- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K <Table> <C> <S> (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 29, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 </Table> COMMISSION FILE NUMBER 1-6544 SYSCO CORPORATION (Exact name of registrant as specified in its charter) <Table> <S> <C> DELAWARE 74-1648137 (State or other jurisdiction of (IRS employer incorporation or organization) identification number) 1390 ENCLAVE PARKWAY 77077-2099 HOUSTON, TEXAS (Zip Code) (Address of principal executive offices) </Table> Registrant's Telephone Number, Including Area Code: (281) 584-1390 Securities Registered Pursuant to Section 12(b) of the Act: <Table> <Caption> NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ------------------------ <S> <C> Common Stock, $1.00 par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange </Table> Securities Registered Pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock of the registrant held by stockholders who were not affiliates (as defined by regulations of the Securities and Exchange Commission) of the registrant was approximately $19,975,544,000 at September 10, 2002 (based on the closing sales price on the New York Stock Exchange Composite Tape on September 10, 2002, as reported by The Wall Street Journal (Southwest Edition)). At September 10, 2002, the registrant had issued and outstanding an aggregate of 657,722,693 shares of its common stock. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the proxy statement filed with the Securities and Exchange Commission on September 23, 2002 are incorporated by reference into Part III. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
TABLE OF CONTENTS <Table> <Caption> PAGE NO. -------- <S> <C> <C> PART I. Item 1. Business.................................................... 1 Item 2. Properties.................................................. 5 Item 3. Legal Proceedings........................................... 6 Item 4. Submission of Matters to a Vote of Security Holders......... 7 Item 4A. Executive Officers of the Registrant........................ 7 PART II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 8 Item 6. Selected Financial Data..................................... 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 9 Item 7A. Quantitative and Qualitative Disclosures about Market Risk........................................................ 19 Item 8. Financial Statements and Supplementary Data................. 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 48 PART III. Item 10. Directors and Executive Officers of the Registrant.......... 48 Item 11. Executive Compensation...................................... 48 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 48 Item 13. Certain Relationships and Related Transactions.............. 48 Item 14. Controls and Procedures..................................... 48 PART IV. Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 48 Signatures............................................................ 52 Certifications........................................................ 53 </Table>
PART I ITEM 1. BUSINESS OVERVIEW Sysco Corporation, acting through its subsidiaries and divisions (collectively referred to as "SYSCO" or the "company"), is the largest North American distributor of food and food related products to the foodservice or "food-prepared-away-from-home" industry. Founded in 1969, SYSCO provides its products and services to approximately 415,000 customers, including restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. SYSCO, which was formed when the stockholders of nine companies exchanged their stock for SYSCO common stock, commenced operations in March 1970. Since its formation, the company has grown from $115 million to over $23 billion in annual sales both through internal expansion of existing operations and acquisitions of formerly independent companies. Through the end of fiscal 2002, SYSCO had acquired sixty-seven companies or divisions of companies. In September 2001, Guest Supply, Inc., a SYSCO subsidiary, acquired Franklin Supply Company, a supplier of housekeeping and other operating supplies to the lodging industry headquartered in Louisburg, North Carolina. In March 2002, SYSCO acquired substantially all of the assets and certain liabilities of the SERCA Foodservice operations of Sobeys Inc. SERCA Foodservice Inc. is a foodservice and equipment distributor headquartered in Toronto, Ontario. In December 2000, SYSCO acquired North Douglas Distributors, Ltd., a broadline foodservice distributor operating on Vancouver Island, British Columbia and the Albert M. Briggs Company, a specialty meat distributor in Washington, D.C. In January 2001, the company acquired certain operations of the Freedman Companies, a specialty meat supplier based in Houston, Texas. In March 2001, SYSCO acquired Guest Supply, Inc. through an exchange offer followed by a merger. Guest Supply is a specialty distributor to the lodging industry headquartered in Monmouth Junction, New Jersey. In May 2001, the company acquired HRI Supply, Inc. a broadline foodservice distributor located in Kelowna, British Columbia. In July 2001, the company acquired Fulton Provision Co., a specialty meat company based in Portland, Oregon. In July 1999, SYSCO acquired Newport Meat Co. Inc., a southern California based distributor of fresh aged beef and other meats, seafood and poultry products. In August 1999, the company acquired Doughtie's Foods, Inc., a food distributor located in Virginia. Also in August 1999, SYSCO bought substantially all of the assets of Buckhead Beef Company, Inc., a Georgia based distributor of custom-cut fresh steaks and other meats, seafood and poultry products. In November 1999, SYSCO acquired Malcolm Meats, an Ohio based distributor of custom-cut fresh steaks and other meat and poultry products. In January 2000, SYSCO acquired Watson Foodservice, Inc., a broadline foodservice distributor located in Lubbock, Texas. In March 2000, SYSCO acquired FreshPoint, Inc., a distributor of produce with locations in the U.S. and Canada. SYSCO is organized under the laws of Delaware. The address and telephone number of the company's executive office are 1390 Enclave Parkway, Houston, Texas 77077-2099, (281) 584-1390. OPERATING SEGMENTS SYSCO provides food and other products to the foodservice or "food-prepared-away-from-home" industry. Each of SYSCO's operating companies generally represents a separate operating segment. Under the provisions of SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131), the company has aggregated its operating companies into five segments, of which only Broadline and SYGMA are reportable segments as defined in SFAS No. 131. Broadline operating companies distribute a full line of food products and a wide variety of non-food products to both our traditional and chain restaurant customers. SYGMA operating companies distribute a full line of food products and a wide variety of non-food products to some of our chain restaurant customer locations. "Other" financial information is attributable to the company's three other segments, including the company's specialty produce, meat and lodging industry products segments. The company's specialty produce companies distribute fresh produce and, on a limited 1
basis, other foodservice products. Specialty meat companies distribute custom-cut fresh steaks, and other meat, seafood and poultry products. Our lodging industry products company distributes personal care guest amenities, housekeeping supplies, room accessories and textiles to the lodging industry. CUSTOMERS AND PRODUCTS The foodservice industry consists of two major customer types -- "traditional" and "chain restaurant." Traditional foodservice customers include restaurants, hospitals, schools, hotels and industrial caterers. SYSCO's chain restaurant customers include regional pizza and national hamburger, chicken and steak chain operations. Services to the company's traditional foodservice and chain restaurant customers are supported by similar physical facilities, vehicles, materials handling equipment and techniques, and administrative and operating staffs. Products distributed by the company include a full line of frozen foods, such as meats, fully prepared entrees, fruits, vegetables and desserts, and a full line of canned and dry goods, fresh meats, imported specialties and fresh produce. The company also supplies a wide variety of nonfood items, including paper products such as disposable napkins, plates and cups; tableware such as china and silverware; restaurant and kitchen equipment and supplies; medical and surgical supplies; and cleaning supplies. SYSCO's operating companies distribute both nationally-branded merchandise and products packaged under SYSCO's private brands. The company believes that prompt and accurate delivery of orders, close contact with customers and the ability to provide a full array of products and services to assist customers in their foodservice operations are of primary importance in the marketing and distribution of products to the traditional customers. SYSCO's operating companies offer daily delivery to certain customer locations and have the capability of delivering special orders on short notice. Through the more than 13,150 sales and marketing representatives of SYSCO and its operating companies, SYSCO stays informed of the needs of its customers and acquaints them with new products and services. SYSCO's operating companies also provide ancillary services relating to foodservice distribution such as providing customers with product usage reports and other data, menu-planning advice, food safety training, contract services for installing kitchen equipment, installation and service of beverage dispensing machines and assistance in inventory control, as well as access to various third party services designed to add value to our customers' businesses. No single foodservice customer accounted for as much as 10% of SYSCO's sales for its fiscal year ended June 29, 2002. Approximately 3.7% of traditional foodservice sales during fiscal 2002 resulted from a process of competitive bidding. There are no material long-term contracts with any traditional foodservice customer that may not be cancelled by either party at its option. SYSCO's sales to chain restaurant customers consist of a variety of food products necessitated by the increasingly broad menus of chain restaurants. The company believes that consistent product quality and timely and accurate service are important factors in the selection of a chain restaurant supplier. One chain restaurant customer (Wendy's International, Inc.) accounted for 5.2% of SYSCO's sales for its fiscal year ended June 29, 2002. Although this customer represents 41% of the SYGMA segment sales, the company does not believe that the loss of this customer would have a material adverse effect on SYSCO as a whole. There are no material long-term contracts with any chain restaurant customer that may not be cancelled by either party at its option. 2
Based upon available information, the company estimates that sales by type of customer during the past three fiscal years were as follows: <Table> <Caption> FISCAL FISCAL FISCAL TYPE OF CUSTOMER 2002 2001 2000 - ---------------- ------ ------ ------ <S> <C> <C> <C> Restaurants................................................. 63% 64% 65% Hospitals and nursing homes................................. 10 11 10 Schools and colleges........................................ 6 6 6 Hotels and motels........................................... 6 5 5 Other....................................................... 15 14 14 --- --- --- Totals.................................................... 100% 100% 100% === === === </Table> SOURCES OF SUPPLY SYSCO estimates that it purchases from thousands of independent sources, none of which individually account for more than 5% of the company's purchases. These sources of supply consist generally of large corporations selling brand name and private label merchandise and independent private label processors and packers. Generally, purchasing is carried out through centrally developed purchasing programs (see "Corporate Headquarters' Services" below) and direct purchasing programs established by the company's various operating companies. The company continually develops relationships with suppliers but has no material long-term purchase commitments with any supplier. CORPORATE HEADQUARTERS' SERVICES SYSCO's corporate staff, consisting of approximately 940 persons, makes available a number of services to the company's operating companies. These persons possess experience and expertise in, among other areas, accounting and finance, cash management, information technology, employee benefits, engineering and insurance. Corporate also makes available legal, marketing and tax compliance services as well as warehousing and distribution services, which provide assistance in space utilization, energy conservation, fleet management and work flow. The corporate staff also administers a consolidated product procurement program designed to develop, obtain and assure consistent quality food and nonfood products. The program covers the purchasing and marketing of SYSCO brand merchandise, as well as private label and national brand merchandise, encompassing substantially all product lines. The company's operating companies may participate in the program at their option. CAPITAL IMPROVEMENTS To maximize productivity and customer service, the company continues to construct and modernize its distribution facilities. During fiscal 2002, 2001 and 2000, approximately $416,000,000, $341,000,000 and $266,000,000, respectively, were invested in facility expansions, fleet additions and other capital asset enhancements. The company estimates its capital expenditures in fiscal 2003 should be in the range of $450,000,000 to $500,000,000. During the three years ended June 29, 2002, capital expenditures were financed primarily by internally generated funds, the company's commercial paper program and bank borrowings. The Company expects to finance its fiscal 2003 capital expenditures from the same sources. EMPLOYEES As of June 29, 2002, SYSCO and its operating companies had approximately 46,800 full-time employees, approximately 21% of whom were represented by unions, primarily the International Brotherhood of Teamsters. Contract negotiations are handled locally. Collective bargaining agreements covering approximately 22% of the company's union employees expire during fiscal 2003. SYSCO considers its labor relations to be satisfactory. 3
COMPETITION The business of SYSCO is competitive with numerous companies engaged in foodservice distribution. While competition is encountered primarily from local and regional distributors, a few companies compete with SYSCO on a national basis. The company believes that, although price and customer contact are important considerations, the principal competitive factor in the foodservice industry is the ability to deliver a wide range of quality products and related services on a timely and dependable basis. Although SYSCO's share of the foodservice industry market in the United States and Canada was approximately 11.7% as of June 29, 2002, SYSCO believes, based upon industry trade data, that its sales to the U.S. "food-prepared-away-from-home" industry were the largest of any foodservice distributor during fiscal 2002. While adequate industry statistics are not available, the company believes that in most instances its local operations are among the leading distributors of food and related nonfood products to foodservice customers in their respective trading areas. GOVERNMENT REGULATION As a marketer and distributor of food products, SYSCO is subject to the Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder by the U.S. Food and Drug Administration ("FDA"). The FDA regulates manufacturing and holding requirements for foods through its current good manufacturing practice regulations, specifies the standards of identity for certain foods and prescribes the format and content of certain information required to appear on food product labels. For certain product lines, SYSCO is also subject to the Federal Meat Inspection Act, the Poultry Products Inspection Act, the Perishable Agricultural Commodities Act and regulations promulgated thereunder by the U.S. Department of Agriculture ("USDA"). The USDA imposes standards for product quality and sanitation including the inspection and labeling of meat and poultry products and the grading and commercial acceptance of produce shipments from the company's suppliers. The company and its products are also subject to state and local regulation through such measures as the licensing of its facilities, enforcement by state and local health agencies of state and local standards for the company's products and regulation of the company's trade practices in connection with the sale of its products. SYSCO's facilities are generally inspected at least annually by state and/or federal authorities. These facilities are also subject to inspections and regulations issued pursuant to the Occupational Safety and Health Act by the Department of Labor, which require the company to comply with certain manufacturing, health and safety standards to protect its employees from accidents and to establish hazard communication programs to transmit information on the hazards of certain chemicals present in products distributed by the company. The company is also subject to regulation by numerous federal, state, and local regulatory agencies, including but not limited to the U.S. Department of Labor, which sets employment practice standards for workers, and the U.S. Department of Transportation, which regulates transportation of perishable and hazardous materials and waste, and similar state and local agencies. The company's distribution facilities have tanks for the storage of diesel fuel and other petroleum products which are subject to laws regulating such storage tanks. Other federal, state and local provisions relating to the protection of the environment or the discharge of materials do not materially impact the company's use or operation of its facilities. Compliance with these laws has not had and is not anticipated to have a material effect on the capital expenditures, earnings or competitive position of SYSCO. GENERAL SYSCO has numerous trademarks which are of significant importance to the company. The loss of the SYSCO(R) trademark would have a material adverse effect on SYSCO's results of operations. SYSCO is not engaged in material research activities relating to the development of new products or the improvement of existing products. 4
Sales of the company do not generally fluctuate on a seasonal basis; therefore, the business of the company is not deemed to be seasonal. As of September 10, 2002, SYSCO and its operating companies operated 158 facilities throughout the United States and Canada, of which 142 were principal distribution facilities. ITEM 2. PROPERTIES The table below shows the number of distribution facilities and self-serve centers occupied by SYSCO in each state or province and the aggregate cubic footage devoted to cold and dry storage as of September 10, 2002. <Table> <Caption> NUMBER OF COLD STORAGE DRY STORAGE FACILITIES (THOUSANDS (THOUSANDS LOCATION AND CENTERS CUBIC FEET) CUBIC FEET) - -------- ----------- ------------ ----------- <S> <C> <C> <C> Alabama........................................... 2 1,683 2,393 Alaska............................................ 1 236 475 Arizona........................................... 1 2,819 3,348 Arkansas.......................................... 1 1,607 2,802 California........................................ 17 20,168 27,308 Colorado.......................................... 2 3,729 4,260 Connecticut....................................... 1 2,489 2,737 District of Columbia.............................. 2 670 158 Florida........................................... 11 16,385 20,746 Hawaii............................................ 1 -- 258 Georgia........................................... 5 5,265 8,680 Idaho............................................. 1 1,004 1,171 Illinois.......................................... 3 3,926 7,419 Indiana........................................... 2 2,909 2,250 Iowa.............................................. 1 1,314 4,148 Kansas............................................ 1 2,735 3,793 Kentucky.......................................... 1 2,330 2,648 Louisiana......................................... 1 2,577 3,254 Maine............................................. 1 1,508 1,916 Maryland.......................................... 5 7,078 7,147 Massachusetts..................................... 2 6,756 6,927 Michigan.......................................... 4 5,565 8,482 Minnesota......................................... 1 3,636 3,063 Mississippi....................................... 1 2,125 2,690 Missouri.......................................... 1 1,128 1,348 Montana........................................... 1 2,043 1,830 Nebraska.......................................... 1 1,844 2,206 Nevada............................................ 2 2,749 3,092 New Jersey........................................ 3 3,082 10,715 New Mexico........................................ 1 2,182 1,855 New York.......................................... 5 6,220 9,104 North Carolina.................................... 4 3,976 9,107 Ohio.............................................. 8 7,185 13,497 Oklahoma.......................................... 2 2,834 3,384 </Table> 5
<Table> <Caption> NUMBER OF COLD STORAGE DRY STORAGE FACILITIES (THOUSANDS (THOUSANDS LOCATION AND CENTERS CUBIC FEET) CUBIC FEET) - -------- ----------- ------------ ----------- <S> <C> <C> <C> Oregon............................................ 3 4,085 3,866 Pennsylvania...................................... 4 7,211 7,767 South Carolina.................................... 1 2,271 2,362 South Dakota...................................... 1 2 123 Tennessee......................................... 4 7,178 9,766 Texas............................................. 14 14,048 19,204 Utah.............................................. 1 3,840 3,936 Virginia.......................................... 2 4,820 4,342 Washington........................................ 1 3,526 3,008 Wisconsin......................................... 3 6,091 6,555 Alberta, Canada................................... 3 4,380 4,375 British Columbia, Canada.......................... 8 3,866 4,568 Manitoba, Canada.................................. 1 1,135 860 New Brunswick, Canada............................. 2 1,172 1,031 Newfoundland, Canada.............................. 2 744 669 Nova Scotia, Canada............................... 2 744 710 Ontario, Canada................................... 8 8,289 9,572 Quebec, Canada.................................... 1 716 1,218 Saskatchewan, Canada.............................. 1 1,271 750 --- ------- ------- Total........................................ 158 207,144 268,890 === ======= ======= </Table> SYSCO owns approximately 369,000,000 cubic feet of its distribution facilities and self-serve centers (or 77.5% of the total cubic feet), and the remainder is occupied under leases expiring at various dates from fiscal 2003 to fiscal 2020, 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 $26,030,000 at June 29, 2002. Such mortgage indebtedness and industrial revenue bond financing arrangements mature at various dates to 2026. The company owns its approximately 188,000 square foot headquarters office complex in Houston, Texas and leases approximately 150,600 square feet of additional office space in Houston, Texas. Facilities in Harrisburg, Pennsylvania; Cleveland, Ohio; Lewisville, Texas; Houston, Texas; Olathe, Kansas; Pocomoke, Maryland; Moundsview, Minnesota; Peterborough, Ontario; Miami, Florida and Lubbock, Texas (which in the aggregate accounted for approximately 14.4% of fiscal 2002 sales) are operating near capacity and the company is currently constructing expansions or replacements for these distribution facilities. As of September 10, 2002, SYSCO's fleet of approximately 8,380 delivery vehicles consisted of tractor and trailer combinations, vans and panel trucks, most of which are either wholly or partially refrigerated for the transportation of frozen or perishable foods. The company owns approximately 85% of these vehicles and leases the remainder. ITEM 3. LEGAL PROCEEDINGS SYSCO is engaged in various legal proceedings which have arisen but have not been fully adjudicated. These proceedings, in the opinion of management, will not have a material adverse effect upon the consolidated financial position or results of operations of the company when ultimately concluded. 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The following are the executive officers of SYSCO, each of whom serves at the discretion of the Board and holds the office opposite his or her name below until the meeting of the Board of Directors immediately preceding the next Annual Meeting of Stockholders or until his or her successor has been elected or qualified. Executive officers who also serve as directors, serve as directors until expiration of their terms or until their successors have been elected and qualified. <Table> <Caption> SERVED IN THIS NAME OF OFFICER CAPACITY POSITION SINCE AGE - --------------- ------------------------------- -------------- --- <S> <C> <C> <C> Charles H. Cotros.............. Chairman and Chief Executive 2000 & 1985 65 Officer; Director Larry J. Accardi............... Executive Vice President, 2000 & 2002 53 Merchandising Services and Multi-Unit Sales; President, Specialty Distribution Kenneth J. Carrig.............. Senior Vice President, 1999 45 Administration James C. Graham................ Senior Vice President, 2000 52 Foodservice Operations James E. Lankford.............. Senior Vice President, 2000 49 Foodservice Operations Thomas E. Lankford............. Executive Vice President; 2000, 2002 & 55 President of Foodservice 2000 Operations, North America; Director Gregory K. Marshall............ Senior Vice President; CEO, The 1993 55 SYGMA Network Michael C. Nichols............. Vice President, General Counsel 1999 & 2002 50 and Secretary Larry G. Pulliam............... Senior Vice President, 2002 46 Merchandising Services Diane Day Sanders.............. Vice President and Treasurer 1994 53 Richard J. Schnieders.......... President and Chief Operating 2000 & 1999 54 Officer; Director Stephen F. Smith............... Senior Vice President, 2002 52 Foodservice Operations Bruce L. Soltis................ Senior Vice President, Canadian 2002 57 Foodservice Operations Kenneth F. Spitler............. Executive Vice President, 2002 53 Redistribution and Northeast Region John K. Stubblefield, Jr....... Executive Vice President, 2000 56 Finance and Administration James D. Wickus................ Senior Vice President, 1995 60 Foodservice Operations </Table> Each of the executive officers listed above has been employed by the company throughout the past five years except Kenneth J. Carrig. Before joining SYSCO, Mr. Carrig was Vice President of Human Resources for Continental Airlines, Inc. from 1995 to 1997. Prior to that he was Senior Director of the Southwest Region for PepsiCo, Inc. from 1987 to 1995. 7
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The principal market for SYSCO's Common Stock is the New York Stock Exchange. The table below sets forth the high and low sales prices per share for SYSCO's Common Stock as reported on the New York Stock Exchange Composite Tape and the cash dividends paid for the periods indicated, adjusted for the 2-for-1 stock split effected by a 100% stock dividend paid on December 15, 2000 to stockholders of record on November 15, 2000. <Table> <Caption> COMMON STOCK PRICES --------------- DIVIDENDS PAID HIGH LOW PER SHARE ------ ------ -------------- <S> <C> <C> <C> Fiscal 2001: First Quarter....................................... $23.63 $19.38 $0.06 Second Quarter...................................... 30.44 21.75 0.06 Third Quarter....................................... 30.00 23.50 0.07 Fourth Quarter...................................... 30.12 25.70 0.07 Fiscal 2002: First Quarter....................................... $29.86 $21.75 $0.07 Second Quarter...................................... 27.22 23.85 0.07 Third Quarter....................................... 30.35 25.28 0.09 Fourth Quarter...................................... 29.94 25.76 0.09 </Table> The number of record owners of SYSCO's Common Stock as of September 10, 2002 was 15,583. ITEM 6. SELECTED FINANCIAL DATA <Table> <Caption> FISCAL YEAR ENDED ------------------------------------------------------------------- 1999 2002 2001 2000 (53 WEEKS) 1998 ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS EXCEPT FOR SHARE DATA) <S> <C> <C> <C> <C> <C> Sales........................... $23,350,504 $21,784,497 $19,303,268 $17,422,815 $15,327,536 Earnings before income taxes.... 1,100,870 966,655 737,608 593,887 532,493 Income taxes.................... 421,083 369,746 283,979 231,616 207,672 ----------- ----------- ----------- ----------- ----------- Earnings before cumulative effect of accounting change... 679,787 596,909 453,629 362,271 324,821 Cumulative effect of accounting change........................ -- -- (8,041) -- (28,053) ----------- ----------- ----------- ----------- ----------- Net earnings.................... $ 679,787 $ 596,909 $ 445,588 $ 362,271 $ 296,768 =========== =========== =========== =========== =========== Earnings before accounting change: Basic earnings per share...... $ 1.03 $ 0.90 $ 0.69 $ 0.54 $ 0.48 Diluted earnings per share.... 1.01 0.88 0.68 0.54 0.47 Cumulative effect of accounting change: Basic earnings per share...... -- -- (0.01) -- (0.04) Diluted earnings per share.... -- -- (0.01) -- (0.04) Net earnings: Basic earnings per share...... 1.03 0.90 0.68 0.54 0.44 Diluted earnings per share.... 1.01 0.88 0.67 0.54 0.43 Cash dividends per share........ 0.32 0.26 0.22 0.19 0.17 Total assets.................... 5,989,753 5,352,987 4,730,145 4,081,205 3,780,189 Capital expenditures............ 416,393 341,138 266,413 286,687 259,353 Long-term debt.................. 1,176,307 961,421 1,023,642 997,717 867,017 Shareholders' equity............ 2,132,519 2,100,535 1,721,584 1,394,221 1,326,639 ----------- ----------- ----------- ----------- ----------- Total capitalization............ $ 3,308,826 $ 3,061,956 $ 2,745,226 $ 2,391,938 $ 2,193,656 =========== =========== =========== =========== =========== Ratio of long-term debt to capitalization................ 35.6% 31.4% 37.3% 41.7% 39.5% </Table> 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES SYSCO provides marketing and distribution services to foodservice customers throughout the United States and Canada. The company intends to continue to expand its market share through profitable sales growth, foldouts, acquisitions, and constant emphasis on the development of its consolidated buying programs. The company also strives to increase the effectiveness of its marketing associates and the productivity of its warehousing and distribution activities. These objectives require continuing investment. SYSCO's resources include cash provided by operations and access to capital from financial markets. SYSCO's operations historically have produced significant cash flow. Cash generated from operations is first allocated to working capital requirements; investments in facilities, fleet and other equipment required to meet customers' needs; cash dividends; and acquisitions fitting within the company's overall growth strategy. Any remaining cash generated from operations may, at the discretion of management, be applied toward a portion of the cost of the share repurchase program, while the remainder of the cost may be financed with additional long-term debt. SYSCO's share repurchase program is used primarily to offset shares issued under various employee benefit and compensation plans, for acquisitions and to reduce shares outstanding, all of which may have the net effect of increasing earnings per share. Management targets a long-term debt to total capitalization ratio between 35% to 40%. The ratio may exceed the target range from time to time due to borrowings incurred in order to fund acquisitions and internal growth opportunities and due to fluctuations in the timing and amount of share repurchases. The ratio may also 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 35.6% and 31.4% at June 29, 2002 and June 30, 2001, respectively. The company generated net cash from operations of $1,084,980,000 in fiscal 2002, $955,224,000 in fiscal 2001 and $708,726,000 in fiscal 2000. The overall increases in operating results contributed to the annual increases in cash flows from operations. In addition, during the second quarter of fiscal 2002, the company began reorganizing its supply chain to maximize consolidated efficiencies and increase the effectiveness of the merchandising and procurement functions performed for the benefit of our customers. The new structure resulted in the deferral of certain federal and state income tax payments which amounted to $266,673,000 for fiscal 2002 and was reflected in the increase in the deferred tax provision. The company expects the positive cash flow effect of the deferral in fiscal 2003 to increase from fiscal 2002 levels. The company expects the cash flow impact of deferrals in fiscal 2004 and beyond to be less than fiscal 2003 levels, as it expects to begin making payments related to these deferrals in fiscal 2004. The company expects the cash flow impact of deferrals in fiscal 2004 and beyond to be incrementally positive when compared to what would have been paid on an annual basis without the deferral. In addition, a federal tax payment of $75,000,000 normally due in the fourth quarter of 2001 was deferred until the first quarter of 2002 as allowed by the Internal Revenue Service due to the Texas tropical storm Allison disaster and is reflected in the decrease of accrued income taxes in fiscal 2002. Cash used for investing activities was $630,300,000 in fiscal 2002, $338,751,000 in fiscal 2001 and $459,392,000 in fiscal 2000. Expenditures for facilities, fleet and other equipment were $416,393,000 in fiscal 2002, $341,138,000 in fiscal 2001 and $266,413,000 in fiscal 2000. The increase in fiscal 2002 over prior years is primarily due to the construction and completion of new fold-out facilities located in Sacramento, California and Columbia, South Carolina and the ongoing construction of the fold-out facility in Las Vegas, Nevada. Fiscal 2002 expenditures also included costs incurred on the construction or expansion of facilities in Lewisville, Texas; Norman, Oklahoma; Baraboo, Wisconsin and Jersey City, New Jersey. Total expenditures in fiscal 2003 are expected to increase to the range of $450,000,000 to $500,000,000 due to the continuation of the fold-out program; facility, fleet and other equipment replacements and expansions; and the company's supply chain initiatives. Expenditures for acquisitions of businesses were $234,618,000 in fiscal 2002, $10,363,000 in fiscal 2001, and $211,901,000 in fiscal 2000. In February 2000, the company filed with the Securities and Exchange Commission a shelf registration statement covering 5,700,000 shares of common stock to be offered from time to time in connection with 9
acquisitions. This registration statement was amended in January 2001 to include an additional 1,100,000 shares. No additional shares may be issued under this registration statement. In November 2000, the company filed with the Securities and Exchange Commission a shelf registration statement covering 30,000,000 shares of common stock to be offered from time to time in connection with acquisitions. As of June 29, 2002, 29,477,835 shares remained available for issuance under this registration statement. Cash used for financing activities was $359,984,000 in fiscal 2002, $639,858,000 in fiscal 2001 and $239,509,000 in fiscal 2000. In September 2001, the Board authorized the repurchase of an additional 16,000,000 shares. Under this authorization, 5,563,200 shares remained available for repurchase at June 29, 2002. In July 2002, the Board authorized the repurchase of an additional 20,000,000 shares. The number of shares acquired and their cost for the past three years were 18,000,000 shares for $473,558,000 in fiscal 2002, 16,000,000 shares for $428,196,000 in fiscal 2001 and 11,320,800 shares for $186,296,000 in fiscal 2000. Dividends paid were $213,275,000 in fiscal 2002, $173,701,000 in fiscal 2001 and $145,418,000 in fiscal 2000. SYSCO began paying the current quarterly dividend rate of $0.09 per share in January 2002, an increase from the $0.07 per share that became effective in February 2001. In April 2002, SYSCO issued $200,000,000 principal amount of 4.75% notes due July 30, 2005 under a shelf registration statement filed in June 1998. These notes, which were priced at 99.8% of par, are unsecured and are not subject to any sinking fund requirement. They include a redemption provision which allows SYSCO to retire the notes at any time prior to maturity at the greater of par plus accrued interest or an amount designed to insure that the note holders are not penalized by early redemption. Proceeds from the notes were used to pay down borrowings under the company's commercial paper program. As of August 24, 2002, there was $425,000,000 in principal amount outstanding under the previously filed registration statement, leaving $75,000,000 available for issuance. Concurrent with the issuance of these notes, SYSCO entered into an interest rate swap agreement with a notional amount of $200,000,000 whereby SYSCO receives a fixed rate equal to 4.75% per anum and pays a benchmark interest rate of six-month LIBOR in arrears less 84.5 basis points. In May 2002, SYSCO International, Co., a wholly-owned subsidiary of SYSCO, issued $200,000,000 principal amount of 6.10% notes due June 1, 2012 in a private offering. These notes, which were priced at 99.7% of par, are fully and unconditionally guaranteed by SYSCO Corporation and are not subject to any sinking fund requirement. They include registration rights and a redemption provision which allows SYSCO International, Co. to retire the notes at any time prior to maturity at the greater of par plus accrued interest or an amount designed to insure that the note holders are not penalized by the early redemption. SYSCO International, Co. and SYSCO have filed a registration statement with the Securities and Exchange Commission covering an identical series of notes to be issued in exchange for the unregistered notes outstanding. The proceeds from the 6.10% notes were utilized to repay commercial paper borrowings issued by SYSCO International, Co. to fund the acquisition of a Canadian broadline foodservice business. SYSCO has uncommitted bank lines of credit, which provide for unsecured borrowings for working capital up to $125,000,000, of which none was outstanding at June 29, 2002 and $30,640,000 was outstanding at June 30, 2001. SYSCO has a commercial paper program in the United States which was supported by a bank credit facility in the amount of $300,000,000 as of June 29, 2002 maturing in fiscal 2004. In September, the company entered into a new revolving loan agreement in the amount of $450,000,000 maturing in fiscal 2008. SYSCO also has a commercial paper program in Canada which is supported by a bank credit facility in the amount of $100,000,000 in Canadian dollars maturing in fiscal 2003. During fiscal 2002, 2001 and 2000, commercial paper and short-term bank borrowings ranged from approximately $51,472,000 to $538,362,000, $157,631,000 to $411,790,000, and $199,028,000 to $469,094,000, respectively. Commercial paper borrowings were $63,293,000 as of June 29, 2002 and $54,040,000 as of August 24, 2002. The company intends to settle outstanding commercial paper borrowings when they come due by issuing additional commercial paper or retiring them utilizing cash generated from operations. 10
The net cash provided by operations less cash utilized for capital expenditures, the stock repurchase program, cash dividends and other uses resulted in net long-term debt of $1,176,307,000 at June 29, 2002. After adjusting for the interest rate swap, approximately 82% of the long-term debt is at fixed rates averaging 6.61% and the remainder is at floating rates averaging 1.3%. SYSCO continues to have borrowing capacity available and alternative financing arrangements are evaluated as appropriate. In summary, SYSCO believes that through continual monitoring and management of assets together with the availability of additional capital in the financial markets, it will meet its cash requirements while maintaining proper liquidity for normal operating purposes. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The following table sets forth certain information concerning SYSCO's obligations and commitments to make future payments under contracts, such as debt and lease agreements, and under contingent commitments. <Table> <Caption> PAYMENTS DUE BY PERIOD --------------------------------------------------------------------------------- TOTAL OVER OBLIGATIONS 0-1 YEAR 1-2 YEARS 2-3 YEARS 3-4 YEARS 4-5 YEARS 5 YEARS ----------- -------- --------- --------- --------- --------- -------- (IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> <C> Short-term debt and commercial paper........... $ 66,360 $ 66,360 $ -- $ -- $ -- $ -- $ -- Long-term debt............... 1,179,351 7,743 18,694 152,587 402,409 102,667 495,251 Capital lease obligations.... 10,710 6,011 3,146 419 96 102 936 Long-term non-capitalized leases..................... 277,713 51,680 44,353 36,315 30,296 22,712 92,357 ---------- -------- ------- -------- -------- -------- -------- Total contractual cash obligations................ $1,534,134 $131,794 $66,193 $189,321 $432,801 $125,481 $588,544 ========== ======== ======= ======== ======== ======== ======== Outstanding letters of credit..................... $ 15,619 $ 15,619 $ -- $ -- $ -- $ -- $ -- ========== ======== ======= ======== ======== ======== ======== </Table> SALES Sales increased 7.2% in fiscal 2002, 12.8% in fiscal 2001 and 10.8% in fiscal 2000. The annual sales increases were attributable to a variety of factors, including the progress of our Customers Are Really Everything to SYSCO (C.A.R.E.S.) customer relationship initiatives, a persistent focus on increasing sales to marketing associate-served customers, the continuing recognition by customers of the quality and value of SYSCO Brand products, the overall growth in the foodservice industry and acquisitions. After adjusting for food cost increases and acquisitions, real sales growth was approximately 2.7% in 2002. Acquisitions represented 3.4% of sales increases for fiscal 2002 and food cost inflation was 1.1%. After adjusting for food cost increases and acquisitions, real sales growth was approximately 5.8% in fiscal 2001. Acquisitions represented 4.5% of total sales in fiscal 2001 and food cost inflation was approximately 2.5%. After adjusting for food cost increases, acquisitions and adjusting for the extra week in fiscal 1999, real sales growth was approximately 9% in fiscal 2000. Acquisitions represented 3.5% of sales increases in fiscal 2000 and food cost inflation was approximately 0.4% for fiscal 2000. The lower sales growth in 2002 was attributable to the overall softness in the economy and comparisons to sales increases in fiscal 2001 which were among the highest in SYSCO's history. The quarterly real sales growth trends experienced by the company were 1.7%, 0.7%, 2.7% and 5.2% for the first, second, third and fourth quarter of fiscal 2002, respectively, over comparable quarters in fiscal 2001. Industry sources estimate the total foodservice market experienced real growth of approximately 0.5% in calendar year 2001 and 2.9% in calendar year 2000. 11
Sales for fiscal 2000 through 2002 were as follows: <Table> <Caption> FISCAL YEAR SALES % INCREASE - ----------- --------------- ---------- <S> <C> <C> 2002.............................................. $23,350,504,000 7.2% 2001.............................................. 21,784,497,000 12.8 2000.............................................. 19,303,268,000 10.8 </Table> A comparison of the sales mix in the principal product categories during the last three years is presented below: <Table> <Caption> 2002 2001 2000 ---- ---- ---- <S> <C> <C> <C> Canned and dry products..................................... 19% 19% 21% Fresh and frozen meats...................................... 18 18 17 Frozen fruits, vegetables, bakery and other................. 13 13 14 Poultry..................................................... 10 10 10 Dairy products.............................................. 9 9 9 Fresh produce............................................... 9 9 7 Paper and disposables....................................... 8 8 8 Seafoods.................................................... 6 6 6 Beverage products........................................... 3 3 3 Janitorial products......................................... 2 2 2 Equipment and smallwares.................................... 2 2 2 Medical supplies............................................ 1 1 1 --- --- --- 100% 100% 100% === === === </Table> A comparison of sales by type of customer during the last three years is presented below: <Table> <Caption> 2002 2001 2000 ---- ---- ---- <S> <C> <C> <C> Restaurants................................................. 63% 64% 65% Hospitals and nursing homes................................. 10 11 10 Schools and colleges........................................ 6 6 6 Hotels and motels........................................... 6 5 5 All other................................................... 15 14 14 --- --- --- 100% 100% 100% === === === </Table> COST OF SALES Cost of sales increased approximately 6.9% in fiscal 2002, 11.9% in fiscal 2001 and 10.1% in fiscal 2000. The rate of increases were less than the rate of sales increases leading to improved gross margins. The rate of increase is influenced by SYSCO's overall customer and product mix, economies realized in purchasing and higher sales of SYSCO Brand products. OPERATING EXPENSES Operating expenses include the costs of warehousing and delivering products as well as selling and administrative expenses. These expenses as a percent of sales were 14.8% for fiscal 2002 and 2001 and 14.7% for fiscal 2000. Changes in the percentage relationship of operating expenses to sales result from an interplay of several economic influences, including customer mix. Inflationary increases in operating costs generally have been offset through improved productivity. Operating expenses in fiscal 2002 were negatively impacted by increased costs realized during the initial operating periods of fold-outs in Sacramento, California; Columbia, South Carolina and Las Vegas, Nevada. 12
In addition, the increase in marketing associate-served sales is accompanied by higher expenses to serve these customers. In fiscal 2000, expenses were incurred in connection with the closing of a facility and one-time non-recurring costs associated with the completion of the SYSCO Uniform Systems implementation. The sum of the costs related to fiscal 2000 were approximately $13,000,000. INTEREST EXPENSE Interest expense for the year decreased $8,879,000 or approximately 12.4% below fiscal 2001, which had increased $944,000 or approximately 1.3% over fiscal 2000. The decrease in interest expense in fiscal 2002 was primarily due to decreases in interest rates for short-term and commercial paper borrowings. Interest expense in fiscal 2000 included interest income in the amount of $3,000,000 related to a Federal income tax refund on an amended return. After adjusting for the refund, interest expense in the fiscal 2001 period decreased $2,056,000 or approximately 2.8%. This decrease was due primarily to decreased borrowings. Interest capitalized during construction periods for the past three years was $3,746,000 in fiscal 2002, $2,995,000 in fiscal 2001 and $964,000 in fiscal 2000. OTHER, NET Other, net was $2,805,000 income in fiscal 2002, an increase of $2,906,000 from the $101,000 expense in fiscal 2001. Fiscal 2001's expense of $101,000 decreased $1,421,000 from the $1,522,000 expense in fiscal 2000. Changes between the years result from fluctuations in miscellaneous activities, primarily gains and losses on the sale of surplus facilities. EARNINGS BEFORE INCOME TAXES Earnings before income taxes rose $134,215,000, or approximately 13.9% above fiscal 2001 which had increased $229,047,000, or approximately 31.1%, over fiscal 2000. Fiscal 2000 increased $143,721,000, or approximately 24.2% over fiscal 1999. Additional sales and realization of operating efficiencies contributed to the increases as well as the company's success in its continued efforts to increase sales to the company's higher margin territorial street customers and increasingly higher sales of SYSCO Brand products, both of which generally yield higher margins. PROVISION FOR INCOME TAXES The effective tax rate was 38.25% in fiscal 2002 and 2001 and 38.5% in fiscal 2000. EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE Fiscal 2002 represents the twenty-sixth consecutive year of increased earnings before the cumulative effect of an accounting change. Earnings before cumulative effect of an accounting change rose $82,878,000 or approximately 13.9% above fiscal 2001, which had increased $143,280,000 or approximately 31.6% over fiscal 2000. Fiscal 2000 increased $91,358,000 or approximately 25.2% over fiscal 1999. The increases were caused by additional sales, operating efficiencies and other factors discussed above. CUMULATIVE EFFECT OF ACCOUNTING CHANGE In the first quarter of fiscal 2000, SYSCO recorded a one-time, after-tax, non-cash charge of $8,041,000 to comply with the required adoption of AICPA Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-up Activities." SOP 98-5 required the writeoff of any unamortized costs of start-up activities and organization costs. NET EARNINGS Net earnings for the year increased $82,878,000 or approximately 13.9% above fiscal 2001, which had increased $151,321,000 or approximately 34.0% over fiscal 2000. Fiscal 2000 increased $83,317,000 or approximately 23.0% over fiscal 1999. 13
RETURN ON SHAREHOLDERS' EQUITY The return on average shareholders' equity was approximately 31% in fiscal 2002 and fiscal 2001 and 30% in fiscal 2000. Since its inception SYSCO has averaged in excess of an 18% return on shareholders' equity before the cumulative effect of accounting changes. BROADLINE SEGMENT Broadline segment sales increased by 5.8% in fiscal 2002 as compared to fiscal 2001 and by 8.8% in fiscal 2001 as compared to fiscal 2000. The fiscal 2002 and 2001 sales growth was due primarily to increased sales to marketing associate-served customers as well as increased sales of SYSCO Brand products. Broadline segment sales as a percentage of total SYSCO sales decreased from 83.1% in fiscal 2001 to 82.1% in fiscal 2002 and from 86.2% in fiscal 2000 to 83.1% in fiscal 2001. The decreases in fiscal 2002 and fiscal 2001 were due primarily to acquisitions of specialty meat, lodging industry product and produce companies in the Other segments and greater percentage growth of specialty meat, lodging industry companies and SYGMA segment as a percentage of overall SYSCO sales. Earnings before income taxes from the Broadline segment increased by 12.4% in fiscal 2002 as compared to fiscal 2001 and by 25.6% in fiscal 2001 as compared to fiscal 2000. The increases in earnings before income taxes for fiscal 2002 and fiscal 2001 were driven by increased sales to marketing associate-served customers as well as increases in sales of SYSCO Brand products, both of which generally yield higher margins. Completion of the installation of SYSCO Uniform Systems in the second quarter of fiscal 2000 also impacted pretax earnings with increased efficiencies and productivity. SYGMA SEGMENT SYGMA segment sales increased by 10.6% in fiscal 2002 as compared to fiscal 2001 and 12.2% in fiscal 2001 as compared to fiscal 2000. The fiscal 2002 and 2001 sales growth was due primarily to sales growth in SYGMA's existing customer base. SYGMA segment sales as a percentage of total SYSCO sales increased from 11.1% in fiscal 2001 to 11.4% in fiscal 2002 and decreased from 11.2% in fiscal 2000 to 11.1% in fiscal 2001. The decrease in fiscal 2001 was due to the acquisition of specialty meat, lodging industry product and produce companies in the Other segments. Earnings before income taxes for the segment increased by 41.2% in fiscal 2002 as compared to fiscal 2001 and 213.3% in fiscal 2001 as compared to fiscal 2000. The increases in fiscal 2002 and fiscal 2001 were due to operating efficiencies and improved labor costs realized during the current fiscal year. OTHER SEGMENTS The Other segment sales increased by 23.9% in fiscal 2002 as compared to fiscal 2001 and 157.7% in fiscal 2001 as compared to fiscal 2000. Other Segment sales as a percentage of total SYSCO sales increased from 6.3% in fiscal 2001 to 7.3% in fiscal 2002 and from 2.8% in fiscal 2000 to 6.3% in fiscal 2001. The increases were due primarily to the timing of acquisitions made during the periods presented. Earnings before income taxes increased by 15.5% in fiscal 2002 as compared to fiscal 2001 and 98.7% in fiscal 2001 as compared to fiscal 2000. The increases were due primarily to the timing of acquisitions made during the periods presented. In fiscal 2002, earnings were negatively impacted by the downturn in demand in travel and resort destination cities which are serviced by certain of the specialty companies. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses in the accompanying financial statements. Significant accounting polices employed by SYSCO are presented in the notes to the financial statements. 14
Critical accounting policies are those that are most important to the portrayal of the company's financial condition and results of operations. These policies require management's most difficult, subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. SYSCO's most critical accounting policies pertain to the allowance for doubtful accounts receivable, self-insurance programs, pension plans and accounting for business combinations. Allowance for Doubtful Accounts Receivable SYSCO evaluates the collectibility of accounts receivable and determines the appropriate reserve for doubtful accounts based on a combination of factors. In circumstances where we are aware of a specific customer's inability to meet its financial obligation to us, we record a specific reserve for bad debts to reduce the net recognized receivable to the amount we reasonably expect to collect and write-off such amounts at the end of each fiscal year. In addition, we recognize reserves for all other receivables based on analysis of historical trends of write-offs and recoveries. If the financial condition of our customers were to deteriorate, additional reserves may be required. Self-Insurance Program SYSCO maintains a self-insurance program covering portions of workers' compensation, group medical, general liability and vehicle liability costs. The amounts in excess of the self-insured levels are fully insured. Self-insurance accruals are based on claims filed and include an estimate for significant claims incurred but not reported. 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 our risks of workers' compensation, vehicle and general liability claims, we have implemented safety procedures and awareness programs. Pension Plans SYSCO maintains defined benefit and defined contribution retirement plans for its employees. The company also contributes to various multi-employer plans under collective bargaining agreements. The defined benefit pension plans pay benefits to employees at retirement using formulas based on a participant's years of service and compensation. SYSCO also maintains a non-qualified, unfunded Supplementary Executive Retirement Plan (SERP) for key employees. In order to meet its obligations under the SERP, the company maintains life insurance policies on the lives of participants. SYSCO is the sole owner and beneficiary of such policies, which are excluded from plan assets in arriving at prepaid (accrued) benefit cost. Cash surrender values of such policies were $71,418,000 at June 29, 2002 and $79,083,000 at June 30, 2001. SYSCO accounts for its defined benefit pension plans in accordance with SFAS No. 87, "Employers' Accounting for Pensions" as amended by SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits -- an amendment of FASB Statements No. 87, 88, and 106." These statements require that the amounts recognized in the financial statements be determined on an actuarial basis which include assumptions regarding the expected rate of return on plan assets, a discount rate for determining the current value of plan benefits, and the assumption for the rate of increase in future compensation levels, as well as other assumptions. For guidance in determining the discount rate, SYSCO looks at rates of return on high-quality fixed-income investments. This rate was 7.25% and 7.50% as of June 29, 2002 and June 30, 2001, respectively. SYSCO looks to actual plan experience in determining the rates of increase in compensation levels. SYSCO used a plan specific age-related set of rates (equivalent to a single rate of 5.89%), as of June 29, 2002 and June 30, 2001. The expected long-term rate of return on plan assets was 9.50% and 10.50% as of June 29, 2002 and June 30, 2001, respectively. Management believes that this assumption is reasonable based on the investment policy and expectations of future returns for the various asset classes in which trust assets are invested. Although not determinative of future returns, the effective annual rate of return on plan assets was 9.9%, 9.3% and a negative 2.2% over the ten-year, five-year and one-year periods ended December 31, 2001, respectively. The rate of return assumption is reviewed annually and revised as deemed appropriate. 15
The performance of the stock market in 2002 and 2001 resulted in a decline in the value of the assets held by the pension plans. As a result, the company was required to reflect a minimum pension liability of $65,435,000, net of tax, as of June 29, 2002 and $5,624,000, net of tax, as of June 30, 2001. Minimum pension liability adjustments are non-cash adjustments that are reflected as an increase in the pension liability and on offsetting charge to shareholders' equity, net of tax, through comprehensive loss rather than net income. The company's prepaid benefit cost prior to the recognition of the additional minimum pension liability was $1,063,000 at June 29, 2002 and its accrued benefit cost prior to the recognition of the additional minimum pension liability was $30,736,000 at June 30, 2001. Included in arriving at accrued benefit cost are $236,852,000 in deferred net actuarial losses resulting from the variance of actual experience from that projected by actuarial assumptions. A portion of this unrecognized loss is amortized and recognized in accordance with SFAS No. 87 in pension expense over time. The company recognized net pension costs of $51,336,000 and $30,359,000 for fiscal years 2002 and 2001, respectively. Accounting for Business Combinations Goodwill and intangible assets represent the excess of consideration over the fair value of tangible net assets acquired. Certain assumptions and estimates are employed in determining the fair value of assets acquired including goodwill and other intangible assets as well as determining the allocation of goodwill to the appropriate reporting unit. In addition, SYSCO assesses the recoverability of these intangibles by determining whether the amortization of these intangibles over their remaining lives can be recovered through undiscounted future net cash flows of the acquired operations. The amount of impairment, if any, is measured by the amount in which the carrying amounts exceed the projected discounted future operating cash flows. SYSCO will adopt SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets" in fiscal year 2003 which discontinues the amortization of goodwill and indefinite life intangibles and requires an annual test of impairment based on a comparison of fair value to carrying values. The evaluation of impairment under both the existing rules and SFAS No. 142 requires the use of projections, estimates and assumptions as to the future performance of the operations. Actual results could differ from projections resulting in the company revising its assumptions and, if required, recognizing an impairment loss. Based on a preliminary assessment, SYSCO does not believe its goodwill is impaired and does not expect to record a charge from the adoption of SFAS No. 142. New Accounting Standards In fiscal 2000, SYSCO adopted the AICPA Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance with respect to accounting for the various types of costs incurred for computer software developed or obtained for SYSCO's use. The adoption of SOP 98-1 did not have a significant effect on SYSCO's consolidated results of operations or financial position. In fiscal 2001, SYSCO adopted the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of SFAS No. 133," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an amendment of SFAS No. 133." These statements outline the accounting treatment for all derivative activity and their adoption did not have a significant effect on SYSCO's consolidated results of operations or financial position. In fiscal 2001, SYSCO adopted the Securities and Exchange Commission Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition." SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. The adoption of SAB 101 had no effect on SYSCO's consolidated results of operations or financial position. In June 2001, SYSCO adopted SFAS No. 141, "Accounting for Business Combinations." SFAS No. 141 requires that all business combinations be accounted for using the purchase method of accounting and prohibits the pooling-of-interests method for business combinations initiated after June 20, 2001. SYSCO is 16
adopting the provisions of SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets" effective with the beginning of fiscal year 2003. As a result, the amortization of goodwill and indefinite life intangibles will be discontinued. Goodwill and indefinite life intangibles arising from business combinations after June 30, 2001 are also not amortized. The recoverability of goodwill and intangibles will be assessed annually or as needed by determining whether the fair value of the applicable reporting units exceed their carrying values. SYSCO has six months from the date it adopts SFAS No. 142 to test for cumulative effect of a change in accounting principle. Thereafter, any impairment losses will be included, net of tax, within the results of continuing operations. Management has completed its preliminary assessment of the impact that the adoption of SFAS No. 142 will have on the company's consolidated financial statements and believes that goodwill is not impaired. Goodwill amortization, after tax, recognized by SYSCO was $14,533,000 in 2002, $12,089,000 in 2001 and $7,812,000 in 2000. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long -- Lived Assets." SFAS 144 supersedes SFAS 121 and the portion of the Accounting Principle Board Opinion No. 30 that deals with disposal of a business segment. Management does not expect SFAS 144, which is effective for fiscal 2003, to have a material effect on the results of operations. RISK FACTORS Low Margin Business; Economic Sensitivity The foodservice distribution industry is characterized by relatively high inventory turnover with relatively low profit margins. SYSCO makes a significant portion of its sales at prices that are based on the cost of products it sells plus a percentage markup. As a result, SYSCO's profit levels may be negatively impacted during periods of food price deflation, even though SYSCO's gross profit percentage may remain relatively constant. The foodservice industry is sensitive to national and regional economic conditions. SYSCO's operating results are also sensitive to, and may be adversely affected by, other factors, including difficulties with the collectability of accounts receivable, inventory control, competitive price pressures, severe weather conditions and unexpected increases in fuel or other transportation-related costs. Although these factors have not had a material adverse impact on SYSCO's past operations, there can be no assurance that one or more of these factors will not adversely affect future operating results. Leverage and Debt Service Because historically a substantial part of SYSCO's growth has been the result of acquisitions and capital expansion, SYSCO's continued growth depends, in large part, on its ability to continue this expansion. As a result, its inability to finance acquisitions and capital expenditures through borrowed funds could restrict its ability to expand. Moreover, any default under the documents governing the indebtedness of SYSCO could have a significant adverse effect on the market value of SYSCO's common stock. Further, SYSCO's leveraged position may also increase its vulnerability to competitive pressures. Product Liability Claims SYSCO, like any other seller of food, faces the risk of exposure to product liability claims in the event that the use of products sold by the company causes injury or illness. With respect to product liability claims, SYSCO believes it has sufficient primary or excess umbrella liability insurance. However, this insurance may not continue to be available at a reasonable cost, or, if available, may not be adequate to cover all of SYSCO's liabilities. SYSCO generally seeks contractual indemnification and insurance coverage from parties supplying its products, but this indemnification or insurance coverage is limited, as a practical matter, to the creditworthiness of the indemnifying party and the insured limits of any insurance provided by suppliers. If SYSCO does not have adequate insurance or contractual indemnification available, product liability relating to defective products could materially reduce SYSCO's net income and earnings per share. 17
Interruption of Supplies SYSCO obtains substantially all of its foodservice products from third party suppliers. For the most part, SYSCO does not have long-term contracts with its suppliers committing them to provide products to SYSCO. Although SYSCO's purchasing volume can provide leverage when dealing with suppliers, suppliers may not provide the foodservice products and supplies needed by SYSCO in the quantities requested. Because SYSCO does not control the actual production of the products it sells, it is also subject to delays caused by interruption in production based on conditions outside its control. These conditions include job actions or strikes by employees of suppliers, weather, crop conditions, transportation interruptions, and natural disasters or other catastrophic events. SYSCO's inability to obtain adequate supplies of its foodservice products as a result of any of the foregoing factors or otherwise, could mean that SYSCO could not fulfill its obligations to customers, and customers may turn to other distributors. Labor Relations As of June 29, 2002, approximately 9,700 employees at 50 operating companies were members of 59 different local unions associated with the International Brotherhood of Teamsters and other labor organizations. In fiscal 2003, 14 agreements covering approximately 2,130 employees will expire. Failure of the operating companies to effectively renegotiate these contracts could result in work stoppages. Although SYSCO's operating subsidiaries have not experienced any significant labor disputes or work stoppages to date, and SYSCO believes they have satisfactory relationships with their unions, a work stoppage due to failure of one or more operating subsidiaries to renegotiate a union contract, or otherwise, could have a material adverse effect on SYSCO. Integration of Acquired Companies If SYSCO is unable to integrate acquired businesses successfully and realize anticipated economic, operational and other benefits in a timely manner, its profitability may decrease. Integration of an acquired business may be more difficult when SYSCO acquires a business in a market in which it has limited or no expertise, or with a corporate culture different from SYSCO's. If SYSCO is unable to integrate acquired businesses successfully, it may incur substantial costs and delays in increasing its customer base. In addition, the failure to integrate acquisitions successfully may divert management's attention from SYSCO's existing business and may damage SYSCO's relationships with its key customers and suppliers. Charter and Stockholder Rights Plan Under its Restated Certificate of Incorporation, SYSCO's Board of Directors is authorized to issue up to 1.5 million shares of preferred stock without stockholder approval. Issuance of these shares could make it more difficult for anyone to acquire SYSCO without approval of the Board of Directors, depending on the rights and preferences of the stock issued. In addition, if anyone attempts to acquire SYSCO without approval of the Board of Directors of SYSCO, the stockholders of SYSCO have the right to purchase preferred stock of SYSCO pursuant to its Stockholder Rights Plan, which could result in substantial dilution to a potential acquiror. The existence of either of these provisions could deter hostile takeover attempts that might result in an acquisition of SYSCO that could otherwise have been financially beneficial to SYSCO's stockholders. FORWARD-LOOKING STATEMENTS Certain statements made herein that look forward in time or express management's expectations or beliefs with respect to the occurrence of future events are forward-looking statements under the Private Securities Litigation Reform Act of 1995. They include statements about SYSCO's ability to increase its market share and sales, long-term debt to capitalization target ratios, anticipated capital expenditures, and SYSCO's ability to meet future cash requirements and remain profitable. These statements are based on management's current expectations and estimates; actual results may differ materially due in part to the risk factors discussed above. In addition, SYSCO's ability to increase its market share and sales, meet future cash requirements and remain profitable could be affected by conditions 18
in the economy and the industry and internal factors such as the ability to control expenses. The ability to meet long-term debt to capitalization target ratios may also be affected by share repurchases, cash flow, acquisitions and internal growth. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK SYSCO does not utilize financial instruments for trading purposes. SYSCO's use of debt directly exposes the company to interest rate risk. Floating rate debt, where the interest rate fluctuates periodically, exposes the company to short-term changes in market interest rates. Fixed rate debt, where the interest rate is fixed over the life of the instrument, exposes the company to changes in the market interest rates reflected in the fair value of the debt and to the risk that the company may need to refinance maturing debt with new debt. SYSCO manages its debt portfolio to achieve an overall desired position of fixed and floating rates and may employ interest rate swaps as a tool to achieve that goal. The major risks from interest rate derivatives include changes in the interest rates affecting the fair value of such instruments, potential increases in interest expense due to market increases in floating interest rates and the creditworthiness of the counterparties in such transactions. At June 29, 2002, the company had outstanding one interest rate swap agreement whereby SYSCO exchanged the fixed interest payments on the $200,000,000 principal amount of 4.75% notes for floating interest payments. At June 29, 2002 the company had outstanding $63,293,000 of commercial paper at variable rates of interest with maturities through September 3, 2002. The company's long-term debt obligations of $1,190,061,000 were primarily at fixed rates of interest except for $200,000,000 in fixed rate debt swapped to a floating rate of interest as discussed above. 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA SYSCO CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS <Table> <Caption> PAGE ---- <S> <C> Consolidated Financial Statements: Report of Management on Internal Accounting Controls...... 21 Report of Independent Auditors............................ 22 Consolidated Balance Sheets............................... 23 Consolidated Results of Operations........................ 24 Consolidated Shareholders' Equity......................... 25 Consolidated Cash Flows................................... 26 Summary of Accounting Policies............................ 27 Additional Financial Information.......................... 30 Schedule: II -- Valuation and Qualifying Accounts................... S-1 </Table> All other schedules are omitted because they are not applicable or the information is set forth in the consolidated financial statements or notes thereto. 20
REPORT OF MANAGEMENT ON INTERNAL ACCOUNTING CONTROLS July 31, 2002 The management of SYSCO is responsible for the preparation and integrity of the consolidated financial statements of the company. The accompanying consolidated financial statements have been prepared by the management of the company, in accordance with generally accepted accounting principles, using management's best estimates and judgment where necessary. Financial information appearing throughout this Annual Report is consistent with that in the consolidated financial statements. To help fulfill its responsibility, management maintains a system of internal controls designed to provide reasonable assurance that assets are safeguarded against loss or unauthorized use and that transactions are executed in accordance with management's authorizations and are reflected accurately in the company's records. The concept of reasonable assurance is based on the recognition that the cost of maintaining a system of internal accounting controls should not exceed benefits expected to be derived from the system. SYSCO believes that its long-standing emphasis on the highest standards of conduct and ethics, embodied in comprehensive written policies, serves to reinforce its system of internal controls. The company's operations review function monitors the operation of the internal control system and reports findings and recommendations to management and the Board of Directors. It also oversees actions taken to address control deficiencies and seeks opportunities for improving the effectiveness of the system. Ernst & Young, LLP, independent auditors, has been engaged to express an opinion regarding the fair presentation of the company's financial condition and operating results. As part of their audit of the company's financial statements, Ernst & Young, LLP considered the company's system of internal controls to the extent they deemed necessary to determine the nature, timing and extent of their audit tests. The Board of Directors oversees the company's financial reporting through its Audit Committee which consists entirely of outside directors. The Audit Committee selects and engages the independent auditors annually. The Audit Committee reviews both the scope of the accountants' audit and recommendations from both the independent auditors and the internal operations review function for improvements in internal controls. The independent auditors have unlimited access to the Audit Committee and from time to time confer with them without management representation. SYSCO recognizes its responsibility to conduct business in accordance with high ethical standards. This responsibility is reflected in a comprehensive code of business conduct that, among other things, addresses potentially conflicting outside business interests of company employees and provides guidance as to the proper conduct of business activities. Ongoing communications and review programs are designed to help ensure compliance with this code. The company believes that its system of internal controls is effective and adequate to accomplish the objectives discussed above. <Table> <S> <C> /s/ CHARLES H. COTROS /s/ JOHN K. STUBBLEFIELD, JR. - ----------------------------------------------------- ----------------------------------------------------- Charles H. Cotros John K. Stubblefield, Jr. Chairman and Chief Executive Officer Executive Vice President, Finance and Administration </Table> 21
REPORT OF INDEPENDENT AUDITORS 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 29, 2002 and June 30, 2001, and the related statements of consolidated results of operations, shareholders' equity and cash flows for each of the three years in the period ended June 29, 2002. Our audits also included the financial statement schedule at Item 15(a), No. 2. These financial statements and schedule are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SYSCO Corporation and subsidiaries as of June 29, 2002 and June 30, 2001, and the results of their operations and their cash flows for each of the three years in the period ended June 29, 2002 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Houston, Texas July 31, 2002 22
SYSCO CONSOLIDATED BALANCE SHEETS <Table> <Caption> JUNE 29, 2002 JUNE 30, 2001 ------------- ------------- (IN THOUSANDS EXCEPT FOR SHARE DATA) <S> <C> <C> ASSETS Current assets Cash...................................................... $ 230,439 $ 135,743 Accounts and notes receivable, less allowances of $30,338 and $43,112............................................ 1,760,827 1,650,130 Inventories............................................... 1,117,869 1,042,277 Deferred taxes............................................ 34,188 7,128 Prepaid expenses.......................................... 41,966 40,456 ---------- ---------- Total current assets.............................. 3,185,289 2,875,734 Plant and equipment at cost, less depreciation.............. 1,697,782 1,516,778 Other assets Goodwill and intangibles, less amortization............... 922,222 768,837 Other..................................................... 184,460 191,638 ---------- ---------- Total other assets................................ 1,106,682 960,475 ---------- ---------- Total assets...................................... $5,989,753 $5,352,987 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable............................................. $ 66,360 $ 30,640 Accounts payable.......................................... 1,349,330 1,271,817 Accrued expenses.......................................... 768,317 653,908 Income taxes.............................................. 41,596 123,332 Current maturities of long-term debt...................... 13,754 23,267 ---------- ---------- Total current liabilities......................... 2,239,357 2,102,964 Long-term debt.............................................. 1,176,307 961,421 Deferred taxes.............................................. 441,570 188,067 Contingencies Shareholders' equity Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none............... -- -- Common stock, par value $1 per share Authorized 1,000,000,000 shares, issued 765,174,900 shares................................................. 765,175 765,175 Paid-in capital........................................... 217,891 186,818 Retained earnings......................................... 2,869,417 2,415,160 Other comprehensive loss.................................. (65,435) (5,624) ---------- ---------- 3,787,048 3,361,529 Less cost of treasury stock, 111,634,603 and 100,037,236 shares................................................. 1,654,529 1,260,994 ---------- ---------- Total shareholders' equity........................ 2,132,519 2,100,535 ---------- ---------- Total liabilities and shareholders' equity........ $5,989,753 $5,352,987 ========== ========== </Table> See Summary of Accounting Policies and Additional Financial Information. 23
SYSCO CONSOLIDATED RESULTS OF OPERATIONS <Table> <Caption> YEAR ENDED -------------------------------------------- JUNE 29, 2002 JUNE 30, 2001 JULY 1, 2000 ------------- ------------- ------------ (IN THOUSANDS EXCEPT FOR SHARE DATA) <S> <C> <C> <C> Sales................................................. $23,350,504 $21,784,497 $19,303,268 Costs and expenses Cost of sales....................................... 18,722,163 17,513,138 15,649,551 Operating expenses.................................. 3,467,379 3,232,827 2,843,755 Interest expense.................................... 62,897 71,776 70,832 Other, net.......................................... (2,805) 101 1,522 ----------- ----------- ----------- Total costs and expenses.................... 22,249,634 20,817,842 18,565,660 ----------- ----------- ----------- Earnings before income taxes.......................... 1,100,870 966,655 737,608 Income taxes.......................................... 421,083 369,746 283,979 ----------- ----------- ----------- Earnings before cumulative effect of accounting change.............................................. 679,787 596,909 453,629 Cumulative effect of accounting change................ -- -- (8,041) ----------- ----------- ----------- Net earnings.......................................... $ 679,787 $ 596,909 $ 445,588 =========== =========== =========== Earnings before accounting change: Basic earnings per share............................ $ 1.03 $ 0.90 $ 0.69 Diluted earnings per share.......................... 1.01 0.88 0.68 Cumulative effect of accounting change: Basic earnings per share............................ -- -- (0.01) Diluted earnings per share.......................... -- -- (0.01) Net earnings: Basic earnings per share............................ 1.03 0.90 0.68 Diluted earnings per share.......................... 1.01 0.88 0.67 </Table> See Summary of Accounting Policies and Additional Financial Information. 24
SYSCO CONSOLIDATED SHAREHOLDERS' EQUITY <Table> <Caption> COMMON STOCK OTHER TREASURY STOCK ---------------------- PAID-IN RETAINED COMPREHENSIVE ------------------------ SHARES AMOUNT CAPITAL EARNINGS LOSS SHARES AMOUNT ----------- -------- -------- ---------- ------------- ----------- ---------- (IN THOUSANDS EXCEPT FOR SHARE DATA) <S> <C> <C> <C> <C> <C> <C> <C> Balance at July 3, 1999........... 382,587,450 $382,587 $ 872 $1,999,093 $ -- 52,915,065 $ 988,331 Net earnings for year ended July 1, 2000.................... 445,588 Dividends declared................ (152,427) Treasury stock purchases.......... 5,660,400 186,296 Treasury stock issued for acquisitions.................... 69,794 (4,984,497) (98,362) Stock options exercised........... (7,526) (1,163,222) (20,104) Employees' Stock Purchase Plan.... 9,446 (943,530) (18,585) Management Incentive Plan......... 4,381 (381,553) (7,352) ----------- -------- -------- ---------- -------- ----------- ---------- Balance at July 1, 2000........... 382,587,450 $382,587 $ 76,967 $2,292,254 $ -- 51,102,663 $1,030,224 Net earnings for year ended June 30, 2001................... 596,909 Dividends declared................ (180,702) Treasury stock purchases.......... 16,000,000 428,196 Treasury stock issued for acquisitions.................... 184,357 (12,025,208) (136,696) Stock options exercised........... (11,099) (3,677,972) (34,529) Employees' Stock Purchase Plan.... 16,713 (1,630,208) (17,770) Management Incentive Plan......... 9,167 (834,702) (8,431) Minimum pension liability adjustment, net of tax of $3,484.......................... (5,624) 2-for-1 stock split............... 382,587,450 382,588 (89,287) (293,301) 51,102,663 ----------- -------- -------- ---------- -------- ----------- ---------- Balance at June 30, 2001.......... 765,174,900 $765,175 $186,818 $2,415,160 $ (5,624) 100,037,236 $1,260,994 Net earnings for year ended June 29, 2002................... 679,787 Dividends declared................ (225,530) Treasury stock purchases.......... 18,000,000 473,558 Treasury stock issued for acquisitions.................... 12,517 (1,116,303) (12,251) Stock options exercised........... (10,750) (2,650,714) (32,837) Employees' Stock Purchase Plan.... 17,030 (1,784,529) (24,104) Management Incentive Plan......... 12,276 (851,087) (10,831) Minimum pension liability adjustment, net of tax of $37,049......................... (59,811) ----------- -------- -------- ---------- -------- ----------- ---------- Balance at June 29, 2002.......... 765,174,900 $765,175 $217,891 $2,869,417 $(65,435) 111,634,603 $1,654,529 =========== ======== ======== ========== ======== =========== ========== </Table> See Summary of Accounting Policies and Additional Financial Information. 25
SYSCO CONSOLIDATED CASH FLOWS <Table> <Caption> YEAR ENDED --------------------------------------------- JUNE 29, 2002 JUNE 30, 2001 JULY 1, 2000 ------------- ------------- ------------- (IN THOUSANDS) <S> <C> <C> <C> Cash flows from operating activities: Net earnings......................................... $ 679,787 $ 596,909 $ 445,588 Add non-cash items: Cumulative effect of accounting change............ -- -- 8,041 Depreciation and amortization..................... 278,251 248,240 220,661 Deferred tax provision (benefit).................. 263,492 6,199 (25,528) Provision for losses on receivables............... 25,904 21,740 27,082 Additional investment in certain assets and liabilities, net of effect of businesses acquired: (Increase) in receivables......................... (32,360) (87,616) (105,935) (Increase) in inventories......................... (17,804) (50,938) (56,943) (Increase) decrease in prepaid expenses........... (680) 6,547 3,378 (Decrease) increase in accounts payable........... (357) 33,377 105,790 (Decrease) increase in accrued expenses........... (23,403) 73,737 122,480 (Decrease) increase in income taxes............... (81,736) 106,047 16,254 (Increase) decrease in other assets............... (6,114) 982 (52,142) ---------- --------- --------- Net cash provided by operating activities............ 1,084,980 955,224 708,726 ---------- --------- --------- Cash flows from investing activities: Additions to plant and equipment..................... (416,393) (341,138) (266,413) Proceeds from sales of plant and equipment........... 20,711 12,750 18,922 Acquisition of businesses, net of cash acquired...... (234,618) (10,363) (211,901) ---------- --------- --------- Net cash used for investing activities............... (630,300) (338,751) (459,392) ---------- --------- --------- Cash flows from financing activities: Bank and commercial paper (repayments) borrowings.... (143,593) (72,055) 51,810 Other debt borrowings (repayments)................... 384,114 (41,417) (11,947) Common stock reissued from treasury.................. 86,328 75,511 52,342 Treasury stock purchases............................. (473,558) (428,196) (186,296) Dividends paid....................................... (213,275) (173,701) (145,418) ---------- --------- --------- Net cash used for financing activities............... (359,984) (639,858) (239,509) ---------- --------- --------- Net increase (decrease) in cash........................ 94,696 (23,385) 9,825 Cash at beginning of year.............................. 135,743 159,128 149,303 ---------- --------- --------- Cash at end of year.................................... $ 230,439 $ 135,743 $ 159,128 ========== ========= ========= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest.......................................... $ 61,354 $ 71,791 $ 70,977 Income taxes...................................... 239,792 251,567 272,022 </Table> See Summary of Accounting Policies and Additional Financial Information. 26
SUMMARY OF ACCOUNTING POLICIES BUSINESS AND CONSOLIDATION SYSCO Corporation (SYSCO) is engaged in the marketing and distribution of a wide range of food and related products to the foodservice or "food-prepared-away-from-home" industry. These services are performed for about 415,000 customers from 142 distribution facilities located throughout the United States and Canada. The accompanying financial statements include the accounts of SYSCO and its subsidiaries. All significant intercompany transactions and account balances have been eliminated. Certain amounts in the prior years have been reclassified to conform to the fiscal 2002 presentation including the reflection of dividends on a declared versus paid basis. 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. Earnings of acquisitions recorded as purchases are included in SYSCO's results of operations from the date of acquisition. INVENTORIES Inventories consist of food and related products held for resale and are valued at the lower of cost (first-in, first-out method) or market. PLANT AND EQUIPMENT Capital additions, improvements and major renewals are classified as plant and equipment and are carried at cost. Depreciation is recorded using the straight-line method, which reduces the book value of each asset in equal amounts over its estimated useful life. Maintenance, repairs and minor renewals are charged to earnings when they are incurred. Upon the disposition of an asset, its accumulated depreciation is deducted from the original cost, and any gain or loss is reflected in current earnings. Applicable interest charges incurred during the construction of new facilities are capitalized as one of the elements of cost and are amortized over the assets' estimated useful lives. Interest capitalized during construction periods for the past three years was $3,746,000 in 2002, $2,995,000 in 2001, and $964,000 in 2000. A summary of plant and equipment, including the related accumulated depreciation, appears below: <Table> <Caption> ESTIMATED JUNE 29, 2002 JUNE 30, 2001 USEFUL LIVES --------------- --------------- ------------ <S> <C> <C> <C> Plant and equipment, at cost Land................................. $ 131,188,000 $ 119,021,000 Buildings and improvements........... 1,390,712,000 1,202,701,000 10-40 years Equipment............................ 1,695,043,000 1,572,161,000 3-20 years --------------- --------------- 3,216,943,000 2,893,883,000 Accumulated depreciation............... (1,519,161,000) (1,377,105,000) --------------- --------------- Net plant and equipment................ $ 1,697,782,000 $ 1,516,778,000 =============== =============== </Table> GOODWILL AND INTANGIBLES Goodwill and intangibles represent the excess of cost over the fair value of tangible net assets acquired. Goodwill and intangibles arising from acquisitions initiated on or prior to June 30, 2001 are amortized over 25 to 40 years using the straight-line method. Goodwill and intangibles arising from acquisitions initiated after 27
June 30, 2001 are not amortized. See New Accounting Standards for further discussion. The company reviews goodwill and intangibles to evaluate whether events or changes have occurred that would suggest an impairment of carrying value. SYSCO assesses the recoverability of these intangibles by determining whether the amortization of these intangibles over their remaining lives can be recovered through undiscounted future net cash flows of the acquired operations. The amount of impairment, if any, is measured by the amount in which the carrying amounts exceed the projected discounted future operating cash flows. Accumulated amortization at June 29, 2002, June 30, 2001 and July 1, 2000 was $139,977,000, $116,439,000 and $96,862,000, respectively. COSTS OF START-UP ACTIVITIES In the first quarter of fiscal 2000, SYSCO recorded a one-time, after-tax, non-cash charge of $8,041,000 to comply with the required adoption of AICPA Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-up Activities." SOP 98-5 requires the write-off of any unamortized costs of start-up activities and organization costs. Such costs are now expensed as incurred. INSURANCE PROGRAM SYSCO maintains a self-insurance program covering portions of workers' compensation, group medical, general and vehicle liability costs. The amounts in excess of the self-insured levels are fully insured. Self-insurance accruals are based on claims filed and an estimate for significant claims incurred but not reported. REVENUE RECOGNITION The company recognizes revenue from the sale of a product at the time the product is delivered to the customer. INCOME TAXES SYSCO follows the liability method of accounting for income taxes as required by the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." CASH FLOW INFORMATION For cash flow purposes, cash includes cash equivalents such as time deposits, certificates of deposit, short-term investments and all highly liquid instruments with original maturities of three months or less. 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 $1,328,428,000 in fiscal 2002, $1,297,944,000 in fiscal 2001 and $1,140,116,000 in fiscal 2000. ACQUISITIONS During fiscal 2002, SYSCO acquired for cash and/or stock, a custom meat-cutting operation, a company that supplies products to the lodging industry and acquired substantially all of the assets and certain liabilities of a Canadian broadline foodservice operation. In the aggregate, SYSCO paid cash of $233,618,000 and issued 343,468 shares to the former owners of the acquired companies. During fiscal 2001, SYSCO acquired for cash and/or stock, two custom meat-cutting operations, two broadline foodservice companies and one company that supplies products to the lodging industry. In the aggregate, SYSCO paid cash of $8,848,000 and issued 12,399,957 shares to the former owners of the acquired companies. During fiscal 2002, SYSCO issued an additional 119,245 shares to the former owners of the acquired companies. 28
During fiscal 2000, SYSCO acquired for cash and/or stock, three custom meat-cutting operations, two broadline foodservice companies and one specialty produce company. In the aggregate, SYSCO paid cash of $211,901,000 and issued 9,968,994 shares to the former owners of the acquired companies. During fiscal 2001, SYSCO paid additional cash of $1,515,000 related to these acquisitions and issued an additional 152,002 shares to former owners of the acquired companies. During fiscal 2002, SYSCO paid additional cash of $1,000,000 related to these acquisitions and issued an additional 703,311 shares to the former owners of the acquired companies. 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 29, 2002 included approximately 4,135,000 shares and $1,857,000 with a total aggregate value of $87,586,000. The transactions were accounted for using the purchase method of accounting and the financial statements include the results of the acquired companies from the respective dates they joined SYSCO. The acquisitions were immaterial, individually and in the aggregate, to the consolidated financial statements. The purchase price was allocated to the net assets acquired based on the estimated fair value at the date of acquisition. The balances included in the Consolidated Balance Sheets related to the current year 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. DERIVATIVE FINANCIAL INSTRUMENTS SYSCO manages its debt portfolio by targeting an overall desired position of fixed and floating rates and may employ interest rate swaps from time to time to achieve this goal. The company does not use derivative financial instruments for trading or speculative purposes. In March 2002, SYSCO entered into an interest rate swap agreement with a notional amount of $200,000,000 related to the $200,000,000 aggregate principal amount of 4.75% notes due July 30, 2005. The objective of such transaction is to protect the debt against changes in fair value due to changes in the benchmark interest rate, which has been designated as six-month LIBOR in arrears less 84.5 basis points. Under the interest rate swap agreement, SYSCO receives the fixed rate equal to 4.75% per annum and pays the benchmark interest rate. SYSCO has designated its interest rate swap agreement as a fair value hedge of the underlying debt. Interest expense on the debt is adjusted to include payments made or received under the hedge agreement. The recorded value of the swap agreement (not material in amount) and the related debt are carried on the Consolidated Balance Sheets at fair value. NEW ACCOUNTING STANDARDS In fiscal 2000, SYSCO adopted the AICPA Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance with respect to accounting for the various types of costs incurred for computer software developed or obtained for SYSCO's use. The adoption of SOP 98-1 did not have a significant effect on SYSCO's consolidated results of operations or financial position. In fiscal 2001, SYSCO adopted the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of SFAS No. 133," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an amendment of SFAS No. 133." These statements outline the accounting treatment for all derivative activity and their adoption did not have a significant effect on SYSCO's consolidated results of operations or financial position. In fiscal 2001, SYSCO adopted the Securities and Exchange Commission Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition." SAB 101 provides guidance on the recognition, presentation 29
and disclosure of revenue in financial statements. The adoption of SAB 101 had no effect on SYSCO's consolidated results of operations or financial position. In June 2001, SYSCO adopted SFAS No. 141, "Accounting for Business Combinations." SFAS No. 141 requires that all business combinations be accounted for using the purchase method of accounting and prohibits the pooling-of-interests method for business combinations initiated after June 30, 2001. SYSCO is adopting the provisions of SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets" effective with the beginning of fiscal year 2003. As a result, the amortization of goodwill and indefinite life intangibles will be discontinued. Goodwill and indefinite life intangibles arising from business combinations after June 30, 2001 are also not amortized. The recoverability of goodwill and intangibles will be assessed annually or as needed by determining whether the fair value of the applicable reporting units exceed their carrying values. SYSCO has six months from the date it adopts SFAS No. 142 to test for impairment and any impairment charge resulting from the initial application of the new rule must be classified as the cumulative effect of a change in accounting principle. Thereafter, any impairment losses will be included, net of tax, within the results of continuing operations. Management has completed its preliminary assessment of the impact that the adoption of SFAS No. 142 will have on the company's consolidated financial statements and believes that its goodwill is not impaired. Goodwill amortization, after tax, recognized by SYSCO was $14,533,000 in 2002, $12,089,000 in 2001 and $7,812,000 in 2000. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS 121 and the portion of the Accounting Principle Board Opinion No. 30 that deals with disposal of a business segment. Management does not expect SFAS 144, which is effective for fiscal 2003, to have a material effect on the results of operations. ADDITIONAL FINANCIAL INFORMATION INCOME TAXES The income tax provisions consist of the following: <Table> <Caption> 2002 2001 2000 ------------ ------------ ------------ <S> <C> <C> <C> Federal income taxes....................... $372,498,000 $322,837,000 $262,333,000 State and local income taxes............... 48,585,000 46,909,000 21,646,000 ------------ ------------ ------------ Total...................................... $421,083,000 $369,746,000 $283,979,000 ============ ============ ============ </Table> Included in the income taxes charged to earnings are net deferred tax provisions of $263,492,000, and $6,199,000 in fiscal 2002 and 2001, respectively, and a deferred tax benefit of $25,528,000 in fiscal 2000. The deferred tax provisions (benefits) 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. 30
Significant components of SYSCO's deferred tax assets and liabilities are as follows: <Table> <Caption> JUNE 29, 2002 JUNE 30, 2001 ------------- ------------- <S> <C> <C> Net long-term deferred tax liabilities: Deferred cooperative distributions..................... $266,673,000 $ -- Excess tax depreciation and basis differences of assets.............................................. 264,696,000 248,461,000 Casualty insurance..................................... (27,759,000) (21,523,000) Deferred compensation.................................. (20,423,000) (17,364,000) Other.................................................. (41,617,000) (21,507,000) ------------ ------------ Total deferred tax liabilities................. 441,570,000 188,067,000 ------------ ------------ Net current deferred tax assets: Receivables............................................ 19,681,000 7,533,000 Inventory.............................................. 18,706,000 (7,906,000) Other.................................................. (4,199,000) 7,501,000 ------------ ------------ Total deferred tax assets...................... 34,188,000 7,128,000 ------------ ------------ Net deferred tax liabilities............................. $407,382,000 $180,939,000 ============ ============ </Table> The company has had taxable earnings during each year of its 33-year existence and knows of no reason such profitability should not continue. Consequently, SYSCO believes that it is more likely than not that the entire benefit of existing differences will be realized and therefore no valuation allowance has been established for deferred tax assets. Reconciliations of the statutory Federal income tax rate to the effective income tax rates are as follows: <Table> <Caption> 2002 2001 2000 ----- ----- ----- <S> <C> <C> <C> Statutory Federal income tax rate........................... 35.00% 35.00% 35.00% State and local income taxes, net of Federal income tax benefit................................................... 2.42 2.63 3.00 Other....................................................... 0.83 0.62 0.50 ----- ----- ----- 38.25% 38.25% 38.50% ===== ===== ===== </Table> ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE The allowance for doubtful accounts receivable was $30,338,000 as of June 29, 2002 and $43,112,000 as of June 30, 2001. SHAREHOLDERS' EQUITY On November 3, 2000 the Board of Directors declared a 2-for-1 stock split effected by a 100% stock dividend paid on December 15, 2000 to shareholders of record on November 15, 2000. All share and per share data in these financial statements have been restated to reflect the stock split. Basic earnings per share have been computed by dividing net earnings by 661,808,432 in 2002, 665,551,228 in 2001 and 659,164,948 in 2000, which represents the weighted average number of shares of common stock outstanding during those respective years. Diluted earnings per share have been computed by dividing net earnings by 673,445,783 in 2002, 677,949,351 in 2001 and 669,555,856 in 2000, which represents the weighted average number of shares of common stock outstanding during those respective years adjusted for the diluted effect of stock options outstanding using the treasury stock method. Comprehensive income is net earnings, plus certain other items that are recorded directly to shareholders' equity. The only such item currently applicable to the company relates to minimum pension liability. Comprehensive income was $619,976,000, $591,285,000 and $445,588,000 at June 29, 2002, June 30, 2001 and July 1, 2000, respectively. 31
DEBT SYSCO has uncommitted bank lines of credit, which provide for unsecured borrowings for working capital of up to $125,000,000 of which none was outstanding at June 29, 2002 and $30,640,000 was outstanding at June 30, 2001. SYSCO's debt consists of the following: <Table> <Caption> JUNE 29, 2002 JUNE 30, 2001 -------------- -------------- <S> <C> <C> Commercial paper, interest averaging 2.6% in 2002 and 4.2% in 2001........................................ $ 63,293,000 $ 179,313,000 Senior notes, interest at 6.5%, maturing in 2005...... 149,733,000 149,643,000 Senior notes, interest at 7.0%, maturing in 2006...... 200,000,000 200,000,000 Senior notes, interest at 4.75% maturing in 2006...... 199,569,000 -- Senior notes, interest at 7.25%, maturing in 2007..... 99,813,000 99,774,000 Senior notes, interest at 6.1%, maturing in 2012...... 199,366,000 -- Debentures, interest at 7.16%, maturing in 2027....... 50,000,000 50,000,000 Debentures, interest at 6.5%, maturing in 2029........ 224,381,000 224,359,000 Industrial Revenue Bonds, mortgages and other debt, interest averaging 5.1% in 2002 and 6.2% in 2001, maturing at various dates to 2026................... 70,266,000 112,239,000 -------------- -------------- Total debt............................................ 1,256,421,000 1,015,328,000 Less current maturities and short-term debt........... (80,114,000) (53,907,000) -------------- -------------- Net long-term debt.................................... $1,176,307,000 $ 961,421,000 ============== ============== </Table> The principal payments required to be made on debt during the next five years are shown below: <Table> <Caption> FISCAL YEAR AMOUNT - ----------- ------------ <S> <C> 2003........................................................ $ 80,114,000 2004........................................................ 21,840,000 2005........................................................ 153,006,000 2006........................................................ 402,505,000 2007........................................................ 102,769,000 </Table> SYSCO had a revolving loan agreement in the amount of $300,000,000 as of June 29, 2002 maturing in fiscal 2004 which supported the company's U.S. commercial paper program. There were no U.S. commercial paper borrowings outstanding at June 29, 2002. In September 2002, the company entered into a new revolving loan agreement in the amount of $450,000,000 maturing in fiscal 2008. SYSCO also has a revolving loan agreement in the amount of $100,000,000 in Canadian dollars (CAD) maturing in fiscal 2003 which supports the company's Canadian commercial paper program. The Canadian commercial paper borrowings outstanding at June 29, 2002 were CAD $99,252,000 ($63,293,000 in U.S. dollars). In June 1995, SYSCO issued 6.5% senior notes totaling $150,000,000 due June 12, 2005, under a $500,000,000 shelf registration filed with the Securities and Exchange Commission. These notes, which were priced at 99.4% of par, are unsecured, not redeemable prior to maturity and are not subject to any sinking fund requirement. In May 1996, SYSCO issued 7.0% senior notes totaling $200,000,000 due May 1, 2006, under this shelf registration. These notes, which were priced at par, are unsecured, not redeemable prior to maturity and are not subject to any sinking fund requirement. In April 1997, in two separate offerings, SYSCO drew down the remaining $150,000,000 of the $500,000,000 shelf registration. SYSCO issued 7.16% debentures totaling $50,000,000 due April 15, 2027. These debentures were priced at par, are unsecured, are not subject to any sinking fund requirement and are redeemable at the option of the holder on April 15, 2007, but otherwise 32
are not redeemable prior to maturity. At that time, SYSCO also issued 7.25% senior notes totaling $100,000,000 due April 15, 2007. These notes were priced at 99.611% of par and are unsecured, not redeemable prior to maturity and not subject to any sinking fund requirement. In June 1998, SYSCO filed with the Securities and Exchange Commission another $500,000,000 shelf registration of debt securities. In July 1998, SYSCO issued 6.5% debentures totaling $225,000,000 under the shelf registration, due on August 1, 2028. These debentures were priced at 99.685% of par, are unsecured, are not subject to any sinking fund requirement and include a redemption provision which allows SYSCO to retire the debentures at any time prior to maturity at the greater of par plus accrued interest or an amount designed to ensure that the debenture holders are not penalized by the early redemption. Proceeds from the debentures were used to retire commercial paper borrowings. In April 2002, SYSCO issued 4.75% notes totaling $200,000,000 under this shelf registration, due on July 30, 2005. These notes, which were priced at 99.8% of par, are unsecured, are not subject to any sinking fund requirement and include a redemption provision which allows SYSCO to retire the notes at any time prior to maturity at the greater of par plus accrued interest or an amount designed to ensure that the note holders are not penalized by the early redemption. Proceeds from the notes were utilized to retire commercial paper borrowings. Concurrent with the issuance of these notes, SYSCO entered into an interest rate swap agreement with a notional amount of $200,000,000 whereby SYSCO receives a fixed rate equal to 4.75% per annum and pays a benchmark interest rate of six-month LIBOR in arrears less 84.5 basis points. In May 2002, SYSCO International, Co., a wholly-owned subsidiary of SYSCO, issued 6.10% notes totaling $200,000,000 due June 1, 2012 in a private offering. These notes, which were priced at 99.7% of par, are fully and unconditionally guaranteed by SYSCO Corporation, are not subject to any sinking fund requirement, include registration rights for the note holders, and include a redemption provision which allows 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. SYSCO International, Co. and SYSCO have filed a registration statement with the Securities and Exchange Commission covering an identical series of notes to be issued in exchange for the unregistered notes outstanding. The proceeds from these notes were utilized to repay commercial paper issued by SYSCO International, Co. to fund the acquisition of a Canadian broadline foodservice business. The Industrial Revenue Bonds have varying structures. Final maturities range from one to 24 years and certain of the bonds provide SYSCO the right to redeem (or call) the bonds at various dates. These call provisions generally provide the bondholder a premium in the early call years, declining to par value as the bonds approach maturity. Net long-term debt at June 29, 2002 was $1,176,307,000. After adjusting for the effect of the interest rate swap, 82% of the long-term debt is fixed at rates averaging 6.61% with an average life of 12 years, while the remainder is financed at floating rates averaging 1.3%. Certain loan agreements contain typical debt covenants to protect noteholders including provisions to maintain tangible net worth in excess of a specified level. SYSCO was in compliance with all debt covenants at June 29, 2002. The fair value of SYSCO's total long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the company for debt of the same remaining maturities. The fair value of total long-term debt approximates $1,241,246,000 at June 29, 2002 and $990,390,000 at June 30, 2001. As part of normal business activities, SYSCO issues letters of credit through major banking institutions as required by certain vendor and insurance agreements. As of June 29, 2002 and June 30, 2001, letters of credit outstanding were $15,619,000 and $42,129,000, respectively. LEASES Although SYSCO normally purchases assets, it has obligations under capital and operating leases for certain distribution facilities, vehicles and computers. Total rental expense under operating leases was 33
$64,130,000, $59,833,000 and $44,015,000 in fiscal 2002, 2001 and 2000, respectively. Contingent rentals, subleases and assets and obligations under capital leases are not significant. Aggregate minimum lease payments under existing non-capitalized long-term leases are as follows: <Table> <Caption> FISCAL YEAR AMOUNT - ----------- ----------- <S> <C> 2003........................................................ $51,680,000 2004........................................................ 44,353,000 2005........................................................ 36,315,000 2006........................................................ 30,296,000 2007........................................................ 22,712,000 Later years................................................. 92,357,000 </Table> STOCK COMPENSATION PLANS Employee Incentive Stock Option Plan The Employee Incentive Stock Option Plan adopted in fiscal 1982 provided for the issuance of options to purchase SYSCO common stock to officers and key personnel of the company and its subsidiaries at the market price at the date of grant, as adjusted for stock splits. No further grants will be made under this plan which expired in November 1991 and was replaced by the 1991 Stock Option Plan. The following summary presents information with regard to options under this plan: <Table> <Caption> OPTIONS EXERCISABLE OPTIONS OUTSTANDING ------------------------------ --------------------------- MAXIMUM WEIGHTED SHARES WEIGHTED SHARES AVERAGE EXERCISE UNDER AVERAGE EXERCISE EXERCISABLE PRICE PER SHARE OPTION PRICE PER SHARE ----------- ---------------- -------- ---------------- <S> <C> <C> <C> <C> Balance at July 3, 1999................... 715,056 $4.97 715,056 $4.97 Exercised............................... (321,478) 4.89 -------- Balance at July 1, 2000................... 393,578 5.04 393,578 5.04 Cancelled............................... (4,000) 5.56 Exercised............................... (281,200) 4.83 -------- Balance at June 30, 2001.................. 108,378 5.56 108,378 5.56 Cancelled............................... -- Exercised............................... (108,378) 5.56 -------- Balance at June 29, 2002.................. -- ======== </Table> 1991 Stock Option Plan The 1991 Stock Option Plan (1991 Plan) was adopted in fiscal 1992 and originally reserved 12,000,000 shares of SYSCO common stock for options to directors, officers and key personnel of the company and its subsidiaries at the market price at the date of grant. The 1991 Plan provided for the issuance of options qualified as incentive stock options under the Internal Revenue Code of 1986, options which are not so qualified and stock appreciation rights. During fiscal 1996, the shareholders approved an amendment to the 1991 Plan for an additional 32,000,000 shares to be made available for future grants of options. No stock appreciation rights were issued under this plan. No further grants will be made under this plan which expired in November 2000 and was replaced by the 2000 Stock Incentive Plan. 34
The following summary presents information with regard to options under the 1991 Plan: <Table> <Caption> OPTIONS EXERCISABLE OPTIONS OUTSTANDING ------------------------------ ----------------------------- MAXIMUM WEIGHTED SHARES WEIGHTED SHARES AVERAGE EXERCISE UNDER AVERAGE EXERCISE EXERCISABLE PRICE PER SHARE OPTION PRICE PER SHARE ----------- ---------------- ---------- ---------------- <S> <C> <C> <C> <C> Balance at July 3, 1999................. 5,726,188 $ 7.16 17,539,498 $ 8.20 Granted............................... 4,950,784 16.33 Cancelled............................. (946,688) 8.78 Exercised............................. (2,312,126) 7.36 ---------- Balance at July 1, 2000................. 6,175,254 7.56 19,231,468 10.36 Granted............................... 5,674,910 20.98 Cancelled............................. (459,626) 16.74 Exercised............................. (3,651,651) 8.57 ---------- Balance at June 30, 2001................ 9,095,187 9.02 20,795,101 13.43 Granted............................... -- -- Cancelled............................. (307,362) 17.28 Exercised............................. (2,548,393) 10.52 ---------- Balance at June 29, 2002................ 11,251,541 $11.38 17,939,346 $13.78 ========== </Table> The following table summarizes information about options outstanding under the 1991 Plan as of June 29, 2002: <Table> <Caption> OPTIONS EXERCISABLE OPTIONS OUTSTANDING ----------------------------- ----------------------------------------------------- WEIGHTED WEIGHTED AVERAGE WEIGHTED AVERAGE EXERCISE REMAINING CONTRACTUAL AVERAGE EXERCISE RANGE OF EXERCISE PRICE SHARES PRICE PER SHARE SHARES LIFE (YRS) PRICE PER SHARE - ----------------------- ---------- ---------------- ---------- --------------------- ---------------- <S> <C> <C> <C> <C> <C> $6.31 to $8.75........ 6,198,541 $ 7.74 6,894,627 3.65 $ 7.78 $10.94 to $20.97...... 5,053,000 15.85 11,044,719 7.29 17.53 ---------- ---------- Balance at June 29, 2002................ 11,251,541 $11.38 17,939,346 5.89 $13.78 ========== ========== </Table> 2000 Stock Incentive Plan The 2000 Stock Incentive Plan (2000 Plan) was adopted in fiscal 2001 and provides for option grants and other stock based awards to directors, officers and other employees of the company and its subsidiaries at the market price at the date of grant. The 2000 Plan reserves 40,000,000 shares of SYSCO common stock, plus any shares of common stock which were available for grants under the 1991 Plan but which were not utilized prior to its expiration and any shares issued under the 1991 Plan that are forfeited, expire or are canceled (approximately 4,220,000 shares at June 29, 2002) and, to the extent authorized by the Board of Directors, up to 10,000,000 shares of common stock which are reacquired by the company in the open market or in private transactions after November 3, 2000. The 2000 Plan provides for the issuance of options qualified as incentive stock options under the Internal Revenue Code of 1986, options which are not so qualified, stock appreciation rights and other stock based awards. To date, the company has issued stock options but no stock appreciation rights under the 2000 Plan. 35
The following summary presents information with regard to options under the 2000 Plan: <Table> <Caption> OPTIONS EXERCISABLE OPTIONS OUTSTANDING ------------------------------ ----------------------------- MAXIMUM WEIGHTED SHARES WEIGHTED SHARES AVERAGE EXERCISE UNDER AVERAGE EXERCISE EXERCISABLE PRICE PER SHARE OPTION PRICE PER SHARE ----------- ---------------- ---------- ---------------- <S> <C> <C> <C> <C> Granted................................. -- $26.16 150,000 $26.16 ---------- Balance at June 30, 2001................ -- 26.16 150,000 26.16 Granted................................. 30,514,910 27.81 Cancelled............................... (445,805) 27.79 ---------- Balance at June 29, 2002................ 18,448,383 $27.79 30,219,105 $27.80 ========== </Table> The options outstanding at June 29, 2002 under the 2000 Plan have exercise prices ranging from $26.16 to $29.82 and have a weighted average remaining contractual life of eight years. 1993 and 1996 Guest Supply Stock Incentive Plans Prior to March 2001, Guest Supply, Inc. maintained the 1993 Stock Option Plan and the 1996 Long-Term Incentive Plan (Guest Supply Plans). In connection with SYSCO's acquisition of Guest Supply in March 2001, all outstanding options exercisable to purchase Guest Supply common stock were converted into options to purchase shares of SYSCO common stock. The number of shares underlying such options, as well as the exercise price, were adjusted pursuant to the terms of the Merger Agreement and Plan of Reorganization dated January 22, 2001. These options are fully vested and expire in ten years from the original grant date. No new options will be issued under any of the Guest Supply Plans. The following summary presents information with regard to options under the Guest Supply Plans: <Table> <Caption> OPTIONS EXERCISABLE OPTIONS OUTSTANDING ------------------------------ -------------------------- MAXIMUM WEIGHTED SHARES WEIGHTED SHARES AVERAGE EXERCISE UNDER AVERAGE EXERCISE EXERCISABLE PRICE PER SHARE OPTION PRICE PER SHARE ----------- ---------------- ------- ---------------- <S> <C> <C> <C> <C> Granted.................................... 571,920 $11.04 571,920 $11.04 Exercised.................................. (9,564) 13.50 ------- Balance at June 30, 2001................... 562,356 11.00 562,356 11.00 Exercised.................................. (95,637) 11.89 ------- Balance at June 29, 2002................... 466,719 $10.82 466,719 $10.82 ======= </Table> The following table summarizes information about options outstanding under the Guest Supply Plans as of June 29, 2002: <Table> <Caption> OPTIONS EXERCISABLE OPTIONS OUTSTANDING -------------------------- -------------------------------------------------- WEIGHTED WEIGHTED AVERAGE WEIGHTED AVERAGE EXERCISE REMAINING CONTRACTUAL AVERAGE EXERCISE RANGE OF EXERCISE PRICE SHARES PRICE PER SHARE SHARES LIFE (YRS) PRICE PER SHARE - ----------------------- ------- ---------------- ------- --------------------- ---------------- <S> <C> <C> <C> <C> <C> $4.88 to $12.03........... 337,609 $ 8.69 337,609 2.36 $ 8.69 $14.84 to $18.43.......... 129,110 16.38 129,110 5.14 16.38 ------- ------- Balance at June 29, 2002.................... 466,719 $10.82 466,719 3.13 $10.82 ======= ======= </Table> Non-Employee Directors Stock Option Plan The Non-Employee Directors Stock Option Plan adopted in fiscal 1996 permitted the issuance of up to 800,000 shares of common stock to non-employee directors. As of June 29, 2002, options for 272,000 shares, net of cancellations, had been granted to nine non-employee directors under this plan, 72,000 shares had been 36
exercised and 200,000 shares were available for exercise. No further grants will be made under this plan, which was replaced by the Non-Employee Directors Stock Plan. Non-Employee Directors Stock Plan The Non-Employee Directors Stock Plan adopted in fiscal 1999 permits the issuance of up to 800,000 shares of common stock to non-employee directors. Under this plan, non-employee directors receive a one time retainer stock award of 4,000 shares when first elected as a non-employee director and an annual grant of options to purchase shares of common stock provided certain earnings goals are met. As of June 29, 2002, options for 296,000 shares had been granted to twelve non-employee directors under this plan, 18,664 shares have been exercised and 151,450 shares are available for exercise. Employees' Stock Purchase Plan SYSCO has an Employees' Stock Purchase Plan which permits employees (other than directors) to invest by means of periodic payroll deductions in SYSCO common stock at 85% of the closing price on the last business day of each calendar quarter. During fiscal 2002, 1,821,946 shares of SYSCO common stock were purchased by the participants as compared to 1,619,001 purchased in fiscal 2001 and 1,820,752 purchased in fiscal 2000. The total number of shares which may be sold pursuant to the plan may not exceed 68,000,000 shares, of which 11,486,705 remained available at June 29, 2002. Accounting Issues Relating to all Plans Options issued before September 2001 may vest over a five-year period beginning on the date of grant if certain operating performance measures are attained, or will vest fully nine and one-half years from the date of grant to the extent not previously vested. Options issued in September 2001 and after generally vest ratably over a specified five-year period. SYSCO accounts for these plans under APB Opinion No. 25 and related interpretations under which no compensation cost has been recognized. Had compensation cost for these plans been determined using the fair value method of SFAS No. 123, SYSCO's pro forma net earnings and diluted earnings per share would have been $642,443,000 and $0.96 in fiscal 2002, $585,503,000 and $0.86 in fiscal 2001 and $437,773,000 and $0.65 in fiscal 2000. The disclosure requirements of SFAS No. 123 are applicable to options granted after 1995. The pro forma effects for fiscal 2002, 2001 and 2000 are not necessarily indicative of the pro forma effects in future years. The weighted average fair value of options granted was $8.81 and $7.98 during fiscal 2002 and 2001, respectively. The fair value was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in fiscal 2002 and 2001, respectively: dividend yield of 1.26% and 1.33%; expected volatility of 22% and 24%; risk-free interest rates of 4.8% and 6.0%; and expected lives of eight years. The weighted average fair value of employee stock purchase rights issued was $3.96 and $3.73 during fiscal 2002 and 2001, 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. 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. The defined contribution 401(k) plan provides that under certain circumstances the company may make matching contributions of up to 50% of the first 6% of a participant's compensation. SYSCO's contribution to this plan was $23,421,000 in 2002, $9,561,000 in 2001 and $15,899,000 in 2000. The defined benefit pension plans pay benefits to employees at retirement using formulas based on a participant's years of service and compensation. 37
SYSCO also has a Management Incentive Plan that compensates key management personnel for specific performance achievements. The awards under this plan were $51,981,000 in 2002, $52,540,000 in 2001 and $40,977,000 in 2000 and were paid in both cash and stock. In addition to receiving benefits upon retirement under the company's defined benefit plan, participants in the Management Incentive Plan will receive benefits under a Supplemental Executive Retirement Plan (SERP). This plan is a nonqualified, unfunded supplementary retirement plan. In order to meet its obligations under the SERP, SYSCO maintains life insurance policies on the lives of the participants with carrying values of $71,418,000 at June 29, 2002 and $79,083,000 at June 30, 2001. SYSCO is the sole owner and beneficiary of such policies. Projected benefit obligations and accumulated benefit obligations for the SERP were $145,884,000 and $92,220,000, respectively, as of June 29, 2002 and $111,412,000 and $70,648,000, respectively, as of June 30, 2001. In addition to providing pension benefits, SYSCO provides certain health care benefits to eligible retirees and their dependents in the United States. The funded status of the defined benefit plans is as follows (including the SERP benefit obligations but excluding the cash surrender values of life insurance policies from plan assets): <Table> <Caption> PENSION BENEFITS OTHER POSTRETIREMENT PLANS ----------------------------- ----------------------------- JUNE 29, 2002 JUNE 30, 2001 JUNE 29, 2002 JUNE 30, 2001 ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> Change in benefit obligation: Benefit obligation at beginning of year............................... $ 576,759,000 $ 433,323,000 $ 4,391,000 $ 3,615,000 Service cost......................... 46,085,000 36,365,000 263,000 218,000 Interest cost........................ 42,679,000 34,194,000 321,000 283,000 Amendments........................... 1,901,000 5,320,000 -- -- Actuarial loss....................... 58,933,000 83,231,000 295,000 342,000 Actual expenses...................... (3,280,000) (3,201,000) -- -- Settlements.......................... (1,128,000) -- -- -- Total disbursements.................. (13,120,000) (12,472,000) -- (67,000) ------------- ------------- ----------- ----------- Benefit obligation at end of year.... 708,829,000 576,760,000 5,270,000 4,391,000 ------------- ------------- ----------- ----------- Change in plan assets: Fair value of plan assets at beginning of year.................. 416,372,000 391,631,000 -- -- Actual return on plan assets......... (26,877,000) (2,327,000) -- -- Employer contribution................ 83,136,000 42,743,000 -- 67,000 Actual expenses...................... (3,280,000) (3,201,000) -- -- Total disbursements.................. (13,120,000) (12,472,000) -- (67,000) ------------- ------------- ----------- ----------- Fair value of plan assets at end of year............................... 456,231,000 416,374,000 -- -- ------------- ------------- ----------- ----------- Funded status........................ (252,598,000) (160,386,000) (5,270,000) (4,391,000) Unrecognized net actuarial loss (gain)............................. 236,852,000 113,348,000 (2,394,000) (2,830,000) Unrecognized net (asset) obligation due to initial application of SFAS No. 87............................. (273,000) (1,120,000) 1,687,000 1,840,000 Unrecognized prior service cost...... 17,082,000 17,422,000 1,599,000 1,801,000 ------------- ------------- ----------- ----------- Net amount recognized................ $ 1,063,000 $ (30,736,000) $(4,378,000) $(3,580,000) ============= ============= =========== =========== </Table> 38
Additional information related to SYSCO's defined benefit plans is as follows: <Table> <Caption> JUNE 29, 2002 JUNE 30, 2001 ------------- ------------- <S> <C> <C> Net amount recognized consists of: Prepaid pension cost........................................ $ -- $ 12,557,000 Accrued benefit liability................................... (122,597,000) (70,648,000) ------------- ------------ Accrued benefit cost........................................ (122,597,000) (58,091,000) Intangible asset............................................ 17,693,000 18,247,000 Accumulated other comprehensive loss........................ 105,967,000 9,108,000 ------------- ------------ Net amount recognized....................................... $ 1,063,000 $(30,736,000) ============= ============ Plans with accumulated benefit obligation in excess of fair value of plan assets: Projected benefit obligation................................ $ 708,829,000 $111,412,000 Accumulated benefit obligation.............................. 578,828,000 70,648,000 Fair value of plan assets at end of year.................... 456,231,000 -- Plans with fair value of plan assets in excess of accumulated benefit obligation: Projected benefit obligation................................ $ -- $465,348,000 Accumulated benefit obligation.............................. -- 401,192,000 Fair value of plan assets at end of year.................... -- 416,374,000 </Table> The performance of the stock market in 2002 and 2001 resulted in a decline in the value of the assets held by the company's pension plans. As a result, the company was required to reflect a minimum pension liability of $65,435,000, net of tax, as of June 29, 2002 and $5,624,000, net of tax, as of June 30, 2001. Minimum pension liability adjustments are noncash adjustments that are reflected as an increase in the pension liability and an offsetting charge to shareholders' equity, net of tax, through comprehensive loss rather than net income. The assumptions used to value obligations at year end were: <Table> <Caption> PENSION BENEFITS OTHER POSTRETIREMENT PLANS ----------------------------- ----------------------------- JUNE 29, 2002 JUNE 30, 2001 JUNE 29, 2002 JUNE 30, 2001 ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> Weighted-average assumptions as of year end: Discount rate.............................. 7.25% 7.50% 7.25% 7.50% Expected rate of return.................... 9.50 10.50 -- -- Rate of compensation increase.............. 5.89 4.50 -- -- </Table> A healthcare cost trend rate is not used in the calculations because SYSCO subsidizes the cost of postretirement medical coverage by a fixed dollar amount with the retiree responsible for the cost of coverage in excess of the subsidy, including all future cost increases. 39
The components of net pension costs are as follows: <Table> <Caption> PENSION BENEFITS -------------------------------------------- JUNE 29, 2002 JUNE 30, 2001 JULY 1, 2000 ------------- ------------- ------------ <S> <C> <C> <C> Service cost....................................... $ 46,085,000 $ 36,365,000 $ 35,451,000 Interest cost...................................... 42,679,000 34,194,000 29,109,000 Expected return on plan assets..................... (42,039,000) (40,504,000) (34,168,000) Amortization of prior service cost................. 800,000 479,000 (625,000) Recognized net actuarial loss...................... 4,658,000 672,000 628,000 Amortization of net transition obligation.......... (847,000) (847,000) (847,000) ------------ ------------ ------------ Net pension costs.................................. $ 51,336,000 $ 30,359,000 $ 29,548,000 ============ ============ ============ </Table> The components of other postretirement benefit costs are as follows: <Table> <Caption> OTHER POSTRETIREMENT PLANS -------------------------------------------- JUNE 29, 2002 JUNE 30, 2001 JULY 1, 2000 ------------- ------------- ------------ <S> <C> <C> <C> Service cost............................................ $ 263,000 $ 218,000 $ 145,000 Interest cost........................................... 321,000 283,000 150,000 Expected return on plan assets.......................... -- -- -- Amortization of prior service cost...................... 202,000 202,000 72,000 Recognized net actuarial gain........................... (141,000) (173,000) (194,000) Amortization of net transition obligation............... 153,000 153,000 153,000 --------- --------- --------- Net other postretirement benefit costs.................. $ 798,000 $ 683,000 $ 326,000 ========= ========= ========= </Table> Multi-employer pension costs were $27,511,000, $26,246,000 and $23,540,000 in 2002, 2001 and 2000, respectively. CONTINGENCIES SYSCO is engaged in various legal proceedings which have arisen but have not been fully adjudicated. These proceedings, in the opinion of management, will not have a material adverse effect upon the consolidated financial position or results of operations of the company when ultimately concluded. SUPPLEMENTAL GUARANTOR INFORMATION SYSCO International, Co. is an unlimited liability company organized under the laws of the Province of Nova Scotia, Canada and is a wholly owned subsidiary of SYSCO. In May 2002, SYSCO International, Co. issued, in a private offering, $200,000,000 of 6.10% notes due in 2012 (See "Debt"). SYSCO International, Co. and SYSCO have filed a registration statement with the Securities and Exchange Commission covering an identical series of notes to be issued in exchange for the unregistered notes outstanding. These notes are fully and unconditionally guaranteed by SYSCO. SYSCO International, Co. is a holding company with no significant sources of income or assets, other than its equity interests in its subsidiaries and interest income from loans made to its subsidiaries. The proceeds from the issuance of the 6.10% notes were used to repay commercial paper issued to fund the fiscal 2002 acquisition of a Canadian broadline foodservice operation. The following condensed consolidating financial statements present separately the financial position, results of operations and cash flows of the parent guarantor (SYSCO), the subsidiary issuer (SYSCO International), all other non-guarantor subsidiaries of SYSCO (Other Non-Guarantor Subsidiaries) on a combined basis and eliminating entries. The financial information for SYSCO includes corporate activities as well as certain operating companies which are operated as divisions of SYSCO. The accompanying financial information includes the balances and results of SYSCO International, Co. from the date of its inception in February, 2002. 40
<Table> <Caption> CONDENSED CONSOLIDATING BALANCE SHEET -- JUNE 29, 2002 ------------------------------------------------------------------------------ SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ---------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) <S> <C> <C> <C> <C> <C> Current assets............ $ 558,259 $ 10,010 $ 2,617,020 $ -- $3,185,289 Investment in subsidiaries............ 5,279,299 204,064 194,854 (5,678,217) -- Plant and equipment, net..................... 271,971 -- 1,425,811 -- 1,697,782 Other assets.............. 196,320 1,418 908,944 -- 1,106,682 ---------- -------- ----------- ----------- ---------- Total assets.............. $6,305,849 $215,492 $ 5,146,629 $(5,678,217) $5,989,753 ========== ======== =========== =========== ========== Current liabilities....... $ 790,631 $ 64,554 $ 1,384,172 $ -- $2,239,357 Intercompany payables (receivables)........... 2,353,921 (47,508) (2,306,413) -- -- Long-term debt............ 933,028 199,366 43,913 -- 1,176,307 Other liabilities......... 95,750 -- 345,820 -- 441,570 Shareholders' equity...... 2,132,519 (920) 5,679,137 (5,678,217) 2,132,519 ---------- -------- ----------- ----------- ---------- Total liabilities and shareholders' equity.... $6,305,849 $215,492 $ 5,146,629 $(5,678,217) $5,989,753 ========== ======== =========== =========== ========== </Table> <Table> <Caption> CONDENSED CONSOLIDATING BALANCE SHEET -- JUNE 30, 2001 ------------------------------------------------------------------------------ SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ---------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) <S> <C> <C> <C> <C> <C> Current assets............ $ 512,884 $ -- $ 2,362,850 $ -- $2,875,734 Investment in subsidiaries............ 4,505,917 -- -- (4,505,917) -- Plant and equipment, net..................... 249,656 -- 1,267,122 -- 1,516,778 Other assets.............. 203,228 -- 757,247 -- 960,475 ---------- --------- ----------- ----------- ---------- Total assets.............. $5,471,685 $ -- $ 4,387,219 $(4,505,917) $5,352,987 ========== ========= =========== =========== ========== Current liabilities....... $ 749,103 $ -- $ 1,353,861 $ -- $2,102,964 Intercompany payables (receivables)........... 1,678,252 -- (1,678,252) -- -- Long-term debt............ 909,679 -- 51,742 -- 961,421 Other liabilities......... 34,116 -- 153,951 -- 188,067 Shareholders' equity...... 2,100,535 -- 4,505,917 (4,505,917) 2,100,535 ---------- --------- ----------- ----------- ---------- Total liabilities and shareholders' equity.... $5,471,685 $ -- $ 4,387,219 $(4,505,917) $5,352,987 ========== ========= =========== =========== ========== </Table> 41
<Table> <Caption> CONDENSED CONSOLIDATING RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 29, 2002 ------------------------------------------------------------------------------ SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ---------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) <S> <C> <C> <C> <C> <C> Sales......................... $3,120,292 $ -- $20,230,212 $ -- $23,350,504 Cost of sales................. 2,430,815 -- 16,291,348 -- 18,722,163 Operating expenses............ 554,731 103 2,912,545 -- 3,467,379 Interest expense (income)..... 271,616 1,386 (210,105) -- 62,897 Other, net.................... 83 -- (2,888) -- (2,805) ---------- ------- ----------- --------- ----------- Total costs and expenses...... 3,257,245 1,489 18,990,900 -- 22,249,634 ---------- ------- ----------- --------- ----------- Earnings before income taxes....................... (136,953) (1,489) 1,239,312 -- 1,100,870 Income tax (benefit) provision................... (52,385) (569) 474,037 -- 421,083 Equity in earnings of subsidiaries................ 764,355 -- -- (764,355) -- ---------- ------- ----------- --------- ----------- Net earnings.................. $ 679,787 $ (920) $ 765,275 $(764,355) $ 679,787 ========== ======= =========== ========= =========== </Table> <Table> <Caption> CONDENSED CONSOLIDATING RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 29, 2001 ------------------------------------------------------------------------------ SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ---------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) <S> <C> <C> <C> <C> <C> Sales......................... $2,987,807 $ -- $18,796,690 $ -- $21,784,497 Cost of sales................. 2,339,835 -- 15,173,303 -- 17,513,138 Operating expenses............ 536,595 -- 2,696,232 -- 3,232,827 Interest expense (income)..... 233,603 -- (161,827) -- 71,776 Other, net.................... 1,285 -- (1,184) -- 101 ---------- ------- ----------- --------- ----------- Total costs and expenses...... 3,111,318 -- 17,706,524 -- 20,817,842 ---------- ------- ----------- --------- ----------- Earnings before income taxes....................... (123,511) -- 1,090,166 -- 966,655 Income tax (benefit) provision................... (47,243) -- 416,989 -- 369,746 Equity in earnings of subsidiaries................ 673,177 -- -- (673,177) -- ---------- ------- ----------- --------- ----------- Net earnings.................. $ 596,909 $ -- $ 673,177 $(673,177) $ 596,909 ========== ======= =========== ========= =========== </Table> 42
<Table> <Caption> CONDENSED CONSOLIDATING RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 29, 2000 ------------------------------------------------------------------------------ SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS ---------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) <S> <C> <C> <C> <C> <C> Sales......................... $2,789,342 $ -- $16,513,926 $ -- $19,303,268 Cost of sales................. 2,203,919 -- 13,445,632 -- 15,649,551 Operating expenses............ 491,874 -- 2,351,881 -- 2,843,755 Interest expense (income)..... 178,318 -- (107,486) -- 70,832 Other, net.................... 835 -- 687 -- 1,522 ---------- --------- ----------- --------- ----------- Total costs and expenses...... 2,874,946 -- 15,690,714 -- 18,565,660 ---------- --------- ----------- --------- ----------- Earnings before income taxes....................... (85,604) -- 823,212 -- 737,608 Income tax (benefit) provision................... (32,958) -- 316,937 -- 283,979 Equity in earnings of subsidiaries................ 506,275 -- -- (506,275) -- Cumulative effect of accounting change........... (8,041) -- -- -- (8,041) ---------- --------- ----------- --------- ----------- Net earnings.................. $ 445,588 $ -- $ 506,275 $(506,275) $ 445,588 ========== ========= =========== ========= =========== </Table> <Table> <Caption> CONDENSED CONSOLIDATING CASH FLOWS FOR THE YEAR ENDED JUNE 29, 2002 ----------------------------------------------------------------------------- SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS --------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) <S> <C> <C> <C> <C> <C> Net cash provided by (used for): Operating activities............ $ 90,129 $ (1,081) $ 995,932 $-- $1,084,980 Investing activities............ (70,038) (222,420) (337,842) -- (630,300) Financing activities............ (584,151) 262,586 (38,419) -- (359,984) Intercompany activity........... 648,675 (29,079) (619,596) -- -- --------- --------- --------- --- ---------- Net increase in cash............ 84,615 10,006 75 -- 94,696 Cash at the beginning of the period........................ 39,832 -- 95,911 -- 135,743 --------- --------- --------- --- ---------- Cash at the end of the period... $ 124,447 $ 10,006 $ 95,986 $-- $ 230,439 ========= ========= ========= === ========== </Table> <Table> <Caption> CONDENSED CONSOLIDATING CASH FLOWS FOR THE YEAR ENDED JUNE 29, 2001 ----------------------------------------------------------------------------- SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS --------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) <S> <C> <C> <C> <C> <C> Net cash provided by (used for): Operating activities............ $ 27,693 $-- $ 927,531 $-- $ 955,224 Investing activities............ (96,319) -- (242,432) -- (338,751) Financing activities............ (601,623) -- (38,235) -- (639,858) Intercompany activity........... 649,609 -- (649,609) -- -- --------- -- --------- --- --------- Net decrease in cash............ (20,640) -- (2,745) -- (23,385) Cash at the beginning of the period........................ 60,472 -- 98,656 -- 159,128 --------- -- --------- --- --------- Cash at the end of the period... $ 39,832 $-- $ 95,911 $-- $ 135,743 ========= == ========= === ========= </Table> 43
<Table> <Caption> CONDENSED CONSOLIDATING CASH FLOWS FOR THE YEAR ENDED JUNE 29, 2000 ----------------------------------------------------------------------------- SYSCO OTHER NON-GUARANTOR CONSOLIDATED SYSCO INTERNATIONAL SUBSIDIARIES ELIMINATIONS TOTALS --------- ------------- ------------------- ------------ ------------ (IN THOUSANDS) <S> <C> <C> <C> <C> <C> Net cash provided by (used for): Operating activities............ $ 12,697 $-- $ 696,029 $-- $ 708,726 Investing activities............ (243,316) -- (216,076) -- (459,392) Financing activities............ (228,972) -- (10,537) -- (239,509) Intercompany activity........... 462,302 -- (462,302) -- -- --------- --- --------- --- --------- Net increase in cash............ 2,711 -- 7,114 -- 9,825 Cash at the beginning of the period........................ 57,761 -- 91,542 -- 149,303 --------- --- --------- --- --------- Cash at the end of the period... $ 60,472 $-- $ 98,656 $-- $ 159,128 ========= === ========= === ========= </Table> BUSINESS SEGMENT INFORMATION SYSCO provides food and other products to the foodservice or "food-prepared-away-from-home" industry. SYSCO's operating segments are comprised of separate operating companies or a group of operating companies which are managed as one by the company's chief operating decision maker. Under the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131), the company has aggregated its operating companies into five segments based upon the economic characteristics of each operating company, of which Broadline and SYGMA are reportable segments. Broadline operating companies distribute a full line of food products and a wide variety of non-food products to both SYSCO's traditional and chain restaurant customers. SYGMA operating companies distribute a full line of food products and a wide variety of non-food products to some of our chain restaurant customer locations. "Other" financial information is attributable to SYSCO's three other segments, including the company's specialty produce, lodging industry and meat segments. SYSCO's Canadian operations are insignificant for geographical disclosure purposes. The accounting policies for the segments are the same as those disclosed by SYSCO. Intersegment sales represent specialty produce and meat company products distributed by the Broadline and SYGMA operating companies. The segment results include allocation of centrally incurred costs for shared services that eliminate upon consolidation. Centrally incurred costs are allocated based upon the relative level of service used by each operating company. 44
The following table sets forth the financial information for SYSCO's business segments: <Table> <Caption> YEAR ENDED -------------------------------------------- JUNE 29, 2002 JUNE 30, 2001 JULY 1, 2000 ------------- ------------- ------------ (IN THOUSANDS) <S> <C> <C> <C> Sales: Broadline........................................... $19,163,449 $18,106,842 $16,643,578 SYGMA............................................... 2,671,110 2,415,840 2,154,043 Other............................................... 1,707,229 1,377,987 534,750 Intersegment sales.................................. (191,284) (116,172) (29,103) ----------- ----------- ----------- Total....................................... $23,350,504 $21,784,497 $19,303,268 =========== =========== =========== Earnings before income taxes Broadline........................................... $ 1,131,234 $ 1,006,213 $ 800,932 SYGMA............................................... 23,045 16,319 5,208 Other............................................... 48,840 42,288 21,283 ----------- ----------- ----------- Total segments...................................... 1,203,119 1,064,820 827,423 Unallocated corporate expenses...................... (102,249) (98,165) (89,815) ----------- ----------- ----------- Total....................................... $ 1,100,870 $ 966,655 $ 737,608 =========== =========== =========== Depreciation and amortization: Broadline........................................... $ 200,881 $ 189,058 $ 180,256 SYGMA............................................... 16,237 14,492 13,987 Other............................................... 19,181 13,150 2,577 ----------- ----------- ----------- Total segments...................................... 236,299 216,700 196,820 Corporate........................................... 41,952 31,540 23,841 ----------- ----------- ----------- Total....................................... $ 278,251 $ 248,240 $ 220,661 =========== =========== =========== Capital expenditures: Broadline........................................... $ 361,284 $ 288,934 $ 227,834 SYGMA............................................... 20,941 16,996 21,061 Other............................................... 13,634 14,327 7,583 ----------- ----------- ----------- Total segments...................................... 395,859 320,257 256,478 Corporate........................................... 20,534 20,881 9,935 ----------- ----------- ----------- Total....................................... $ 416,393 $ 341,138 $ 266,413 =========== =========== =========== Assets: Broadline........................................... $ 3,983,216 $ 3,550,584 $ 3,302,796 SYGMA............................................... 176,093 172,899 180,811 Other............................................... 424,982 425,376 238,761 ----------- ----------- ----------- Total segments...................................... 4,584,291 4,148,859 3,722,368 Corporate........................................... 1,405,462 1,204,128 1,007,777 ----------- ----------- ----------- Total....................................... $ 5,989,753 $ 5,352,987 $ 4,730,145 =========== =========== =========== </Table> 45
The sales mix for the principal product categories during the three years ended June 29, 2002 is as follows: <Table> <Caption> YEAR ENDED -------------------------------------------- JUNE 29, 2002 JUNE 30, 2001 JULY 1, 2000 ------------- ------------- ------------ (IN THOUSANDS) <S> <C> <C> <C> Canned and dry products............................... $ 4,382,840 $ 4,212,677 $ 3,998,358 Fresh and frozen meats................................ 4,169,232 3,848,523 3,311,323 Frozen fruits, vegetables, bakery and other........... 3,104,442 2,925,615 2,686,012 Poultry............................................... 2,346,308 2,156,847 1,968,632 Dairy products........................................ 2,139,739 1,905,596 1,734,472 Fresh produce......................................... 1,990,071 1,939,222 1,341,613 Paper and disposables................................. 1,840,534 1,708,697 1,473,905 Seafood............................................... 1,332,539 1,330,880 1,216,421 Beverage products..................................... 728,624 666,320 616,454 Equipment and smallwares.............................. 593,741 534,217 469,419 Janitorial products................................... 543,168 405,662 325,513 Medical supplies...................................... 179,266 150,241 161,146 ----------- ----------- ----------- Total....................................... $23,350,504 $21,784,497 $19,303,268 =========== =========== =========== </Table> 46
QUARTERLY RESULTS (UNAUDITED) Financial information for each quarter in the years ended June 29, 2002 and June 30, 2001: <Table> <Caption> QUARTER ENDED ---------------------------------------------------- 2002 SEPTEMBER 29 DECEMBER 29 MARCH 30 JUNE 29 FISCAL YEAR - ---- ------------ ----------- ---------- ---------- ----------- (IN THOUSANDS EXCEPT FOR SHARE DATA) <S> <C> <C> <C> <C> <C> Sales.......................... $5,828,678 $5,590,966 $5,620,324 $6,310,536 $23,350,504 Cost of sales.................. 4,683,617 4,481,655 4,510,059 5,046,832 18,722,163 Operating expenses............. 864,456 836,355 851,668 914,900 3,467,379 Interest expense............... 15,864 16,513 14,318 16,202 62,897 Other, net..................... (769) (290) (877) (869) (2,805) ---------- ---------- ---------- ---------- ----------- Earnings before income taxes... 265,510 256,733 245,156 333,471 1,100,870 Income taxes................... 101,558 98,200 93,772 127,553 421,083 ---------- ---------- ---------- ---------- ----------- Net earnings................... $ 163,952 $ 158,533 $ 151,384 $ 205,918 $ 679,787 ========== ========== ========== ========== =========== Per share: Diluted net earnings......... $ 0.24 $ 0.24 $ 0.23 $ 0.31 $ 1.01 Cash dividends............... 0.07 0.07 0.09 0.09 0.32 Market price -- high/low..... 30-22 27-24 30-25 30-26 30-22 </Table> <Table> <Caption> QUARTER ENDED ---------------------------------------------------- 2001 SEPTEMBER 30 DECEMBER 30 MARCH 31 JUNE 30 FISCAL YEAR - ---- ------------ ----------- ---------- ---------- ----------- (IN THOUSANDS EXCEPT FOR SHARE DATA) <S> <C> <C> <C> <C> <C> Sales.......................... $5,360,174 $5,290,530 $5,344,496 $5,789,297 $21,784,497 Cost of sales.................. 4,322,784 4,250,987 4,301,029 4,638,338 17,513,138 Operating expenses............. 787,497 795,674 800,156 849,500 3,232,827 Interest expense............... 17,401 18,034 18,498 17,843 71,776 Other, net..................... (633) 46 (879) 1,567 101 ---------- ---------- ---------- ---------- ----------- Earnings before income taxes... 233,125 225,789 225,692 282,049 966,655 Income taxes................... 89,170 86,365 86,327 107,884 369,746 ---------- ---------- ---------- ---------- ----------- Net earnings................... $ 143,955 $ 139,424 $ 139,365 $ 174,165 $ 596,909 ========== ========== ========== ========== =========== Per share: Diluted net earnings......... $ 0.21 $ 0.21 $ 0.21 $ 0.26 $ 0.88 Cash dividends............... 0.06 0.06 0.07 0.07 0.26 Market price -- high/low..... 24-19 30-22 30-20 30-22 30-19 PERCENTAGE INCREASES -- 2002 VS. 2001: Sales.......................... 9% 6% 5% 9% 7% Earnings before income taxes... 14 14 9 18 14 Net earnings................... 14 14 9 18 14 Diluted net earnings per share........................ 14 14 10 19 15 </Table> 47
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Information concerning a change in accountants is included in the company's Form 8-K dated March 27, 2002. PART III Except as otherwise indicated, the information required by Items 10, 11, 12 and 13 is included in the company's definitive proxy statement which was filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 on September 23, 2002 and such portions of said proxy statement are hereby incorporated by reference thereto. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning Executive Officers is included in Part I (Item 4A) of this Form 10-K (page 7). ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ITEM 14. CONTROLS AND PROCEDURES Item 307(a) of Regulation S-K is not applicable pursuant to Transition Provisions of Securities Exchange Act of 1934 Release 34-46427 because this report covers a period ended prior to the effective date of Rule 13a-14. As a result, the evaluation called for by Item 307(b) has not yet been completed. For a discussion of the effectiveness and adequacy of the Company's internal accounting controls as of July 31, 2002, see "Report of Management on Internal Accounting Controls" at page 21. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed, or incorporated by reference, as part of this Form 10-K: 1. All financial statements. See index to Consolidated Financial Statements on page 20 of this Form 10-K. 2. Financial Statement Schedule. See page 20 of this Form 10-K. 3. Exhibits. <Table> <S> <C> <C> 3(a) -- Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(a) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 3(b) -- Amended and Restated Bylaws of Sysco Corporation dated February 8, 2002, incorporated by reference to Exhibit 3(b) to Form 10-Q for the quarter ended December 29, 2001 (File No. 1-6544). 3(c) -- Form of Amended Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, incorporated by reference to Exhibit 3(c) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). 3(d) -- Certificate of Amendment of Certificate of Incorporation increasing authorized shares, incorporated by reference to Exhibit 3(d) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 4(a) -- Sixth Amendment and Restatement of Competitive Advance and Revolving Credit Facility Agreement dated May 31, 1996, incorporated by reference to Exhibit 4(a) to Form 10-K in the year ended June 27, 1996 (File No. 1-6544). </Table> 48
<Table> <S> <C> <C> 4(b) -- Agreement and Seventh Amendment to Competitive Advance and Revolving Credit Facility Agreement dated as of June 27, 1997, incorporated by reference to Exhibit 4(a) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 4(c) -- Agreement and Eighth Amendment to Competitive Advance and Revolving Credit Facility Agreement dated as of June 22, 1998, incorporated by reference to Exhibit 4(c) to Form 10-K for the year ended July 3, 1999 (File No. 1-6544). 4(d) -- Senior Debt Indenture, dated as of June 15, 1995, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-3 filed June 6, 1995 (File No. 33-60023). 4(e) -- First Supplemental Indenture, dated June 27, 1995, between Sysco Corporation and First Union National Bank of North Carolina, Trustee as amended, incorporated by reference to Exhibit 4(e) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). 4(f) -- Second Supplemental Indenture, dated as of May 1, 1996, between Sysco Corporation and First Union National Bank of North Carolina, Trustee as amended, incorporated by reference to Exhibit 4(f) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). 4(g) -- Third Supplemental Indenture, dated as of April 25, 1997, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(g) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 4(h) -- Fourth Supplemental Indenture, dated as of April 25, 1997, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(h) to Form 10-K for the year ended June 28,1997 (File No. 1-6544). 4(i) -- Fifth Supplemental Indenture, dated as of July 27, 1998 between Sysco Corporation and First Union National Bank, Trustee, incorporated by reference to Exhibit 4(h) to Form 10-K for the year ended June 27, 1998 (File No. 1-6544). 4(j) -- Agreement and Ninth Amendment to Competitive Advance and Revolving Credit Facility Agreement dated as of December 1, 1999, incorporated by reference to Exhibit 4(j) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 4(k) -- Sixth Supplemental Indenture dated April 5, 2002 between Sysco Corporation and Wachovia Bank, National Association, incorporated by reference to Exhibit 4.1 to Form 8-K dated April 5, 2002. 4(l) -- Indenture dated May 23, 2002 between Sysco International, Co., Sysco Corporation and Wachovia Bank, National Association, incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-4 filed August 21, 2002 (File No. 333-98489). 10(a)+ -- Amended and Restated Sysco Corporation Executive Deferred Compensation Plan, incorporated by reference to Exhibit 10(a) to Form 10-K for the year ended July 1, 1995 (File No. 1-6544). 10(b)+ -- Fifth Amended and Restated Sysco Corporation Supplemental Executive Retirement Plan, incorporated by reference to Exhibit 10(b) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 10(c)+ -- Sysco Corporation Employee Incentive Stock Option Plan, incorporated by reference to Exhibit 10(c) to Form 10-K for the year ended July 3, 1999 (File No. 1-6544). 10(d)+ -- Sysco Corporation 1995 Management Incentive Plan, incorporated by reference to Exhibit 10(e) to Form 10-K for the year ended July 1, 1995 (File No. 1-6544). 10(e)+ -- Sysco Corporation 1991 Stock Option Plan, incorporated by reference to Exhibit 10(e) to Form 10-K for the year ended July 3, 1999 (File No. 1-6544). 10(f)+ -- Amendments to Sysco Corporation 1991 Stock Option Plan dated effective September 4, 1997, incorporated by reference to Exhibit 10(f) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 10(g)+ -- Amendments to Sysco Corporation 1991 Stock Option Plan dated effective November 5, 1998, incorporated by reference to Exhibit 10(g) to Form 10-K for the year ended July 3, 1999 (File No. 1-6544). </Table> 49
<Table> <S> <C> <C> 10(h)+ -- Sysco Corporation Amended and Restated Non-Employee Directors Stock Option Plan, incorporated by reference to Exhibit 10(g) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 10(i)+ -- Amendment to the Amended and Restated Non-Employee Directors Stock Option Plan dated effective November 5, 1998, incorporated by reference to Exhibit 10(i) to Form 10-K for the year ended July 3, 1999 (File No. 1-6544). 10(j)+ -- Sysco Corporation Non-Employee Directors Stock Plan, incorporated by reference to Appendix A of the 1998 Proxy Statement (File No. 1-6544). 10(k) -- Amended and Restated Shareholder Rights Agreement, incorporated by reference to Registration Statement on Form 8-A/A, filed May 29, 1996 (File No. 1-6544). 10(l) -- Amendment to the Amended and Restated Shareholder Rights Agreement dated as of May 20, 1996, incorporated by reference to Exhibit 1 to Registration Statement on Form 8-A/A, filed July 16, 1999 (File No. 1-6544). 10(m)+ -- Sysco Corporation Split Dollar Life Insurance Plan, incorporated by reference to Exhibit 10(m) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 10(n)+ -- Executive Compensation Adjustment Agreement -- Bill M. Lindig, incorporated by reference to Exhibit 10(n) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 10(o)+ -- Executive Compensation Adjustment Agreement -- Charles H. Cotros, incorporated by reference to Exhibit 10(o) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 10(p)+ -- First Amendment to Fifth Amended and Restated Sysco Corporation Supplemental Executive Retirement Plan dated effective June 29, 1997, incorporated by reference to Exhibit 10(p) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 10(q)+ -- First Amendment to Amended and Restated Sysco Corporation Executive Deferred Compensation Plan dated effective June 29, 1997, incorporated by reference to Exhibit 10(q) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 10(r)+ -- First Amendment to Sysco Corporation 1995 Management Incentive Plan dated effective June 29, 1997, incorporated by reference to Exhibit 10(r) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 10(s)+ -- 2000 Management Incentive Plan, incorporated by reference to Appendix A to Proxy Statement filed September 25, 2000 (File No. 1-6544). 10(t)+ -- 2000 Stock Incentive Plan, incorporated by reference to Appendix B to Proxy Statement filed on September 25, 2000 (File No. 1-6544). 10(u)+ -- Amended and Restated Non-Employee Directors Stock Plan, incorporated by reference to Appendix B to Proxy Statement filed on September 24, 2001 (File No. 1-6544). 10(v)+ -- Second Amendment dated as of May 10, 2000, to the Fifth Amended and Restated SYSCO Corporation Supplemental Executive Retirement Plan, incorporated by reference to Exhibit 10(a) to Form 10-Q for the quarter ended September 30, 2000 filed on November 13, 2000 (File No. 1-6544). 10(w)+ -- Second Amendment dated as of May 10, 2000, to Amended and Restated SYSCO Corporation Executive Deferred Compensation Plan, incorporated by reference to Exhibit 10(b) to Form 10-Q for the quarter ended September 30, 2000 filed on November 13, 2000 (File No. 1-6544). 10(x)+ -- First Amendment dated as of May 10, 2000 to Amended and Restated SYSCO Corporation Board of Directors Deferred Compensation Plan, incorporated by reference to Exhibit 10(c) to Form 10-Q for the quarter ended September 30, 2000 filed on November 13, 2000 (File No. 1-6544). 10(y)+ -- First Amendment, dated September 1, 2000, to the Executive Compensation Adjustment Agreement between Sysco and Charles H. Cotros, incorporated by reference to Exhibit 10(d) to Form 10-Q for the quarter ended September 30, 2000 filed on November 13, 2000 (File No. 1-6544). 10(z)+# -- Equity Deferral Plan dated April 1, 2002. </Table> 50
<Table> <Caption> 10(aa)+# -- Second Amended and Restated Board of Directors Deferred Compensation Plan dated April 1, 2002. <S> <C> <C> 10(bb)+# -- First Amendment to Second Amended and Restated Board of Directors Deferred Compensation Plan dated July 12, 2002. 10(cc)+# -- Second Amended and Restated Executive Deferred Compensation Plan dated April 1, 2002. 10(dd)+# -- First Amendment to Second Amended and Restated Executive Deferred Compensation Plan dated July 12, 2002. 10(ee)+# -- Third Amendment to Fifth Amended and Restated Supplemental Executive Retirement Plan dated July 12, 2002. 21# -- Subsidiaries of the Registrant. 23# -- Independent Public Accountants' Consent. 99(a)# -- CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99(b)# -- CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. </Table> - --------------- + Executive Compensation Arrangement pursuant to 601(b)(10)(iii)(A) of Regulation S-K # Filed Herewith (b) The following reports on Form 8-K were filed during the fourth quarter of fiscal 2002: 1. On April 17, 2002, the company filed a Form 8-K announcing the issuance of 4.75% notes due July 30, 2005. 2. On April 24, 2002, the company filed a Form 8-K announcing the results of its third quarter ended March 29, 2002. 3. On May 31, 2002, the company filed a Form 8-K announcing the issuance by Sysco International, Co. of 6.10% notes due June 1, 2012. 51
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 25th day of September, 2002. SYSCO CORPORATION By /s/ CHARLES H. COTROS -------------------------------------- Charles H. Cotros Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities indicated and on the date indicated above. PRINCIPAL EXECUTIVE, FINANCIAL & ACCOUNTING OFFICERS: <Table> <S> <C> /s/ CHARLES H. COTROS Chairman of the Board and Chief Executive - -------------------------------------------- Officer Charles H. Cotros /s/ JOHN K. STUBBLEFIELD, JR. Executive Vice President, Finance and - -------------------------------------------- Administration John K. Stubblefield, Jr. </Table> DIRECTORS: <Table> <S> <C> /s/ JOHN W. ANDERSON /s/ RICHARD G. MERRILL - -------------------------------------------- -------------------------------------------- John W. Anderson Richard G. Merrill /s/ COLIN G. CAMPBELL /s/ FRANK H. RICHARDSON - -------------------------------------------- -------------------------------------------- Colin G. Campbell Frank H. Richardson /s/ CHARLES H. COTROS /s/ RICHARD J. SCHNIEDERS - -------------------------------------------- -------------------------------------------- Charles H. Cotros Richard J. Schnieders /s/ JUDITH B. CRAVEN /s/ PHYLLIS S. SEWELL - -------------------------------------------- -------------------------------------------- Judith B. Craven Phyllis S. Sewell /s/ JONATHAN GOLDEN /s/ JACKIE M. WARD - -------------------------------------------- -------------------------------------------- Jonathan Golden Jackie M. Ward /s/ THOMAS E. LANKFORD - -------------------------------------------- Thomas E. Lankford </Table> 52
CERTIFICATIONS I, Charles H. Cotros, certify that: 1. I have reviewed this annual report on Form 10-K of Sysco Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: September 25, 2002 /s/ CHARLES H. COTROS -------------------------------------- Charles H. Cotros Chairman and Chief Executive Officer I, John K. Stubblefield, Jr., certify that: 1. I have reviewed this annual report on Form 10-K of Sysco Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: September 25, 2002 /s/ JOHN K. STUBBLEFIELD, JR. -------------------------------------- John K. Stubblefield, Jr. Executive Vice President, Finance and Administration [PARAGRAPHS 4, 5 AND 6 ARE OMITTED PURSUANT TO THE TRANSITION PROVISIONS OF SECURITIES EXCHANGE ACT OF 1934 RELEASE 34-46427 BECAUSE THIS ANNUAL REPORT ON FORM 10-K COVERS A PERIOD ENDED PRIOR TO THE EFFECTIVE DATE OF RULE 13A-14.] 53
SYSCO CORPORATION AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS <Table> <Caption> BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF DESCRIPTION OF PERIOD EXPENSES DESCRIBE(1) DESCRIBE(2) PERIOD ------------ ----------- ----------- -------------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> For year ended July 1, 2000............ Allowance $24,095,000 $27,082,000 $ 16,332,000 $24,881,000 $42,628,000 for doubtful accounts For year ended June 30, 2001........... Allowance $42,628,000 $21,740,000 $ 1,789,000 $23,045,000 $43,112,000 for doubtful accounts For year ended June 29, 2002........... Allowance $43,112,000 $25,904,000 $(12,610,000) $26,068,000 $30,338,000 for doubtful accounts </Table> - --------------- (1) Allowance accounts resulting from acquisitions and other adjustments. (2) Customer accounts written off, net of recoveries. S-1
INDEX TO EXHIBITS <Table> <Caption> EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- <C> <S> <C> 3(a) -- Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(a) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 3(b) -- Amended and Restated Bylaws of Sysco Corporation dated February 8, 2002, incorporated by reference to Exhibit 3(b) to Form 10-Q for the quarter ended December 29, 2001 (File No. 1-6544). 3(c) -- Form of Amended Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, incorporated by reference to Exhibit 3(c) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). 3(d) -- Certificate of Amendment of Certificate of Incorporation increasing authorized shares, incorporated by reference to Exhibit 3(d) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 4(a) -- Sixth Amendment and Restatement of Competitive Advance and Revolving Credit Facility Agreement dated May 31, 1996, incorporated by reference to Exhibit 4(a) to Form 10-K in the year ended June 27, 1996 (File No. 1-6544). 4(b) -- Agreement and Seventh Amendment to Competitive Advance and Revolving Credit Facility Agreement dated as of June 27, 1997, incorporated by reference to Exhibit 4(a) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 4(c) -- Agreement and Eighth Amendment to Competitive Advance and Revolving Credit Facility Agreement dated as of June 22, 1998, incorporated by reference to Exhibit 4(c) to Form 10-K for the year ended July 3, 1999 (File No. 1-6544). 4(d) -- Senior Debt Indenture, dated as of June 15, 1995, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-3 filed June 6, 1995 (File No. 33-60023). 4(e) -- First Supplemental Indenture, dated June 27, 1995, between Sysco Corporation and First Union National Bank of North Carolina, Trustee as amended, incorporated by reference to Exhibit 4(e) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). 4(f) -- Second Supplemental Indenture, dated as of May 1, 1996, between Sysco Corporation and First Union National Bank of North Carolina, Trustee as amended, incorporated by reference to Exhibit 4(f) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). 4(g) -- Third Supplemental Indenture, dated as of April 25, 1997, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(g) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 4(h) -- Fourth Supplemental Indenture, dated as of April 25, 1997, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Ex- hibit 4(h) to Form 10-K for the year ended June 28,1997 (File No. 1-6544). 4(i) -- Fifth Supplemental Indenture, dated as of July 27, 1998 between Sysco Corporation and First Union National Bank, Trustee, incorporated by reference to Exhibit 4(h) to Form 10-K for the year ended June 27, 1998 (File No. 1-6544). 4(j) -- Agreement and Ninth Amendment to Competitive Advance and Revolving Credit Facility Agreement dated as of December 1, 1999, incorporated by reference to Exhibit 4(j) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 4(k) -- Sixth Supplemental Indenture dated April 5, 2002 between Sysco Corporation and Wachovia Bank, National Association, incorporated by reference to Exhibit 4.1 to Form 8-K dated April 5, 2002. 4(l) -- Indenture dated May 23, 2002 between Sysco International, Co., Sysco Corporation and Wachovia Bank, National Association, incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-4 filed August 21, 2002 (File No. 333-98489). 10(a)+ -- Amended and Restated Sysco Corporation Executive Deferred Compensation Plan, incorporated by reference to Exhibit 10(a) to Form 10-K for the year ended July 1, 1995 (File No. 1-6544). </Table>
<Table> <Caption> EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- <C> <S> <C> 10(b)+ -- Fifth Amended and Restated Sysco Corporation Supplemental Executive Retirement Plan, incorporated by reference to Exhibit 10(b) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 10(c)+ -- Sysco Corporation Employee Incentive Stock Option Plan, incorporated by reference to Exhibit 10(c) to Form 10-K for the year ended July 3, 1999 (File No. 1-6544). 10(d)+ -- Sysco Corporation 1995 Management Incentive Plan, incorporated by reference to Exhibit 10(e) to Form 10-K for the year ended July 1, 1995 (File No. 1-6544). 10(e)+ -- Sysco Corporation 1991 Stock Option Plan, incorporated by reference to Exhibit 10(e) to Form 10-K for the year ended July 3, 1999 (File No. 1-6544). 10(f)+ -- Amendments to Sysco Corporation 1991 Stock Option Plan dated effective September 4, 1997, incorporated by reference to Exhibit 10(f) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 10(g)+ -- Amendments to Sysco Corporation 1991 Stock Option Plan dated effective November 5, 1998, incorporated by reference to Exhibit 10(g) to Form 10-K for the year ended July 3, 1999 (File No. 1-6544). 10(h)+ -- Sysco Corporation Amended and Restated Non-Employee Directors Stock Option Plan, incorporated by reference to Exhibit 10(g) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 10(i)+ -- Amendment to the Amended and Restated Non-Employee Directors Stock Option Plan dated effective November 5, 1998, incorporated by reference to Exhibit 10(i) to Form 10-K for the year ended July 3, 1999 (File No. 1-6544). 10(j)+ -- Sysco Corporation Non-Employee Directors Stock Plan, incorporated by reference to Appendix A of the 1998 Proxy Statement (File No. 1-6544). 10(k) -- Amended and Restated Shareholder Rights Agreement, incorporated by reference to Registration Statement on Form 8-A/A, filed May 29, 1996 (File No. 1-6544). 10(l) -- Amendment to the Amended and Restated Shareholder Rights Agreement dated as of May 20, 1996, incorporated by reference to Exhibit 1 to Registration Statement on Form 8-A/A, filed July 16, 1999 (File No. 1-6544). 10(m)+ -- Sysco Corporation Split Dollar Life Insurance Plan, incorporated by reference to Exhibit 10(m) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 10(n)+ -- Executive Compensation Adjustment Agreement -- Bill M. Lindig, incorporated by reference to Exhibit 10(n) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 10(o)+ -- Executive Compensation Adjustment Agreement -- Charles H. Cotros, incorporated by reference to Exhibit 10(o) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 10(p)+ -- First Amendment to Fifth Amended and Restated Sysco Corporation Supplemental Executive Retirement Plan dated effective June 29, 1997, incorporated by reference to Exhibit 10(p) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 10(q)+ -- First Amendment to Amended and Restated Sysco Corporation Executive Deferred Compensation Plan dated effective June 29, 1997, incorporated by reference to Exhibit 10(q) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 10(r)+ -- First Amendment to Sysco Corporation 1995 Management Incentive Plan dated effective June 29, 1997, incorporated by reference to Exhibit 10(r) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 10(s)+ -- 2000 Management Incentive Plan, incorporated by reference to Appendix A to Proxy Statement filed September 25, 2000 (File No. 1-6544). 10(t)+ -- 2000 Stock Incentive Plan, incorporated by reference to Appendix B to Proxy Statement filed on September 25, 2000 (File No. 1-6544). 10(u)+ -- Amended and Restated Non-Employee Directors Stock Plan, incorporated by reference to Appendix B to Proxy Statement filed on September 24, 2001 (File No. 1-6544). </Table>
<Table> <Caption> EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- <C> <S> <C> 10(v)+ -- Second Amendment dated as of May 10, 2000, to the Fifth Amended and Restated SYSCO Corporation Supplemental Executive Retirement Plan, incorporated by reference to Ex- hibit 10(a) to Form 10-Q for the quarter ended September 30, 2000 filed on November 13, 2000 (File No. 1-6544). 10(w)+ -- Second Amendment dated as of May 10, 2000, to Amended and Restated SYSCO Corporation Executive Deferred Compensation Plan, incorporated by reference to Exhibit 10(b) to Form 10-Q for the quarter ended September 30, 2000 filed on November 13, 2000 (File No. 1-6544). 10(x)+ -- First Amendment dated as of May 10, 2000 to Amended and Restated SYSCO Corporation Board of Directors Deferred Compensation Plan, incorporated by reference to Exhibit 10(c) to Form 10-Q for the quarter ended September 30, 2000 filed on November 13, 2000 (File No. 1-6544). 10(y)+ -- First Amendment, dated September 1, 2000, to the Executive Compensation Adjustment Agreement between Sysco and Charles H. Cotros, incorporated by reference to Exhibit 10(d) to Form 10-Q for the quarter ended September 30, 2000 filed on November 13, 2000 (File No. 1-6544). 10(z)+# -- Equity Deferral Plan dated April 1, 2002. 10(aa)+# -- Second Amended and Restated Board of Directors Deferred Compensation Plan dated April 1, 2002. 10(bb)+# -- First Amendment to Second Amended and Restated Board of Directors Deferred Compensation Plan dated July 12, 2002. 10(cc)+# -- Second Amended and Restated Executive Deferred Compensation Plan dated April 1, 2002. 10(dd)+# -- First Amendment to Second Amended and Restated Executive Deferred Compensation Plan dated July 12, 2002. 10(ee)+# -- Third Amendment to Fifth Amended and Restated Supplemental Executive Retirement Plan dated July 12, 2002. 21# -- Subsidiaries of the Registrant. 23# -- Independent Public Accountants' Consent. 99(a)# -- CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99(b)# -- CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. </Table> - --------------- + Executive Compensation Arrangement pursuant to 601(b)(10)(iii)(A) of Regulation S-K # Filed Herewith