Sysco
Annual Report 2000

Plain-text annual report

S Y S C O ® S Y S C O S Y S C O C O R P O R A T I O N 2 0 0 0 A N N U A L R E P O R T S Y S C O Corporation 1390 Enclave Parkway Houston, Texas 77077-2099 (281) 584-1390 www.sysco.com B R A N D W I D T H A N D S E R V I C E D E P T H B R A N D W I D T H A N D S E R V I C E D E P T H SYSCO - AR - 00 2 0 0 0 A N N U A L R E P O R T F iscal 2000 marked SYSCO Corporation’s 30th anniversary as a public company -- 30 years of shaping our future with employees, customers, suppliers and shareholders to create growth, prosperity and value. During this relatively short time period, SYSCO has grown from a fledgling company with $115 million in sales to its current leading position in the industry with $19.3 billion in sales. Through a network of distribution centers across North America, SYSCO supplies food and related products to about 356,000 customers in the contiguous United States, Alaska, the District of Columbia, Hawaii and portions of Canada. The foundation of SYSCO’s success is based upon common principles that often are overlooked in business today -- superior customer service, extensive product knowledge, consistent quality product offerings and business-building support services. A distinctive mix of ever-evolving branded products, coupled with a unique blend of dedicated employees, has thrust SYSCO into a new dimension, from a broadline distributor to a broad brand provider, supported by a depth of service unparalleled in the foodservice distribution industry. Brand width and service depth have made SYSCO the distributor of choice for the meals-prepared-away-from-home market, and will fuel its growth in the future. SYSCO’s broad line of fresh and frozen meats, seafood, poultry, fruits and vegetables, canned and dry foods, equipment and supplies, beverages, bakery items, dairy products, disposables, medical and surgical products, chemical and sanitation items are now joined by a wide array of segment brand products as well as custom-cut steaks and specialty produce items. SYSCO’s product menu is ever-evolving; the commitment to customers is unchanging – a steadfast dedication to unsurpassed customer service. *as of July 1, 2000 Web address....................................................www.sysco.com Exchange and Ticker Symbol .............................NYSE: SYY Employees ....................................................................40,400* Customers..................................................................356,000* Products.....................................................................275,000* Delivery Vehicles............................................................7,290* Marketing Associates .....................................................6,981* Quarterly Cash Dividend per Share.............................$0.12 101 Distribution Locations 63 Broadline Facilities 22 Specialty Produce Locations 13 SYGMA Facilities 3 Custom-Cutting Meat Operations Calendar 1999 Foodservice Distribution Industry Market......................Approximately $175 Billion TABLE OF CONTENTS Letter to Shareholders 2 5 Review of Operations 20 Community Activities 21 Financial Section 49 Glossary 50 Directors 52 Directors’ Council 53 Corporate Officers Employees pictured on cover, left to right: Bobby Delgado, Driver; Sandra Carson, Director of Safety and Health Services; Sonia Avalon, Credit Administrator; James Blake, Marketing Associate; Mike Howdeshell, Manager, Beverage (kneeling); Rohani Clawson, Merchandiser; Dana Barba, Customer Service Supervisor; and Joe Clark, 44 Location of Principal Operations 56 General Information Network Administrator. FINANCIAL HIGHLIGHTS July 1, 2000 $19,303,268 737,608 Year Ended July 3, 1999 (53 Weeks) $ 17,422,815 593,887 Percent Change June 27, 1998 $ 15,327,536 532,493 2000-99 11% 24 1999-98 14% 12 453,629 445,588 362,271 362,271 324,821 296,768 1.36 1.08 0.95 1.33 0.44 5.31 266,413 $ 1.08 0.38 4.33 286,687 $ 0.86 0.33 4.05 259,353 $ 25 23 26 23 16 23 (7) (In thousands, except for share data, employees and shareholders) Sales Earnings before income taxes Net earnings before accounting change Net earnings(1) Diluted earnings per share before accounting change Diluted earnings per share after accounting change(1) Cash dividends per share Shareholders’ equity per share Capital expenditures Return on average shareholders’ equity before accounting change 29% 26% 23% Diluted average shares outstanding 334,777,928 336,796,669 343,440,181 (1) Number of employees Number of shareholders of record 40,400 15,207 35,100 15,485 33,400 16,142 15 (2) (1) Fiscal 2000 and 1998 net earnings reflect one-time accounting charges of $8,041,000 and $28,053,000, respectively. All share information has been adjusted for the 2-for-1 stock split of March 20, 1998. SYSCO HISTORICAL WEEKLY STOCK PRICE SUMMARY Fiscal Years 1998-2000* 30.75 25.50 18.50 FISCAL 1998 FISCAL 1999 FISCAL 2000 *Adjusted for the 2-for-1 stock split of March 20, 1998. 12 22 14 26 15 7 11 (2) 5 (4) 42.13 40 30 20 10 TO OUR SHAREHOLDERS Left to right: RICHARD J. SCHNIEDERS President and Chief Operating Officer CHARLES H. COTROS Chairman and Chief Executive Officer 2 SYSCO’s multi-dimensional objectives include strategic vision and prudent fiscal planning supported by brand width and service depth. In our 30th year as a public company, this combination produced record sales of $19.3 billion for the 52-week period ended July 1, 2000 compared to $17.4 billion generated in fiscal 1999 (53 weeks), an 11 percent increase. Fueled by a thriving U.S. economy and mild winter weather conditions, the foodservice industry during our most recent fiscal year enjoyed real growth at the higher end of its historical two to four percent rate, as reported by industry sources. SYSCO was favorably impacted not only by these external factors, but also by numerous internal initiatives. Historically, SYSCO’s real growth has expanded two to three times faster than the real growth rate of the industry. FY 2000 was no exception, as real growth for the year reached 9.2 percent after adjusting for the extra week in fiscal 1999, acquisitions of 3.5 percent and food cost inflation of 0.4 percent. Diluted earnings per share before a first quarter accounting change that required start-up costs to be expensed as incurred, rose significantly to $1.36, a 26 percent increase above the $1.08 per share earned in last year’s 53-week period. Net earnings before the accounting change were $453.6 million, 25 percent above the $362.3 million achieved in the 53 weeks of fiscal 1999. Key internal drivers that enhanced results were a sharpened focus on increasing sales to marketing associate-served customers – our core business – and continuing growth in SYSCO Brand sales. Marketing associate-served sales grew to 55.4 percent of traditional foodservice sales versus 54.1 percent last year, while the SYSCO Brand gained increasing recognition and acceptance, rising to 50.4 percent of marketing-associate served sales, compared to 48.1 percent in fiscal 1999. The SYGMA Network, Inc., our chain restaurant distribution specialist, generated record sales of $2.2 billion, an 8 percent increase compared to fiscal 1999. In May SYGMA began servicing 362 additional Burger King restaurants located in Pennsylvania and Northern California, as well as Arby’s units in Arkansas, Kansas, Missouri and Oklahoma. These customer additions represent approximately $200 million in annualized sales and we continue to selectively seek additional chain restaurant business. Six strategic acquisitions completed during the year strengthened both geographical presence and product offerings. They include three custom-cutting meat operations, two broadline distributors, and a specialty produce company. Through our Buckhead Beef Company DILUTED EARNINGS PER SHARE IN DOLLARS* 1.36 1.08 .95 .85 .75 96 97 98 99 00 *Before accounting change ANNUAL DIVIDENDS PER SHARE IN DOLLARS 0.44 0.38 0.33 0.28 0.24 96 97 98 99 00 WORKING CAPITAL IN MILLIONS OF DOLLARS 981 950 879 848 856 96 97 98 99 00 (Atlanta, GA), Malcolm Meats (Toledo, OH) and Newport Meat Company (Irvine, CA) operations, SYSCO now offers precision custom- cut steaks and other protein products to customers in certain areas. Broadline distributors Doughtie’s Foods Inc. (Portsmouth, VA) and Watson Foodservice (Lubbock, TX) enhanced customer service in the mid-Atlantic and southwestern United States. Annualized sales of these five companies totaled approximately $500 million in the aggregate. The combination of FreshPoint, Inc. (approximately $750 million in annualized sales) with SYSCO’s $1 billion produce operation created the largest foodservice produce purchaser and supplier in the world. SYSCO now offers a full spectrum of produce in numerous varieties, from everyday staples to the exotic. Opportunities also exist for strategic product cross selling through both customer bases. Internal geographic expansion remains a priority and “fold-out” operations under construction in the Hampton Roads area of Virginia and in Sacramento, California should be operational in the spring and fall of 2001, respectively. The Hampton Roads facility will replace Doughtie’s existing complex and supply their customers in Virginia and eastern North Carolina, as well as certain customers in those areas who are now being serviced from Pocomoke City, Maryland. The Sacramento operation will serve Sacramento and surrounding communities, as well as western Nevada and northern California markets now being accommodated from San Francisco. These activities plus ongoing maintenance programs resulted in investments of $266 million in facilities, fleet and equipment, with facilities and fleet accounting for 72 percent. This compared to capital expenditures of $287 million in FY 1999. Capital expenditures for FY 2001 are expected to range from $325 million to $375 million. SYSCO continues to generate sufficient cash from operations to fund internal growth opportunities. Since 1996 SYSCO has been repurchasing shares in excess of those issued and at fiscal year-end 58 million shares had been repurchased, including 5.7 million during FY 2000, with 3.8 million remaining out of the 8-million-share 1999 authorization. After funding working capital needs, capital investments, dividends, acquisitions and share repurchases, total debt was $1.07 billion, including $1.02 billion long- term debt, resulting in a long-term debt to total capitalization ratio of 37 percent. Before the accounting change, return on shareholders’ equity was 29 percent and return on average total capital was 17 percent. SYSCO Uniform System (SUS) installations were completed last December as planned in scheduled broadline companies, providing operational efficiencies through valuable managerial and reporting tools. SYSCO also has joined McDonald's Corporation, Cargill Inc. 3 and Tyson Foods Inc. to form electronic Foodservice Network (eFS Network), an Internet-based, business-to-business (B2B) network. Open to suppliers, distributors and chain restaurant operators, eFS Network is aimed at cutting costs in the foodservice supply chain by more efficiently managing the flow of information and products to the marketplace. More than 40,000 employees dedicated to outstanding customer service were instrumental in SYSCO’s stellar FY 2000 performance and several members of management were recognized for their part in SYSCO’s success. In January, in accordance with SYSCO’s long-term management succession plan, Charles H. Cotros was elected the fourth chief executive officer in SYSCO’s 30-year history. Mr. Cotros also assumed the role of chairman on July 2, 2000 following the retirement of Bill M. Lindig after a distinguished 30-year career. Also, Richard J. Schnieders advanced to President and Chief Operating Officer; Larry J. Accardi was promoted to Executive Vice President, Merchandising Services and Multi-Unit Sales; Thomas E. Lankford became Executive Vice President, Foodservice Operations and, upon Mr. Lindig’s retire- ment, was elected to serve the remaining portion of his Board term; and John K. Stubblefield, Jr. was named Executive Vice President, Finance and Administration. In November 1999 the Board of Directors increased the quarterly cash dividend 20 percent to $0.12 per share from $0.10 per share, the 31st increase in 30 years. We are optimistic about SYSCO’s future prospects, anticipating an ongoing positive economic outlook and continued demand for meals prepared away from home. We believe our long-term objectives are achievable – high single-digit real sales growth with earnings per share growing four to six percentage points higher than the real sales growth rate, a 30 percent return on equity and a long-term debt to total capital- ization ratio of 35 to 40 percent. We intend to seek growth opportunities through acquisitions and continue our internal expansion strategies as well. As we move forward, our commitment to providing our customers a breadth of products for nearly every foodservice need, as well as unsurpassed service excellence, will continue to drive our future success. CHARLES H. COTROS RICHARD J. SCHNIEDERS Chairman and President and Chief Executive Officer Chief Operating Officer CAPITAL EXPENDITURES IN MILLIONS OF DOLLARS 287 259 266 236 211 96 97 98 99 00 SHAREHOLDERS' EQUITY IN MILLIONS OF DOLLARS 1762 1475 1400 1357 1427 96 97 98 99 00 RETURN ON AVERAGE NET ASSETS IN PERCENTS 16.9 14.9 14.6 14.3 13.5 96 97 98 99 00 4 S YSCOCorporation 2000 Annual Report circa 1970 As consumers’ appetites for meals-prepared-away-from-home have grown, so has the family of SYSCO Brand products. From humble beginnings in the early 1970’s with products such as the cut green beans pictured above, today the cornerstone brand, including four quality levels – Supreme, Imperial, Classic and Reliance – accounts for more than 29,000 various items. Whether it’s a meal served at a restaurant, college cafeteria, resort hotel or sports stadium, chances are you have enjoyed and routinely encountered the quality and palate-pleasing tastes of SYSCO Brand products. The SYSCO Brand family has grown to include brands designed for specific market segments, Brandables total menu concepts, specialty meat and produce brands and even SYSCO’s own branded technology that drives every facet of the organization. SYSCO has truly evolved from a broadline company to a broad brand supplier with a depth of service unique within the industry. Brand Width & Service Depth Narr 4 PDF 9/22/00 4:21 PM Page 6 Kin Chan, like all Sysco marketing associates, is trained to focus on each of his customer’s specific needs and to offer a range of products and services tailored to fulfill those needs. REAL SALES GROWTH BY FISCAL QUARTERS* IN PERCENTS 10 8.9 8.1 7.2 7.3 7.3 7.7 6.1 6.4 6.3 5.0 5.2 1998 1999 2000 1Q 2Q 3Q 4Q *Adjusted for sales to a significant new customer through 1st quarter of FY 2000. NUMBER OF MARKETING ASSOCIATES 6981 6312 6444 5991 5646 96 97 98 99 00 MARKETING ASSOCIATE- SERVED SALES AS A % OF BROADLINE FOODSERVICE 52.0 53.0 54.1 55.4 97 98 99 00 6 Characterized by its quality, dependability, consistent yield and the ability to enhance customers’ profits, the cornerstone SYSCO brand with four quality levels – Supreme, Imperial, Classic and Reliance – is immediately recognizable and has played a starring role in the foodservice marketplace. SYSCO Brand products are designed to appeal to a variety of menus, are characterized by a strong, well-developed brand identity and are produced to exact specifications, supported by quality assurance standards unsurpassed in the industry. The first link in moving products from field to plate is product development. During this stage, SYSCO Merchandising Services monitors dining trends and shares ideas from customers with manufacturers to develop products that meet customers’ menu requirements. This group also interacts with thousands of suppliers worldwide to source product and structure purchasing programs for the SYSCO Brand and other national brand products. By offering SYSCO Brand products, Marketing Associates (MAs) gain a competitive edge in the marketplace. The training and product knowledge these sales professionals bring to their customers is equally important to the equation. SYSCO’s army of MAs is almost 7,000 strong, and each MA is, in essence, a relationship manager, providing a variety of items and services that allow customers to prosper. MAs routinely evaluate and compare products to determine what best fits a customer’s menu profile, assist with menu planning and design, identify dining trends that can boost customer profitability and assess inventory levels to enable customers to satisfy any dining need. This is just a sampling of the service depth and customer commitment that has distinguished SYSCO in the meals- prepared-away-from-home market and, in turn, has earned customer loyalty. Last year SYSCO formalized this philosophy by implementing the C.A.R.E.S. initiative (Customers Are Really Everything to SYSCO). Embraced by employees in all areas, this commitment reaffirms customer service as SYSCO’s top priority. Narr 4 PDF 9/22/00 4:21 PM Page 8 Sysco Newport Meat Company, one of the largest purveyors of fine meats, poultry and seafood in southern California, offers products, services and training to SYSCO broadline companies in California, Arizona, New Mexico and Utah. Buckhead Beef, the #1 distributor of CERTIFIED ANGUS BEEFTM products in the world in 1999, also provides customers access to the largest inventory of wet- and dry-aged USDA Prime. Malcolm Meats Company distributes custom-cut meats and other protein products to customers and SYSCO broadline companies throughout Illinois, Michigan and Ohio. CERTIFIED ANGUS BEEFTM SALES BY ALL CAB PROGRAM LICENSEES IN MILLIONS OF POUNDS 480.0 411.0 331.8 259.8 226.5 95 96 97 98 99* *Projected Source: Certified Angus Beef TM, LLC 8 Meeting customer needs is more than simply delivering products listed on an invoice. In fiscal 2000 SYSCO recognized the need to expand not only geographically, but also by adding product breadth. This transition to acquiring product niche companies as well as broadline distribution operations originated as a desire to offer the highest quality, most consistent, fresh, custom-cut steaks and specialty produce items available in the marketplace. As a result, SYSCO acquired three custom-cutting meat operations, Newport Meat Company; Buckhead Beef Company; and Malcolm Meats; and a specialty produce company, FreshPoint, Inc., which has 22 North American locations. SYSCO continues to offer boxed beef products packaged in bulk quantities to be cut by customers at their locations. However, as beef consumption has grown, the demand for high-quality aged beef, cut to precise specifications, also has increased. Many independent customers do not have sufficient space, equipment or expertise to age beef properly or cut steaks consistently. In addition, the short supply of qualified meat cutters and the risk of employee accidents, with the correspond- ing increased cost for workers’ compensation insurance premiums, often makes it safer and more economical to rely on SYSCO’s expertise for portion-cut steaks and chops. These three meat-cutting operations have taken customer service to a deeper level, offering an assortment of wet- and dry-aged beef cut to exact customer requirements. Each operation is a leader in its market area and a licensed distributor of CERTIFIED ANGUS BEEF TM brand, a renowned high quality distinction within the beef industry. They also supply other customized and portion-controlled meat and protein products, complementing SYSCO’s existing broad brand capabilities. Strategically located across the United States, they offer SYSCO operating companies in certain areas the opportunity to benefit from their product range and expertise while expanding their own market reach. Narr 4 PDF 9/22/00 4:22 PM Page 10 FreshPoint, Inc. distributes specialty produce through 22 locations across the U.S. and Canada. Customers may choose from a variety of produce items, from the everyday conventional to the exotic. The company also specializes in value-added services including ripening and repacking. SYSCO is the largest purchaser of produce in the foodservice distribution industry, and SYSCO Natural produce represents the top 5% of produce harvested from California’s Salinas Valley. SYSCO AND FRESHPOINT ESTIMATED ANNUALIZED PRODUCE PURCHASES IN MILLIONS OF CASES Tomatoes Potatoes Precut Lettuce Onions Iceberg Lettuce Mushrooms Strawberries Romaine Lettuce Peppers Cantaloupe Specialty Lettuce 12.0 5.9 3.9 3.7 3.5 2.8 2.8 2.7 2.0 1.8 1.6 10 Prior to the March 2000 acquisition of FreshPoint, Inc., a specialty produce distributor, SYSCO’s annual produce sales, including those of the highly successful SYSCO Natural line, eclipsed the $1 billion mark. The addition of FreshPoint, with 22 locations and approximately $750 million in annualized sales, positions SYSCO for significant future growth as broadline customers may now access a wider spectrum of unique specialty produce items. In addition, the minimal overlap between the two customer bases creates many opportunities to sell SYSCO’s breadth of products to FreshPoint customers who may be purchasing elsewhere. The SYSCO Natural produce family continues to be a mainstay for broadline operators who feature consistent quality produce staples in their daily menus, while FreshPoint offers more highly specialized products that may appeal to chefs who require exotic choices to complement their gourmet menus. FreshPoint distribution centers also operate smaller trucks concentrated in heavily populated areas and are structured to accept smaller orders and provide more frequent deliveries. SYSCO and FreshPoint also supply pre-washed and pre-cut produce items, chopped, diced and sliced to customer specifications. Along with increased produce sales and enhanced product offerings, the FreshPoint acquisition also allows SYSCO customers to enjoy the benefits of FreshPoint’s in-house ripening and repacking procedures. Tomato ripening capabilities provide complete control of the ripening process and eventually these functions will be expanded to include other products, like bananas, where supply is currently dictated by seasonal weather patterns. Through repacking operations customers are able to receive items in customized, packed-to-order cases, a process which should generate future cost benefits, since the repacking programs are concentrated at specific locations to serve several operating companies. Narr 4 PDF 9/22/00 4:22 PM Page 12 12 In calendar 1999, 50 percent of all food dollars were spent on food-prepared-away-from-home, a substantial increase from 37 percent in 1972. As consumers continue to eat more meals prepared by others, they demand new tastes and more varieties of foods. In response, SYSCO has developed an assortment of brands tailored to specific market segments, including ethnic foods, delicatessen items, tabletop condiments and others. The Arrezzio line was designed for the operator who aspires to provide customers the finest, authentic Old World Italian cuisine. Capturing the essence of Italian cooking with specialty tomatoes and sauces, pizza toppings and cheeses, specialty meats, Italian breads, oils and desserts, this collection of Italian brands, known as La Famiglia Sysco, includes Ottimo, Suprema, and Pasta LaBella. Other segment brands include Casa Solana, a family of south-of-the-border-style foods, and Jade Mountain, a line of fine Asian cuisine. Casa Solana includes items essential in making savory Mexican dishes, while Jade Mountain includes seasoned oils and vinegars, water chestnuts, oyster sauces and numerous Asian staples such as rice and egg roll wrappers. House Recipe includes tabletop items ranging from condiments to crackers. Its distinctive flavorings and attractive high-profile packaging complement any menu offering. Customers often elect to customize House Recipe steak sauces, ketchup and hot sauce by adding a personalized neckband displaying their establishment’s name. The Block and Barrel brand was designed to address the specific requirements of the delicatessen market segment. It includes an assortment of delicatessen products like bulk and pre-sliced meats and cheeses, sandwich condiments and a variety of breads and rolls, as well as snacks, chips and cookies. New segment brands include Roasters Blend, a variety of upscale coffees, and Butcher’s Block boxed beef available in four categories – Reserve, Angus, Choice and Select – for customers who prefer to cut steaks at their own locations. S YSCOCorporation 2000 Annual Report SEGMENT BRANDS These products are designed for specific market segments and include ethnic foods, delicatessen items, tabletop condiments and other products to satisfy a variety of preferences. ITALIAN The Arrezzio brand of authentic, Old World products like the Extra Virgin Olive Oil with Garlic and Tomato Basil Fettuccine are specifically created for foodservice operations featuring Italian cuisine. MEXICAN Casa Solana is a complete line of south-of-the-border products for Mexican restaurant meal solutions. PIZZA Hailed for its authentic flavor, Arrezzio pizza is one of SYSCO’s many popular segment brand products. COFFEE In fiscal 2000 SYSCO introduced Roasters Blend, a variety of coffee flavors that compete with other renowned national brands. BEEF Butcher’s Block boxed beef was introduced this year for customers who opt to purchase in bulk and cut steaks themselves on site. HOUSE RECIPE The House Recipe brand, a family of premium quality tabletop condiments, signature teas and gourmet cocoas, features high-profile graphics, consistent quality and exceptional value. Brand Width & Service Depth Narr 4 PDF 9/22/00 4:22 PM Page 14 BP All American Food Store, Inc. in Athens, Georgia was one of the first operators to unveil the Sunday Skillet Fried Chicken concept, a contemporary, colorful, high profile cafeteria line with delicious southern fried chicken and companion items. Michael’s Café III in Atlanta features SYSCO’s Block & Barrel Deli concept, the most complete deli branding program available. SYSCO BRAND SALES AS A % OF MARKETING ASSOCIATE-SERVED SALES 50.4 48.1 45.4 42.2 97 98 99 00 14 The foodservice solutions called Brandables by SYSCO are easy-to-use “menu concepts” that incorporate not only the segment brands discussed on the preceding pages but also include all the tools necessary to create a complete segment menu theme. Featuring high-profile signage for kiosk or in-line serving systems, comprehensive operator manuals and associated uniforms and utensils, the Brandables concepts allow operators great flexibility without paying licensing or franchise fees. Each program’s fully developed menu profiles include SYSCO’s easy-to-prepare segment brand foods that are pre-sliced, pre-seasoned and pre-cooked to ensure consistency of product and taste. For example, the Arrezzio Brand Italian segment products are integral to two Brandables concepts – Arrezzio Pizza, an authentic, pizzeria-style program and Arrezzio Italian Café, which features nutritional pastas and savory sauces for operators to create Italian-style selections. Block & Barrel Deli, the most complete delicatessen branding program available, utilizes a complete assortment of Block & Barrel segment brand products that include bulk and pre-sliced meats and cheeses teamed with breads, rolls and condiments for sandwich making – a total deli package. The Casa Solana Mexican Cantina features Mexican-style favorites, while Mein Street Wok, an Asian concept, uses Jade Mountain products to create popular Asian menu selections. Potato Gourmet appeals to health-conscious individuals as well as anyone with a hearty appetite. This program features generously- sized, tasty baked potatoes, which can be customized with various hot or cold toppings. Another concept, Sunday Skillet, brings to mind the good old days of Sunday dinners at grandmother’s house – crispy fried chicken, biscuits and all the trimmings. To assure that the entire family of SYSCO Brand products meets or exceeds customers’ expectations, a quality assurance staff of more than 180 professionals establishes specifications, evaluates manufacturing and processing plants and monitors products throughout the production process. Narr 4 PDF 9/22/00 4:22 PM Page 16 SYSCO’s team of dependable delivery associates, including Matt Greif, serves as one of the primary contacts with customers each day. FLEET SIZE* NUMBER OF VEHICLES 7290 6352 5772 5256 5379 96 97 98 99 00 SYSCO SALES BY PRODUCT CATEGORY AS PERCENT OF TOTAL SALES Medical supplies Dairy products Fresh and frozen meats Seafoods Poultry Frozen fruits, vegtables, bakery and other Canned and dry products Paper and disposables Janitorial products Equipment and smallwares Fresh produce Beverage products 1% 9% 17% 6% 10% 14% 21% 8% 2% 2% 7% 3% 16 In any foodservice operation, from the front of the house to the back, many auxiliary items are essential to producing a complete meal. SYSCO’s non-food brands encompass all of the equipment and supplies a foodservice operator conceivably would require. From cookware to cutlery, cleaning chemicals to carry-out cartons, dishwashers to disposable towels, this category continues to be vital to an operation’s success and foodservice supplies accounted for 13 percent of overall sales in fiscal 2000. Food safety is a primary concern to customers and SYSCO is committed to maintaining the safety of prod- ucts throughout every facet of distribution. Cookware and tableware, as well as food preparation and eating surfaces, must be pristine, so cleaning and sanitizing is of utmost importance. SYSCO also offers customers special training programs regarding proper food storage temperatures, safe cutting and handling techniques and recommended hygiene practices. Typically, equipment and supplies are ordered less frequently than food products and one method SYSCO employs to optimize the use of warehouse space is the designation of a central warehouse for storage of such products. This warehouse inventories nearly 6,000 items, including cookware, dinner- ware, flatware, glassware, chef apparel, large kitchen equipment and much more. Another 5,000 items are available for shipment to customers directly from manufacturers. As orders are received, products are selected from inventory and shipped to the customer, usually arriving within a one- to two-day delivery window, much more quickly than the typical industry practice of six- to eight-week shipping periods often associated with shipping special orders. To assure that customers order the correct central warehouse item, in 1999 SYSCO developed SYSQuotes, an online catalog that provides product images for customer inspection and selection, product availability and pricing via the MAs laptop computer. MAs at 39 SYSCO operating companies were utilizing the program at fiscal year-end. S YSCOCorporation 2000 Annual Report FOODSERVICE SUPPLIES Foodservice supplies — from soup kettles to soup spoons, dishwashers to dinnerware, cleaning solutions to carry-out cartons — are essential to any well-stocked kitchen or dining room. FLATWARE SYSCO’s exclusive flatware is produced in numerous patterns, including Satin Bead, and is suitable for many types of foodservice locations. CHEMICALS/ DISPOSABLES Items like chefs’ hats, disposable gloves and sanitary products allow food preparers to maintain a crisp, clean look and observe safe food handling practices. CUTLERY SYSCO’s Black Diamond cutlery allows chefs to display their skill and creativity with a broad assortment of tools. SERENEWARE The comprehensive, easily identifiable SYSCO Sereneware products provide appealing packaging solutions for take-out meals. GLASSWARE Nothing could be finer to a diner with a sweet tooth than a scrumptious sundae served in SYSCO’s elegant Illusion glassware. DINNERWARE SYSCO’s exclusive dinnerware patterns KITCHENWARE SYSCO provides a like Arial are designed to coordinate with various customer themes and complete collection of kitchen equipment, tools and complement the atmosphere of any foodservice operation. accessories, including the Black Diamond cookware and utensils pictured above. Brand Width & Service Depth Narr 4 PDF 9/22/00 4:23 PM Page 18 Laura Terrell, at the Houstonian Hotel in Houston, is a SYSCO customer who enjoys ordering products through eSYSCO, a user-friendly Internet-based ordering system. The SYSCO Warehouse Management System (SWMS) directs vital labor management functions. Pictured above is Sherri Edwards, Checker/Loader. 18 SYSCO’s commitment to continued technological develop- ment has been a key factor in building lasting customer and supplier relationships. SYSCO’s proprietary systems, primarily developed internally, are also considered SYSCO Brands. One project, the SYSCO Uniform System (SUS), is an enterprise-wide information technology system that encompasses all business aspects on a real-time basis. SUS reporting measures and appraisal tools provide instant access to service levels and other productivity data, allowing internal benchmarking among SYSCO companies. The SYSCO Warehouse Management System (SWMS) monitors products through every stage of the distribution cycle, and manages all facets of employee productivity. These tools reduce inventory and improve workplace safety and productivity, thereby increasing order accuracy and decreasing working capital needs and expenses. SYSCO long has maintained a leading role in direct order entry systems and its Internet-based order entry system, eSYSCO, has replaced previous, more complex applications. An estimated $700 million in annualized sales is being channeled through eSYSCO and customers may place and confirm orders, review purchasing history and perform many other functions at their convenience. Modifications are being added to the core SUS system to move toward error-free service through accurate order selection and timely delivery. The SYSCO Order Selector (SOS), a finger-mounted bar code scanner, verifies proper item selection, reducing errors from about one in less than 1,000 to about one in 5,000, significantly improving efficiency and reducing restocking costs. The SYSCO Load Selector (SLS) confirms the accuracy of products selected, then generates a map detailing the placement of orders on the delivery trucks, while the RoadNet system assigns delivery stops to minimize time yet meet customers’ preferred delivery windows. Whether it is improving technology, expanding brand offerings or assisting customers with value-added services, SYSCO’s primary objective is exceeding customer expectations. COMMUNITY ACTIVITIES SYSCO has received numerous awards and recognition for donations to food banks and other programs including the Second Harvest National Food Bank. In addition, each of SYSCO Corporation’s operating companies serves its community independently, assisting charities and volunteer organizations, including homeless shelters, donating products to food banks and providing meals to volunteers. At the corporate office, the company also has enjoyed longstanding relationships with organizations such as the United Way and the March of Dimes. SYSCO’s commitment to higher education is evidenced by its annual funding of scholarships through The Educational Foundation of the National Restaurant Association and other foundations. SYSCO also has joined with its premier suppliers in Johnson & Wales University’s Vision 2001 campaign, which has a goal of providing $5 million in scholarships to qualified students dedicated to a foodservice career. In addition, The John F. and Eula Mae Baugh SYSCO Scholarship Program grants academic scholarships to employee dependents under age 24 who attend accredited four-year institutions. More than $700,000 in John F. and Eula Mae Baugh SYSCO scholarships has been awarded since the program’s inception in 1996. For the 2000-01 academic year, 25 returning scholarship winners qualified for renewed funding. In addition, $60,000 in new grants was awarded to the following scholarship winners. Recipient Name Paige L. Asbrock Kathleen R. Fein Luke C. Gelinas Nicholas J. Hagglund Natalie C. Lesly Naomi M. Massave Timothy C. Pilgrim Joyce A. Somerset Melissa J. Spagnuolo Elliott S. Thomson College or University College of Mount St. Joseph University of Michigan Calvin College Youngstown State University University of California Yale University University of Washington Johnson & Wales University Cal State-San Bernardino University of Florida Hometown Harrison, OH Jenison, MI South Dartmouth, MA Jamestown, NY Merced, CA Riviera Beach, FL Kent, WA Lithonia, GA Apple Valley, CA Richfield, OH Major Chemistry/Dentistry Pre-Medicine/Chemistry Religion/Theology Chemical Engineering Communications Undetermined Business Administration Marketing Business Administration Engineering/Computer Science CHAIRMAN LINDIG RETIRES AFTER 30-YEAR CAREER As SYSCO reflects on its 30th anniversary as a public company, it also celebrates the career of retiring Chairman Bill M. Lindig. Mr. Lindig began his career with SYSCO at its formation in 1970 when he was named Executive Vice President of Zero Foods Company, one of the original nine founding companies. He was elected a Director of SYSCO in 1983 and became President of the Foodservice Division in 1984. In early 1985, he was elected SYSCO’s Executive Vice President and Chief Operating Officer and later that year added to his responsibilities when he became President of the corporation. Mr. Lindig was elected Chief Executive Officer in January 1995 and assumed the position of Chairman of the Board on January 1, 1999. From the time he assumed the role of Chief Executive Officer until his retirement, SYSCO’s sales grew from $10 20 billion to over $19 billion, and the price of SYSCO’s stock increased more than 225 percent. Reflecting on his lengthy career with SYSCO when his retirement was announced in April, Mr. Lindig said, “My long and enjoyable association with both SYSCO and the foodservice distribution industry has been one of the highlights of my life. Having been actively involved in the success of SYSCO and helping our customers create memorable dining experiences for consumers has been most rewarding.” In addition to the tireless efforts he put forth at SYSCO during his three-decade career, Mr. Lindig also has been extremely active in community affairs. In 1999 he and his wife Bobetta established the Lindig Men’s Health Center and Resource Library at Memorial Hermann Healthcare System in Houston, Texas, and he currently serves on Memorial Hermann Healthcare System’s Board of Directors. Mr. Lindig also is a director of Burlington Northern Santa Fe Corporation and a trustee of Johnson & Wales University. FINANCIAL SECTION 22 Eleven-Year Summary of Operations and Related Information 24 Consolidated Results of Operations 25 Consolidated Financial Position 26 Consolidated Shareholders’ Equity 27 Consolidated Cash Flows 28 Summary of Accounting Policies 29 Additional Financial Information 37 Report of Management on Internal Accounting Controls 38 Report of Independent Public Accountants 39 Selected Financial Data 40 Management’s Discussion and Analysis S YSCOCorporation 2000 Annual Report ELEVEN - YEAR SUMMARY OF OPERATIONS AND RELATED INFORMATION (Dollars in thousands except for per share and shareholder data) Results of Operations 2000 1999 1998 1997 1996 Sales Costs and expenses Cost of sales Operating expenses Interest expense Other, net Total costs and expenses Earnings before income taxes Income taxes Earnings before cumulative effect of accounting changes Cumulative effect of accounting change Net earnings Cash dividends paid Earnings reinvested Effective income tax rate Per Common Share Data (1) Diluted earnings per share: Earnings before accounting change Cumulative effect of accounting change Net earnings Cash dividends Shareholders’ equity Diluted average shares outstanding Performance Measurements Pretax return on sales Return on average shareholders’ equity before accounting change Return on average total capital before accounting change (equity plus long-term debt) Financial Position Current ratio Working capital Capital expenditures Other assets Plant and equipment (net) Total assets Long-term debt Other liabilities Shareholders’ equity Shareholder Data Closing price of common share at year end (1) Price/earnings ratio at year end - diluted (1), (2) Market price per common share - high/low (1) Number of employees at year end Number of shareholders of record at year end $ 19,303,268 $ 17,422,815 $ 15,327,536 $ 14,454,589 $ 13,395,130 15,649,551 2,843,755 70,832 1,522 18,565,660 737,608 283,979 14,207,860 2,547,266 72,839 963 16,828,928 593,887 231,616 12,499,636 2,236,932 58,422 53 14,795,043 532,493 207,672 11,835,959 2,076,335 46,502 (162) 13,958,634 495,955 193,422 10,983,796 1,917,376 41,019 (1,004) 12,941,187 453,943 177,038 453,629 (8,041) 445,588 145,418 300,170 $ 362,271 — 362,271 126,691 235,580 $ 324,821 (28,053) 296,768 110,928 185,840 38.5% 39% 39% 1.36 (0.02) 1.33 0.44 5.31 334,777,928 $ 1.08 — 1.08 0.38 $ 4.33 336,796,669 $ $ 0.95 (0.08) 0.86 0.33 4.05 343,440,181 302,533 — 302,533 99,574 202,959 39% 0.85 — 0.85 0.28 4.06 356,083,594 $ $ $ 276,905 — 276,905 87,721 189,184 39% 0.75 — 0.75 0.24 4.09 369,715,296 $ $ $ 3.82% 3.41% 3.47% 3.43% 3.39% 29% 17% 26% 16% 23% 15% 21% 15% 19% 14% 1.53 950,280 266,413 736,047 1,344,693 4,813,955 1,023,642 245,810 1,761,568 42.13 31 43-26 40,400 15,207 $ $ $ 1.69 981,227 286,687 460,146 1,227,669 4,096,582 997,717 244,129 1,427,196 30.75 28 32-20 35,100 15,485 $ $ $ 1.65 855,877 259,353 449,068 1,151,054 3,780,189 867,017 232,193 1,356,789 25.50 27 27-17 33,400 16,142 $ $ $ 1.76 847,815 210,868 413,762 1,058,432 3,433,823 685,620 233,917 1,400,472 18.50 22 19-14 32,000 17,890 $ $ $ 1.85 879,341 235,891 412,436 990,642 3,319,943 581,734 226,007 1,474,678 17.13 23 18-14 30,600 19,160 $ $ $ $ $ $ (1) The data presented reflects the 2-for-1 stock splits of March 20, 1998, June 19, 1992 and October 17, 1989. (2) Ratios for 2000 and 1998 are before the effects of accounting changes. 22 S YSCOCorporation 2000 Annual Report 1995 1994 1993 1992 1991 1990 5-Year 10-Year 20-Year 1-Year Compound Compound Compound Growth Growth Rates Rates 2000 1996-2000 1991-2000 1981-2000 Growth Rates Growth Rates $ 12,118,047 $ 10,942,499 $ 10,021,513 $ 8,892,785 $ 8,149,700 $ 7,590,568 10.8% 9.8% 9.8% 14.9% 9,927,448 1,736,625 38,579 (2,223) 11,700,429 417,618 165,794 8,971,628 1,568,773 36,272 (1,756) 10,574,917 367,582 150,830 8,225,275 1,427,394 39,004 (2,137) 9,689,536 331,977 130,170 7,303,886 1,270,397 43,275 (6,429) 8,611,129 281,656 109,427 6,693,822 1,161,375 49,082 (5,443) 7,898,836 250,864 97,034 251,824 — 251,824 73,154 178,670 216,752 — 216,752 59,074 157,678 $ 201,807 — 201,807 48,815 152,992 172,229 — 172,229 31,637 140,592 $ 153,830 — 153,830 22,150 131,680 $ $ $ 40% 41% 39% 39% 39% $ 0.68 — 0.68 0.20 $ 3.84 374,762,596 $ 0.58 — 0.58 0.16 $ 3.39 378,927,962 $ 0.53 — 0.53 0.13 $ 3.09 387,534,852 $ 0.46 — 0.46 0.09 $ 2.85 392,455,236 $ 0.41 — 0.41 0.06 $ 2.48 389,180,124 6,246,372 1,076,804 56,548 (5,242) 7,374,482 216,086 24.2 83,625 132,461 25.2 — 132,461 23.0 17,829 114,632 39% 12.0 13.1 16.0 12.5 13.1 17.6 12.1 12.9 17.5 0.36 25.9 14.9 14.2 16.0 $ $ — 0.36 23.1 0.05 15.8 2.10 22.6 $ 380,640,932 14.4 17.1 6.7 14.0 24.3 9.7 15.9 21.5 13.5 3.45% 3.36% 3.31% 3.17% 3.08% 2.85% 19% 14% 18% 13% 18% 13% 17% 11% 18% 11% 19% 10% $ $ $ 1.92 856,734 201,577 411,712 896,079 3,097,161 541,556 219,366 1,403,603 14.75 22 15-11 28,100 21,112 $ $ $ 1.89 753,087 161,485 394,860 817,221 2,811,729 538,711 185,548 1,240,909 11.63 20 16-12 26,200 19,860 $ $ $ 1.90 673,263 127,879 350,450 759,857 2,530,043 494,062 152,292 1,137,216 12.31 23 14-11 24,200 17,798 $ $ $ 1.96 618,244 134,290 326,737 734,423 2,325,206 488,828 133,730 1,056,846 11.94 26 13-10 22,500 14,864 $ $ $ 1.92 557,760 134,921 317,117 699,101 2,177,695 543,176 112,176 918,626 10.25 25 11-7 21,000 13,343 $ $ $ 1.88 494,682 182,387 308,858 635,897 2,001,020 583,496 85,112 770,829 23.4 8.56 24 9-6 19,600 12,023 4.6 8.6 14.1 23 S YSCOCorporation 2000 Annual Report CONSOLIDATED RESULTS OF OPERATIONS (In thousands except for share data) Sales Costs and expenses Cost of sales Operating expenses Interest expense Other, net Total costs and expenses Earnings before income taxes Income taxes Earnings before cumulative effect of accounting change Cumulative effect of accounting change Net earnings Earnings before accounting change: Basic earnings per share Diluted earnings per share Cumulative effect of accounting change: Basic earnings per share Diluted earnings per share Net earnings: Basic earnings per share Diluted earnings per share See Summary of Accounting Policies and Additional Financial Information. Year Ended July 3, 1999 July 1, 2000 $19,303,268 (53Weeks) $17,422,815 June 27, 1998 $15,327,536 15,649,551 2,843,755 70,832 1,522 18,565,660 737,608 283,979 453,629 (8,041) 445,588 $ 14,207,860 2,547,266 72,839 963 16,828,928 593,887 231,616 362,271 — 362,271 $ 12,499,636 2,236,932 58,422 53 14,795,043 532,493 207,672 324,821 (28,053) 296,768 $ $ $ 1.38 1.36 (0.02) (0.02) 1.35 1.33 $ 1.09 1.08 — — 1.09 1.08 0.95 0.95 (0.08) (0.08) 0.87 0.86 24 S YSCOCorporation 2000 Annual Report CONSOLIDATED FINANCIAL POSITION (In thousands except for share data) Current assets Cash Receivables Inventories Deferred taxes Prepaid expenses Less current liabilities Notes payable Accounts payable Accrued expenses Income taxes Current maturities of long-term debt Working capital Plant and equipment at cost, less depreciation Other assets Goodwill and intangibles, less amortization Other Total assets less current liabilities Less other liabilities Long-term debt Deferred taxes Net assets 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 382,587,450 shares Paid-in capital Retained earnings Less cost of treasury stock, 51,102,663 and 52,915,065 shares Total shareholders’ equity See Summary of Accounting Policies and Additional Financial Information. July 1, 2000 July 3, 1999 $ 159,128 1,519,038 937,899 72,041 45,109 2,733,215 31,109 1,186,721 527,233 17,914 19,958 1,782,935 950,280 $ 149,303 1,334,371 851,965 43,353 29,775 2,408,767 13,377 1,013,302 374,271 6,103 20,487 1,427,540 981,227 1,344,693 1,227,669 503,039 233,008 736,047 3,031,020 1,023,642 245,810 1,269,452 $1,761,568 302,100 158,046 460,146 2,669,042 997,717 244,129 1,241,846 $1,427,196 $ — $ — 382,587 76,967 2,332,238 2,791,792 1,030,224 $1,761,568 382,587 872 2,032,068 2,415,527 988,331 $1,427,196 25 S YSCOCorporation 2000 Annual Report CONSOLIDATED SHAREHOLDERS’ EQUITY (In thousands except for share data) Balance at June 28, 1997 Net earnings for year ended June 27, 1998 Cash dividends paid, $0.33 per share Treasury stock purchases Stock options exercised Employees’ Stock Purchase Plan Management Incentive Plan 2-for-1 stock split Balance at June 27, 1998 Net earnings for year ended July 3, 1999 Cash dividends paid, $0.38 per share Treasury stock purchases Stock options exercised Employees’ Stock Purchase Plan Management Incentive Plan Balance at July 3, 1999 Net earnings for year ended July 1, 2000 Cash dividends paid, $0.44 per share Treasury stock purchases Treasury stock issued for acquisitions Stock options exercised Employees’ Stock Purchase Plan Management Incentive Plan Common Stock Shares Amount Paid-in Capital Retained Earnings Treasury Stock Shares Amount 191,293,725 $191,294 $ 32,258 $1,771,548 18,855,458 $ 594,628 296,768 (110,928) (4,308) 1,359 1,084 (30,393) 6,064,850 (491,795) (433,419) (205,950) (160,900) 23,789,144 263,416 (15,174) (14,048) (6,536) 191,293,725 191,293 382,587,450 $382,587 $ — $1,796,488 47,578,288 $ 822,286 362,271 (126,691) (5,621) 3,679 2,814 7,567,300 (988,679) (894,094) (347,750) 203,958 (15,954) (15,906) (6,053) 382,587,450 $382,587 $ 872 $2,032,068 52,915,065 $ 988,331 445,588 (145,418) 69,794 (7,526) 9,446 4,381 5,660,400 (4,984,497) (1,163,222) (943,530) (381,553) 186,296 (98,362) (20,104) (18,585) (7,352) Balance at July 1, 2000 382,587,450 $382,587 $ 76,967 $2,332,238 51,102,663 $1,030,224 See Summary of Accounting Policies and Additional Financial Information. 26 S YSCOCorporation 2000 Annual Report CONSOLIDATED CASH FLOWS (In thousands) Cash flows from operating activities: Net earnings Add non-cash items: Cumulative effect of accounting change Depreciation and amortization Deferred tax (benefit) provision Provision for losses on receivables Additional investment in certain assets and liabilities, net of effect of businesses acquired: (Increase) in receivables (Increase) in inventories Decrease (increase) in prepaid expenses Increase in accounts payable Increase in accrued expenses Increase (decrease) in income taxes (Increase) in other assets Net cash provided by operating activities Cash flows from investing activities: Additions to plant and equipment Proceeds from sales of plant and equipment Acquisition of businesses, net of cash acquired Net cash used for investing activities Cash flows from financing activities: Bank and commercial paper borrowings (repayments) Other debt (repayments) borrowings Common stock reissued from treasury Treasury stock purchases Dividends paid Net cash used for financing activities Net increase (decrease) in cash Cash at beginning of year Cash at end of year Supplemental disclosures of cash flow information: Cash paid during the year for: Interest Income taxes See Summary of Accounting Policies and Additional Financial Information. Year Ended July 3, 1999 (53 Weeks) June 27, 1998 July 1, 2000 $ 445,588 $ 362,271 $ 296,768 8,041 220,661 (25,528) 27,082 (118,578) (56,943) 3,378 105,790 128,174 16,254 (45,193) 708,726 (266,413) 18,922 (211,901) (459,392) 51,810 (11,947) 52,342 (186,296) (145,418) (239,509) 9,825 149,303 $ 159,128 — 205,005 5,656 26,208 (144,969) (61,464) (3,180) 164,143 82,016 (19,420) (30,963) 585,303 (286,687) 24,952 — (261,735) (109,962) 117,273 38,785 (203,958) (126,691) (284,553) 39,015 110,288 $ 149,303 28,053 181,234 (15,077) 22,959 (162,276) (48,483) (4,871) 14,114 50,875 7,782 (13,314) 357,764 (259,353) 8,296 (84,473) (335,530) 303,996 6,813 33,893 (263,416) (110,928) (29,642) (7,408) 117,696 $ 110,288 $ 70,977 272,022 $ 66,706 237,990 $ 58,306 195,133 27 S YSCOCorporation 2000 Annual Report SUMMARY OF ACCOUNTING POLICIES BUSINESS AND CONSOLIDATION SYSCO Corporation (SYSCO or the company) is engaged in the marketing and distribution of a wide range of food and related products to the foodservice or “food-prepared-away-from-home” industry. These services are performed from 95 distribution facilities for approximately 356,000 customers located in the 39 states where facilities are situated, in nine adjacent states, Alaska and the District of Columbia. The company also has four facilities in Vancouver, British Columbia, one in Peterborough, Ontario and one in Edmonton, Alberta which service customers in those surrounding areas. 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 2000 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates that affect the reported amounts of assets, liabilities, sales and expenses. Actual results could differ from the estimates used. 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 the past three years was $964,000 in 2000, $1,812,000 in 1999 and $2,095,000 in 1998. GOODWILL AND INTANGIBLES Goodwill and intangibles represent the excess of cost over the fair value of tangible net assets acquired and are amortized over 40 years using the straight-line method. Accumulated amortization at July 1, 2000, July 3, 1999 and June 27, 1998 was $96,862,000, $84,160,000 and $74,554,000, respectively. COMPUTER SYSTEMS DEVELOPMENT PROJECT In the second quarter of fiscal 1998, SYSCO recorded a one-time, after-tax, non-cash charge of $28,053,000 to comply with a new consensus ruling by the Emerging Issues Task Force of the Financial Accounting Standards Board (EITF Issue No. 97-13), requiring reengineering costs associated with computer systems development to be expensed as they are incurred. Prior to this ruling, SYSCO had capitalized business process reengineering costs incurred in connection with its SYSCO Uniform Systems information systems redevelopment project in accordance with generally accepted accounting principles. No costs were capitalized in fiscal 2000, fiscal 1999 and fiscal 1998. Amounts capitalized are being amortized as completed portions are put into use. Accumulated amortization, including the one-time charge, at July 1, 2000, July 3, 1999 and June 27, 1998 was $42,001,000, $38,929,000 and $36,532,000, 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. Going forward such costs are being expensed as incurred. INSURANCE PROGRAM SYSCO maintains a self-insurance program covering portions of workers’ compensation and general and automobile 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. 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.” 28 S YSCOCorporation 2000 Annual Report CASH FLOW INFORMATION For cash flow purposes, cash includes cash equivalents such as time deposits, certificates of deposit and all highly liquid instruments with original maturities of three months or less. ACQUISITIONS During fiscal 2000, SYSCO acquired for cash and stock, three custom-meat operations, two broadline foodservice companies and one specialty produce company. In the aggregate, SYSCO paid cash of $211,901,000 and issued 4,984,497 unregistered, restricted shares to the former owners of the acquired companies. The transactions were accounted for using the purchase method of accounting and the financial statements for fiscal 2000 include the results of the acquired companies from the respective dates they joined SYSCO. There was no material effect, individually or in the aggregate on SYSCO’s operating results or financial position from these transactions. 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 Financial Position 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. NEW ACCOUNTING STANDARDS In fiscal 1998, SYSCO adopted SFAS No. 130, “Reporting Comprehensive Income.” The adoption of this standard did not have an effect on SYSCO’s reported net earnings as SYSCO has no components of other comprehensive income under the statement. In fiscal 1999, SYSCO adopted SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This statement does not change the measurement or recognition of those plans, but revises the disclosure requirements for pensions and other postretirement plans. In fiscal 2000, SYSCO adopted the AICPA issued Statement of Position (SOP) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” The SOP 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 this SOP did not have a significant effect on SYSCO’s consolidated results of operations or financial position. In June 1998, June 1999 and June 2000, the Financial Accounting Standards Board issued 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. SYSCO is required to and will adopt SFAS No. 133 in the first quarter of fiscal 2001 and does not expect adoption to have a significant effect on its consolidated results of operations or financial position. In December 1999, the Securities and Exchange Commission staff released Staff Accounting Bulletin (SAB) No. 101, “Revenue Recognition.” The SAB provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SYSCO is required to and will adopt SAB 101 in the fourth quarter of fiscal 2001 and believes that adoption will not have a significant effect on its consolidated results of operations or financial position. ADDITIONAL FINANCIAL INFORMATION INCOME TAXES The income tax provisions consist of the following: Federal income taxes State, local and other income taxes Total 2000 $ 250,309,000 33,670,000 $283,979,000 1999 $200,537,000 31,079,000 $231,616,000 1998 $178,226,000 29,446,000 $ 207,672,000 Included in the income taxes charged to earnings are net deferred tax benefits of $25,528,000 in 2000, and deferred tax provisions of $5,656,000 in 1999 and deferred tax benefits of $15,077,000 in 1998. The deferred tax benefit or deferred tax provision results 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. 29 S YSCOCorporation 2000 Annual Report Significant components of SYSCO’s deferred tax assets and liabilities are as follows: Deferred tax liabilities: Excess tax depreciation and basis differences of assets Computer systems development project Inventory Other Total deferred tax liabilities Deferred tax assets: Accrued pension expenses Accrued medical and casualty insurance expenses Other Total deferred tax assets Net deferred tax liabilities July 1, 2000 July 3, 1999 $ 219,786,000 9,838,000 7,961,000 8,225,000 245,810,000 20,008,000 16,387,000 35,646,000 72,041,000 $173,769,000 $ 203,524,000 10,991,000 12,858,000 16,756,000 244,129,000 24,179,000 6,647,000 12,527,000 43,353,000 $200,776,000 The company has enjoyed taxable earnings during each year of its thirty-one 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 temporary 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: Statutory Federal income tax rate State and local income taxes, net of Federal income tax benefit Other 2000 35.0% 3.0 0.5 38.5% 1999 35.0% 3.8 0.2 39.0% 1998 35.0% 3.8 0.2 39.0% ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE The allowance for doubtful accounts receivable was $27,628,000 as of July 1, 2000, $21,095,000 as of July 3, 1999 and $20,081,000 as of June 27, 1998. Customer accounts written off, net of recoveries, were $24,881,000 or 0.13% of sales, $25,914,000 or 0.15% of sales and $21,218,000 or 0.14% of sales for fiscal years 2000, 1999 and 1998, respectively. SHAREHOLDERS’ EQUITY On February 11, 1998, the Board of Directors declared a 2-for-1 stock split effected by a 100% stock dividend paid on March 20, 1998 to shareholders of record on February 27, 1998. All share and per share data in these financial statements have been restated to reflect the stock split. In fiscal 1998, SYSCO adopted the provisions of SFAS No. 128, “Earnings Per Share,” which replaced primary and fully-diluted earnings per share with a presentation of basic and diluted earnings per share. Basic earnings per share have been computed by dividing net earnings by 329,582,474 in 2000, 332,913,546 in 1999 and 340,380,477 in 1998, 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 334,777,928 in 2000, 336,796,669 in 1999 and 343,440,181 in 1998, 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 under the treasury stock method. In May 1986, the Board of Directors adopted a Warrant Dividend Plan designed to protect against those unsolicited attempts to acquire control of SYSCO that the Board believes are not in the best interest of the shareholders. In May 1996, the Board of Directors adopted an amended and restated plan which, among other things, extends the expiration of the plan through May 2006, and amended it again in May 1999. As amended, the plan provides for a dividend distribution of one- half of one Preferred Stock Purchase Right (Right) for each outstanding share of SYSCO common stock. Each Right may be exercised to purchase one two-thousandth of a share of Series A Junior Participating Preferred Stock at an exercise price of $175, subject to adjustment. The Rights will not be exercisable until a party either acquires 10% of the company’s common stock or makes a tender offer for 10% or more of its common stock. In the event of a merger or other business combination transaction, each Right effectively entitles the holder to purchase $350 worth of stock of the surviving company for a purchase price of $175. 30 S YSCOCorporation 2000 Annual Report The Rights expire on May 21, 2006, and may be redeemed before expiration by the company at a price of $0.01 per Right until a party acquires 10% of the company’s common stock or thereafter under certain circumstances. As a result of the Rights distribution, 450,000 of the 1,500,000 authorized preferred shares have been reserved for issuance as Series A Junior Participating Preferred Stock. PLANT AND EQUIPMENT A summary of plant and equipment, including the related accumulated depreciation, appears below: Plant and equipment, at cost Land Buildings and improvements Equipment Accumulated depreciation Net plant and equipment July 1, 2000 July 3, 1999 $ 110,546,000 1,050,417,000 1,398,555,000 2,559,518,000 (1,214,825,000) $ 1,344,693,000 $ 93,107,000 957,389,000 1,266,548,000 2,317,044,000 (1,089,375,000) $ 1,227,669,000 Estimated Useful Lives 10-40 years 3-20 years DEBT SYSCO has uncommitted bank lines of credit, which provide for unsecured borrowings for working capital of up to $246,481,000 of which $31,109,000 and $13,377,000 were outstanding at July 1, 2000 and July 3, 1999, respectively. SYSCO’s long-term debt consists of the following: Commercial paper, interest averaging 6.9% in 2000 and 5.2% in 1999 Senior notes, interest at 6.5%, maturing in 2005 Senior notes, interest at 7.0%, maturing in 2006 Senior notes, interest at 7.25%, maturing in 2007 Debentures, interest at 7.16%, maturing in 2027 Debentures, interest at 6.50%, maturing in 2029 Industrial Revenue Bonds, mortgages and other debt, interest averaging 5.8% in 2000 and 5.9% in 1999, maturing at various dates to 2026 Total long-term debt Less current maturities Net long-term debt July 1, 2000 July 3, 1999 $ 247,870,000 149,553,000 200,000,000 99,735,000 50,000,000 224,336,000 $ 213,792,000 149,463,000 200,000,000 99,696,000 50,000,000 224,313,000 72,106,000 1,043,600,000 (19,958,000) $1,023,642,000 80,940,000 1,018,204,000 (20,487,000) $ 997,717,000 The principal payments required to be made on long-term debt during the next five years are shown below: Fiscal Year 2001 2002 2003 2004 2005 Amount $ 19,958,000 17,861,000 7,306,000 257,525,000 149,809,000 SYSCO has a $300,000,000 revolving loan agreement maturing in fiscal 2004 which currently supports the company’s commercial paper program. The commercial paper borrowings at July 1, 2000 were $247,870,000. 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. On April 22, 1997, in two separate offerings, SYSCO drew down the remaining $150,000,000 of the $500,000,000 shelf registration. 31 S YSCOCorporation 2000 Annual Report 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 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. On June 3, 1998 SYSCO filed with the Securities and Exchange Commission a $500,000,000 shelf registration of debt securities. On July 22, 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 the right 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 pay down outstanding commercial paper. The Industrial Revenue Bonds have varying structures. Final maturities range from one to twenty-six years and certain of the bonds provide SYSCO the right to redeem (call) 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 July 1, 2000 was $1,023,642,000, of which 75% is at fixed rates averaging 6.73% with an average life of fourteen years, while the remainder is financed at floating rates averaging 6.77%. Certain loan agreements contain typical debt covenants to protect noteholders including provisions to maintain tangible net worth in excess of a specified level. SYSCO is in compliance with all debt covenants at July 1, 2000. 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 approximated $986,966,000 at July 1, 2000 and $994,275,000 at July 3, 1999. As part of normal business activities, SYSCO issues letters of credit through major banking institutions as required by certain vendor and insurance agreements. As of July 1, 2000 and July 3, 1999, letters of credit outstanding were $37,319,000 and $21,460,000, respectively. As of July 1, 2000 SYSCO has not entered into any significant derivative or other off-balance-sheet financing arrangements. 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 $44,015,000, $36,904,000 and $31,324,000 in fiscal 2000, 1999 and 1998, 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: Fiscal Year 2001 2002 2003 2004 2005 Later years Amount $ 29,934,000 24,123,000 18,750,000 15,056,000 12,000,000 19,997,000 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 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. 32 S YSCOCorporation 2000 Annual Report The following summary presents information with regard to incentive options under this plan: Balance at June 28, 1997 Exercised Balance at June 27, 1998 Exercised Balance at July 3, 1999 Exercised Balance at July 1, 2000 Options Exercisable Options Outstanding Maximum Shares Exercisable 822,518 519,267 357,528 Weighted Average Price Per Share $ 9.70 9.72 9.94 196,789 $10.08 Shares Under Option 822,518 (303,251) 519,267 (161,739) 357,528 (160,739) 196,789 Weighted Average Price Per Share $ 9.70 9.65 9.72 9.22 9.94 9.78 $ 10.08 The options outstanding at July 1, 2000 under this plan have exercise prices ranging from $7.66 to $11.13 and have a weighted average remaining contractual life of less than one year. 1991 Stock Option Plan The 1991 Stock Option Plan was adopted in fiscal 1992 and originally reserved 6,000,000 shares of SYSCO common stock for options to directors, officers and key personnel of the company and its subsidiaries at the market price at date of grant. This plan provides for the issuance of options which are 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 plan for an additional 16,000,000 shares to be made available for future grants of options. To date, the company has issued stock options but no stock appreciation rights under this plan. The following summary presents information with regard to incentive options under the 1991 plan: Options Exercisable Options Outstanding Maximum Shares Exercisable 3,446,628 Weighted Average Price Per Share $13.53 Balance at June 28, 1997 Granted Cancelled Exercised Balance at June 27, 1998 4,886,528 13.98 Granted Cancelled Exercised Balance at July 3, 1999 5,341,504 14.66 Granted Cancelled Exercised Balance at July 1, 2000 5,661,846 $15.80 Shares Under Option 7,765,260 1,901,416 (315,422) (841,462) 8,509,792 1,550,605 (307,879) (982,769) 8,769,749 2,475,392 (473,344) (1,156,063) 9,615,734 Weighted Average Price Per Share $ 14.35 17.50 14.97 13.50 15.11 21.88 15.89 14.11 16.39 32.66 17.55 14.71 $20.72 The options outstanding at July 1, 2000 under this plan have exercise prices ranging from $12.63 to $40.06 and have a weighted average remaining contractual life of 6.8 years. 33 S YSCOCorporation 2000 Annual Report Non-Employee Directors Stock Option Plan The Non-Employee Directors Stock Option Plan adopted in fiscal 1996 permits the issuance of up to 400,000 shares of common stock to directors who are not employees of SYSCO. Under this plan options to purchase 4,000 shares of common stock at the fair market value on the date of the grant are granted to each non-employee director annually, provided certain earnings goals are met. As of July 1, 2000, options for 136,000 shares had been granted to nine non-employee directors under this plan, of which options for 128,000 shares are 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 Option Plan adopted in fiscal 1999 permits the issuance of up to 400,000 shares of common stock to directors who are not employees of SYSCO. Under this plan non-employee directors will receive a one time retainer stock award of 2,000 shares when first elected as a non-employee director and an annual automatic grant of options to purchase 4,000 shares of common stock provided certain earnings goals are met. As of July 1, 2000, options for 80,000 shares had been granted to ten non-employee directors under this plan, of which 39,990 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 2000, 910,376 shares of SYSCO common stock were purchased by the participants as compared to 945,711 purchased in fiscal 1999 and 825,129 purchased in fiscal 1998. The total number of shares which may be sold pursuant to the plan may not exceed 34,000,000 shares, of which 7,463,826 remained available at July 1, 2000. Accounting Issues Relating to all Plans 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 $437,773,000 and $1.31 in fiscal 2000, $357,148,000 and $1.06 in fiscal 1999 and $292,824,000 and $0.86 in fiscal 1998. The disclosure requirements of SFAS No. 123 are applicable to options granted after 1995. The pro forma effects for fiscal 2000, 1999 and 1998 are not necessarily indicative of the pro forma effects in future years. The weighted average fair value of options granted was $12.27 and $7.05 during fiscal 2000 and 1999, 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 2000 and 1999, respectively; dividend yield of 1.20% and 1.65%; expected volatility of 23% in both years; risk-free interest rates of 6.1% and 5.1%; and expected lives of 8 years. The weighted average fair value of employee stock purchase rights issued was $5.24 and $3.86 during fiscal 2000 and 1999, 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 $15,899,000 in 2000, $5,813,000 in 1999 and $5,660,000 in 1998. The defined benefit pension plan pays benefits to employees at retirement using formulas based on a participant’s years of service and compensation. SYSCO also has a Management Incentive Plan that compensates key management personnel for specific performance achievements. The awards under this plan were $40,977,000 in 2000, $27,197,000 in 1999 and $20,478,000 in 1998 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 defined benefit supplementary retirement plan. In order to meet its obligations under this plan, SYSCO maintains life insurance policies on the lives of the participants with carrying values of $76,480,000 at July 1, 2000 and $55,975,000 at July 3, 1999. SYSCO is the sole owner and beneficiary of such policies. In addition to providing pension benefits, SYSCO provides certain health care benefits to eligible retirees and their dependents in the United States. 34 S YSCOCorporation 2000 Annual Report The funded status of the defined benefit plan is as follows: Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Amendments Actuarial (gain) loss Actual expenses Settlements Total disbursements Benefit obligation at end of year Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contribution Actual expenses Total disbursements Fair value of plan assets at end of year Funded status Unrecognized net actuarial (gain) loss Unrecognized net (asset) obligation due to initial application of SFAS 87 Unrecognized prior service cost Accrued benefit cost Pension Benefits Other Postretirement Plans July 1, 2000 July 3, 1999 July 1, 2000 July 3, 1999 $ 393,119,000 35,451,000 29,109,000 13,568,000 (22,883,000) (3,041,000) (2,830,000) (9,170,000) 433,323,000 $354,646,000 31,058,000 27,138,000 197,000 (8,749,000) (2,418,000) — (8,753,000) 393,119,000 330,441,000 32,838,000 40,563,000 (3,041,000) (9,170,000) 391,631,000 (41,692,000) (12,042,000) 287,482,000 38,871,000 15,259,000 (2,418,000) (8,753,000) 330,441,000 (62,678,000) 10,866,000 $ 2,072,000 145,000 150,000 1,486,000 (152,000) — — (86,000) 3,615,000 — — 86,000 — (86,000) — (3,615,000) (3,346,000) $ 1,781,000 125,000 135,000 — 18,000 — — 13,000 2,072,000 — — (13,000) — 13,000 — (2,072,000) (3,388,000) (1,967,000) 12,581,000 $ (43,120,000) (2,813,000) (1,612,000) $ (56,237,000) 1,994,000 2,003,000 $(2,964,000) 2,147,000 589,000 $(2,724,000) The assumptions used to value obligations at year end were: Pension Benefits Other Postretirement Plans July 1, 2000 July 3, 1999 July 1, 2000 July 3, 1999 Weighted-average assumptions as of year end: Discount rate Expected rate of return Rate of compensation increase 8.00% 10.50% 4.50% 7.50% 10.50% 4.50% 8.00% — — 7.50% — — A health care 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. The components of net pension and other postretirement benefit costs are as follows: Components of net periodic benefit cost: Service cost Interest cost Expected return on plan assets Amortization of prior service cost Recognized net actuarial loss (gain) Amortization of net transition obligation Net pension costs Pension Benefits Other Postretirement Plans July 1, 2000 July 3, 1999 July 1, 2000 July 3, 1999 $ 35,451,000 29,109,000 (34,168,000) (625,000) 628,000 (847,000) $ 29,548,000 $ 31,058,000 27,138,000 (29,723,000) (640,000) 652,000 (847,000) $ 27,638,000 $ 145,000 150,000 — 72,000 (194,000) 153,000 $ 326,000 $ 125,000 135,000 — 72,000 (216,000) 153,000 $ 269,000 Multi-employer pension costs were $23,540,000 and $22,375,000 in 2000 and 1999, respectively. The projected benefit obligation and accumulated benefit obligation for the defined benefit pension plan were $365,934,000 and $319,067,000, respectively, as of July 1, 2000 and $340,398,000 and $294,366,000, respectively, as of July 3, 1999. The projected benefit obligation and accumulated benefit obligation for the SERP were $67,389,000 and $50,232,000, respectively, as of July 1, 2000 and $52,721,000 and $38,860,000, respectively, as of July 3, 1999. 35 S YSCOCorporation 2000 Annual Report 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 oper- ations of the company when ultimately concluded. QUARTERLY RESULTS (unaudited) Financial information for each quarter in the years ended July 1, 2000 and July 3, 1999: 2000 (In thousands except for share data) Sales Cost of sales Operating expenses Interest expense Other, net Earnings before income taxes Income taxes Earnings before accounting change Accounting change Net earnings Per share: Diluted net earnings before accounting change Diluted earnings accounting change effect Diluted net earnings Cash dividends Market price - high/low Quarter Ended July 1 April 1 January 1 October 2 Fiscal Year $4,657,034 $4,651,535 $4,722,935 $5,271,764 $19,303,268 15,649,551 3,829,148 3,793,200 2,843,755 709,499 674,244 70,832 18,354 17,944 1,522 (189) 88 737,608 165,846 171,835 283,979 63,851 66,156 453,629 101,995 105,679 (8,041) (8,041) — 445,588 97,638 $ 101,896 $ 101,995 $ 144,059 $ 4,255,205 764,594 17,854 (131) 234,242 90,183 144,059 — 3,771,998 695,418 16,680 1,754 165,685 63,789 101,896 — $ $ 0.32 $ 0.31 $ 0.31 $ 0.43 $ 1.36 (0.02) 0.29 0.10 36-30 — 0.31 0.10 41-32 — 0.31 0.12 41-26 — 0.43 0.12 43-34 (0.02) 1.33 0.44 43-26 1999 Quarter Ended (In thousands except for share data) Sales Cost of sales Operating expenses Interest expense Other, net Earnings before income taxes Income taxes Net earnings Per share: Diluted net earnings Cash dividends Market price - high/low Percentage increases - 2000 vs. 1999: Sales Earnings before income taxes Earnings before accounting change Net earnings Diluted earnings per share before accounting change Diluted net earnings per share 36 December 26 July 3 (14 Weeks) Fiscal Year September 26 (53 Weeks) March 27 $4,192,630 $4,246,675 $ 4,164,877 $ 4,818,633 $ 17,422,815 14,207,860 3,402,463 2,547,266 625,111 72,839 18,414 963 (93) 593,887 118,982 231,616 46,403 362,271 72,579 $ 116,873 $ 3,426,045 607,812 16,931 170 141,672 55,252 86,420 $ 3,469,496 616,899 18,397 245 141,638 55,239 86,399 $ 3,909,856 697,444 19,097 641 191,595 74,722 $ $ 0.26 $ 0.09 26-20 0.26 $ 0.09 29-23 0.22 $ 0.10 30-25 0.35 $ 0.10 32-25 1.08 0.38 32-20 11% 21 22 13 23 12 10% 17 18 18 19 19 13% 39 41 41 41 41 9% 22 23 23 23 23 11% 24 25 23 26 23 S YSCOCorporation 2000 Annual Report REPORT OF MANAGEMENT ON INTERNAL ACCOUNTING CONTROLS 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. Arthur Andersen LLP, independent public accountants, 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, Arthur Andersen 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 Board, after a recommendation from the Audit Committee, selects and engages the independent public accountants annually. The Audit Committee reviews both the scope of the accountants’ audit and recommendations from both the independent public accountants and the internal operations review function for improvements in internal controls. The independent public accountants have free 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. Charles H. Cotros Chairman and Chief Executive Officer John K. Stubblefield, Jr. Executive Vice-President, Finance and Administration 37 S YSCOCorporation 2000 Annual Report REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Board of Directors and Shareholders SYSCO Corporation We have audited the accompanying statements of consolidated financial position of SYSCO Corporation (a Delaware corporation) and subsidiaries as of July 1, 2000 and July 3, 1999, and the related statements of consolidated results of operations, shareholders’ equity and cash flows for each of the three years in the period ended July 1, 2000. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements 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 July 1, 2000 and July 3, 1999, and the results of their operations and their cash flows for each of the three years in the period ended July 1, 2000 in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Houston, Texas August 2, 2000 38 S YSCOCorporation 2000 Annual Report SELECTED FINANCIAL DATA (In thousands except for per share data) 2000 Fiscal Year Ended 1999 (53 Weeks) 1998 1997 1996 Sales $19,303,268 $17,422,815 $15,327,536 $14,454,589 $13,395,130 737,608 283,979 593,887 231,616 532,493 207,672 495,955 193,422 453,943 177,038 Earnings before income taxes Income taxes Earnings before cumulative effect of accounting change Cumulative effect of accounting change (8,041) — 453,629 362,271 324,821 (28,053) 302,533 276,905 — — Net earnings $ 445,588 $ 362,271 $ 296,768 $ 302,533 $ 276,905 Earnings before accounting change: Basic earnings per share Diluted earnings per share Cumulative effect of accounting change: Basic earnings per share Diluted earnings per share Net earnings: Basic earnings per share Diluted earnings per share Cash dividends per share Total assets Capital expenditures Long-term debt Shareholders’ equity Total capitalization $ 1.38 $ 1.09 $ 0.95 $ 0.85 $ 1.36 1.08 0.95 0.85 (0.02) (0.02) 1.35 1.33 0.44 — — 1.09 1.08 0.38 (0.08) (0.08) 0.87 0.86 0.33 — — 0.85 0.85 0.28 0.76 0.75 — — 0.76 0.75 0.24 4,813,955 4,096,582 3,780,189 3,433,823 3,319,943 266,413 286,687 259,353 210,868 235,891 1,023,642 1,761,568 997,717 1,427,196 867,017 1,356,789 685,620 1,400,472 581,734 1,474,678 $ 2,785,210 $ 2,424,913 $ 2,223,806 $ 2,086,092 $ 2,056,412 Ratio of long-term debt to capitalization 36.8% 41.1% 39.0% 32.9% 28.3% 39 S YSCOCorporation 2000 Annual Report MANAGEMENT’S DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES SYSCO provides marketing and distribution services to foodservice customers and suppliers throughout the contiguous United States, Alaska, the District of Columbia and western and central Canada. The company intends to continue to expand its market share through profitable sales growth 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 is applied toward a portion of the cost of shares repurchased in the share repurchase program, while the remainder of the cost may be financed with additional long-term debt. SYSCO’s initial share repurchase program was used primarily to offset shares issued under various employee benefit and compensation plans. The company significantly accelerated the repurchase program beginning in February 1996. The share repurchase program reduces outstanding shares and increases earnings per share. The long-term debt to total capitalization target ratio was increased from a range of 30% to 40% to a range of 35% to 40% due to prior and anticipated accelerated share repurchases, additional debt associated with those repurchases and acquisitions. This ratio was 36.8% and 41.1% at July 1, 2000 and July 3, 1999, respectively. In November 1996, the Board authorized an additional 12,000,000 share buyback to be completed in calendar 1997 and in July 1997, authorized an additional 12,000,000 share buyback to be completed in fiscal 1998; and in September 1998 the Board authorized an additional 8,000,000 share buyback to be completed in calendar 1999; and in July 1999 the Board authorized a new 8,000,000 share buyback. The number of shares acquired and their cost for the past three years was 5,660,400 shares for $186,296,000 in fiscal 2000, 7,567,300 shares for $203,958,000 in fiscal 1999, 12,129,700 shares for $263,416,000 in fiscal 1998. In February 2000, the company filed with the Securities and Exchange commission a shelf registration covering 2,850,000 shares of common stock to be offered from time to time in connection with acquisitions. As of July 1, 2000 all of these shares are available for issuance. Net cash generated from operating activities was $708,726,000 in 2000, $585,303,000 in 1999 and $357,764,000 in 1998. Expenditures for facilities, fleet and other equipment were $266,413,000 in 2000, $286,687,000 in 1999 and $259,353,000 in 1998. Expenditures in fiscal 2001 should be in the range of $325,000,000 to $375,000,000. On June 3, 1998 SYSCO filed with the Securities and Exchange Commission a $500,000,000 shelf registration of debt securities. On July 22, 1998 SYSCO issued 6.5% debentures totaling $225,000,000 under the shelf registration, due 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 the right to retire the debentures at any time prior to maturity at the greater of par plus accrued interest or an amount designed to insure that the debenture holders are not penalized by the early redemption. Proceeds from the debentures were used to pay down outstanding commercial paper. The net cash provided by operations less cash utilized for capital expenditures, the share repurchase program, cash dividends and other uses resulted in net long-term debt of $1,023,642,000 at July 1, 2000. About 75% of the long-term debt is at fixed rates averaging 6.73% and the remainder is at floating rates averaging 6.77%. Long-term debt to capitalization was 36.8% at July 1, 2000, down 4.3% from the 41.1% at July 3, 1999 and down 2.2% from the 39.0% at June 27, 1998. SYSCO continues to have borrowing capacity available and alternative financing arrangements are evaluated as appropriate. SYSCO has uncommitted bank lines of credit, which provide for unsecured borrowings for working capital of up to $246,481,000 of which $31,109,000 and $13,377,000 were outstanding at July 1, 2000 and July 3, 1999, respectively. SYSCO has a commercial paper program which is currently supported by a $300,000,000 bank credit facility. During fiscal 2000, 1999 and 1998, commercial paper and short-term bank borrowings ranged from approximately $199,028,000 to $469,094,000, from approximately $67,769,000 to $358,637,000, and from approximately $29,581,000 to $417,924,000, respectively. 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. 40 S YSCOCorporation 2000 Annual Report MARKET RISK SYSCO does not utilize financial instruments for trading purposes and holds no derivative financial instruments which could expose the company to significant market risk. SYSCO’s exposure to market risk for changes in interest rates relates primarily to its long-term obligations discussed above. At July 1, 2000 the company had outstanding commercial paper of $247,870,000 with maturities through September 22, 2000. The company’s remaining long-term debt obligations of $775,772,000 were primarily at fixed rates of interest. SYSCO has no significant cash flow exposure due to interest rate changes for long-term debt obligations. SALES The annual increases in sales of 11% in 2000 and 14% in 1999 (53 weeks) resulted from several factors. Sales in fiscal 2000 and 1999 were affected by the strong growth in the U.S. economy, as well as in the foodservice industry. After adjusting for food price increases, acquisitions and adjusted for the extra week in fiscal 1999, real sales growth was about 9% in 2000 and 12% in 1999. Acquisitions represented 3.5% of total sales for fiscal 2000. Food costs, which experienced minimal inflation during the first two quarters of 2000 and a slight deflation during the third quarter, returned to about 2% inflation during the final quarter, resulting in approximately 0.4% inflation for fiscal 2000. This compares to an increase of approximately 1% in fiscal 1999. Industry sources estimate the total foodservice market experienced real growth of approximately 3.1% in calendar year 1999 and 2.8% in calendar year 1998. Sales for fiscal 1998 through 2000 were as follows: Fiscal Year 2000 1999 (53 Weeks) 1998 Sales $19,303,268,000 17,422,815,000 15,327,536,000 % Increase 11% 14 6 A comparison of the sales mix in the principal product categories during the last three years is presented below: 2000 1999 1998 Medical supplies Dairy products Fresh and frozen meats Seafoods Poultry Frozen fruits, vegetables, bakery and other Canned and dry products Paper and disposables Janitorial products Equipment and smallwares Fresh produce Beverage products 1% 9 17 6 10 14 21 8 2 2 7 3 100% A comparison of sales by type of customer during the last three years is presented below: Restaurants Hospitals and nursing homes Schools and colleges Hotels and motels All other 2000 65% 10 6 5 14 100% 1% 10 15 6 11 14 22 7 2 3 6 3 100% 1999 64% 10 7 5 14 100% 1% 9 15 6 10 15 23 7 2 3 6 3 100% 1998 62% 11 7 5 15 100% 41 S YSCOCorporation 2000 Annual Report COST OF SALES Cost of sales increased about 10% in 2000 and 14% in 1999. These increases were generally in line with the increases in sales. The rate of increase is influenced by SYSCO’s overall customer and product mix as well as economies realized in product acquisition 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 14.7% for fiscal 2000 and 14.6% for fiscal 1999 and for fiscal 1998. Part of the increase over 1999 was due to expenses related to the closing of a facility and one-time non-recurring costs associated with the completion of the SYSCO Uniform Systems implementation. There was also a charge to non-operating expenses in connection with the facility closing. The costs described above were approximately $13,000,000. Otherwise, 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. INTEREST EXPENSE Interest expense decreased $2,007,000 or approximately 3% in fiscal 2000 as compared to an increase of $14,417,000 or approximately 25% in fiscal 1999. The decrease in fiscal 2000 was due primarily to interest income received in the amount of $3,000,000 related to a Federal income tax refund on an amended tax return. Without this income, interest expense would have been approximately 1% above last year due to increased borrowings. The increase in fiscal 1999 was due primarily to increased borrowings, principally to fund the share repurchase program, and the replacement of floating rate debt at higher fixed rates. Interest capitalized during the past three years was $964,000 in fiscal 2000, $1,812,000 in fiscal 1999 and $2,095,000 in fiscal 1998. OTHER, NET Other decreased $559,000 or about 58% in fiscal 2000 and decreased $910,000 or about 1,717% in fiscal 1999. Changes between the years result from fluctuations in miscellaneous activities, primarily gains and losses on the sale of surplus facilities as well as the expenses related to the facility closing discussed under “operating expenses” above. EARNINGS BEFORE INCOME TAXES Earnings before income taxes rose $143,721,000, or approximately 24%, above fiscal 1999 which had increased $61,394,000, or approximately 12%, over the prior year. 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 marketing associate-served customers and increasingly higher sales of SYSCO Brand products. PROVISION FOR INCOME TAXES The effective tax rate for 2000 was 38.5% and for 1999 was approximately 39%. EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE Fiscal 2000 represents the twenty-fourth consecutive year of increased earnings before the cumulative effect of an accounting change. Earnings before cumulative effect of accounting change rose $91,358,000, or approximately 25%, above fiscal 1999 which had increased $37,450,000, or approximately 12%, over the prior year. 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 requires the write-off of any unamortized costs of start-up activities and organization costs. Going forward such costs are being expensed as incurred. NET EARNINGS Net earnings for the year increased $83,317,000 or approximately 23% above fiscal 1999, which had increased $65,503,000 or approximately 22% over the prior year. The increase was caused by additional sales, operating efficiencies and other factors discussed above. 42 S YSCOCorporation 2000 Annual Report DIVIDENDS SYSCO began paying the quarterly dividend rate of twelve cents per share in February 2000, an increase from the ten cents per share that became effective in February 1999. The summary on pages 22 and 23 shows the rate in effect for each of the past eleven years. RETURN ON SHAREHOLDERS’ EQUITY The return on average shareholders’ equity before the cumulative effect of the accounting change for 2000 was approximately 29% compared to 26% in 1999 and 23% in 1998. Since inception SYSCO has averaged in excess of a 17% return on shareholders’ equity before the cumulative effect of the accounting change. 43 S YSCOCorporation 2000 Annual Report Broadline Facilities Specialty Meat-Cutting Operations Specialty Produce Locations Systems Distribution Facilities Fold-Outs in Progress LOCATION OF PRINCIPAL OPERATIONS BROADLINE FACILITIES BARABOO-SYSCO FOOD SERVICES Baraboo, Wisconsin Gene M. Bohlmeyer, President Robert A. Jauch, Executive Vice President DOUGHTIE’S SYSCO FOOD SERVICES, INC. Portsmouth, Virginia C. Frederick Lankford, Chairman John A. Hall, President (New facility in Suffolk, Virginia opening Spring 2001) HALLSMITH-SYSCO FOOD SERVICES Norton (Boston), Massachusetts William Holden, President Thaire B. Bryant, Executive Vice President HARDIN’S-SYSCO FOOD SERVICES, LLC Memphis, Tennessee Bill R. Bowden, President I & S FOODSERVICES, INC. Edmonton, Alberta, Canada Richard D. Pidwerbeski, President LANKFORD-SYSCO FOOD SERVICES, LLC Pocomoke, Maryland C. Frederick Lankford, President Joseph R. Barton, Executive Vice President NOBEL/SYSCO FOOD SERVICES COMPANY Albuquerque, New Mexico W. Keith Miller, President NOBEL/SYSCO FOOD SERVICES COMPANY Denver, Colorado Christopher S. DeWitt, President ROBERT ORR-SYSCO FOOD SERVICES, LLC Nashville, Tennessee Nick K. Taras, President David L. Snyder, Executive Vice President PEGLER-SYSCO FOOD SERVICES COMPANY Lincoln, Nebraska Gary L. Rezac, President RITTER SYSCO FOOD SERVICES, LLC Jersey City, New Jersey Martin L. Ritter, Chairman Thomas H. Russell, President STRANO SYSCO FOODSERVICE LIMITED Peterborough, Ontario, Canada Paul V. Strano, President SYSCO FOOD SERVICES - ALBANY Albany, New York Gail E. Allen, President SYSCO FOOD SERVICES OF ARIZONA, INC. Phoenix, Arizona J. Michael Dickson, President David B. DeVane, Executive Vice President 44 S YSCOCorporation 2000 Annual Report SYSCO FOOD SERVICES OF ARKANSAS, LLC Little Rock, Arkansas Walter S. Nunnelly III, President SYSCO FOOD SERVICES OF ATLANTA, LLC College Park, Georgia Gordon L. Graham, President SYSCO FOOD SERVICES OF AUSTIN, LP Round Rock, Texas Gary L. Ross, President SYSCO FOOD SERVICES OF BALTIMORE Jessup, Maryland G. Kent Humphries, President Keith D. Shapiro, Executive Vice President SYSCO FOOD SERVICES OF CENTRAL ALABAMA, INC. Calera (Birmingham), Alabama David R. Dickson, President SYSCO FOOD SERVICES OF CENTRAL FLORIDA, INC. Ocoee (Orlando), Florida Stephen F. Smith, President Henry D. Varnell III, Executive Vice President SYSCO FOOD SERVICES OF CENTRAL PENNSYLVANIA, LLC Harrisburg, Pennsylvania Donald K. Hunt, President SYSCO FOOD SERVICES OF CHARLOTTE, LLC Concord, North Carolina Robert J. Davis, President Bruce H. Matthews, Executive Vice President SYSCO FOOD SERVICES- CHICAGO, INC. Des Plaines, Illinois Charles W. Staes, President Greg D. Bertrand, Executive Vice President SYSCO FOOD SERVICES/CINCINNATI Cincinnati, Ohio Joseph P. Calabrese, President Michael D. Wiedower, Executive Vice President SYSCO FOOD SERVICES OF CLEVELAND, INC. Bedford Heights, Ohio Richard J. Rose, Chairman Chris J. Reasoner, President SYSCO FOOD SERVICES OF CONNECTICUT Rocky Hill (Hartford), Connecticut James M. Danahy, President SYSCO FOOD SERVICES OF DALLAS, LP Dallas, Texas Ivan R. Moore, Jr., President Brett Lindig, Executive Vice President SYSCO FOOD SERVICES OF DETROIT, LLC Canton, Michigan Michael W. Green, President Thomas C. Barnes, Executive Vice President SYSCO FOOD SERVICES OF EASTERN WISCONSIN Jackson (Milwaukee), Wisconsin Joseph J. Marone, President Randall J. Plekker, Executive Vice President SYSCO FOOD SERVICES OF GRAND RAPIDS, LLC Grand Rapids, Michigan David L. DeKock, President Richard A. Johnston, Executive Vice President SYSCO FOOD SERVICES OF HOUSTON, LP Houston, Texas Larry G. Pulliam, President SYSCO FOOD SERVICES OF IDAHO, INC. Boise, Idaho Thomas J. Morgan, Chairman Reneé A. Lovejoy, President SYSCO FOOD SERVICES OF INDIANAPOLIS, LLC Indianapolis, Indiana Walter C. Mills, President Jay I. Milligan, Executive Vice President SYSCO FOOD SERVICES OF IOWA, INC. West Des Moines, Iowa Steven R. Gress, President SYSCO FOOD SERVICES OF JACKSON Jackson, Mississippi James H. Harper, President Michael S. Headrick, Executive Vice President SYSCO FOOD SERVICES - JACKSONVILLE, INC. Jacksonville, Florida Walter R. Rudisiler, President Roy S. Hockenbrocht, Executive Vice President 45 S YSCOCorporation 2000 Annual Report SYSCO FOOD SERVICES OF PHILADELPHIA, LLC Philadelphia, Pennsylvania Edward C. Merry, President SYSCO FOOD SERVICES OF PITTSBURGH, INC. Harmony, Pennsylvania Joel R. TePastte, President SYSCO FOOD SERVICES OF PORTLAND, INC. Wilsonville, Oregon Michael J. McLoughlin, President Scott A. Sonnemaker, Executive Vice President SYSCO FOOD SERVICES OF SACRAMENTO, INC. Pleasant Grove, California Paul A. Winterhalder, President (Opening Fall 2001) SYSCO FOOD SERVICES OF ST. LOUIS, LLC St. Charles, Missouri Jerry L. Barash, President SYSCO FOOD SERVICES OF SAN ANTONIO, LP San Antonio, Texas William D. Fisher, President SYSCO FOOD SERVICES OF SAN DIEGO, INC. Poway, California Richard L. Friedlen, President SYSCO FOOD SERVICES OF SAN FRANCISCO, INC. Fremont, California Daniel S. Haag, President Paul A. Winterhalder, Executive Vice President SYSCO FOOD SERVICES - JAMESTOWN Jamestown, New York Vernon E. Wetmore, Jr., President SYSCO FOOD SERVICES OF KANSAS CITY, INC. Olathe, Kansas James D. Hope, President SYSCO FOOD SERVICES OF LOS ANGELES, INC. Walnut, California Bruce J. Schwartz, President SYSCO FOOD SERVICES OF MINNESOTA, INC. Mounds View (St. Paul), Minnesota Philip J. Seipp, President Timothy K. Hogan, Executive Vice President SYSCO FOOD SERVICES OF MODESTO, INC. Modesto, California John A. Torza, President SYSCO FOOD SERVICES OF MONTANA, INC. Billings, Montana Patrick H. Burton, President SYSCO FOOD SERVICES OF NEW ORLEANS, LLC Harahan, Louisiana Bruce L. Soltis, President SYSCO FOOD SERVICES OF NORTHERN NEW ENGLAND, INC. Westbrook (Portland), Maine Richard A. Giles, President Gregory E. Otterbein, Executive Vice President SYSCO FOOD SERVICES OF OKLAHOMA, INC. Norman, Oklahoma Thomas D. Huffhines, President 46 SYSCO FOOD SERVICES OF SEATTLE, INC. Kent, Washington Robert M. Jenson, President Michael L. Kauffman, Executive Vice President ALASKA DIVISION Anchorage, Alaska King Jenks, Vice President and General Manager SYSCO FOOD SERVICES OF SOUTH FLORIDA, INC. Miami, Florida Tim K. Brown, President SYSCO FOOD SERVICES OF SOUTHEAST FLORIDA, LLC Riviera Beach, Florida Walter S. Deck, President Peter G. Carantza, Executive Vice President SYSCO FOOD SERVICES - SYRACUSE Warners, New York William L. Loftin, President Joseph H. Wood, Executive Vice President SYSCO FOOD SERVICES OF VIRGINIA, LLC Harrisonburg, Virginia Alan E. Hasty, President SYSCO FOOD SERVICES - WEST COAST FLORIDA, INC. Bradenton (Tampa), Florida Carl S. Cannova, President Edwin W. Solomon, Executive Vice President SYSCO INTERMOUNTAIN FOOD SERVICES, INC. Salt Lake City, Utah Thomas M. Kesteloot, President SYSCO/KONINGS WHOLESALE Port Coquitlam (Vancouver), B.C., Canada Hans P. Konings, Chairman Terry J. Early, President SYSCO/LOUISVILLE FOOD SERVICES CO. Louisville, Kentucky Jimmie D. Clark, Chairman Peter J. Scatamacchia, President Steven D. Hocker, Executive Vice President WATSON SYSCO FOOD SERVICES, INC. Lubbock, Texas Michael A. Davis, President SPECIALTY MEAT-CUTTING OPERATIONS BUCKHEAD BEEF COMPANY Atlanta, Georgia Howard I. Halpern, Chairman Kirk W. Halpern, Executive Vice President MALCOLM MEATS COMPANY Northwood (Toledo), Ohio Andrew L. Malcolm, President Jeffrey J. Savage, Executive Vice President SYSCO NEWPORT MEAT COMPANY Irvine, California Richard A. Nicholas, Chairman Timothy K. Hussman, President S YSCOCorporation 2000 Annual Report SPECIALTY PRODUCE LOCATIONS FRESHPOINT, INC. Mitt Parker, President and Chief Executive Officer Brian M. Sturgeon, Executive Vice President, West Coast Region AMERICAN PRODUCE & VEGETABLE CO. Dallas, Texas Lucian M. La Barba, President FRESHPOINT OF DENVER, INC. Denver, Colorado Joseph F. Hengemuhle, President FRESHPOINT OF LAS VEGAS, INC. Las Vegas, Nevada Gregory L. Bird, General Manager G & G PRODUCE, COMPANY Los Angeles, California Max Nisson, President GOLDEN STATE PRODUCE San Francisco, California Kevin M. Alves, President LEE RAY TARANTINO CO., INC. San Francisco, California Joseph R. Tarantino, Chairman Paul G. Tarantino, President PACIFIC ALLIED Vancouver, B.C., Canada Leigh S. Seto, General Manager PACIFIC NANAIMO Nanaimo, B.C., Canada Bruce A. Ashcraft, General Manager PACIFIC PRODUCE CO., LTD. Vancouver, B.C., Canada Randolph M. Sung, President ROYAL FOODS COMPANY, INC. San Jose, California George W. Gummow, President Robert K. Shoemaker, Jr., Executive Vice President, East Coast Region AAA PACKAGING, INC. Forest Park, Georgia Matthew R. Houmes, President ATLANTA’S FINEST FOODSERVICE Forest Park, Georgia Richard J. Dachman, President CARNIVAL FRUIT COMPANY, INC. North Miami, Florida Alan H. Spritz, President FRESHPOINT OF PALM BEACH, INC. Riviera Beach, Florida Robert A. Massave, President IMPERIAL PRODUCE CO., INC. Washington, D. C. Dennis A. Clifford, President MITT PARKER COMPANY, INC. Forest Park, Georgia Randolph S. Gill, President MOVSOVITZ & SONS OF FLORIDA, INC. Jacksonville, Florida Lawrence M. Movsovitz, Chairman Steven W. Haugen, President MOVSOVITZ OF GEORGIA Savannah, Georgia Aubrey V. Sutton, Vice President and General Manager 47 S YSCOCorporation 2000 Annual Report P. TAVILLA CO., INC. Miami, Florida Walter R. Vazquez, Sr., President RED’S MARKET, INC. Melbourne, Florida Kenric A. Jameison, Vice President and General Manager Orlando, Florida Robert J. Gordon, President Tampa, Florida Brett L. Gardner, President SYSTEMS DISTRIBUTION FACILITIES THE SYGMA NETWORK, INC. Gregory K. Marshall, Chairman and Chief Executive Officer Stephen M. Deasey, President and Chief Operating Officer Jerry J. Eggebrecht, President Denver Division ARLINGTON (DALLAS), TEXAS David A. Hanson, Vice President and General Manager CLACKAMAS (PORTLAND), OREGON Stephen F. Bohrer, Vice President and General Manager ORLANDO, FLORIDA Gregory A. Ross, Vice President and General Manager PRYOR, OKLAHOMA Joseph Vanderhoof, Vice President and General Manager RANCHO CUCAMONGA (LOS ANGELES), CALIFORNIA Robert E. Cagle, Vice President and General Manager STOCKTON, CALIFORNIA John M. Rivers, Jr., Vice President and General Manager David M. Cleck, Senior Vice President CHARLOTTE, NORTH CAROLINA John W. Jarosz, Vice President and General Manager WESTBOROUGH (BOSTON), MASSACHUSETTS Raymond R. Leveille, Vice President and General Manager Chet L. Miner, Senior Vice President COLUMBUS, OHIO Kirk Krajewski Vice President and General Manager DANVILLE, ILLINOIS David E. Myers, Vice President and General Manager MONROE (DETROIT), MICHIGAN Robert G. Johnson, Vice President and General Manager HARRISBURG, PENNSYLVANIA Jeffrey A. Coppenger, Vice President and General Manager SAN ANTONIO, TEXAS James E. Donelson, Vice President and General Manager 48 FOLD-OUT STRATEGY SYSCO’s internal growth strategy involves building distribution centers in established markets that previously were being served by another SYSCO company from a distance. When a “fold-out” company is formed, domiciled sales and delivery personnel become employees of the new company, a core management team is transferred from the original or other SYSCO companies and additional employees are hired locally. Supported by a state-of-the-art facility and the SYSCO Uniform System, the new company is better able to serve its customers and SYSCO grows more rapidly in both the original and the “fold-out” markets. FOODSERVICE DISTRIBUTION MARKET The total dollar purchasing volume of food and related nonfood products by every type of operation preparing food in the “away from home” market, including restaurants, delis, hospitals, retirement homes, schools, colleges, hotels, cruise lines, entertainment facilities and other locations. This market is served by three distributor categories, as defined below: • Broadline Distributors supply a wide array of food and related items to all types of foodservice operators. These operators generally require a broad spectrum of products and their menu offerings may change frequently. SYSCO’s 63 “traditional” operating facilities are broadline distributors. • Customized or Systems Distributors, also known as chain restaurant or quick-service restaurant distributors, supply chain restaurant operations. This customer segment generally serves a relatively fixed menu and requires a more limited product line. The SYGMA Network, Inc. (SYGMA) is a systems distributor. • Specialty or Niche Distributors specialize in supplying a specific product category or a specific customer segment GLOSSARY such as ethnic foodservice restaurants. FreshPoint and SYSCO’s custom-cutting meat companies are specialty distributors. MARKETING ASSOCIATE This is SYSCO’s term for its team of nearly 7,000 commissioned sales profes- sionals, or relationship managers, who provide customers with services tailored to undergird their operations and profit- ability. Their responsibilities include assuring that orders are submitted timely and completely, presenting new products that will enhance the customer’s menu or reduce the labor required for preparation, and assisting with inventory control and menu costing and pricing. SYSCO’S BROADLINE CUSTOMER SEGMENTS • Marketing Associate-Served Customers include independently- operated foodservice locations serviced by a SYSCO Marketing Associate. In FY 2000 sales to these customers represented approximately 55.4 percent of total sales at SYSCO’s 63 broadline, or traditional, locations. • Multi-Unit Customers include local, regional or national foodservice operations that have multiple locations and, due to their more centralized purchasing operations, generally do not require the same degree of personalized, value-added services that Marketing Associates offer, but are supported by other sales personnel within the SYSCO companies. Multi-unit customers contributed approximately 44.6 percent of total sales in SYSCO’s 63 broadline, or traditional, locations in FY 2000. SYSCO BRAND PRODUCTS More than 29,000 products distinctively identified as being available only from SYSCO carry the SYSCO Brand. Supported by stringent quality control specifications, these products are designed and developed to meet or exceed customer requirements, then are monitored throughout the manufacturing and production process by a staff of more than 180 SYSCO Quality Assurance professionals. • The Cornerstone Brand has four quality designations — Supreme, Imperial, Classic and Reliance — that were developed for products across all of SYSCO’s broad categories of product offerings. • Segment Brands are designed for specific customer or market segments and generally include various products in one category such as ethnic foods, delicatessen items, tabletop condiments or specially formulated healthcare prod- ucts. Examples are the Arrezzio line of Italian foods and the Casa Solana line of Mexican items. • Brandables by SYSCO is the term SYSCO uses to describe a complete foodservice package created for customers that incorporates a SYSCO segment food product that may be served in either a service line or a kiosk/cart set-up. The total concept includes signage describing the menu offering, such as the Mein Street Wok, which features items from the Jade Mountain brand line. It also includes uniforms, utensils, promo- tional materials and comprehensive operator manuals that specify easy set-up, heat-and-serve procedures and plating techniques. It provides customers a quick, easy and high profile brand-like theme to create interest and variety in their foodservice offerings without incurring licensing or franchise fees. REAL SALES GROWTH Real sales growth is the total SYSCO sales growth less the effect of acquisi- tions, plus or minus internally calculat- ed year-over-year product cost deflation or inflation. 49 DIRECTORS Left to right: Thomas B. Walker, Jr., Richard J. Schnieders, Colin G. Campbell, John F. Woodhouse, Phyllis S. Sewell, Thomas E. Lankford, Jonathan Golden, John W. Anderson. Left to right: Judith B. Craven, Frank A. Godchaux III, Bill M. Lindig, Frank H. Richardson, Charles H. Cotros, Richard G. Merrill, Gordon M. Bethune, Arthur J. Swenka. 50 JOHN W. ANDERSON (68) 1, 2 Elected: 1981 Retired Vice President, Southwestern Bell Telephone Co. GORDON M. BETHUNE (59) 1, 2, 5, 6 Elected: 1998 Chairman of the Board and Chief Executive Officer, Continental Airlines, Inc. COLIN G. CAMPBELL (64) 1*, 2, 4, 6 Elected: 1989 President and Chief Executive Officer, Colonial Williamsburg Foundation CHARLES H. COTROS (63) 3*, 4*, 5 Elected: 1985 Chairman and Chief Executive Officer, SYSCO Corporation JUDITH B. CRAVEN, M.D., M.P.H. (54) 1, 2, 5 Elected: 1996 Retired President, United Way of theTexas Gulf Coast (Health and Human Services Organization) FRANK A. GODCHAUX III (73) 1, 5, 6 Elected: 1987 Chairman, Riviana Foods, Inc. (Food Manufacturer) DIRECTORS JONATHAN GOLDEN (63) 4, 5, 6* Elected: 1984 Managing Partner, Arnall Golden & Gregory, LLP (Law Firm) THOMAS E. LANKFORD (53) 3 Elected: 2000 Executive Vice President, Foodservice Operations, SYSCO Corporation RICHARD G. MERRILL (69) 1, 2*, 4, 6 Elected: 1983 Retired Executive Vice President, The Prudential Insurance Company of America FRANK H. RICHARDSON (67) 1, 2, 5*, 6 Elected: 1993 Retired President and Chief Executive Officer, Shell Oil Company RICHARD J. SCHNIEDERS (52) 3, 4, 5 Elected: 1997 President and Chief Operating Officer, SYSCO Corporation PHYLLIS S. SEWELL (69) 1, 2, 6 Elected: 1991 Retired Senior Vice President, Federated Department Stores, Inc. (Retail) ARTHUR J. SWENKA (63) 3 Elected: 1994 Senior Vice President, Operations, SYSCO Corporation THOMAS B. WALKER, JR. (76) 1, 4, 5, 6 Elected: 1970 Limited Partner, The Goldman Sachs Group, Inc. (Investment Bankers) JOHN F. WOODHOUSE (69) 4, 5 Elected: 1969 Senior Chairman, SYSCO Corporation Board Committees 1 Audit 2 Compensation and Stock Option 3 Employee Benefits 4 Executive 5 Finance 6 Nominating * Denotes Committee Chairman DISTINGUISHED TENURE DIRECTORS JOHN F. BAUGH Founder and Retired Senior Chairman, SYSCO Corporation HERBERT IRVING Retired Vice Chairman of the Board, SYSCO Corporation FRANK M. ELLIS, JR. Retired Chairman, Sysco/Louisville Food Services Co. JABIE S. HARDIN Retired Chairman, Hardin's-Sysco Food Services, Inc. PAUL F. KALAT Retired Chairman, Hallsmith-Sysco Food Services FRITZ C. KNOEBEL Retired Chairman, Nobel/Sysco Food Services Company BILL M. LINDIG Retired Chairman, SYSCO Corporation E. JAMES LOWREY Retired Executive Vice President- Finance & Administration, SYSCO Corporation DONALD H. PEGLER, JR. Retired Chairman, Pegler-Sysco Food Services Company JAMES A. SCHLINDWEIN Retired Executive Vice President- Merchandising Services, SYSCO Corporation 51 DIRECTORS(cid:213) COUNCIL The Directors’ Council was established in 1981 to assist the Board of Directors in determining management strategies and policies to anticipate industry trends and respond capably to customers’ requirements. Composed of six operating company presidents who represent some of SYSCO’s most effective operations, the council meets quarterly and reports formally to the Board semiannually. Left to right, seated: GAIL E. ALLEN, President, Sysco Food Services - Albany JAMES C. GRAHAM, Senior Vice President, Operations (Southwest Region) (Term expires November 2000) Left to right, standing: TIM K. BROWN, President Sysco Food Services of South Florida, Inc. BRUCE J. SCHWARTZ, President, Sysco Food Services of Los Angeles, Inc. (Term expires November 2000) C. FREDERICK LANKFORD, President, Lankford–Sysco Food Services, LLC (Term expires November 2000) MICHAEL W. GREEN, President, Sysco Food Services of Detroit, LLC 52 CORPORATE OFFICERS Left to right: Thomas E. Lankford, Larry J. Accardi, John K. Stubblefield, Jr. Left to right: Gregory K. Marshall, Mitt Parker, Kenneth J. Carrig, James E. Lankford, James D. Wickus, James C. Graham, Kenneth F. Spitler, O. Wayne Duncan, Arthur J. Swenka. 53 CORPORATE OFFICERS Left to right: Dale K. Robertson, G. Mitchell Elmer, Diane Day Sanders, Mary Beth Moehring, Robert C. Thurber, Alan W. Kelso. Left to right: Robert G. Culak, Imelda M. DiVizio, Twila M. Day, Kent R. Berke, Kirk G. Drummond, John S. Carlson. LARRY J. ACCARDI Executive Vice President, Merchandising Services & Multi-Unit Sales KENT R. BERKE Assistant Vice President and Associate General Counsel JACK D. CARLSON Vice President, Distribution Services JOHN S. CARLSON Vice President, Marketing KENNETH J. CARRIG Senior Vice President, Administration CHARLES H. COTROS Chairman and Chief Executive Officer ROBERT G. CULAK Vice President, Financial Reporting and Compliance TWILA M. DAY Assistant Vice President, Technology & Applications WILLIAM B. DAY Assistant Controller IMELDA M. DIVIZIO Vice President of Merchandising- Logistics and National Brands KIRK G. DRUMMOND Vice President and Chief Information Officer O. WAYNE DUNCAN Senior Vice President, Operations (Southeast Region) G. MITCHELL ELMER Vice President and Controller ALBERT L. GAYLOR Assistant Vice President, Marketing Services JAMES C. GRAHAM Senior Vice President, Operations (Southwest Region) ALAN W. KELSO Assistant Vice President, Safety and Employee Relations JAMES E. LANKFORD Senior Vice President, Operations (Western Region) THOMAS E. LANKFORD Executive Vice President, Foodservice Operations JOHN LOCKE Vice President, Merchandising GREGORY K. MARSHALL Senior Vice President, SYSCO Corporation and Chairman and Chief Executive Officer, The SYGMA Network, Inc. 54 CORPORATE OFFICERS Left to right: Carolyn S. Mitchell, David B. Smallwood, Left to right: William B. Day, Michael C. Nichols, Toni R. Spigelmyer, Thomas G. Wason, Kathy Oates, George A. Weber, Jack D. Carlson. Albert L. Gaylor, Craig G. Watson, Steven A. Nordlander, John Locke. CAROLYN S. MITCHELL Corporate Secretary MARY BETH MOEHRING Vice President, Training and Organizational Development MICHAEL C. NICHOLS Vice President and General Counsel STEVEN A. NORDLANDER Assistant Vice President, Operations Development KATHY OATES Assistant Treasurer MITT PARKER Senior Vice President, SYSCO Corporation and President and Chief Executive Officer, FreshPoint, Inc. DALE K. ROBERTSON Vice President, Multi-Unit Sales- Customer Development DIANE DAY SANDERS Vice President and Treasurer RICHARD J. SCHNIEDERS President and Chief Operating Officer DAVID B. SMALLWOOD Vice President, Multi-Unit Sales TONI R. SPIGELMYER Assistant Vice President, Investor and Media Relations KENNETH F. SPITLER Senior Vice President, Operations (Northeast Region) JOHN K. STUBBLEFIELD, JR. Executive Vice President, Finance and Administration ARTHUR J. SWENKA Senior Vice President, Operations (Western Region) ROBERT C. THURBER Vice President, Merchandising THOMAS G. WASON Vice President, Perishables CRAIG G. WATSON Assistant Vice President, Quality Assurance GEORGE A. WEBER Assistant Controller JAMES D. WICKUS Senior Vice President, Operations (Midwest Region) 55 CORPORATE OFFICES SYSCO Corporation 1390 Enclave Parkway Houston, Texas 77077-2099 (281) 584-1390 Internet: http://www.sysco.com ANNUAL SHAREHOLDERS’ MEETING SYSCO Corporation 1390 Enclave Parkway, Houston, Texas 77077-2099 November 3, 2000 at 10:00 a.m. INDEPENDENT ACCOUNTANTS Arthur Andersen LLP Houston, Texas COUNSEL Arnall Golden & Gregory, LLP Atlanta, Georgia COMMON STOCK AND DIVIDEND INFORMATION SYSCO’s common stock is traded on the New York Stock Exchange under the symbol “SYY.” The company consistently has paid quarterly cash dividends on its common stock and has increased the dividend 31 times in its 30 years as a public company. The current quarterly cash dividend is $0.12 per share. GENERAL INFORMATION DIVIDEND REINVESTMENT PLAN WITH OPTIONAL CASH PURCHASE FEATURE SYSCO’s Dividend Reinvestment Plan provides a convenient way for shareholders of record to reinvest quarterly cash dividends in SYSCO shares automatically, with no service charge or brokerage commissions. The Plan also permits registered shareholders to invest additional money to purchase shares. In addition, certificates may be deposited directly into a Plan account for safekeeping and may be sold directly through the Plan for a modest fee. Shareholders desiring information about the Dividend Reinvestment Plan with Optional Cash Purchase Feature may obtain a brochure and enrollment form by contacting the Transfer Agent, Fleet National Bank, at 1-800-730-4001. INVESTOR CONTACT Investor inquiries should be directed to: Ms. Toni R. Spigelmyer Assistant Vice President, Investor and Media Relations (281) 584-1458 SHAREHOLDER INFORMATION For information or assistance regarding individual stock records, Dividend Reinvestment Plan with Optional Cash Purchase Feature, dividend or tax information, replacement of stock certificates and transfer instructions, please contact the following: TRANSFER AGENT AND REGISTRAR Fleet National Bank c/o EquiServe 150 Royall Street Canton, Massachusetts 02021 1-800-730-4001 Internet: http://www.equiserve.com FORM 10-K AND FINANCIAL INFORMATION A copy of the fiscal 2000 Form 10-K Annual Report filed with the Securities and Exchange Commission, as well as copies of financial reports and other company literature, may be found on our web site at http://www.sysco.com or may be obtained without charge upon written request to the Investor Relations Department, SYSCO Corporation, at the corporate offices, or by calling 1-800-337-9726. 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 anticipated industry growth, SYSCO’s long-term objectives with respect to real sales growth, earnings per share, return on equity and debt-to-capitalization ratios, the potential for significant future growth, anticipated capital expenditures and implementation and timing of “fold-outs” and acquisitions. These statements are based on current expectations and management’s estimates; actual results may differ materially. Decisions to pursue “fold-outs” and acquisitions and expenditures for such could vary depending upon construction schedules and the timing of other purchases, such as fleet and equipment, while “fold-out” and acquisition timing and results could be impacted by competitive conditions, labor issues and other matters. The ability to pursue acquisitions also depends on the availability and suitability of potential candidates and management’s allocation of capital. Industry growth may be affected by conditions in the economy. SYSCO’s long-term objectives with respect to real sales growth, earnings per share, return on equity and debt-to-capitalization ratios and the potential for significant future growth could be affected by the company’s competitive price pressures, availability of supplies, work stoppages, successful integration of acquired companies, conditions in the economy, the industry and internal factors that may alter planned results. For a discussion of certain risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see the Company’s Annual Report on form 10-K for the fiscal year ended July 1, 2000. 56 F iscal 2000 marked SYSCO Corporation’s 30th anniversary as a public company -- 30 years of shaping our future with employees, customers, suppliers and shareholders to create growth, prosperity and value. During this relatively short time period, SYSCO has grown from a fledgling company with $115 million in sales to its current leading position in the industry with $19.3 billion in sales. Through a network of distribution centers across North America, SYSCO supplies food and related products to about 356,000 customers in the contiguous United States, Alaska, the District of Columbia, Hawaii and portions of Canada. The foundation of SYSCO’s success is based upon common principles that often are overlooked in business today -- superior customer service, extensive product knowledge, consistent quality product offerings and business-building support services. A distinctive mix of ever-evolving branded products, coupled with a unique blend of dedicated employees, has thrust SYSCO into a new dimension, from a broadline distributor to a broad brand provider, supported by a depth of service unparalleled in the foodservice distribution industry. Brand width and service depth have made SYSCO the distributor of choice for the meals-prepared-away-from-home market, and will fuel its growth in the future. SYSCO’s broad line of fresh and frozen meats, seafood, poultry, fruits and vegetables, canned and dry foods, equipment and supplies, beverages, bakery items, dairy products, disposables, medical and surgical products, chemical and sanitation items are now joined by a wide array of segment brand products as well as custom-cut steaks and specialty produce items. SYSCO’s product menu is ever-evolving; the commitment to customers is unchanging – a steadfast dedication to unsurpassed customer service. *as of July 1, 2000 Web address....................................................www.sysco.com Exchange and Ticker Symbol .............................NYSE: SYY Employees ....................................................................40,400* Customers..................................................................356,000* Products.....................................................................275,000* Delivery Vehicles............................................................7,290* Marketing Associates .....................................................6,981* Quarterly Cash Dividend per Share.............................$0.12 101 Distribution Locations 63 Broadline Facilities 22 Specialty Produce Locations 13 SYGMA Facilities 3 Custom-Cutting Meat Operations Calendar 1999 Foodservice Distribution Industry Market......................Approximately $175 Billion TABLE OF CONTENTS Letter to Shareholders 2 5 Review of Operations 20 Community Activities 21 Financial Section 49 Glossary 50 Directors 52 Directors’ Council 53 Corporate Officers Employees pictured on cover, left to right: Bobby Delgado, Driver; Sandra Carson, Director of Safety and Health Services; Sonia Avalon, Credit Administrator; James Blake, Marketing Associate; Mike Howdeshell, Manager, Beverage (kneeling); Rohani Clawson, Merchandiser; Dana Barba, Customer Service Supervisor; and Joe Clark, 44 Location of Principal Operations 56 General Information Network Administrator. . m o c n g i s e d s u s a g e p . w w w . c n I , n g i s e D s u s a g e P S Y S C O ® S Y S C O S Y S C O C O R P O R A T I O N 2 0 0 0 A N N U A L R E P O R T S Y S C O Corporation 1390 Enclave Parkway Houston, Texas 77077-2099 (281) 584-1390 www.sysco.com B R A N D W I D T H A N D S E R V I C E D E P T H B R A N D W I D T H A N D S E R V I C E D E P T H SYSCO - AR - 00 2 0 0 0 A N N U A L R E P O R T 

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