SYSCO CORP 10-K Summary: Fiscal Year Ended June 27, 1998
Business Context and Reporting Period
This report covers the fiscal year ended June 27, 1998. SYSCO Corporation is the largest foodservice distributor in the United States and Canada, marketing and distributing food and related products to restaurants, hospitals, schools, and hotels. The company operates 96 distribution facilities (93 in the U.S., 3 in Canada) and employs approximately 33,400 people. No single customer accounted for more than 5% of sales.
Key Financial Metrics
| Metric | Fiscal 1998 | Fiscal 1997 |
|---|---|---|
| Sales | $15,327,536,000 | $14,454,589,000 |
| Net Earnings | $296,768,000 | $302,533,000 |
| Earnings Per Share (Diluted) | $0.86 | $0.85 |
| Operating Cash Flow | $357,764,000 | $498,108,000 |
| Long-Term Debt | $867,017,000 | $685,620,000 |
| Debt to Capitalization | 39.0% | 32.9% |
| Capital Expenditures | $259,353,000 | $210,868,000 |
| Operating Expenses (% of Sales) | 14.6% | 14.4% |
Material Changes vs. Prior Period
- Revenue Growth: Sales increased 6% year-over-year, driven by real sales growth of approximately 6% and acquisitions. Inflation for food products was effectively zero for the full year.
- Earnings Decline: Net earnings decreased 2% to $296.8 million. This decline was primarily due to a one-time, non-cash, after-tax charge of $28.1 million related to an accounting change (EITF Issue No. 97-13) requiring the expensing of computer systems reengineering costs. Excluding this charge, earnings before the accounting change increased 7%.
- Debt Increase: Long-term debt rose 26% to $867 million. This increase funded share repurchases and capital expenditures. The debt-to-capitalization ratio increased from 33% to 39%.
- Share Repurchases: The company repurchased 12.1 million shares for $263.4 million in fiscal 1998.
Guidance, Outlook, and Risks
- Capital Expenditures: Management estimates fiscal 1999 capital expenditures will range between $240 million and $260 million.
- Debt Issuance: In July 1998, SYSCO issued $225 million in 6.5% debentures due in 2028 to pay down commercial paper.
- Year 2000 Compliance: The company is undertaking a comprehensive program to ensure information systems are Year 2000 compliant. Management does not expect costs to have a material adverse impact, though disruptions from third-party non-compliance remain a risk.
- Legal Proceedings: Various legal proceedings are pending, but management does not expect a material adverse effect on financial position.
- Forward-Looking Risks: Results may be affected by economic conditions, industry growth, competitive conditions, labor issues, and the success of "fold-out" expansion projects.
Investor Verification Checklist
- Verify the impact of the $28.1 million non-cash accounting charge on reported net earnings versus operating performance.
- Confirm the sustainability of the 39% debt-to-capitalization ratio and the company's ability to service increased debt levels.
- Review the progress and costs associated with Year 2000 system compliance and potential third-party disruptions.
- Assess the effectiveness of the share repurchase program in offsetting dilution and maintaining earnings per share growth.
- Monitor the execution of planned capital expenditures ($240M-$260M) and facility expansions in key markets.