TO OUR SHAREHOLDERS
In business or in our personal lives, each
of us values products and services that exceed
our expectations. When treated with unusual
professionalism and courtesy, or when we discover
a product that more than meets our needs, we
develop an affinity for an establishment or a
brand. When we are satisfied time and again,
we become loyal customers - the heart of a
successful business. By focusing on those aspects
of our business that engender customer loyalty,
SYSCO continued to enhance shareholder value
during fiscal 1999.
Bill M. Lindig
Chairman and Chief Executive Officer
Total sales reached a new milestone of
$17.4 billion for the 53-week period ended
July 3, 1999, a 14 percent increase over the
$15.3 billion attained in fiscal 1998 (52 weeks).
The foodservice industry continued to grow at a
4-percent real rate for the same period, stimulated
by a strong U.S. economy that encouraged
consumers to enjoy meals prepared away from
home. SYSCO likewise benefited from the strong
economy, and enjoyed a growth rate of more than
twice that of the industry. After adjusting sales for
the effects of very moderate food cost inflation of
0.98 percent and acquisitions of 1.14 percent,
real sales growth was 11.6 percent for the 53-week year versus 52 weeks in 1998.
Fiscal 1999 net earnings were $362.3 million,
up 11.5 percent as compared to $324.8 million
last year prior to a second quarter fiscal 1998
accounting change of $28 million. On a per
share basis, basic earnings were $1.09, or 15
percent higher than in the 52 weeks of 1998,
while diluted earnings rose 14 percent to $1.08.
Sales to marketing associate-served territory
customers, the fastest growing segment of the
foodservice industry, increased to 55 percent of
sales from 53 percent last year in our traditional
companies, reflecting our efforts to maintain
a proper balance in overall sales. Margin
improvements, primarily due to the change in
sales mix, also were attributable to the growth in
SYSCO Brand product sales, which are now 48
percent of marketing associate-served and 37
percent of overall sales. Sales of fresh produce, a
category added in 1985, topped the $1 billion
mark in fiscal 1999. Menus increasingly feature
fresh selections, and SYSCO works closely with
growers to successfully market SYSCO Natural™
brand premium vegetables and fruits along with a
wide variety of pre-washed and pre-cut produce.
The SYGMA Network, Inc., SYSCO's chain
restaurant distribution specialist, increased
sales 44 percent to a record $2.0 billion in fiscal
1999, representing 11.5 percent of overall sales.
The increase included an approximate annualized
$600 million in new business to 1,700 additional
Wendy's International, Inc. locations across the
U.S. Wendy's contribution to real sales growth was
approximately 3 percent for the year. To serve
this customer efficiently, SYGMA added three
distribution facilities and increased capacity
in three other locations. Although costs associated
with the new sales were higher than normal,
operating expenses returned to planned levels in
the fourth quarter.
Acquisitions continue to contribute
significantly to geographical expansion. In August
1999, SYSCO acquired Doughtie's Foods, Inc., in
Portsmouth, Virginia, which serves Virginia,
Maryland, North Carolina and Delaware, and the
Buckhead Beef Company, Inc., an Atlanta-based
distributor of custom-cut meat, poultry and
seafood items. With the July 1999 acquisition of
Newport Meat Company of Irvine, California, a
leading center-of-the-plate distributor in southern
California, and the September announcement of
plans to acquire Malcolm Meats, a Toledo, Ohio-based
supplier of fresh-cut meat and other protein
products, SYSCO is considerably enhancing its
positon as a preeminent supplier of fresh, custom-cut,
quality protein products. Combined, these
companies had about $414 million in 1998
annualized revenues.
SYSCO continued to pursue internal
expansion, opening "fold-outs" in San Diego,
California in November 1998 and Birmingham,
Alabama in March 1999. Market studies are
ongoing to establish future locations. The
Doughtie's acquisition will enable SYSCO to better
serve both Doughtie's and SYSCO's customers in
their market from a new facility to be built in the
Hampton Roads area of Virginia.
Investments in facilities, fleet and equipment
were $287 million in 1999 compared to $259
million in 1998 as a result of the SYSCO Uniform
Systems (SUS) conversions, additional costs
associated with the Wendy's business and two
new "fold-outs." Facility and fleet purchases were
70 percent of total expenditures. For fiscal 2000,
capital expenditures are anticipated to be $230
million to $250 million.
Installation of SUS, a company-wide
upgrade of management information systems,
will be completed by December 1999, effecting
Year 2000 readiness for the system. Designed
ultimately to gain operational efficiencies, the
installation initially creates additional expenses
for operating companies for about one year after
coming on line.
Although SYSCO continues to rely upon
internally generated sales increases within
each market to sustain future growth, the
company also has ample cash generated by
operations and appropriate debt levels to
continue funding growth through "fold-outs"
and strategic acquisitions.
Charles H. Cotros
President and Chief Operating Officer
Additionally, since 1996 SYSCO has been
repurchasing shares in excess of issuances
for compensation and benefit purposes. This
program has been funded with internally
generated cash as well as debt. In fiscal 1999,
about 7.5 million shares of the company's
stock were repurchased at a cost of about
$204 million. Since the beginning of fiscal
1996, 52.4 million shares have been
repurchased. The Board authorized a new
8-million-share buyback program in July
1999. Increased operating earnings and fewer
shares outstanding resulted in a 26 percent
return on average shareholders' equity and a
16 percent return on average total capital
for fiscal 1999. After funding working capital
needs, capital investments, dividends, acquisitions
and share repurchases, long-term debt
of $998 million, or 41 percent of total capitalization,
was up moderately from $867 million
a year earlier.
SYSCO has an unusual depth and
breadth of management talent, not only in
the operating companies, but also at the
corporate level. We take pride in the variety
of strengths our employees display and are
pleased to participate in their success.
Appointments during the year included
William B. Day, who was promoted to
Assistant Controller; Michael C. Nichols, who
was named Vice President and General
Counsel; and Kent R. Berke, who was
promoted to Assistant Vice President and
maintained his position as Associate General
Counsel. Also, Thomas E. Lankford was
elected Executive Vice President of
Merchandising & Multi-Unit Sales, and Kenneth J. Carrig became Senior Vice President, Administration.
In November 1998, the Directors raised
the quarterly cash dividend to $0.10 per share
from $0.09 per share, an 11 percent increase
and the 30th approved in the 29 years since
SYSCO's initial public offering. The increase
reflects the Board's belief that management's
strategies will continue to build earnings and
generate solid cash flow.
We anticipate that the strong economy,
low inflation and high consumer confidence
in the U.S. and Canada will support SYSCO's
continued expansion. SYSCO has invested
heavily in its ability to provide premier
foodservice products and services to
customers. Moreover, SYSCO is a customer-driven
company, dedicated to providing
quality products, on time, without error. The
C.A.R.E.S. initiative implemented this year,
Customers Are Really Everything to SYSCO,
quantifies and focuses attention daily on the
activities that create the customer loyalty so
essential to outstanding, ongoing growth as
we enter the next millennium.
Bill M. Lindig
Chairman and Chief Executive Officer
Charles H. Cotros
President and Chief Operating Officer
September 24, 1999