and therefore reduced gross margin
dollars per stop. In addition, SYGMA has experienced increased
fuel costs, startup costs related to new facilities, costs
incurred on information systems projects and increased workers
compensation costs.
The decrease in earnings before income taxes in fiscal 2005 was
due to several factors. During the fourth quarter of fiscal 2004
and the first quarter of fiscal 2005, SYGMA discontinued
servicing a portion of its largest customers locations due
to that customers geographic supply chain realignment.
SYGMA offset these lost sales by obtaining sales from additional
locations from this customer and obtaining new business from
other customers. In many cases, this new business is being
served out of different SYGMA locations than those that
originally served the discontinued business. SYGMA opened a new
facility to serve a portion of the new business which it began
serving in the fourth quarter of fiscal 2005. As a result,
during the fourth quarter of fiscal 2004 and throughout fiscal
2005, SYGMAs operating profits have been impacted by
increased operating expenses as it transitioned its operations
to serve the new business it has acquired. In addition,
SYGMAs gross margins as a percentage of sales in fiscal
2005 have declined from the comparable period in fiscal 2004 due
to product cost increases and lower agreed upon pricing with its
customers.
19
Liquidity and Capital Resources
SYSCO provides marketing and distribution services to
foodservice customers primarily 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 customer contact personnel and its
consolidated buying programs, as well as the productivity of its
warehousing and distribution activities. These objectives
require continuing investment. SYSCOs resources include
cash provided by operations and access to capital from financial
markets.
SYSCOs 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 companys
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. SYSCOs share repurchase program is used
primarily to offset shares issued under various employee benefit
and compensation plans, for acquisitions, to reduce shares
outstanding (which may have the net effect of increasing
earnings per share) and to aid in managing the ratio of
long-term debt to total capitalization. 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 33.1% at July 1, 2006 and
July 2, 2005, respectively. For purposes of calculating
this ratio, long-term debt includes both the current maturities
and long-term portion.
Operating Activities
Cash flow from operations in fiscal 2006 was negatively impacted
by an increase in inventory balances of $119,392,000 and an
increase in accounts receivable balances of $162,586,000,
partially offset by an increase in accounts payable balances of
$49,775,000. Cash flow from operations in fiscal 2005 was
negatively impacted by an increase in inventory balances of
$35,014,000 and an increase in accounts receivable balances of
$72,829,000, partially offset by an increase in accounts payable
balances of $28,080,000. Cash flow from operations in fiscal
2004 was negatively impacted by an increase in inventory
balances of $162,502,000 and an increase in accounts receivable
balances of $177,058,000, partially offset by an increase in
accounts payable balances of $95,874,000.
The increases in accounts receivable and inventory balances were
primarily a result of sales growth. Accounts payable balances
are impacted by many factors, including changes in product mix,
cash discount terms and changes in payment terms with vendors
due to the use of more efficient electronic payment methods.
Also impacting cash flow from operations was an increase in
accrued expenses of $29,161,000 in fiscal 2006, a decrease in
accrued expenses of $52,423,000 in fiscal 2005 and an increase
in accrued expenses of $26,687,000 in fiscal 2004. The increase
in accrued expenses for fiscal 2006, was related to various
miscellaneous accruals while the changes in accrued expenses for
fiscal 2005 and 2004 were primarily due to the amount of accrued
incentive bonuses related to those years.
Also impacting cash flow from operations was an increase in
other long term liabilities and prepaid pension cost of
$75,382,000 in fiscal 2006, and decreases of $86,338,000 in
fiscal 2005 and $35,056,000 in fiscal 2004. The increases in
other long-term liabilities and prepaid pension cost in fiscal
2006 are primarily due to the amount of net pension cost
recognized exceeding the amount of pension contribution during
the year. The decreases in other long-term liabilities and
prepaid pension cost in fiscal 2005 and fiscal 2004 are
primarily due to the amount of pension contributions exceeding
the net pension cost recognized in each year. The companys
contributions to its defined benefit plans were $73,764,000,
$220,361,000 and $165,512,000 during fiscal 2006, fiscal 2005
and fiscal 2004, respectively. Included in the amounts
contributed in fiscal 2006 was $66,000,000 voluntarily
contributed to the qualified pension plan representing the
maximum tax deductible amount. Included in the amount
contributed for fiscal 2005 was $134,000,000 voluntarily
contributed to the qualified pension plan in the fourth quarter
in addition to the $80,000,000 which was contributed during the
year. The decision to increase the contributions to the
Retirement Plan in fiscal 2005 was primarily due to the decrease
in the discount rate used to measure the year-end obligation,
which increased the pension obligation and negatively impacted
the fiscal 2005 year-end pension funded status prior to the
additional $134,000,000 contribution. The company expects to
contribute approximately $90,000,000 to its defined benefit
plans in fiscal 2007.
20
One of the factors increasing the amount of taxes paid in fiscal
2006 as compared to the amounts paid in fiscal 2005 was the
amount of deductible pension contributions made during the year.
As discussed above, the companys pension contributions
were substantially lower in fiscal 2006 than in the preceding
fiscal years.
The amount of taxes paid in fiscal 2004 was reduced by
$70,615,000 as the result of the utilization of a
U.S. federal net operating loss carryforward. This net
operating loss carryforward was generated in fiscal 2003
primarily as a result of the deferral of supply chain
distributions.
Investing Activities
Fiscal 2006 capital expenditures included the construction of
fold-out facilities in Springfield, Illinois; Geneva, Alabama;
and Knoxville, Tennessee, replacement or significant expansion
of facilities in Raleigh, North Carolina; Columbus, Ohio;
Albuquerque, New Mexico; and Denver, Colorado, and continuing
work on the corporate headquarters expansion.
Fiscal 2005 capital expenditures included the construction of
fold-out facilities in Spokane, Washington and Geneva, Alabama,
replacement or significant expansion of facilities in Baltimore,
Maryland; Cleveland, Ohio; Denver, Colorado; Milwaukee,
Wisconsin; Miami, Florida; and Hartford, Connecticut, and the
completion of the Northeast Redistribution Center in Front
Royal, Virginia.
Fiscal 2004 capital expenditures included the construction of
fold-out facilities in Oxnard, California and Fargo, North
Dakota, replacement or significant expansion of facilities in
Billings, Montana; Cleveland, Ohio; Jacksonville, Florida;
Miami, Florida; and San Antonio, Texas, and the Northeast
Redistribution Center in Front Royal, Virginia, as well as
continued expenditures related to the National Supply Chain
project.
Total capital expenditures in fiscal 2007 are expected to be in
the range of $575,000,000 to $625,000,000. Fiscal 2007
expenditures will include the continuation of the fold-out
program; facility, fleet and other equipment replacements and
expansions; the corporate office expansion; the companys
National Supply Chain project; and investments in technology.
During fiscal 2006, SYSCO acquired for cash one broadline
foodservice operation, one custom meat-cutting operation and
five specialty produce distributors. During fiscal 2005, SYSCO
acquired for cash one broadline foodservice operation, four
custom meat-cutting operations, and two specialty produce
distributors. During fiscal 2004, SYSCO acquired for cash
certain assets of two broadline foodservice operations, a
specialty produce distributor, and one quickservice operation.
Financing Activities
The company routinely engages in Board-approved share repurchase
programs. The number of shares acquired and their cost during
the past three fiscal years was 16,479,800 shares for
$544,131,000 in fiscal 2006, 16,790,200 shares for
$597,660,000 in fiscal 2005, and 16,454,300 shares for
$608,506,000 in fiscal 2004. An additional 673,400 shares
have been purchased at a cost of $20,191,000 through
August 26, 2006, resulting in 18,665,500 shares
remaining available for repurchase as authorized by the Board as
of that date.
The company made four regular quarterly dividend payments during
each of fiscal years 2006, 2005 and 2004. SYSCO began paying the
current quarterly dividend rate of $0.17 per share in
January 2006, an increase from the $0.15 per share that
became effective in January 2005. In May 2006, SYSCO declared
its regular quarterly dividend for the first quarter of fiscal
2007 of $0.17 per share, which was paid in July 2006. In
September 2006, SYSCO also declared its regular quarterly
dividend for the second quarter of fiscal 2007 of $0.17 per
share, payable in October 2006.
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 August 26,
2006, 29,477,835 shares remained available for issuance
under this registration statement.
In March 2004, SYSCO issued 4.60% notes totaling
$200,000,000 due March 15, 2014 in a private offering.
Proceeds from the notes were utilized to retire outstanding
commercial paper.
In June 2005, SYSCO repaid the 6.5% senior notes totaling
$150,000,000 at maturity utilizing a combination of cash flow
from operations and commercial paper issuances. In July 2005,
SYSCO repaid the 4.75% senior notes totaling $200,000,000
at maturity also utilizing a combination of cash flow from
operations and commercial paper issuances.
21
In April 2005, SYSCO filed with the Securities and Exchange
Commission a shelf registration statement covering
$1,500,000,000 in debt securities. The registration statement
was declared effective in May 2005. In September 2005, SYSCO
issued 5.375% senior notes totaling $500,000,000 due on
September 21, 2035, under its April 2005 shelf
registration. These notes, which were priced at 99.911% 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
noteholders are not penalized by the early redemption. Proceeds
from the notes were utilized to retire commercial paper
issuances outstanding as of September 2005.
In March 2005, SYSCO entered into a forward-starting interest
rate swap with a notional amount of $350,000,000 as a cash flow
hedge of the variability in the cash outflows of interest
payments on the forecasted debt issuance due to changes in the
benchmark interest rate. The fair value of the swap as of
July 2, 2005 was ($32,584,000), which is reflected in
Accrued expenses on the Consolidated Balance Sheet, with the
corresponding amount reflected as a loss, net of tax, in Other
comprehensive income (loss). In September 2005, in conjunction
with the issuance of the 5.375% senior notes described
above, SYSCO settled the $350,000,000 notional amount
forward-starting interest rate swap. Upon termination, SYSCO
paid cash of $21,196,000, which represented the fair value
liability associated with the swap agreement at the time of
termination. This amount is being amortized as interest expense
over the 30-year term
of the debt, and the unamortized balance is reflected as a loss,
net of tax, in Other comprehensive income (loss).
In May 2006, SYSCO repaid at maturity the 7.0% senior notes
totaling $200,000,000 utilizing a combination of cash flow from
operations and commercial paper issuances.
SYSCO has uncommitted bank lines of credit, which provided for
unsecured borrowings for working capital of up to $145,000,000,
of which $29,300,000 was outstanding as of July 1, 2006 and
$13,400,000 was outstanding as of August 26, 2006.
In November 2005, SYSCO and one of its subsidiaries, SYSCO
International, Co., entered into a new revolving credit facility
to support the companys U.S. and Canadian commercial paper
programs. The facility, which was increased to $750,000,000 in
March 2006, may be increased up to $1,000,000,000 at the option
of the company, and terminates on November 4, 2010, subject
to extension. The facility replaced the previous $450,000,000
(U.S. dollar) and $100,000,000 (Canadian dollar) revolving
credit agreements in the U.S. and Canada, respectively, both of
which were terminated.
In April 2006, SYSCO initiated a new commercial paper program
allowing the company to issue short-term unsecured notes in
aggregate not to exceed $1.3 billion. This new commercial
paper program replaced notes that were issued under SYSCOs
previous commercial paper program as they matured and became due
and payable.
During fiscal 2006, 2005 and 2004, aggregate outstanding
commercial paper issuances and short-term bank borrowings ranged
from approximately $126,846,000 to $774,530,000, $28,560,000 to
$253,384,000, and $73,102,000 to $478,114,000, respectively.
Outstanding commercial paper issuances were $399,568,000 as of
July 1, 2006 and $464,917,000 as of August 26, 2006.
Total debt at July 1, 2006 was $1,762,692,000, of which
approximately 75% was at fixed rates averaging 6.0% and the
remainder was at floating rates averaging 5.2%. Included in
current maturities of long-term debt at July 1, 2006 are
the 7.25% senior notes totaling $100,000,000, which mature
in April 2007. It is the companys intention to fund the
repayment of these notes at maturity through issuances of
commercial paper, senior notes or a combination thereof.
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 July 1, 2006 and
July 2, 2005, letters of credit outstanding were
$60,000,000 and $76,817,000, respectively.
SYSCOs affiliate, BSCC, is a cooperative for income tax
purposes. SYSCO believes that the cooperative entity is
appropriate for BSCC based on the business operations of this
affiliate and on the legal structure applied. However, if the
application of the cooperative structure was to be disallowed by
any federal, state or local tax authority, SYSCO could be
required to accelerate the payment of a portion or all of its
income tax liabilities that it otherwise has deferred until
future periods and be liable for interest on such amounts.
Amounts included as deferred income tax liabilities related to
BSCC deferred supply chain distributions were $924,902,000 as of
July 1, 2006. If SYSCO was required to accelerate a
significant portion of these deferred tax liabilities, the
company may be required to raise additional capital through debt
financing or the issuance of equity or it may be required to
forego or defer planned capital expenditures or share
repurchases or a combination thereof and may be required to pay
interest on amounts deferred.
22
In summary, management believes that the companys cash
flows from operations, as well as the availability of additional
capital under its existing commercial paper programs, bank lines
of credit, debt shelf registration and its ability to access
capital from financial markets in the future, will be sufficient
to meet its cash requirements while maintaining proper liquidity
for normal operating purposes.
Off-Balance Sheet Arrangements
In the normal course of business with customers, vendors and
others, SYSCO has entered into off-balance sheet arrangements,
such as letters of credit, which totaled $60,000,000 as of
July 1, 2006. Additionally, other than normal long-term
non-capitalized leases included in the Contractual Obligations
table below, the company does not have any material off-balance
sheet financing arrangements. None of these off-balance sheet
arrangements either has, or is likely to have, a material effect
on SYSCOs current or future financial condition, results
of operations, liquidity or capital resources.
Contractual Obligations
The following table sets forth certain information concerning
SYSCOs obligations and commitments to make contractual
future payments:
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|
|
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|
|
|
|
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|
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Payments Due by Period | |
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|
| |
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Less Than | |
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More Than | |
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Total | |
|
1 Year | |
|
1-3 Years | |
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3-5 Years | |
|
5 Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Recorded Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt and commercial paper
|
|
$ |
428,868 |
|
|
$ |
29,300 |
|
|
$ |
|
|
|
$ |
399,568 |
|
|
$ |
|
|
Long-term debt
|
|
|
1,305,415 |
|
|
|
102,269 |
|
|
|
3,852 |
|
|
|
7,403 |
|
|
|
1,191,891 |
|
Capital lease obligations
|
|
|
28,409 |
|
|
|
3,996 |
|
|
|
1,706 |
|
|
|
1,388 |
|
|
|
21,319 |
|
Deferred compensation(1)
|
|
|
116,236 |
|
|
|
6,641 |
|
|
|
9,556 |
|
|
|
9,159 |
|
|
|
90,880 |
|
SERP and other postretirement plans(2)
|
|
|
211,691 |
|
|
|
9,356 |
|
|
|
25,104 |
|
|
|
37,413 |
|
|
|
139,818 |
|
Unrecorded Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments related to debt(3)
|
|
|
1,293,133 |
|
|
|
67,874 |
|
|
|
123,760 |
|
|
|
123,760 |
|
|
|
977,739 |
|
Long-term non-capitalized leases
|
|
|
331,278 |
|
|
|
56,499 |
|
|
|
86,803 |
|
|
|
58,995 |
|
|
|
128,981 |
|
Purchase obligations(4)
|
|
|
1,050,109 |
|
|
|
810,903 |
|
|
|
74,613 |
|
|
|
66,185 |
|
|
|
98,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$ |
4,765,139 |
|
|
$ |
1,086,838 |
|
|
$ |
325,394 |
|
|
$ |
703,871 |
|
|
$ |
2,649,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The estimate of the timing of future payments under the
Executive Deferred Compensation Plan involves the use of certain
assumptions, including retirement ages and payout periods. |
|
(2) |
Includes estimated contributions to the unfunded SERP and other
postretirement benefit plans made in amounts needed to fund
benefit payments for vested participants in these plans through
fiscal 2015, based on actuarial assumptions. |
|
(3) |
Includes payments on floating rate debt based on rates as of
July 1, 2006, assuming amount remains unchanged until
maturity, and payments on fixed rate debt based on maturity
dates. |
|
(4) |
For purposes of this table, purchase obligations include
agreements for purchases of product in the normal course of
business, for which all significant terms have been confirmed.
Such amounts included in the table above are based on estimates.
Purchase obligations also includes amounts committed with a
third party to provide hardware and hardware hosting services
(See discussion under Note 16, Commitments and
Contingencies, in the Notes to Consolidated Financial Statements
in Item 8). Purchase obligations exclude full requirements
electricity contracts where no stated minimum purchase volume is
required. |
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
July 1, 2006 included $147,572,000 in cash. This amount is
not included in the table above.
No obligations were included in the table above for the
qualified retirement plan because as of July 1, 2006, SYSCO
does not have a minimum funding requirements under ERISA
guidelines for this plan due to its previous voluntary
contributions.
23
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 policies employed
by SYSCO are presented in the notes to the financial statements.
Critical accounting policies are those that are most important
to the portrayal of the companys financial condition and
results of operations. These policies require managements
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. SYSCOs most critical accounting policies
pertain to the allowance for doubtful accounts receivable,
self-insurance programs, pension plans, income taxes, vendor
consideration, accounting for business combinations and
share-based compensation.
Allowance for Doubtful Accounts
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 customers 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
SYSCOs 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 by third party insurers.
Liabilities associated with these risks are estimated in part by
considering historical claims experience, medical cost trends,
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
Amounts related to defined benefit plans recognized in the
financial statements are 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.
The measurement date for the pension and other postretirement
benefit plans is fiscal year end for fiscal years 2005 and
prior. Beginning in fiscal 2006, the measurement date is
May 31st which represents a change in accounting. The
one-month acceleration of the measurement date allows additional
time for management to evaluate and report the actuarial pension
measurements in the year-end financial statements and
disclosures within the accelerated filing deadlines of the
Securities and Exchange Commission. The cumulative effect of
this change in accounting resulted in an increase to earnings in
the first quarter of fiscal 2006 of $9,285,000, net of tax.
For guidance in determining the discount rate, SYSCO calculates
the implied rate of return on a hypothetical portfolio of
high-quality fixed-income investments for which the timing and
amount of cash outflows approximates the estimated payouts of
the pension plan. The discount rate assumption is reviewed
annually and revised as deemed appropriate. The discount rate
assumption utilized impacts the recorded amount of net pension
costs. The discount rate utilized to determine net pension costs
for fiscal 2006 decreased 0.65% to 5.60% from the discount rate
utilized to determine net pension costs for fiscal 2005 of
6.25%. This 0.65% decrease in the discount rate increased
SYSCOs net pension costs for fiscal 2006 by approximately
$29,300,000. The discount rate for determining fiscal
2007 net pension costs, which was determined as of the
May 31, 2006 measurement date, increased 1.13% to 6.73%.
This 1.13% increase will decrease SYSCOs net pension costs
for fiscal 2007 by an estimated $53,079,000.
24
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 for the qualified pension plan
(Retirement Plan), which are equivalent to a single rate of
6.17% and 5.89%, respectively, as of July 1, 2006 and
July 2, 2005. The Supplemental Executive Retirement Plan
assumes annual salary increases of 10% through fiscal 2007 and
7% thereafter as of July 1, 2006 and July 2, 2005.
The expected long-term rate of return on plan assets of the
Retirement Plan was 9.00% for fiscal 2006 and 2005. 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 approximately 10.3%, 8.4%, 4.0% and 5.9% over the
20-year,
10-year,
5-year and
1-year periods ended
December 31, 2005, respectively. In addition, in nine of
the last 15 years, the actual return on plan assets has
exceeded 9.00%. The rate of return assumption is reviewed
annually and revised as deemed appropriate.
The expected return on plan assets impacts the recorded amount
of net pension costs. A 1.0% increase (decrease) in the assumed
rate of return for fiscal 2007 would decrease (increase)
SYSCOs net pension costs for fiscal 2007 by approximately
$12,972,000.
Minimum pension liability adjustments result when the
accumulated benefit obligation exceeds the fair value of plan
assets and are recorded so that the recorded pension liability
is at a minimum equal to the unfunded accumulated benefit
obligation. Minimum pension liability adjustments are non-cash
adjustments that are reflected as an increase (or decrease) in
the pension liability and an offsetting charge (or benefit) to
shareholders equity, net of tax, through accumulated other
comprehensive loss (or income). Amounts reflected in accumulated
other comprehensive income or loss related to minimum pension
liability, were charges, net of tax, of $11,106,000 as of
July 1, 2006, and $54,286,000 as of July 2, 2005.
Changes in the assumptions, including changes to the discount
rate discussed above, together with the normal growth of the
plan, the impact of actuarial losses from prior periods and the
timing and amount of contributions, increased net pension costs
$23,700,000 in fiscal 2006 and is expected to decrease net
pension costs in fiscal 2007 by approximately $53,900,000.
The company made cash contributions to its pension plans of
$73,764,000 and $220,361,000 in fiscal years 2006 and 2005,
respectively, including voluntary contributions to the
Retirement Plan of $66,000,000 and $214,000,000 in fiscal 2006
and fiscal 2005, respectively. In fiscal 2006, the
companys voluntary contribution to the Retirement Plan
represented the maximum tax-deductible amount. In fiscal 2005,
the company made a voluntary contribution of $134,000,000 in the
fourth quarter in addition to the $80,000,000 which was
contributed during the year. The decision to increase the
contributions to the Retirement Plan in fiscal 2005 was
primarily due to the decrease in the discount rate used to
measure the year-end obligation, which increased the pension
obligation and negatively impacted the fiscal 2005 year-end
pension funded status prior to the additional $134,000,000
contribution. In fiscal 2007, as in the previous years,
contributions to the Retirement Plan will not be required to
meet ERISA minimum funding requirements but the company
anticipates that it will make voluntary contributions of
approximately $80,000,000, which is not greater than the
estimated maximum amount that will be tax deductible in fiscal
2007. The estimated fiscal 2007 contributions to fund benefit
payments for the SERP and other post-retirement plans together
are approximately $10,000,000.
Income Taxes
The determination of the companys provision for income
taxes requires significant judgment, the use of estimates and
the interpretation and application of complex tax laws. The
companys provision for income taxes reflects a combination
of income earned and taxed in the various U.S. federal and
state, as well as Canadian federal and provincial jurisdictions.
Jurisdictional tax law changes, increases or decreases in
permanent differences between book and tax items, accruals or
adjustments of accruals for tax contingencies or valuation
allowances, and the companys change in the mix of earnings
from these taxing jurisdictions all affect the overall effective
tax rate.
In evaluating the exposures connected with the various tax
filing positions, the company establishes an accrual when,
despite managements belief that the companys tax
return positions are supportable, management believes that
certain positions may be successfully challenged and a loss is
probable. When facts and circumstances change, these accruals
are adjusted.
25
Vendor Consideration
SYSCO recognizes consideration received from vendors when the
services performed in connection with the monies received are
completed and when the related product has been sold by SYSCO.
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 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 in which the costs are
incurred and related services performed.
Accounting for Business Combinations
Goodwill and intangible assets represent the excess of
consideration paid 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.
Share-Based Compensation
SYSCO provides compensation benefits to employees and
non-employee directors under several share-based payment
arrangements including various employee stock option plans, the
Employees Stock Purchase Plan, the Management Incentive
Plans and the Non-Employee Directors Stock Plan.
Prior to July 3, 2005, SYSCO accounted for its stock option
plans and the Employees Stock Purchase Plan using the
intrinsic value method of accounting provided under APB Opinion
No. 25, Accounting for Stock Issued to
Employees, (APB 25) and related interpretations, as
permitted by FASB Statement No. 123, Accounting for
Stock-Based Compensation, (SFAS 123) under which no
compensation expense was recognized for stock option grants and
issuances of stock pursuant to the Employees Stock
Purchase Plan. However, share-based compensation expense was
recognized in periods prior to fiscal 2006 (and continues to be
recognized) for stock issuances pursuant to the Management
Incentive Plans and stock grants to non-employee directors.
Share-based compensation was included as a pro forma disclosure
in the financial statement footnotes and continues to be
provided for periods prior to fiscal 2006.
Effective July 3, 2005, SYSCO adopted the fair value
recognition provisions of SFAS 123(R) using the
modified-prospective transition method. Under this transition
method, compensation cost recognized in fiscal 2006 includes:
a) compensation cost for all share-based payments granted
through July 2, 2005, but for which the requisite service
period had not been completed as of July 2, 2005, based on
the grant date fair value estimated in accordance with the
original provisions of SFAS 123, and b) compensation
cost for all share-based payments granted subsequent to
July 2, 2005, based on the grant date fair value estimated
in accordance with the provisions of SFAS 123(R). Results
for prior periods have not been restated.
As a result of adopting SFAS 123(R) on July 3, 2005,
SYSCOs earnings before income taxes and net earnings for
fiscal 2006 were $118,038,000 and $105,810,000 lower,
respectively, than if the company had continued to account for
share-based compensation under APB 25. Basic and diluted
earnings per share before the cumulative effect of the
accounting change for fiscal 2006 were both $0.17 lower than if
the company had continued to account for share-based
compensation under APB 25.
As of July 1, 2006, there was $112,111,000 of total
unrecognized compensation cost related to share-based
compensation arrangements. That cost is expected to be
recognized over a weighted-average period of 2.72 years.
The fair value of each option award is estimated on the date of
grant using a Black-Scholes option pricing model. Expected
volatility is based on historical volatility of SYSCOs
stock, implied volatilities from traded options on SYSCOs
stock and other factors. SYSCO utilizes historical data to
estimate option exercise and employee termination behavior
within the valuation model; separate
26
groups of employees that have similar historical exercise
behavior are considered separately for valuation purposes. The
risk-free rate for the expected term of the option is based on
the U.S. Treasury yield curve in effect at the time of
grant.
The fair value of the stock issued under the Employee Stock
Purchase Plan is calculated as the difference between the stock
price and the employee purchase price. The fair value of the
stock issued under the Management Incentive Plans is based on
the stock price less a 12% discount for post-vesting
restrictions. The discount for post-vesting restrictions is
estimated based on restricted stock studies and by calculating
the cost of a hypothetical protective put option over the
restriction period.
The compensation cost related to these share-based awards is
recognized over the requisite service period. The requisite
service period is generally the period during which an employee
is required to provide service in exchange for the award.
The compensation cost related to stock issuances resulting from
awards under the Management Incentive Plans is accrued over the
fiscal year to which the incentive bonus relates. The
compensation cost related to stock issuances resulting from
employee purchases of stock under the Employees Stock
Purchase Plan is recognized during the quarter in which the
employee payroll withholdings are made.
Certain of SYSCOs option awards are generally subject to
graded vesting over a service period. In those cases, SYSCO will
recognize compensation cost on a straight-line basis over the
requisite service period for the entire award. In other cases,
certain of SYSCOs option awards provide for graded vesting
over a service period but include a performance-based provision
allowing for the vesting to accelerate. In these cases, if it is
probable that the performance condition will be met, SYSCO
recognizes compensation cost on a straight-line basis over the
shorter performance period; otherwise, it recognizes
compensation cost over the probable longer service period.
In addition, certain of SYSCOs options provide that if the
optionee retires at certain age and years of service thresholds,
the options continue to vest as if the optionee continued to be
an employee. In these cases, for awards granted prior to
July 2, 2005, SYSCO will recognize the compensation cost
for such awards over the service period and accelerate any
remaining unrecognized compensation cost when the employee
retires. For awards granted subsequent to July 3, 2005,
SYSCO will recognize compensation cost for such awards over the
period from the date of grant to the date the employee first
becomes eligible to retire with his options continuing to vest
after retirement.
New Accounting Standards
The Financial Accounting Standards Board (FASB) issued FASB
Staff Position
No. FTB 85-4-1,
Accounting for Life Settlement Contracts by Third-Party
Investors
(FSP FTB 85-4-1),
in March 2006 which allows an investor to account for its
investments in a life settlement contract using either the
investment method or the fair value method. The investment
method requires the initial investment to be recognized at the
transaction price, while the fair value method requires the
initial investment to be recognized at its transaction price and
remeasured to fair value each subsequent reporting period. This
standard was adopted by the FASB to address volatility concerns
when underlying investments are maintained in the stock market.
The election of the investment method or fair value method is
irrevocable and should be made on an instrument-by-instrument
basis. Previously, only the fair value method was available. FSP
FTB 85-4-1 is effective for SYSCO in the first quarter of fiscal
2007. Prospective application is required for all new
investments in life settlement contracts, and a
cumulative-effect adjustment to retained earnings should be made
at the date of adoption to recognize the impact on existing life
settlement contract investments. SYSCO will adopt
FSP FTB 85-4-1
in the first quarter of fiscal 2007 using the investment method
which will result in a cumulative change in accounting principle
charge of approximately $39,735,000.
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for uncertainty in
income taxes recognized in accordance with FASB Statement
No. 109 (SFAS 109). FIN 48 clarifies the
application of SFAS 109 by defining criteria that an
individual tax position must meet for any part of the benefit of
that position to be recognized in the financial statements.
Additionally, FIN 48 provides guidance on the measurement,
derecognition, classification and disclosure of tax positions,
along with accounting for the related interest and penalties.
The provisions of FIN 48 are effective for fiscal years
beginning after December 15, 2006, with the cumulative
effect of the change in accounting principle recorded as an
adjustment to opening retained earnings. SYSCO is currently
evaluating the impact the adoption of FIN 48 will have on
the companys financial position, results of operations and
cash flows.
27
Forward-Looking Statements
Certain statements made herein that look forward in time or
express managements 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 SYSCOs ability to
increase its market share and sales, long-term debt to
capitalization target ratios, anticipated capital expenditures,
timing and expected benefits of the National Supply Chain
project and related regional distribution centers, the potential
outcome of ongoing tax audits and SYSCOs ability to meet
future cash requirements and remain profitable.
These statements are based on managements current
expectations and estimates; actual results may differ materially
due in part to the risk factors discussed above. In addition,
SYSCOs 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,
including fuel costs. The ability to meet long-term debt to
capitalization target ratios also may be affected by cash flow
including amounts spent on share repurchases and acquisitions
and internal growth.
|
|
Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk |
SYSCO does not utilize financial instruments for trading
purposes. SYSCOs 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.
In September 2005, SYSCO issued 5.375% senior notes
totaling $500,000,000 due on September 21, 2035. In
conjunction with the issuance of the 5.375% senior notes,
SYSCO settled a $350,000,000 notional amount forward-starting
interest rate swap which was designated as a cash flow hedge of
the variability in the cash outflows of interest payments on the
debt issuance due to changes in the benchmark interest rate.
At July 1, 2006, the company had outstanding $399,568,000
of commercial paper at variable rates of interest with
maturities through July 3, 2006. The companys total
long-term debt obligations of $1,733,392,000 were primarily at
fixed rates of interest. The company had no interest rate swaps
outstanding at July 1, 2006.
In the following table as of July 1, 2006, commercial paper
issuances are reflected as floating rate debt and both the U.S.
and Canadian commercial paper issuances outstanding are
classified as long-term based on the maturity date of the
companys revolving loan agreement which supports the
companys U.S. and Canadian commercial paper programs and
the companys intent to continue to refinance this facility
on a long-term basis.
The following table presents the companys interest rate
position as of July 1, 2006. All amounts are stated in
U.S. dollar equivalents.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Position as of July 1, 2006 | |
|
|
Principal Amount by Expected Maturity | |
|
|
Average Interest Rate | |
|
|
| |
|
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
2011 | |
|
Thereafter | |
|
Total | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
U.S. $ Denominated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt
|
|
$ |
106,230 |
|
|
$ |
4,596 |
|
|
$ |
962 |
|
|
$ |
894 |
|
|
$ |
897 |
|
|
$ |
1,205,210 |
|
|
$ |
1,318,789 |
|
|
$ |
1,255,398 |
|
|
Average Interest Rate
|
|
|
8.0 |
% |
|
|
7.4 |
% |
|
|
6.2 |
% |
|
|
7.1 |
% |
|
|
7.9 |
% |
|
|
5.8 |
% |
|
|
6.0 |
% |
|
|
|
|
Floating Rate Debt
|
|
$ |
29,300 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
381,945 |
|
|
$ |
8,000 |
|
|
$ |
419,245 |
|
|
$ |
419,245 |
|
|
Average Interest Rate
|
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.3 |
% |
|
|
4.0 |
% |
|
|
5.0 |
% |
|
|
|
|
Canadian $ Denominated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt
|
|
$ |
35 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
35 |
|
|
$ |
33 |
|
|
Average Interest Rate
|
|
|
7.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.4 |
% |
|
|
|
|
Floating Rate Debt
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
24,623 |
|
|
$ |
|
|
|
$ |
24,623 |
|
|
$ |
24,623 |
|
|
Average Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.4 |
% |
|
|
|
|
|
|
4.4 |
% |
|
|
|
|
28
At July 2, 2005, the company had $157,851,000 of commercial
paper outstanding at variable rates of interest with maturities
through July 29, 2005. The companys total long-term
debt obligations of $1,367,110,000 were primarily at fixed rates
of interest.
At that time, management believed that present market conditions
reflected fixed long term rates near historical lows. As such,
management believed that fixed long term rates presented a
better opportunity than in the recent past and had the intent to
issue between $350,000,000 and $500,000,000 of long term debt at
fixed rates with extended terms in September 2005, the amount to
be issued depending upon market conditions at the time of
issuance. In March 2005, SYSCO entered into a forward-starting
interest rate swap with a notional amount of $350,000,000 as a
cash flow hedge of the variability in the cash outflows of
interest payments on $350,000,000 of the forecasted debt
issuance due to changes in the benchmark interest rate. The
issuance of this long-term debt in fiscal 2006 is discussed
above.
During part of fiscal 2005, SYSCO had several fixed to floating
interest rate swaps outstanding. These were entered into in
fiscal 2004 as management believed that floating interest rates
were more advantageous. During fiscal 2005, SYSCO terminated the
fixed to floating interest rate swaps outstanding locking in
effective yields on the related debt.
In the following tables as of July 2, 2005, commercial
paper issuances are reflected as floating rate debt and the
U.S. commercial paper is classified as long-term based on
the maturity date of the companys revolving loan agreement
which supports the companys U.S. commercial paper
program and the companys intent to continue to refinance
this facility on a long-term basis.
The following tables present the companys interest rate
position as of July 2, 2005. All amounts are stated in
U.S. dollar equivalents.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Position as of July 2, 2005 | |
|
|
Principal Amount by Expected Maturity | |
|
|
Average Interest Rate | |
|
|
| |
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
|
Total | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
U.S. $ Denominated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt
|
|
$ |
410,724 |
|
|
$ |
104,725 |
|
|
$ |
3,918 |
|
|
$ |
360 |
|
|
$ |
350 |
|
|
$ |
686,267 |
|
|
$ |
1,206,344 |
|
|
$ |
1,280,666 |
|
|
Average Interest Rate
|
|
|
4.7 |
% |
|
|
8.0 |
% |
|
|
7.4 |
% |
|
|
4.3 |
% |
|
|
4.6 |
% |
|
|
5.7 |
% |
|
|
5.5 |
% |
|
|
|
|
Floating Rate Debt
|
|
$ |
31,000 |
|
|
$ |
|
|
|
$ |
124,853 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
15,000 |
|
|
$ |
170,853 |
|
|
$ |
170,853 |
|
|
Average Interest Rate
|
|
|
3.6 |
% |
|
|
|
|
|
|
3.4 |
% |
|
|
|
|
|
|
|
|
|
|
2.6 |
% |
|
|
3.3 |
% |
|
|
|
|
Canadian $ Denominated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt
|
|
$ |
209 |
|
|
$ |
306 |
|
|
$ |
338 |
|
|
$ |
372 |
|
|
$ |
411 |
|
|
$ |
19,277 |
|
|
$ |
20,913 |
|
|
$ |
22,201 |
|
|
Average Interest Rate
|
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
|
|
Floating Rate Debt
|
|
$ |
32,998 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
32,998 |
|
|
$ |
32,998 |
|
|
Average Interest Rate
|
|
|
2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Position as of July 2, 2005 | |
|
|
Notional Amount by Expected Maturity | |
|
|
Average Interest Swap Rate | |
|
|
| |
|
|
2006 | |
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
Thereafter |
|
Total | |
|
Fair Value | |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
|
(In thousands) | |
Interest Rate Swaps Related to Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay fixed/receive Variable
|
|
$ |
350,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
350,000 |
|
|
$ |
(32,584 |
) |
Fixed rate paid:
|
|
|
5.345 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.345 |
% |
|
|
|
|
Average variable rate received:
|
|
|
Rate A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate A |
|
|
|
|
|
Rate A six-month LIBOR (in advance)
The company has Canadian subsidiaries, all of which use the
Canadian dollar as their functional currency with the exception
of a financing subsidiary. To the extent that business
transactions are not denominated in Canadian dollars, the
company is exposed to foreign currency exchange rate risk. SYSCO
will also incur gains and losses within shareholders
equity due to translation of the financial statements from
Canadian dollars to U.S. dollars. The Canadian financing
subsidiary has notes denominated in U.S. dollars, which has
the potential to create taxable income in Canada when the debt
is paid due to changes in the exchange rate from the inception
of the debt through the payment date. A 10% unfavorable change
in the fiscal 2006 year end exchange rate would not
materially increase the tax liability associated with these
notes. The company does not routinely enter into material
agreements to hedge foreign currency risks.
29
The price and availability of diesel fuel fluctuates due to
changes in production, seasonality and other market factors
generally outside of our control. Increased fuel costs may have
a negative impact on the companys results of operations in
three areas. First, the high cost of fuel can negatively impact
consumer confidence and discretionary spending and thus reduce
the frequency and amount spent by consumers for food prepared
away from home. Second, the high cost of fuel can increase the
price paid by SYSCO for product purchases for which SYSCO may
not be able to pass these costs fully to its customers. Third,
increased fuel costs impact the costs incurred by SYSCO to
deliver product to its customers. During fiscal 2006, 2005 and
2004, fuel costs represented approximately 0.5%, 0.4% and 0.3%
of sales, respectively. Fuel costs incurred by SYSCO in fiscal
2006 increased by approximately $48,600,000 over fiscal 2005.
In order to partially manage the volatility and uncertainty of
fuel costs, SYSCO from time to time will enter into forward
purchase commitments for a portion of SYSCOs projected
monthly diesel fuel requirements. Forward diesel fuel purchase
commitments outstanding as of July 1, 2006 were not
material.
30
|
|
Item 8. |
Financial Statements and Supplementary Data |
SYSCO CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
Page | |
|
|
| |
Consolidated Financial Statements:
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
33 |
|
|
|
|
|
34 |
|
|
|
|
|
35 |
|
|
|
|
|
36 |
|
|
|
|
|
37 |
|
|
|
|
|
38 |
|
|
|
|
|
39 |
|
Schedule:
|
|
|
|
|
|
|
|
|
S-1 |
|
All other schedules are omitted because they are not applicable
or the information is set forth in the consolidated financial
statements or notes thereto.
31
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
The management of SYSCO Corporation (SYSCO) is
responsible for establishing and maintaining adequate internal
control over financial reporting for the company. SYSCOs
internal control system is designed to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation and fair presentation of published financial
statements. All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and
presentation.
SYSCOs management assessed the effectiveness of
SYSCOs internal control over financial reporting as of
July 1, 2006. In making this assessment, it used the
criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission in Internal Control
Integrated Framework. Based on this assessment, management
concluded that, as of July 1, 2006, SYSCOs internal
control over financial reporting was effective based on those
criteria.
Ernst & Young LLP has issued an audit report on
managements assessment of SYSCOs internal control
over financial reporting as of July 1, 2006.
32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
SYSCO Corporation
We have audited managements assessment, included in the
accompanying Report of Management on Internal Control Over
Financial Reporting, that SYSCO Corporation and its subsidiaries
(SYSCO or the Company) maintained
effective internal control over financial reporting as of
July 1, 2006, based on criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). SYSCOs management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the
effectiveness of the companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that SYSCO
maintained effective internal control over financial reporting
as of July 1, 2006, is fairly stated, in all material
respects, based on the COSO criteria. Also, in our opinion,
SYSCO maintained, in all material respects, effective internal
control over financial reporting as of July 1, 2006, based
on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
SYSCOs consolidated balance sheets as of July 1, 2006
and July 2, 2005 and the related consolidated results of
operations, shareholders equity and cash flows for each of
the three years in the period ended July 1, 2006 and our
report dated September 12, 2006 expressed an unqualified
opinion thereon.
Houston, Texas
September 12, 2006
33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 July 1, 2006 and July 2, 2005, and the related
consolidated results of operations, shareholders equity,
and cash flows for each of the three years in the period ended
July 1, 2006. Our audits also included the financial
statement schedule at Item 15(a), No. 2. These
financial statements and schedule are the responsibility of the
Companys 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 the standards of the
Public Company Accounting Oversight Board (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 financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of SYSCO Corporation and subsidiaries at
July 1, 2006 and July 2, 2005, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended July 1, 2006, in conformity
with U.S. generally accepted accounting principles. 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 Note 3 to the consolidated financial
statements, in 2006 the Company changed the measurement date for
its pension and other postretirement benefit plans. As discussed
in Note 13 to the consolidated financial statements,
effective July 3, 2005, SYSCO Corporation adopted Financial
Accounting Standards Board Statement No. 123(R),
Share Based Payment.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of SYSCO Corporations internal control over
financial reporting as of July 1, 2006, based on criteria
established in the Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated September 12, 2006
expressed an unqualified opinion thereon.
Houston, Texas
September 12, 2006
34
SYSCO
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2006 | |
|
July 2, 2005 | |
|
|
| |
|
| |
|
|
(In thousands except for | |
|
|
share data) | |
ASSETS |
Current assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
201,897 |
|
|
$ |
191,678 |
|
|
Accounts and notes receivable, less allowances of $29,100 and
$29,604
|
|
|
2,483,720 |
|
|
|
2,284,033 |
|
|
Inventories
|
|
|
1,608,233 |
|
|
|
1,466,161 |
|
|
Prepaid expenses
|
|
|
59,154 |
|
|
|
59,914 |
|
|
Prepaid income taxes
|
|
|
46,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,399,694 |
|
|
|
4,001,786 |
|
Plant and equipment at cost, less depreciation
|
|
|
2,464,900 |
|
|
|
2,268,301 |
|
Other assets
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,302,591 |
|
|
|
1,212,603 |
|
|
Intangibles, less amortization
|
|
|
95,651 |
|
|
|
72,581 |
|
|
Restricted cash
|
|
|
102,274 |
|
|
|
101,731 |
|
|
Prepaid pension cost
|
|
|
388,650 |
|
|
|
389,766 |
|
|
Other
|
|
|
238,265 |
|
|
|
221,134 |
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
2,127,431 |
|
|
|
1,997,815 |
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
8,992,025 |
|
|
$ |
8,267,902 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
Current liabilities
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$ |
29,300 |
|
|
$ |
63,998 |
|
|
Accounts payable
|
|
|
1,891,357 |
|
|
|
1,795,824 |
|
|
Accrued expenses
|
|
|
745,781 |
|
|
|
742,282 |
|
|
Income taxes
|
|
|
|
|
|
|
10,195 |
|
|
Deferred taxes
|
|
|
453,700 |
|
|
|
434,338 |
|
|
Current maturities of long-term debt
|
|
|
106,265 |
|
|
|
410,933 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,226,403 |
|
|
|
3,457,570 |
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,627,127 |
|
|
|
956,177 |
|
|
Deferred taxes
|
|
|
723,349 |
|
|
|
724,929 |
|
|
Other long-term liabilities
|
|
|
362,862 |
|
|
|
370,387 |
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
|
2,713,338 |
|
|
|
2,051,493 |
|
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 shares 2,000,000,000; issued 765,174,900 shares
|
|
|
765,175 |
|
|
|
765,175 |
|
|
Paid-in capital
|
|
|
525,684 |
|
|
|
389,053 |
|
|
Retained earnings
|
|
|
4,999,440 |
|
|
|
4,552,379 |
|
|
Accumulated other comprehensive (loss) income
|
|
|
84,618 |
|
|
|
(13,677 |
) |
|
|
|
|
|
|
|
|
|
|
6,374,917 |
|
|
|
5,692,930 |
|
|
Less cost of treasury stock, 146,279,320 and
136,607,370 shares
|
|
|
3,322,633 |
|
|
|
2,934,091 |
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
3,052,284 |
|
|
|
2,758,839 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
8,992,025 |
|
|
$ |
8,267,902 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
35
SYSCO
CONSOLIDATED RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
| |
|
|
|
|
July 3, 2004 | |
|
|
July 1, 2006 | |
|
July 2, 2005 | |
|
(53 Weeks) | |
|
|
| |
|
| |
|
| |
|
|
(In thousands except for share data) | |
Sales
|
|
$ |
32,628,438 |
|
|
$ |
30,281,914 |
|
|
$ |
29,335,403 |
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
26,337,107 |
|
|
|
24,498,200 |
|
|
|
23,661,514 |
|
|
Operating expenses
|
|
|
4,796,301 |
|
|
|
4,194,184 |
|
|
|
4,141,230 |
|
|
Interest expense
|
|
|
109,100 |
|
|
|
75,000 |
|
|
|
69,880 |
|
|
Other, net
|
|
|
(9,016 |
) |
|
|
(10,906 |
) |
|
|
(12,365 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
31,233,492 |
|
|
|
28,756,478 |
|
|
|
27,860,259 |
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and cumulative effect of accounting
change
|
|
|
1,394,946 |
|
|
|
1,525,436 |
|
|
|
1,475,144 |
|
Income taxes
|
|
|
548,906 |
|
|
|
563,979 |
|
|
|
567,930 |
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change
|
|
|
846,040 |
|
|
|
961,457 |
|
|
|
907,214 |
|
Cumulative effect of accounting change
|
|
|
9,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
855,325 |
|
|
$ |
961,457 |
|
|
$ |
907,214 |
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$ |
1.36 |
|
|
$ |
1.51 |
|
|
$ |
1.41 |
|
|
Diluted earnings per share
|
|
|
1.35 |
|
|
|
1.47 |
|
|
|
1.37 |
|
Net earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
1.38 |
|
|
|
1.51 |
|
|
|
1.41 |
|
|
Diluted earnings per share
|
|
|
1.36 |
|
|
|
1.47 |
|
|
|
1.37 |
|
See Notes to Consolidated Financial Statements
36
SYSCO
CONSOLIDATED SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock | |
|
|
|
|
|
|
|
Treasury Stock | |
|
|
|
|
| |
|
|
|
|
|
Accumulated | |
|
| |
|
|
|
|
|
|
|
|
|
|
Other | |
|
|
|
|
|
|
|
|
Paid-in | |
|
Retained | |
|
Comprehensive | |
|
|
|
|
|
|
Shares | |
|
Amount | |
|
Capital | |
|
Earnings | |
|
Income (Loss) | |
|
Shares | |
|
Amount | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands except for share data) | |
Balance at June 28, 2003
|
|
|
765,174,900 |
|
|
$ |
765,175 |
|
|
$ |
249,235 |
|
|
$ |
3,373,853 |
|
|
$ |
(152,381 |
) |
|
|
121,517,325 |
|
|
$ |
2,038,351 |
|
|
$ |
2,197,531 |
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
907,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
907,214 |
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164,385 |
|
|
|
|
|
|
|
|
|
|
|
164,385 |
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,636 |
|
|
|
|
|
|
|
|
|
|
|
5,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,077,235 |
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(321,353 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(321,353 |
) |
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,884,300 |
|
|
|
623,653 |
|
|
|
(623,653 |
) |
Treasury stock issued for acquisitions
|
|
|
|
|
|
|
|
|
|
|
21,582 |
|
|
|
|
|
|
|
|
|
|
|
(2,007,089 |
) |
|
|
(20,411 |
) |
|
|
41,993 |
|
Benefits from disqualifying dispositions
|
|
|
|
|
|
|
|
|
|
|
26,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,763 |
|
Issuances of shares pursuant to share-based awards
|
|
|
|
|
|
|
|
|
|
|
34,461 |
|
|
|
|
|
|
|
|
|
|
|
(7,754,667 |
) |
|
|
(131,529 |
) |
|
|
165,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 3, 2004
|
|
|
765,174,900 |
|
|
$ |
765,175 |
|
|
$ |
332,041 |
|
|
$ |
3,959,714 |
|
|
$ |
17,640 |
|
|
|
128,639,869 |
|
|
$ |
2,510,064 |
|
|
$ |
2,564,506 |
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
961,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
961,457 |
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,553 |
) |
|
|
|
|
|
|
|
|
|
|
(33,553 |
) |
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,357 |
|
|
|
|
|
|
|
|
|
|
|
22,357 |
|
Change in fair value of interest rate swap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,121 |
) |
|
|
|
|
|
|
|
|
|
|
(20,121 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
930,140 |
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(368,792 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(368,792 |
) |
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,735,200 |
|
|
|
596,080 |
|
|
|
(596,080 |
) |
Treasury stock issued for acquisitions
|
|
|
|
|
|
|
|
|
|
|
2,660 |
|
|
|
|
|
|
|
|
|
|
|
(152,591 |
) |
|
|
(1,537 |
) |
|
|
4,197 |
|
Benefits from disqualifying dispositions
|
|
|
|
|
|
|
|
|
|
|
22,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,795 |
|
Issuances of shares pursuant to share-based awards
|
|
|
|
|
|
|
|
|
|
|
31,557 |
|
|
|
|
|
|
|
|
|
|
|
(8,615,108 |
) |
|
|
(170,516 |
) |
|
|
202,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 2, 2005
|
|
|
765,174,900 |
|
|
$ |
765,175 |
|
|
$ |
389,053 |
|
|
$ |
4,552,379 |
|
|
$ |
(13,677 |
) |
|
|
136,607,370 |
|
|
$ |
2,934,091 |
|
|
$ |
2,758,839 |
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
855,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
855,325 |
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,180 |
|
|
|
|
|
|
|
|
|
|
|
43,180 |
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,718 |
|
|
|
|
|
|
|
|
|
|
|
47,718 |
|
Change in fair value of interest rate swap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,064 |
|
|
|
|
|
|
|
|
|
|
|
7,064 |
|
Amortization of cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333 |
|
|
|
|
|
|
|
|
|
|
|
333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
953,620 |
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(408,264 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(408,264 |
) |
Treasury stock purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,104,800 |
|
|
|
530,563 |
|
|
|
(530,563 |
) |
Treasury stock issued for acquisitions
|
|
|
|
|
|
|
|
|
|
|
1,750 |
|
|
|
|
|
|
|
|
|
|
|
(126,027 |
) |
|
|
(1,305 |
) |
|
|
3,055 |
|
Benefits from disqualifying dispositions
|
|
|
|
|
|
|
|
|
|
|
11,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,195 |
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
116,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,305 |
|
Issuances of shares pursuant to share-based awards
|
|
|
|
|
|
|
|
|
|
|
7,381 |
|
|
|
|
|
|
|
|
|
|
|
(6,306,823 |
) |
|
|
(140,716 |
) |
|
|
148,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 1, 2006
|
|
|
765,174,900 |
|
|
$ |
765,175 |
|
|
$ |
525,684 |
|
|
$ |
4,999,440 |
|
|
$ |
84,618 |
|
|
|
146,279,320 |
|
|
$ |
3,322,633 |
|
|
$ |
3,052,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
37
SYSCO
CONSOLIDATED CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
| |
|
|
|
|
July 3, 2004 | |
|
|
July 1, 2006 | |
|
July 2, 2005 | |
|
(53 Weeks) | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
855,325 |
|
|
$ |
961,457 |
|
|
$ |
907,214 |
|
|
Add non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting change, net of tax
|
|
|
(9,285 |
) |
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
126,837 |
|
|
|
19,749 |
|
|
|
34,857 |
|
|
|
Depreciation and amortization
|
|
|
345,062 |
|
|
|
316,743 |
|
|
|
283,595 |
|
|
|
Deferred tax provision
|
|
|
482,111 |
|
|
|
554,850 |
|
|
|
608,152 |
|
|
|
Provision for losses on receivables
|
|
|
19,841 |
|
|
|
18,587 |
|
|
|
27,377 |
|
|
Additional investment in certain assets and liabilities, net of
effect of businesses acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) in receivables
|
|
|
(162,586 |
) |
|
|
(72,829 |
) |
|
|
(177,058 |
) |
|
|
(Increase) in inventories
|
|
|
(119,392 |
) |
|
|
(35,014 |
) |
|
|
(162,502 |
) |
|
|
Decrease (increase) in prepaid expenses
|
|
|
1,741 |
|
|
|
(4,058 |
) |
|
|
(2,183 |
) |
|
|
Increase in accounts payable
|
|
|
49,775 |
|
|
|
28,080 |
|
|
|
95,874 |
|
|
|
Increase (decrease) in accrued expenses
|
|
|
29,161 |
|
|
|
(52,423 |
) |
|
|
26,687 |
|
|
|
(Decrease) in accrued income taxes
|
|
|
(545,634 |
) |
|
|
(438,779 |
) |
|
|
(392,197 |
) |
|
|
(Increase) in other assets
|
|
|
(17,937 |
) |
|
|
(17,865 |
) |
|
|
(23,744 |
) |
|
|
Increase (decrease) in other long-term liabilities and prepaid
pension cost, net
|
|
|
75,382 |
|
|
|
(86,338 |
) |
|
|
(35,056 |
) |
|
|
Excess tax benefits from share-based compensation arrangements
|
|
|
(6,569 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,123,832 |
|
|
|
1,192,160 |
|
|
|
1,191,016 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to plant and equipment
|
|
|
(514,751 |
) |
|
|
(390,203 |
) |
|
|
(530,086 |
) |
|
Proceeds from sales of plant and equipment
|
|
|
22,701 |
|
|
|
25,482 |
|
|
|
15,851 |
|
|
Acquisition of businesses, net of cash acquired
|
|
|
(114,378 |
) |
|
|
(115,637 |
) |
|
|
(79,247 |
) |
|
(Increase) decrease in restricted cash
|
|
|
(2,243 |
) |
|
|
66,918 |
|
|
|
(90,329 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(608,671 |
) |
|
|
(413,440 |
) |
|
|
(683,811 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank and commercial paper borrowings (repayments), net
|
|
|
240,017 |
|
|
|
115,017 |
|
|
|
(77,849 |
) |
|
Other debt borrowings
|
|
|
500,987 |
|
|
|
9,357 |
|
|
|
211,606 |
|
|
Other debt repayments
|
|
|
(413,383 |
) |
|
|
(167,006 |
) |
|
|
(26,519 |
) |
|
Debt issuance costs
|
|
|
(3,998 |
) |
|
|
(320 |
) |
|
|
(1,494 |
) |
|
Cash (paid for) received from termination of interest rate swap
|
|
|
(21,196 |
) |
|
|
5,316 |
|
|
|
1,305 |
|
|
Common stock reissued from treasury
|
|
|
128,055 |
|
|
|
208,004 |
|
|
|
167,652 |
|
|
Treasury stock purchases
|
|
|
(544,131 |
) |
|
|
(597,660 |
) |
|
|
(608,506 |
) |
|
Dividends paid
|
|
|
(397,537 |
) |
|
|
(357,298 |
) |
|
|
(309,540 |
) |
|
Excess tax benefits from share-based compensation arrangements
|
|
|
6,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(504,617 |
) |
|
|
(784,590 |
) |
|
|
(643,345 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
(325 |
) |
|
|
(2,158 |
) |
|
|
(1,601 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
10,219 |
|
|
|
(8,028 |
) |
|
|
(137,741 |
) |
Cash at beginning of year
|
|
|
191,678 |
|
|
|
199,706 |
|
|
|
337,447 |
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$ |
201,897 |
|
|
$ |
191,678 |
|
|
$ |
199,706 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
107,242 |
|
|
$ |
73,939 |
|
|
$ |
68,481 |
|
|
|
|
Income taxes
|
|
|
619,442 |
|
|
|
436,378 |
|
|
|
344,414 |
|
See Notes to Consolidated Financial Statements
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1. |
SUMMARY OF ACCOUNTING POLICIES |
Business and Consolidation
Sysco Corporation (SYSCO or the company) is engaged in the
marketing and distribution of a wide range of food and related
products primarily to the foodservice or
food-prepared-away-from-home industry. These
services are performed for approximately 394,000 customers from
171 principal 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 2006 presentation.
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.
Cash and Cash Equivalents
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.
Accounts Receivable
Accounts receivable consist primarily of trade receivables from
customers and receivables from suppliers for marketing or
incentive programs. SYSCO determines the past due status of
trade receivables based on contractual terms with each customer.
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 customers 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 $29,100,000 as of July 1, 2006 and
$29,604,000 as of July 2, 2005. Customer accounts written
off, net of recoveries, were $21,128,000 or 0.06% of sales,
$20,840,000 or 0.07% of sales, and $28,485,000 or 0.10% of sales
for fiscal 2006, 2005 and 2004, 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 companys 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 replacements 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
replacements 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 and development of software for internal use are
capitalized as one of the elements of cost and are amortized
over the assets estimated useful lives. Interest
capitalized for the past three years was $2,853,000 in 2006,
$4,316,000 in 2005 and $7,495,000 in 2004.
39
Long-Lived Assets
Management reviews long-lived assets for indicators of
impairment whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. Cash flows
expected to be generated by the related assets are estimated
over the assets useful life based on updated projections.
If the evaluation indicates that the carrying amount of the
asset may not be recoverable, the potential impairment is
measured based on a projected discounted cash flow model.
Goodwill and Intangibles
Goodwill and intangibles represent the excess of cost over the
fair value of tangible net assets acquired. Goodwill and
intangibles with indefinite lives are not amortized. Intangibles
with definite lives are amortized over their useful lives,
generally ranging from three to ten years.
Goodwill is assigned to the reporting units that are expected to
benefit from the synergies of the combination. The
recoverability of goodwill and intangibles is assessed annually,
or more frequently as needed when events or changes have
occurred that would suggest an impairment of carrying value, 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.
Derivative Financial Instruments
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, requires the
recognition of all derivatives as assets or liabilities within
the Consolidated Balance Sheets at fair value. Gains or losses
on derivative financial instruments designated as fair value
hedges are recognized immediately in the Consolidated Results of
Operations, along with the offsetting gain or loss related to
the underlying hedged item.
Gains or losses on derivative financial instruments designated
as cash flow hedges are recorded as a separate component of
shareholders equity until settlement (or until hedge
ineffectiveness is determined), whereby gains or losses are
reclassified to the Consolidated Results of Operations in
conjunction with the recognition of the underlying hedged item.
To the extent that the periodic changes in the fair value of the
derivatives are not effective, or if the hedge ceases to qualify
for hedge accounting, the ineffective portion of the periodic
non-cash changes are recorded in Operating expenses in the
Consolidated Results of Operations in the period of the change.
Treasury Stock
The company records treasury stock purchases at cost. Shares
removed from treasury are valued at cost using the average cost
method.
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 Accumulated other
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. Purchases and sales of inventory with
the same counterparty that are entered into in contemplation of
one another are considered to be a single nonmonetary
transaction. Beginning in the fourth quarter of fiscal 2006, the
company recorded the net effect of such transactions in the
Consolidated Results of Operations within Sales as a
result of a new accounting standard. See further discussion in
Note 3.
40
Vendor Consideration
SYSCO recognizes consideration received from vendors when the
services performed in connection with the monies received are
completed and when the related product has been sold by SYSCO.
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 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 in which the costs are
incurred and related services performed.
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 $1,857,093,000 in fiscal 2006, $1,718,485,000 in
fiscal 2005, and $1,624,552,000 in fiscal 2004.
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 by third party insurers. Liabilities
associated with these risks are estimated in part by considering
historical claims experience, medical cost trends, demographic
factors, severity factors and other actuarial assumptions.
Amounts accrued for self-insurance were $91,356,000 and
$87,029,000 as of July 1, 2006 and July 2, 2005,
respectively.
Share-Based Compensation
SYSCO recognizes expense for its share-based compensation based
on the fair value of the awards that are granted. The fair value
of the stock options is estimated at the date of grant using the
Black-Scholes option pricing model. Option pricing methods
require the input of highly subjective assumptions, including
the expected stock price volatility. Measured compensation cost
is recognized ratably over the vesting period of the related
share-based compensation award.
Acquisitions
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 purchase price of the acquired entities is 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 recent
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.
|
|
2. |
NEW ACCOUNTING STANDARDS |
The Financial Accounting Standards Board (FASB) issued FASB
Staff Position No. FTB 85-4-1, Accounting for Life
Settlement Contracts by Third-Party Investors (FSP FTB
85-4-1), in March 2006 which allows an investor to account for
its investments in a life settlement contract using either the
investment method or the fair value method. The investment
method requires the initial investment to be recognized at the
transaction price, while the fair value method requires the
initial investment to be recognized at its transaction price and
remeasured to fair value each subsequent reporting period. This
standard was adopted by the FASB to address volatility concerns
when underlying investments are maintained in the stock market.
The election of the investment method or fair value method is
irrevocable and should be made on an instrument-by-instrument
basis. Previously, only the fair value method was available. FSP
FTB 85-4-1 is effective for SYSCO in the first quarter of fiscal
2007. Prospective application is required for all new
investments in life settlement contracts, and a
cumulative-effect adjustment to retained earnings should be made
at the date of adoption to recognize the
41
impact on existing life settlement contract investments. SYSCO
will adopt FSP FTB 85-4-1 in the first quarter of fiscal 2007
using the investment method which will result in a cumulative
change in accounting principle charge of approximately
$39,735,000.
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for uncertainty in
income taxes recognized in accordance with FASB Statement
No. 109 (SFAS 109). FIN 48 clarifies the
application of SFAS 109 by defining criteria that an
individual tax position must meet for any part of the benefit of
that position to be recognized in the financial statements.
Additionally, FIN 48 provides guidance on the measurement,
derecognition, classification and disclosure of tax positions,
along with accounting for the related interest and penalties.
The provisions of FIN 48 are effective for fiscal years
beginning after December 15, 2006, with the cumulative
effect of the change in accounting principle recorded as an
adjustment to opening retained earnings. SYSCO is currently
evaluating the impact the adoption of FIN 48 will have on
the companys financial position, results of operations and
cash flows.
Beginning in fiscal 2006, SYSCO changed the measurement date for
the pension and other postretirement benefit plans from fiscal
year-end to May 31st, which represents a change in
accounting. Management believes this accounting change was
preferable, as the one-month acceleration of the measurement
date allows additional time for management to evaluate and
report the actuarial pension measurements in the year-end
financial statements and disclosures within the accelerated
filing deadlines of the Securities and Exchange Commission. The
cumulative effect of this change in accounting resulted in an
increase to earnings in the first quarter of fiscal 2006 of
$9,285,000, net of tax.
Pro forma net earnings and earnings per share adjusted for the
effect of retroactive application of the change in measurement
date on net pension costs, net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
|
2005 | |
|
(53 Weeks) | |
|
|
| |
|
| |
|
Reported net earnings
|
|
$ |
961,457,000 |
|
|
$ |
907,214,000 |
|
|
Retroactive effect, net of tax
|
|
|
5,781,000 |
|
|
|
(1,254,000 |
) |
|
|
|
|
|
|
|
|
Pro forma net earnings
|
|
$ |
967,238,000 |
|
|
$ |
905,960,000 |
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
Reported net earnings
|
|
$ |
1.51 |
|
|
$ |
1.41 |
|
|
Retroactive effect, net of tax
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net earnings
|
|
$ |
1.52 |
|
|
$ |
1.41 |
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
Reported net earnings
|
|
$ |
1.47 |
|
|
$ |
1.37 |
|
|
Retroactive effect, net of tax
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net earnings
|
|
$ |
1.48 |
|
|
$ |
1.37 |
|
|
|
|
|
|
|
|
In September 2005, the Emerging Issues Task Force
(EITF) reached a consensus of Issue
No. 04-13,
Accounting for Purchases and Sales of Inventory With the
Same Counterparty, which requires that two or more
inventory transactions with the same counterparty (as defined)
should be viewed as a single nonmonetary transaction, if the
transactions were entered into in contemplation of one another.
Exchanges of inventory between entities in the same line of
business should be accounted for at fair value or recorded at
carrying amounts, depending on the classification of such
inventory. This guidance was effective for the fourth quarter of
fiscal 2006 for SYSCO. SYSCO has certain transactions where
finished goods are purchased from a customer for warehousing and
distribution and resold to the same customer. These are
evidenced by title transfer and are separately invoiced.
Historically, the company has recorded such transactions in the
Consolidated Results of Operations for purchases within
Cost of Sales and sales within Sales.
Beginning in the fourth quarter of fiscal 2006, the company
recorded the net effect of such transactions in the Consolidated
Results of Operations within Sales by reducing sales
and cost of sales in the amount of $99,803,000. The amount
included in the Consolidated Results of Operations within
Cost of Sales for the 39 week period ended
April 1, 2006 and fiscal 2005 and 2004 which were recorded
on a gross
42
basis prior to the adoption of
EITF 04-13 were
$279,746,000, $347,018,000 and $276,041,000, respectively. Such
amounts were not restated when the new standard was adopted
because prospective treatment is required.
A summary of plant and equipment, including the related
accumulated depreciation, appears below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Useful | |
|
|
July 1, 2006 | |
|
July 2, 2005 | |
|
Lives | |
|
|
| |
|
| |
|
| |
Plant and equipment, at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
220,542,000 |
|
|
$ |
208,189,000 |
|
|
|
|
|
|
Buildings and improvements
|
|
|
2,140,786,000 |
|
|
|
1,916,454,000 |
|
|
|
10-40 years |
|
|
Fleet, equipment and software
|
|
|
2,277,612,000 |
|
|
|
2,121,307,000 |
|
|
|
3-20 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,638,940,000 |
|
|
|
4,245,950,000 |
|
|
|
|
|
Accumulated depreciation
|
|
|
(2,174,040,000 |
) |
|
|
(1,977,649,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net plant and equipment
|
|
$ |
2,464,900,000 |
|
|
$ |
2,268,301,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense, including capital leases,for the past
three years was $320,669,000 in 2006, $298,111,000 in 2005 and
$273,030,000 in 2004.
|
|
5. |
GOODWILL AND OTHER INTANGIBLES |
The changes in the carrying amount of goodwill and the amount
allocated by reportable segment for the years presented are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadline | |
|
SYGMA | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Carrying amount at July 3, 2004
|
|
$ |
660,098,000 |
|
|
$ |
43,875,000 |
|
|
$ |
470,818,000 |
|
|
$ |
1,174,791,000 |
|
Goodwill acquired during year
|
|
|
3,589,000 |
|
|
|
606,000 |
|
|
|
21,198,000 |
|
|
|
25,393,000 |
|
Currency translation/ Other
|
|
|
12,659,000 |
|
|
|
|
|
|
|
(240,000 |
) |
|
|
12,419,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount at July 2, 2005
|
|
|
676,346,000 |
|
|
|
44,481,000 |
|
|
|
491,776,000 |
|
|
|
1,212,603,000 |
|
Goodwill acquired during year
|
|
|
11,488,000 |
|
|
|
2,449,000 |
|
|
|
54,173,000 |
|
|
|
68,110,000 |
|
Currency translation/ Other
|
|
|
21,580,000 |
|
|
|
|
|
|
|
298,000 |
|
|
|
21,878,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount at July 1, 2006
|
|
$ |
709,414,000 |
|
|
$ |
46,930,000 |
|
|
$ |
546,247,000 |
|
|
$ |
1,302,591,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents details of the companys other
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2006 | |
|
July 2, 2005 | |
|
|
| |
|
| |
|
|
Gross Carrying | |
|
Accumulated | |
|
|
|
Gross Carrying | |
|
Accumulated | |
|
|
|
|
Amount | |
|
Amortization | |
|
Net | |
|
Amount | |
|
Amortization | |
|
Net | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Amortized Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Relationships
|
|
$ |
109,201,000 |
|
|
$ |
21,056,000 |
|
|
$ |
88,145,000 |
|
|
$ |
75,412,000 |
|
|
$ |
10,954,000 |
|
|
$ |
64,458,000 |
|
|
Non-compete Agreements
|
|
|
8,099,000 |
|
|
|
6,001,000 |
|
|
|
2,098,000 |
|
|
|
7,929,000 |
|
|
|
4,868,000 |
|
|
|
3,061,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
117,300,000 |
|
|
$ |
27,057,000 |
|
|
$ |
90,243,000 |
|
|
$ |
83,341,000 |
|
|
$ |
15,822,000 |
|
|
$ |
67,519,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$ |
5,408,000 |
|
|
$ |
|
|
|
$ |
5,408,000 |
|
|
$ |
5,062,000 |
|
|
$ |
|
|
|
$ |
5,062,000 |
|
Amortization expense for the past three years was $10,773,000 in
2006, $7,569,000 in 2005 and $4,244,000 in 2004. The estimated
future amortization expense on intangible assets for the next
five fiscal years is shown below:
|
|
|
|
|
|
|
Amount | |
|
|
| |
2007
|
|
$ |
12,304,000 |
|
2008
|
|
|
11,725,000 |
|
2009
|
|
|
11,567,000 |
|
2010
|
|
|
11,315,000 |
|
2011
|
|
|
11,116,000 |
|
43
SYSCO is required by its insurers to collateralize a part of the
self-insured portion of its workers compensation and
liability claims. SYSCO has chosen to satisfy these collateral
requirements by depositing funds in insurance trusts or by
issuing letters of credit.
In addition, for certain acquisitions, SYSCO has placed funds
into escrow to be disbursed to the sellers in the event that
specified operating results are attained or contingencies are
resolved. Escrowed funds related to certain acquisitions in the
amount of $1,700,000 were released during fiscal 2006, which
included $800,000 that was disbursed to sellers.
A summary of restricted cash balances appears below:
|
|
|
|
|
|
|
|
|
|
|
July 1, 2006 | |
|
July 2, 2005 | |
|
|
| |
|
| |
Funds deposited in insurance trusts
|
|
$ |
82,653,000 |
|
|
$ |
80,410,000 |
|
Escrow funds related to acquisitions
|
|
|
19,621,000 |
|
|
|
21,321,000 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
102,274,000 |
|
|
$ |
101,731,000 |
|
|
|
|
|
|
|
|
|
|
7. |
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.
During fiscal years 2003, 2004 and 2005, the company entered
into various interest rate swap agreements designated as fair
value hedges of the related debt. The terms of these swap
agreements and the hedged items were such that the hedges were
considered perfectly effective against changes in the fair value
of the debt due to changes in the benchmark interest rates over
their terms. As a result, the shortcut method provided by
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, was applied and there
was no need to periodically reassess the effectiveness of the
hedges during the terms of the swaps. Interest expense on the
debt was adjusted to include payments made or received under the
hedge agreements. The fair value of the swaps was carried as an
asset or a liability on the Consolidated Balance Sheet and the
carrying value of the hedged debt was adjusted accordingly.
There were no fair value hedges outstanding as of July 1,
2006 or July 2, 2005.
The amount received upon termination of fair value hedge swap
agreements was $5,316,000 and $1,305,000 in fiscal years 2005
and 2004, respectively. There were no terminations of fair value
hedge swap agreements in fiscal 2006. The amount received upon
termination of swap agreements 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 amortized as a reduction of interest expense over the
remaining term of the debt.
In March 2005, SYSCO entered into a forward-starting interest
rate swap with a notional amount of $350,000,000. In accordance
with SFAS No. 133, the company designated this
derivative as a cash flow hedge of the variability in the cash
outflows of interest payments on $350,000,000 of the September
2005 forecasted debt issuance due to changes in the benchmark
interest rate. The fair value of the swap as of July 2,
2005 was ($32,584,000), which is reflected in Accrued expenses
on the Consolidated Balance Sheet, with the corresponding amount
reflected as a loss, net of tax, in Other comprehensive income
(loss).
In September 2005, in conjunction with the issuance of the
5.375% senior notes, SYSCO settled the $350,000,000
notional amount forward-starting interest rate swap. Upon
settlement, SYSCO paid cash of $21,196,000, which represented
the fair value of the swap agreement at the time of settlement.
This amount is being amortized as interest expense over the
30-year term of the
debt, and the unamortized balance is reflected as a loss, net of
tax, in Other comprehensive income (loss).
In the normal course of business, SYSCO enters into forward
purchase agreements for the procurement of fuel, electricity and
product commodities related to SYSCOs business. Certain of
these agreements meet the definition of a derivative and qualify
for the normal purchase and sale exemption under relevant
accounting literature. The company has elected to use this
exemption for these agreements and thus they are not recorded at
fair value.
44
|
|
8. |
DEBT AND OTHER FINANCING ARRANGEMENTS |
SYSCOs debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
July 1, 2006 | |
|
July 2, 2005 | |
|
|
| |
|
| |
Short-term borrowings, interest at 5.4% as of July 1, 2006
and 3.6% as of July 2, 2005
|
|
$ |
29,300,000 |
|
|
$ |
31,000,000 |
|
Commercial paper, interest averaging 5.3% as of July 1,
2006 and 3.2% as of July 2, 2005
|
|
|
399,568,000 |
|
|
|
157,851,000 |
|
Senior notes, interest at 7.0%, maturing in fiscal 2006
|
|
|
|
|
|
|
198,011,000 |
|
Senior notes, interest at 4.75%, maturing in fiscal 2006
|
|
|
|
|
|
|
200,551,000 |
|
Senior notes, interest at 7.25%, maturing in fiscal 2007
|
|
|
99,295,000 |
|
|
|
98,335,000 |
|
Senior notes, interest at 6.1%, maturing in fiscal 2012
|
|
|
200,561,000 |
|
|
|
200,655,000 |
|
Senior notes, interest at 4.6%, maturing in fiscal 2014
|
|
|
208,540,000 |
|
|
|
209,644,000 |
|
Debentures, interest at 7.16%, maturing in fiscal 2027
|
|
|
50,000,000 |
|
|
|
50,000,000 |
|
Debentures, interest at 6.5%, maturing in fiscal 2029
|
|
|
224,474,000 |
|
|
|
224,453,000 |
|
Senior notes, interest at 5.375%, maturing in fiscal 2036
|
|
|
499,566,000 |
|
|
|
|
|
Industrial Revenue Bonds, mortgages and other debt, interest
averaging 6.9% as of July 1, 2006 and 5.7% as of
July 2, 2005, maturing at various dates to fiscal 2026
|
|
|
51,388,000 |
|
|
|
60,608,000 |
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,762,692,000 |
|
|
|
1,431,108,000 |
|
Less current maturities and short-term debt
|
|
|
(135,565,000 |
) |
|
|
(474,931,000 |
) |
|
|
|
|
|
|
|
Net long-term debt
|
|
$ |
1,627,127,000 |
|
|
$ |
956,177,000 |
|
|
|
|
|
|
|
|
The principal payments required to be made on debt during the
next five fiscal years are shown below:
|
|
|
|
|
|
|
Amount | |
|
|
| |
2007
|
|
$ |
135,565,000 |
|
2008
|
|
|
4,596,000 |
|
2009
|
|
|
962,000 |
|
2010
|
|
|
894,000 |
|
2011
|
|
|
407,465,000 |
|
Short-term Borrowings
As of July 2, 2005, SYSCO has uncommitted bank lines of
credit, which provided for unsecured borrowings for working
capital of up to $95,000,000. Borrowings outstanding under these
lines of credit were $31,000,000 as of July 2, 2005.
As of July 1, 2006, SYSCO has uncommitted bank lines of
credit, which provided for unsecured borrowings for working
capital of up to $145,000,000. Borrowings outstanding under
these lines of credit were $29,300,000 as of July 1, 2006.
Commercial Paper
As of July 2, 2005, SYSCO had a revolving loan agreement in
the amount of $450,000,000, maturing in fiscal 2008, which
supported the companys United States commercial paper
program. The company had intent to refinance this facility on a
long-term basis and did so in the fall of 2005. As a result, the
commercial paper issuances supported by this agreement have been
classified as long-term debt. The United States commercial paper
issuances outstanding at July 2, 2005 were $124,853,000.
At July 2, 2005, SYSCO also had a revolving loan agreement
in the amount of $100,000,000 in Canadian dollars (CAD),
maturing in fiscal 2006, which supported the companys
Canadian commercial paper program. The Canadian commercial paper
issuances outstanding at July 2, 2005 were CAD $40,996,000
($32,998,000 in U.S. dollars).
In November 2005, SYSCO and one of its subsidiaries, SYSCO
International, Co., entered into a new revolving credit facility
to support the companys U.S. and Canadian commercial paper
programs. The facility, which was increased to $750,000,000 in
March 2006, may be increased up to $1,000,000,000 at the option
of the company, and terminates on November 4, 2010, subject
to extension. The facility replaced the previous $450,000,000
(U.S. dollar) and $100,000,000 (Canadian dollar) revolving
credit agreements in the U.S.
45
and Canada, respectively, both of which were terminated. Since
this long-term facility supports the companys commercial
paper programs, the $399,568,000 of commercial paper issuances
outstanding at July 1, 2006 were classified as long-term
debt.
In April 2006, SYSCO initiated a new commercial paper program
allowing the company to issue short-term unsecured notes in an
aggregate not to exceed $1.3 billion. This new commercial
paper program replaced notes that were issued under SYSCOs
existing commercial paper program as they matured and became due
and payable.
During fiscal 2006, 2005 and 2004, aggregate outstanding
commercial paper issuances and short-term bank borrowings ranged
from approximately $126,846,000 to $774,530,000, $28,560,000 to
$253,384,000, and $73,102,000 to $478,114,000, respectively.
Outstanding commercial paper issuances were $399,568,000 as of
July 1, 2006.
Fixed Rate Debt
In April 2005, SYSCO filed with the Securities and Exchange
Commission a shelf registration statement covering
$1,500,000,000 in debt securities. The registration statement
was declared effective in May 2005.
In June 2005, SYSCO repaid the 6.5% senior notes totaling
$150,000,000 at maturity utilizing a combination of cash flow
from operations and commercial paper issuances. In July 2005,
SYSCO repaid the 4.75% senior notes totaling $200,000,000
at maturity also utilizing a combination of cash flow from
operations and commercial paper issuances.
In September 2005, SYSCO issued 5.375% senior notes
totaling $500,000,000 due on September 21, 2035, under its
April 2005 shelf registration. These notes, which were priced at
99.911% 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 noteholders are not penalized by the early
redemption. Proceeds from the notes were utilized to retire
commercial paper issuances outstanding as of September 2005.
In September 2005, in conjunction with the issuance of the
5.375% senior notes, SYSCO settled a $350,000,000 notional
amount forward-starting interest rate swap which was designated
as a cash flow hedge of the variability in the cash outflows of
interest payments on the debt issuance due to changes in the
benchmark interest rate. See Note 7, Derivative Financial
Instruments, for further discussion.
In May 2006, SYSCO repaid the 7.0% senior notes totaling
$200,000,000 at maturity utilizing a combination of cash flow
from operations and commercial paper issuances.
The 6.5% debentures due August 1, 2028 and the
4.60% senior notes due March 15, 2014 are unsecured,
are not subject to any sinking fund requirement and include a
redemption provision which allows SYSCO to retire the debentures
and notes at any time prior to maturity at the greater of par
plus accrued interest or an amount designed to ensure that the
debenture and note holders are not penalized by the early
redemption.
The 7.25% senior notes due April 15, 2007 are
unsecured, are not redeemable prior to maturity and are not
subject to any sinking fund requirement.
The 7.16% debentures due April 15, 2027 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.
The 6.10% senior notes due June 1, 2012 , issued by
SYSCO International, Co., a wholly-owned subsidiary of SYSCO,
are fully and unconditionally guaranteed by Sysco Corporation,
are not subject to any sinking fund requirement, and include a
redemption provision which allow 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 are not penalized by the early redemption.
SYSCOs Industrial Revenue Bonds have varying structures.
Final maturities range from five to 20 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.
Included in current maturities of long-term debt at July 1,
2006 are the 7.25% senior notes due April 2007 totaling
$100,000,000. It is the companys intention to fund the
repayment of these notes at maturity through issuances of
commercial paper, senior notes or a combination thereof.
46
Total Debt
Total debt at July 1, 2006 was $1,762,692,000, of which
approximately 75% was at fixed rates averaging 6.0% with an
average life of 19 years, and the remainder was at floating
rates averaging 5.2%. Certain loan agreements contain typical
debt covenants to protect noteholders, including provisions to
maintain the companys long-term debt to total capital
ratio below a specified level. SYSCO was in compliance with all
debt covenants at July 1, 2006.
The fair value of SYSCOs 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 maturities. The fair value of total long-term
debt approximated $1,669,999,000 at July 1, 2006 and
$1,442,721,000 at July 2, 2005, respectively.
Other
As of July 1, 2006 and July 2, 2005, letters of credit
outstanding were $60,000,000 and $76,817,000, respectively.
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 $100,690,000, $92,710,000, and $86,842,000
in fiscal 2006, 2005 and 2004, respectively. Contingent rentals,
subleases and assets and obligations under capital leases are
not significant.
Aggregate minimum lease payments by fiscal year under existing
non-capitalized long-term leases are as follows:
|
|
|
|
|
|
|
Amount | |
|
|
| |
2007
|
|
$ |
56,499,000 |
|
2008
|
|
|
46,899,000 |
|
2009
|
|
|
39,904,000 |
|
2010
|
|
|
33,329,000 |
|
2011
|
|
|
25,666,000 |
|
Later years
|
|
|
128,981,000 |
|
|
|
10. |
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.
SYSCO maintains a qualified retirement plan (Retirement Plan)
that pays benefits to employees at retirement, using formulas
based on a participants years of service and compensation.
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 participants compensation.
SYSCOs contributions to this plan were $21,898,000 in
2006, $28,109,000 in 2005, and $27,390,000 in 2004.
In addition to receiving benefits upon retirement under the
companys defined benefit plan, participants in the
Management Incentive Plan (see Management Incentive
Compensation under Stock Based Compensation
Plans) 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 $153,659,000 at July 1, 2006 and $138,931,000 at
July 2, 2005. These policies are not included as plan
assets or 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 $327,450,000 and $238,599,000, respectively, as of
July 1, 2006 and $375,491,000 and $264,010,000,
respectively, as of July 2, 2005.
The company made cash contributions to its pension plans of
$73,764,000 and $220,361,000 in fiscal years 2006 and 2005,
respectively, including $66,000,000 and $214,000,000 in
voluntary contributions to the Retirement Plan in fiscal 2006
and 2005, respectively. In fiscal 2006, the companys
voluntary contribution to the Retirement Plan represented the
maximum tax-deductible amount. In fiscal 2005, the company made
a voluntary contribution of $134,000,000 in the fourth quarter
in addition to the $80,000,000
47
which was contributed during the year. The decision to increase
the contributions to the Retirement Plan in fiscal 2005 was
primarily due to the decrease in the discount rate used to
measure the year-end obligation, which increased the pension
obligation and negatively impacted the fiscal 2005 year-end
pension funded status prior to the additional $134,000,000
contribution. In fiscal 2007, as in previous years,
contributions to the Retirement Plan will not be required to
meet ERISA minimum funding requirements, yet the company
anticipates it will make voluntary contributions of
approximately $80,000,000. The companys contributions to
the SERP and other post-retirement plans are made in the amounts
needed to fund current year benefit payments. The estimated
fiscal 2007 contributions to fund benefit payments for the SERP
and other post-retirement plans are $9,041,000 and $315,000,
respectively.
Estimated future benefit payments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
|
|
|
Postretirement | |
|
|
Pension Benefits | |
|
Plans | |
|
|
| |
|
| |
2007
|
|
$ |
29,446,000 |
|
|
$ |
315,000 |
|
2008
|
|
|
34,043,000 |
|
|
|
396,000 |
|
2009
|
|
|
40,230,000 |
|
|
|
500,000 |
|
2010
|
|
|
47,685,000 |
|
|
|
594,000 |
|
2011
|
|
|
55,205,000 |
|
|
|
714,000 |
|
Subsequent five years
|
|
|
408,689,000 |
|
|
|
4,581,000 |
|
The funded status of the defined benefit plans is as follows
(including the SERP benefit obligations but excluding from plan
assets the cash surrender values of life insurance policies):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits | |
|
Other Postretirement Plans | |
|
|
| |
|
| |
|
|
July 1, 2006 | |
|
July 2, 2005 | |
|
July 1, 2006 | |
|
July 2, 2005 | |
|
|
| |
|
| |
|
| |
|
| |
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$ |
1,574,718,000 |
|
|
$ |
1,192,357,000 |
|
|
$ |
8,818,000 |
|
|
$ |
7,996,000 |
|
Service cost
|
|
|
100,028,000 |
|
|
|
81,282,000 |
|
|
|
510,000 |
|
|
|
477,000 |
|
Interest cost
|
|
|
83,600,000 |
|
|
|
73,824,000 |
|
|
|
472,000 |
|
|
|
488,000 |
|
Amendments
|
|
|
7,800,000 |
|
|
|
25,617,000 |
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss
|
|
|
(284,307,000 |
) |
|
|
230,052,000 |
|
|
|
(1,473,000 |
) |
|
|
(65,000 |
) |
Actual expenses
|
|
|
(7,906,000 |
) |
|
|
(6,815,000 |
) |
|
|
|
|
|
|
|
|
Total disbursements
|
|
|
(24,331,000 |
) |
|
|
(21,599,000 |
) |
|
|
(57,000 |
) |
|
|
(78,000 |
) |
Settlements/ Adjustments (Measurement date change)
|
|
|
(68,193,000 |
) |
|
|
|
|
|
|
(225,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
1,381,409,000 |
|
|
|
1,574,718,000 |
|
|
|
8,045,000 |
|
|
|
8,818,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
1,141,638,000 |
|
|
|
859,279,000 |
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
|
106,584,000 |
|
|
|
90,412,000 |
|
|
|
|
|
|
|
|
|
Employer contribution
|
|
|
207,645,000 |
|
|
|
220,361,000 |
|
|
|
57,000 |
|
|
|
78,000 |
|
Actual expenses
|
|
|
(7,906,000 |
) |
|
|
(6,815,000 |
) |
|
|
|
|
|
|
|
|
Total disbursements
|
|
|
(24,331,000 |
) |
|
|
(21,599,000 |
) |
|
|
(57,000 |
) |
|
|
(78,000 |
) |
Settlements/ Adjustments (Measurement date change)
|
|
|
(141,328,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
1,282,302,000 |
|
|
|
1,141,638,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
|
(99,107,000 |
) |
|
|
(433,080,000 |
) |
|
|
(8,045,000 |
) |
|
|
(8,818,000 |
) |
Unrecognized net actuarial loss (gain)
|
|
|
264,855,000 |
|
|
|
644,116,000 |
|
|
|
(2,515,000 |
) |
|
|
(773,000 |
) |
Unrecognized net obligation due to initial application of
SFAS No. 87/106
|
|
|
|
|
|
|
|
|
|
|
1,074,000 |
|
|
|
1,227,000 |
|
Unrecognized prior service cost
|
|
|
47,953,000 |
|
|
|
45,087,000 |
|
|
|
793,000 |
|
|
|
994,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid (accrued) benefit cost at measurement date
|
|
|
213,701,000 |
|
|
|
256,123,000 |
|
|
|
(8,693,000 |
) |
|
|
(7,370,000 |
) |
Contributions after measurement date, before end of year
|
|
|
666,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid (accrued) benefit cost at end of year
|
|
$ |
214,367,000 |
|
|
$ |
256,123,000 |
|
|
$ |
(8,693,000 |
) |
|
$ |
(7,370,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
48
Additional information related to SYSCOs defined benefit
plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
July 1, 2006 | |
|
July 2, 2005 | |
|
|
| |
|
| |
Amount recognized in consolidated balance sheet:
|
|
|
|
|
|
|
|
|
Prepaid pension cost
|
|
$ |
388,651,000 |
|
|
$ |
389,766,000 |
|
Accrued benefit liability
|
|
|
(238,599,000 |
) |
|
|
(264,010,000 |
) |
Intangible asset
|
|
|
45,619,000 |
|
|
|
42,240,000 |
|
Accumulated other comprehensive loss
|
|
|
18,030,000 |
|
|
|
88,127,000 |
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$ |
213,701,000 |
|
|
$ |
256,123,000 |
|
|
|
|
|
|
|
|
Plans with accumulated benefit obligation in excess of fair
value of plan assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$ |
327,450,000 |
|
|
$ |
375,491,000 |
|
Accumulated benefit obligation
|
|
|
238,599,000 |
|
|
|
264,010,000 |
|
Fair value of plan assets at end of year
|
|
|
|
|
|
|
|
|
Additional information:
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$ |
1,187,185,000 |
|
|
$ |
1,329,725,000 |
|
Increase (decrease) in minimum liability included in other
comprehensive income
|
|
|
(70,097,000 |
) |
|
|
54,414,000 |
|
Minimum pension liability adjustments result when the
accumulated benefit obligation exceeds the fair value of plan
assets and are recorded so that the recorded pension liability
is at a minimum equal to the unfunded accumulated benefit
obligation. Minimum pension liability adjustments are non-cash
adjustments that are reflected as an increase (or decrease) in
the pension liability and an offsetting charge (or benefit) to
shareholders equity, net of tax, through comprehensive
loss (or income) rather than net income.
Amounts reflected in accumulated other comprehensive income or
loss related to minimum pension liability, were charges, net of
tax, of $11,106,000 as of July 1, 2006, and $54,286,000 as
of July 2, 2005.
As a result of changes in assumptions, including the decrease in
the discount rate to 5.60% for fiscal 2006, which is based on
the new measurement date of May 31st discussed below, from
6.25% in fiscal 2005, together with the normal growth of the
plan, the impact of losses from prior periods and the amount and
timing of contributions, net pension costs increased $23,734,000
in fiscal 2006. Net pension costs in fiscal 2007 are expected to
decrease by approximately $53,900,000 due primarily to an
increase in the discount rate to 6.73% for fiscal 2007. The
components of net pension costs for each fiscal year are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits | |
|
|
| |
|
|
|
|
2004 | |
|
|
2006 | |
|
2005 | |
|
(53 Weeks) | |
|
|
| |
|
| |
|
| |
Service cost
|
|
$ |
100,028,000 |
|
|
$ |
81,282,000 |
|
|
$ |
74,934,000 |
|
Interest cost
|
|
|
83,600,000 |
|
|
|
73,824,000 |
|
|
|
61,162,000 |
|
Expected return on plan assets
|
|
|
(104,174,000 |
) |
|
|
(82,613,000 |
) |
|
|
(61,148,000 |
) |
Amortization of prior service cost
|
|
|
4,934,000 |
|
|
|
1,760,000 |
|
|
|
1,308,000 |
|
Recognized net actuarial loss
|
|
|
46,204,000 |
|
|
|
32,605,000 |
|
|
|
37,697,000 |
|
Amortization of net transition obligation
|
|
|
|
|
|
|
|
|
|
|
279,000 |
|
|
|
|
|
|
|
|
|
|
|
Net pension costs
|
|
$ |
130,592,000 |
|
|
$ |
106,858,000 |
|
|
$ |
114,232,000 |
|
|
|
|
|
|
|
|
|
|
|
The components of other postretirement benefit costs for each
fiscal year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Plans | |
|
|
| |
|
|
|
|
2004 | |
|
|
2006 | |
|
2005 | |
|
(53 Weeks) | |
|
|
| |
|
| |
|
| |
Service cost
|
|
$ |
510,000 |
|
|
$ |
477,000 |
|
|
$ |
422,000 |
|
Interest cost
|
|
|
472,000 |
|
|
|
488,000 |
|
|
|
402,000 |
|
Expected return on plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
202,000 |
|
|
|
202,000 |
|
|
|
202,000 |
|
Recognized net actuarial gain
|
|
|
(15,000 |
) |
|
|
|
|
|
|
(40,000 |
) |
Amortization of net transition obligation
|
|
|
153,000 |
|
|
|
154,000 |
|
|
|
153,000 |
|
|
|
|
|
|
|
|
|
|
|
Net other postretirement benefit costs
|
|
$ |
1,322,000 |
|
|
$ |
1,321,000 |
|
|
$ |
1,139,000 |
|
|
|
|
|
|
|
|
|
|
|
Multi-employer pension costs were $29,796,000, $28,822,000, and
$29,479,000 in fiscal 2006, 2005 and 2004, respectively.
49
Weighted-average assumptions used to determine benefit
obligations at year end were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits | |
|
Other Postretirement Plans | |
|
|
| |
|
| |
|
|
July 1, 2006 | |
|
July 2, 2005 | |
|
July 1, 2006 | |
|
July 2, 2005 | |
|
|
| |
|
| |
|
| |
|
| |
Discount rate
|
|
|
6.73 |
% |
|
|
5.40 |
% |
|
|
6.73 |
% |
|
|
5.40 |
% |
Rate of compensation increase Retirement Plan
|
|
|
6.17 |
|
|
|
5.89 |
|
|
|
|
|
|
|
|
|
For determining the benefit obligations at year end, the SERP
calculations assume annual salary increases of 10% through
fiscal 2007 and 7% thereafter as of July 1, 2006 and
July 2, 2005.
Weighted-average assumptions used to determine net pension costs
and other postretirement benefit costs for each fiscal year were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits | |
|
Other Postretirement Plans | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2004 | |
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Discount rate
|
|
|
5.60 |
% |
|
|
6.25 |
% |
|
|
6.00 |
% |
|
|
5.60 |
% |
|
|
6.25 |
% |
|
|
6.00 |
% |
Expected rate of return
|
|
|
9.00 |
|
|
|
9.00 |
|
|
|
9.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate of compensation increase Retirement Plan
|
|
|
5.89 |
|
|
|
5.89 |
|
|
|
5.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
For determining net pension costs related to the SERP for each
fiscal year, the calculations for fiscal 2006 and fiscal 2005
assume annual salary increases of 10% through fiscal 2007 and 7%
thereafter, and for fiscal 2004, the calculations assume annual
salary increases of 8% through fiscal 2005 and 7% thereafter.
The measurement date for the pension and other postretirement
benefit plans is fiscal year end for fiscal years 2005 and
prior. Beginning in fiscal 2006, the measurement date is
May 31st which represents a change in accounting. The
one-month acceleration of the measurement date allows additional
time for management to evaluate and report the actuarial pension
measurements in the year-end financial statements and
disclosures within the accelerated filing deadlines of the
Securities and Exchange Commission. The cumulative effect of
this change in accounting resulted in an increase to earnings in
the first quarter of fiscal 2006 of $9,285,000, net of tax.
A healthcare cost trend rate is not used in the calculations of
post-retirement benefits obligations 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.
For guidance in determining the discount rate, SYSCO calculates
the implied rate of return on a hypothetical portfolio of
high-quality fixed-income investments for which the timing and
amount of cash outflows approximates the estimated payouts of
the pension plans. The discount rate assumption is reviewed
annually and revised as deemed appropriate.
The expected long-term rate of return on plan assets is 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. The
rate of return assumption is reviewed annually and revised as
deemed appropriate.
SYSCOs investment objectives target a mix of investments
that can potentially achieve an above-average rate of return.
SYSCO has determined that this strategy is appropriate due to
the relatively low ratio of retirees as a percentage of
participants, low average years of participant service and low
average age of participants and is willing to accept the
above-average level of short-term risk and variability in
returns to attempt to achieve a higher level of long-term
returns. As a result, the companys strategy targets a mix
of investments which include 70% stocks (including a mix of
large capitalization U.S. stocks, small- to
mid-capitalization U.S. stocks and international stocks)
and 30% fixed income investments and cash equivalents.
The percentage of the fair value of plan assets by asset
category is as follows:
|
|
|
|
|
|
|
|
|
|
|
July 1, 2006 | |
|
July 2, 2005 | |
|
|
| |
|
| |
Equity securities
|
|
|
70.9 |
% |
|
|
71.2 |
% |
Debt securities
|
|
|
29.1 |
|
|
|
28.8 |
|
|
|
|
|
|
|
|
Total
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
50
Basic earnings per share have been computed by dividing net
earnings by the weighted average number of shares of common
stock outstanding for each respective year. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
|
2006 | |
|
2005 | |
|
(53 Weeks) | |
|
|
| |
|
| |
|
| |
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change
|
|
$ |
846,040,000 |
|
|
$ |
961,457,000 |
|
|
$ |
907,214,000 |
|
Cumulative effect of accounting change
|
|
|
9,285,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
855,325,000 |
|
|
$ |
961,457,000 |
|
|
$ |
907,214,000 |
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic shares outstanding
|
|
|
621,382,766 |
|
|
|
636,068,266 |
|
|
|
642,688,614 |
|
|
Dilutive effect of share-based awards
|
|
|
7,417,881 |
|
|
|
17,088,851 |
|
|
|
19,230,620 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average diluted shares outstanding
|
|
|
628,800,647 |
|
|
|
653,157,117 |
|
|
|
661,919,234 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change
|
|
$ |
1.36 |
|
|
$ |
1.51 |
|
|
$ |
1.41 |
|
Cumulative effect of accounting change
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
1.38 |
|
|
$ |
1.51 |
|
|
$ |
1.41 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change
|
|
$ |
1.35 |
|
|
$ |
1.47 |
|
|
$ |
1.37 |
|
Cumulative effect of accounting change
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
1.36 |
|
|
$ |
1.47 |
|
|
$ |
1.37 |
|
|
|
|
|
|
|
|
|
|
|
The number of options which were not included in the diluted
earnings per share calculation because the effect would have
been anti-dilutive was approximately 28,500,000, 68,000 and zero
for fiscal 2006, 2005 and 2004, respectively.
Dividends declared were $408,264,000, $368,792,000 and
$321,353,000 in fiscal 2006, 2005 and 2004, respectively.
Included in dividends declared for each year were dividends
declared but not yet paid at year end of approximately
$105,000,000, $95,000,000 and $83,000,000 in fiscal 2006, 2005
and 2004, respectively.
In May 1986, the Board of Directors adopted a Warrant Dividend
Plan designed to protect against those unsolicited attempts to
acquire control of SYSCO that the Board believes are not in the
best interests of the shareholders. This plan was amended and
replaced by the Amended and Restated Rights Agreement (the Plan)
in May 1996. The Board adopted further amendments in May 1999.
By its terms, the Plan expired on May 31, 2006.
51
Comprehensive income is net earnings plus certain other items
that are recorded directly to shareholders equity.
The following table provides a summary of the changes in
accumulated other comprehensive income (loss) for the years
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Pension | |
|
Foreign Currency | |
|
|
|
|
|
|
Liability | |
|
Translation | |
|
Interest Rate Swap | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Balance at June 28, 2003
|
|
$ |
(185,118,000 |
) |
|
$ |
32,737,000 |
|
|
$ |
|
|
|
$ |
(152,381,000 |
) |
Minimum pension liability adjustment
|
|
|
164,385,000 |
|
|
|
|
|
|
|
|
|
|
|
164,385,000 |
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
5,636,000 |
|
|
|
|
|
|
|
5,636,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 3, 2004
|
|
|
(20,733,000 |
) |
|
|
38,373,000 |
|
|
|
|
|
|
|
17,640,000 |
|
Minimum pension liability adjustment
|
|
|
(33,553,000 |
) |
|
|
|
|
|
|
|
|
|
|
(33,553,000 |
) |
Foreign currency translation adjustment
|
|
|
|
|
|
|
22,357,000 |
|
|
|
|
|
|
|
22,357,000 |
|
Change in fair value of interest rate swap
|
|
|
|
|
|
|
|
|
|
|
(20,121,000 |
) |
|
|
(20,121,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 2, 2005
|
|
|
(54,286,000 |
) |
|
|
60,730,000 |
|
|
|
(20,121,000 |
) |
|
|
(13,677,000 |
) |
Minimum pension liability adjustment
|
|
|
43,180,000 |
|
|
|
|
|
|
|
|
|
|
|
43,180,000 |
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
47,718,000 |
|
|
|
|
|
|
|
47,718,000 |
|
Change in fair value of interest rate swap
|
|
|
|
|
|
|
|
|
|
|
7,064,000 |
|
|
|
7,064,000 |
|
Amortization of cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
333,000 |
|
|
|
333,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 1, 2006
|
|
$ |
(11,106,000 |
) |
|
$ |
108,448,000 |
|
|
$ |
(12,724,000 |
) |
|
$ |
84,618,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the components of other comprehensive income (loss)
and the related tax effects for each of the years presented is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
|
| |
|
|
Before-Tax | |
|
|
|
After-Tax | |
|
|
Amount | |
|
Income Tax | |
|
Amount | |
|
|
| |
|
| |
|
| |
Minimum pension liability adjustment
|
|
$ |
70,097,000 |
|
|
$ |
26,917,000 |
|
|
$ |
43,180,000 |
|
Foreign currency translation adjustment
|
|
|
47,718,000 |
|
|
|
|
|
|
|
47,718,000 |
|
Change in fair value of interest rate swap
|
|
|
11,388,000 |
|
|
|
4,324,000 |
|
|
|
7,064,000 |
|
Amortization of cash flow hedge
|
|
|
540,000 |
|
|
|
207,000 |
|
|
|
333,000 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
$ |
129,743,000 |
|
|
$ |
31,448,000 |
|
|
$ |
98,295,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
|
| |
|
|
Before-Tax | |
|
|
|
After-Tax | |
|
|
Amount | |
|
Income Tax | |
|
Amount | |
|
|
| |
|
| |
|
| |
Minimum pension liability adjustment
|
|
$ |
(54,414,000 |
) |
|
$ |
(20,861,000 |
) |
|
$ |
(33,553,000 |
) |
Foreign currency translation adjustment
|
|
|
22,357,000 |
|
|
|
|
|
|
|
22,357,000 |
|
Change in fair value of interest rate swap
|
|
|
(32,584,000 |
) |
|
|
(12,463,000 |
) |
|
|
(20,121,000 |
) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
$ |
(64,641,000 |
) |
|
$ |
(33,324,000 |
) |
|
$ |
(31,317,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
|
| |
|
|
Before-Tax | |
|
|
|
After-Tax | |
|
|
Amount | |
|
Income Tax | |
|
Amount | |
|
|
| |
|
| |
|
| |
Minimum pension liability adjustment
|
|
$ |
266,074,000 |
|
|
$ |
101,689,000 |
|
|
$ |
164,385,000 |
|
Foreign currency translation adjustment
|
|
|
5,636,000 |
|
|
|
|
|
|
|
5,636,000 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
$ |
271,710,000 |
|
|
$ |
101,689,000 |
|
|
$ |
170,021,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
13. |
SHARE-BASED COMPENSATION |
Prior to July 3, 2005, SYSCO accounted for its stock option
plans and its Employees Stock Purchase Plan using the
intrinsic value method of accounting provided under APB Opinion
No. 25, Accounting for Stock Issued to
Employees, (APB 25) and related
52
interpretations, as permitted by FASB Statement No. 123,
Accounting for Stock-Based Compensation,
(SFAS 123) under which no compensation expense was
recognized for stock option grants and issuances of stock
pursuant to the Employees Stock Purchase Plan. However,
share-based compensation expense was recognized in periods prior
to fiscal 2006 (and continues to be recognized) for stock
issuances pursuant to the Management Incentive Plans and stock
grants to non-employee directors. Share-based compensation was a
pro forma disclosure in the financial statement footnotes and
continues to be provided for periods prior to fiscal 2006.
Effective July 3, 2005, SYSCO adopted the fair value
recognition provisions of FASB Statement No. 123(R),
Share-Based Payment, (SFAS 123(R)) using the
modified-prospective transition method. Under this transition
method, compensation cost recognized in fiscal 2006 includes:
a) compensation cost for all share-based payments granted
through July 2, 2005, but for which the requisite service
period had not been completed as of July 2, 2005, based on
the grant date fair value estimated in accordance with the
original provisions of SFAS 123, and b) compensation
cost for all share-based payments granted subsequent to
July 2, 2005, based on the grant date fair value estimated
in accordance with the provisions of SFAS 123(R). Results
for prior periods have not been restated.
As a result of adopting SFAS 123(R) on July 3, 2005,
SYSCOs earnings before income taxes and cumulative effect
of accounting change and net earnings for fiscal 2006 were
$118,038,000 and $105,810,000 lower, respectively, than if the
company had continued to account for share-based compensation
under APB 25. Basic and diluted earnings per share before
the cumulative effect of the accounting change for fiscal 2006
were both $0.17 lower than if the company had continued to
account for share-based compensation under APB 25.
The adoption of SFAS 123(R) results in lower diluted shares
outstanding than would have been calculated had compensation
cost not been recorded for stock options and stock issuances
under the Employees Stock Purchase Plan. This is due to a
modification required by SFAS 123(R) of the treasury stock
method calculation utilized to compute the dilutive effect of
stock options.
Prior to the adoption of SFAS 123(R), the company presented
all tax benefits of deductions resulting from the exercise of
options as operating cash flows in the Consolidated Cash Flow
statement. SFAS 123(R) requires the cash flows resulting
from tax deductions in excess of the compensation cost
recognized for those options (excess tax benefits) to be
classified as financing cash flows. The $6,569,000 excess tax
benefit classified as a financing cash inflow for fiscal 2006
would have been classified as an operating cash inflow if the
company had not adopted SFAS 123(R).
SYSCO provides compensation benefits to employees and
non-employee directors under several share-based payment
arrangements including various employee stock option plans, the
Employees Stock Purchase Plan, the Management Incentive
Plans and the 2005 Non-Employee Directors Stock Plan.
Stock Option Plans
SYSCOs 2004 Stock Option Plan was adopted in fiscal 2005
and reserves 23,500,000 shares of SYSCO common stock for
grants of options and dividend equivalents to directors,
officers and other employees of the company and its subsidiaries
at the market price at the date of grant. This plan provides for
the issuance of options qualified as incentive stock options
under the Internal Revenue Code of 1986, options which are
non-qualified, and dividend equivalents. To date, SYSCO has only
issued options under this plan. Vesting requirements for awards
under this plan will vary by individual grant and may include
either time-based vesting or time-based vesting subject to
acceleration based on performance criteria. The contractual life
of all options granted under this plan will be no greater than
seven years. As of July 1, 2006, there were 18,656,450
remaining shares authorized and available for grant under the
2004 Stock Option Plan.
SYSCO has also granted employee options under several previous
employee stock option plans for which previously granted options
remain outstanding at July 1, 2006. No new options will be
issued under any of the prior plans, as future grants to
employees will be made through the 2004 Stock Option Plan or
subsequently adopted plans. Vesting requirements for awards
under these plans vary by individual grant and include either
time-based vesting or time-based vesting subject to acceleration
based on performance criteria. The contractual life of all
options granted under these plans through July 3, 2004 is
10 years; options granted after July 3, 2004 have a
contractual life of seven years.
SYSCOs 2005 Non-Employee Directors Stock Plan was adopted
in fiscal 2006 and reserves 550,000 shares of common stock
for grants to non-employee directors in the form of options,
stock grants, restricted stock units and dividend equivalents.
In addition, options and unvested common shares also remained
outstanding as of July 1, 2006 under previous non-employee
director stock plans. No further grants will be made under these
previous plans, as all future grants to non-employee directors
will be made through the 2005 Non-Employee Directors Stock Plan
or subsequently adopted plans. Vesting requirements for awards
under these plans vary by
53
individual grant and include either time-based vesting or
time-based vesting subject to acceleration based on performance
criteria. The contractual life of all options granted under
these plans through July 3, 2004 is 10 years; options
granted after July 3, 2004 have a contractual life of seven
years. As of July 1, 2006, there were 478,593 remaining
shares authorized and available for grant under the 2005
Non-Employee Directors Stock Plan.
Certain of SYSCOs option awards are generally subject to
graded vesting over a service period. In those cases, SYSCO
recognizes compensation cost on a straight-line basis over the
requisite service period for the entire award. In other cases,
certain of SYSCOs option awards provide for graded vesting
over a service period but include a performance-based provision
allowing for accelerated vesting. In these cases, if it is
probable that the performance condition will be met, SYSCO
recognizes compensation cost on a straight-line basis over the
shorter performance period; otherwise, it will recognize
compensation cost over the longer service period.
In addition, certain of SYSCOs options provide that the
options continue to vest as if the optionee continued to be an
employee if the optionee meets certain age and years of service
thresholds upon retirement. In these cases, for awards granted
through July 2, 2005, SYSCO will recognize the compensation
cost for such awards over the service period and accelerate any
remaining unrecognized compensation cost when the employee
retires. Due to the adoption of SFAS 123(R), for awards
granted subsequent to July 2, 2005, SYSCO will recognize
compensation cost for such awards over the period from the grant
date to the date the employee first becomes eligible to retire
with the options continuing to vest after retirement. If SYSCO
had recognized compensation cost for such awards over the period
from the grant date to the date the employee first became
eligible to retire with the options continuing to vest after
retirement for all periods presented, recognized compensation
cost would have been $23,907,000 lower for fiscal 2006. There
would be no impact to recognized compensation cost for fiscal
2005 and 2004, as the company was accounting for stock
compensation under APB 25, under which no compensation
expense was recognized for stock option grants.
The fair value of each option award is estimated as of the date
of grant using a Black-Scholes option pricing model. The
weighted average assumptions for the periods indicated are noted
in the following table. Expected volatility is based on
historical volatility of SYSCOs stock, implied
volatilities from traded options on SYSCOs stock and other
factors. SYSCO utilizes historical data to estimate option
exercise and employee termination behavior within the valuation
model; separate groups of employees that have similar historical
exercise behavior are considered separately for valuation
purposes. The risk-free rate for the expected term of the option
is based on the U.S. Treasury yield curve in effect at the
time of grant. The following weighted-average assumptions were
used for each fiscal year presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
Dividend yield
|
|
|
1.40% |
|
|
|
1.45% |
|
|
|
1.49% |
|
Expected volatility
|
|
|
23% |
|
|
|
22% |
|
|
|
22% |
|
Risk-free interest rate
|
|
|
3.9% |
|
|
|
3.4% |
|
|
|
3.2% |
|
Expected life
|
|
|
5 years |
|
|
|
5 years |
|
|
|
5 years |
|
The following summary presents information regarding outstanding
options as of July 1, 2006 and changes during the fiscal
year then ended with regard to options under all stock option
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
Weighted Average | |
|
|
|
|
Shares | |
|
Average | |
|
Remaining | |
|
Aggregate | |
|
|
Under | |
|
Exercise | |
|
Contractual Term | |
|
Intrinsic | |
|
|
Option | |
|
Price Per Share | |
|
(in years) | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
Outstanding at July 2, 2005
|
|
|
65,963,380 |
|
|
$ |
27.82 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
4,859,000 |
|
|
|
32.99 |
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,004,355 |
) |
|
|
20.73 |
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,009,865 |
) |
|
|
29.42 |
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(291,491 |
) |
|
|
30.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 1, 2006
|
|
|
65,516,669 |
|
|
$ |
28.60 |
|
|
|
5.56 |
|
|
$ |
168,690,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at July 1, 2006
|
|
|
63,468,460 |
|
|
$ |
28.49 |
|
|
|
5.54 |
|
|
$ |
168,550,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at July 1, 2006
|
|
|
45,316,732 |
|
|
$ |
27.23 |
|
|
|
5.35 |
|
|
$ |
162,057,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total number of employee options granted was 4,826,500,
8,515,000 and 13,344,746 in fiscal years 2006, 2005 and 2004,
respectively. During fiscal 2006, 876,000 options were granted
to 17 executive officers and 3,950,500 options were granted to
approximately 1,200 other key employees. During fiscal 2005,
2,763,000 options were granted to approximately 2,700
non-executive
54
employees based on tenure, 557,000 options were granted to 18
executive officers and 5,195,000 options were granted to
approximately 1,700 other key employees. During fiscal 2004,
2,482,000 options were granted to approximately 2,400
non-executive employees based on tenure, 821,000 options were
granted to 17 executive officers and 10,041,746 options were
granted to approximately 2,000 other key employees.
The weighted average grant-date fair value of options granted
fiscal 2006, 2005 and 2004 were $7.83, $7.12 and $6.74,
respectively. The total intrinsic value of options exercised
during fiscal 2006, 2005 and 2004, was $48,928,000, $81,220,000
and $100,385,000, respectively.
Employees Stock Purchase Plan
SYSCO has an Employees Stock Purchase Plan which permits
employees to invest in SYSCO common stock by means of periodic
payroll deductions at 85% of the closing price on the last
business day of each calendar quarter. The total number of
shares which may be sold pursuant to the plan may not exceed
68,000,000 shares, of which 4,894,348 remained available at
July 1, 2006.
During fiscal 2006, 1,840,764 shares of SYSCO common stock
were purchased by the participants as compared to
1,712,244 shares purchased in fiscal 2005 and
1,620,535 shares purchased in fiscal 2004. In July 2006,
475,488 shares were purchased by participants.
The weighted average fair value of employee stock purchase
rights issued pursuant to the Employees Stock Purchase
Plan was $4.88, $5.19 and $5.17 per share during fiscal
2006, 2005 and 2004, 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.
Management Incentive Compensation
In November 2005, SYSCO adopted the 2005 Management Incentive
Plan. The first bonus under the 2005 Plan will be earned during
fiscal 2007 (at which time no further bonuses will be earned
under the 2000 Management Incentive Plan) and paid in the
following fiscal year.
SYSCOs Management Incentive Plans compensate key
management personnel for specific performance achievements. The
bonuses earned and expensed under these plans were $23,235,000
in fiscal 2006, $50,505,000 in fiscal 2005 and $77,494,000 in
fiscal 2004; these amounts were paid in the following fiscal
year in both cash and stock or deferred for payment in future
years at the election of each participant. The stock awards
under these plans immediately vest upon issuance; however,
participants are restricted from selling, transferring, giving
or otherwise conveying the shares for a period of two years from
the date of issuance of such shares. The fair value of the stock
issued under the Management Incentive Plans is based on the
stock price less a 12% discount for post-vesting restrictions.
The discount for post-vesting restrictions is estimated based on
restricted stock studies and by calculating the cost of a
hypothetical protective put option over the restriction period.
There were 180, 174 and 174 participants in the plan in fiscal
2006, 2005 and 2004, respectively. Participants in the
Management Incentive Plan also have the option to defer portions
of their salary and bonuses pursuant to the Executive Deferred
Compensation Plan.
A total of 617,637 shares, 1,001,624 shares and
940,843 shares at a fair value of $36.25, $34.80 and $29.55
were issued pursuant to this plan in fiscal 2006, 2005 and 2004,
respectively, for bonuses earned in the preceding fiscal years.
As of July 1, 2006, there were 4,000,000 remaining shares
that may be issued under the Management Incentive Plans. In
August 2006, 323,822 shares were issued in payment of the
portion of the bonuses earned in fiscal 2006 elected to be
received in stock.
Non-Employee Director Stock Grants
Each newly elected director is granted a one-time retainer award
of 6,000 shares of SYSCO common stock under the 2005
Non-Employee Directors Stock Plan. These shares vest one-third
every year over a three-year period. In addition, there are
one-time retainer awards outstanding under the Non-Employee
Directors Stock Plan, which was replaced by the 2005
Non-Employee Directors Stock Plan. The total amount of unvested
shares related to the one-time retainer awards as of
July 1, 2006, July 2, 2005 and July 3, 2004 was
not significant.
The 2005 Non-Employee Directors Stock Plan provides for the
issuance of restricted stock. During fiscal 2006,
27,000 shares of restricted stock were granted to
non-employee directors. These shares will vest ratably over a
three-year period.
Non-employee directors may also elect to receive up to 50% of
their annual directors fees in SYSCO common stock. As a
result of such elections, a total of 12,907, 11,836 and
11,640 shares with a weighted-average grant date fair value
of $33.63, $35.38 and $30.82 per share were issued in
fiscal 2006, 2005 and 2004, respectively.
55
All Share-Based Payment Arrangements
The total share-based compensation cost that has been recognized
in results of operations was $126,837,000, $19,749,000 and
$34,857,000 for fiscal 2006, 2005 and 2004, respectively, and is
included within the line item Operating expenses
within the Consolidated Results of Operations. The total income
tax benefit recognized in results of operations for share-based
compensation arrangements was $15,607,000, $8,597,000 and
$13,385,000 for fiscal 2006, 2005 and 2004, respectively.
As of July 1, 2006, there was $112,111,000 of total
unrecognized compensation cost related to share-based
compensation arrangements. That cost is expected to be
recognized over a weighted-average period of 2.72 years.
Cash received from option exercises was $93,337,000,
$124,701,000 and $104,791,000 during fiscal 2006, 2005 and 2004,
respectively. The actual tax benefit realized for the tax
deductions from option exercises totaled $12,507,000,
$20,887,000 and $20,551,000 during fiscal 2006, 2005 and 2004,
respectively.
Pro Forma Net Earnings
The following table provides pro forma net earnings and earnings
per share had SYSCO applied the fair value method of
SFAS 123 for fiscal 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
|
2005 | |
|
(53 Weeks) | |
|
|
| |
|
| |
Net earnings:
|
|
|
|
|
|
|
|
|
|
Reported net earnings
|
|
$ |
961,457,000 |
|
|
$ |
907,214,000 |
|
|
Add: Stock-based employee compensation expense included in
reported earnings, net of related tax effects(1)
|
|
|
11,152,000 |
|
|
|
21,472,000 |
|
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects
|
|
|
(98,815,000 |
) |
|
|
(106,747,000 |
) |
|
|
|
|
|
|
|
|
Pro forma net earnings
|
|
$ |
873,794,000 |
|
|
$ |
821,939,000 |
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
Reported basic earnings per share
|
|
$ |
1.51 |
|
|
$ |
1.41 |
|
|
Pro forma basic earnings per share
|
|
|
1.37 |
|
|
|
1.28 |
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
Reported diluted earnings per share
|
|
$ |
1.47 |
|
|
$ |
1.37 |
|
|
Pro forma diluted earnings per share
|
|
|
1.36 |
|
|
|
1.26 |
|
|
|
(1) |
Amounts represent the after-tax compensation costs for stock
grants. |
The pro forma presentation includes only options granted after
1995. The pro forma effects for the periods presented are not
necessarily indicative of the pro forma effects in future years.
The income tax provision for each fiscal year consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
|
2006 | |
|
2005 | |
|
(53 Weeks) | |
|
|
| |
|
| |
|
| |
United States federal income taxes
|
|
$ |
486,642,000 |
|
|
$ |
485,499,000 |
|
|
$ |
473,757,000 |
|
State, local and foreign income taxes
|
|
|
62,264,000 |
|
|
|
78,480,000 |
|
|
|
94,173,000 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
548,906,000 |
|
|
$ |
563,979,000 |
|
|
$ |
567,930,000 |
|
|
|
|
|
|
|
|
|
|
|
Included in the income taxes charged to earnings are net
deferred tax provisions of $533,108,000, $554,850,000, and
$608,152,000 in fiscal 2006, 2005 and 2004, 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. In addition to the
deferred tax provision, changes in the deferred tax liability
balances in fiscal 2006, 2005 and 2004 were also impacted by the
reclassification of deferred supply chain distributions from
current deferred tax liabilities to accrued income taxes based
on the timing of when payments related to these items become
payable. These reclassifications were $497,830,000 and
$473,970,000 in fiscal 2006 and 2005, respectively. Deferred
supply chain distributions
56
are classified as current or deferred tax liabilities based on
when the related income tax payments will become payable. The
net cash flow impact of supply chain distribution deferrals in
fiscal 2006 was incrementally positive when compared to what
would have been paid on an annual basis without the deferral,
due to increased volume through the Baugh Supply Chain
Cooperative.
Significant components of SYSCOs deferred tax assets and
liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2006 | |
|
July 2, 2005 | |
|
|
| |
|
| |
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Deferred supply chain distributions
|
|
$ |
924,902,000 |
|
|
$ |
856,741,000 |
|
|
Excess tax depreciation and basis differences of assets
|
|
|
383,636,000 |
|
|
|
398,690,000 |
|
|
Pension
|
|
|
58,406,000 |
|
|
|
59,836,000 |
|
|
Other
|
|
|
7,987,000 |
|
|
|
13,864,000 |
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
1,374,931,000 |
|
|
|
1,329,131,000 |
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating tax loss carryforwards
|
|
|
112,593,000 |
|
|
|
83,609,000 |
|
|
Deferred compensation
|
|
|
45,878,000 |
|
|
|
40,640,000 |
|
|
Casualty insurance
|
|
|
35,254,000 |
|
|
|
33,246,000 |
|
|
Receivables
|
|
|
25,208,000 |
|
|
|
25,081,000 |
|
|
Inventory
|
|
|
22,549,000 |
|
|
|
32,856,000 |
|
|
Other
|
|
|
37,251,000 |
|
|
|
31,766,000 |
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
278,733,000 |
|
|
|
247,198,000 |
|
|
|
|
|
|
|
|
|
Valuation allowances
|
|
|
80,851,000 |
|
|
|
77,334,000 |
|
|
|
|
|
|
|
|
Total net deferred tax liabilities
|
|
$ |
1,177,049,000 |
|
|
$ |
1,159,267,000 |
|
|
|
|
|
|
|
|
The amount of taxes paid in fiscal 2004 was reduced by
$70,615,000 as the result of the utilization of a
U.S. federal net operating loss carryforward. This net
operating loss carryforward was generated in fiscal 2003
primarily as a result of the deferral of supply chain
distributions.
Also impacting the amount of taxes paid in each year is the
amount of deductible pension contributions made in each year.
Pension contributions were substantially lower in fiscal 2006 as
compared to fiscal 2005 and 2004. The company expects that its
pension contributions in fiscal 2007 will be approximately
$90,000,000.
The company had state and Canadian net operating losses at
July 1, 2006 and July 2, 2005, respectively. The net
operating losses outstanding at July 1, 2006 expire in
fiscal years 2007 through 2026. A valuation allowance of
$80,851,000 and $77,334,000 was recorded as of July 1, 2006
and July 2, 2005, respectively, as management believes that
it is more likely than not that a portion of the benefits of
these state and Canadian tax loss carryforwards will not be
realized.
Reconciliations of the statutory federal income tax rate to the
effective income tax rates for each fiscal year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
United States statutory federal income tax rate
|
|
|
35.00 |
% |
|
|
35.00 |
% |
|
|
35.00 |
% |
State and local income taxes, net of federal income tax benefit
|
|
|
2.17 |
|
|
|
2.74 |
|
|
|
3.21 |
|
Other
|
|
|
2.18 |
|
|
|
(0.77 |
) |
|
|
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39.35 |
% |
|
|
36.97 |
% |
|
|
38.50 |
% |
|
|
|
|
|
|
|
|
|
|
SYSCO recorded a tax benefit of $12,228,000, or 10.4% of the
$118,038,000, in incremental share-based compensation expense
recorded in fiscal 2006 as a result of the adoption of
SFAS 123(R), causing an increase in the fiscal 2006
effective tax rate compared to fiscal 2005. In addition, the
comparison of the effective rate for fiscal 2006 with fiscal
2005 is affected by the adjustments to fiscal 2005 income tax
expense. The income tax provision in fiscal 2005 included a tax
benefit of $19,500,000 primarily related to the reversal of a
tax contingency accrual and to the reversal of valuation
allowances previously recorded on certain state net operating
loss carryforwards.
SYSCOs option grants include options which qualify as
incentive stock options for income tax purposes. The treatment
of the potential tax deduction, if any, related to incentive
stock options is the primary reason for the companys
increased effective tax rate in fiscal 2006 and may cause
variability in the companys effective tax rate in future
periods. In the period the compensation cost related
57
to incentive stock options is recorded, a corresponding tax
benefit is not recorded as it is assumed that the company will
not receive a tax deduction related to such incentive stock
options. The company may be eligible for tax deductions in
subsequent periods to the extent that there is a disqualifying
disposition of the incentive stock option. In such cases, the
company would record a tax benefit related to the tax deduction
in an amount not to exceed the corresponding cumulative
compensation cost recorded in the financial statements on the
particular options multiplied by the statutory tax rate.
In evaluating the exposures connected with the various tax
filing positions, the company establishes an accrual when,
despite managements belief that the companys tax
return positions are supportable, management believes that
certain positions may be successfully challenged and a loss is
probable. When facts and circumstances change, these accruals
are adjusted.
The company intends to permanently reinvest the undistributed
earnings of its Canadian subsidiaries in those businesses
outside of the United States and, therefore, has not provided
for U.S. deferred income taxes on such undistributed foreign
earnings. The determination of the amount of the unrecognized
deferred tax liability related to the undistributed earnings is
not practicable.
The determination of the companys provision for income
taxes requires significant judgment, the use of estimates and
the interpretation and application of complex tax laws. The
companys provision for income taxes reflects a combination
of income earned and taxed in the various U.S. federal and
state, as well as Canadian federal and provincial jurisdictions.
Jurisdictional tax law changes, increases or decreases in
permanent differences between book and tax items, accruals or
adjustments of accruals for tax contingencies or valuation
allowances, and the companys change in the mix of earnings
from these taxing jurisdictions all affect the overall effective
tax rate.
As of July 1, 2006, the companys 2003 and 2004
federal income tax returns were under audit by the Internal
Revenue Service (IRS). The company believes that it has
appropriate support for the positions taken on these tax returns
and has recorded a liability of approximately $10,000,000 for
its best estimate of the probable loss on certain of these
positions. However, if the IRS disagrees with the positions
taken by the company on its tax returns, SYSCO could have
additional tax liability, including interest and penalties.
58
During fiscal 2006, SYSCO acquired for cash one broadline
foodservice operation, one custom meat-cutting operation and
five specialty produce distributors. During fiscal 2005, SYSCO
acquired for cash one broadline foodservice operation, four
custom meat-cutting operations, and two specialty produce
distributors. During fiscal 2004, SYSCO acquired for cash
certain assets of two broadline foodservice operations, a
specialty produce distributor, and one quickservice operation.
The acquisitions were immaterial, individually and in the
aggregate, to the consolidated financial statements.
During fiscal 2006, in the aggregate, the company paid cash of
$114,378,000 and issued 161,549 shares with a value of
$3,055,000 for acquisitions during fiscal 2006 and for
contingent consideration related to operations acquired in
previous fiscal years. In addition, escrowed funds related to
certain acquisitions in the amount of $800,000 were released to
sellers during fiscal 2006.
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
July 1, 2006 included $147,572,000 in cash, which, if
distributed, could result in the recording of additional
goodwill. Such amounts typically are to be paid out over periods
of up to five years from the date of acquisition.
|
|
16. |
COMMITMENTS AND CONTINGENCIES |
SYSCO has committed with a third party service provider to
provide hardware and hardware hosting services. The services are
to be provided over a ten year period beginning in fiscal 2005
and ending in fiscal 2015. The total cost of the services over
that period is expected to be approximately $300,000,000. This
amount may be reduced by SYSCO utilizing less than estimated
resources and can be increased by SYSCO utilizing more than
estimated resources and the adjustments for inflation provided
for in the agreements. SYSCO may also cancel a portion or all of
the services provided beginning in fiscal 2007 subject to
termination fees which decrease over time. Although it does not
expect to, if SYSCO were to terminate all of the services in
fiscal 2007, the estimated termination fee incurred in fiscal
2007 would be approximately $8,300,000. SYSCO believes that
these agreements will provide a more secure and reliable
environment for its data processing as well as reduce overall
operating costs over the ten year period.
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.
|
|
17. |
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
companys other segments, including the companys
specialty produce, custom-cut meat and lodging industry products
segments.
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.
59
The following table sets forth the financial information for
SYSCOs business segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year | |
|
|
| |
|
|
|
|
2004 | |
|
|
2006 | |
|
2005 | |
|
(53 Weeks) | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadline
|
|
$ |
25,678,728 |
|
|
$ |
24,266,978 |
|
|
$ |
23,852,420 |
|
|
SYGMA
|
|
|
4,338,877 |
|
|
|
3,916,255 |
|
|
|
3,548,693 |
|
|
Other
|
|
|
3,011,984 |
|
|
|
2,440,088 |
|
|
|
2,250,227 |
|
|
Intersegment sales
|
|
|
(401,151 |
) |
|
|
(341,407 |
) |
|
|
(315,937 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
32,628,438 |
|
|
$ |
30,281,914 |
|
|
$ |
29,335,403 |
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadline
|
|
$ |
1,545,269 |
|
|
$ |
1,516,017 |
|
|
$ |
1,443,640 |
|
|
SYGMA
|
|
|
8,097 |
|
|
|
18,143 |
|
|
|
25,231 |
|
|
Other
|
|
|
110,613 |
|
|
|
86,028 |
|
|
|
76,996 |
|
|
|
|
|
|
|
|
|
|
|
|
Total segments
|
|
|
1,663,979 |
|
|
|
1,620,188 |
|
|
|
1,545,867 |
|
|
Unallocated corporate expenses
|
|
|
(269,033 |
) |
|
|
(94,752 |
) |
|
|
(70,723 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,394,946 |
|
|
$ |
1,525,436 |
|
|
$ |
1,475,144 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadline
|
|
$ |
237,271 |
|
|
$ |
237,970 |
|
|
$ |
222,695 |
|
|
SYGMA
|
|
|
26,955 |
|
|
|
20,836 |
|
|
|
18,684 |
|
|
Other
|
|
|
26,334 |
|
|
|
20,394 |
|
|
|
17,702 |
|
|
|
|
|
|
|
|
|
|
|
|
Total segments
|
|
|
290,560 |
|
|
|
279,200 |
|
|
|
259,081 |
|
|
Corporate
|
|
|
54,502 |
|
|
|
37,543 |
|
|
|
24,514 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
345,062 |
|
|
$ |
316,743 |
|
|
$ |
283,595 |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadline
|
|
$ |
336,008 |
|
|
$ |
270,995 |
|
|
$ |
353,362 |
|
|
SYGMA
|
|
|
63,213 |
|
|
|
51,840 |
|
|
|
24,475 |
|
|
Other
|
|
|
55,600 |
|
|
|
23,919 |
|
|
|
22,794 |
|
|
|
|
|
|
|
|
|
|
|
|
Total segments
|
|
|
454,821 |
|
|
|
346,754 |
|
|
|
400,631 |
|
|
Corporate
|
|
|
59,930 |
|
|
|
43,449 |
|
|
|
129,455 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
514,751 |
|
|
$ |
390,203 |
|
|
$ |
530,086 |
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadline
|
|
$ |
5,242,561 |
|
|
$ |
4,885,175 |
|
|
$ |
4,826,535 |
|
|
SYGMA
|
|
|
389,771 |
|
|
|
301,729 |
|
|
|
240,418 |
|
|
Other
|
|
|
807,230 |
|
|
|
636,549 |
|
|
|
554,335 |
|
|
|
|
|
|
|
|
|
|
|
|
Total segments
|
|
|
6,439,562 |
|
|
|
5,823,453 |
|
|
|
5,621,288 |
|
|
Corporate
|
|
|
2,552,463 |
|
|
|
2,444,449 |
|
|
|
2,226,344 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
8,992,025 |
|
|
$ |
8,267,902 |
|
|
$ |
7,847,632 |
|
|
|
|
|
|
|
|
|
|
|
The company does not allocate share-based compensation related
to stock option grants, issuances of stock pursuant to the
Employees Stock Purchase Plan and stock grants to
non-employee directors and corporate officers. The increase in
unallocated corporate expenses in fiscal 2006 over fiscal 2005
is primarily attributable to these items. See further discussion
of Share-Based Compensation in Note 13.
60
The sales mix for the principal product categories for each
fiscal year is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
|
2006 | |
|
2005 | |
|
(53 Weeks) | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Fresh and frozen meats
|
|
$ |
6,153,468 |
|
|
$ |
5,732,834 |
|
|
$ |
5,533,217 |
|
Canned and dry products
|
|
|
5,849,082 |
|
|
|
5,417,418 |
|
|
|
5,370,859 |
|
Frozen fruits, vegetables, bakery and other
|
|
|
4,405,908 |
|
|
|
4,104,170 |
|
|
|
3,946,468 |
|
Poultry
|
|
|
3,283,174 |
|
|
|
3,222,927 |
|
|
|
3,166,806 |
|
Dairy products
|
|
|
3,014,104 |
|
|
|
2,878,904 |
|
|
|
2,766,425 |
|
Fresh produce
|
|
|
2,769,805 |
|
|
|
2,459,295 |
|
|
|
2,329,638 |
|
Paper and disposables
|
|
|
2,595,358 |
|
|
|
2,353,104 |
|
|
|
2,225,532 |
|
Seafood
|
|
|
1,751,062 |
|
|
|
1,591,022 |
|
|
|
1,559,133 |
|
Beverage products
|
|
|
1,078,030 |
|
|
|
962,039 |
|
|
|
928,073 |
|
Equipment and smallwares
|
|
|
782,523 |
|
|
|
681,653 |
|
|
|
625,801 |
|
Janitorial products
|
|
|
740,601 |
|
|
|
670,105 |
|
|
|
655,305 |
|
Medical supplies
|
|
|
205,323 |
|
|
|
208,443 |
|
|
|
228,146 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
32,628,438 |
|
|
$ |
30,281,914 |
|
|
$ |
29,335,403 |
|
|
|
|
|
|
|
|
|
|
|
Information concerning geographic areas is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year | |
|
|
| |
|
|
|
|
2004 | |
|
|
2006 | |
|
2005 | |
|
(53 Weeks) | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Sales:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
29,866,956 |
|
|
$ |
27,850,921 |
|
|
$ |
27,144,352 |
|
|
Canada
|
|
|
2,761,482 |
|
|
|
2,430,993 |
|
|
|
2,191,051 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
32,628,438 |
|
|
$ |
30,281,914 |
|
|
$ |
29,335,403 |
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
2,328,609 |
|
|
$ |
2,156,588 |
|
|
$ |
2,073,404 |
|
|
Canada
|
|
|
136,291 |
|
|
|
111,713 |
|
|
|
93,405 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
2,464,900 |
|
|
$ |
2,268,301 |
|
|
$ |
2,166,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents sales from external customers from businesses
operating in these countries. |
|
(2) |
Long-lived assets represents net property, plant and equipment
reported in the country in which they are held. |
|
|
18. |
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 Note 8, 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) and all other non-guarantor
subsidiaries of SYSCO (Other Non-Guarantor Subsidiaries) on a
combined basis and eliminating entries.
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet | |
|
|
July 1, 2006 | |
|
|
| |
|
|
|
|
SYSCO | |
|
Other Non-Guarantor | |
|
|
|
Consolidated | |
|
|
SYSCO | |
|
International | |
|
Subsidiaries | |
|
Eliminations | |
|
Totals | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Current assets
|
|
$ |
162,177 |
|
|
$ |
35 |
|
|
$ |
4,237,482 |
|
|
$ |
|
|
|
$ |
4,399,694 |
|
Investment in subsidiaries
|
|
|
11,282,232 |
|
|
|
317,812 |
|
|
|
125,433 |
|
|
|
(11,725,477 |
) |
|
|
|
|
Plant and equipment, net
|
|
|
174,020 |
|
|
|
|
|
|
|
2,290,880 |
|
|
|
|
|
|
|
2,464,900 |
|
Other assets
|
|
|
711,056 |
|
|
|
|
|
|
|
1,416,375 |
|
|
|
|
|
|
|
2,127,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
12,329,485 |
|
|
$ |
317,847 |
|
|
$ |
8,070,170 |
|
|
$ |
(11,725,477 |
) |
|
$ |
8,992,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$ |
331,417 |
|
|
$ |
1,022 |
|
|
$ |
2,893,964 |
|
|
$ |
|
|
|
$ |
3,226,403 |
|
Intercompany payables (receivables)
|
|
|
7,207,923 |
|
|
|
38,308 |
|
|
|
(7,246,231 |
) |
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,358,452 |
|
|
|
224,247 |
|
|
|
44,428 |
|
|
|
|
|
|
|
1,627,127 |
|
Other liabilities
|
|
|
487,858 |
|
|
|
|
|
|
|
598,353 |
|
|
|
|
|
|
|
1,086,211 |
|
Shareholders equity
|
|
|
2,943,835 |
|
|
|
54,270 |
|
|
|
11,779,656 |
|
|
|
(11,725,477 |
) |
|
|
3,052,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
12,329,485 |
|
|
$ |
317,847 |
|
|
$ |
8,070,170 |
|
|
$ |
(11,725,477 |
) |
|
$ |
8,992,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet | |
|
|
July 2, 2005 | |
|
|
| |
|
|
|
|
SYSCO | |
|
Other Non-Guarantor | |
|
|
|
Consolidated | |
|
|
SYSCO | |
|
International | |
|
Subsidiaries | |
|
Eliminations | |
|
Totals | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Current assets
|
|
$ |
156,812 |
|
|
$ |
32 |
|
|
$ |
3,844,942 |
|
|
$ |
|
|
|
$ |
4,001,786 |
|
Investment in subsidiaries
|
|
|
9,979,188 |
|
|
|
283,033 |
|
|
|
164,218 |
|
|
|
(10,426,439 |
) |
|
|
|
|
Plant and equipment, net
|
|
|
120,800 |
|
|
|
|
|
|
|
2,147,501 |
|
|
|
|
|
|
|
2,268,301 |
|
Other assets
|
|
|
698,283 |
|
|
|
|
|
|
|
1,299,532 |
|
|
|
|
|
|
|
1,997,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
10,955,083 |
|
|
$ |
283,065 |
|
|
$ |
7,456,193 |
|
|
$ |
(10,426,439 |
) |
|
$ |
8,267,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$ |
696,995 |
|
|
$ |
34,330 |
|
|
$ |
2,726,245 |
|
|
$ |
|
|
|
$ |
3,457,570 |
|
Intercompany payables (receivables)
|
|
|
6,342,306 |
|
|
|
10,546 |
|
|
|
(6,352,852 |
) |
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
709,452 |
|
|
|
199,560 |
|
|
|
47,165 |
|
|
|
|
|
|
|
956,177 |
|
Other liabilities
|
|
|
508,221 |
|
|
|
|
|
|
|
587,095 |
|
|
|
|
|
|
|
1,095,316 |
|
Shareholders equity
|
|
|
2,698,109 |
|
|
|
38,629 |
|
|
|
10,448,540 |
|
|
|
(10,426,439 |
) |
|
|
2,758,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
10,955,083 |
|
|
$ |
283,065 |
|
|
$ |
7,456,193 |
|
|
$ |
(10,426,439 |
) |
|
$ |
8,267,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Results of Operations | |
|
|
Year Ended July 1, 2006 | |
|
|
| |
|
|
|
|
SYSCO | |
|
Other Non-Guarantor | |
|
|
|
|
SYSCO | |
|
International | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated Totals | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Sales
|
|
$ |
|
|
|
$ |
|
|
|
$ |
32,628,438 |
|
|
$ |
|
|
|
$ |
32,628,438 |
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
26,337,107 |
|
|
|
|
|
|
|
26,337,107 |
|
Operating expenses
|
|
|
256,351 |
|
|
|
130 |
|
|
|
4,539,820 |
|
|
|
|
|
|
|
4,796,301 |
|
Interest expense (income)
|
|
|
374,838 |
|
|
|
11,108 |
|
|
|
(276,846 |
) |
|
|
|
|
|
|
109,100 |
|
Other, net
|
|
|
(2,919 |
) |
|
|
|
|
|
|
(6,097 |
) |
|
|
|
|
|
|
(9,016 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
628,270 |
|
|
|
11,238 |
|
|
|
30,593,984 |
|
|
|
|
|
|
|
31,233,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income taxes and cumulative effect of
accounting change
|
|
|
(628,270 |
) |
|
|
(11,238 |
) |
|
|
2,034,454 |
|
|
|
|
|
|
|
1,394,946 |
|
Income tax (benefit) provision
|
|
|
(181,070 |
) |
|
|
(4,055 |
) |
|
|
734,031 |
|
|
|
|
|
|
|
548,906 |
|
Equity in earnings of subsidiaries
|
|
|
1,293,240 |
|
|
|
6,063 |
|
|
|
|
|
|
|
(1,299,303 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings before cumulative effect of accounting change
|
|
|
846,040 |
|
|
|
(1,120 |
) |
|
|
1,300,423 |
|
|
|
(1,299,303 |
) |
|
|
846,040 |
|
Cumulative effect of accounting change
|
|
|
9,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
855,325 |
|
|
$ |
(1,120 |
) |
|
$ |
1,300,423 |
|
|
$ |
(1,299,303 |
) |
|
$ |
855,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Results of Operations | |
|
|
Year Ended July 2, 2005 | |
|
|
| |
|
|
|
|
SYSCO | |
|
Other Non-Guarantor | |
|
|
|
|
SYSCO | |
|
International | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated Totals | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Sales
|
|
$ |
|
|
|
$ |
|
|
|
$ |
30,281,914 |
|
|
$ |
|
|
|
$ |
30,281,914 |
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
24,498,200 |
|
|
|
|
|
|
|
24,498,200 |
|
Operating expenses
|
|
|
100,595 |
|
|
|
115 |
|
|
|
4,093,474 |
|
|
|
|
|
|
|
4,194,184 |
|
Interest expense (income)
|
|
|
312,901 |
|
|
|
11,510 |
|
|
|
(249,411 |
) |
|
|
|
|
|
|
75,000 |
|
Other, net
|
|
|
(747 |
) |
|
|
|
|
|
|
(10,159 |
) |
|
|
|
|
|
|
(10,906 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
412,749 |
|
|
|
11,625 |
|
|
|
28,332,104 |
|
|
|
|
|
|
|
28,756,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes
|
|
|
(412,749 |
) |
|
|
(11,625 |
) |
|
|
1,949,810 |
|
|
|
|
|
|
|
1,525,436 |
|
Income tax (benefit) provision
|
|
|
(157,876 |
) |
|
|
(4,447 |
) |
|
|
726,302 |
|
|
|
|
|
|
|
563,979 |
|
Equity in earnings of subsidiaries
|
|
|
1,216,330 |
|
|
|
6,500 |
|
|
|
|
|
|
|
(1,222,830 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$ |
961,457 |
|
|
$ |
(678 |
) |
|
$ |
1,223,508 |
|
|
$ |
(1,222,830 |
) |
|
$ |
961,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Results of Operations | |
|
|
Year Ended July 3, 2004 | |
|
|
(53 Weeks) | |
|
|
| |
|
|
|
|
SYSCO | |
|
Other Non-Guarantor | |
|
|
|
|
SYSCO | |
|
International | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated Totals | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Sales
|
|
$ |
|
|
|
$ |
|
|
|
$ |
29,335,403 |
|
|
$ |
|
|
|
$ |
29,335,403 |
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
23,661,514 |
|
|
|
|
|
|
|
23,661,514 |
|
Operating expenses
|
|
|
118,937 |
|
|
|
109 |
|
|
|
4,022,184 |
|
|
|
|
|
|
|
4,141,230 |
|
Interest expense (income)
|
|
|
255,708 |
|
|
|
13,923 |
|
|
|
(199,751 |
) |
|
|
|
|
|
|
69,880 |
|
Other, net
|
|
|
(372 |
) |
|
|
(1,028 |
) |
|
|
(10,965 |
) |
|
|
|
|
|
|
(12,365 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
374,273 |
|
|
|
13,004 |
|
|
|
27,472,982 |
|
|
|
|
|
|
|
27,860,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes
|
|
|
(374,273 |
) |
|
|
(13,004 |
) |
|
|
1,862,421 |
|
|
|
|
|
|
|
1,475,144 |
|
Income tax (benefit) provision
|
|
|
(144,095 |
) |
|
|
(5,007 |
) |
|
|
717,032 |
|
|
|
|
|
|
|
567,930 |
|
Equity in earnings of subsidiaries
|
|
|
1,137,392 |
|
|
|
5,267 |
|
|
|
|
|
|
|
(1,142,659 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$ |
907,214 |
|
|
$ |
(2,730 |
) |
|
$ |
1,145,389 |
|
|
$ |
(1,142,659 |
) |
|
$ |
907,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Cash Flows | |
|
|
Year Ended July 1, 2006 | |
|
|
| |
|
|
|
|
SYSCO | |
|
Other Non-Guarantor | |
|
Consolidated | |
|
|
SYSCO | |
|
International | |
|
Subsidiaries | |
|
Totals | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Net cash provided by (used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
(285,100 |
) |
|
$ |
(7,496 |
) |
|
$ |
1,416,428 |
|
|
$ |
1,123,832 |
|
Investing activities
|
|
|
(72,197 |
) |
|
|
|
|
|
|
(536,474 |
) |
|
|
(608,671 |
) |
Financing activities
|
|
|
(490,457 |
) |
|
|
(8,311 |
) |
|
|
(5,849 |
) |
|
|
(504,617 |
) |
Exchange rate on cash
|
|
|
|
|
|
|
|
|
|
|
(325 |
) |
|
|
(325 |
) |
Intercompany activity
|
|
|
853,281 |
|
|
|
15,807 |
|
|
|
(869,088 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
5,527 |
|
|
|
|
|
|
|
4,692 |
|
|
|
10,219 |
|
Cash at the beginning of the period
|
|
|
125,748 |
|
|
|
|
|
|
|
65,930 |
|
|
|
191,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at the end of the period
|
|
$ |
131,275 |
|
|
$ |
|
|
|
$ |
70,622 |
|
|
$ |
201,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Cash Flows | |
|
|
Year Ended July 2, 2005 | |
|
|
| |
|
|
|
|
SYSCO | |
|
Other Non-Guarantor | |
|
Consolidated | |
|
|
SYSCO | |
|
International | |
|
Subsidiaries | |
|
Totals | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Net cash provided by (used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
(223,358 |
) |
|
$ |
(6,958 |
) |
|
$ |
1,422,476 |
|
|
$ |
1,192,160 |
|
Investing activities
|
|
|
36,865 |
|
|
|
|
|
|
|
(450,305 |
) |
|
|
(413,440 |
) |
Financing activities
|
|
|
(739,429 |
) |
|
|
(40,772 |
) |
|
|
(4,389 |
) |
|
|
(784,590 |
) |
Exchange rate on cash
|
|
|
|
|
|
|
|
|
|
|
(2,158 |
) |
|
|
(2,158 |
) |
Intercompany activity
|
|
|
964,163 |
|
|
|
47,730 |
|
|
|
(1,011,893 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
38,241 |
|
|
|
|
|
|
|
(46,269 |
) |
|
|
(8,028 |
) |
Cash at the beginning of the period
|
|
|
87,507 |
|
|
|
|
|
|
|
112,199 |
|
|
|
199,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at the end of the period
|
|
$ |
125,748 |
|
|
$ |
|
|
|
$ |
65,930 |
|
|
$ |
191,678 |
|
|
|
|
|
|
|