ITEM 1. BUSINESS
Sysco Corporation (together with its subsidiaries and divisions hereinafter referred to as "SYSCO" or the "Company") is engaged in the marketing and distribution of a wide range of food and related products to the foodservice or "away-from-home-eating" industry. The foodservice industry consists of two major customer segments -- "traditional" and "chain restaurants". Traditional foodservice customers include restaurants, hospitals, schools, hotels and industrial caterers. SYSCO's chain restaurant customers include regional pizza and national hamburger, chicken and steak chain operations.
Services to the Company's traditional foodservice and chain restaurant customers are supported by similar physical facilities, vehicles, materials handling equipment and techniques, and marketing, merchandising and operating staffs.
CUSTOMERS AND PRODUCTS
The traditional foodservice segment includes businesses and organizations which prepare and serve food to be eaten away from home. Products distributed by the Company include a full line of frozen foods, such as meats, fully prepared entrees, fruits, vegetables and desserts, and a full line of canned and dry goods, fresh meats, imported specialties and fresh produce. The Company also supplies a wide variety of nonfood items, including paper products such as disposable napkins, plates and cups; tableware such as china and silverware; restaurant and kitchen equipment and supplies; medical and surgical supplies; and cleaning supplies. SYSCO distributes both nationally-branded merchandise and products packaged under its own private brands.
The Company believes that prompt and accurate delivery of orders, close contact with customers and the ability to provide a full array of products and services to assist customers in their foodservice operations are of primary importance in the marketing and distribution of products to the foodservice industry. SYSCO offers daily delivery to certain customer locations and has the capability of delivering special orders on short notice. Through its more than 8,700 sales, marketing and service representatives, the Company keeps informed of the needs of its customers and acquaints them with new products. SYSCO also provides ancillary services relating to its foodservice distribution such as providing customers with product usage reports and other data, menu-planning advice, contract services for installing kitchen equipment, installation and service of beverage dispensing machines and assistance in inventory control.
No single traditional foodservice customer accounted for as much as 5% of SYSCO's sales for its fiscal year ended July 1, 1995. Approximately 5% of traditional foodservice sales during fiscal 1995 resulted from a process of competitive bidding. There are no
material long-term contracts with any traditional foodservice customer that may not be cancelled by either party at its option.
The Company's SYGMA Network operations specialize in customized service to chain restaurants, which service is also provided to a lesser extent by many of the Company's traditional foodservice operations. SYSCO's sales to the chain restaurant industry consist of a variety of food products necessitated by the increasingly broad menus of chain restaurants. The Company believes that consistent product quality and timely and accurate service are important factors in the selection of a chain restaurant supplier. No chain restaurant customer accounted for as much as 3% of SYSCO's sales for its fiscal year ended July 1, 1995, and there are no material long-term contracts with any chain restaurant customer that may not be cancelled by either party at its option.
SYSCO does not record sales on the basis of the type of foodservice industry customer, but based upon available information, the Company estimates that sales by type of customer during the past three fiscal years were as follows:
SOURCES OF SUPPLY
SYSCO estimates that it purchases from thousands of independent sources, none of which accounts for more than 5% of the Company's purchases. These sources of supply consist generally of large corporations selling brand name and private label merchandise and independent private label processors and packers. Generally, purchasing is carried out on a decentralized basis through centrally developed purchasing programs (see "Corporate Headquarters' Services and Controls" below) and direct purchasing programs established by the Company's various operating subsidiaries and divisions. The Company continually develops relationships with suppliers but has no material long-term purchase commitments with any supplier.
ACQUISITIONS AND DIVESTITURES
Since its formation as a Delaware corporation in 1969 and commencement of operations in March 1970, SYSCO has grown both through internal expansion of existing operations and acquisitions of formerly independent companies. The shareholders of nine companies exchanged their stock for SYSCO common stock at the formation of the Company, and through the end of fiscal 1995, fifty-one companies have been acquired, as follows:
On August 20, 1993 SYSCO purchased Ritter Sysco Food Services, Inc. (formerly Ritter Food Corporation) of Elizabeth, New Jersey, a full-line foodservice distributor to customers in New Jersey, metropolitan New York, western Connecticut and the Philadelphia, Pennsylvania area.
CORPORATE HEADQUARTERS' SERVICES AND CONTROLS
SYSCO's corporate staff, consisting of approximately 700 persons, provides a number of services to the Company's operating divisions and subsidiaries. These persons possess experience and expertise in, among other areas, accounting and finance, cash management, data processing, employee benefits, engineering and insurance. Also provided are legal, marketing and tax compliance services as well as warehousing and distribution services which provide assistance in space utilization, energy conservation, fleet management and work flow.
The corporate staff also administers a consolidated product procurement program engaged in the task of developing, obtaining and assuring consistent quality food and nonfood products. The program covers the purchasing and marketing of SYSCO(R) Brand merchandise, as well as private label and national brand merchandise, encompassing substantially all product lines. The Company's operating subsidiaries and divisions may participate in the program at their option.
CAPITAL IMPROVEMENTS
To maximize productivity and customer service, the Company continues to construct and modernize its distribution facilities. During fiscal 1995, 1994 and 1993, approximately $202,000,000, $161,000,000, and $128,000,000, respectively, were invested in facility expansions, fleet additions and other capital asset enhancements. The Company estimates its capital expenditures in fiscal 1996 should be in the range of $210,000,000 to $230,000,000. During the three years ended July 1, 1995, capital expenditures have been financed primarily by internally generated funds, the Company's commercial paper program and bank borrowings.
EMPLOYEES
As of July 1, 1995, the Company had approximately 28,100 employees, 23% of whom are represented by unions, primarily the International Brotherhood of Teamsters. Contract negotiations are handled locally with monitoring and assistance by the corporate staff. Collective bargaining agreements covering approximately 49% of the Company's union employees expire during fiscal 1996. SYSCO considers its labor relations to be satisfactory.
COMPETITION
The business of SYSCO is competitive with numerous companies engaged in foodservice distribution. While competition is encountered primarily from local and regional distributors, a few companies compete with SYSCO on a national basis.
The Company believes that, although price and customer contact are important considerations, the principal competitive factor in the foodservice industry is the ability to deliver a wide range of quality products and related services on a timely and dependable basis. Although SYSCO has less than 10% of the foodservice industry market in the United States, SYSCO believes, based upon industry trade data, that its sales to the "away-from-home-eating" industry are the largest of any foodservice distributor. While adequate industry statistics are not available, the Company believes that in most instances its local operations are among the leading distributors of food and related nonfood products to foodservice customers in their respective trading areas.
DEBT ISSUANCE
In June 1995, the Company issued $150,000,000 principal amount of 6 1/2% Senior Notes due June 15, 2005. 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. The notes were issued under a $500,000,000 shelf registration filed with the Securities and Exchange Commission in June 1995. No other securities have been issued under the shelf registration.
GENERAL
Except for the SYSCO(R) trademark, the Company does not own or have the right to use any patents, trademarks, licenses, franchises or concessions, the loss of which would have a materially adverse effect on the operations or earnings of the Company.
SYSCO is not engaged in material research activities relating to the development of new products or the improvement of existing products. The Company has completed an internally developed project that involves the redesign and development of the computer operating systems through which SYSCO's operating companies will process, control and report the results of all transactions. Installation will continue company-wide through the next several years and such installations are expected to provide the basis for business expansion over this period without having a material adverse effect on the business or operations of the Company. The costs of this project will be amortized over future earnings as completed portions of the project are put into use.
The Company's distribution facilities have tanks for the storage of diesel fuel and other petroleum products which are subject to laws regulating such storage tanks. Other federal, state and local provisions relating to the protection of the environment or the discharge of materials do not materially impact the Company's use or operation of its facilities. The Company anticipates that compliance with these laws will not have a material effect on the capital expenditures, earnings or competitive position of SYSCO and its subsidiaries.
Sales of the Company do not generally fluctuate on a seasonal basis, and therefore, the business of the Company is not deemed to be seasonal.
The Company operates 103 facilities within the United States and two in Canada.
ITEM 2.

ITEM 2. PROPERTIES
As of July 1, 1995 the table below shows the number of distribution facilities and self-serve centers occupied by the Company in each state or province and the aggregate cubic footage devoted to cold and dry storage.
The Company owns approximately 219,491,000 cubic feet of its distribution facilities and self-serve centers (or 85% of the total cubic feet), and the remainder is occupied under leases expiring at various dates from fiscal 1996 to 2015, exclusive of renewal options. Certain of the facilities owned by the Company are either subject to mortgage indebtedness or industrial revenue bond financing arrangements totaling $65,983,000 at July 1, 1995. Such mortgage indebtedness and industrial revenue bond financing arrangements mature at various dates.
Facilities in Newark, New Jersey; Jackson, Mississippi; San Antonio, Texas; Louisville, Kentucky; Cleveland, Ohio; Detroit, Michigan; Cincinnati, Ohio; Austin, Texas; and Harrisonburg, Virginia (which in the aggregate account for approximately 14% of total sales) are operating near maximum capacity and the Company is currently constructing or planning replacements or expansions for these distribution facilities. The Company is planning to complete construction of full service distribution facilities near Milwaukee, Wisconsin and Tampa, Florida during fiscal 1996.
The Company's fleet of approximately 4,800 delivery vehicles consists of tractor and trailer combinations, vans and panel trucks, most of which are either wholly or partially refrigerated for the transportation of frozen or perishable foods. The Company owns approximately 93% of these vehicles and leases the remainder.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
SYSCO is engaged in various legal proceedings which have arisen but have not been fully adjudicated. These proceedings, in the opinion of management, will not have a material adverse effect upon the consolidated balance sheets or results of operations of the Company when ultimately concluded.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the executive officers of the Company, each of whom holds the office opposite his name below until the meeting of the Board of Directors immediately preceding the next Annual Meeting of Stockholders or until his successor has been elected or qualified. Executive officers who are also directors, serve as directors until the expiration of their term which is the Annual Meeting of Stockholders in the calendar year specified in parentheses or until his successor has been elected and qualified.
Each of the executive officers listed above has been employed by the Company, or a subsidiary or division of the Company, in an executive capacity throughout the past five years.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal market for SYSCO's Common Stock is the New York Stock Exchange. The table below sets forth the high and low sales prices per share for SYSCO's Common Stock as reported on the New York Stock Exchange Composite Tape and the cash dividends paid for the periods indicated.
The approximate number of shareholders of SYSCO's Common Stock as of July 1, 1995 was 21,100.
Item 6.

Item 7.
MANAGEMENT DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
SYSCO provides marketing and distribution services to foodservice customers throughout the contiguous United States and western 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 has a stock repurchase program which is used primarily to offset shares issued from time to time in conjunction with various employee benefit plans and conversions of Liquid Yield Option Notes. The number of shares acquired and their cost for the past three years was 2,100,000 shares for $53,166,000 in fiscal 1995, 3,000,000 shares for $80,131,000 in fiscal 1994 and 7,200,000 shares for $180,343,000 in fiscal 1993.
SYSCO's operations generate a significant amount of cash which is used to fund the company's investment in facilities, fleet and other equipment required to meet its customers' needs and provide for growth. Net cash generated from operating activities was $336,903,000 in 1995, $282,515,000 in 1994 and $257,165,000 in 1993. Expenditures for facilities, fleet and other equipment were $201,577,000 in 1995, $161,485,000 in 1994 and $127,879,000 in 1993. Expenditures in fiscal 1996 should be in the range of $210,000,000 to $230,000,000.
In June 1995, SYSCO issued 6.5% senior notes totaling $150,000,000 due June 15, 2005. 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. The notes were issued under a $500,000,000 shelf registration filed with the Securities and Exchange Commission in June 1995. No other securities have been issued under the shelf registration.
The net cash provided by operations less cash utilized for capital expenditures, the stock repurchase program, cash dividends and other uses resulted in long-term debt of $541,556,000 at July 1, 1995. About 71% of the total debt is at fixed rates averaging 7.42% and 29% of the total debt is at floating rates averaging 6.01%. Long-term debt to capitalization is 28% at July 1, 1995, down from the 30% at July 2, 1994 and at July 3, 1993. SYSCO continues to have borrowing capacity available and alternative financing arrangements are evaluated as appropriate.
SYSCO has a commercial paper program which is currently supported by a $300,000,000 bank credit facility. During fiscal 1995, 1994 and 1993, commercial paper and bank borrowings ranged from approximately $146,200,000 to $425,100,000, $184,900,000 to $415,100,000 and $87,500,000 to $292,500,000, 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.
SALES
The annual increases in sales of 11% in 1995 and 9% in 1994 result from several factors. Sales in fiscal 1995 and 1994 were affected by the relatively modest growth in the U.S. economy, as well as in the foodservice industry. After adjusting for food price increases and adjusting for acquisitions in fiscal 1994, real sales growth was about 9% in 1995 and 7% in 1994. The cost of SYSCO's foodservice products is estimated to have averaged an increase of about 2% from the beginning to the end of fiscal 1995 compared to an increase of approximately 1.9% in fiscal 1994. Industry sources estimate the total foodservice market experienced real growth of approximately 3% in calendar 1994 and 2.3% in calendar 1993.
Sales for fiscal 1993 through 1995 were as follows:
A comparison of the sales mix in the principal product categories during the last three years is presented below:
A comparison of sales by type of customer during the last three years is presented below:
COST OF SALES
Cost of sales increased about 11% in 1995 and 9% in 1994. 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.
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 for the 1995, 1994 and 1993 fiscal years were 14.3%, 14.3% and 14.2%, respectively. Changes in the percentage relationship of operating expenses to sales result from an interplay of several economic influences. Inflationary increases in operating costs generally have been offset through improved productivity.
INTEREST EXPENSE
Interest expense increased $2,307,000 or approximately 6% in fiscal 1995 as compared to a decrease of $2,732,000 or approximately 7% in fiscal 1994. The increase in fiscal 1995 is due primarily to increased borrowings and rates, while the decrease in fiscal 1994 was due primarily to the expiration of an interest rate swap in December 1993. Interest capitalized during the past three years was $2,833,000 in 1995, $1,313,000 in 1994 and $1,315,000 in 1993.
OTHER INCOME, NET
Other income increased $467,000 or about 27% in fiscal 1995 and decreased $381,000 or about 18% in fiscal 1994. Changes between the years result from fluctuations in miscellaneous activities including gains and losses on the sale of old facilities.
EARNINGS BEFORE INCOME TAXES
Earnings before income taxes rose $50,036,000 or approximately 14% above fiscal 1994, which had increased $35,605,000 or approximately 11% over the prior year. Additional sales and realization of operating efficiencies contributed to the increases.
PROVISION FOR INCOME TAXES
The effective tax rate for 1995 was approximately 40% compared to 41% in 1994 and 39% in 1993. In August 1993 the Omnibus Budget Reconciliation Act of 1993 became effective. This legislation increased the top corporate tax rate from 34% to 35% effective January 1, 1993. Consequently, in the first quarter of fiscal 1994 SYSCO had a charge to earnings for taxes of $4,900,000 relating to transactions and events through July 3, 1993. About $3,300,000 of the charge relates to an increase in deferred taxes and $1,600,000 relates to the retroactivity of the tax rate increase to January 1, 1993. The effective tax rate for fiscal 1994, excluding the effect of the $4,900,000 charge, was 40%.
NET EARNINGS
Fiscal 1995 represents the nineteenth consecutive year of increased earnings for SYSCO. Net earnings for the year rose $35,072,000 or approximately 16% above fiscal 1994, which had increased $14,945,000 or approximately 7% over the prior year. After adjusting for the $4,900,000 catch-up tax provision in fiscal 1994, net earnings in 1995 increased about 14% over 1994. Excluding the impact of the extra week in fiscal 1993 and the increased tax rate in fiscal 1994, net earnings increased approximately 14% in 1994 over 1993.
DIVIDENDS
The quarterly dividend rate of eleven cents per share was established in November 1994 when it was increased from the nine cents per share set in November 1993.
RETURN ON SHAREHOLDERS' EQUITY
The return on average shareholders' equity for 1995, 1994 and 1993 was approximately 19%, 18% and 18%, respectively. Since inception SYSCO has averaged in excess of a 16% return on shareholders' equity.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SYSCO CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS JULY 1, 1995
Financial Statements:
All other schedules are omitted because they are not applicable or the information is set forth in the consolidated financial statements or notes thereto.
Financial Statements of the Registrant are omitted because the Registrant is primarily an operating company and all subsidiaries are wholly-owned.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
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.
/s/ BILL M. LINDIG /s/ JOHN K. STUBBLEFIELD, JR. - ------------------------------------- ------------------------------- Bill M. Lindig John K. Stubblefield, Jr. President and Chief Executive Officer Senior Vice President and Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors and Shareholders Sysco Corporation
We have audited the accompanying consolidated balance sheets of Sysco Corporation (a Delaware corporation) and subsidiaries as of July 1, 1995 and July 2, 1994, 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, 1995. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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, 1995 and July 2, 1994, and the results of their operations and their cash flows for each of the three years in the period ended July 1, 1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP - ------------------------ Arthur Andersen LLP
Houston, Texas August 2, 1995
CONSOLIDATED BALANCE SHEETS
See Summary of Accounting Policies and Additional Financial Information.
CONSOLIDATED RESULTS OF OPERATIONS
See Summary of Accounting Policies and Additional Financial Information.
CONSOLIDATED SHAREHOLDERS' EQUITY
See Summary of Accounting Policies and Additional Financial Information.
CONSOLIDATED CASH FLOWS
See Summary of Accounting Policies and Additional Financial Information.
SUMMARY OF ACCOUNTING POLICIES
BUSINESS AND CONSOLIDATION
SYSCO Corporation (SYSCO) is engaged in the marketing and distribution of a wide range of food and related products to the foodservice or "away-from-home-eating" industry. These services are performed from 67 distribution facilities for approximately 255,000 customers located in the 37 states where facilities are situated and in 11 adjacent states. The company also has one facility in Vancouver, British Columbia, which services customers in that area. The accompanying financial statements include the accounts of SYSCO and its subsidiaries. All significant intercompany transactions and account balances have been eliminated.
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 $2,833,000 in 1995, $1,313,000 in 1994 and $1,315,000 in 1993.
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, 1995, July 2, 1994 and July 3, 1993 is $50,935,000, $43,120,000 and $35,416,000, respectively.
COMPUTER SYSTEMS DEVELOPMENT PROJECT
SYSCO has capitalized direct costs incurred in connection with an internal computer systems development project. The capitalization of these costs began once it was reasonably certain that the new system would be completed and would fulfill its intended use. Costs of $17,593,000, $29,658,000 and $14,094,000 were capitalized during fiscal 1995, 1994 and 1993, respectively. Amounts capitalized will be amortized over future earnings as completed portions of the project are put into use. Accumulated amortization at July 1, 1995 was $232,000.
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 for deferred income taxes as required by the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
CASH FLOW INFORMATION
For cash flow purposes, cash includes cash equivalents such as time deposits, certificates of deposit and all highly liquid instruments with original maturities of three months or less.
ADDITIONAL FINANCIAL INFORMATION
INCOME TAXES
The income tax provisions consist of the following:
Included in the income taxes charged to earnings are net deferred tax provisions of $23,417,000 in 1995, $23,292,000 in 1994 and $13,281,000 in 1993. The provisions result from the effects of net changes during the year in deferred tax assets and liabilities arising from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the company's deferred tax assets and liabilities are as follows:
The company has enjoyed taxable earnings during each year of its twenty-six year existence and knows of no reason such profitability should not continue. Consequently, the company 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 assets.
The effective tax rate was 40% in 1995, 41% in 1994 and 39% in 1993 and an analysis is as follows:
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
The allowance for doubtful accounts receivable was $16,001,000 as of July 1, 1995, $15,999,000 as of July 2, 1994 and $15,122,000 as of July 3, 1993. Customer accounts written off, net of recoveries, were $15,986,000 or .13% of sales, $17,291,000 or .16% of sales and $13,163,000 or .13% of sales for fiscal years 1995, 1994 and 1993, respectively.
SHAREHOLDERS' EQUITY
Earnings per share have been computed by dividing net earnings by 182,779,806 in 1995, 184,338,616 in 1994 and 186,745,576 in 1993, which represents the weighted average number of shares of common stock outstanding during those respective years.
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. The Plan, as adjusted, provides for a dividend distribution of one-fourth of one Preferred Stock Purchase Right (Right) for each outstanding share of SYSCO common stock. Each Right may be exercised to purchase one one-hundredth of a share of newly created Series A Junior Participating Preferred Stock at an exercise price of $135, subject to adjustment. The Rights will not be exercisable until a party either acquires 20% of the company's common stock or makes a tender offer for 20% 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 $270 worth of stock of the surviving company for a purchase price of $135.
The Rights expire on May 30, 1996 and may be redeemed before expiration by the company at a price of $.05 per Right until a party acquires 20% of the company's common stock or thereafter under certain circumstances. As a result of the Rights distribution, 600,000 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:
DEBT
At July 1, 1995 and July 2, 1994 SYSCO had $1,181,000 and $5,247,000, respectively, of short-term bank borrowings. The level of such borrowings fluctuates during the year based on working capital requirements.
SYSCO's long-term debt is comprised of the following:
The principal payments required to be made on long-term debt during the next five years are shown below:
SYSCO has a $300,000,000 revolving loan agreement maturing in 2000 which currently supports the company's commercial paper program. The commercial paper borrowings at July 1, 1995 were $144,510,000. The Liquid Yield Option Notes have no periodic interest payments, will yield 6.25% if held to maturity, and can be converted into SYSCO common stock at a conversion rate of 24.512 shares per note. Each note, which initially sold for $397.27 per $1,000 of face value at maturity, has an accreted value at July 1, 1995 of $565.01 per $1,000 of face value.
In June 1995, SYSCO issued 6.5% senior notes totaling $150,000,000 due June 15, 2005. 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. The notes were issued under a $500,000,000 shelf registration filed with the Securities and Exchange Commission in June 1995. No other securities have been issued under the shelf registration.
The Industrial Revenue Bonds have varying structures. Final maturities range from one to thirty-one years and certain of the bonds provide SYSCO the right to redeem (a 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. Certain bonds have provisions whereby the holder may require SYSCO to purchase or redeem the bonds (a put) under certain circumstances. If certain of these bonds are purchased from bondholders, they can be remarketed at the then prevailing interest rates.
Long-term debt at July 1, 1995 was $541,556,000, of which 71% is at fixed rates averaging 7.42% with an average life of eight years, while the remainder is financed at floating rates averaging 6.01%. Certain loan agreements contain typical covenants to protect noteholders including provisions to maintain tangible net worth and funded indebtedness at specified levels.
The fair value of SYSCO's 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 long-term debt approximates $584,000,000 at July 1, 1995.
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, 1995 and July 2, 1994 letters of credit outstanding were $29,664,000 and $30,664,000, respectively. As of July 1, 1995 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 $32,105,000, $31,089,000 and $27,506,000 in fiscal 1995, 1994 and 1993, respectively. Contingent rentals, subleases, assets and obligations under capital leases are not significant.
Aggregate minimum lease payments under existing non-capitalized long-term leases are as follows:
STOCK OPTION 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.
The following summary presents information with regard to incentive options under this plan:
1991 STOCK OPTION PLAN
The 1991 Stock Option Plan was adopted in fiscal 1992 and reserves 3,000,000 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. To date, the company has issued stock options but no stock appreciation rights under this plan.
The following summary presents information with regard to options issued under the 1991 plan:
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
In December 1994, the Board of Directors adopted, subject to the approval of the shareholders at the annual meeting in November 1995, a non-employee directors stock option plan which permits the issuance of up to 200,000 shares of common stock to directors who are not employees of SYSCO. Under this plan options to purchase 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, 1995, options for 18,000 shares had been contingently granted to nine non-employee directors under this plan.
EMPLOYEE BENEFIT PLANS
SYSCO and each of its subsidiaries have defined benefit and defined contribution retirement plans for their employees. Also, the company contributes to various multi-employer plans under collective bargaining agreements.
The defined benefit pension plans pay benefits to employees at retirement using formulas based on a participant's years of service and compensation. 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 $4,254,000 in 1995, $8,163,000 in 1994 and $2,901,000 in 1993.
The funded status of the defined benefit plans is as follows:
The projected unit credit method was used to determine the actuarial present value of the accumulated benefit obligation and the projected benefit obligation. The discount rate used was 8% in 1995 and 7.75% in 1994 and 1993 and the rate of increase in future compensation levels used was 5.5% in each year. The expected long-term rate of return on assets used was 9% in 1995, 10% in 1994 and 12% in 1993. The plans invest primarily in marketable securities and time deposits.
Net pension costs were as follows:
SYSCO also has a Management Incentive Plan that compensates key management personnel for specific performance achievements. The awards under this plan were $16,545,000 in 1995, $12,508,000 in 1994 and $11,725,000 in 1993. In addition to receiving benefits under the company's defined benefit plan, participants in the Management Incentive Plan will
receive benefits upon retirement under a Supplemental Executive Retirement Plan. This plan is a nonqualified, unfunded 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 $40,200,000 at July 1, 1995 and $33,199,000 at July 2, 1994. SYSCO is the sole owner and beneficiary of such policies. The periodic pension costs of this plan were $3,659,000 in 1995 and $3,109,000 in 1994. The actuarially determined accumulated benefit obligation for this plan included in accrued expenses was $19,004,000 at July 1, 1995 and $16,558,000 at July 2, 1994. After taking into consideration the effect of future compensation increases, the projected benefit obligation of this plan was $27,046,000 at July 1, 1995 and $23,941,000 at July 2, 1994.
SYSCO has an Employees' Stock Purchase Plan which permits employees (other than directors) who have been employed for at least one year 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 fiscal quarter. During 1995, 584,526 shares of SYSCO common stock were purchased by the participants as compared to 579,916 purchased in 1994 and 538,923 purchased in 1993. The total number of shares which may be sold pursuant to the plan may not exceed 12,000,000 shares of which 1,106,553 remained available at July 1, 1995.
At the beginning of fiscal 1994, SYSCO implemented SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement requires that the cost of retiree benefits other than pensions be recognized in the financial statements during the years the employee provides services. In the prior years, the company's portion of the cost of these benefits has been expensed under the pay-as-you-go method. SYSCO provided, through December 31, 1994, postretirement health care benefits to eligible retired employees and their dependents. This accounting change had no significant effect on net earnings or financial condition in fiscal 1994.
Net periodic postretirement benefit costs were as follows:
The components of the postretirement benefit obligation, included in accrued expenses at July 1, 1995 and July 2, 1994 were:
The discount rate used to determine the accumulated postretirement benefit obligation was 7.75% in 1995 and 8% in 1994. 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.
At the beginning of fiscal 1995, SYSCO implemented SFAS 112, "Employers' Accounting for Postemployment Benefits," which requires that accrual accounting be used for the cost of certain obligations to be paid to former or inactive employees after employment but before retirement. Such obligations include salary continuation, disability, severance and workers' compensation. This accounting change had no significant effect on net earnings or financial condition in fiscal 1995.
CONTINGENCIES
SYSCO is engaged in various legal proceedings which have arisen but have not been fully adjudicated. These proceedings, in the opinion of management, will not have a material adverse effect upon the consolidated financial position or results of operations of the company when ultimately concluded.
QUARTERLY RESULTS (UNAUDITED)
Financial information for each quarter in the years ended July 1, 1995 and July 2, 1994:
PART III
Except as otherwise indicated, the information required by Items 10, 11, 12 and 13 is included in the Company's definitive proxy statement which will be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 no later than 120 days after the close of the 1995 fiscal year, and said proxy statement is hereby incorporated by reference thereto.
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Executive Officers is included in Part I (Item 4A) of this Form 10-K (page 8).
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed, or incorporated by reference, as part of this Form 10-K:
1. All financial statements. See index to Consolidated Financial Statements on page 14 of this Form 10-K.
2. Financial Statement Schedule. See page 14 of this Form 10-K.
3. Exhibits.
3(a) Restated Certificate of Incorporation, as amended, hereby incorporated by reference to Form 10-K for the year ended June 29, 1991.
3(b) Bylaws, as amended.
4(a) Competitive Advance and Revolving Credit Facility Agreement dated as of July 27, 1988, as amended February 14, 1989 and May 1, 1989 hereby incorporated by reference to the Form 10-K for the year ended July 1, 1989.
Agreement and Third Amendment to Competitive Advance and Revolving Credit Facility and Modification of Notes dated as of January 2, 1990 hereby incorporated by reference to Form 10-K for the year ended June 30, 1990.
Agreement and Fourth Amendment to Competitive Advance and Revolving Credit Facility Agreement, dated as of January 31, 1994 hereby incorporated by reference to Form 10-K for the year ended July 2, 1994.
AGREEMENT AND FIFTH AMENDMENT TO COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT, DATED AS OF NOVEMBER 15, 1994.
4(b) Sysco Corporation Note Agreement dated as of June 1, 1989 hereby incorporated by reference to the Form 10-K for the year ended July 1, 1989.
4(c) Indenture, dated as of October 1, 1989, between Sysco Corporation and Chemical Bank, Trustee, hereby incorporated by reference to Registration Statement on Form S-3 (File No. 33-31227).
4(d) Indenture, dated as of June 15, 1995, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, hereby incorporated by reference to Registration Statement on Form S-3 (File No. 33-60023).
10(a) AMENDED AND RESTATED SYSCO CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN
10(b) Amended and restated Sysco Corporation Supplemental Executive Retirement Plan incorporated by reference to Form 10-K for the year ended July 3, 1993.
10(c) Sysco Corporation Employee Incentive Stock Option Plan incorporated by reference to the Form S-8 filed under the Securities Act of 1933, as amended, dated April 1, 1987, as amended.
10(d) Sysco Corporation Amended and Restated Management Incentive Plan incorporated by reference to Form 10-K for the year ended July 2, 1994.
10(e) SYSCO CORPORATION 1995 MANAGEMENT INCENTIVE PLAN (SUBJECT TO APPROVAL BY STOCKHOLDERS AT THE 1995 ANNUAL MEETING).
10(f) Sysco Corporation 1991 Stock Option Plan incorporated by reference to Form 10-K for the year ended June 27, 1992.
10(g) SYSCO CORPORATION NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN (SUBJECT TO APPROVAL BY STOCKHOLDERS AT THE 1995 ANNUAL MEETING).
11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
21 SUBSIDIARIES OF THE REGISTRANT
23 INDEPENDENT PUBLIC ACCOUNTANTS' CONSENT
27 FINANCIAL DATA SCHEDULE
(b) Reports on Form 8-K None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Sysco Corporation has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on this 1st day of September, 1995.
SYSCO CORPORATION
By /s/ BILL M. LINDIG ------------------------------------- Bill M. Lindig President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities indicated and on the date indicated above.
PRINCIPAL EXECUTIVE, FINANCIAL & ACCOUNTING OFFICERS:
DIRECTORS:
SYSCO CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(1) Allowance accounts added from acquisitions. (2) Customer accounts written off, net of recoveries. (3) Allowance accounts deducted due to sales of businesses.
S-1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended July 1, 1995 Commission File No. 1-6544
SYSCO CORPORATION
(Exact Name of Registrant as Specified in its Charter)
EXHIBITS
INDEX TO EXHIBITS