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SYSCO CORPORATION
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SYSCO [COMPANY LOGO]
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SYSCO Corporation NEWS RELEASE
1390 Enclave Parkway
Houston, Texas 77077-2099
(281) 584-1390
FOR IMMEDIATE RELEASE FOR MORE INFORMATION
CONTACT: John M. Palizza
Assistant Treasurer
(281) 584-1308
SYSCO POSTS FIRST QUARTER DILUTED EPS OF $0.33 AFTER ACCOUNTING CHANGE
AND EXPENSING $0.05 FOR SHARE-BASED COMPENSATION
HOUSTON, OCTOBER 31, 2005 -- SYSCO Corporation (NYSE: SYY), North America's
leading foodservice marketer and distributor, today announced sales and earnings
results for the 13-week first quarter of fiscal year 2006 that ended October 1,
2005.
FIRST QUARTER HIGHLIGHTS:
o Sales increased 6.3% to $8.0 billion from $7.5 billion in last year's first
quarter.
o Net earnings before the cumulative effect of an accounting change were
$199.2 million vs. $225.9 million in last year's first quarter. Net
earnings after the cumulative effect of an accounting change were $208.5
million for the first quarter of fiscal 2006. The accounting change is the
result of SYSCO changing its measurement date for pension and other
postretirement benefit plans (from fiscal year end to May 31) to
accommodate accelerated SEC filing deadlines.
o Diluted earnings per share before the cumulative effect of an accounting
change were $0.31 compared to $0.35 in last year's first quarter. Diluted
EPS after the cumulative effect of an accounting change were $0.33.
o All EPS data for the first quarter of fiscal 2006 includes a net expense of
$0.05 for incremental share-based compensation (primarily options
expensing).
Richard J. Schnieders, SYSCO's chairman, chief executive officer and
president, said, "The growth initiatives implemented during our last fiscal year
resulted in sales continuing to strengthen throughout the first fiscal quarter
and we've seen similar progress in the first few weeks of the second quarter.
Continued emphasis on Business Review and Development processes, as well as
additions to our customer contact personnel, contributed to the quarter's strong
6.3 percent sales growth and increases in customers and market share.
"We are encouraged about the resiliency of the foodservice industry,
especially considering the difficulties it has endured from increased fuel costs
and the disruptive effects of Hurricanes Katrina and Rita. New Orleans, Houston
and the Gulf Coast are strong foodservice markets for SYSCO and I'm proud of the
way our associates have responded to the personal and business challenges that
they encountered during the quarter."
SYSCO's sales gains in the quarter were accomplished without the benefit of
food cost inflation during the quarter. Inflation, as measured by SYSCO's cost
of goods, was 0.4% in the quarter compared to 5.9% in last year's first 13
weeks. The declining food cost inflation also contributed to better gross profit
margin performance as the company experienced its smallest decline in gross
profit margins in the past 12 fiscal quarters. Non-comparable acquisitions
represented 1.2% of sales in the quarter.
SYSCO's operating expenses as a percent of sales increased during the
quarter principally due to the expensing of share-based compensation; escalating
fuel costs; higher pension costs; extra expenses incurred to serve existing
customers as well as some competitors' customers who were affected by Hurricanes
Katrina and Rita; and the ongoing investment in SYSCO's National Supply Chain
Project.
- more -
In the first quarter of fiscal 2006 SYSCO adopted the provisions of SFAS
No. 123(R), Share-Based Payment, utilizing the modified-prospective transition
method under which prior period results have not been restated. The results for
the first quarter of fiscal 2006 include incremental share-based compensation
cost of $35.5 million ($31.7 million after tax), or $0.05 per share. The company
currently estimates that expensing for share-based payments for fiscal year 2006
will now be approximately $90 million to $110 million after tax, or between
$0.14 and $0.17 per share.
For the first 13 weeks fuel costs increased $15.0 million, or 50.0%,
compared to the same period last year, or approximately $0.015 per share. Higher
pension costs also added $6.0 million of expense to the quarter, adding another
half-cent impact to EPS and net costs related to the National Supply Chain
Project had an impact of approximately $0.01 to the first quarter's EPS results.
"The RDC is currently shipping about 850,000 cases a week to all 14
operating companies in the Northeast Region," Mr. Schnieders continued, "which
is about fifty percent of our planned volume. At current volume levels we have
identified a number of operational changes that will make the RDC more efficient
and, as a consequence, we plan to hold case volumes constant during the second
quarter while we implement the changes. Our previous estimate for the financial
impact of the RDC was predicated on projections that the RDC would achieve full
volumes in January 2006. We now estimate that full ramp-up of case volume will
be reached by the end of fiscal year 2006 and, consequently, previous estimates
regarding the financial impact of the RDC and National Supply Chain initiative
of being a half-cent accretive to flat in fiscal 2006 will not be achieved.
However, we remain confident that the long-term benefits of the project will
continue to be achieved."
Mr. Schnieders also noted that the design phase of the second RDC, which
will be located in Alachua, Florida, is scheduled to be completed in December,
2005 and the company also expects to announce a site selection for its third RDC
that same month.
Capital expenditures were $94.2 million in first quarter, including
continued construction of two fold-out operations that will service the Raleigh,
North Carolina and Gulf Coast Alabama markets and construction of replacement
facilities in Lincoln, Illinois and Denver, Colorado.
SYSCO is the largest foodservice marketing and distribution organization in
North America, providing food and related products and services to approximately
390,000 restaurants, healthcare and educational facilities, lodging
establishments and other foodservice customers. SYSCO's operations are located
throughout the United States and Canada and include broadline companies,
specialty produce and custom-cut meat operations, Asian foodservice
distributors, hotel supply operations and chain restaurant distribution
subsidiaries. As previously announced, SYSCO's first quarter fiscal 2006
earnings conference call will be held at 10:00 a.m. EDT on Monday, October 31,
2005. A live webcast of the call, as well as a copy of this press release, will
be available online at www.sysco.com under Investor Relations.
Forward-Looking Statements
Certain statements made herein are forward-looking statements under the
Private Securities Litigation Reform Act of 1995. They include statements
regarding capital expenditures; sales growth; the impact of option expensing;
SYSCO's ability to increase sales, improve operating efficiencies, control
expenses and execute growth strategies; and the expected timing and benefits of
the national supply chain project and regional redistribution centers, including
the Northeast RDC. These statements involve risks and uncertainties and are
based on management's current expectations and estimates; actual results may
differ materially. Those risks and uncertainties that could impact these
statements include risks that pertain to SYSCO's business, including the risks
relating to the foodservice distribution industry's relatively low profit
margins and sensitivity to general economic conditions, including the current
economic environment and consumer spending; SYSCO's leverage and debt risks; the
successful completion of acquisitions and integration of acquired companies; the
risk of interruption of supplies due to lack of long-term contracts, severe
weather, work stoppages or otherwise; construction schedules; management's
allocation of capital and the timing of capital purchases such as fleet and
equipment; competitive conditions; labor issues; and internal factors such as
the ability to control expenses. The expected impact of option expensing is
based on certain assumptions regarding the number and fair value of options
granted, resulting tax benefits and shares outstanding. The actual impact of
option expensing could vary significantly to the extent actual results vary
significantly from assumptions. For a discussion of additional factors that
could cause actual results to differ from those described in the forward-looking
statements, see the Company's Annual Report on Form 10-K for the fiscal year
ended July 2, 2005 as filed with the Securities and Exchange Commission.
- more -
SYSCO CORPORATION
CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
(In Thousands Except for Share Data)
FOR THE 13-WEEKS ENDED
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OCTOBER 1, 2005 OCTOBER 2, 2004
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Sales $8,010,484 $7,531,925
Costs and expenses
Cost of sales 6,480,793 6,094,931
Operating expenses 1,176,656 1,055,412
Interest expense 22,246 17,699
Other, net (3,115) (1,969)
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Total costs and expenses 7,676,580 7,166,073
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Earnings before income taxes 333,904 365,852
Income taxes 134,694 139,938
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Earnings before cumulative effect 199,210 225,914
of accounting change
Cumulative effect of accounting change 9,285 --
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Net earnings $ 208,495 $ 225,914
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Earnings before cumulative effect of
accounting change:
Basic earnings per share $ 0.32 $ 0.35
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Diluted earnings per share $ 0.31 $ 0.35
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Net Earnings:
Basic earnings per share $ 0.33 $ 0.35
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Diluted earnings per share $ 0.33 $ 0.35
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Average shares outstanding 626,554,930 638,167,698
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Diluted average shares outstanding 634,959,278 650,779,334
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Comparative segment sales data.
(Unaudited) FOR THE 13-WEEKS ENDED
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($000) OCTOBER 1, 2005 OCTOBER 2, 2004
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SALES:
Broadline $6,344,533 $6,095,362
SYGMA 1,059,781 915,780
Other 692,663 598,666
Intersegment (86,493) (77,883)
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Total $ 8,010,484 $ 7,531,925
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- more -
SYSCO CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In Thousands)
OCTOBER 1, 2005 OCTOBER 2, 2004
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ASSETS
Current assets
Cash $ 177,918 $ 189,603
Receivables 2,406,855 2,247,088
Inventories 1,568,546 1,457,180
Deferred taxes 65,184 53,019
Prepaid expenses 67,344 65,891
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Total current assets 4,285,847 4,012,781
Plant and equipment at cost, less depreciation 2,280,580 2,196,550
Other assets
Goodwill and intangibles 1,324,354 1,221,978
Restricted cash 102,178 169,439
Prepaid pension cost 381,510 307,549
Other 231,317 197,509
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Total other assets 2,039,359 1,896,475
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Total assets $ 8,605,786 $ 8,105,806
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 31,606 $ 54,129
Accounts payable 1,806,046 1,710,066
Accrued expenses 667,429 586,605
Accrued income taxes 473,645 450,763
Current maturities of long-term debt 210,431 368,780
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Total current liabilities 3,189,157 3,170,343
Other liabilities
Long-term debt 1,451,697 1,082,345
Deferred taxes 854,889 836,298
Other long-term liabilities 389,653 254,914
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Total other liabilities 2,696,239 2,173,557
Contingencies
Shareholders' equity
Preferred stock - -
Common stock, par $l per share 765,175 765,175
Paid-in capital 438,692 354,910
Retained earnings 4,667,348 4,102,437
Other comprehensive income 21,910 34,153
Treasury stock (3,172,735) (2,494,769)
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Total shareholders' equity 2,720,390 2,761,906
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Total liabilities and shareholders' equity $8,605,786 $8,105,806
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- more -
SYSCO CORPORATION
CONSOLIDATED CASH FLOWS (UNAUDITED)
(In Thousands)
FOR THE 13-WEEKS ENDED
OCTOBER 1, 2005 OCTOBER 2, 2004
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Cash flows from operating activities:
Net earnings $ 208,495 $ 225,914
Add non-cash items:
Cumulative effect of accounting change (9,285) -
Share-based compensation expense 41,280 8,006
Depreciation and amortization 85,056 74,065
Deferred tax provision 112,007 147,999
Provision for losses on receivables 7,703 7,498
Additional investment in certain assets and liabilities,
net of effect of businesses acquired:
(Increase) in receivables (112,765) (57,114)
(Increase) in inventories (93,571) (47,435)
(Increase) in prepaid expenses (7,021) (10,812)
(Decrease) in accounts payable (2,470) (39,571)
(Decrease) in accrued expenses (40,341) (124,651)
(Decrease) in accrued income taxes (23,462) (17,174)
(Increase) decrease in other assets (9,757) 955
Increase (decrease) in other long-term liabilities and prepaid
pension cost, net 42,595 (46,933)
Excess tax benefits from share-based
compensation arrangements (2,236) -
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Net cash provided by operating activities 196,228 120,747
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Cash flows from investing activities:
Additions to plant and equipment (94,231) (99,905)
Proceeds from sales of plant and equipment 10,217 3,496
Acquisition of businesses, net of cash acquired (28,357) (52)
Increase in restricted cash balances (447) (113)
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Net cash used for investing activities (112,818) (96,574)
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Cash flows from financing activities:
Bank and commercial paper repayments (32,392) (19,705)
Other debt borrowings 293,355 54,537
Cash paid for termination of interest rate swap (21,196) -
Common stock reissued from treasury 52,355 65,474
Treasury stock purchases (295,424) (48,912)
Dividends paid (94,557) (83,062)
Excess tax benefits from share-based compensation arrangements 2,236 -
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Net cash used for financing activities (95,623) (31,668)
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Effect of exchange rate changes on cash (1,547) (2,608)
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Net decrease in cash (13,760) (10,103)
Cash at beginning of period 191,678 199,706
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Cash at end of period $ 177,918 $ 189,603
=============== ===============
Cash paid during the period for:
Interest $ 21,076 $ 13,522
Income taxes 42,024 5,423
- more -
COMPARATIVE SUPPLEMENTAL STATISTICAL INFORMATION RELATED TO SALES (UNAUDITED)
Comparative SYSCO Brand Sales and Marketing Associate-Served Sales data are summarized below.
FOR THE 13-WEEKS ENDED
----------------------
OCTOBER 1, 2005 OCTOBER 2, 2004
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SYSCO Brand Sales as a % of MA-Served Sales 56.7% 58.0%
SYSCO Brand Sales as a % of Total
Traditional Broadline Sales in the U.S. 49.0% 50.0%
MA-Served Sales as a % of Total Traditional
Broadline Sales in the U.S. 54.7% 54.4%
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