e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
|
|
|
þ |
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended June 30, 2007
OR
|
|
|
o |
|
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)
|
|
|
Delaware
|
|
74-1648137 |
(State or other jurisdiction of
|
|
(IRS employer |
incorporation or organization)
|
|
identification number) |
1390 Enclave Parkway
|
|
77077-2099 |
Houston, Texas
|
|
(Zip Code) |
(Address of principal executive offices) |
|
|
Registrants Telephone Number, Including Area Code:
(281) 584-1390
Securities Registered Pursuant to Section 12(b) of the Act:
|
|
|
|
|
Name of each exchange on |
Title of Each Class
|
|
which registered |
|
|
|
Common Stock, $1.00 par value
|
|
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 $20,656,409,000 as of December 30, 2006 (based on the closing sales
price on the New York Stock Exchange Composite Tape on December 29, 2006, as reported by The Wall
Street Journal (Southwest Edition)). As of August 15, 2007, the registrant had issued and
outstanding an aggregate of 609,972,298 shares of its common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the companys 2007 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.
PART I
ITEM 1. Business
Unless this Form 10-K indicates otherwise or the context otherwise requires, the terms we,,
our, us, SYSCO, or the company as used in this Form 10-K refer to Sysco Corporation
together with its consolidated subsidiaries and divisions.
Overview
Sysco Corporation, acting through its subsidiaries and divisions, 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, we provide products and related services
to approximately 391,000 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 our formation, we have grown from
$115 million to over $35 billion in annual sales, both through internal expansion of existing
operations and through acquisitions. Through the end of fiscal 2007, we have acquired 141 companies
or divisions of companies.
During fiscal 2007, we completed the acquisition of Bunn Capitol, a foodservice distributor
located in Springfield, Illinois.
SYSCO Corporation is organized under the laws of Delaware. The address and telephone number of
our 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 SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information (SFAS 131), we have aggregated our operating
companies into a number of segments, of which only Broadline and SYGMA are reportable segments as
defined in SFAS 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 our other
segments, including our specialty produce, custom-cut meat and lodging industry products segments
and a company that distributes to internationally located chain restaurants. 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 our 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.
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. Our chain restaurant customers include regional and national hamburger,
sandwich, pizza, chicken, steak and other chain operations.
Services to our traditional foodservice and chain restaurant customers are supported by
similar physical facilities, vehicles, material handling equipment and techniques, and
administrative and operating staffs.
The products we distribute 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. |
1
We also supply 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. |
Our operating companies distribute nationally-branded merchandise, as well as products
packaged under our private brands. Products packaged under our private brands have been
manufactured for SYSCO according to specifications that have been developed by our quality
assurance team. In addition, our quality assurance team certifies the manufacturing and processing
plants where these products are packaged, enforces our quality control standards and identifies
supply sources that satisfy our requirements.
We believe 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. Our operating companies offer daily delivery to certain customer locations and have the
capability of delivering special orders on short notice. Through our more than 14,400 sales and
marketing representatives and support staff of SYSCO and our operating companies, we stay informed
of the needs of our customers and acquaint them with new products and services. Our 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 our total sales for the fiscal year ended June
30, 2007.
Our sales to chain restaurant customers consist of a variety of food products. We believe that
consistent product quality and timely and accurate service are important factors when a chain
restaurant selects a foodservice supplier. One chain restaurant customer (Wendys International,
Inc.) accounted for 5% of our sales for fiscal year ended June 30, 2007. Although this customer
represents approximately 39% of the SYGMA segment sales, we do not believe that the loss of this
customer would have a material adverse effect on SYSCO as a whole.
Based upon available information, we estimate that sales by type of customer during the past
three fiscal years were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Customer |
|
2007 |
|
2006 |
|
2005 |
Restaurants |
|
|
64 |
% |
|
|
63 |
% |
|
|
64 |
% |
Hospitals and nursing homes |
|
|
10 |
|
|
|
10 |
|
|
|
10 |
|
Schools and colleges |
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
Hotels and motels |
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
Other |
|
|
15 |
|
|
|
16 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of Supply
We purchase from thousands of suppliers, none of which individually accounts for more
than 10% of our purchases. These suppliers consist generally of large corporations selling brand
name and private label merchandise, as well as 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 our various operating companies. We
continually develop relationships with suppliers but have no material long-term purchase
commitments with any supplier.
In the second quarter of fiscal 2002, we began a project to restructure our 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 our broadline
operating companies while providing greater value to our suppliers and customers.
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 chain 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. We currently expect to build five to seven
redistribution centers (RDCs). The first of these centers, the Northeast RDC located in Front
Royal, Virginia, opened during the third
2
quarter of fiscal 2005. A second RDC located in Alachua, Florida is being constructed and is
expected to become operational in the latter half of fiscal 2008. SYSCO has purchased the site for
a third RDC in Hamlet, Indiana. 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. As of June 2007,
all inbound freight to United States broadline operating companies is managed centrally. The third
initiative is the national implementation of demand planning and inventory management software.
This project is strategically important in that it creates the foundation to effectively execute
new supply chain processes, including redistribution, as well as efficiently manage our inventory
assets.
Working Capital Practices
Our 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 under
Managements Discussion and Analysis of Financial Condition and the Results of Operations at Item 7
regarding our liquidity, financial position and sources and uses of funds.
Credit terms we extend to our customers can vary from cash on delivery to 30 days or more
based on our assessment of the customers credit risk. We monitor the customers accounts and will
suspend shipments to customers if necessary.
A majority of our sales orders are filled within 24 hours of when the customers orders are
placed. We 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 shelf-life, supplier order fulfillment lead
times and customer demand. We also make purchases of additional volumes of certain products based
on supply or pricing opportunities.
We take advantage of suppliers cash discounts where appropriate and otherwise generally
receive payment terms from our suppliers ranging from weekly to 30 days or more.
Corporate Headquarters Services
Our corporate staff makes available a number of services to our 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, risk
management and insurance. The corporate office makes available legal, marketing, payroll, human
resources, training and development, 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, we continue to construct and modernize our
distribution facilities. During fiscal 2007, 2006 and 2005, approximately $603,242,000,
$513,934,000 and $390,026,000, respectively, were invested in facility expansions, fleet additions
and other capital asset enhancements. We estimate our capital expenditures in fiscal 2008 should be
in the range of $625,000,000 to $650,000,000. During the three years ended June 30, 2007, capital
expenditures were financed primarily by internally generated funds, our commercial paper program
and bank and other borrowings. We expect to finance our fiscal 2008 capital expenditures from the
same sources.
Employees
As of June 30, 2007, we had approximately 50,900 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. Approximately 26% of our union
employees are covered by collective bargaining agreements which will expire during fiscal 2008. We
consider our labor relations to be satisfactory.
Competition
SYSCOs business environment is competitive with numerous companies engaged in
foodservice distribution. Our customers 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 us on a national basis. We believe 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. We
estimate that we serve about 15% of an approximately $225 billion annual market that includes the
foodservice and hotel amenity, furniture and textile markets both in the United States and Canada.
We believe, based upon industry trade data, that our sales to the United States and Canada
food-prepared-away-from-home industry were the highest of any foodservice distributor during
fiscal 2007. While adequate industry statistics are not available, we believe that in most
instances our local operations are among the leading distributors of food and related non-food
products to foodservice customers in their respective trading areas.
3
Government Regulation
As a marketer and distributor of food products, we are subject to the U.S. Federal Food,
Drug and Cosmetic Act and regulations promulgated thereunder by the U.S. Food and Drug
Administration (FDA), as well as 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, we are 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 our suppliers.
We are 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.
We and our products are also subject to state, provincial and local regulation through such
measures as the licensing of our facilities; enforcement by state, provincial and local health
agencies of state, provincial and local standards for our products; and regulation of our trade
practices in connection with the sale of our products. Our 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 us to comply with certain manufacturing, health and safety
standards to protect our employees from accidents and to establish hazard communication programs to
transmit information on the hazards of certain chemicals present in products we distribute.
We are also 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 our 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, state, provincial and local provisions
relating to the protection of the environment or the discharge of materials do not materially
impact the use or operation of our facilities.
Compliance with these laws has not had, and is not anticipated to have, a material effect on
our capital expenditures, earnings or competitive position.
General
We have numerous trademarks which are of significant importance to the company. The loss
of the SYSCO(R) trademark would have a material adverse effect on our results of operations.
We are not engaged in material research and development activities relating to the development
of new products or the improvement of existing products.
Our sales do not generally fluctuate significantly on a seasonal basis; therefore, the
business of the company is not deemed to be seasonal.
As of June 30, 2007, we operated 177 distribution facilities throughout the United States and
Canada.
4
Item 1A. Risk Factors
Our Low Margin Business May Be Negatively Impacted by Product Cost Deflation, Product Cost
Inflation or Other Economic Conditions
The foodservice distribution industry is characterized by relatively high inventory
turnover with relatively low profit margins. We make a significant portion of our sales at prices
that are based on the cost of products we sell plus a percentage markup. As a result, our profit
levels may be negatively impacted during periods of product cost deflation, even though our gross
profit percentage may remain relatively constant. Prolonged periods of product cost inflation also
may have a negative impact on our profit margins and earnings to the extent that we are unable to
pass on such product cost 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 our
sales and operating results. Our 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 our
past operations, there can be no assurance that one or more of these factors will not adversely
affect future operating results.
Increased Fuel Costs Can Lower Demand for our Products and Increase our Costs
Increased fuel costs can have a negative impact on our 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 us for products as well as the costs incurred by us to deliver
products to our customers. These factors in turn may negatively impact our sales, margins,
operating expenses and operating results.
Conditions Beyond our Control can Interrupt our Supplies and Increase our Product Costs
We obtain substantially all of our foodservice and related products from third party
suppliers. For the most part, we do not have long-term contracts with our suppliers committing them
to provide products to us. Although our purchasing volume can provide leverage when dealing with
suppliers, suppliers may not provide the foodservice products and supplies needed by us in the
quantities and at the prices requested. Because we do not control the actual production of the
products we sell, we are also subject to delays caused by interruption in production and increases
in product costs based on conditions outside of our 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 Canada). Our
inability to obtain adequate supplies of our foodservice and related products as a result of any of
the foregoing factors or otherwise could mean that we could not fulfill our obligations to
customers, and customers may turn to other distributors.
Taxing Authorities May Successfully Challenge our Baugh Supply Chain Cooperative Structure
The National Supply Chain project involved the creation of the BSCC which administers a
consolidated product procurement program to develop, obtain and ensure consistent quality food and
non-food products. BSCC is a cooperative taxed under subchapter T of the United States Internal
Revenue Code. We believe that the deferred tax liabilities resulting from the business operations
and legal ownership of BSCC are appropriate under the tax laws. However, if the application of the
tax laws to the cooperative structure of BSCC were to be successfully challenged by any federal,
state or local tax authority, we could be required to accelerate the payment of all or a portion of
our income tax liabilities associated with BSCC that we otherwise had deferred until future
periods, and in that event, would be liable for interest on such amounts. As of June 30, 2007, we
have recorded deferred income tax liabilities of $988,000,000 related to the BSCC supply chain
distributions. This amount represents the income tax liabilities related to BSCC that were accrued,
but the payment had been deferred as of June 30, 2007. In addition, if the IRS or any other taxing
authority determines that all amounts since the inception of BSCC were inappropriately deferred or
that BSCC should have been a taxable entity, we estimate that in addition to making a current
payment for amounts previously deferred, as discussed above, we may have additional liability,
representing interest that would be payable on the cumulative deferred balances ranging from
$185,000,000 to $205,000,000, prior to federal and state income tax benefit, as of June 30, 2007.
We calculated this amount based upon the amounts deferred since the inception of BSCC applying the
applicable jurisdictions interest rates in effect each period. During the third quarter of fiscal
2007, the Internal Revenue Service (IRS), in connection with its audit of our 2003 and 2004 federal
income tax returns, proposed adjustments related to the taxability of BSCC. We are vigorously
protesting these adjustments. We have reviewed the merits of the issues raised by the IRS and
based upon such review, we have not recorded any related amount in any period. A taxing authority
requiring us to accelerate the payment of these deferred tax liabilities and to pay related
interest, if any, could cause us to raise additional capital through debt financing or the issuance
of equity or we may have to forego or defer planned capital expenditures or share repurchases or a
combination of these items.
5
We Need Access to Borrowed Funds in Order to Grow
Because a substantial part of our growth historically has been the result of acquisitions
and capital expansion, our continued growth depends, in large part, on our ability to continue this
expansion. As a result, our inability to finance acquisitions and capital expenditures through
borrowed funds could restrict our ability to expand. Moreover, any default under the documents
governing our indebtedness could have a significant adverse effect on our cash flows, as well as
the market value of our common stock. Further, our leveraged position may also increase our
vulnerability to competitive pressures.
Product Liability Claims Could Materially and Adversely Impact our Business
We, like any other seller of food, face the risk of exposure to product liability claims
in the event that the use of products sold by SYSCO causes injury or illness. With respect to
product liability claims, we believe we have 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 our liabilities. We generally seek contractual
indemnification and insurance coverage from parties supplying our 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 our net earnings and earnings per share.
Adverse Publicity Could Negatively Impact our Reputation and Reduce Earnings
Maintaining a good reputation is critical to our 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 our products, could quickly affect our 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 our reputation. If patrons of our restaurant customers
become ill from food-borne illnesses, our customers could be forced to temporarily close restaurant
locations and our 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.
Failure to Successfully Renegotiate Union Contracts Could Result in Work Stoppages
As of June 30, 2007, approximately 9,000 employees at 54 operating companies were members
of 60 different local unions associated with the International Brotherhood of Teamsters and other
labor organizations. In fiscal 2008, 14 agreements covering approximately 2,300 employees will
expire. Failure of the operating companies to effectively renegotiate these contracts could result
in work stoppages. Although our operating subsidiaries have not experienced any significant labor
disputes or work stoppages to date, and we believe 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 us.
A Shortage of Qualified Labor Could Negatively Impact our Business and Materially Reduce
Earnings
Our operations rely heavily on our employees, particularly drivers, and any shortage of
qualified labor could significantly affect our 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 our customers. Such a shortage would also likely lead to higher wages for
employees and a corresponding reduction in our net earnings.
We may be Required to Pay Material Amounts Under Multi-Employer Defined Benefit Pension Plans
We contribute to several multi-employer defined benefit pension plans based on
obligations arising under collective bargaining agreements covering union-represented employees.
Approximately 11% of our current employees are participants in such multi-employer plans. In
fiscal 2007, our total contributions to these plans were approximately $37,296,000.
We do not directly manage these multi-employer plans, which are generally managed by boards of
trustees, half of whom are appointed by the unions and the other half by other contributing
employers to the plan. Based upon the information available to us from plan administrators, we
believe that some of these multi-employer plans are underfunded due partially to a decline in the
value of the assets supporting these plans, a reduction in the number of actively participating
members for whom employer contributions are required, and the level of benefits provided by the
plans. In addition, the Pension Protection Act, enacted in August 2006, will require under-funded
pension plans to improve their funding ratios within prescribed intervals based on the level of
their under-funding, perhaps beginning as soon as calendar 2008. As a result, our required
contributions to these plans may increase in the future.
Under current law regarding multi-employer defined benefit plans, a plans termination, our
voluntary withdrawal, or the mass withdrawal of all contributing employers from any under-funded
multi-employer defined benefit plan would require us to make
6
payments to the plan for our proportionate share of the multi-employer plans unfunded vested
liabilities. Based on the information available from plan administrators, we estimate that our
share of withdrawal liability on all the multi-employer plans we participate in, some of which
appear to be under-funded, could be as much as $120,000,000. In addition, if a multi-employer
defined benefit plan fails to satisfy certain minimum funding requirements, the IRS may impose a
nondeductible excise tax of 5% on the amount of the accumulated funding deficiency for those
employers contributing to the fund. Requirements to pay such increased contributions, withdrawal
liability, and excise taxes could negatively impact our liquidity and results of operations.
We Must Finance and Integrate Acquired Businesses Wisely
Historically, a portion of our growth has come through acquisitions. If we are unable to
integrate acquired businesses successfully or realize anticipated economic, operational and other
benefits and synergies in a timely manner, our earnings per share may decrease. Integration of an
acquired business may be more difficult when we acquire a business in a market in which we have
limited or no expertise, or with a culture different from SYSCOs. A significant expansion of our
business and operations, in terms of geography or magnitude, could strain our administrative and
operational resources. Significant acquisitions may also require the issuance of material
additional amounts of debt or equity, which could materially alter our debt to equity ratio,
increase our interest expense and decrease earnings per share, and make it difficult for us to
obtain favorable financing for other acquisitions or capital investments.
Expanding into International Markets Presents Unique Challenges and our Expansion Efforts and
International Operations may not be Successful
In addition to our importing and exporting activities, our strategy includes
expansion of operations into new international markets. Our ability to successfully operate in
international markets may be adversely affected by local laws and customs, legal and regulatory
constraints, political and economic conditions and currency regulations of the countries or regions
in which we currently operate or intend to operate in the future. Risks inherent in our existing
and future international operations also include, among others, the costs and difficulties of
managing international operations, difficulties in identifying and gaining access to local
suppliers, suffering possible adverse tax consequences, maintaining product quality and greater
difficulty in enforcing intellectual property rights. Additionally, foreign currency exchange rates
and fluctuations may have an impact on our future costs or on future cash flows from our
international operations.
Our Preferred Stock Provides Anti-Takeover Benefits that may not be Beneficial to Stockholders
Under our Restated Certificate of Incorporation, SYSCOs Board of Directors is authorized
to issue up to 1,500,000 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 acquirer. As a result, hostile takeover attempts that might result in an acquisition of
SYSCO, that could otherwise have been financially beneficial to our stockholders, could be
deterred.
Technology Dependence Could have a Material Negative Impact on our Business
Our ability to decrease costs and increase profits, as well as our ability to serve
customers most effectively, depends on the reliability of our technology network. We use 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 our customer service, decrease the volume of our 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 us 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 occupied by SYSCO in each state or
province and the aggregate cubic footage devoted to cold and dry storage as of June 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cold Storage |
|
Dry Storage |
|
|
|
|
Number of |
|
(Thousands |
|
(Thousands |
|
Segments |
Location |
|
Facilities |
|
Cubic Feet) |
|
Cubic Feet) |
|
Served* |
Alabama |
|
|
2 |
|
|
|
5,100 |
|
|
|
6,049 |
|
|
BL |
Alaska |
|
|
1 |
|
|
|
1,067 |
|
|
|
645 |
|
|
BL |
Arizona |
|
|
1 |
|
|
|
2,818 |
|
|
|
2,588 |
|
|
BL |
Arkansas |
|
|
2 |
|
|
|
2,660 |
|
|
|
2,611 |
|
|
BL,O |
California |
|
|
17 |
|
|
|
28,886 |
|
|
|
29,733 |
|
|
BL, S, O |
Colorado |
|
|
4 |
|
|
|
6,926 |
|
|
|
5,390 |
|
|
BL, S, O |
Connecticut |
|
|
2 |
|
|
|
5,068 |
|
|
|
3,851 |
|
|
BL, O |
District of Columbia |
|
|
1 |
|
|
|
335 |
|
|
|
30 |
|
|
O |
Florida |
|
|
15 |
|
|
|
29,827 |
|
|
|
23,992 |
|
|
BL, S, O |
Georgia |
|
|
6 |
|
|
|
5,434 |
|
|
|
13,190 |
|
|
BL, S, O |
Hawaii |
|
|
1 |
|
|
|
|
|
|
|
258 |
|
|
O |
Idaho |
|
|
2 |
|
|
|
2,032 |
|
|
|
2,202 |
|
|
BL |
Illinois |
|
|
6 |
|
|
|
5,981 |
|
|
|
10,345 |
|
|
BL, S, O |
Indiana |
|
|
2 |
|
|
|
2,843 |
|
|
|
2,387 |
|
|
BL, O |
Iowa |
|
|
1 |
|
|
|
2,318 |
|
|
|
2,373 |
|
|
BL |
Kansas |
|
|
1 |
|
|
|
4,424 |
|
|
|
4,274 |
|
|
BL |
Kentucky |
|
|
1 |
|
|
|
2,286 |
|
|
|
2,647 |
|
|
BL |
Louisiana |
|
|
1 |
|
|
|
3,282 |
|
|
|
2,605 |
|
|
BL |
Maine |
|
|
1 |
|
|
|
1,494 |
|
|
|
1,895 |
|
|
BL |
Maryland |
|
|
3 |
|
|
|
8,383 |
|
|
|
7,770 |
|
|
BL, O |
Massachusetts |
|
|
2 |
|
|
|
5,188 |
|
|
|
6,009 |
|
|
BL, S |
Michigan |
|
|
4 |
|
|
|
6,504 |
|
|
|
8,468 |
|
|
BL, S, O |
Minnesota |
|
|
2 |
|
|
|
4,415 |
|
|
|
3,772 |
|
|
BL |
Mississippi |
|
|
1 |
|
|
|
2,071 |
|
|
|
2,073 |
|
|
BL |
Missouri |
|
|
2 |
|
|
|
2,242 |
|
|
|
2,316 |
|
|
BL, S |
Montana |
|
|
1 |
|
|
|
3,269 |
|
|
|
2,556 |
|
|
BL |
Nebraska |
|
|
1 |
|
|
|
1,721 |
|
|
|
2,130 |
|
|
BL |
Nevada |
|
|
3 |
|
|
|
6,010 |
|
|
|
3,677 |
|
|
BL, O |
New Jersey |
|
|
4 |
|
|
|
4,144 |
|
|
|
10,400 |
|
|
BL, O |
New Mexico |
|
|
1 |
|
|
|
3,018 |
|
|
|
2,696 |
|
|
BL |
New York |
|
|
3 |
|
|
|
7,522 |
|
|
|
8,762 |
|
|
BL |
North Carolina |
|
|
7 |
|
|
|
8,731 |
|
|
|
12,674 |
|
|
BL, S, O |
North Dakota |
|
|
1 |
|
|
|
830 |
|
|
|
1,893 |
|
|
BL |
Ohio |
|
|
10 |
|
|
|
10,368 |
|
|
|
14,313 |
|
|
BL, S, O |
Oklahoma |
|
|
4 |
|
|
|
3,788 |
|
|
|
3,579 |
|
|
BL, S, O |
Oregon |
|
|
3 |
|
|
|
4,023 |
|
|
|
4,063 |
|
|
BL, S, O |
Pennsylvania |
|
|
4 |
|
|
|
6,749 |
|
|
|
7,586 |
|
|
BL, S |
South Carolina |
|
|
1 |
|
|
|
4,541 |
|
|
|
2,928 |
|
|
BL |
Tennessee |
|
|
4 |
|
|
|
8,810 |
|
|
|
7,174 |
|
|
BL, O |
Texas |
|
|
18 |
|
|
|
23,045 |
|
|
|
23,704 |
|
|
BL, S, O |
Utah |
|
|
1 |
|
|
|
3,609 |
|
|
|
3,208 |
|
|
BL |
Virginia |
|
|
3 |
|
|
|
13,252 |
|
|
|
9,786 |
|
|
BL |
Washington |
|
|
1 |
|
|
|
4,025 |
|
|
|
2,751 |
|
|
BL |
Wisconsin |
|
|
2 |
|
|
|
7,261 |
|
|
|
6,155 |
|
|
BL |
Alberta, Canada |
|
|
2 |
|
|
|
4,098 |
|
|
|
3,550 |
|
|
BL |
British Columbia, Canada |
|
|
6 |
|
|
|
4,595 |
|
|
|
4,279 |
|
|
BL, O |
Manitoba, Canada |
|
|
1 |
|
|
|
1,135 |
|
|
|
860 |
|
|
BL |
New Brunswick, Canada |
|
|
2 |
|
|
|
1,124 |
|
|
|
1,430 |
|
|
BL |
Newfoundland, Canada |
|
|
1 |
|
|
|
550 |
|
|
|
550 |
|
|
BL |
Nova Scotia, Canada |
|
|
1 |
|
|
|
746 |
|
|
|
995 |
|
|
BL |
Ontario, Canada |
|
|
9 |
|
|
|
11,734 |
|
|
|
10,119 |
|
|
BL, O |
Quebec, Canada |
|
|
1 |
|
|
|
716 |
|
|
|
1,209 |
|
|
BL |
Saskatchewan, Canada |
|
|
1 |
|
|
|
1,271 |
|
|
|
825 |
|
|
BL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
177 |
|
|
|
292,269 |
|
|
|
301,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Segments served include Broadline (BL), SYGMA (S) and Other (O). |
8
We own approximately 480,861,000 cubic feet of our distribution facilities and self-serve
centers (or 81.0% of the total cubic feet), and the remainder is occupied under leases expiring at
various dates from fiscal 2008 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 $17,727,000 as of June 30, 2007. Such mortgage indebtedness
and industrial revenue bond financing arrangements mature at various dates through fiscal 2026.
We own our approximately 325,000 square foot headquarters office complex in Houston, Texas and
lease approximately 150,000 square feet of additional office space in Houston, Texas. We began the
expansion of our headquarters office complex in fiscal 2006, the first phase of which was completed
in the first quarter of fiscal 2007. Upon completion of the second phase of the expansion in the
second half of fiscal 2008, our headquarters office complex will be approximately 625,000 owned
square feet.
Facilities in Edmonton, Alberta; Danville, Illinois; Grand Rapids, Michigan; Las Vegas,
Nevada; and Peterborough, Ontario (which in the aggregate accounted for approximately 3.9% of
fiscal 2007 sales) are operating near capacity and we are currently constructing expansions or
replacements for these distribution facilities. We are also constructing new distribution
facilities in Knoxville, Tennessee and Longview, Texas. We are constructing our second
redistribution facility in Alachua, Florida and expect it to be operational in fiscal 2008. We have
also purchased the site of its third redistribution facility to be built in Hamlet, Indiana.
As of June 30, 2007, our fleet of approximately 9,300 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. We own approximately 87% of
these vehicles and lease the remainder.
Item 3. Legal Proceedings
We are engaged in various legal proceedings which have arisen in the normal course of business
but have not been fully adjudicated. These proceedings, in our opinion, will not have a material
adverse effect upon our consolidated financial position or results of operations when ultimately
concluded.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Repurchases
of Equity Securities
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 our common stock as reported on the
New York Stock Exchange Composite Tape and the cash dividends declared for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends |
|
|
Common Stock Prices |
|
Declared |
|
|
High |
|
Low |
|
Per Share |
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 |
|
Fiscal 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
34.15 |
|
|
$ |
26.50 |
|
|
$ |
0.17 |
|
Second Quarter |
|
|
37.04 |
|
|
|
32.35 |
|
|
|
0.19 |
|
Third Quarter |
|
|
36.74 |
|
|
|
31.34 |
|
|
|
0.19 |
|
Fourth Quarter |
|
|
34.95 |
|
|
|
31.64 |
|
|
|
0.19 |
|
The number of record owners of SYSCOs common stock as of August 15, 2007 was 13,469.
9
We made the following share repurchases during the fourth quarter of fiscal 2007:
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 1 April 28 |
|
|
10,280 |
|
|
$ |
34.13 |
|
|
|
|
|
|
|
9,800,200 |
|
Month #2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 29 May 26 |
|
|
1,990,617 |
|
|
|
33.23 |
|
|
|
1,984,300 |
|
|
|
7,815,900 |
|
Month #3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 27 June 30 |
|
|
4,766,070 |
|
|
|
33.04 |
|
|
|
4,708,200 |
|
|
|
3,107,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,766,967 |
|
|
$ |
33.10 |
|
|
|
6,692,500 |
|
|
|
3,107,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The total number of shares purchased includes 10,280, 6,317 and 57,870 shares tendered by
individuals in connection with stock option exercises in Month #1, Month #2 and Month #3,
respectively. |
On November 10, 2005, we announced that the Board of Directors approved the repurchase of
20,000,000 shares. 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 us to enter into agreements from time to time
to extend our 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 June 11, 2007, we entered into a stock purchase plan with Wachovia Securities to purchase
up to 4,150,000 shares of SYSCO common stock as authorized under the November 2005 repurchase
program pursuant to Rules 10b5-1 and 10b-18 under the Exchange Act. A total of 4,150,000 shares
were purchased between June 11, 2007 and August 14, 2007, including during company blackout
periods. By its terms, the agreement terminated on August 14, 2007.
As noted in the table above, there were 3,107,700 shares remaining available for repurchase as
of June 30, 2007. On July 18, 2007, we announced that the Board of Directors approved the
repurchase of an additional 20,000,000 shares. From July 1, 2007 through August 15, 2007, an
additional 3,157,700 shares were purchased. As of August 15, 2007, there were 19,950,000 shares
remaining available for repurchase under the July 2007 repurchase programs.
10
Item 6. Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
2007 |
|
|
2006(1) |
|
|
2005 |
|
|
(53 Weeks) |
|
|
2003 |
|
|
|
(In thousands except for share data) |
|
Sales |
|
$ |
35,042,075 |
|
|
$ |
32,628,438 |
|
|
$ |
30,281,914 |
|
|
$ |
29,335,403 |
|
|
$ |
26,140,337 |
|
Earnings before income taxes |
|
|
1,621,215 |
|
|
|
1,394,946 |
|
|
|
1,525,436 |
|
|
|
1,475,144 |
|
|
|
1,260,387 |
|
Income taxes |
|
|
620,139 |
|
|
|
548,906 |
|
|
|
563,979 |
|
|
|
567,930 |
|
|
|
482,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of
accounting change |
|
|
1,001,076 |
|
|
|
846,040 |
|
|
|
961,457 |
|
|
|
907,214 |
|
|
|
778,288 |
|
Cumulative effect of accounting change |
|
|
|
|
|
|
9,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
1,001,076 |
|
|
$ |
855,325 |
|
|
$ |
961,457 |
|
|
$ |
907,214 |
|
|
$ |
778,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of
accounting change: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
1.62 |
|
|
$ |
1.36 |
|
|
$ |
1.51 |
|
|
$ |
1.41 |
|
|
$ |
1.20 |
|
Diluted earnings per share |
|
|
1.60 |
|
|
|
1.35 |
|
|
|
1.47 |
|
|
|
1.37 |
|
|
|
1.18 |
|
Net earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
1.62 |
|
|
$ |
1.38 |
|
|
$ |
1.51 |
|
|
$ |
1.41 |
|
|
$ |
1.20 |
|
Diluted earnings per share |
|
|
1.60 |
|
|
|
1.36 |
|
|
|
1.47 |
|
|
|
1.37 |
|
|
|
1.18 |
|
Dividends declared per share |
|
|
0.74 |
|
|
|
0.66 |
|
|
|
0.58 |
|
|
|
0.50 |
|
|
|
0.42 |
|
Total assets |
|
$ |
9,518,931 |
|
|
$ |
8,992,025 |
|
|
$ |
8,267,902 |
|
|
$ |
7,847,632 |
|
|
$ |
6,936,521 |
|
Capital expenditures |
|
|
603,242 |
|
|
|
513,934 |
|
|
|
390,026 |
|
|
|
530,086 |
|
|
|
435,637 |
|
Current maturities of long-term debt |
|
$ |
3,568 |
|
|
$ |
106,265 |
|
|
$ |
410,933 |
|
|
$ |
162,833 |
|
|
$ |
20,947 |
|
Long-term debt |
|
|
1,758,227 |
|
|
|
1,627,127 |
|
|
|
956,177 |
|
|
|
1,231,493 |
|
|
|
1,249,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
1,761,795 |
|
|
|
1,733,392 |
|
|
|
1,367,110 |
|
|
|
1,394,326 |
|
|
|
1,270,414 |
|
Shareholders equity |
|
|
3,278,400 |
|
|
|
3,052,284 |
|
|
|
2,758,839 |
|
|
|
2,564,506 |
|
|
|
2,197,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
$ |
5,040,195 |
|
|
$ |
4,785,676 |
|
|
$ |
4,125,949 |
|
|
$ |
3,958,832 |
|
|
$ |
3,467,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of long-term debt to capitalization |
|
|
35.0 |
% |
|
|
36.2 |
% |
|
|
33.1 |
% |
|
|
35.2 |
% |
|
|
36.6 |
% |
|
|
|
Our financial results are impacted by accounting changes and the adoption of various accounting
standards. See Accounting Changes in Item 7 for further discussion. |
|
(1) |
|
We 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 we continued to account for
share-based compensation under APB No. 25, Accounting for Stock Issued to Employees. |
11
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
Highlights
Sales increased 7.4% in fiscal 2007 over the prior year. Accounting pronouncement EITF
04-13 (see below) negatively impacted sales growth in fiscal 2007 by 0.7% and also affects the
comparison of gross margins, operating expenses and earnings as a percentage of sales between the
periods. Gross margins as a percentage of sales were 19.3% for fiscal 2007 and fiscal 2006.
Operating expenses as a percentage of sales for fiscal 2007 decreased from the prior year,
reflecting efficiencies in our operating activities. Decreases in pension and share-based
compensation expenses and higher gains related to the cash surrender value of corporate-owned life
insurance policies were largely offset by increased management incentive bonus accruals and
investments in strategic business initiatives. Earnings before the cumulative effect of accounting
change increased 18.3% for fiscal 2007 over the prior year. Diluted earnings per share before the
cumulative effect of accounting change increased 18.5% for fiscal 2007 over the prior year.
Overview
SYSCO distributes food and related products to restaurants, healthcare and educational
facilities, lodging establishments and other foodservice customers. Our operations are located
throughout the United States and Canada and include broadline companies, specialty produce
companies, custom-cut meat operations, hotel supply operations, SYGMA (our chain restaurant
distribution subsidiary) and a company that distributes to internationally located chain
restaurants.
We estimate that we serve about 15% of an approximately $225 billion annual market that
includes foodservice market and hotel amenity, furniture and textile market both in the United
States and Canada. 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 our sales.
Historically, we have grown at a faster rate than the overall industry and have grown our market
share in this fragmented industry. We intend to continue to expand our market share and grow
earnings by focusing on sales growth, brand management, productivity gains, sales force
effectiveness and supply chain management.
Strategic Business Initiatives
In fiscal 2006, our executive team, with the approval of the Board of Directors,
established a strategy team to examine many aspects of our businesses with an emphasis on strategic
focus areas which would help us achieve our long-term vision of becoming the global leader of the
efficient, multi-temperature food product value chain. During fiscal 2007, we began to move from
identifying strategic opportunities and developing a strategy process to implementing the
initiatives that came from that process. Near the end of the fiscal year, we announced new
responsibilities for several executives as we integrated the strategy teams and their initiatives
into our business. A strategic management function will remain in place to help put strategic
business initiatives into action and continue to refine and develop corporate strategy.
The following areas generally comprise the initiatives that will serve as the foundation of
our efforts to ensure a sustainable future. Each area is staffed with SYSCO associates focused on
the following:
|
|
|
Sourcing and National Supply Chain focuses on lowering our cost of goods sold by
leveraging SYSCOs purchasing power and procurement expertise and capitalizing on an
end-to-end view of our supply chain. We expect our National Supply Chain project to lower
inventory, operating costs, working capital requirements and future facility expansion
needs at our operating companies while providing greater value to our suppliers and
customers. |
|
|
|
|
Integrated Delivery focuses on standardized processes to optimize warehouse and delivery
activities across the corporation and manage energy consumption to achieve a more efficient
delivery of products to our customers. |
|
|
|
|
Demand explores and implements initiatives to better understand and more profitably sell
to and service SYSCOs customers, including better tools and techniques for selling. |
|
|
|
|
Organizational Capabilities works to align management reporting, information technology
systems and performance measures with the business initiatives. |
A major component of our National Supply Chain project entails the use of redistribution
centers (RDCs). The first RDC, the Northeast RDC located in Front Royal, Virginia, opened during
the third quarter of fiscal 2005. In January 2006, we completed the purchase of land in Alachua,
Florida for the future site of our second RDC, which will service our five broadline operating
companies in Florida. Construction of the building site is in progress and this facility is
expected to be operational in fiscal 2008. In March 2007, we purchased the site for construction of
a third RDC in Hamlet, Indiana.
12
We will continue to use our strategic business initiatives to help us grow by leveraging our
market leadership position to continuously improve how our associates buy, handle and market
products for our customers. Our primary focus is on growing and optimizing the core foodservice
distribution business in North America.
We are currently working to expand our import and export business. We will also continue to
explore and identify opportunities to grow our global capabilities and stay abreast of
international acquisition opportunities.
Accounting Changes
As of June 30, 2007, we adopted the recognition and disclosure provisions of SFAS No.
158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans an
amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS 158). The recognition provision
requires an employer to recognize a plans funded status in its statement of financial position and
recognize the changes in a postretirement benefit plans funded status in comprehensive income in
the year in which the changes occur. The effect of adoption on our consolidated balance sheet as of
June 30, 2007 was a decrease in prepaid pension cost of $83,846,000, a decrease in other assets of
$43,854,000, an increase in accrued expenses of $10,967,000, a decrease in long-term deferred taxes
of $73,328,000, an increase in other long-term liabilities of $52,289,000, and a charge to
accumulated other comprehensive loss of $117,268,000. The adoption of SFAS 158s recognition
provision did not have an effect on our consolidated balance sheet as of July 1, 2006. The
adoption has no effect on our consolidated results of operations for fiscal 2007, or for any prior
year presented, and it will not affect our consolidated results of operations in future periods.
SFAS 158 also has a measurement date provision, which is a requirement to measure plan assets
and benefit obligations as of the date of the employers fiscal year-end statement of financial
position, effective for fiscal years ending after December 15, 2008. In the first quarter of
fiscal 2006, we changed the measurement date for pension and other postretirement benefit plans
from fiscal year-end to May 31st to assist us in meeting accelerated SEC filing dates. As a result
of this change, we recorded a cumulative effect of a change in accounting, which increased net
earnings for fiscal 2006 by $9,285,000, net of tax. With the issuance of SFAS 158, we have elected
to early adopt the measurement date provision in order to adopt both provisions of this accounting
standard at the same time. As a result, beginning in fiscal 2008, the measurement date will return
to correspond with our fiscal year-end. We have performed measurements as of May 31, 2007 and June
30, 2007 of our plan assets and benefit obligations. We will record a charge to beginning retained
earnings in the first quarter of fiscal 2008 of approximately $4,000,000, net of tax, for the impact of the
cumulative difference in our pension expense between the two measurement dates. We will also
record a benefit to beginning accumulated other comprehensive loss in the first quarter of fiscal
2008 of approximately $23,000,000, net of tax, for the impact of the difference in our balance sheet recognition
provision between the two measurement dates.
In the beginning of the fourth quarter of fiscal 2006, we adopted accounting pronouncement
EITF 04-13 Accounting for Purchases and Sales of Inventory with the Same Counterparty, (EITF
04-13). The accounting standard requires certain transactions, where inventory is purchased by us
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. This situation primarily arises for SYSCO when a customer
has a proprietary item which they have either manufactured or sourced, but they require our
distribution and logistics capabilities to get the product to their locations. The application of
this standard requires sales and cost of sales to be reduced by the same amount for these
transactions and thus net earnings are unaffected by the application of this standard. We adopted
this accounting pronouncement beginning in the fourth quarter of fiscal 2006 and have applied it to
similar transactions prospectively. Prior period 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 non-comparable periods is affected. The impact
of adopting this standard resulted in sales being reduced by $99,803,000 for the fourth quarter of
fiscal 2006 and $253,724,000 for the first 39 weeks of fiscal 2007, without a reduction in sales
for the comparable prior year periods. Beginning with the fourth quarter of fiscal 2007, sales are
reported on a comparable accounting basis with the comparable prior year period.
In fiscal 2006, we 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. Our consolidated 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). Our
consolidated results of operations for all future periods will include share-based compensation
cost recorded in accordance with SFAS 123(R).
13
Results of Operations
The following table sets forth the components of our consolidated results of operations
expressed as a percentage of sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
Sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
80.7 |
|
|
|
80.7 |
|
|
|
80.9 |
|
Operating expenses |
|
|
14.4 |
|
|
|
14.7 |
|
|
|
13.9 |
|
Interest expense |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.2 |
|
Other, net |
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
95.4 |
|
|
|
95.7 |
|
|
|
95.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and cumulative effect of accounting change |
|
|
4.6 |
|
|
|
4.3 |
|
|
|
5.0 |
|
Income taxes |
|
|
1.7 |
|
|
|
1.7 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change |
|
|
2.9 |
|
|
|
2.6 |
|
|
|
3.2 |
|
Cumulative effect of accounting change |
|
|
|
|
|
|
0.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
2.9 |
% |
|
|
2.6 |
% |
|
|
3.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the change in the components of our consolidated results of
operations expressed as a percentage increase or decrease over the prior year:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
Sales |
|
|
7.4 |
% |
|
|
7.8 |
% |
Costs and Expenses |
|
|
|
|
|
|
|
|
Cost of sales |
|
|
7.4 |
|
|
|
7.5 |
|
Operating expenses |
|
|
5.3 |
|
|
|
14.4 |
|
Interest expense |
|
|
(3.8 |
) |
|
|
45.5 |
|
Other, net |
|
|
96.7 |
|
|
|
(17.3 |
) |
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
7.0 |
|
|
|
8.6 |
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and cumulative effect of accounting change |
|
|
16.2 |
|
|
|
(8.6 |
) |
Income taxes |
|
|
13.0 |
|
|
|
(2.7 |
) |
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change |
|
|
18.3 |
|
|
|
(12.0 |
) |
Cumulative effect of accounting change |
|
|
(100.0 |
) |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
17.0 |
% |
|
|
(11.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change: |
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
19.1 |
% |
|
|
(9.9 |
)% |
Diluted earnings per share |
|
|
18.5 |
|
|
|
(8.2 |
) |
|
|
|
|
|
|
|
|
|
Net earnings: |
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
17.4 |
|
|
|
(8.6 |
) |
Diluted earnings per share |
|
|
17.6 |
|
|
|
(7.5 |
) |
|
|
|
|
|
|
|
|
|
Average shares outstanding |
|
|
(0.5 |
) |
|
|
(2.3 |
) |
Diluted shares outstanding |
|
|
(0.4 |
) |
|
|
(3.7 |
) |
Sales
Sales for fiscal 2007 were 7.4% greater than fiscal 2006. Acquisitions contributed 0.7%
to the overall sales growth rate for fiscal 2006. The impact of EITF 04-13 reduced sales growth by
0.7%, or $334,002,000 for fiscal 2007, compared to a $99,803,000 reduction for fiscal 2006. Sales
are reported on a comparable basis beginning in the fourth quarter of fiscal 2007, which is the
one-year anniversary of the adoption of EITF 04-13.
Sales for fiscal 2006 were 7.8% greater than fiscal 2005. Acquisitions contributed 1.4% to
the overall sales growth rate for fiscal 2006. The adoption of EITF 04-13 at the beginning of the
fourth quarter of fiscal 2006 negatively impacted sales growth in fiscal 2006 by 0.3%.
Estimated product cost increases were 3.4% during fiscal 2007 as compared to 0.6% during
fiscal 2006.
We believe that our continued focus on customer account penetration through the use of
business reviews with customers and the continued investment in increasing the number of customer
contact personnel contributed to the sales growth in fiscal 2007 and 2006. The number of customer
contact personnel increased 5% during fiscal 2007 and 6% during fiscal 2006. In addition, we
believe fiscal 2006 sales growth was aided by a declining rate of product cost increases
experienced throughout the year, which lessened the overall gross margin pressures and contributed
to underlying unit growth.
14
Industry sources estimate the total foodservice market experienced real sales growth of
approximately 1.1% in calendar year 2006 and 1.7% in calendar year 2005.
A comparison of the sales mix in the principal product categories during the last three years
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
Fresh and frozen meats |
|
|
19 |
% |
|
|
19 |
% |
|
|
19 |
% |
Canned and dry products |
|
|
18 |
|
|
|
18 |
|
|
|
18 |
|
Frozen fruits, vegetables, bakery and other |
|
|
13 |
|
|
|
14 |
|
|
|
14 |
|
Poultry |
|
|
10 |
|
|
|
10 |
|
|
|
11 |
|
Dairy products |
|
|
9 |
|
|
|
9 |
|
|
|
9 |
|
Fresh produce |
|
|
9 |
|
|
|
9 |
|
|
|
8 |
|
Paper and disposables |
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
Seafood |
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
Beverage products |
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
Janitorial products |
|
|
3 |
|
|
|
2 |
|
|
|
2 |
|
Equipment and smallwares |
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
Restaurants |
|
|
64 |
% |
|
|
63 |
% |
|
|
64 |
% |
Hospitals and nursing homes |
|
|
10 |
|
|
|
10 |
|
|
|
10 |
|
Schools and colleges |
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
Hotels and motels |
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
All other |
|
|
15 |
|
|
|
16 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margins
Gross margins as a percentage of sales were 19.3% for fiscal 2007 and fiscal 2006. The
impact of EITF 04-13 contributed a 0.12% increase to gross margins as a percentage of sales in
fiscal 2007 over fiscal 2006.
Estimated product cost increases, an internal measure of inflation, were 3.4% for fiscal 2007.
The rate of product cost rose throughout the year, ending at an estimated 6.1% for the fourth
quarter. Product cost increases result in reduced gross margins as a percentage of sales when
compared to the prior year, as gross profit dollars are earned on a higher sales dollars base.
However, the company was able to manage this inflationary environment well resulting in gross
profit dollars increasing 7.4% for the year.
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 in the fourth quarter of fiscal 2006 contributed 0.06% to
the increase in gross margins as a percentage of sales in fiscal 2006 over fiscal 2005. Management
believes that the remaining gross margin increase as a percentage of sales was aided by several
factors, including low product cost inflation and effective merchandising.
While we can not predict if product cost inflation will continue in future periods, in
general, we believe prolonged periods of high inflation may have a negative impact on our customers
and as a result, on our sales, gross margins and earnings.
Operating Expenses
Operating expenses include the costs of warehousing and delivering products as well as
selling, administrative and occupancy expenses.
Operating expenses as a percentage of sales were 14.4% for fiscal 2007, as compared to 14.7%
for fiscal 2006. The impact of EITF 04-13 increased operating expenses as a percentage of sales by
0.09% for fiscal 2007 as compared to fiscal 2006. The decline in operating expenses as a
percentage of sales, prior to the effect of the impact of EITF 04-13, was primarily due to
efficiencies obtained at the operating company level. Decreases in pension and share-based
compensation expenses and higher gains related to the cash surrender value of corporate-owned life
insurance policies were largely offset by increased management incentive bonus accruals and
investments in strategic business initiatives.
Share-based compensation expense decreased $28,852,000 in fiscal 2007 over the prior year, due
primarily to the completion of expense recognition in fiscal 2006 of a significant number of
options granted in fiscal 2002. Net pension costs decreased $56,001,000 in fiscal 2007 over the
prior year, due primarily to the increase in the discount rate used to determine fiscal 2007
pension costs.
15
Operating expenses were reduced by the recognition of a gain of $23,922,000 in fiscal 2007 to
adjust the carrying value of life insurance assets to their cash surrender value. This compared to
the recognition of a gain of $9,702,000 in fiscal 2006. Due primarily to improved operating
results, the non-stock portion of management incentive bonus accruals increased $64,770,000 in
fiscal 2007 compared to fiscal 2006 when our performance did not satisfy the criteria for paying
bonuses to our corporate officers. Investments in strategic business initiatives increased
$22,410,000 in fiscal 2007 over the prior year.
Operating expenses as a percentage of sales were 14.7% for fiscal 2006, as compared to 13.9%
for fiscal 2005. The impact of EITF 04-13 for the fourth quarter of fiscal 2006 increased operating
expenses as a percentage of sales by 0.04% for fiscal 2006. 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 incentive bonus accruals.
Share-based compensation expense increased $107,088,000 in fiscal 2006 over the prior year,
resulting from incremental expense incurred due to the adoption of SFAS 123(R) (See Note 13 to the
consolidated financial statements in Item 8). Fuel costs increased $48,600,000 in 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. The non-stock portion of various management incentive bonus accruals
decreased $18,216,000 in fiscal 2006 as compared to fiscal 2005.
Net pension costs in fiscal 2008 are expected to decrease by approximately $9,000,000 due
primarily to the funding status and asset performance of the qualified pension plan.
Interest Expense
The decrease in interest expense of $4,098,000 in fiscal 2007 as compared to fiscal 2006
was primarily due to decreased borrowing levels.
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 fiscal 2005. 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 in fiscal 2006 over fiscal 2005 were 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.
Other, Net
Changes between the years result from fluctuations in miscellaneous activities, primarily
gains and losses on the sale of surplus facilities. The increase in fiscal 2007 over the prior
year is primarily due to a gain of approximately $5,800,000 on the sale of land.
Income Taxes
The effective tax rate was 38.25% in fiscal 2007, 39.35% in fiscal 2006 and 36.97% in
fiscal 2005.
The decrease in the effective tax rate for fiscal 2007 as compared to fiscal 2006 was
primarily due to lower share-based compensation expense in fiscal 2007 as compared to fiscal 2006
and increased gains recorded related to the cash surrender value of corporate-owned life insurance
policies.
The increase in the effective tax rate for fiscal 2006 over fiscal 2005 was a result of
increased share-based compensation expense in fiscal 2006 due to the adoption of SFAS 123(R) and
certain tax benefits recorded in fiscal 2005, which are discussed in Note 13, Share-Based
Compensation, and Note 14, Income Taxes, to the Consolidated Financial Statements in Item 8.
Net Earnings
Net earnings increased 17.0% in fiscal 2007 over fiscal 2006. Net earnings decreased
11.0% in fiscal 2006 over fiscal 2005. The changes in net earnings for these periods were due
primarily to the factors discussed above as well as the impact on the comparisons due to the fiscal
2006 accounting change discussed below.
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.
16
Earnings Per Share
Basic earnings per share and diluted earnings per share increased 17.4% and 17.6%,
respectively, in fiscal 2007 over the prior year. These increases were due primary to the result
of factors discussed above.
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.
Segment Results
The following table sets forth the change in the selected financial data of each of our
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
|
|
|
Earnings |
|
|
|
|
|
Earnings |
|
|
Sales |
|
Before Taxes |
|
Sales |
|
Before Taxes |
Broadline |
|
|
7.0 |
% |
|
|
9.5 |
% |
|
|
5.8 |
% |
|
|
2.0 |
% |
SYGMA |
|
|
6.0 |
|
|
|
|
(1) |
|
|
10.3 |
|
|
|
|
(2) |
Other |
|
|
13.8 |
|
|
|
7.1 |
|
|
|
23.7 |
|
|
|
27.5 |
|
|
|
|
(1) |
|
Percentage is not meaningful. SYGMA had earnings before taxes of $10,393,000 in
fiscal 2007 and a loss before taxes of $660,000 in fiscal 2006. |
|
(2) |
|
Percentage is not meaningful. SYGMA had a loss before taxes of $660,000 in fiscal
2006 and earnings before taxes of $11,028,000 in fiscal 2005. |
The following table sets forth sales and earnings before taxes of each of our 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
|
|
|
|
|
|
Earnings |
|
|
|
|
|
Earnings |
|
|
|
|
|
Earnings |
|
|
Sales |
|
Before Taxes |
|
Sales |
|
Before Taxes |
|
Sales |
|
Before Taxes |
Broadline |
|
|
78.6 |
% |
|
|
104.4 |
% |
|
|
78.9 |
% |
|
|
110.8 |
% |
|
|
80.3 |
% |
|
|
99.4 |
% |
SYGMA |
|
|
12.5 |
|
|
|
0.6 |
|
|
|
12.7 |
|
|
|
0.0 |
|
|
|
12.4 |
|
|
|
0.7 |
|
Other |
|
|
10.2 |
|
|
|
7.9 |
|
|
|
9.6 |
|
|
|
8.5 |
|
|
|
8.4 |
|
|
|
6.1 |
|
Intersegment sales |
|
|
(1.3 |
) |
|
|
|
|
|
|
(1.2 |
) |
|
|
|
|
|
|
(1.1 |
) |
|
|
|
|
Unallocated corporate expenses |
|
|
|
|
|
|
(12.9 |
) |
|
|
|
|
|
|
(19.3 |
) |
|
|
|
|
|
|
(6.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We do 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. The decrease in unallocated corporate expenses as a percentage of consolidated earnings
before taxes in fiscal 2007 over fiscal 2006 is primarily attributable to reduced share-based
compensation expense and increased gains recorded related to the cash surrender value of
corporate-owned life insurance policies. The increase in unallocated corporate expenses as a
percentage of consolidated earnings before taxes in fiscal 2006 over fiscal 2005 is primarily
attributable to increased share-based compensation expense due to the adoption of SFAS 123(R). See
further discussion of Share-Based Compensation in Note 13 to the Consolidated Financial Statements
in Item 8.
Broadline Segment
Sales for fiscal 2007 were 7.0% greater than fiscal 2006. The impact of EITF 04-13
reduced sales growth by 0.4%, or $173,171,000 for fiscal 2007 compared to a $57,211,000 reduction
for fiscal 2006. Sales are reported on a comparable basis beginning in the fourth quarter of
fiscal 2007, which is the one-year anniversary of the adoption of EITF 04-13. Acquisitions did not
have an impact on the overall sales growth rate for fiscal 2007. Fiscal 2007 growth was due to
increased sales to marketing associate-served customers and multi-unit customers primarily through
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 our marketing associates.
17
The decrease of Broadline segment sales as a percentage of total SYSCO sales in fiscal 2007 as
compared to fiscal 2006 was due primarily to contributions to sales growth from the acquisitions of
specialty meat, specialty produce and SYGMA operations during fiscal 2006. Marketing
associate-served sales as a percentage of Broadline sales in the U.S. were 52.0% for fiscal 2007,
as compared to 51.9% for fiscal 2006. SYSCO Brand sales as a percentage of Broadline sales in the
U.S. were 45.5% for fiscal 2007 as compared to 48.1% for fiscal 2006.
The increase in earnings before income taxes for fiscal 2007 was primarily due to increases in
sales, gross margin dollar increases and effective expense management.
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%. Acquisitions contributed
0.1% to the overall sales growth rate for fiscal 2006. 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 our marketing associates contributed to
the sales growth in fiscal 2006.
The decrease of Broadline segment sales as a percentage of total SYSCO sales in fiscal 2006 as
compared to 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.
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.
SYGMA Segment
Sales for fiscal 2007 were 6.0% greater than fiscal 2006. The impact of EITF 04-13
reduced sales growth by 2.7%, or $159,236,000 for fiscal 2007 compared to a $42,560,000 reduction
for fiscal 2006. Sales are reported on a comparable basis beginning in the fourth quarter of
fiscal 2007, which is the one-year anniversary of the adoption of EITF 04-13. Acquisitions
contributed 2.1% to the overall sales growth rate for fiscal 2007. Fiscal 2007 growth was due to
sales to new customers and sales growth in SYGMAs existing customer base related to increased
sales at existing locations as well as new locations added by those customers. In addition,
certain customers were transferred from Broadline operations to be serviced by SYGMA operations,
contributing to the sales increase.
The increase in earnings before income taxes in fiscal 2007 was due to several factors,
including sales growth, increased margins and improved operating efficiencies, partially offset by
costs of labor and auto liability related expenses. In addition, the transfer of customers from
Broadline operations referred to above also contributed to the increase in earnings before income
taxes.
Sales for fiscal 2006 were 10.3% 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%. Acquisitions contributed
0.5% to the overall sales growth rate for fiscal 2006. 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.
The decrease in earnings before income taxes in fiscal 2006 was due to several factors.
Certain of SYGMAs customers experienced a slowdown in their business. This in turn resulted in
lower cases per delivery and therefore reduced gross margin dollars per stop. In addition, SYGMA
experienced increased fuel costs, startup costs related to new facilities, costs incurred on
information systems projects and increased workers compensation costs.
Liquidity and Capital Resources
SYSCO provides marketing and distribution services to foodservice customers primarily
throughout the United States and Canada. We intend to continue to expand our market share through
profitable sales growth, foldouts and acquisitions. We also strive to increase the effectiveness of
our customer contact personnel and our consolidated buying programs, as well as the productivity of
our warehousing and distribution activities. These objectives require continuing investment. Our
resources include cash provided by operations and access to capital from financial markets.
Our 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
our overall growth strategy. Any remaining cash generated from operations may be applied toward a
portion of the cost of the share repurchase program, while the remainder of the cost may be
financed with additional debt. Our share repurchase program is used primarily to offset shares
issued under various employee benefit and compensation plans, 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. We target a long-term debt to total capitalization ratio
between 35% and 40%. The ratio may exceed the target range
18
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 35.0% and 36.2% as of June 30, 2007
and July 1, 2006, respectively. For purposes of calculating this ratio, long-term debt includes
both the current maturities and long-term portion.
We believe that our cash flows from operations, as well as the availability of additional
capital under our existing commercial paper programs, bank lines of credit, debt shelf registration
and our ability to access capital from financial markets in the future, will be sufficient to meet
our cash requirements while maintaining proper liquidity for normal operating purposes.
Operating Activities
We generated $1,402,922,000 in cash flow from operations in fiscal 2007, $1,124,679,000
in fiscal 2006 and $1,191,208,000 in fiscal 2005. Increases in our cash flow from operations are
primarily due to increased earnings offset by investments in working capital.
Cash flow from operations in fiscal 2007, fiscal 2006 and fiscal 2005 was reduced by increases
in inventory balances and increases in accounts receivable balances, offset by an increase in
accounts payable balances. The increases in accounts receivable and inventory balances were
primarily due to sales growth. The accounts payable balances did not increase at the same rate as
inventory increases. 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.
Accrued expenses increased $132,936,000 during fiscal 2007, increased $29,161,000 during
fiscal 2006, and decreased $52,423,000 during fiscal 2005. The increase in accrued expenses during
fiscal 2007 was primarily due to increased accruals for current year incentive bonuses due to
improved operating results over the prior year. The increase in accrued expenses during fiscal
2006 was related to various miscellaneous accruals. The decrease in accrued expenses during fiscal
2005 was primarily due to the amount of accrued incentive bonuses related to that year.
Also affecting the increase in accrued expenses and the increase in prepaid expenses and other
current assets during fiscal 2007 was the recording of the product liability claim of $50,296,000
and corresponding receivable of $48,296,000. Cash flow from operations was not negatively
affected, as these items mostly offset. See further discussion of the product liability claim
under Other Considerations.
Other long-term liabilities and prepaid pension cost, net, increased $14,817,000 during fiscal
2007, decreased $75,382,000 in fiscal 2006 and increased $86,338,000 in fiscal 2005. The change
in these accounts was primarily attributable to the recording of net pension costs and the timing
and amount of pension contributions to our company-sponsored plans. In fiscal 2007, our pension
contributions exceeded the amount of net pension costs recognized during the year resulting in a
net cash outflow. In fiscal 2006 and 2005, the net pension costs recorded exceeded the amount of
pension contributions during the year resulting in a net cash inflow.
One of the factors increasing the amount of taxes paid in fiscal 2007 and fiscal 2006, as
compared to the amounts paid in fiscal 2005, was the amount of deductible pension contributions
made during the year. Our contributions to our defined benefit plans were $91,163,000, $73,764,000
and $220,361,000 during fiscal 2007, fiscal 2006 and fiscal 2005, respectively. We expect to
contribute approximately $92,000,000 to our defined benefit plans in fiscal 2008. Also impacting
taxes paid is the net cash flow impact of supply chain distribution deferrals for fiscal 2007,
fiscal 2006 and fiscal 2005, being incrementally positive when compared to what would have been
paid on an annual basis without the deferral, due to increased volume through BSCC.
Investing Activities
Fiscal 2007 capital expenditures included:
|
|
|
construction of fold-out facilities in Springfield, Illinois and Raleigh, North Carolina; |
|
|
|
|
replacement or significant expansion of facilities in Miami, Florida, Albuquerque, New
Mexico, Columbia, South Carolina, Kansas City, Kansas, and Riviera Beach, Florida; |
|
|
|
|
the Southeast RDC in Alachua, Florida; and |
|
|
|
|
continuing work on the corporate headquarters expansion. |
Fiscal 2006 capital expenditures included:
|
|
|
construction of fold-out facilities in Springfield, Illinois, Geneva, Alabama, Knoxville,
Tennessee and Raleigh, North Carolina; |
|
|
|
|
replacement or significant expansion of facilities in Columbus, Ohio, Albuquerque, New
Mexico and Denver, Colorado; and |
|
|
|
|
continuing work on the corporate headquarters expansion. |
19
Fiscal 2005 capital expenditures included:
|
|
|
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 |
|
|
|
|
completion of the Northeast RDC in Front Royal, Virginia. |
We expect total capital expenditures in fiscal 2008 to be in the range of $625,000,000 to
$650,000,000. Fiscal 2008 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 2007, we acquired for cash one broadline foodservice operation. During fiscal
2006, we acquired for cash one broadline foodservice operation, one custom meat-cutting operation
and five specialty produce distributors. During fiscal 2005, we acquired for cash one broadline
foodservice operation, four custom meat-cutting operations, and two specialty produce distributors.
Financing Activities
We routinely engage in Board-approved share repurchase programs. The number of shares
acquired and their cost during the past three fiscal years were 16,231,200 shares for $550,865,000
in fiscal 2007, 16,479,800 shares for $544,131,000 in fiscal 2006 and 16,790,200 shares for
$597,660,000 in fiscal 2005. An additional 3,157,700 shares have been purchased at a cost of
$101,710,000 through August 15, 2007, resulting in 19,950,000 shares remaining available for
repurchase as authorized by the Board as of that date.
Dividends paid were $445,416,000, or $0.72 per share, in fiscal 2007, $397,537,000, or $0.64
per share, in fiscal 2006 and $357,298,000, or $0.56 per share in fiscal 2005. In May 2007, we
declared our regular quarterly dividend for the first quarter of fiscal 2008 of $0.19 per share,
which was paid in July 2007.
In November 2000, we 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 15, 2007, 29,477,835 shares remained available for issuance under
this registration statement.
We have uncommitted bank lines of credit, which provided for unsecured borrowings for working
capital of up to $145,000,000, of which $18,900,000 was outstanding as of June 30, 2007 and
$6,600,000 was outstanding as of August 15, 2007.
We have a commercial paper program allowing us to issue short-term unsecured notes in an
aggregate not to exceed $1,300,000,000. The current program was entered into in April 2006 and
replaced notes that were issued under our previous commercial paper program as they matured and
became due and payable.
SYSCO and one of our subsidiaries, SYSCO International, Co., has a revolving credit facility
supporting our U.S. and Canadian commercial paper programs. The facility in the amount of
$750,000,000 may be increased up to $1,000,000,000 at our option, and terminates on November 4,
2011, subject to extension. In the first half of fiscal 2008, we intend to increase the size of
the credit facility to $1,000,000,000 and extend the termination date by an additional year to
2012.
This facility was originally entered into in November 2005 in the amount of $500,000,000 and
was increased to $750,000,000 in March 2006. In September 2006, the termination date on the
facility was extended to November 4, 2011, in accordance with the terms of the agreement. This
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
November 2005.
During fiscal 2007, 2006 and 2005, aggregate outstanding commercial paper issuances and
short-term bank borrowings ranged from approximately $356,804,000 to $755,180,000, $126,846,000 to
$774,530,000, and $28,560,000 to $253,384,000, respectively. Outstanding commercial paper issuances
were $531,826,000 as of June 30, 2007 and $625,308,000 as of August 15, 2007.
In June 2005, we 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, we 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 April 2005, we 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, we issued 5.375% senior notes totaling $500,000,000 due
on September 21, 2035, under the 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 us 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.
20
In March 2005, we 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, we settled the $350,000,000 notional amount forward-starting interest
rate swap. Upon termination, we 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, we repaid at maturity the 7.0% senior notes totaling $200,000,000 utilizing a
combination of cash flow from operations and commercial paper issuances.
In April 2007, we repaid at maturity the 7.25% senior notes totaling $100,000,000 utilizing a
combination of cash flow from operations and commercial paper issuances.
Total debt as of June 30, 2007 was $1,780,695,000, of which approximately 68% was at fixed
rates averaging 5.8% and the remainder was at floating rates averaging 5.2%. Certain loan
agreements contain typical debt covenants to protect noteholders, including provisions to maintain
our long-term debt to total capital ratio below a specified level. We were in compliance with all
debt covenants as of June 30, 2007.
As part of normal business activities, we issue letters of credit through major banking
institutions as required by certain vendor and insurance agreements. As of June 30, 2007 and July
1, 2006, letters of credit outstanding were $62,645,000 and $60,000,000, respectively.
Other Considerations
Product Liability Claim
In July, 2007, SYSCO was found contractually liable in arbitration proceedings related to a
product liability claim from one of our former customers. As of June 30, 2007, we have recorded
$50,296,000 on our consolidated balance sheet within accrued expenses related to the accrual of
this loss. Also as of June 30, 2007, a corresponding receivable of $48,296,000 is included in the
consolidated balance sheet within prepaid expenses and other current assets, which represents the
estimate of the loss less the $2,000,000 deductible on SYSCOs insurance policy. We have hold
harmless agreements with the product suppliers and are named as an additional insured party under
the suppliers policies with their insurers. Further, we maintain our own product liability
insurance with coverage related to this claim. We believe it is probable that we will be able to
recover the recorded loss from one or more of these sources.
Multi-Employer Pension Plans
As discussed in Note 16, Commitments and Contingencies, to the Consolidated Financial
Statements in Item 8, we contribute to several multi-employer defined benefit pension plans based
on obligations arising under collective bargaining agreements covering union-represented employees.
Under current law regarding multi-employer defined benefit plans, a plans termination, our
voluntary withdrawal or the mass withdrawal of all contributing employers from any under-funded
multi-employer defined benefit plan would require us to make payments to the plan for our
proportionate share of the multi-employer plans unfunded vested liabilities. Based on the
information available from plan administrators, we estimate that our share of withdrawal liability
on all the multi-employer plans we participate in, some of which appear to be under-funded, could
be as much as $120,000,000.
For those plans that appear to be under-funded, we do not currently believe that it is
probable that there will be a mass withdrawal of employers contributing to these plans or that any
of the plans will terminate in the near future. However, required contributions to multi-employer
plans could increase in the future as these plans strive to improve their funding levels. In
addition, the Pension Protection Act, enacted in August 2006, will require under-funded pension
plans to improve their funding ratios within prescribed intervals based on the level of their
under-funding, perhaps beginning as soon as calendar 2008. Unforeseen requirements to pay such
increased contributions, withdrawal liability and excise taxes could cause us to raise additional
capital through debt financing or the issuance of equity or we may be required to cancel planned
capital expenditures or share repurchases or a combination of these items.
21
BSCC Cooperative Structure
Our affiliate, BSCC, is a cooperative taxed under subchapter T of the Unites States Internal
Revenue Code. We believe that the deferred tax liabilities resulting from the business operations
and legal ownership of BSCC are appropriate under the tax laws. However, if the application of the
tax laws to the cooperative structure of BSCC were to be successfully challenged by any federal,
state or local tax authority, we could be required to accelerate the payment of all or a portion of
our income tax liabilities associated with BSCC that we otherwise have deferred until future
periods, and in that event, would be liable for interest on such amounts. As of June 30, 2007, we
have recorded deferred income tax liabilities of $988,000,000 related to the BSCC supply chain
distributions. This amount represents the income tax liabilities related to BSCC that were
accrued, but the payment had been deferred as of June 30, 2007. In addition, if the IRS or any
other taxing authority determines that all amounts since the inception of BSCC were inappropriately
deferred or that BSCC should have been a taxable entity, we estimate that in addition to making a
current payment for amounts previously deferred, as discussed above, we may have liability,
representing interest that would be payable on the cumulative deferred balances ranging from
$185,000,000 to $205,000,000, prior to federal and state income tax benefit, as of June 30, 2007.
We calculated this amount based upon the amounts deferred since the inception of BSCC applying the
applicable jurisdictions interest rates in effect in each period. During the third quarter of
fiscal 2007, the IRS, in connection with its audit of our 2003 and 2004 federal income tax returns,
proposed adjustments related to the taxability of BSCC. We are vigorously protesting these
adjustments. We have reviewed the merits of the issues raised by the IRS and based upon our
review, we believe that the resulting interest is not a probable liability and accordingly, have
not recorded any related amount in any period. A taxing authority requiring us to accelerate the
payment of these deferred tax liabilities and to pay related interest, if any, could cause us to
raise additional capital through debt financing or the issuance of equity or we may have to forego
or defer planned capital expenditures or share repurchases or a combination of these items.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Contractual Obligations
The following table sets forth certain information concerning our obligations and
commitments to make contractual future payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less Than |
|
|
|
|
|
|
|
|
|
|
More Than |
|
|
|
Total |
|
|
1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
5 Years |
|
|
|
(In thousands) |
|
Recorded Contractual Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt and commercial paper |
|
$ |
550,726 |
|
|
$ |
18,900 |
|
|
$ |
|
|
|
$ |
531,826 |
|
|
$ |
|
|
Long-term debt |
|
|
1,201,957 |
|
|
|
1,636 |
|
|
|
2,416 |
|
|
|
200,691 |
|
|
|
997,214 |
|
Capital lease obligations |
|
|
28,012 |
|
|
|
1,932 |
|
|
|
2,997 |
|
|
|
1,935 |
|
|
|
21,148 |
|
Product liability claim (1) |
|
|
48,296 |
|
|
|
48,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation(2) |
|
|
116,726 |
|
|
|
5,984 |
|
|
|
11,614 |
|
|
|
11,012 |
|
|
|
88,116 |
|
SERP and other postretirement plans(3) |
|
|
215,464 |
|
|
|
12,045 |
|
|
|
30,465 |
|
|
|
39,858 |
|
|
|
133,096 |
|
Unrecorded Contractual Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments related to debt(4) |
|
|
1,325,060 |
|
|
|
68,931 |
|
|
|
132,966 |
|
|
|
132,966 |
|
|
|
990,197 |
|
Long-term non-capitalized leases |
|
|
367,710 |
|
|
|
63,383 |
|
|
|
98,558 |
|
|
|
63,469 |
|
|
|
142,300 |
|
Purchase obligations(5) |
|
|
1,241,580 |
|
|
|
942,500 |
|
|
|
110,137 |
|
|
|
92,399 |
|
|
|
96,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations |
|
$ |
5,095,531 |
|
|
$ |
1,163,607 |
|
|
$ |
389,153 |
|
|
$ |
1,074,156 |
|
|
$ |
2,468,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Relates to a recent arbitration award against us for which we expect reimbursement. (See
discussion under Other Considerations in Liquidity and Capital Resources). |
|
(2) |
|
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. |
|
(3) |
|
Includes estimated contributions to the unfunded Supplemental Executive Retirement Plan
(SERP) and other postretirement benefit plans made in amounts needed to fund benefit payments
for vested participants in these plans through fiscal 2016, based on actuarial assumptions. |
|
(4) |
|
Includes payments on floating rate debt based on rates as of June 30, 2007, assuming amount
remains unchanged until maturity, and payments on fixed rate debt based on maturity dates. |
|
(5) |
|
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 over a
ten year |
22
|
|
|
|
|
period ending in fiscal 2015 (See discussion under Note 16, Commitments and Contingencies, in the
Notes to Consolidated Financial Statements in Item 8), fixed electricity agreements and fixed
fuel purchase commitments. 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 June 30, 2007 included $113,303,000 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 30, 2007, we do not have a minimum funding requirement under ERISA guidelines for this plan
due to our previous voluntary contributions. However, we intend to make voluntary contributions to
the qualified retirement plan totaling $80,000,000 during fiscal 2008.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting
principles requires us 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 and estimates are those that are most important to the portrayal
of our financial condition and results of operations. These policies require our most subjective or
complex judgments, often employing the use of estimates about the effect of matters that are
inherently uncertain. We have reviewed with the Audit Committee of the Board of Directors the
development and selection of the critical accounting policies and estimates and this related
disclosure. Our most critical accounting policies and estimates 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
We evaluate the collectibility of accounts receivable and determine the appropriate
reserve for doubtful accounts based on a combination of factors. In circumstances where we are
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. We utilize 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
our customers were to deteriorate, additional allowances may be required.
Self-Insurance Program
We maintain a self-insurance program covering portions of workers compensation, general
liability and vehicle liability costs. The amounts in excess of the self-insured levels are fully
insured by third party insurers. We also maintain a fully self-insured group medical program.
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. In the first quarter of fiscal 2006, we changed the measurement
date for pension and other postretirement benefit plans from fiscal year-end to May 31st to assist
us in meeting accelerated SEC filing dates. As a result of this change, we recorded a cumulative
effect of a change in accounting, which increased net earnings for fiscal 2006 by $9,285,000, net
of tax. With the issuance of SFAS 158 (See Accounting Changes for further discussion), we have
elected to early adopt the measurement date provision in order to adopt both provisions of this
accounting standard at the same time. As a result, beginning in fiscal 2008, the measurement date
will return to correspond with our fiscal year-end. We have performed measurements as of May 31,
2007 and June 30, 2007 of our plan assets and benefit obligations. We will record a charge to
opening retained earnings in the first quarter of fiscal 2008 of $3,572,000, net of tax, for the
impact of the difference in our pension expense between the two measurement dates. We will also
record a benefit to opening accumulated other comprehensive loss in the first quarter of fiscal
2008 of $22,780,000, net of tax, for the impact of the difference in
23
our recognition provision between the two measurement dates. The measurement date used to
determine fiscal 2008 net pension costs for all plans was June 30, 2007.
For guidance in determining the discount rates, we calculate 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 assumptions utilized
impact the recorded amount of net pension costs. The discount rate utilized to determine net
pension costs for fiscal 2007 increased 1.13% to 6.73% from the discount rate utilized to determine
net pension costs for fiscal 2006 of 5.60%. Of the $56,001,000 decrease in net pension costs for
fiscal 2007, this 1.13% increase in the discount rate decreased
SYSCOs net pension costs for fiscal 2007 by approximately $52,576,000 primarily because the higher discount
rate in fiscal 2007 generated less amortization of unrecognized actuarial losses in fiscal 2007 as
compared to fiscal 2006. The discount rate for determining fiscal 2008 net pension costs for the
qualified pension plan (Retirement Plan), which was determined as of the June 30, 2007 measurement
date, increased 0.05% to 6.78%. The discount rate for determining fiscal 2008 net pension costs for
the SERP, which was determined as of the June 30, 2007 measurement date, decreased 0.09% to 6.64%.
The combined effect of these discount rate changes will decrease our net pension costs for all
plans for fiscal 2008 by an estimated $480,000. A 1.0% increase in the discount rates for fiscal
2008 would decrease SYSCOs net pension cost by $19,000,000, while a 1.0% decrease in the discount
rates would increase pension expense by $37,000,000. The impact of a 1.0% increase in the discount
rates differ from the impact of a 1.0% decrease in discount rates because a 1.0% decrease in
discount rates would require additional amortization of unrecognized actuarial losses which would
not be required at our current discount rates or with a 1.0% increase in these rates.
We look to actual plan experience in determining the rates of increase in compensation levels.
We used a plan specific age-related set of rates for the Retirement Plan, which are equivalent to a
single rate of 6.17% as of June 30, 2007 and July 1, 2006. The SERP assumes annual salary increases
of 10% through fiscal 2007 and 7% thereafter as of June 30, 2007 and July 1, 2006.
The expected long-term rate of return on plan assets of the Retirement Plan was 9.00% for
fiscal 2007 and 2006. 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 9.5%, 8.1%, 7.0% and 12.9% over the
20-year, 10-year, 5-year and 1-year periods ended December 31, 2006, respectively. In addition, in
nine of the last 15 years, the actual return on plan assets has exceeded 10.00%. 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. The
expected long-term rate of return on plan assets of the Retirement Plan is 8.50% for fiscal 2008. A
1.0% increase (decrease) in the assumed rate of return for fiscal 2008 would decrease (increase)
SYSCOs net pension costs for fiscal 2008 by approximately $15,900,000.
Prior to the adoption of the recognition and disclosure provisions of SFAS 158, minimum
pension liability adjustments resulted when the accumulated benefit obligation exceeds the fair
value of plan assets and were recorded so that the recorded pension liability is at a minimum equal
to the unfunded accumulated benefit obligation. Minimum pension liability adjustments were 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). The amounts reflected in accumulated other comprehensive income
related to minimum pension liability, was a charge, net of tax, of $11,106,000 as of July 1, 2006.
The adoption of the recognition and disclosure provisions of SFAS 158 as of June 30, 2007
resulted in the recognition of the funded status of our defined benefit plans in the statement of
financial position, with a corresponding adjustment to accumulated other comprehensive income, net
of tax. The amount reflected in accumulated other comprehensive loss as of June 30, 2007 after
adoption of SFAS 158 was a charge, net of tax, of $125,265,000, which represented the net
unrecognized actuarial losses, unrecognized prior service costs and unrecognized transition
obligation remaining from the initial adoption of SFAS 87/106 as of that date.
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, decreased net pension costs $56,001,000 in fiscal 2007 and is
expected to decrease net pension costs in fiscal 2008 by approximately $9,000,000.
We made cash contributions to our pension plans of $91,163,000 and $73,764,000 in fiscal years
2007 and 2006, respectively, including voluntary contributions to the Retirement Plan of
$80,000,000 and $66,000,000 in fiscal 2007 and fiscal 2006, respectively. In fiscal 2008, as in the
previous years, contributions to the Retirement Plan will not be required to meet ERISA minimum
funding requirements but we anticipate that we will make voluntary contributions of $80,000,000,
which is not greater than the estimated maximum amount that will be tax deductible in fiscal 2008.
The estimated fiscal 2008 contributions to fund benefit payments for the SERP and other
post-retirement plans together are approximately $12,000,000.
24
Income Taxes
The determination of our provision for income taxes requires significant judgment, the
use of estimates and the interpretation and application of complex tax laws. Our 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 our 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, we establish an
accrual when, despite our belief that our tax return positions are supportable, we believe that
certain positions may be successfully challenged and a loss is probable. When facts and
circumstances change, these accruals are adjusted. Beginning in fiscal 2008, we will adopt FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes an Interpretation of FASB
Statement No. 109 (FIN 48) which will change the accounting for tax positions. (See discussion
under Note 3, New Accounting Standards, in the Notes to Consolidated Financial Statements in Item
8).
Vendor Consideration
We recognize 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, we 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, we 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, we classify 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, annually or more frequently as needed, we assess the recoverability of goodwill
and indefinite-lived intangibles by determining whether the fair values of the applicable reporting
units exceed the carrying values of these assets. The reporting units used in assessing goodwill
impairment are our six operating segments as described in Note 17, Business Segment Information, to
the Consolidated Financial Statements in Item 8. The components within each of our six operating
segments have similar economic characteristics and therefore are aggregated into six reporting
units. 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
We provide compensation benefits to employees and non-employee directors under several
share-based payment arrangements including various employee stock incentive plans, the Employees
Stock Purchase Plan, the Management Incentive Plan and the Non-Employee Directors Stock Plan.
Prior to July 3, 2005, we accounted for our 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 Plan 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, we 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-
25
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 June 30, 2007, there was $82,175,000 of total unrecognized compensation cost related to
share-based compensation arrangements. That cost is expected to be recognized over a
weighted-average period of 2.68 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. We utilize 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 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 Plan 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 our option awards are generally subject to graded vesting over a service period. In
those cases, we will recognize compensation cost on a straight-line basis over the requisite
service period for the entire award. In other cases, certain of our 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, we recognize compensation cost on a straight-line basis over the shorter performance period;
otherwise, we recognize compensation cost over the probable longer service period.
In addition, certain of our 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, we will recognize the
compensation cost for such awards over the remaining service period and accelerate any remaining
unrecognized compensation cost when the employee retires. For awards granted subsequent to July 3,
2005, we 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.
Our option grants include options that qualify as incentive stock options for income tax
purposes. In the period the compensation cost related to incentive stock options is recorded, a
corresponding tax benefit is not recorded as it is assumed that we will not receive a tax deduction
related to such incentive stock options. We 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, we 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.
New Accounting Standards
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, and therefore became effective for SYSCO on July 1, 2007. While we continue to analyze the
financial statement impact resulting from the adoption of FIN 48, we estimate that the cumulative
effect adjustment may result in an increase to tax liabilities of $70,000,000 to $100,000,000, with
an offsetting charge to beginning retained earnings.
26
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS
157 defines fair value, establishes a framework for measuring fair value in accordance with
generally accepted accounting principles, and expands disclosures about fair value measurements.
The statement is effective for fiscal years beginning after November 15, 2007. We are currently
evaluating the impact of the provisions of SFAS 157.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair value that are not currently required to be measured at
fair value. SFAS 159 also establishes presentation and disclosure requirements designed to
facilitate comparisons between entities that choose different measurement attributes for similar
types of assets and liabilities. SFAS 159 is effective as of the beginning of an entitys first
fiscal year that begins after November 15, 2007. We are currently evaluating the impact the
adoption of SFAS 159 may have on our consolidated financial statements.
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, expected benefits of strategic business
initiatives including the timing and expected benefits of the National Supply Chain project and
related redistribution 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 at Item 1.A. above and elsewhere.
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
Interest Rate Risk
We do not utilize financial instruments for trading purposes. Our use of debt directly
exposes us to interest rate risk. Floating rate debt, where the interest rate fluctuates
periodically, exposes us to short-term changes in market interest rates. Fixed rate debt, where the
interest rate is fixed over the life of the instrument, exposes us to changes in market interest
rates reflected in the fair value of the debt and to the risk that we may need to refinance
maturing debt with new debt at higher rates.
We manage our 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.
Fiscal 2007
As of June 30, 2007, we had outstanding $531,826,000 of commercial paper at variable
rates of interest with maturities through September 24, 2007. Excluding commercial paper issuances,
our long-term debt obligations as of June 30, 2007 of $1,229,969,000 were primarily at fixed rates
of interest. We had no interest rate swaps outstanding as of June 30, 2007.
In the following table as of June 30, 2007, 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 our revolving loan agreement which supports
our U.S. and Canadian commercial paper programs and our intent to continue to refinance this
facility on a long-term basis.
27
The following table presents our interest rate position as of June 30, 2007. All amounts are
stated in U.S. dollar equivalents.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Position as of June 30, 2007 |
|
|
Principal Amount by Expected Maturity |
|
|
Average Interest Rate |
|
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
Thereafter |
|
Total |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
U.S. $ Denominated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt |
|
$ |
3,149 |
|
|
$ |
3,525 |
|
|
$ |
976 |
|
|
$ |
679 |
|
|
$ |
200,641 |
|
|
$ |
982,214 |
|
|
$ |
1,191,184 |
|
|
$ |
1,124,343 |
|
Average Interest Rate |
|
|
5.1 |
% |
|
|
5.9 |
% |
|
|
2.1 |
% |
|
|
1.5 |
% |
|
|
6.1 |
% |
|
|
5.6 |
% |
|
|
5.7 |
% |
|
|
|
|
Floating Rate Debt |
|
$ |
18,900 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
487,727 |
|
|
$ |
15,000 |
|
|
$ |
521,627 |
|
|
$ |
521,627 |
|
Average Interest Rate |
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.3 |
% |
|
|
4.4 |
% |
|
|
5.3 |
% |
|
|
|
|
Canadian $ Denominated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt |
|
$ |
419 |
|
|
$ |
434 |
|
|
$ |
478 |
|
|
$ |
602 |
|
|
$ |
704 |
|
|
$ |
21,148 |
|
|
$ |
23,785 |
|
|
$ |
22,450 |
|
Average Interest Rate |
|
|
9.5 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
|
|
Floating Rate Debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
44,099 |
|
|
$ |
|
|
|
$ |
44,099 |
|
|
$ |
44,099 |
|
Average Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.4 |
% |
|
|
|
|
|
|
4.4 |
% |
|
|
|
|
Fiscal 2006
In September 2005, we 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, we 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.
As of July 1, 2006, we had outstanding $399,568,000 of commercial paper at variable rates of
interest with maturities through July 3, 2006. Excluding commercial paper issuances, our long-term
debt obligations as of July 1, 2006 of $1,333,824,000 were primarily at fixed rates of interest. We
had no interest rate swaps outstanding as of 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 our revolving loan agreement which supports
our U.S. and Canadian commercial paper programs and our intent to continue to refinance this
facility on a long-term basis.
The following table presents our 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 |
|
$ |
105,924 |
|
|
$ |
4,221 |
|
|
$ |
548 |
|
|
$ |
438 |
|
|
$ |
322 |
|
|
$ |
1,184,354 |
|
|
$ |
1,295,807 |
|
|
$ |
1,233,520 |
|
Average Interest Rate |
|
|
8.0 |
% |
|
|
7.2 |
% |
|
|
3.4 |
% |
|
|
4.3 |
% |
|
|
4.6 |
% |
|
|
5.7 |
% |
|
|
5.9 |
% |
|
|
|
|
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 |
|
$ |
341 |
|
|
$ |
375 |
|
|
$ |
414 |
|
|
$ |
456 |
|
|
$ |
575 |
|
|
$ |
20,856 |
|
|
$ |
23,017 |
|
|
$ |
21,911 |
|
Average Interest Rate |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
9.8 |
% |
|
|
|
|
Floating Rate Debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
24,623 |
|
|
$ |
|
|
|
$ |
24,623 |
|
|
$ |
24,623 |
|
Average Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.4 |
% |
|
|
|
|
|
|
4.4 |
% |
|
|
|
|
Foreign Currency Exchange Rate Risk
We have 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, we are exposed to foreign currency exchange rate risk. We will
also incur gains and losses within shareholders equity due to translation of the financial
statements from Canadian dollars to U.S. dollars. Our 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 2007 year-end exchange rate would not materially
increase the tax liability associated with these notes. We do not routinely enter into material
agreements to hedge foreign currency risks.
Fuel Price Risk
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 our 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 we pay for product purchases and we may not be able to pass these costs fully to
our customers. Third, increased fuel costs impact the costs we incur to deliver product to our
customers. During fiscal 2007, 2006 and 2005, fuel costs represented approximately 0.6%, 0.5% and
0.4% of sales,
28
respectively. Fuel costs incurred by SYSCO increased by approximately $21,225,000 in fiscal
2007 over fiscal 2006 and $48,600,000 in fiscal 2006 over fiscal 2005.
In order to partially manage the volatility and uncertainty of fuel costs, from time to time,
we will enter into forward purchase commitments for a portion of our projected monthly diesel fuel
requirements. As of June 30, 2007, outstanding forward diesel fuel purchase commitments totaled
approximately $44,500,000, which will lock in the price on a substantial portion of our fuel
purchases through the end of calendar year 2007.
29
Item 8. Financial Statements and Supplementary Data
SYSCO CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
Page |
Consolidated Financial Statements: |
|
|
|
|
31 |
|
|
32 |
|
|
33 |
|
|
34 |
|
|
35 |
|
|
36 |
|
|
37 |
|
|
38 |
|
|
|
II Valuation and Qualifying Accounts |
|
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.
30
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 June 30, 2007. 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 June 30, 2007, SYSCOs
internal control over financial reporting was effective based on those criteria.
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Board of Directors and Shareholders
SYSCO Corporation
We have audited SYSCO Corporation (a Delaware Corporation) and its subsidiaries internal
control over financial reporting as of June 30, 2007, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). SYSCO Corporations management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Report of Management on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on SYSCO
Corporations 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, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
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, SYSCO Corporation maintained, in all material respects, effective internal
control over financial reporting as of June 30, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets as of June 30, 2007 and July 1,
2006 and the related consolidated results of operations, shareholders equity and cash flows for
each of the three years in the period ended June 30, 2007 of SYSCO Corporation and our report dated
August 27, 2007 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Houston, Texas
August 27, 2007
32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors and Shareholders
SYSCO Corporation
We have audited the accompanying consolidated balance sheets of SYSCO Corporation (a Delaware
Corporation) and subsidiaries as of June 30, 2007 and July 1, 2006, and the related consolidated
results of operations, shareholders equity, and cash flows for each of the three years in the
period ended June 30, 2007. 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 June 30,
2007 and July 1, 2006, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended June 30, 2007, 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, present fairly in
all material respects the information set forth therein.
As discussed in Note 10 to the consolidated financial statements, effective June 30, 2007,
SYSCO Corporation adopted Statement of Financial Accounting Standard (SFAS) No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106, and 132(R). Also, 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 June 30, 2007, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated August 27, 2007 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Houston, Texas
August 27, 2007
33
SYSCO
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
|
(In thousands except for |
|
|
|
share data) |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
207,872 |
|
|
$ |
201,897 |
|
Accounts and notes receivable, less allowances of $31,841 and $29,100 |
|
|
2,610,885 |
|
|
|
2,483,720 |
|
Inventories |
|
|
1,714,187 |
|
|
|
1,608,233 |
|
Prepaid expenses and other current assets |
|
|
123,284 |
|
|
|
59,154 |
|
Prepaid income taxes |
|
|
19,318 |
|
|
|
46,690 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
4,675,546 |
|
|
|
4,399,694 |
|
Plant and equipment at cost, less depreciation |
|
|
2,721,233 |
|
|
|
2,464,900 |
|
Other assets |
|
|
|
|
|
|
|
|
Goodwill |
|
|
1,355,313 |
|
|
|
1,302,591 |
|
Intangibles, less amortization |
|
|
91,366 |
|
|
|
95,651 |
|
Restricted cash |
|
|
101,929 |
|
|
|
102,274 |
|
Prepaid pension cost |
|
|
352,390 |
|
|
|
388,650 |
|
Other |
|
|
221,154 |
|
|
|
238,265 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
2,122,152 |
|
|
|
2,127,431 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
9,518,931 |
|
|
$ |
8,992,025 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Notes payable |
|
$ |
18,900 |
|
|
$ |
29,300 |
|
Accounts payable |
|
|
1,981,190 |
|
|
|
1,891,357 |
|
Accrued expenses |
|
|
922,582 |
|
|
|
745,781 |
|
Deferred taxes |
|
|
488,849 |
|
|
|
453,700 |
|
Current maturities of long-term debt |
|
|
3,568 |
|
|
|
106,265 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
3,415,089 |
|
|
|
3,226,403 |
|
Other liabilities |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
1,758,227 |
|
|
|
1,627,127 |
|
Deferred taxes |
|
|
626,695 |
|
|
|
723,349 |
|
Other long-term liabilities |
|
|
440,520 |
|
|
|
362,862 |
|
|
|
|
|
|
|
|
Total other liabilities |
|
|
2,825,442 |
|
|
|
2,713,338 |
|
Commitments and 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 2,000,000,000 shares; issued 765,174,900 shares |
|
|
765,175 |
|
|
|
765,175 |
|
Paid-in capital |
|
|
637,154 |
|
|
|
525,684 |
|
Retained earnings |
|
|
5,544,078 |
|
|
|
4,999,440 |
|
Accumulated other comprehensive (loss) income |
|
|
(4,061 |
) |
|
|
84,618 |
|
|
|
|
|
|
|
|
|
|
|
6,942,346 |
|
|
|
6,374,917 |
|
Less cost of treasury stock, 153,334,523 and 146,279,320 shares |
|
|
3,663,946 |
|
|
|
3,322,633 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
3,278,400 |
|
|
|
3,052,284 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
9,518,931 |
|
|
$ |
8,992,025 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
34
SYSCO
CONSOLIDATED RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
July 2, 2005 |
|
|
|
(In thousands except for share data) |
|
Sales |
|
$ |
35,042,075 |
|
|
$ |
32,628,438 |
|
|
$ |
30,281,914 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
28,284,603 |
|
|
|
26,337,107 |
|
|
|
24,498,200 |
|
Operating expenses |
|
|
5,048,990 |
|
|
|
4,796,301 |
|
|
|
4,194,184 |
|
Interest expense |
|
|
105,002 |
|
|
|
109,100 |
|
|
|
75,000 |
|
Other, net |
|
|
(17,735 |
) |
|
|
(9,016 |
) |
|
|
(10,906 |
) |
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
33,420,860 |
|
|
|
31,233,492 |
|
|
|
28,756,478 |
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and cumulative effect of accounting change |
|
|
1,621,215 |
|
|
|
1,394,946 |
|
|
|
1,525,436 |
|
Income taxes |
|
|
620,139 |
|
|
|
548,906 |
|
|
|
563,979 |
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change |
|
|
1,001,076 |
|
|
|
846,040 |
|
|
|
961,457 |
|
Cumulative effect of accounting change |
|
|
|
|
|
|
9,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
1,001,076 |
|
|
$ |
855,325 |
|
|
$ |
961,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
1.62 |
|
|
$ |
1.36 |
|
|
$ |
1.51 |
|
Diluted earnings per share |
|
|
1.60 |
|
|
|
1.35 |
|
|
|
1.47 |
|
Net earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
1.62 |
|
|
|
1.38 |
|
|
|
1.51 |
|
Diluted earnings per share |
|
|
1.60 |
|
|
|
1.36 |
|
|
|
1.47 |
|
See Notes to Consolidated Financial Statements
35
SYSCO
CONSOLIDATED SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury Stock |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Shares |
|
|
Amount |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands except for share data) |
|
|
|
|
|
|
|
|
|
Balance as of 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 as of 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 as of July 1, 2006 |
|
|
765,174,900 |
|
|
$ |
765,175 |
|
|
$ |
525,684 |
|
|
$ |
4,999,440 |
|
|
$ |
84,618 |
|
|
|
146,279,320 |
|
|
$ |
3,322,633 |
|
|
$ |
3,052,284 |
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,001,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,001,076 |
|
Minimum pension liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,469 |
|
|
|
|
|
|
|
|
|
|
|
3,469 |
|
Foreign currency translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,052 |
|
|
|
|
|
|
|
|
|
|
|
25,052 |
|
Amortization of cash flow hedge |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
428 |
|
|
|
|
|
|
|
|
|
|
|
428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,030,025 |
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(456,438 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(456,438 |
) |
Treasury stock purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,501,200 |
|
|
|
559,788 |
|
|
|
(559,788 |
) |
Benefits from disqualifying
dispositions |
|
|
|
|
|
|
|
|
|
|
19,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,561 |
|
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
79,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,878 |
|
Issuances of shares pursuant to
share-based awards |
|
|
|
|
|
|
|
|
|
|
12,031 |
|
|
|
|
|
|
|
|
|
|
|
(9,445,997 |
) |
|
|
(218,475 |
) |
|
|
230,506 |
|
Adoption of SFAS 158 recognition
provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117,628 |
) |
|
|
|
|
|
|
|
|
|
|
(117,628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2007 |
|
|
765,174,900 |
|
|
$ |
765,175 |
|
|
$ |
637,154 |
|
|
$ |
5,544,078 |
|
|
$ |
(4,061 |
) |
|
|
153,334,523 |
|
|
$ |
3,663,946 |
|
|
$ |
3,278,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
36
SYSCO
CONSOLIDATED CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
July 2, 2005 |
|
|
|
(In thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
1,001,076 |
|
|
$ |
855,325 |
|
|
$ |
961,457 |
|
Add non-cash items: |
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting change, net of tax |
|
|
|
|
|
|
(9,285 |
) |
|
|
|
|
Share-based compensation expense |
|
|
97,985 |
|
|
|
126,837 |
|
|
|
19,749 |
|
Depreciation and amortization |
|
|
362,559 |
|
|
|
345,062 |
|
|
|
316,743 |
|
Deferred tax provision |
|
|
545,971 |
|
|
|
482,111 |
|
|
|
554,850 |
|
Provision for losses on receivables |
|
|
28,156 |
|
|
|
19,841 |
|
|
|
18,587 |
|
(Gain) loss on sale of assets |
|
|
(6,279 |
) |
|
|
847 |
|
|
|
(952 |
) |
Additional investment in certain assets and liabilities, net of effect of
businesses acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) in receivables |
|
|
(134,153 |
) |
|
|
(162,586 |
) |
|
|
(72,829 |
) |
(Increase) in inventories |
|
|
(95,932 |
) |
|
|
(119,392 |
) |
|
|
(35,014 |
) |
(Increase) decrease in prepaid expenses and other current assets |
|
|
(62,773 |
) |
|
|
1,741 |
|
|
|
(4,058 |
) |
Increase in accounts payable |
|
|
85,422 |
|
|
|
49,775 |
|
|
|
28,080 |
|
Increase (decrease) in accrued expenses |
|
|
132,936 |
|
|
|
29,161 |
|
|
|
(52,423 |
) |
(Decrease) in accrued income taxes |
|
|
(491,993 |
) |
|
|
(545,634 |
) |
|
|
(438,779 |
) |
(Increase) in other assets |
|
|
(36,426 |
) |
|
|
(17,937 |
) |
|
|
(17,865 |
) |
(Increase) decrease in other long-term liabilities and prepaid pension cost, net |
|
|
(14,817 |
) |
|
|
75,382 |
|
|
|
(86,338 |
) |
Excess tax benefits from share-based compensation arrangements |
|
|
(8,810 |
) |
|
|
(6,569 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
1,402,922 |
|
|
|
1,124,679 |
|
|
|
1,191,208 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Additions to plant and equipment |
|
|
(603,242 |
) |
|
|
(513,934 |
) |
|
|
(390,026 |
) |
Proceeds from sales of plant and equipment |
|
|
16,008 |
|
|
|
21,037 |
|
|
|
26,257 |
|
Acquisition of businesses, net of cash acquired |
|
|
(59,322 |
) |
|
|
(114,378 |
) |
|
|
(115,637 |
) |
(Increase) decrease in restricted cash |
|
|
(2,155 |
) |
|
|
(2,243 |
) |
|
|
66,918 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(648,711 |
) |
|
|
(609,518 |
) |
|
|
(412,488 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Bank and commercial paper borrowings (repayments), net |
|
|
121,858 |
|
|
|
240,017 |
|
|
|
115,017 |
|
Other debt borrowings |
|
|
5,290 |
|
|
|
500,987 |
|
|
|
9,357 |
|
Other debt repayments |
|
|
(109,656 |
) |
|
|
(413,383 |
) |
|
|
(167,006 |
) |
Debt issuance costs |
|
|
(7 |
) |
|
|
(3,998 |
) |
|
|
(320 |
) |
Cash (paid for) received from termination of interest rate swap |
|
|
|
|
|
|
(21,196 |
) |
|
|
5,316 |
|
Common stock reissued from treasury |
|
|
221,736 |
|
|
|
128,055 |
|
|
|
208,004 |
|
Treasury stock purchases |
|
|
(550,865 |
) |
|
|
(544,131 |
) |
|
|
(597,660 |
) |
Dividends paid |
|
|
(445,416 |
) |
|
|
(397,537 |
) |
|
|
(357,298 |
) |
Excess tax benefits from share-based compensation arrangements |
|
|
8,810 |
|
|
|
6,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities |
|
|
(748,250 |
) |
|
|
(504,617 |
) |
|
|
(784,590 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash |
|
|
14 |
|
|
|
(325 |
) |
|
|
(2,158 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
5,975 |
|
|
|
10,219 |
|
|
|
(8,028 |
) |
Cash at beginning of year |
|
|
201,897 |
|
|
|
191,678 |
|
|
|
199,706 |
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year |
|
$ |
207,872 |
|
|
$ |
201,897 |
|
|
$ |
191,678 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
107,109 |
|
|
$ |
107,242 |
|
|
$ |
73,939 |
|
Income taxes |
|
|
563,968 |
|
|
|
619,442 |
|
|
|
436,378 |
|
See Notes to Consolidated Financial Statements
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
Business and Consolidation
Sysco Corporation, (SYSCO or the company), acting through its subsidiaries and divisions,
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 391,000 customers from 177 distribution facilities located throughout the United
States and Canada.
The accompanying financial statements include the accounts of SYSCO and its consolidated
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 2007
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 $31,841,000 as of June 30, 2007 and $29,100,000 as of July 1, 2006.
Customer accounts written off, net of recoveries, were $26,010,000 or 0.07% of sales, $21,128,000
or 0.06% of sales, and $20,840,000 or 0.07% of sales for fiscal 2007, 2006 and 2005, respectively.
Inventories
Inventories consisting primarily of finished goods include food and related products and
lodging 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 $3,955,000 in
2007, $2,853,000 in 2006 and $4,316,000 in 2005.
Long-Lived Assets
Management reviews long-lived assets, including finite-lived intangibles, 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.
38
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 on a straight-line basis over their useful lives, which generally
range 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 indefinite-lived 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 reporting units used to assess goodwill impairment are the
companys six operating segments as described in Note 17, Business Segment Information. The
components within each of the six operating segments have similar economic characteristics and
therefore are aggregated into six reporting units. 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 (SFAS 133),
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.
Certain agreements entered into by the company for the procurement of fuel, electricity and
product commodities related to SYSCOs business meet the definition of a derivative. The company
has assessed these agreements and determined that they qualify for the normal purchase and sale
exemption under SFAS 133 (as amended and interpreted) and documents and accounts for them
accordingly.
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 (loss).
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. Sales tax collected from customers is not included in revenue but rather
recorded as a liability due to the respective taxing authorities. 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, EITF Issue No. 04-13, Accounting for Purchases and Sales
of Inventory With the Same Counterparty, (EITF 04-13). See further discussion in Note 2, Changes
in Accounting.
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 as a reduction to cost of sales. 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
39
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 $1,977,516,000 in fiscal 2007, $1,857,093,000 in fiscal 2006, and $1,718,485,000 in
fiscal 2005.
Insurance Program
SYSCO maintains a self-insurance program covering portions of workers compensation,
general and vehicle liability costs. The amounts in excess of the self-insured levels are fully
insured by third party insurers. The company also maintains a fully self-insured group medical
program. 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-insured liabilities were $125,844,000 and $115,557,000 as of
June 30, 2007 and July 1, 2006, 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. Cash
flows resulting from tax deductions in excess of the compensation cost recognized for those options
(excess tax benefits) are classified as financing cash flows on the consolidated cash flows
statements.
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. CHANGES IN ACCOUNTING
Pension Measurement Date Change and SFAS 158 Adoption
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 represented a change in
accounting. Management believes this accounting change was preferable, as the one-month
acceleration of the measurement date allowed 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. The impact to 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
for fiscal 2005 was not material.
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106, and
132(R) (SFAS 158). SFAS 158 has two major provisions. The recognition and disclosure provision
requires an employer to recognize a plans funded status in its statement of financial position and
recognize the changes in a defined benefit postretirement plans funded status in comprehensive
income in the year in which the changes occur. The measurement date provision requires an employer
to measure a plans assets and obligations as of the end of the employers fiscal year. SYSCO
adopted SFAS 158s recognition and disclosure requirements as of June 30, 2007. In addition, SYSCO
has elected to early adopt the measurement date provision in order to adopt both provisions of this
accounting standard at the same time. See discussion of the impact of adoption in Note 10,
Employee Benefit Plans.
40
EITF 04-13 Adoption
In September 2005, the Emerging Issues Task Force reached a consensus on EITF 04-13 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 or sourced by that
customer for warehousing and distribution and resold to the same customer. These transactions are
evidenced by title transfer and are separately invoiced. Historically, the company has recorded
such transactions in the consolidated results of operations within cost of sales for the purchase
amount and within sales for the sales amount. In fiscal 2007, 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 $334,002,000. 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 amounts included in the
consolidated results of operations within cost of sales for the 39 week period ended April 1, 2006
and fiscal 2005 that were recorded on a gross basis prior to the adoption of EITF 04-13 were
$279,746,000 and $347,018,000, respectively. Such amounts were not restated when the new standard
was adopted because only prospective treatment was allowed.
3. NEW ACCOUNTING STANDARDS
FIN 48
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; therefore, these provisions became effective for SYSCO on July 1, 2007. While the company
continues to analyze the financial statement impact resulting from the adoption of FIN 48, SYSCO
estimates that the cumulative effect adjustment may result in an increase to tax liabilities of
$70,000,000 to $100,000,000, with an offsetting charge to beginning retained earnings.
SFAS 157
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157).
SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with
generally accepted accounting principles, and expands disclosures about fair value measurements.
The statement is effective for fiscal years beginning after November 15, 2007. The company is
currently evaluating the impact of the provisions of SFAS 157.
SFAS 159
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair value that are not currently required to be measured at
fair value. SFAS 159 also establishes presentation and disclosure requirements designed to
facilitate comparisons between entities that choose different measurement attributes for similar
types of assets and liabilities. SFAS 159 is effective as of the beginning of an entitys first
fiscal year that begins after November 15, 2007. The company is currently evaluating the impact the
adoption of SFAS 159 may have on its consolidated financial statements.
4. PLANT AND EQUIPMENT
A summary of plant and equipment, including the related accumulated depreciation, appears
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Useful |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
Lives |
|
Plant and equipment, at cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Land |
|
$ |
239,206,000 |
|
|
$ |
220,542,000 |
|
|
|
|
|
Buildings and improvements |
|
|
2,428,184,000 |
|
|
|
2,140,786,000 |
|
|
10-40 years |
Fleet, equipment and software |
|
|
2,416,948,000 |
|
|
|
2,277,612,000 |
|
|
3-20 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,084,338,000 |
|
|
|
4,638,940,000 |
|
|
|
|
|
Accumulated depreciation |
|
|
(2,363,105,000 |
) |
|
|
(2,174,040,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net plant and equipment |
|
$ |
2,721,233,000 |
|
|
$ |
2,464,900,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense, including capital leases, for the past three years was $341,714,000 in
2007, $320,669,000 in 2006 and $298,111,000 in 2005.
41
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 as of July 2, 2005 |
|
$ |
676,346,000 |
|
|
$ |
33,161,000 |
|
|
$ |
503,096,000 |
|
|
$ |
1,212,603,000 |
|
Goodwill acquired during year |
|
|
11,488,000 |
|
|
|
(551,000 |
) |
|
|
57,173,000 |
|
|
|
68,110,000 |
|
Currency translation/Other |
|
|
21,580,000 |
|
|
|
|
|
|
|
298,000 |
|
|
|
21,878,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount as of July 1, 2006 |
|
|
709,414,000 |
|
|
|
32,610,000 |
|
|
|
560,567,000 |
|
|
|
1,302,591,000 |
|
Goodwill acquired during year |
|
|
13,017,000 |
|
|
|
|
|
|
|
29,168,000 |
|
|
|
42,185,000 |
|
Currency translation/Other |
|
|
10,253,000 |
|
|
|
(1,000 |
) |
|
|
285,000 |
|
|
|
10,537,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount as of June 30, 2007 |
|
$ |
732,684,000 |
|
|
$ |
32,609,000 |
|
|
$ |
590,020,000 |
|
|
$ |
1,355,313,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents details of the companys other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
July 1, 2006 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
114,844,000 |
|
|
$ |
31,721,000 |
|
|
$ |
83,123,000 |
|
|
$ |
109,201,000 |
|
|
$ |
21,056,000 |
|
|
$ |
88,145,000 |
|
Non-compete agreements |
|
|
5,027,000 |
|
|
|
2,841,000 |
|
|
|
2,186,000 |
|
|
|
8,099,000 |
|
|
|
6,001,000 |
|
|
|
2,098,000 |
|
Trademarks |
|
|
700,000 |
|
|
|
175,000 |
|
|
|
525,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortized intangible assets |
|
|
120,571,000 |
|
|
|
34,737,000 |
|
|
|
85,834,000 |
|
|
|
117,300,000 |
|
|
|
27,057,000 |
|
|
|
90,243,000 |
|
Unamortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
5,532,000 |
|
|
|
|
|
|
|
5,532,000 |
|
|
|
5,408,000 |
|
|
|
|
|
|
|
5,408,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
126,103,000 |
|
|
$ |
34,737,000 |
|
|
$ |
91,366,000 |
|
|
$ |
122,708,000 |
|
|
$ |
27,057,000 |
|
|
$ |
95,651,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the past three years was $12,711,000 in 2007, $10,773,000 in 2006 and
$7,569,000 in 2005. Amortization expense for each year includes expense related to assets that have
been fully amortized and whose balances have been removed in the schedule above in the period full
amortization is reached. The estimated future amortization expense for the next five fiscal years
on intangible assets outstanding as of June 30, 2007 is shown below:
|
|
|
|
|
|
|
Amount |
2008 |
|
$ |
13,160,000 |
|
2009 |
|
|
12,930,000 |
|
2010 |
|
|
12,494,000 |
|
2011 |
|
|
12,088,000 |
|
2012 |
|
|
11,558,000 |
|
6. RESTRICTED CASH
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. During fiscal 2007, $4,000,000 was placed into escrow related to a new acquisition, and
escrowed funds in the amount of $2,500,000 were released to sellers of acquired businesses. In
addition, escrowed funds of $12,121,000 were released from escrow related to an acquisition for
which the contingent consideration period expired without the additional consideration being
earned.
A summary of restricted cash balances appears below:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
Funds deposited in insurance trusts |
|
$ |
92,929,000 |
|
|
$ |
82,653,000 |
|
Escrow funds related to acquisitions |
|
|
9,000,000 |
|
|
|
19,621,000 |
|
|
|
|
|
|
|
|
Total |
|
$ |
101,929,000 |
|
|
$ |
102,274,000 |
|
|
|
|
|
|
|
|
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.
42
In previous fiscal years, the company entered into various interest rate swap agreements
designated as fair value hedges of the related debt. In fiscal 2005, the remaining swap agreements
were terminated, and the amount received upon termination was $5,316,000. 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. 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. These
agreements meet the definition of a derivative. However, the company elected to use the normal
purchase and sale exemption available under SFAS 133 (as amended and interpreted).
8. DEBT AND OTHER FINANCING ARRANGEMENTS
SYSCOs debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
Short-term borrowings, interest at 5.7% as of June 30, 2007 and 5.4% as of July 1, 2006 |
|
$ |
18,900,000 |
|
|
$ |
29,300,000 |
|
Commercial paper, interest averaging 5.2% as of June 30, 2007 and 5.3% as of July 1, 2006 |
|
|
531,826,000 |
|
|
|
399,568,000 |
|
Senior notes, interest at 7.25%, maturing in fiscal 2007 |
|
|
|
|
|
|
99,295,000 |
|
Senior notes, interest at 6.1%, maturing in fiscal 2012 |
|
|
200,467,000 |
|
|
|
200,561,000 |
|
Senior notes, interest at 4.6%, maturing in fiscal 2014 |
|
|
207,435,000 |
|
|
|
208,540,000 |
|
Debentures, interest at 7.16%, maturing in fiscal 2027 |
|
|
50,000,000 |
|
|
|
50,000,000 |
|
Debentures, interest at 6.5%, maturing in fiscal 2029 |
|
|
224,498,000 |
|
|
|
224,474,000 |
|
Senior notes, interest at 5.375%, maturing in fiscal 2036 |
|
|
499,581,000 |
|
|
|
499,566,000 |
|
Industrial Revenue Bonds, mortgages and other debt, interest averaging 7.1% as of June 30,
2007 and 6.9% as of July 1, 2006, maturing at various dates to fiscal 2026 |
|
|
47,988,000 |
|
|
|
51,388,000 |
|
|
|
|
|
|
|
|
Total debt |
|
|
1,780,695,000 |
|
|
|
1,762,692,000 |
|
Less current maturities and short-term debt |
|
|
(22,468,000 |
) |
|
|
(135,565,000 |
) |
|
|
|
|
|
|
|
Net long-term debt |
|
$ |
1,758,227,000 |
|
|
$ |
1,627,127,000 |
|
|
|
|
|
|
|
|
The principal payments required to be made during the next five fiscal years on debt
outstanding as of June 30, 2007 are shown below:
|
|
|
|
|
|
|
Amount |
2008 |
|
$ |
22,468,000 |
|
2009 |
|
|
3,959,000 |
|
2010 |
|
|
1,454,000 |
|
2011 |
|
|
1,281,000 |
|
2012 |
|
|
733,171,000 |
|
Short-term Borrowings
SYSCO has uncommitted bank lines of credit, which as of June 30, 2007 provided for
unsecured borrowings for working capital of up to $145,000,000. Borrowings outstanding under these
lines of credit were $18,900,000 and $29,300,000, as of June 30, 2007 and July 1, 2006,
respectively.
Commercial Paper
SYSCO has a commercial paper program allowing the company to issue short-term unsecured
notes in an aggregate not to exceed $1,300,000,000. The current program was entered into in April
2006 and replaced notes that were issued under SYSCOs previous commercial paper program as they
matured and became due and payable.
SYSCO and one of its subsidiaries, SYSCO International, Co., has a revolving credit facility
supporting the companys U.S. and Canadian commercial paper programs. The facility in the amount
of $750,000,000 may be increased up to $1,000,000,000 at the option of the company, and terminates
on November 4, 2011, subject to extension. Since this long-term facility supports the
43
companys commercial paper programs, the $531,826,000 and $399,568,000 of outstanding
commercial paper issuances as of June 30, 2007 and July 1, 2006, respectively, were classified as
long-term debt.
This facility was originally entered into in November 2005 in the amount of $500,000,000 and
was increased to $750,000,000 in March 2006. In September 2006, the termination date on the
facility was extended to November 4, 2011, in accordance with the terms of the agreement. This
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
November 2005.
During fiscal 2007, 2006 and 2005, aggregate outstanding commercial paper issuances and
short-term bank borrowings ranged from approximately $356,804,000 to $755,180,000, $126,846,000 to
$774,530,000, and $28,560,000 to $253,384,000, respectively.
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.
In April 2007, SYSCO repaid the 7.25% senior notes totaling $100,000,000 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 that
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 7.16% debentures due April 15, 2027 are unsecured, are not subject to any sinking fund
requirement and were 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 four to
19 years and certain of the bonds provide SYSCO the right to redeem the bonds at various dates.
These redemption provisions generally provide the bondholder a premium in the early redemption
years, declining to par value as the bonds approach maturity.
Total Debt
Total debt as of June 30, 2007 was $1,780,695,000, of which approximately 68% was at
fixed rates averaging 5.8% 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 as of June 30, 2007.
44
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 $1,693,619,000 as of June
30, 2007 and $1,669,999,000 as of July 1, 2006, respectively.
Other
As of June 30, 2007 and July 1, 2006, letters of credit outstanding were $62,645,000 and
$60,000,000, respectively.
9. LEASES
Although SYSCO normally purchases assets, it has obligations under capital and operating
leases for certain distribution facilities, vehicles and computers. Total rental expense under
operating leases was $94,163,000, $100,690,000, and $92,710,000 in fiscal 2007, 2006 and 2005,
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 |
2008 |
|
$ |
63,383,000 |
|
2009 |
|
|
53,315,000 |
|
2010 |
|
|
45,243,000 |
|
2011 |
|
|
36,197,000 |
|
2012 |
|
|
27,272,000 |
|
Thereafter |
|
|
142,300,000 |
|
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 $26,032,000 in 2007, $21,898,000 in 2006, and $28,109,000 in 2005.
SYSCOs contributions to multi-employer pension plans were $37,296,000, $29,796,000, and
$28,822,000 in fiscal 2007, 2006 and 2005, respectively. See further discussion of SYSCOs
participation in multi-employer pension plans in Note 16, Commitments and Contingencies.
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.
Adoption of SFAS 158
On June 30, 2007, SYSCO adopted the recognition and disclosure provisions of SFAS 158.
SFAS 158 requires the company to recognize the funded status of its defined benefit plans in its
statement of financial position, with a corresponding adjustment to accumulated other comprehensive
income, net of tax. The adjustment to accumulated other comprehensive income at adoption
represents the net unrecognized actuarial losses, unrecognized prior service costs, and
unrecognized transition obligation remaining from the initial adoption of SFAS 87/106, all of which
were previously netted against the funded status of the plans in the companys statement of
financial position pursuant to the provisions of SFAS 87/106. These amounts will subsequently be
recognized as net benefit cost consistent with the companys historical accounting policy for
amortizing such amounts. In addition, actuarial gains and losses that arise in subsequent periods
and are not recognized as net periodic benefit cost in the same periods will be recognized as a
component of other comprehensive income. Those amounts will subsequently be recognized as a
component of net periodic benefit cost on the same basis as the amounts recognized in accumulated
other comprehensive income at the adoption of SFAS 158.
The effects of the adoption of the recognition and disclosure provisions of SFAS 158 on the
companys consolidated balance sheet as of June 30, 2007 are presented in the following table. The
adoption of SFAS 158 had no effect on the companys consolidated results of operations for the
fiscal year ended June 30, 2007, or for any prior period presented, and it will not affect the
companys consolidated results of operations in future periods. Prior to the adoption of SFAS 158
on June 30, 2007, the company recognized an
45
additional minimum pension liability pursuant to the provisions of SFAS 87/106. The effect of
recognizing the additional minimum pension liability is included in the table below in the column
labeled Prior to Adopting SFAS 158.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007 |
|
|
Prior to Adopting |
|
Effect of Adopting |
|
As Reported at |
|
|
SFAS 158 |
|
SFAS 158 |
|
June 30, 2007 |
Prepaid pension cost |
|
$ |
436,236,000 |
|
|
$ |
(83,846,000 |
) |
|
$ |
352,390,000 |
|
Intangible asset (Other assets) |
|
|
43,854,000 |
|
|
|
(43,854,000 |
) |
|
|
|
|
Current accrued benefit liability (Accrued expenses) |
|
|
|
|
|
|
(10,967,000 |
) |
|
|
(10,967,000 |
) |
Long-term deferred tax liability |
|
|
(38,196,000 |
) |
|
|
73,328,000 |
|
|
|
35,132,000 |
|
Non-current accrued benefit liability (Other long-term liabilities) |
|
|
(271,369,000 |
) |
|
|
(52,289,000 |
) |
|
|
(323,658,000 |
) |
Accumulated other comprehensive loss |
|
|
7,637,000 |
|
|
|
117,628,000 |
|
|
|
125,265,000 |
|
SFAS 158 also has a measurement date provision, which is a requirement to measure plan assets
and benefit obligations as of the date of the employers fiscal year-end statement of financial
position, effective for fiscal years ending after December 15, 2008. In the first quarter of
fiscal 2006, SYSCO changed the measurement date for pension and other postretirement benefit plans
from fiscal year-end to May 31st to allow 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. With the issuance of SFAS 158, SYSCO has elected to early adopt the
measurement date provision in order to adopt both provisions of this accounting standard at the
same time. As a result, beginning in fiscal 2008, the measurement date will return to correspond
with fiscal year-end. The company has performed measurements as of May 31, 2007 and June 30, 2007
of the plan assets and benefit obligations. SYSCO will record a charge to beginning retained
earnings in the first quarter of fiscal 2008 of approximately $4,000,000, net of tax, for the impact of the
difference in our pension expense between the two measurement dates. The company will also record
a benefit to beginning accumulated other comprehensive loss in the first quarter of fiscal 2008 of
approximately $23,000,000, net of tax, for the impact of the difference in our recognition provision between the
two measurement dates.
Funded Status
The funded status of SYSCOs defined benefit plans is presented in the table below. The
caption Pension Benefits includes both the Retirement Plan and the SERP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Other Postretirement Plans |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
|
$ |
1,381,409,000 |
|
|
$ |
1,574,718,000 |
|
|
$ |
8,045,000 |
|
|
$ |
8,818,000 |
|
Service cost |
|
|
84,654,000 |
|
|
|
100,028,000 |
|
|
|
451,000 |
|
|
|
510,000 |
|
Interest cost |
|
|
91,311,000 |
|
|
|
83,600,000 |
|
|
|
531,000 |
|
|
|
472,000 |
|
Amendments |
|
|
3,410,000 |
|
|
|
7,800,000 |
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss |
|
|
46,463,000 |
|
|
|
(284,307,000 |
) |
|
|
(359,000 |
) |
|
|
(1,473,000 |
) |
Actual expenses |
|
|
(10,814,000 |
) |
|
|
(7,906,000 |
) |
|
|
|
|
|
|
|
|
Total disbursements |
|
|
(31,106,000 |
) |
|
|
(24,331,000 |
) |
|
|
7,000 |
|
|
|
(57,000 |
) |
Settlements/Adjustments (Measurement date change) |
|
|
|
|
|
|
(68,193,000 |
) |
|
|
|
|
|
|
(225,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year |
|
|
1,565,327,000 |
|
|
|
1,381,409,000 |
|
|
|
8,675,000 |
|
|
|
8,045,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
|
1,282,302,000 |
|
|
|
1,141,638,000 |
|
|
|
|
|
|
|
|
|
Actual return on plan assets |
|
|
259,471,000 |
|
|
|
106,584,000 |
|
|
|
|
|
|
|
|
|
Employer contribution |
|
|
90,836,000 |
|
|
|
207,645,000 |
|
|
|
(7,000 |
) |
|
|
57,000 |
|
Actual expenses |
|
|
(10,814,000 |
) |
|
|
(7,906,000 |
) |
|
|
|
|
|
|
|
|
Total disbursements |
|
|
(31,106,000 |
) |
|
|
(24,331,000 |
) |
|
|
7,000 |
|
|
|
(57,000 |
) |
Settlements/Adjustments (Measurement date change) |
|
|
|
|
|
|
(141,328,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
|
1,590,689,000 |
|
|
|
1,282,302,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status |
|
|
25,362,000 |
|
|
|
(99,107,000 |
) |
|
|
(8,675,000 |
) |
|
|
(8,045,000 |
) |
Unrecognized net actuarial loss (gain) |
|
|
N/A |
|
|
|
264,855,000 |
|
|
|
N/A |
|
|
|
(2,515,000 |
) |
Unrecognized net obligation due to initial application
of SFAS No. 87/106 |
|
|
N/A |
|
|
|
|
|
|
|
N/A |
|
|
|
1,074,000 |
|
Unrecognized prior service cost |
|
|
N/A |
|
|
|
47,953,000 |
|
|
|
N/A |
|
|
|
793,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid (accrued) benefit cost at measurement date |
|
|
25,362,000 |
|
|
|
213,701,000 |
|
|
|
(8,675,000 |
) |
|
|
(8,693,000 |
) |
Contributions after measurement date, before end of year |
|
|
993,000 |
|
|
|
666,000 |
|
|
|
85,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid (accrued) benefit cost at end of year |
|
$ |
26,355,000 |
|
|
$ |
214,367,000 |
|
|
$ |
(8,590,000 |
) |
|
$ |
(8,693,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
In order to meet its obligations under the SERP, SYSCO maintains life insurance policies on
the lives of the participants with carrying values of $182,769,000 as of June 30, 2007 and
$153,659,000 as of July 1, 2006. These policies are not included as plan
46
assets or in the funded status amounts in the table above. SYSCO is the sole owner and
beneficiary of such policies. The projected benefit obligation for the SERP was $327,028,000 and
$327,450,000 as of June 30, 2007 and July 1, 2006, respectively.
The amounts recognized on SYSCOs consolidated balance sheet related to its defined benefit
plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Other Postretirement Plans |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
Prepaid pension cost |
|
$ |
352,390,000 |
|
|
$ |
388,650,000 |
|
|
$ |
|
|
|
$ |
|
|
Intangible asset (Other assets) |
|
|
N/A |
|
|
|
45,619,000 |
|
|
|
N/A |
|
|
|
|
|
Current accrued benefit liability (Accrued expenses) |
|
|
(10,784,000 |
) |
|
|
N/A |
|
|
|
(183,000 |
) |
|
|
N/A |
|
Non-current accrued benefit liability (Other
long-term liabilities) |
|
|
(315,251,000 |
) |
|
|
(237,932,000 |
) |
|
|
(8,407,000 |
) |
|
|
(8,693,000 |
) |
Minimum pension liability (Accumulated other
comprehensive income (loss)) |
|
|
N/A |
|
|
|
18,030,000 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
26,355,000 |
|
|
$ |
214,367,000 |
|
|
$ |
(8,590,000 |
) |
|
$ |
(8,693,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss as of June 30, 2007 consists of the following amounts
that have not yet been recognized in net benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Postretirement |
|
|
|
|
|
|
Pension Benefits |
|
|
Plans |
|
|
Total |
|
Unrecognized prior service cost |
|
$ |
45,678,000 |
|
|
$ |
591,000 |
|
|
$ |
46,269,000 |
|
Unrecognized actuarial losses (gains) |
|
|
158,906,000 |
|
|
|
(2,741,000 |
) |
|
|
156,165,000 |
|
Unrecognized transition obligation |
|
|
|
|
|
|
920,000 |
|
|
|
920,000 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
204,584,000 |
|
|
$ |
(1,230,000 |
) |
|
$ |
203,354,000 |
|
|
|
|
|
|
|
|
|
|
|
Prior to the adoption of the recognition and disclosure provisions of SFAS 158, minimum
pension liability adjustments resulted when the accumulated benefit obligation exceeded the fair
value of plan assets and was recorded so that the recorded pension liability is at a minimum equal
to the unfunded accumulated benefit obligation. Minimum pension liability adjustments were non-cash
adjustments that were 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. The amounts reflected in accumulated other comprehensive income
related to minimum pension liability, was a charge of $18,030,000 as of July 1, 2006.
The accumulated benefit obligation for the defined benefit pension plans was $1,377,832,000
and $1,187,185,000 as of June 30, 2007 and July 1, 2006, respectively.
Information for plans with accumulated benefit obligation/aggregate benefit obligation in
excess of fair value of plan assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other Postretirement Plans |
|
|
June 30, 2007 |
|
July 1, 2006 |
|
June 30, 2007 |
|
July 1, 2006 |
Accumulated benefit obligation/aggregate benefit obligation |
|
$ |
262,541,000 |
|
|
$ |
238,599,000 |
|
|
$ |
8,675,000 |
|
|
$ |
8,045,000 |
|
Fair value of plan assets at end of year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Net Benefit Costs
The components of net pension costs for each fiscal year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Service cost |
|
$ |
84,654,000 |
|
|
$ |
100,028,000 |
|
|
$ |
81,282,000 |
|
Interest cost |
|
|
91,311,000 |
|
|
|
83,600,000 |
|
|
|
73,824,000 |
|
Expected return on plan assets |
|
|
(116,744,000 |
) |
|
|
(104,174,000 |
) |
|
|
(82,613,000 |
) |
Amortization of prior service cost |
|
|
5,684,000 |
|
|
|
4,934,000 |
|
|
|
1,760,000 |
|
Recognized net actuarial loss |
|
|
9,686,000 |
|
|
|
46,204,000 |
|
|
|
32,605,000 |
|
|
|
|
|
|
|
|
|
|
|
Net pension costs |
|
$ |
74,591,000 |
|
|
$ |
130,592,000 |
|
|
$ |
106,858,000 |
|
|
|
|
|
|
|
|
|
|
|
47
The components of other postretirement benefit costs for each fiscal year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Plans |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Service cost |
|
$ |
451,000 |
|
|
$ |
510,000 |
|
|
$ |
477,000 |
|
Interest cost |
|
|
531,000 |
|
|
|
472,000 |
|
|
|
488,000 |
|
Expected return on plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
201,000 |
|
|
|
202,000 |
|
|
|
202,000 |
|
Recognized net actuarial gain |
|
|
(132,000 |
) |
|
|
(15,000 |
) |
|
|
|
|
Amortization of net transition obligation |
|
|
154,000 |
|
|
|
153,000 |
|
|
|
154,000 |
|
|
|
|
|
|
|
|
|
|
|
Net other postretirement benefit costs |
|
$ |
1,205,000 |
|
|
$ |
1,322,000 |
|
|
$ |
1,321,000 |
|
|
|
|
|
|
|
|
|
|
|
As a result of changes in assumptions, including the increase in the discount rate to 6.73%
for fiscal 2007, which is based on the measurement date of May 31st, from 5.60% in fiscal 2006,
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 decreased $56,001,000 in fiscal 2007. Net pension
costs in fiscal 2008 are expected to decrease by approximately $9,000,000 due primarily to the
funding status and asset performance of the Retirement Plan.
Amounts included in accumulated other comprehensive loss as of June 30, 2007 that are expected
to be recognized as components of net benefit cost during fiscal 2008 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Postretirement |
|
|
|
|
|
|
Pension Benefits |
|
|
Plans |
|
|
Total |
|
Amortization of prior service cost |
|
$ |
5,985,000 |
|
|
$ |
143,000 |
|
|
$ |
6,128,000 |
|
Recognition of actuarial losses (gains) |
|
|
3,409,000 |
|
|
|
(156,000 |
) |
|
|
3,253,000 |
|
Amortization of net transition obligation |
|
|
|
|
|
|
153,000 |
|
|
|
153,000 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,394,000 |
|
|
$ |
140,000 |
|
|
$ |
9,534,000 |
|
|
|
|
|
|
|
|
|
|
|
Employer Contributions
The company made cash contributions to its pension plans of $91,163,000 and $73,764,000
in fiscal years 2007 and 2006, respectively, including $80,000,000 and $66,000,000 in voluntary
contributions to the Retirement Plan in fiscal 2007 and 2006, respectively. In fiscal 2008, 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 2008
contributions to fund benefit payments for the SERP and other postretirement plans are $11,777,000
and $268,000, respectively.
Estimated Future Benefit Payments
Estimated future benefit payments for vested participants, based on actuarial
assumptions, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Postretirement |
|
|
Pension Benefits |
|
Plans |
2008 |
|
$ |
35,425,000 |
|
|
$ |
268,000 |
|
2009 |
|
|
41,021,000 |
|
|
|
374,000 |
|
2010 |
|
|
47,720,000 |
|
|
|
511,000 |
|
2011 |
|
|
54,793,000 |
|
|
|
645,000 |
|
2012 |
|
|
62,332,000 |
|
|
|
777,000 |
|
Subsequent five years |
|
|
448,068,000 |
|
|
|
4,985,000 |
|
Assumptions
Weighted-average assumptions used to determine benefit obligations as of year-end were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other Postretirement Plans |
|
|
June 30, 2007 |
|
July 1, 2006 |
|
June 30, 2007 |
|
July 1, 2006 |
Discount rate Retirement Plan and Other Postretirement Plans |
|
|
6.54 |
% |
|
|
6.73 |
% |
|
|
6.54 |
% |
|
|
6.73 |
% |
Discount rate SERP |
|
|
6.40 |
|
|
|
6.73 |
|
|
|
N/A |
|
|
|
N/A |
|
Rate of compensation increase Retirement Plan |
|
|
6.17 |
|
|
|
6.17 |
|
|
|
N/A |
|
|
|
N/A |
|
48
For determining the benefit obligations as of year-end, the SERP calculations assume annual
salary increases of 10% through fiscal 2007 and 7% thereafter as of June 30, 2007 and July 1, 2006.
Weighted-average assumptions used to determine net pension costs and other postretirement
benefit costs for each fiscal year were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
Other Postretirement Plans |
|
|
2007 |
|
2006 |
|
2005 |
|
2007 |
|
2006 |
|
2005 |
Discount rate All Plans |
|
|
6.73 |
% |
|
|
5.60 |
% |
|
|
6.25 |
% |
|
|
6.73 |
% |
|
|
5.60 |
% |
|
|
6.25 |
% |
Expected rate of return |
|
|
9.00 |
|
|
|
9.00 |
|
|
|
9.00 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Rate of compensation increase Retirement Plan |
|
|
6.17 |
|
|
|
5.89 |
|
|
|
5.89 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
For determining net pension costs related to the SERP for each fiscal year, the calculations
for fiscal 2007, 2006 and 2005 assume annual salary increases of 10% through fiscal 2007 and 7%
thereafter.
A healthcare cost trend rate is not used in the calculations of postretirement 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 discount rate to be used
for the calculation of fiscal 2008 net benefit costs for the Retirement Plan and Other
Postretirement Plans is 6.78%. The discount rate to be used for the calculation of fiscal 2008 net
benefit costs for the SERP is 6.64%. As noted above, the fiscal 2008 discount rates are based on a
measurement date of June 30, 2007.
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. The expected
long-term rate of return to be used in the calculation of fiscal 2008 net benefit costs for the
Retirement Plan is 8.50%.
The measurement date for the pension and other postretirement benefit plans is fiscal year-end
for fiscal years 2005 and prior. The measurement date for fiscal 2006 and 2007 was May 31st. As
discussed above under SFAS 158 Adoption, an additional measurement was performed as of June 30,
2007. The measurement date for all future periods will correspond with fiscal year-end.
Investment Policy and Assets
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 that 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:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
July 1, 2006 |
Equity securities |
|
|
72.0 |
% |
|
|
70.9 |
% |
Debt securities |
|
|
28.0 |
|
|
|
29.1 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
11. SHAREHOLDERS EQUITY
Basic earnings per share has 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
has 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.
49
A reconciliation of the numerators and the denominators of the basic and diluted per share
computations for the periods presented follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change |
|
$ |
1,001,076,000 |
|
|
$ |
846,040,000 |
|
|
$ |
961,457,000 |
|
Cumulative effect of accounting change |
|
|
|
|
|
|
9,285,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
1,001,076,000 |
|
|
$ |
855,325,000 |
|
|
$ |
961,457,000 |
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic shares outstanding |
|
|
618,332,752 |
|
|
|
621,382,766 |
|
|
|
636,068,266 |
|
Dilutive effect of share-based awards |
|
|
8,034,046 |
|
|
|
7,417,881 |
|
|
|
17,088,851 |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average diluted shares outstanding |
|
|
626,366,798 |
|
|
|
628,800,647 |
|
|
|
653,157,117 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change |
|
$ |
1.62 |
|
|
$ |
1.36 |
|
|
$ |
1.51 |
|
Cumulative effect of accounting change |
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
1.62 |
|
|
$ |
1.38 |
|
|
$ |
1.51 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change |
|
$ |
1.60 |
|
|
$ |
1.35 |
|
|
$ |
1.47 |
|
Cumulative effect of accounting change |
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
1.60 |
|
|
$ |
1.36 |
|
|
$ |
1.47 |
|
|
|
|
|
|
|
|
|
|
|
The number of options that were not included in the diluted earnings per share calculation
because the effect would have been anti-dilutive was approximately 21,900,000, 28,500,000 and
68,000 for fiscal 2007, 2006 and 2005, respectively.
Dividends declared were $456,438,000, $408,264,000 and $368,792,000 in fiscal 2007, 2006 and
2005, respectively. Included in dividends declared for each year were dividends declared but not
yet paid year-end of approximately $116,000,000, $105,000,000 and $95,000,000 in fiscal 2007, 2006
and 2005, 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.
12. COMPREHENSIVE INCOME
Comprehensive income is net earnings plus certain other items that are recorded directly to
shareholders equity. Comprehensive income was $1,030,025,000, $953,620,000 and $930,140,000 in
fiscal 2007, 2006 and 2005, respectively.
A summary of the components of other comprehensive income (loss) and the related tax effects
for each of the years presented is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
Before-Tax |
|
|
|
|
|
|
After-Tax |
|
|
|
Amount |
|
|
Income Tax |
|
|
Amount |
|
Minimum pension liability adjustment |
|
$ |
5,633,000 |
|
|
$ |
2,164,000 |
|
|
$ |
3,469,000 |
|
Foreign currency translation adjustment |
|
|
25,052,000 |
|
|
|
|
|
|
|
25,052,000 |
|
Amortization of cash flow hedge |
|
|
694,000 |
|
|
|
266,000 |
|
|
|
428,000 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
$ |
31,379,000 |
|
|
$ |
2,430,000 |
|
|
$ |
28,949,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 loss |
|
$ |
(64,641,000 |
) |
|
$ |
(33,324,000 |
) |
|
$ |
(31,317,000 |
) |
|
|
|
|
|
|
|
|
|
|
50
The following table provides a summary of the changes in accumulated other comprehensive
income (loss) for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and Other |
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement |
|
|
Foreign Currency |
|
|
|
|
|
|
|
|
|
Benefit Plans |
|
|
Translation |
|
|
Interest Rate Swap |
|
|
Total |
|
Balance as of 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 as of 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 as of July 1, 2006 |
|
|
(11,106,000 |
) |
|
|
108,448,000 |
|
|
|
(12,724,000 |
) |
|
|
84,618,000 |
|
Minimum pension liability adjustment |
|
|
3,469,000 |
|
|
|
|
|
|
|
|
|
|
|
3,469,000 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
25,052,000 |
|
|
|
|
|
|
|
25,052,000 |
|
Amortization of cash flow hedge |
|
|
|
|
|
|
|
|
|
|
428,000 |
|
|
|
428,000 |
|
Impact of adoption of SFAS 158 |
|
|
(117,628,000 |
) |
|
|
|
|
|
|
|
|
|
|
(117,628,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2007 |
|
$ |
(125,265,000 |
) |
|
$ |
133,500,000 |
|
|
$ |
(12,296,000 |
) |
|
$ |
(4,061,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 Plan 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 flows. 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 Plan 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.
51
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 June 30, 2007, there were 12,523,950 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 as of June 30, 2007. 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 June 30, 2007 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 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 June 30,
2007, there were 389,872 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 $11,698,000 and $23,907,000 lower for fiscal 2007 and
2006, respectively. There would be no impact to recognized compensation cost for fiscal 2005, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
Dividend yield |
|
|
2.20 |
% |
|
|
1.40 |
% |
|
|
1.45 |
% |
Expected volatility |
|
|
21 |
% |
|
|
23 |
% |
|
|
22 |
% |
Risk-free interest rate |
|
|
4.7 |
% |
|
|
3.9 |
% |
|
|
3.4 |
% |
Expected life |
|
5 years |
|
5 years |
|
5 years |
52
The following summary presents information regarding outstanding options as of June 30, 2007
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 as of July 1, 2006 |
|
|
65,516,669 |
|
|
$ |
28.60 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
6,539,200 |
|
|
|
31.70 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(7,595,620 |
) |
|
|
24.45 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(774,282 |
) |
|
|
31.82 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(249,308 |
) |
|
|
28.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of June 30, 2007 |
|
|
63,436,659 |
|
|
$ |
29.38 |
|
|
|
4.83 |
|
|
$ |
229,847,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest as of June 30, 2007 |
|
|
61,688,263 |
|
|
$ |
29.30 |
|
|
|
4.82 |
|
|
$ |
228,224,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of June 30, 2007 |
|
|
45,154,040 |
|
|
$ |
28.35 |
|
|
|
4.62 |
|
|
$ |
209,525,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total number of employee options granted was 6,504,200, 4,826,500 and 8,515,000 in fiscal
years 2007, 2006 and 2005, respectively. During fiscal 2007, 594,000 options were granted to 9
executive officers and 5,910,200 options were granted to approximately 1,600 other key employees.
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 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.
The weighted average grant-date fair value of options granted in fiscal 2007, 2006 and 2005
were $6.85, $7.83 and $7.12, respectively. The total intrinsic value of options exercised during
fiscal 2007, 2006 and 2005, was $73,124,000, $48,928,000 and $81,220,000, respectively.
Employees Stock Purchase Plan
SYSCO has an Employees Stock Purchase Plan that 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 3,186,098 remained available as of June 30, 2007.
During fiscal 2007, 1,708,250 shares of SYSCO common stock were purchased by the participants
as compared to 1,840,764 shares purchased in fiscal 2006 and 1,712,244 shares purchased in fiscal
2005. In July 2007, 433,498 shares were purchased by participants.
The weighted average fair value of employee stock purchase rights issued pursuant to the
Employees Stock Purchase Plan was $5.02, $4.88 and $5.19 per share during fiscal 2007, 2006 and
2005, 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
SYSCOs Management Incentive Plan compensates key management personnel for specific
performance achievements. The bonuses earned and expensed under this plan are 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 this plan 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 Plan 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.
A total of 323,822 shares, 617,637 shares and 1,001,624 shares at a fair value of $30.56,
$36.25 and $34.80 were issued pursuant to this plan in fiscal 2007, 2006 and 2005, respectively,
for bonuses earned in the preceding fiscal years. As of June 30, 2007, there were 2,800,000
remaining shares that may be issued under the Management Incentive
Plan. In August 2007, 588,143 shares were issued in payment of the stock portion of the bonuses earned in fiscal 2007.
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 fiscal 2007, 12,000 shares in the aggregate of restricted stock
were granted to two non-employee directors as one-time retainer awards under the 2005 Non-Employee
Directors Stock Plan. There were no one-time retainer awards issued in fiscal 2006.
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. In fiscal 2005,
4,000 shares of restricted stock were granted to one non-employee
53
director as a one-time retainer award under the Non-Employee Directors Stock Plan. This
fiscal 2005 award and the other remaining outstanding unvested awards under this plan vest over a
six-year period if certain earnings goals are met.
The 2005 Non-Employee Directors Stock Plan provides for the issuance of restricted stock to
current non-employee directors. During fiscal 2007 and 2006, 30,000 and 27,000 shares,
respectively, of restricted stock were granted to non-employee directors. These shares will vest
ratably over a three-year period.
The total amount of unvested shares related to the one-time retainer awards and other
restricted stock awards as of June 30, 2007 was not significant.
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 11,721, 12,907 and 11,836 shares with
a weighted-average grant date fair value of $33.80, $33.63 and $35.38 per share were issued in
fiscal 2007, 2006 and 2005, respectively.
All Share-Based Payment Arrangements
The total share-based compensation cost that has been recognized in results of operations
was $97,985,000, $126,837,000 and $19,749,000 for fiscal 2007, 2006 and 2005, respectively, and is
included within operating expenses in the consolidated results of operations. The total income tax
benefit recognized in results of operations for share-based compensation arrangements was
$21,549,000, $15,607,000 and $8,597,000 for fiscal 2007, 2006 and 2005, respectively.
As of June 30, 2007, there was $82,175,000 of total unrecognized compensation cost related to
share-based compensation arrangements. That cost is expected to be recognized over a
weighted-average period of 2.68 years.
Cash received from option exercises was $172,734,000, $93,337,000 and $124,701,000 during
fiscal 2007, 2006 and 2005, respectively. The actual tax benefit realized for the tax deductions
from option exercises totaled $22,575,000, $12,507,000 and $20,887,000 during fiscal 2007, 2006 and
2005, 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:
|
|
|
|
|
|
|
2005 |
|
Net earnings: |
|
|
|
|
Reported net earnings |
|
$ |
961,457,000 |
|
Add: Stock-based employee compensation expense
included in reported earnings, net of related tax
effects(1) |
|
|
11,152,000 |
|
Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effects |
|
|
(98,815,000 |
) |
|
|
|
|
Pro forma net earnings |
|
$ |
873,794,000 |
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
Reported basic earnings per share |
|
$ |
1.51 |
|
Pro forma basic earnings per share |
|
|
1.37 |
|
Diluted earnings per share: |
|
|
|
|
Reported diluted earnings per share |
|
$ |
1.47 |
|
Pro forma diluted earnings per share |
|
|
1.36 |
|
|
|
|
(1) |
|
Amounts represent the after-tax compensation costs for stock grants. |
The pro forma presentation includes only options granted after 1995.
14. INCOME TAXES
The income tax provision for each fiscal year consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
United States federal income taxes |
|
$ |
539,997,000 |
|
|
$ |
486,642,000 |
|
|
$ |
485,499,000 |
|
State, local and foreign income taxes |
|
|
80,142,000 |
|
|
|
62,264,000 |
|
|
|
78,480,000 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
620,139,000 |
|
|
$ |
548,906,000 |
|
|
$ |
563,979,000 |
|
|
|
|
|
|
|
|
|
|
|
Included in the income taxes charged to earnings are net deferred tax provisions of
$566,334,000, $533,108,000, and $554,850,000 in fiscal 2007, 2006 and 2005, 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
54
deferred tax liability balances in fiscal 2007, 2006 and 2005 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 $536,492,000 and $497,830,000 in fiscal 2007 and 2006, respectively.
Deferred supply chain distributions 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 2007 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 (BSCC).
Significant components of SYSCOs deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Deferred supply chain distributions |
|
$ |
988,341,000 |
|
|
$ |
924,902,000 |
|
Excess tax depreciation and basis differences of assets |
|
|
360,271,000 |
|
|
|
383,636,000 |
|
Pension |
|
|
|
|
|
|
58,406,000 |
|
Other |
|
|
8,529,000 |
|
|
|
7,987,000 |
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
1,357,141,000 |
|
|
|
1,374,931,000 |
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating tax loss carryforwards |
|
|
101,180,000 |
|
|
|
112,593,000 |
|
Pension |
|
|
35,132,000 |
|
|
|
|
|
Deferred compensation |
|
|
49,850,000 |
|
|
|
45,878,000 |
|
Casualty insurance |
|
|
37,385,000 |
|
|
|
35,254,000 |
|
Receivables |
|
|
26,430,000 |
|
|
|
25,208,000 |
|
Inventory |
|
|
25,357,000 |
|
|
|
22,549,000 |
|
Other |
|
|
37,198,000 |
|
|
|
37,251,000 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
312,532,000 |
|
|
|
278,733,000 |
|
|
|
|
|
|
|
|
Valuation allowances |
|
|
70,935,000 |
|
|
|
80,851,000 |
|
|
|
|
|
|
|
|
Total net deferred tax liabilities |
|
$ |
1,115,544,000 |
|
|
$ |
1,177,049,000 |
|
|
|
|
|
|
|
|
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 2007 and
2006 as compared to fiscal 2005. The company expects that its pension contributions in fiscal 2008
will be at a comparable level with fiscal 2007 and 2006.
The company had state and Canadian net operating tax losses as of June 30, 2007 and July 1,
2006, respectively. The net operating tax losses outstanding as of June 30, 2007 expire in fiscal
years 2008 through 2027. A valuation allowance of $70,935,000 and $80,851,000 was recorded as of
June 30, 2007 and July 1, 2006, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
United States statutory federal income tax rate |
|
|
35.00 |
% |
|
|
35.00 |
% |
|
|
35.00 |
% |
State, local and foreign income taxes, net of federal income tax benefit |
|
|
2.15 |
|
|
|
2.17 |
|
|
|
2.74 |
|
Impact of share-based compensation |
|
|
0.93 |
|
|
|
2.09 |
|
|
|
|
|
Other |
|
|
0.17 |
|
|
|
0.09 |
|
|
|
(0.77 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38.25 |
% |
|
|
39.35 |
% |
|
|
36.97 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate for fiscal 2007 decreased as compared to fiscal 2006 primarily due to
lower share-based compensation expense in fiscal 2007 and increased gains recorded related to the
cash surrender value of corporate-owned life insurance policies. SYSCO recorded a tax benefit of
$21,549,000 or 22.0% of the $97,985,000 in share-based compensation expense recorded in fiscal
2007. SYSCO recorded a tax benefit of $15,607,000 or 12.3% of the $126,837,000 in share-based
compensation expense recorded in fiscal 2006.
The effective tax rate for fiscal 2006 increased as compared to fiscal 2005 primarily as a
result of the adoption of SFAS 123(R). As discussed above, SYSCO recorded a tax benefit of
$15,607,000 or 12.3% of the $126,837,000 in share-based compensation expense recorded in fiscal
2006. SYSCO recorded a tax benefit of $8,597,000 or 43.5% of the $19,749,000 in share-based
compensation expense recorded in 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 that 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
55
fiscal 2006 and may cause variability in the companys effective tax rate in future periods.
In the period the compensation cost related 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. Beginning in
fiscal 2008, we will adopt FIN 48 which will change the accounting for tax positions. (See
discussion under Note 3, New Accounting Standards).
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.
During fiscal 2007, the companys 2003 and 2004 federal income tax returns were audited by the
Internal Revenue Service (IRS) and the company made payment to the IRS for agreed upon adjustments
and is in the process of appealing remaining adjustments. The IRS will audit the companys 2005 and
2006 federal income tax returns. The company has accrued approximately $10,000,000 for its best
estimate of the additional liability related to certain positions that have been challenged by the
IRS as to which the company believes it is probable that it will not prevail. Included in the
final summary of proposed adjustments from the IRS from the 2003 and 2004 audit were, among other
items, a current assessment of taxes for which the company has recorded a deferred tax liability
related to SYSCOs affiliate, BSCC, plus related interest. The company has reviewed the merits of
the issues raised by the IRS. The company has not recorded a liability for the interest portion of
the assessment proposed by the IRS related to BSCC, nor has it accrued tax or interest related to
other disputed assessments, as the company does not believe the loss is probable, as defined by
SFAS No. 5, Accounting for Contingencies. See further discussion related to BSCC in Note 16,
Commitments and Contingencies, under the caption BSCC Cooperative Structure.
15. ACQUISITIONS
During fiscal 2007, SYSCO acquired for cash one broadline foodservice operation. 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 2007, in the aggregate, the company paid cash of $59,322,000 for acquisitions
during fiscal 2007 and for contingent consideration related to operations acquired in previous
fiscal years. In addition, escrowed funds in the amount of $2,500,000 related to certain
acquisitions were released to sellers of previously acquired businesses during fiscal 2007.
Certain acquisitions involve contingent consideration typically payable only in the event that
certain operating results are attained or certain outstanding contingencies are resolved. Aggregate
contingent consideration amounts outstanding as of June 30, 2007 included $113,303,000 in cash,
which, if distributed, could result in the recording of additional goodwill. Such amounts are to be
paid out over periods of up to four years from the date of acquisition if the contingent criteria
are met.
56
16. COMMITMENTS AND CONTINGENCIES
SYSCO is engaged in various legal proceedings which have arisen but have not been fully
adjudicated. These proceedings, in the opinion of management, will not have a material adverse
effect upon the consolidated financial position or results of operations of the company when
ultimately concluded.
Product Liability Claim
In July, 2007, SYSCO was found contractually liable in arbitration proceedings related to
a product liability claim from one of its former customers. As of June 30, 2007, the company has
recorded $50,296,000 on its consolidated balance sheet within accrued expenses related to the
accrual of this loss. Also as of June 30, 2007, a corresponding receivable of $48,296,000 is
included in the consolidated balance sheet within prepaid expenses and other current assets, which
represents the estimate of the loss less the $2,000,000 deductible on SYSCOs insurance policy.
The company has hold harmless agreements with the product suppliers and is named as an additional
insured party under the suppliers policies with their insurers. Further, SYSCO maintains its own
product liability insurance with coverage related to this claim. The company believes it is
probable that it will be able to recover the recorded loss from one or more of these sources.
Multi-Employer Pension Plans
SYSCO contributes to several multi-employer defined benefit pension plans based on
obligations arising under collective bargaining agreements covering union-represented employees.
Approximately 11% of SYSCOs current employees are participants in such multi-employer plans. In
fiscal 2007, total contributions to these plans were approximately $37,296,000.
SYSCO does not directly manage these multi-employer plans, which are generally managed by
boards of trustees, half of whom are appointed by the unions and the other half by other
contributing employers to the plan. Based upon the information available from plan administrators,
management believes that some of these multi-employer plans are under-funded due partially to a
decline in the value of the assets supporting these plans, a reduction in the number of actively
participating members for whom employer contributions are required, and the level of benefits
provided by the plans. In addition, the Pension Protection Act, enacted in August 2006, will
require under-funded pension plans to improve their funding ratios within prescribed intervals
based on the level of their under-funding, perhaps beginning as soon as calendar 2008. As a
result, SYSCOs required contributions to these plans may increase in the future.
Under current law regarding multi-employer defined benefit plans, a plans termination,
SYSCOs voluntary withdrawal, or the mass withdrawal of all contributing employers from any
under-funded multi-employer defined benefit plan would require SYSCO to make payments to the plan
for SYSCOs proportionate share of the multi-employer plans unfunded vested liabilities. SYSCO
does not believe that it is probable that there will be a mass withdrawal of employers from the
plans or that any of the plans will terminate in the near future. In addition, if a multi-employer
defined benefit plan fails to satisfy certain minimum funding requirements, the IRS may impose a
nondeductible excise tax of 5% on the amount of the accumulated funding deficiency for those
employers contributing to the fund.
Based on the information available from plan administrators, SYSCO estimates that its share of
withdrawal liability on all the multi-employer plans it participates in could be as much as
$120,000,000.
BSCC Cooperative Structure
SYSCOs affiliate, BSCC, is a cooperative taxed under subchapter T of the United States
Internal Revenue Code. SYSCO believes that the deferred tax liabilities resulting from the
business operations and legal ownership of BSCC are appropriate under the tax laws. However, if
the application of the tax laws to the cooperative structure of BSCC were to be successfully
challenged by any federal, state or local tax authority, SYSCO could be required to accelerate the
payment of all or a portion of its income tax liabilities associated with BSCC that it otherwise
has deferred until future periods in that event, would be liable for interest on such amounts. As
of June 30, 2007, SYSCO has recorded deferred income tax liabilities of $988,000,000 related to the
BSCC supply chain distributions. This amount represents the income tax liabilities related to BSCC
that were accrued, but the payment had been deferred as of June 30, 2007. In addition, if the IRS
or any other taxing authority determines that all amounts since the inception of BSCC were
inappropriately deferred or that BSCC should have been a taxable entity, SYSCO estimates that in
addition to making a current payment for amounts previously deferred, as discussed above, the
company may have additional liability, representing interest that would be payable on the
cumulative deferred balances ranging from $185,000,000 to $205,000,000, prior to federal and state
income tax benefit, as of June 30, 2007. SYSCO calculated this amount based upon the amounts
deferred since the inception of BSCC applying the applicable jurisdictions interest rates in
effect in each period. During the third quarter of fiscal 2007, the IRS, in connection with its
audit of our 2003 and 2004 federal income tax returns, the IRS proposed adjustments related to the
taxability of BSCC. The company is vigorously protesting these adjustments. The company has
reviewed the merits of the issues raised by the IRS and based upon such review, SYSCO believes that
the resulting interest is not a probable liability and accordingly, has not recorded any related
amount in any period.
57
Fuel Commitments
From time to time, SYSCO may enter into forward purchase commitments for a portion of its
projected diesel fuel requirements. As of June 30, 2007, outstanding forward diesel fuel purchase
commitments total approximately $44,500,000 at a fixed price through the end of calendar year 2007.
Other Commitments
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 $450,000,000. 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 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 2008, the estimated termination fee
incurred in fiscal 2008 would be approximately $13,400,000. 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.
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, Disclosures about Segments
of an Enterprise and Related Information. 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 and a company that distributes to internationally
located chain restaurants.
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.
58
The following table sets forth the financial information for SYSCOs business segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(in thousands) |
|
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Broadline |
|
$ |
27,560,375 |
|
|
$ |
25,758,645 |
|
|
$ |
24,337,965 |
|
SYGMA |
|
|
4,380,955 |
|
|
|
4,131,666 |
|
|
|
3,747,349 |
|
Other |
|
|
3,571,213 |
|
|
|
3,139,278 |
|
|
|
2,538,007 |
|
Intersegment sales |
|
|
(470,468 |
) |
|
|
(401,151 |
) |
|
|
(341,407 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
35,042,075 |
|
|
$ |
32,628,438 |
|
|
$ |
30,281,914 |
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and cumulative effect of accounting change: |
|
|
|
|
|
|
|
|
|
|
|
|
Broadline |
|
$ |
1,692,952 |
|
|
$ |
1,545,417 |
|
|
$ |
1,515,686 |
|
SYGMA |
|
|
10,393 |
|
|
|
(660 |
) |
|
|
11,028 |
|
Other |
|
|
127,741 |
|
|
|
119,222 |
|
|
|
93,474 |
|
|
|
|
|
|
|
|
|
|
|
Total segments |
|
|
1,831,086 |
|
|
|
1,663,979 |
|
|
|
1,620,188 |
|
Unallocated corporate expenses |
|
|
(209,871 |
) |
|
|
(269,033 |
) |
|
|
(94,752 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,621,215 |
|
|
$ |
1,394,946 |
|
|
$ |
1,525,436 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
Broadline |
|
$ |
249,083 |
|
|
$ |
237,437 |
|
|
$ |
238,098 |
|
SYGMA |
|
|
29,740 |
|
|
|
26,667 |
|
|
|
20,614 |
|
Other |
|
|
30,694 |
|
|
|
26,456 |
|
|
|
20,488 |
|
|
|
|
|
|
|
|
|
|
|
Total segments |
|
|
309,517 |
|
|
|
290,560 |
|
|
|
279,200 |
|
Corporate |
|
|
53,042 |
|
|
|
54,502 |
|
|
|
37,543 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
362,559 |
|
|
$ |
345,062 |
|
|
$ |
316,743 |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
Broadline |
|
$ |
404,728 |
|
|
$ |
335,437 |
|
|
$ |
271,114 |
|
SYGMA |
|
|
41,596 |
|
|
|
62,917 |
|
|
|
51,403 |
|
Other |
|
|
56,037 |
|
|
|
55,650 |
|
|
|
24,060 |
|
|
|
|
|
|
|
|
|
|
|
Total segments |
|
|
502,361 |
|
|
|
454,004 |
|
|
|
346,577 |
|
Corporate |
|
|
100,881 |
|
|
|
59,930 |
|
|
|
43,449 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
603,242 |
|
|
$ |
513,934 |
|
|
$ |
390,026 |
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Broadline |
|
$ |
5,573,079 |
|
|
$ |
5,248,223 |
|
|
$ |
4,889,316 |
|
SYGMA |
|
|
385,470 |
|
|
|
359,116 |
|
|
|
277,922 |
|
Other |
|
|
929,573 |
|
|
|
832,223 |
|
|
|
656,215 |
|
|
|
|
|
|
|
|
|
|
|
Total segments |
|
|
6,888,122 |
|
|
|
6,439,562 |
|
|
|
5,823,453 |
|
Corporate |
|
|
2,630,809 |
|
|
|
2,552,463 |
|
|
|
2,444,449 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,518,931 |
|
|
$ |
8,992,025 |
|
|
$ |
8,267,902 |
|
|
|
|
|
|
|
|
|
|
|
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. The decrease in unallocated corporate expenses in fiscal 2007 over fiscal 2006 is
primarily attributable to reduced share-based compensation expense and increased gains recorded
related to the cash surrender value of corporate-owned life insurance policies. The increase in
unallocated corporate expenses in fiscal 2006 over fiscal 2005 is primarily attributable to
increased share-based compensation expense due to the adoption of SFAS 123(R). See further
discussion of Share-Based Compensation in Note 13.
The sales mix for the principal product categories for each fiscal year is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Fresh and frozen meats |
|
$ |
6,548,127 |
|
|
$ |
6,153,468 |
|
|
$ |
5,732,834 |
|
Canned and dry products |
|
|
6,161,946 |
|
|
|
5,849,082 |
|
|
|
5,417,418 |
|
Frozen fruits, vegetables, bakery and other |
|
|
4,691,114 |
|
|
|
4,405,908 |
|
|
|
4,104,170 |
|
Poultry |
|
|
3,585,462 |
|
|
|
3,283,174 |
|
|
|
3,222,927 |
|
Dairy products |
|
|
3,245,488 |
|
|
|
3,014,104 |
|
|
|
2,878,904 |
|
Fresh produce |
|
|
3,118,122 |
|
|
|
2,769,805 |
|
|
|
2,459,295 |
|
Paper and disposables |
|
|
2,825,505 |
|
|
|
2,595,358 |
|
|
|
2,353,104 |
|
Seafood |
|
|
1,840,149 |
|
|
|
1,751,062 |
|
|
|
1,591,022 |
|
Beverage products |
|
|
1,200,263 |
|
|
|
1,078,030 |
|
|
|
962,039 |
|
Janitorial products |
|
|
857,339 |
|
|
|
740,601 |
|
|
|
670,105 |
|
Equipment and smallwares |
|
|
763,179 |
|
|
|
782,523 |
|
|
|
681,653 |
|
Medical supplies |
|
|
205,381 |
|
|
|
205,323 |
|
|
|
208,443 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
35,042,075 |
|
|
$ |
32,628,438 |
|
|
$ |
30,281,914 |
|
|
|
|
|
|
|
|
|
|
|
59
Information concerning geographic areas is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Sales:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
32,142,364 |
|
|
$ |
29,866,956 |
|
|
$ |
27,850,921 |
|
Canada |
|
|
2,899,711 |
|
|
|
2,761,482 |
|
|
|
2,430,993 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
35,042,075 |
|
|
$ |
32,628,438 |
|
|
$ |
30,281,914 |
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets:(2) |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
2,532,308 |
|
|
$ |
2,328,609 |
|
|
$ |
2,156,588 |
|
Canada |
|
|
188,925 |
|
|
|
136,291 |
|
|
|
111,713 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,721,233 |
|
|
$ |
2,464,900 |
|
|
$ |
2,268,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet |
|
|
|
June 30, 2007 |
|
|
|
|
|
|
|
SYSCO |
|
|
Other Non-Guarantor |
|
|
|
|
|
|
Consolidated |
|
|
|
SYSCO |
|
|
International |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Totals |
|
|
|
(In thousands) |
|
Current assets |
|
$ |
244,441 |
|
|
$ |
|
|
|
$ |
4,431,105 |
|
|
$ |
|
|
|
$ |
4,675,546 |
|
Investment in subsidiaries |
|
|
12,675,360 |
|
|
|
349,367 |
|
|
|
126,364 |
|
|
|
(13,151,091 |
) |
|
|
|
|
Plant and equipment, net |
|
|
170,288 |
|
|
|
|
|
|
|
2,550,945 |
|
|
|
|
|
|
|
2,721,233 |
|
Other assets |
|
|
654,287 |
|
|
|
|
|
|
|
1,467,865 |
|
|
|
|
|
|
|
2,122,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
13,744,376 |
|
|
$ |
349,367 |
|
|
$ |
8,576,279 |
|
|
$ |
(13,151,091 |
) |
|
$ |
9,518,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
371,149 |
|
|
$ |
1,034 |
|
|
$ |
3,042,906 |
|
|
$ |
|
|
|
$ |
3,415,089 |
|
Intercompany payables (receivables) |
|
|
8,251,239 |
|
|
|
44,757 |
|
|
|
(8,295,996 |
) |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
1,471,428 |
|
|
|
243,786 |
|
|
|
43,013 |
|
|
|
|
|
|
|
1,758,227 |
|
Other liabilities |
|
|
505,660 |
|
|
|
|
|
|
|
561,555 |
|
|
|
|
|
|
|
1,067,215 |
|
Shareholders equity |
|
|
3,144,900 |
|
|
|
59,790 |
|
|
|
13,224,801 |
|
|
|
(13,151,091 |
) |
|
|
3,278,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
13,744,376 |
|
|
$ |
349,367 |
|
|
$ |
8,576,279 |
|
|
$ |
(13,151,091 |
) |
|
$ |
9,518,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Results of Operations |
|
|
|
Year Ended June 30, 2007 |
|
|
|
|
|
|
|
SYSCO |
|
|
Other Non-Guarantor |
|
|
|
|
|
|
|
|
|
SYSCO |
|
|
International |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated Totals |
|
|
|
(In thousands) |
|
Sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
35,042,075 |
|
|
$ |
|
|
|
$ |
35,042,075 |
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
28,284,603 |
|
|
|
|
|
|
|
28,284,603 |
|
Operating expenses |
|
|
213,915 |
|
|
|
127 |
|
|
|
4,834,948 |
|
|
|
|
|
|
|
5,048,990 |
|
Interest expense (income) |
|
|
410,190 |
|
|
|
11,813 |
|
|
|
(317,001 |
) |
|
|
|
|
|
|
105,002 |
|
Other, net |
|
|
(8,984 |
) |
|
|
|
|
|
|
(8,751 |
) |
|
|
|
|
|
|
(17,735 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
615,121 |
|
|
|
11,940 |
|
|
|
32,793,799 |
|
|
|
|
|
|
|
33,420,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before income
taxes and cumulative effect of
accounting change |
|
|
(615,121 |
) |
|
|
(11,940 |
) |
|
|
2,248,276 |
|
|
|
|
|
|
|
1,621,215 |
|
Income tax (benefit) provision |
|
|
(235,260 |
) |
|
|
(4,567 |
) |
|
|
859,966 |
|
|
|
|
|
|
|
620,139 |
|
Equity in earnings of subsidiaries |
|
|
1,380,937 |
|
|
|
18,075 |
|
|
|
|
|
|
|
(1,399,012 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
1,001,076 |
|
|
$ |
10,702 |
|
|
$ |
1,388,310 |
|
|
$ |
(1,399,012 |
) |
|
$ |
1,001,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 (loss) |
|
$ |
855,325 |
|
|
$ |
(1,120 |
) |
|
$ |
1,300,423 |
|
|
$ |
(1,299,303 |
) |
|
$ |
855,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Cash Flows |
|
|
|
Year Ended June 30, 2007 |
|
|
|
|
|
|
|
SYSCO |
|
|
Other Non-Guarantor |
|
|
Consolidated |
|
|
|
SYSCO |
|
|
International |
|
|
Subsidiaries |
|
|
Totals |
|
|
|
(In thousands) |
|
Net cash provided by (used for): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(238,228 |
) |
|
$ |
(7,326 |
) |
|
$ |
1,648,476 |
|
|
$ |
1,402,922 |
|
Investing activities |
|
|
(28,970 |
) |
|
|
|
|
|
|
(619,741 |
) |
|
|
(648,711 |
) |
Financing activities |
|
|
(764,350 |
) |
|
|
19,540 |
|
|
|
(3,440 |
) |
|
|
(748,250 |
) |
Exchange rate on cash |
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
14 |
|
Intercompany activity |
|
|
1,036,150 |
|
|
|
(12,214 |
) |
|
|
(1,023,936 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash |
|
|
4,602 |
|
|
|
|
|
|
|
1,373 |
|
|
|
5,975 |
|
Cash at the beginning of the period |
|
|
131,275 |
|
|
|
|
|
|
|
70,622 |
|
|
|
201,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at the end of the period |
|
$ |
135,877 |
|
|
$ |
|
|
|
$ |
71,995 |
|
|
$ |
207,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
(285,446 |
) |
|
$ |
(7,496 |
) |
|
$ |
1,417,621 |
|
|
$ |
1,124,679 |
|
Investing activities |
|
|
(71,851 |
) |
|
|
|
|
|
|
(537,667 |
) |
|
|
(609,518 |
) |
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 |
|
$ |
(222,380 |
) |
|
$ |
(6,958 |
) |
|
$ |
1,420,546 |
|
|
$ |
1,191,208 |
|
Investing activities |
|
|
35,887 |
|
|
|
|
|
|
|
(448,375 |
) |
|
|
(412,488 |
) |
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
19. QUARTERLY RESULTS (UNAUDITED)
Financial information for each quarter in the years ended June 30, 2007 and July 1, 2006 is
set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007 Quarter Ended |
|
|
|
|
|
|
September 30 |
|
|
December 30 |
|
|
March 31 |
|
|
June 30 |
|
|
Fiscal Year |
|
|
|
(In thousands except for share data) |
|
Sales |
|
$ |
8,672,072 |
|
|
$ |
8,568,748 |
|
|
$ |
8,572,961 |
|
|
$ |
9,228,294 |
|
|
$ |
35,042,075 |
|
Cost of sales |
|
|
7,002,856 |
|
|
|
6,915,259 |
|
|
|
6,938,867 |
|
|
|
7,427,621 |
|
|
|
28,284,603 |
|
Operating expenses |
|
|
1,276,882 |
|
|
|
1,230,967 |
|
|
|
1,249,951 |
|
|
|
1,291,190 |
|
|
|
5,048,990 |
|
Interest expense |
|
|
25,766 |
|
|
|
28,006 |
|
|
|
25,700 |
|
|
|
25,530 |
|
|
|
105,002 |
|
Other, net |
|
|
(9,038 |
) |
|
|
(3,375 |
) |
|
|
(2,536 |
) |
|
|
(2,786 |
) |
|
|
(17,735 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
8,296,466 |
|
|
|
8,170,857 |
|
|
|
8,211,982 |
|
|
|
8,741,555 |
|
|
|
33,420,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
375,606 |
|
|
|
397,891 |
|
|
|
360,979 |
|
|
|
486,739 |
|
|
|
1,621,215 |
|
Income taxes |
|
|
145,458 |
|
|
|
151,353 |
|
|
|
139,980 |
|
|
|
183,348 |
|
|
|
620,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
230,148 |
|
|
$ |
246,538 |
|
|
$ |
220,999 |
|
|
$ |
303,391 |
|
|
$ |
1,001,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings |
|
$ |
0.37 |
|
|
$ |
0.40 |
|
|
$ |
0.36 |
|
|
$ |
0.49 |
|
|
$ |
1.62 |
|
Diluted net earnings |
|
|
0.37 |
|
|
|
0.39 |
|
|
|
0.35 |
|
|
|
0.49 |
|
|
|
1.60 |
|
Dividends declared |
|
|
0.17 |
|
|
|
0.19 |
|
|
|
0.19 |
|
|
|
0.19 |
|
|
|
0.74 |
|
Market price high/low |
|
|
34-27 |
|
|
|
37-32 |
|
|
|
37-31 |
|
|
|
35-32 |
|
|
|
37-27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2006 Quarter Ended |
|
|
|
|
|
|
October 1 |
|
|
December 31 |
|
|
April 1 |
|
|
July 1 |
|
|
Fiscal Year |
|
|
|
(In thousands except for share data) |
|
Sales |
|
$ |
8,010,484 |
|
|
$ |
7,971,061 |
|
|
$ |
8,137,816 |
|
|
$ |
8,509,077 |
|
|
$ |
32,628,438 |
|
Cost of sales |
|
|
6,480,793 |
|
|
|
6,434,753 |
|
|
|
6,602,102 |
|
|
|
6,819,459 |
|
|
|
26,337,107 |
|
Operating expenses |
|
|
1,176,656 |
|
|
|
1,171,469 |
|
|
|
1,193,270 |
|
|
|
1,254,906 |
|
|
|
4,796,301 |
|
Interest expense |
|
|
22,246 |
|
|
|
29,227 |
|
|
|
29,441 |
|
|
|
28,186 |
|
|
|
109,100 |
|
Other, net |
|
|
(3,115 |
) |
|
|
(2,220 |
) |
|
|
(819 |
) |
|
|
(2,862 |
) |
|
|
(9,016 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
7,676,580 |
|
|
|
7,633,229 |
|
|
|
7,823,994 |
|
|
|
8,099,689 |
|
|
|
31,233,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and cumulative effect of
accounting change |
|
|
333,904 |
|
|
|
337,832 |
|
|
|
313,822 |
|
|
|
409,388 |
|
|
|
1,394,946 |
|
Income taxes |
|
|
134,694 |
|
|
|
133,650 |
|
|
|
125,283 |
|
|
|
155,279 |
|
|
|
548,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect of accounting change |
|
|
199,210 |
|
|
|
204,182 |
|
|
|
188,539 |
|
|
|
254,109 |
|
|
|
846,040 |
|
Cumulative effect of accounting change |
|
|
9,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
208,495 |
|
|
$ |
204,182 |
|
|
$ |
188,539 |
|
|
$ |
254,109 |
|
|
$ |
855,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings before accounting change |
|
$ |
0.32 |
|
|
$ |
0.33 |
|
|
$ |
0.30 |
|
|
$ |
0.41 |
|
|
$ |
1.36 |
|
Diluted earnings before accounting change |
|
|
0.31 |
|
|
|
0.33 |
|
|
|
0.30 |
|
|
|
0.41 |
|
|
|
1.35 |
|
Basic net earnings |
|
|
0.33 |
|
|
|
0.33 |
|
|
|
0.30 |
|
|
|
0.41 |
|
|
|
1.38 |
|
Diluted net earnings |
|
|
0.33 |
|
|
|
0.33 |
|
|
|
0.30 |
|
|
|
0.41 |
|
|
|
1.36 |
|
Dividends declared |
|
|
0.15 |
|
|
|
0.17 |
|
|
|
0.17 |
|
|
|
0.17 |
|
|
|
0.66 |
|
Market price high/low |
|
|
37-31 |
|
|
|
34-30 |
|
|
|
33-29 |
|
|
|
32-29 |
|
|
|
37-29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage increases 2007 vs. 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
8 |
% |
|
|
7 |
% |
|
|
5 |
% |
|
|
8 |
% |
|
|
7 |
% |
Earnings before income taxes and cumulative effect of
accounting change |
|
|
12 |
|
|
|
18 |
|
|
|
15 |
|
|
|
19 |
|
|
|
16 |
|
Earnings before cumulative effect of accounting
change |
|
|
16 |
|
|
|
21 |
|
|
|
17 |
|
|
|
19 |
|
|
|
18 |
|
Net earnings |
|
|
10 |
|
|
|
21 |
|
|
|
17 |
|
|
|
19 |
|
|
|
17 |
|
Basic earnings before accounting change per share |
|
|
16 |
|
|
|
21 |
|
|
|
20 |
|
|
|
20 |
|
|
|
19 |
|
Diluted earnings before accounting change per share |
|
|
19 |
|
|
|
18 |
|
|
|
17 |
|
|
|
20 |
|
|
|
19 |
|
Basic net earnings per share |
|
|
12 |
|
|
|
21 |
|
|
|
20 |
|
|
|
20 |
|
|
|
17 |
|
Diluted net earnings per share |
|
|
12 |
|
|
|
18 |
|
|
|
17 |
|
|
|
20 |
|
|
|
18 |
|
Financial results are impacted by accounting changes and the adoption of various accounting
standards. See Note 2, Changes in Accounting.
63
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
SYSCOs management, with the participation of our chief executive officer and chief financial
officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2007.
The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act, means controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in
the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act is accumulated and communicated to the
companys management, including its principal executive and principal financial officers, as
appropriate to allow timely decisions regarding the required disclosure. Management recognizes that
any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. Based on the
evaluation of our disclosure controls and procedures as of June 30, 2007, our chief executive
officer and chief financial officer concluded that, as of such date, SYSCOs disclosure controls
and procedures were effective at the reasonable assurance level.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2007 that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
In May 2007, we restated our unaudited interim consolidated financial statements for the
quarterly periods ended September 30, 2006 and December 30, 2006, as contained in SYSCOs Reports
on Form 10-Q filed on November 9, 2006 and February 8, 2007, respectively, due to an error in
SYSCOs application of FASB Staff Position No. FTB 85-4-1, Accounting for Life Settlement
Contracts by Third-Party Investors. Prior to the filing of these amended reports and in
connection with the evaluation performed as of June 30, 2007, SYSCOs management, with the
participation of the Chief Executive Officer and Chief Financial Officer, reconsidered their
conclusions regarding the effectiveness of disclosure controls and procedures for the quarterly
periods ended September 30, 2006, December 30, 2006 and June 30, 2007 in light of, and giving due
consideration to, the restatements and the reasons therefor, and concluded that SYSCOs disclosure
controls and procedures were effective as of those dates at the reasonable assurance level, despite
the restatements.
Item 9B. Other Information
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item will be included in our proxy statement for the 2007
Annual Meeting of Stockholders under the following captions, and is incorporated herein by
reference thereto: Election of Directors, Executive Officers, Section 16(a) Beneficial
Ownership Reporting Compliance, Report of the Audit Committee and Corporate Governance and
Board of Directors Matters.
Item 11. Executive Compensation
The information required by this item will be included in our proxy statement for the 2007
Annual Meeting of Stockholders under the following captions, and is incorporated herein by
reference thereto: Compensation Discussion and Analysis, Compensation Committee Report,
Director Compensation and Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this item will be included in our proxy statement for the 2007
Annual Meeting of Stockholders under the following captions, and is incorporated herein by
reference thereto: Stock Ownership and Equity Compensation Plan Information.
64
Item 13. Certain Relationships and Related Transactions
The information required by this item will be included in our proxy statement for the 2007
Annual Meeting of Stockholders under the following caption, and is incorporated herein by reference
thereto: Certain Relationships and Related Transactions and Director Independence.
Item 14. Principal Accountant Fees and Services
The information required by this item will be included in our proxy statement for the 2007
Annual Meeting of Stockholders under the following caption, and is incorporated herein by reference
thereto: Fees Paid to Independent Public Accountants.
PART IV
Item 15. Exhibits and Financial Statement Schedule
(a) The following documents are filed, or incorporated by reference, as part of this Form
10-K:
1. All
financial statements. See index to Consolidated Financial Statements
on page 30 of this
Form 10-K.
2. Financial Statement Schedule. See page S-1 of this Form 10-K.
All other financial statement schedules are omitted because they are not applicable or the
information is set forth in the consolidated financial statements or notes thereto within Item 8.
Financial Statements and Supplementary Data.
Exhibits.
|
|
|
|
|
3.1
|
|
|
|
Restated Certificate of Incorporation, incorporated by reference to Exhibit
3(a) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). |
|
|
|
|
|
3.2
|
|
|
|
Certificate of Amendment of Certificate of Incorporation increasing
authorized shares, incorporated by reference to Exhibit 3(d) to Form 10-Q
for the quarter ended January 1, 2000 (File No. 1-6544). |
|
|
|
|
|
3.3
|
|
|
|
Certificate of Amendment to Restated Certificate of Incorporation
increasing authorized shares, incorporated by reference to Exhibit 3(e) to
Form 10-Q for the quarter ended December 27, 2003 (File No. 1-6544). |
|
|
|
|
|
3.4
|
|
|
|
Form of Amended Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock, incorporated by reference to
Exhibit 3(c) to Form 10-K for the year ended June 29, 1996 (File No.
1-6544). |
|
|
|
|
|
3.5
|
|
|
|
Amended and Restated Bylaws of Sysco Corporation dated May 11, 2007,
incorporated by reference to Exhibit 3.5 to Form 8-K filed on May 15, 2007
(File No. 1-6544). |
|
|
|
|
|
4.1
|
|
|
|
Senior Debt Indenture, dated as of June 15, 1995, between Sysco Corporation
and First Union National Bank of North Carolina, Trustee, incorporated by
reference to Exhibit 4(a) to Registration Statement on Form S-3 filed June
6, 1995 (File No. 33-60023). |
|
|
|
|
|
4.2
|
|
|
|
Second Supplemental Indenture, dated as of May 1, 1996, between Sysco
Corporation and First Union National Bank of North Carolina, Trustee as
amended, incorporated by reference to Exhibit 4(f) to Form 10-K for the
year ended June 29, 1996 (File No. 1-6544). |
|
|
|
|
|
4.3
|
|
|
|
Third Supplemental Indenture, dated as of April 25, 1997, between Sysco
Corporation and First Union National Bank of North Carolina, Trustee,
incorporated by reference to Exhibit 4(g) to Form 10-K for the year ended
June 28, 1997 (File No. 1-6544). |
|
|
|
|
|
4.4
|
|
|
|
Fourth Supplemental Indenture, dated as of April 25, 1997, between Sysco
Corporation and First Union National Bank of North Carolina, Trustee,
incorporated by reference to Exhibit 4(h) to Form 10-K for the year ended
June 28,1997 (File No. 1-6544). |
|
|
|
|
|
4.5
|
|
|
|
Fifth Supplemental Indenture, dated as of July 27, 1998 between Sysco
Corporation and First Union National Bank, Trustee, incorporated by
reference to Exhibit 4(h) to Form 10-K for the year ended June 27, 1998
(File No. 1-6544). |
|
|
|
|
|
4.6
|
|
|
|
Sixth Supplemental Indenture, including form of Note, dated April 5, 2002
between Sysco Corporation and Wachovia Bank, National Association (formerly
First Union National Bank of North Carolina), as Trustee, incorporated by
reference to Exhibit 4.1 to Form 8-K dated April 5, 2002 (File No. 1-6544). |
|
|
|
|
|
4.7
|
|
|
|
Seventh Supplemental Indenture, including form of Note, dated March 5, 2004
between Sysco Corporation, as Issuer, and Wachovia Bank, National
Association (formerly First Union National Bank of North Carolina), as |
65
|
|
|
|
|
|
|
|
|
Trustee, incorporated by reference to Exhibit 4(j) to Form 10-Q for the
quarter ended March 27, 2004 (File No. 1-6544). |
|
|
|
|
|
4.8
|
|
|
|
Eighth Supplemental Indenture, including form of Note, dated September 22,
2005 between Sysco Corporation, as Issuer, and Wachovia Bank, National
Association, as Trustee, incorporated by reference to Exhibits 4.1 and 4.2
to Form 8-K filed on September 20, 2005 (File No. 1-6544). |
|
|
|
|
|
4.9
|
|
|
|
Indenture dated May 23, 2002 between Sysco International, Co., Sysco
Corporation and Wachovia Bank, National Association, incorporated by
reference to Exhibit 4.1 to Registration Statement on Form S-4 filed August
21, 2002 (File No. 333-98489). |
|
|
|
|
|
10.1
|
|
|
|
Credit Agreement dated November 4, 2005 between Sysco Corporation, Sysco
International, Co., JP Morgan Chase Bank, N.A., and certain Lenders party
thereto, incorporated by reference to Exhibit 99.1 to Form 8-K filed on
November 10, 2005 (File No. 1-6544). |
|
|
|
|
|
10.2
|
|
|
|
Commitment Increase Agreement dated March 31, 2006 by and among Sysco
Corporation, JPMorgan Chase Bank, individually and as Administrative Agent,
the Co-Syndication Agents named therein and the other financial
institutions party thereto relating to the Credit Agreement dated September
13, 2002, incorporated by reference to Exhibit 99.1 to Form 8-K filed on
April 6, 2006 (File No. 1-6544). |
|
|
|
|
|
10.3
|
|
|
|
Amended and Restated Issuing and Paying Agency Agreement, dated as of April
13, 2006, between Sysco Corporation and JPMorgan Chase Bank, National
Association, incorporated by reference to Exhibit 10.1 to Form 8-K filed on
April 19, 2006 (File No. 1-6544). |
|
|
|
|
|
10.4
|
|
|
|
Commercial Paper Dealer Agreement, dated as of April 13, 2006, between
Sysco Corporation and J.P. Morgan Securities Inc., incorporated by
reference to Exhibit 10.2 to Form 8-K filed on April 19, 2006 (File No.
1-6544). |
|
|
|
|
|
10.5
|
|
|
|
Commercial Paper Dealer Agreement, dated as of April 13, 2006, between
Sysco Corporation and Goldman, Sachs & Co., incorporated by reference to
Exhibit 10.3 to Form 8-K filed on April 19, 2006 (File No. 1-6544). |
|
|
|
|
|
10.6
|
|
|
|
Third Amended and Restated Sysco Corporation Executive Deferred
Compensation Plan, incorporated by reference to Exhibit 10(d) to Form 10-Q
for the quarter ended December 31, 2005 filed on February 9, 2006 (File No.
1-6544). |
|
|
|
|
|
10.7
|
|
|
|
First Amendment to the Third Amended and Restated Sysco Corporation
Executive Deferred Compensation Plan, incorporated by reference to Exhibit
10.2 to Form 8-K filed on September 13, 2006 (File No. 1-6544). |
|
|
|
|
|
10.8
|
|
|
|
Sixth Amended and Restated Sysco Corporation Supplemental Executive
Retirement Plan, incorporated by reference to Exhibit 10(c) to Form 10-Q
for the quarter ended December 31, 2005 filed on February 9, 2006 (File No.
1-6544). |
|
|
|
|
|
10.9
|
|
|
|
First Amendment to the Sixth Amended and Restated Sysco Corporation
Supplemental Executive Retirement Plan, incorporated by reference to
Exhibit 10(a) to Form 10-Q for the quarter ended April 1, 2006 filed on May
11, 2006 (File No. 1-6544). |
|
|
|
|
|
10.10
|
|
|
|
Second Amendment to the Sixth Amended and Restated Sysco Corporation
Supplemental Executive Retirement Plan, incorporated by reference to
Exhibit 10.1 to Form 8-K filed on September 13, 2006 (File No. 1-6544). |
|
|
|
|
|
10.11
|
|
|
|
Sysco Corporation 1991 Stock Option Plan, incorporated by reference to
Exhibit 10(e) to Form 10-K for the year ended July 3, 1999 (File No.
1-6544). |
|
|
|
|
|
10.12
|
|
|
|
Amendments to Sysco Corporation 1991 Stock Option Plan dated effective
September 4, 1997, incorporated by reference to Exhibit 10(f) to Form 10-K
for the year ended June 28, 1997 (File No. 1-6544). |
|
|
|
|
|
10.13
|
|
|
|
Amendments to Sysco Corporation 1991 Stock Option Plan dated effective
November 5, 1998, incorporated by reference to Exhibit 10(g) to Form 10-K
for the year ended July 3, 1999 (File No. 1-6544). |
|
|
|
|
|
10.14
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on
September 4, 1997 under the 1991 Stock Option Plan, incorporated by
reference to Exhibit 10(rr) to Form 10-K for the year ended July 3, 2004
filed on September 16, 2004 (File No. 1-6544). |
|
|
|
|
|
10.15
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on
September 3, 1998 under the 1991 Stock Option Plan, incorporated by
reference to Exhibit 10(ss) to Form 10-K for the year ended July 3, 2004
filed on September 16, 2004 (File No. 1-6544). |
|
|
|
|
|
10.16
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on
September 2, 1999 under the 1991 Stock Option Plan, incorporated by
reference to Exhibit 10(tt) to Form 10-K for the year ended July 3, 2004
filed on September 16, 2004 (File No. 1-6544). |
|
|
|
|
|
10.17
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on
September 7, 2000 under the 1991 Stock Option Plan, incorporated by
reference to Exhibit 10(uu) to Form 10-K for the year ended July 3, 2004
filed on |
66
|
|
|
|
|
|
|
|
|
September 16, 2004 (File No. 1-6544).
|
|
10.18
|
|
|
|
2000 Stock Incentive Plan, incorporated by reference to Appendix B to Proxy
Statement filed on September 25, 2000 (File No. 1-6544). |
|
|
|
|
|
10.19
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on
September 11, 2001 under the 2000 Stock Incentive Plan, incorporated by
reference to Exhibit 10(vv) to Form 10-K for the year ended July 3, 2004
filed on September 16, 2004 (File No. 1-6544). |
|
|
|
|
|
10.20
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on
September 11, 2001 under the 2000 Stock Incentive Plan, incorporated by
reference to Exhibit 10(ww) to Form 10-K for the year ended July 3, 2004
filed on September 16, 2004 (File No. 1-6544). |
|
|
|
|
|
10.21
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on
September 12, 2002 under the 2000 Stock Incentive Plan, incorporated by
reference to Exhibit 10(xx) to Form 10-K for the year ended July 3, 2004
filed on September 16, 2004 (File No. 1-6544). |
|
|
|
|
|
10.22
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on
September 11, 2003 under the 2000 Stock Incentive Plan, incorporated by
reference to Exhibit 10(yy) to Form 10-K for the year ended July 3, 2004
filed on September 16, 2004 (File No. 1-6544). |
|
|
|
|
|
10.23
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers under the
2000 Stock Incentive Plan, incorporated by reference to Exhibit 10(a) to
Form 8-K filed on September 9, 2004 (File No. 1-6544). |
|
|
|
|
|
10.24
|
|
|
|
2004 Stock Option Plan, incorporated by reference to Appendix B to the
Sysco Corporation Proxy Statement filed September 24, 2004 (File No.
1-6544). |
|
|
|
|
|
10.25
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on
September 8, 2005 and September 7, 2006 under the 2004 Stock Option Plan,
incorporated by reference to Exhibit 99.1 to Form 8-K filed on September
14, 2005 (File No. 1-6544). |
|
|
|
|
|
10.26
|
|
|
|
2004 Long-Term Incentive Cash Plan dated September 3, 2004, incorporated by
reference to Exhibit 10(a) to Form 8-K filed on September 10, 2004 (File
No. 1-6544). |
|
|
|
|
|
10.27
|
|
|
|
Form of Performance Unit Grant Agreement issued to executive officers
effective September 3, 2004 under the Long-Term Incentive Cash Plan,
incorporated by reference to Exhibit 10(b) to Form 8-K filed on September
10, 2004 (File No. 1-6544). |
|
|
|
|
|
10.28
|
|
|
|
Form of Performance Unit Grant Agreement issued to executive officers
effective September 8, 2005 under the Long-Term Incentive Cash Plan,
incorporated by reference to Exhibit 10.38 to Form 10-K for the year ended
July 1, 2006 filed on September 14, 2006 (File No. 1-6544). |
|
|
|
|
|
10.29
|
|
|
|
Form of Performance Unit Grant Agreement issued to executive officers
effective September 7, 2006 under the Long-Term Incentive Cash Plan,
incorporated by reference to Exhibit 10.3 to Form 8-K filed on September
13, 2006 (File No. 1-6544). |
|
|
|
|
|
10.30
|
|
|
|
First Amendment to the 2004 Long-Term Cash Incentive Plan dated February 9,
2007, incorporated by reference to Exhibit 10.1 to Form 10-Q for the
quarter ended March 31, 2007 (File No. 1-6544). |
|
|
|
|
|
10.31#
|
|
|
|
Second Amendment to the 2004 Long-Term Cash Incentive Plan dated May 11,
2007 changing the name to the 2004 Mid-Term Incentive Plan. |
|
|
|
|
|
10.32
|
|
|
|
2005 Management Incentive Plan, incorporated by reference to Annex B to the
Sysco Corporation Proxy Statement for the November 11, 2005 Annual Meeting
of Stockholders (File No. 1-6544). |
|
|
|
|
|
10.33#
|
|
|
|
First Amendment to 2005 Management Incentive Plan dated July 13, 2007. |
|
|
|
|
|
10.34
|
|
|
|
Form of Fiscal Year 2007 Bonus Award for the Chief Executive Officer, Chief
Financial Officer, Executive Vice Presidents and Senior Vice Presidents
under the 2005 Management Incentive Plan, incorporated by reference to
Exhibit 10.44 to Form 10-K for the year ended July 1, 2006 filed on
September 14, 2006 (File No. 1-6544). |
|
|
|
|
|
10.35
|
|
|
|
Form of Fiscal Year 2007 Bonus Award for Senior Vice Presidents of
Operations under the 2005 Management Incentive Plan, , incorporated by
reference to Exhibit 10.45 to Form 10-K for the year ended July 1, 2006
filed on September 14, 2006 (File No. 1-6544). |
|
|
|
|
|
10.36#
|
|
|
|
Form of Fiscal Year 2008 Bonus Award for the Chief Executive Officer,
President, Chief Financial Officer, Executive Vice Presidents and Senior
Vice Presidents (excluding Senior Vice Presidents of Operations) under the
2005 Management Incentive Plan. |
|
|
|
|
|
10.37
|
|
|
|
Supplemental Performance Based Bonus Plan dated November 11, 2004,
incorporated by reference to Exhibit 10(b) to Form 10-Q for the quarter
ended January 1, 2005 filed on February 10, 2005 (File No. 1-6544). |
67
|
|
|
|
|
10.38
|
|
|
|
2006 Supplemental Performance Bonus plan dated June 9, 2006, incorporated
by reference to Exhibit 10.49 to Form 10-K for the year ended July 1, 2006
filed on September 14, 2006 (File No. 1-6544). |
|
|
|
|
|
10.39
|
|
|
|
Form of Fiscal Year 2007 Chief Executive Officer Supplemental Bonus
Agreement under the 2006 Supplemental Performance Based Bonus Plan,
incorporated by reference to Exhibit 10.50 to Form 10-K for the year ended
July 1, 2006 filed on September 14, 2006 (File No. 1-6544). |
|
|
|
|
|
10.40
|
|
|
|
Form of Fiscal Year 2007 Supplemental Bonus Agreement for Executive Vice
Presidents, Senior Vice Presidents and Senior Vice Presidents of Operations
under the 2006 Supplemental Performance Based Bonus Plan, incorporated by
reference to Exhibit 10.51 to Form 10-K for the year ended July 1, 2006
filed on September 14, 2006 (File No. 1-6544). |
|
|
|
|
|
10.41#
|
|
|
|
Form of Fiscal Year 2008 Chief Executive Officer Supplemental Bonus
Agreement under the 2006 Supplemental Performance Based Bonus Plan. |
|
|
|
|
|
10.42#
|
|
|
|
Form of Fiscal Year 2008 Supplemental Bonus Agreement for President,
Executive Vice Presidents, Senior Vice Presidents and Senior Vice
Presidents of Operations under the 2006 Supplemental Performance Based
Bonus Plan. |
|
|
|
|
|
10.43
|
|
|
|
Executive Severance Agreement dated July 6, 2004 between Sysco Corporation
and Richard J. Schnieders, incorporated by reference to Exhibit 10(ii) to
Form 10-K for the year ended July 3, 2004 filed on September 16, 2004 (File
No. 1-6544). |
|
|
|
|
|
10.44
|
|
|
|
Form of Executive Severance Agreement between Sysco Corporation and each of
John K. Stubblefield, Jr. (dated July 6, 2004), Kenneth F. Spitler (dated
July 14, 2004) and Larry J. Accardi (dated August 18, 2004), incorporated
by reference to Exhibit 10(jj) to Form 10-K for the year ended July 3, 2004
filed on September 16, 2004 (File No. 1-6544). |
|
|
|
|
|
10.45
|
|
|
|
Form of First Amendment dated September 3, 2004 to Executive Severance
Agreement between Sysco Corporation and each of Richard J. Schnieders, John
K Stubblefield, Jr., Kenneth F. Spitler and Larry J. Accardi, incorporated
by reference to Exhibit 10(kk) to Form 10-K for the year ended July 3, 2004
filed on September 16, 2004 (File No. 1-6544). |
|
|
|
|
|
10.46#
|
|
|
|
Transition and Early Retirement Agreement dated May 8, 2007 between SYSCO
Corporation and Larry J. Accardi. |
|
|
|
|
|
10.47#
|
|
|
|
Letter agreement dated December 12, 2006 between Sysco Corporation and
William J. DeLaney regarding certain relocation expenses. |
|
|
|
|
|
10.48#
|
|
|
|
Description of Compensation Arrangements with Named Executive Officers. |
|
|
|
|
|
10.49
|
|
|
|
Sysco Corporation Amended and Restated Non-Employee Directors Stock Option
Plan, incorporated by reference to Exhibit 10(g) to Form 10-K for the year
ended June 28, 1997 (File No. 1-6544). |
|
|
|
|
|
10.50
|
|
|
|
Amendment to the Amended and Restated Non-Employee Directors Stock Option
Plan dated effective November 5, 1998, incorporated by reference to Exhibit
10(i) to Form 10-K for the year ended July 3, 1999 (File No. 1-6544). |
|
|
|
|
|
10.51
|
|
|
|
Sysco Corporation Non-Employee Directors Stock Plan, incorporated by
reference to Appendix A of the 1998 Proxy Statement (File No. 1-6544). |
|
|
|
|
|
10.52
|
|
|
|
Amended and Restated Non-Employee Directors Stock Plan, incorporated by
reference to Appendix B to Proxy Statement filed on September 24, 2001
(File No. 1-6544). |
|
|
|
|
|
10.53
|
|
|
|
Form of Stock Option Grant Agreement issued to non-employee directors on
September 3, 2004 under the Non-Employee Directors Stock Plan, incorporated
by reference to Exhibit 10(b) to Form 8-K field on September 9, 2004 (File
No. 1-6544). |
|
|
|
|
|
10.54
|
|
|
|
Form of Retainer Stock Agreement for issuance to Non-Employee Directors
under the Non-Employee Directors Stock Plan, incorporated by reference to
Exhibit 10(a) to Form 10-Q for the quarter ended January 1, 2005 filed on
February 10, 2005 (File No. 1-6544). |
|
|
|
|
|
10.55
|
|
|
|
2005 Non-Employee Directors Stock Plan, incorporated by reference to Annex
C to the Sysco Corporation Proxy Statement for the November 11, 2005 Annual
Meeting of Stockholders (File No. 1-6544). |
|
|
|
|
|
10.56
|
|
|
|
Form of Option Grant Agreement under the 2005 Non-Employee Directors Stock
Plan, incorporated by reference to Exhibit 10(i) to Form 10-Q for the
quarter ended December 31, 2005 filed on February 9, 2006 (File No.
1-6544). |
|
|
|
|
|
10.57
|
|
|
|
Form of Restricted Stock Grant Agreement under the 2005 Non-Employee
Directors Stock Plan, incorporated by reference to Exhibit 10(j) to Form
10-Q for the quarter ended December 31, 2005 filed on February 9, 2006
(File No. 1-6544). |
|
10.58
|
|
|
|
Second Amended and Restated Board of Directors Deferred Compensation Plan
dated April 1, 2002, incorporated
|
68
|
|
|
|
|
|
|
|
|
by reference to Exhibit 10(aa) to Form
10-K for the year ended June 29, 2002 filed on September 25, 2002 (File No.
1-6544). |
|
|
|
|
|
10.59
|
|
|
|
First Amendment to Second Amended and Restated Board of Directors Deferred
Compensation Plan dated July 12, 2002, incorporated by reference to Exhibit
10(bb) to Form 10-K for the year ended June 29, 2002 filed on September 25,
2002 (File No. 1-6544). |
|
|
|
|
|
10.60
|
|
|
|
Second Amendment to the Second Amended and Restated Sysco Corporation Board
of Directors Deferred Compensation Plan, incorporated by reference to
Exhibit 10(k) to Form 10-Q for the quarter ended December 31, 2005 filed on
February 9, 2006 (File No. 1-6544). |
|
|
|
|
|
10.61
|
|
|
|
2005 Sysco Corporation Board of Directors Deferred Compensation Plan,
incorporated by reference to Exhibit 10(e) to Form 10-Q for the quarter
ended December 31, 2005 filed on February 9, 2006 (File No. 1-6544) . |
|
|
|
|
|
10.62
|
|
|
|
Description of Compensation Arrangements with Non-Employee Directors,
incorporated by reference to Exhibit 10.69 to Form 10-K for the year ended
July 1, 2006 filed on September 14, 2006 (File No. 1-6544). |
|
|
|
|
|
10.63
|
|
|
|
Form of Retainer Stock Award Agreement under the 2005 Non-Employee
Directors Stock Plan, incorporated by reference to Exhibit 10.1 to Form 8-K
filed on November 15, 2006 (File No. 1-6544). |
|
|
|
|
|
14.1
|
|
|
|
Code of Business Conduct and Ethics, incorporated by reference to Exhibit
14.1 to Form 8-K filed on July 19, 2007 (File No. 1-6544). |
|
|
|
|
|
21.1#
|
|
|
|
Subsidiaries of the Registrant. |
|
|
|
|
|
23.1#
|
|
|
|
Consent of Independent Registered Public Accounting Firm. |
|
|
|
|
|
31.1#
|
|
|
|
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
31.2#
|
|
|
|
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
32.1#
|
|
|
|
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
32.2#
|
|
|
|
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
Executive Compensation Arrangement pursuant to 601(b)(10)(iii)(A) of Regulation S-K |
|
# |
|
Filed Herewith |
69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
Sysco Corporation has duly caused this Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized, on this 28th day of August, 2007.
|
|
|
|
|
|
SYSCO CORPORATION
|
|
|
By |
/s/ RICHARD J. SCHNIEDERS
|
|
|
|
Richard J. Schnieders |
|
|
|
Chairman of the Board and
Chief Executive Officer |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant in the capacities indicated and
on the date indicated above.
PRINCIPAL EXECUTIVE, FINANCIAL & ACCOUNTING OFFICERS:
|
|
|
/s/ RICHARD J. SCHNIEDERS
Richard J. Schnieders |
|
Chairman of the Board and Chief Executive Officer
(principal executive officer) |
/s/ WILLIAM J. DELANEY
William J. DeLaney |
|
Executive Vice President and Chief Financial Officer
(principal financial officer) |
/s/ G. MITCHELL ELMER
G. Mitchell Elmer |
|
Vice President, Controller and Chief Accounting Officer
(principal accounting officer) |
DIRECTORS:
|
|
|
/s/ JOHN M. CASSADAY
John M. Cassaday |
|
/s/ NANCY S. NEWCOMB
Nancy S. Newcomb |
/s/ JUDITH B. CRAVEN
Judith B. Craven |
|
/s/ RICHARD J. SCHNIEDERS
Richard J. Schnieders |
/s/ MANUEL A. FERNANDEZ
Manuel A. Fernandez |
|
/s/ PHYLLIS S. SEWELL
Phyllis S. Sewell |
/s/ JONATHAN GOLDEN
Jonathan Golden |
|
/s/ RICHARD G. TILGHMAN
Richard G. Tilghman |
/s/ JOSEPH A. HAFNER, JR.
Joseph A. Hafner, Jr. |
|
/s/ JACKIE M. WARD
Jackie M. Ward |
/s/ RICHARD G. MERRILL
Richard G. Merrill |
|
|
70
SYSCO CORPORATION AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
Charged to |
|
Charged to |
|
|
|
|
|
|
|
|
Beginning of |
|
Costs and |
|
Other Accounts |
|
Deductions |
|
Balance at |
|
|
Description |
|
Period |
|
Expenses |
|
Describe(1) |
|
Describe(2) |
|
End of Period |
For year ended July 2, 2005
|
|
Allowance
for doubtful
accounts
|
|
$ |
34,175,000 |
|
|
$ |
17,959,000 |
|
|
$ |
(1,690,000 |
) |
|
$ |
20,840,000 |
|
|
$ |
29,604,000 |
|
|
|
Self-insured
liabilities
|
|
$ |
100,882,000 |
|
|
$ |
249,295,000 |
|
|
$ |
|
|
|
$ |
244,584,000 |
|
|
$ |
105,593,000 |
|
For year ended July 1, 2006
|
|
Allowance
for doubtful
accounts
|
|
$ |
29,604,000 |
|
|
$ |
19,895,000 |
|
|
$ |
729,000 |
|
|
$ |
21,128,000 |
|
|
$ |
29,100,000 |
|
|
|
Self-insured
liabilities
|
|
$ |
105,593,000 |
|
|
$ |
274,061,000 |
|
|
$ |
|
|
|
$ |
264,097,000 |
|
|
$ |
115,557,000 |
|
For year ended June 30, 2007
|
|
Allowance
for doubtful
accounts
|
|
$ |
29,100,000 |
|
|
$ |
28,156,000 |
|
|
$ |
595,000 |
|
|
$ |
26,010,000 |
|
|
$ |
31,841,000 |
|
|
|
Self-insured
liabilities
|
|
$ |
115,557,000 |
|
|
$ |
302,812,000 |
|
|
$ |
|
|
|
$ |
292,525,000 |
|
|
$ |
125,844,000 |
|
|
|
|
(1) |
|
Allowance for doubtful accounts: allowance accounts resulting from acquisitions and other
adjustments. |
|
(2) |
|
Allowance for doubtful accounts: customer accounts written off, net of recoveries. |
|
|
|
Self-insured liabilities: payments. |
S-1
EXHIBIT INDEX
Exhibits.
|
|
|
|
|
3.1
|
|
|
|
Restated Certificate of Incorporation, incorporated by reference to Exhibit
3(a) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). |
|
|
|
|
|
3.2
|
|
|
|
Certificate of Amendment of Certificate of Incorporation increasing
authorized shares, incorporated by reference to Exhibit 3(d) to Form 10-Q
for the quarter ended January 1, 2000 (File No. 1-6544). |
|
|
|
|
|
3.3
|
|
|
|
Certificate of Amendment to Restated Certificate of Incorporation
increasing authorized shares, incorporated by reference to Exhibit 3(e) to
Form 10-Q for the quarter ended December 27, 2003 (File No. 1-6544). |
|
|
|
|
|
3.4
|
|
|
|
Form of Amended Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock, incorporated by reference to
Exhibit 3(c) to Form 10-K for the year ended June 29, 1996 (File No.
1-6544). |
|
|
|
|
|
3.5
|
|
|
|
Amended and Restated Bylaws of Sysco Corporation dated May 11, 2007,
incorporated by reference to Exhibit 3.5 to Form 8-K filed on May 15, 2007
(File No. 1-6544). |
|
|
|
|
|
4.1
|
|
|
|
Senior Debt Indenture, dated as of June 15, 1995, between Sysco Corporation
and First Union National Bank of North Carolina, Trustee, incorporated by
reference to Exhibit 4(a) to Registration Statement on Form S-3 filed June
6, 1995 (File No. 33-60023). |
|
|
|
|
|
4.2
|
|
|
|
Second Supplemental Indenture, dated as of May 1, 1996, between Sysco
Corporation and First Union National Bank of North Carolina, Trustee as
amended, incorporated by reference to Exhibit 4(f) to Form 10-K for the
year ended June 29, 1996 (File No. 1-6544). |
|
|
|
|
|
4.3
|
|
|
|
Third Supplemental Indenture, dated as of April 25, 1997, between Sysco
Corporation and First Union National Bank of North Carolina, Trustee,
incorporated by reference to Exhibit 4(g) to Form 10-K for the year ended
June 28, 1997 (File No. 1-6544). |
|
|
|
|
|
4.4
|
|
|
|
Fourth Supplemental Indenture, dated as of April 25, 1997, between Sysco
Corporation and First Union National Bank of North Carolina, Trustee,
incorporated by reference to Exhibit 4(h) to Form 10-K for the year ended
June 28,1997 (File No. 1-6544). |
|
|
|
|
|
4.5
|
|
|
|
Fifth Supplemental Indenture, dated as of July 27, 1998 between Sysco
Corporation and First Union National Bank, Trustee, incorporated by
reference to Exhibit 4(h) to Form 10-K for the year ended June 27, 1998
(File No. 1-6544). |
|
|
|
|
|
4.6
|
|
|
|
Sixth Supplemental Indenture, including form of Note, dated April 5, 2002
between Sysco Corporation and Wachovia Bank, National Association (formerly
First Union National Bank of North Carolina), as Trustee, incorporated by
reference to Exhibit 4.1 to Form 8-K dated April 5, 2002 (File No. 1-6544). |
|
|
|
|
|
4.7
|
|
|
|
Seventh Supplemental Indenture, including form of Note, dated March 5, 2004
between Sysco Corporation, as Issuer, and Wachovia Bank, National
Association (formerly First Union National Bank of North Carolina), as
Trustee, incorporated by reference to Exhibit 4(j) to Form 10-Q for the
quarter ended March 27, 2004 (File No. 1-6544). |
|
|
|
|
|
4.8
|
|
|
|
Eighth Supplemental Indenture, including form of Note, dated September 22,
2005 between Sysco Corporation, as Issuer, and Wachovia Bank, National
Association, as Trustee, incorporated by reference to Exhibits 4.1 and 4.2
to Form 8-K filed on September 20, 2005 (File No. 1-6544). |
|
|
|
|
|
4.9
|
|
|
|
Indenture dated May 23, 2002 between Sysco International, Co., Sysco
Corporation and Wachovia Bank, National Association, incorporated by
reference to Exhibit 4.1 to Registration Statement on Form S-4 filed August
21, 2002 (File No. 333-98489). |
|
|
|
|
|
10.1
|
|
|
|
Credit Agreement dated November 4, 2005 between Sysco Corporation, Sysco
International, Co., JP Morgan Chase Bank, N.A., and certain Lenders party
thereto, incorporated by reference to Exhibit 99.1 to Form 8-K filed on
November 10, 2005 (File No. 1-6544). |
|
|
|
|
|
10.2
|
|
|
|
Commitment Increase Agreement dated March 31, 2006 by and among Sysco
Corporation, JPMorgan Chase Bank, individually and as Administrative Agent,
the Co-Syndication Agents named therein and the other financial
institutions party thereto relating to the Credit Agreement dated September
13, 2002, incorporated by reference to Exhibit 99.1 to Form 8-K filed on
April 6, 2006 (File No. 1-6544). |
|
|
|
|
|
10.3
|
|
|
|
Amended and Restated Issuing and Paying Agency Agreement, dated as of April
13, 2006, between Sysco Corporation and JPMorgan Chase Bank, National
Association, incorporated by reference to Exhibit 10.1 to Form 8-K filed on
April 19, 2006 (File No. 1-6544). |
|
10.4
|
|
|
|
Commercial Paper Dealer Agreement, dated as of April 13, 2006, between
Sysco Corporation and J.P. Morgan
|
|
|
|
|
|
|
|
|
|
Securities Inc., incorporated by
reference to Exhibit 10.2 to Form 8-K filed on April 19, 2006 (File No.
1-6544). |
|
|
|
|
|
10.5
|
|
|
|
Commercial Paper Dealer Agreement, dated as of April 13, 2006, between
Sysco Corporation and Goldman, Sachs & Co., incorporated by reference to
Exhibit 10.3 to Form 8-K filed on April 19, 2006 (File No. 1-6544). |
|
|
|
|
|
10.6
|
|
|
|
Third Amended and Restated Sysco Corporation Executive Deferred
Compensation Plan, incorporated by reference to Exhibit 10(d) to Form 10-Q
for the quarter ended December 31, 2005 filed on February 9, 2006 (File No.
1-6544). |
|
|
|
|
|
10.7
|
|
|
|
First Amendment to the Third Amended and Restated Sysco Corporation
Executive Deferred Compensation Plan, incorporated by reference to Exhibit
10.2 to Form 8-K filed on September 13, 2006 (File No. 1-6544). |
|
|
|
|
|
10.8
|
|
|
|
Sixth Amended and Restated Sysco Corporation Supplemental Executive
Retirement Plan, incorporated by reference to Exhibit 10(c) to Form 10-Q
for the quarter ended December 31, 2005 filed on February 9, 2006 (File No.
1-6544). |
|
|
|
|
|
10.9
|
|
|
|
First Amendment to the Sixth Amended and Restated Sysco Corporation
Supplemental Executive Retirement Plan, incorporated by reference to
Exhibit 10(a) to Form 10-Q for the quarter ended April 1, 2006 filed on May
11, 2006 (File No. 1-6544). |
|
|
|
|
|
10.10
|
|
|
|
Second Amendment to the Sixth Amended and Restated Sysco Corporation
Supplemental Executive Retirement Plan, incorporated by reference to
Exhibit 10.1 to Form 8-K filed on September 13, 2006 (File No. 1-6544). |
|
|
|
|
|
10.11
|
|
|
|
Sysco Corporation 1991 Stock Option Plan, incorporated by reference to
Exhibit 10(e) to Form 10-K for the year ended July 3, 1999 (File No.
1-6544). |
|
|
|
|
|
10.12
|
|
|
|
Amendments to Sysco Corporation 1991 Stock Option Plan dated effective
September 4, 1997, incorporated by reference to Exhibit 10(f) to Form 10-K
for the year ended June 28, 1997 (File No. 1-6544). |
|
|
|
|
|
10.13
|
|
|
|
Amendments to Sysco Corporation 1991 Stock Option Plan dated effective
November 5, 1998, incorporated by reference to Exhibit 10(g) to Form 10-K
for the year ended July 3, 1999 (File No. 1-6544). |
|
|
|
|
|
10.14
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on August
31, 1995 under the 1991 Stock Option Plan, incorporated by reference to
Exhibit 10(pp) to Form 10-K for the year ended July 3, 2004 filed on
September 16, 2004 (File No. 1-6544). |
|
|
|
|
|
10.15
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on
September 3, 1998 under the 1991 Stock Option Plan, incorporated by
reference to Exhibit 10(ss) to Form 10-K for the year ended July 3, 2004
filed on September 16, 2004 (File No. 1-6544). |
|
|
|
|
|
10.16
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on
September 2, 1999 under the 1991 Stock Option Plan, incorporated by
reference to Exhibit 10(tt) to Form 10-K for the year ended July 3, 2004
filed on September 16, 2004 (File No. 1-6544). |
|
|
|
|
|
10.17
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on
September 7, 2000 under the 1991 Stock Option Plan, incorporated by
reference to Exhibit 10(uu) to Form 10-K for the year ended July 3, 2004
filed on September 16, 2004 (File No. 1-6544). |
|
|
|
|
|
10.18
|
|
|
|
2000 Stock Incentive Plan, incorporated by reference to Appendix B to Proxy
Statement filed on September 25, 2000 (File No. 1-6544). |
|
|
|
|
|
10.19
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on
September 11, 2001 under the 2000 Stock Incentive Plan, incorporated by
reference to Exhibit 10(vv) to Form 10-K for the year ended July 3, 2004
filed on September 16, 2004 (File No. 1-6544). |
|
|
|
|
|
10.20
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on
September 11, 2001 under the 2000 Stock Incentive Plan, incorporated by
reference to Exhibit 10(ww) to Form 10-K for the year ended July 3, 2004
filed on September 16, 2004 (File No. 1-6544). |
|
|
|
|
|
10.21
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on
September 12, 2002 under the 2000 Stock Incentive Plan, incorporated by
reference to Exhibit 10(xx) to Form 10-K for the year ended July 3, 2004
filed on September 16, 2004 (File No. 1-6544). |
|
|
|
|
|
10.22
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on
September 11, 2003 under the 2000 Stock Incentive Plan, incorporated by
reference to Exhibit 10(yy) to Form 10-K for the year ended July 3, 2004
filed on September 16, 2004 (File No. 1-6544). |
|
|
|
|
|
10.23
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers under the
2000 Stock Incentive Plan, incorporated by reference to Exhibit 10(a) to
Form 8-K filed on September 9, 2004 (File No. 1-6544). |
|
|
|
|
|
10.24
|
|
|
|
2004 Stock Option Plan, incorporated by reference to Appendix B to the
Sysco Corporation Proxy Statement filed September 24, 2004 (File No.
1-6544). |
|
|
|
|
|
10.25
|
|
|
|
Form of Stock Option Grant Agreement issued to executive officers on
September 8, 2005 and September 7, 2006 under the 2004 Stock Option Plan,
incorporated by reference to Exhibit 99.1 to Form 8-K filed on September
14, 2005 (File No. 1-6544). |
|
|
|
|
|
10.26
|
|
|
|
2004 Long-Term Incentive Cash Plan dated September 3, 2004, incorporated by
reference to Exhibit 10(a) to Form 8-K filed on September 10, 2004 (File
No. 1-6544). |
|
|
|
|
|
10.27
|
|
|
|
Form of Performance Unit Grant Agreement issued to executive officers
effective September 3, 2004 under the Long-Term Incentive Cash Plan,
incorporated by reference to Exhibit 10(b) to Form 8-K filed on September
10, 2004 (File No. 1-6544). |
|
|
|
|
|
10.28
|
|
|
|
Form of Performance Unit Grant Agreement issued to executive officers
effective September 8, 2005 under the Long-Term Incentive Cash Plan,
incorporated by reference to Exhibit 10.38 to Form 10-K for the year ended
July 1, 2006 filed on September 14, 2006 (File No. 1-6544). |
|
|
|
|
|
10.29
|
|
|
|
Form of Performance Unit Grant Agreement issued to executive officers
effective September 7, 2006 under the Long-Term Incentive Cash Plan,
incorporated by reference to Exhibit 10.3 to Form 8-K filed on September
13, 2006 (File No. 1-6544). |
|
|
|
|
|
10.30
|
|
|
|
First Amendment to the 2004 Long-Term Cash Incentive Plan dated February 9,
2007, incorporated by reference to Exhibit 10.1 to Form 10-Q for the
quarter ended March 31, 2007 (File No. 1-6544). |
|
|
|
|
|
10.31#
|
|
|
|
Second Amendment to the 2004 Long-Term Cash Incentive Plan dated May 11,
2007 changing the name to the 2004 Mid-Term Incentive Plan. |
|
|
|
|
|
10.32
|
|
|
|
2005 Management Incentive Plan, incorporated by reference to Annex B to the
Sysco Corporation Proxy Statement for the November 11, 2005 Annual Meeting
of Stockholders (File No. 1-6544). |
|
|
|
|
|
10.33#
|
|
|
|
First Amendment to 2005 Management Incentive Plan dated July 13, 2007. |
|
|
|
|
|
10.34
|
|
|
|
Form of Fiscal Year 2007 Bonus Award for the Chief Executive Officer, Chief
Financial Officer, Executive Vice Presidents and Senior Vice Presidents
under the 2005 Management Incentive Plan, incorporated by reference to
Exhibit 10.44 to Form 10-K for the year ended July 1, 2006 filed on
September 14, 2006 (File No. 1-6544). |
|
|
|
|
|
10.35
|
|
|
|
Form of Fiscal Year 2007 Bonus Award for Senior Vice Presidents of
Operations under the 2005 Management Incentive Plan, , incorporated by
reference to Exhibit 10.45 to Form 10-K for the year ended July 1, 2006
filed on September 14, 2006 (File No. 1-6544). |
|
|
|
|
|
10.36#
|
|
|
|
Form of Fiscal Year 2008 Bonus Award for the Chief Executive Officer,
President, Chief Financial Officer, Executive Vice Presidents and Senior
Vice Presidents (excluding Senior Vice Presidents of Operations) under the
2005 Management Incentive Plan. |
|
|
|
|
|
10.37
|
|
|
|
Supplemental Performance Based Bonus Plan dated November 11, 2004,
incorporated by reference to Exhibit 10(b) to Form 10-Q for the quarter
ended January 1, 2005 filed on February 10, 2005 (File No. 1-6544). |
|
|
|
|
|
10.38
|
|
|
|
2006 Supplemental Performance Bonus plan dated June 9, 2006, incorporated by reference to
Exhibit 10.49 to Form 10-K for the year ended July 1, 2006 filed on September 14, 2006
(File No. 1-6544). |
|
|
|
|
|
10.39
|
|
|
|
Form of Fiscal Year 2007 Chief Executive Officer Supplemental Bonus
Agreement under the 2006 Supplemental Performance Based Bonus Plan,
incorporated by reference to Exhibit 10.50 to Form 10-K for the year ended
July 1, 2006 filed on September 14, 2006 (File No. 1-6544). |
|
|
|
|
|
10.40
|
|
|
|
Form of Fiscal Year 2007 Supplemental Bonus Agreement for Executive Vice
Presidents, Senior Vice Presidents and Senior Vice Presidents of Operations
under the 2006 Supplemental Performance Based Bonus Plan, incorporated by
reference to Exhibit 10.51 to Form 10-K for the year ended July 1, 2006
filed on September 14, 2006 (File No. 1-6544). |
|
|
|
|
|
10.41#
|
|
|
|
Form of Fiscal Year 2008 Chief Executive Officer Supplemental Bonus
Agreement under the 2006 Supplemental Performance Based Bonus Plan. |
|
|
|
|
|
10.42#
|
|
|
|
Form of Fiscal Year 2008 Supplemental Bonus Agreement for President,
Executive Vice Presidents, Senior Vice Presidents and Senior Vice
Presidents of Operations under the 2006 Supplemental Performance Based
Bonus Plan. |
|
|
|
|
|
|