UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
Form 10-Q
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(Mark One) | |
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☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-6544
________________
Sysco Corporation
(Exact name of registrant as specified in its charter)
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Delaware | 74-1648137 |
(State or other jurisdiction of | (IRS employer |
incorporation or organization) | identification number) |
1390 Enclave Parkway | 77077-2099 |
Houston, Texas | (Zip Code) |
(Address of principal executive offices) |
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Registrant’s Telephone Number, Including Area Code:
(281) 584-1390
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer ☑ | Accelerated Filer ☐ |
Non-accelerated Filer ☐ (Do not check if a smaller reporting company) | Smaller Reporting Company ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
584,569,243587,883,822 shares of common stock were outstanding as of April 26,October 25, 2014.
TABLE OF CONTENTS
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| Page No. |
| PART I – FINANCIAL INFORMATION |
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Item 1. | Financial Statements | 1 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. | Controls and Procedures |
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| PART II – OTHER INFORMATION |
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Item 1. | Legal Proceedings |
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Item 1A. | Risk Factors |
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
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Item 3. | Defaults Upon Senior Securities |
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Item 4. | Mine Safety Disclosures |
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Item 5. | Other Information |
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Item 6. | Exhibits |
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Signatures |
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
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| Mar. 29, 2014 |
| Jun. 29, 2013 |
| Mar. 30, 2013 | Sep. 27, 2014 |
| Jun. 28, 2014 |
| Sep. 28, 2013 | ||||||
| (unaudited) |
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| (unaudited) | (unaudited) |
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| (unaudited) | ||||
ASSETS | ASSETS | ASSETS | ||||||||||||||
Current assets |
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Cash and cash equivalents | $ | 341,090 |
| $ | 412,285 |
| $ | 331,520 | $ | 384,898 |
| $ | 413,046 |
| $ | 359,532 |
Accounts and notes receivable, less allowances of |
| 3,510,518 |
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| 3,183,114 |
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| 3,396,850 | ||||||||
Accounts and notes receivable, less allowances of |
| 3,646,817 |
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| 3,398,713 |
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| 3,423,152 | ||||||||
Inventories |
| 2,527,900 |
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| 2,396,188 |
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| 2,413,190 |
| 2,845,641 |
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| 2,602,018 |
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| 2,540,643 |
Deferred income taxes |
| 121,033 |
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| 136,211 |
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| 132,480 |
| 140,554 |
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| 141,225 |
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| 150,516 |
Prepaid expenses and other current assets |
| 74,827 |
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| 61,925 |
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| 68,575 |
| 90,493 |
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| 83,745 |
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| 74,680 |
Prepaid income taxes |
| 64,107 |
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| 17,704 |
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| 32,967 |
| - |
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| 43,225 |
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| - |
Total current assets |
| 6,639,475 |
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| 6,207,427 |
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| 6,375,582 |
| 7,108,403 |
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| 6,681,972 |
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| 6,548,523 |
Plant and equipment at cost, less depreciation |
| 3,956,209 |
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| 3,978,071 |
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| 3,938,277 |
| 3,968,713 |
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| 3,985,618 |
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| 3,979,351 |
Other assets |
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Goodwill |
| 1,937,075 |
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| 1,884,235 |
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| 1,802,433 |
| 1,980,524 |
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| 1,950,672 |
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| 1,908,542 |
Intangibles, less amortization |
| 181,036 |
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| 205,719 |
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| 150,779 |
| 180,325 |
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| 177,227 |
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| 200,074 |
Restricted cash |
| 157,870 |
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| 145,328 |
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| 145,270 |
| 165,437 |
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| 145,412 |
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| 157,837 |
Other assets |
| 266,599 |
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| 243,167 |
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| 244,869 |
| 214,511 |
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| 227,049 |
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| 245,329 |
Total other assets |
| 2,542,580 |
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| 2,478,449 |
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| 2,343,351 |
| 2,540,797 |
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| 2,500,360 |
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| 2,511,782 |
Total assets | $ | 13,138,264 |
| $ | 12,663,947 |
| $ | 12,657,210 | $ | 13,617,913 |
| $ | 13,167,950 |
| $ | 13,039,656 |
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LIABILITIES AND SHAREHOLDERS' EQUITY | LIABILITIES AND SHAREHOLDERS' EQUITY | LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||
Current liabilities |
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Notes payable | $ | 71,510 |
| $ | 41,632 |
| $ | 32,045 | $ | 78,635 |
| $ | 70,975 |
| $ | 45,584 |
Accounts payable |
| 2,726,427 |
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| 2,428,215 |
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| 2,432,309 |
| 2,924,417 |
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| 2,831,028 |
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| 2,475,589 |
Accrued expenses |
| 1,141,625 |
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| 1,072,134 |
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| 983,758 |
| 1,132,069 |
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| 1,160,850 |
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| 930,800 |
Accrued income taxes |
| 94,437 |
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| - |
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| 139,286 | ||||||||
Current maturities of long-term debt |
| 4,454 |
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| 207,301 |
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| 208,792 |
| 306,931 |
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| 304,777 |
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| 206,158 |
Total current liabilities |
| 3,944,016 |
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| 3,749,282 |
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| 3,656,904 |
| 4,536,489 |
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| 4,367,630 |
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| 3,797,417 |
Other liabilities |
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Long-term debt |
| 2,986,163 |
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| 2,639,986 |
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| 2,557,314 |
| 2,650,490 |
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| 2,384,167 |
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| 2,878,391 |
Deferred income taxes |
| 195,876 |
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| 266,222 |
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| 116,960 |
| 115,500 |
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| 121,580 |
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| 270,923 |
Other long-term liabilities |
| 780,834 |
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| 816,647 |
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| 1,173,671 |
| 959,920 |
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| 1,027,878 |
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| 893,783 |
Total other liabilities |
| 3,962,873 |
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| 3,722,855 |
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| 3,847,945 |
| 3,725,910 |
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| 3,533,625 |
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| 4,043,097 |
Commitments and contingencies |
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Noncontrolling interest |
| 34,098 |
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| - |
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| - | ||||||||
Shareholders' equity |
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Preferred stock, par value $1 per share |
| - |
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| - |
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| - |
| - |
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| - |
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| - |
Common stock, par value $1 per share |
| 765,175 |
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| 765,175 |
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| 765,175 |
| 765,175 |
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| 765,175 |
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| 765,175 |
Paid-in capital |
| 1,119,784 |
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| 1,059,624 |
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| 1,029,443 |
| 1,155,838 |
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| 1,139,218 |
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| 1,086,716 |
Retained earnings |
| 8,687,098 |
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| 8,512,786 |
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| 8,394,426 |
| 8,878,693 |
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| 8,770,751 |
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| 8,635,190 |
Accumulated other comprehensive loss |
| (516,922) |
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| (446,937) |
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| (620,720) |
| (743,172) |
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| (642,663) |
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| (411,801) |
Treasury stock at cost, 181,231,920, |
| (4,823,760) |
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| (4,698,838) |
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| (4,415,963) | ||||||||
Treasury stock at cost, 177,897,055, |
| (4,735,118) |
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| (4,765,786) |
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| (4,876,138) | ||||||||
Total shareholders' equity |
| 5,231,375 |
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| 5,191,810 |
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| 5,152,361 |
| 5,321,416 |
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| 5,266,695 |
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| 5,199,142 |
Total liabilities and shareholders' equity | $ | 13,138,264 |
| $ | 12,663,947 |
| $ | 12,657,210 | $ | 13,617,913 |
| $ | 13,167,950 |
| $ | 13,039,656 |
Note: The June 29, 201328, 2014 balance sheet has been derived from the audited financial statements at that date.
See Notes to Consolidated Financial Statements
1
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In thousands, except for share and per share data)
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| 13-Week Period Ended |
| 39-Week Period Ended |
| 13-Week Period Ended | ||||||||||||
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| Mar. 29, 2014 |
| Mar. 30, 2013 |
| Mar. 29, 2014 |
| Mar. 30, 2013 |
| Sep. 27, 2014 |
| Sep. 28, 2013 | ||||||
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Sales |
| $ | 11,277,484 |
| $ | 10,926,371 |
| $ | 34,229,720 |
| $ | 32,810,177 |
| $ | 12,445,081 |
| $ | 11,714,267 |
Cost of sales |
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| 9,282,743 |
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| 8,983,889 |
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| 28,204,541 |
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| 26,885,790 |
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| 10,256,364 |
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| 9,648,780 |
Gross profit |
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| 1,994,741 |
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| 1,942,482 |
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| 6,025,179 |
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| 5,924,387 |
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| 2,188,717 |
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| 2,065,487 |
Operating expenses |
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| 1,662,116 |
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| 1,605,280 |
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| 4,862,579 |
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| 4,725,752 |
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| 1,723,104 |
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| 1,587,289 |
Operating income |
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| 332,625 |
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| 337,202 |
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| 1,162,600 |
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| 1,198,635 |
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| 465,613 |
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| 478,198 |
Interest expense |
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| 32,224 |
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| 34,215 |
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| 92,536 |
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| 97,325 |
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| 30,934 |
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| 30,528 |
Other expense (income), net |
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| 3,718 |
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| (3,410) |
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| (5,027) |
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| (7,640) |
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| (2,188) |
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| (4,534) |
Earnings before income taxes |
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| 296,683 |
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| 306,397 |
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| 1,075,091 |
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| 1,108,950 |
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| 436,867 |
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| 452,204 |
Income taxes |
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| 115,746 |
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| 104,980 |
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| 397,729 |
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| 399,566 |
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| 158,054 |
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| 166,614 |
Net earnings |
| $ | 180,937 |
| $ | 201,417 |
| $ | 677,362 |
| $ | 709,384 |
| $ | 278,813 |
| $ | 285,590 |
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Net earnings: |
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Basic earnings per share |
| $ | 0.31 |
| $ | 0.34 |
| $ | 1.16 |
| $ | 1.21 |
| $ | 0.47 |
| $ | 0.49 |
Diluted earnings per share |
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| 0.31 |
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| 0.34 |
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| 1.15 |
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| 1.20 |
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| 0.47 |
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| 0.48 |
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Average shares outstanding |
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| 585,885,137 |
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| 589,149,731 |
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| 585,802,651 |
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| 588,222,833 |
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| 588,277,056 |
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| 587,621,529 |
Diluted shares outstanding |
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| 590,470,283 |
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| 592,903,799 |
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| 589,834,321 |
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| 591,054,506 |
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| 593,309,750 |
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| 591,458,948 |
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Dividends declared per common share |
| $ | 0.29 |
| $ | 0.28 |
| $ | 0.86 |
| $ | 0.83 |
| $ | 0.29 |
| $ | 0.28 |
See Notes to Consolidated Financial Statements
2
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In thousands)
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| 13-Week Period Ended |
| 39-Week Period Ended |
| 13-Week Period Ended | ||||||||||||
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| Mar. 29, 2014 |
| Mar. 30, 2013 |
| Mar. 29, 2014 |
| Mar. 30, 2013 |
| Sep. 27, 2014 |
| Sep. 28, 2013 | ||||||
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Net earnings |
| $ | 180,937 |
| $ | 201,417 |
| $ | 677,362 |
| $ | 709,384 |
| $ | 278,813 |
| $ | 285,590 |
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Other comprehensive (loss) income: |
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Foreign currency translation adjustment |
| (35,397) |
| (27,886) |
| (43,537) |
| (497) |
| (71,254) |
| 30,807 | ||||||
Items presented net of tax: |
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Amortization of cash flow hedges |
| 97 |
| 96 |
| 289 |
| 289 |
| 126 |
| 96 | ||||||
Change in fair value of cash flow hedges |
| (39,439) |
| - |
| (39,439) |
| - |
| (34,111) |
| - | ||||||
Amortization of prior service cost |
| 1,742 |
| 1,925 |
| 5,227 |
| 9,386 |
| 1,737 |
| 1,742 | ||||||
Amortization of actuarial loss (gain), net |
| 2,492 |
| 10,832 |
| 7,475 |
| 33,776 |
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| 2,993 |
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| 2,491 | ||||
Amortization of transition obligation |
| - |
| 22 |
| - |
| 66 | ||||||||||
Prior service cost arising in current year |
| - |
| - |
| - |
| (24,828) | ||||||||||
Actuarial gain (loss), net arising in current year |
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| - |
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| - |
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| - |
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| 23,954 | ||||||
Total other comprehensive (loss) income |
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| (70,505) |
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| (15,011) |
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| (69,985) |
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| 42,146 |
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| (100,509) |
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| 35,136 |
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Comprehensive income |
| $ | 110,432 |
| $ | 186,406 |
| $ | 607,377 |
| $ | 751,530 |
| $ | 178,304 |
| $ | 320,726 |
See Notes to Consolidated Financial Statements
3
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In thousands)
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| 39-Week Period Ended |
| 13-Week Period Ended | ||||||||
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| Mar. 29, 2014 |
| Mar. 30, 2013 |
| Sep. 27, 2014 |
| Sep. 28, 2013 | ||||
Cash flows from operating activities: |
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Net earnings |
| $ | 677,362 |
| $ | 709,384 |
| $ | 278,813 |
| $ | 285,590 |
Adjustments to reconcile net earnings to cash provided by operating |
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Share-based compensation expense |
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| 60,869 |
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| 56,749 |
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| 12,161 |
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| 13,465 |
Depreciation and amortization |
|
| 409,072 |
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| 379,998 |
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| 137,799 |
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| 133,744 |
Deferred income taxes |
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| (39,452) |
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| (42,069) |
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| 9,940 |
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| (14,926) |
Provision for losses on receivables |
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| 20,887 |
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| 29,068 |
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| 6,058 |
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| 8,437 |
Other non-cash items |
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| 4,810 |
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| 1,577 |
|
| (1,280) |
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| 1,646 |
Additional investment in certain assets and liabilities, net of effect of |
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(Increase) in receivables |
|
| (350,755) |
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| (408,186) |
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| (267,602) |
|
| (234,441) |
(Increase) in inventories |
|
| (134,793) |
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| (206,244) |
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| (251,998) |
|
| (134,849) |
(Increase) decrease in prepaid expenses and other current assets |
|
| (16,250) |
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| 14,826 | ||||||
(Increase) in prepaid expenses and other current assets |
|
| (7,019) |
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| (14,266) | ||||||
Increase in accounts payable |
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| 292,280 |
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| 211,308 |
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| 99,744 |
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| 34,770 |
Increase (decrease) in accrued expenses |
|
| 25,169 |
|
| (507) | ||||||
(Decrease) in accrued income taxes |
|
| (41,691) |
|
| (54,139) | ||||||
(Increase) in other assets |
|
| (12,671) |
|
| (528) | ||||||
(Decrease) increase in other long-term liabilities |
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| (40,582) |
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| 70,005 | ||||||
(Decrease) in accrued expenses |
|
| (28,725) |
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| (60,845) | ||||||
Increase in accrued income taxes |
|
| 137,506 |
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| 156,251 | ||||||
Decrease (increase) in other assets |
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| 2,327 |
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| (617) | ||||||
(Decrease) in other long-term liabilities |
|
| (64,417) |
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| (4,243) | ||||||
Excess tax benefits from share-based compensation arrangements |
|
| (6,191) |
|
| (1,834) |
|
| (689) |
|
| (487) |
Net cash provided by operating activities |
|
| 848,064 |
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| 759,408 |
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| 62,618 |
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| 169,229 |
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Cash flows from investing activities: |
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Additions to plant and equipment |
|
| (387,451) |
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| (373,048) |
|
| (118,821) |
|
| (135,749) |
Proceeds from sales of plant and equipment |
|
| 23,695 |
|
| 12,115 |
|
| 1,126 |
|
| 10,573 |
Acquisition of businesses, net of cash acquired |
|
| (40,462) |
|
| (210,036) |
|
| (32,074) |
|
| (1,341) |
(Increase) in restricted cash |
|
| (12,542) |
|
| (18,042) |
|
| (20,025) |
|
| (12,509) |
Net cash used for investing activities |
|
| (416,760) |
|
| (589,011) |
|
| (169,794) |
|
| (139,026) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Bank and commercial paper borrowings (repayments), net |
|
| 345,596 |
|
| - |
|
| 268,598 |
|
| 235,807 |
Other debt borrowings |
|
| 30,287 |
|
| 50,629 |
|
| 13,901 |
|
| 1,780 |
Other debt repayments |
|
| (226,249) |
|
| (277,339) |
|
| (4,207) |
|
| (5,409) |
Debt issuance costs |
|
| (21,794) |
|
| - |
|
| (642) |
|
| - |
Cash paid for settlement of cash flow hedge |
|
| (58,935) |
|
| - | ||||||
Proceeds from common stock reissued from treasury for share-based |
|
| 193,992 |
|
| 497,688 |
|
| 35,179 |
|
| 96,591 |
Treasury stock purchases |
|
| (332,381) |
|
| (321,042) |
|
| - |
|
| (250,601) |
Dividends paid |
|
| (497,772) |
|
| (482,030) |
|
| (170,049) |
|
| (164,138) |
Excess tax benefits from share-based compensation arrangements |
|
| 6,191 |
|
| 1,834 |
|
| 689 |
|
| 487 |
Net cash used for financing activities |
|
| (502,130) |
|
| (530,260) | ||||||
Net cash provided by (used for) financing activities |
|
| 84,534 |
|
| (85,483) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash |
|
| (369) |
|
| 2,516 |
|
| (5,506) |
|
| 2,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) in cash and cash equivalents |
|
| (71,195) |
|
| (357,347) |
|
| (28,148) |
|
| (52,753) |
Cash and cash equivalents at beginning of period |
|
| 412,285 |
|
| 688,867 |
|
| 413,046 |
|
| 412,285 |
Cash and cash equivalents at end of period |
| $ | 341,090 |
| $ | 331,520 |
| $ | 384,898 |
| $ | 359,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
| $ | 116,179 |
| $ | 121,740 |
| $ | 49,921 |
| $ | 52,135 |
Income taxes |
|
| 480,729 |
|
| 501,499 |
|
| 15,827 |
|
| 22,219 |
See Notes to Consolidated Financial Statements
4
Sysco Corporation and its Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Unless this Form 10-Q indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Sysco,” or “the company” as used in this Form 10-Q refer to Sysco Corporation together with its consolidated subsidiaries and divisions.
1. BASIS OF PRESENTATION
The consolidated financial statements have been prepared by the company, without audit, with the exception of the June 29, 201328, 2014 consolidated balance sheet which was taken from the audited financial statements included in the company's Fiscal 2013fiscal 2014 Annual Report on Form 10-K. The financial statements include consolidated balance sheets, consolidated results of operations, consolidated statements of comprehensive income and consolidated cash flows. In the opinion of management, all adjustments, which consist of normal recurring adjustments, necessary to present fairly the financial position, results of operations, comprehensive income and cash flows for all periods presented have been made.
In fiscal 2015, Sysco acquired a 50% interest in a foodservice company in Costa Rica. It was determined that consolidation of the entity was appropriate and therefore the financial position, results of operations and cash flows for this company have been included in Sysco’s financial statements. The value of the 50% noncontrolling interest is considered redeemable due to certain features of the investment agreement and has been presented as mezzanine equity, which is outside of permanent equity, in the consolidated balance sheets. The elimination of the noncontrolling interest portion of the results of operations is located within other expense (income), net in the consolidated results of operations, as this amount is not material. The non-cash add back for the change in the value of the noncontrolling interest is located within Other non-cash items on the consolidated cash flows.
Prior year amounts within the consolidated balance sheets and consolidated cash flows have been reclassified to conform to the current year presentation as it relates to the presentation of certain accounts payableaccrued expenses, deferred taxes and accrued expenses. Prior year amountsother long-term liabilities balances within the consolidated results of operations have been reclassified to conform to the current year presentation as it relates to the classification of certain amounts within cost of sales and operating expenses.these statements. The impact of these reclassifications was immaterial to the prior year period.
These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the company's fiscal 20132014 Annual Report on Form 10-K. Certain footnote disclosures included in annual financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to applicable rules and regulations for interim financial statements.
A review of the financial information herein has been made by Ernst & Young LLP, independent registered public accounting firm, in accordance with established professional standards and procedures for such a review. A Review Report of Independent Registered Public Accounting Firm has been issued by Ernst & Young LLP and is included as Exhibit 15.1 to this Form 10-Q.
2. CHANGES IN ACCOUNTING
Testing Indefinite-Lived Intangible Assets for ImpairmentPresentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
In July 2012,2013, the FASB issued ASU 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment.”Accounting Standards update (ASU) 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This update amends ASC 350, “Intangibles—Goodwill and Other”Accounting Standards Codification (ASC) 740, Income Taxes, to allow entitiesrequire that, in certain cases, an optionunrecognized tax benefit, or portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to first assess qualitative factors to determine whether it is necessary to performa deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, when such items exist in the quantitative impairment test. Under that option, an entity no longer would be required to calculate the fair value of the intangible asset unless the entity determines, based on that qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.same taxing jurisdiction. The amendments in this update wereare effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption was permitted. The adoption of this update in the first quarter of fiscal 2014 did not result in a change to the company’s interim consideration of impairment of indefinite-lived intangible assets. Sysco does not believe this update will have an impact on its annual testing for impairment of indefinite-lived intangibles in the fourth quarter of fiscal 2014.
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” This update amends ASC 220, “Comprehensive Income” to require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net earnings if the amount is being reclassified in its entirety to net earnings. For other amounts that are not being reclassified in their entirety to net earnings, an entity is required to cross-reference other disclosures that provide additional detail about those amounts. The amendments in this update were effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2012.2013, which was fiscal 2015 for Sysco. Early adoption was permitted. The additional disclosures required by thisamendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date, and retrospective application is permitted. This update are included in Note 9, “Comprehensive Income.”did not have an impact on the company’s financial statements.
3. NEW ACCOUNTING STANDARDS
Revenue from Contracts with Customers
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This update creates ASC 606, Revenue from Contracts with Customers, and supercedes the revenue recognition requirements in ASC 605, Revenue Recognition. Additionally, other sections of the ASC were amended to be consistent with the guidance in this update. The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. A five-step revenue recognition model is to be applied to achieve this core principle. ASC 606 also specifies comprehensive disclosures to help users of financial statements understand the nature, amount, timing and uncertainty of revenue that is recognized. The amendments in this
5
update are effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period, which is fiscal 2018 for Sysco. Early adoption is not permitted. Sysco is currently evaluating the impact this update will have on its financial statements.
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This update creates a new subtopic ASC 205-40, “Presentation of Financial Statements – Going Concern,” and provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The requirements in this update are effective for the annual period ending after December 15, 2016, which is fiscal 2017 for Sysco, and for annual and interim periods thereafter. Early application is permitted. Sysco acknowledges this new guidance and will comply with the disclosure requirements if applicable beginning in fiscal 2017.
4. ACQUISITIONS
During the first quarter of fiscal 2015, in the aggregate, the company paid cash of $32.1 million for acquisitions made during the quarter. Acquisitions in the first quarter of fiscal 2015 were immaterial, individually and in the aggregate, to the consolidated financial statements.
Certain acquisitions involve contingent consideration typically payable over periods of up to three years only in the event that certain operating results are attained. As of September 27, 2014, aggregate contingent consideration amounts outstanding relating to completed acquisitions were $69.0 million, of which $53.9 million was recorded as earnout liabilities as of September 27, 2014.
In the second quarter of fiscal 2014, the company announced an agreement to merge with US Foods, Inc. (US Foods). US Foods is a leading foodservice distributor in the United States (U.S.) that markets and distributes fresh, frozen and dry food and non-food products to more than 200,000 foodservice customers, including independently owned single location restaurants, regional and national chain restaurants, healthcare and educational institutions, hotels and motels, government and military organizations and retail locations. Following completion of the proposed merger, the combined company will continue to be named Sysco and headquartered in Houston, Texas.
As of the time the merger agreement was announced in December 2013, Sysco agreed to pay approximately $3.5 billion for the equity of US Foods, comprised of $3 billion of Sysco common stock and $500 million of cash. As part of the transaction, Sysco will also assume or refinance US Foods’ net debt, which was approximately $4.7 billion as of September 28, 2013, bringing the total enterprise value to $8.2 billion at the time of the merger announcement. At the time of the merger announcement, Sysco secured a fully committed bridge financing that could be used for funding a portion of the purchase price. As of October 25, 2014, the merger consideration is estimated as follows: approximately $3.7 billion for the equity of US Foods, comprised of $3.2 billion of Sysco common stock valued using the seven day average through October 25, 2014, and $500 million of cash. US Foods' net debt to be assumed or refinanced was approximately $4.8 billion as of June 28, 2014, bringing the total enterprise value to $8.5 billion as of October 25, 2014. The value of Sysco’s common stock and the amount of US Foods’ net debt will fluctuate. As such, the components of the transaction and total enterprise value noted above will not be finalized until the merger is consummated.
After completion of the transaction, the equity holders of US Foods will own approximately 87 million shares, or roughly 13% of Sysco. A representative from each of US Foods’ two majority shareholders will join Sysco’s Board of Directors upon closing. This merger is currently pending a regulatory review process by the Federal Trade Commission (FTC). The company continues to be in productive discussions with FTC staff on a solution to permit the FTC to conclude its review. Given the amount of work remaining, and considering the upcoming holidays, the company does not currently expect to complete the transaction before the first quarter of 2015. Under certain conditions, including lack of regulatory approval, Sysco would be obligated to pay $300 million to the owners of US Foods if the merger were cancelled.
In contemplation of issuing long-term financing for this merger, in January 2014, the company entered into two forward starting swap agreements with notional amounts totaling $2 billion to reduce the variability in the expected cash outflows of interest payments on 10-year and 30-year debt due to changes in benchmark interest rates. In September 2014, Sysco began the process of issuing long-term financing for this merger by pricing a six-part senior notes offering totaling $5 billion. At the same time, the forward starting interest rate swaps were terminated in conjunction with the pricing of the senior notes. Cash settlement of these swaps occurred in September 2014 and October 2014. Concurrent with the new senior notes, Sysco entered into new interest rate swap agreements that effectively converted two series of the senior notes totaling $1.25 billion to floating rate debt. These swaps were designated as fair value hedges. In October 2014, subsequent to quarter-end, the senior notes were funded, and the previously outstanding unsecured bridge facility was terminated. Detailed discussion of these transactions is located in Note 6, Derivative Financial Instruments, and Note 7, Debt.
6
5. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). The accounting guidance includes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows:
· | Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets; |
· | Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability; and |
5
· | Level 3 – Unobservable inputs for the asset or liability, which include management’s own assumption about the assumptions market participants would use in pricing the asset or liability, including assumptions about risk. |
Sysco’s policy is to invest in only high-quality investments. Cash equivalents primarily include time deposits, certificates of deposit, commercial paper, high-quality money market funds and all highly liquid instruments with original maturities of three months or less. Restricted cash consists of investments in high-quality money market funds.
The following is a description of the valuation methodologies used for assets and liabilities measured at fair value.
· | Time deposits and commercial paper included in cash equivalents are valued at amortized cost, which approximates fair value. These are included within cash equivalents as a Level 2 measurement in the tables below. |
· | Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. These are included within cash equivalents and restricted cash as Level 1 measurements in the tables below. |
· | The interest rate swap agreements, discussed further in Note |
The following tables present the company’s assets measured at fair value on a recurring basis as of March 29,September 27, 2014, June 29, 201328, 2014 and March 30,September 28, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Assets and Liabilities Measured at Fair Value as of Mar. 29, 2014 | Assets and Liabilities Measured at Fair Value as of Sep. 27, 2014 | ||||||||||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents | $ | 2,650 |
| $ | 105,500 |
| $ | - |
| $ | 108,150 | $ | - |
| $ | 143,416 |
| $ | - |
| $ | 143,416 |
Restricted cash |
| 157,870 |
|
| - |
|
| - |
|
| 157,870 |
| 165,437 |
|
| - |
|
| - |
|
| 165,437 |
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreement |
| - |
|
| 1,673 |
|
| - |
|
| 1,673 |
| - |
|
| 264 |
|
| - |
|
| 264 |
Total assets at fair value | $ | 160,520 |
| $ | 107,173 |
| $ | - |
| $ | 267,693 | $ | 165,437 |
| $ | 143,680 |
| $ | - |
| $ | 309,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Other long-term liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Interest rate swap agreements | $ | - |
| $ | 64,025 |
| $ | - |
| $ | 64,025 | $ | - |
| $ | 3,496 |
| $ | - |
| $ | 3,496 |
Total liabilities at fair value | $ | - |
| $ | 64,025 |
| $ | - |
| $ | 64,025 | $ | - |
| $ | 3,496 |
| $ | - |
| $ | 3,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Assets Measured at Fair Value as of Jun. 29, 2013 | ||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
| (In thousands) | ||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents | $ | 1,160 |
| $ | 132,731 |
| $ | - |
| $ | 133,891 |
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreement |
| - |
|
| 2,988 |
|
| - |
|
| 2,988 |
Restricted cash |
| 145,328 |
|
| - |
|
| - |
|
| 145,328 |
Total assets at fair value | $ | 146,488 |
| $ | 135,719 |
| $ | - |
| $ | 282,207 |
67
|
|
|
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|
|
|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Assets Measured at Fair Value as of Mar. 30, 2013 | Assets and Liabilities Measured at Fair Value as of Jun. 28, 2014 | ||||||||||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents | $ | 122,140 |
| $ | 138,639 |
| $ | - |
| $ | 260,779 | $ | 2,770 |
| $ | 131,966 |
| $ | - |
| $ | 134,736 |
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Restricted cash |
| 145,412 |
|
| - |
|
| - |
|
| 145,412 | |||||||||||
Other assets |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Interest rate swap agreement |
| - |
|
| 3,990 |
|
| - |
|
| 3,990 |
| - |
|
| 4,828 |
|
| - |
|
| 4,828 |
Restricted cash |
| 145,270 |
|
| - |
|
| - |
|
| 145,270 | |||||||||||
Total assets at fair value | $ | 267,410 |
| $ | 142,629 |
| $ | - |
| $ | 410,039 | $ | 148,182 |
| $ | 136,794 |
| $ | - |
| $ | 284,976 |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Accrued expenses |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Interest rate swap agreement | $ | - |
| $ | 133,466 |
| $ | - |
| $ | 133,466 | |||||||||||
Total liabilities at fair value | $ | - |
| $ | 133,466 |
| $ | - |
| $ | 133,466 |
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
| Assets Measured at Fair Value as of Sep. 28, 2013 | ||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
| (In thousands) | ||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents | $ | - |
| $ | 129,510 |
| $ | - |
| $ | 129,510 |
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreement |
| - |
|
| 2,015 |
|
| - |
|
| 2,015 |
Restricted cash |
| 157,837 |
|
| - |
|
| - |
|
| 157,837 |
Other assets |
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreement |
| - |
|
| 4,125 |
|
| - |
|
| 4,125 |
Total assets at fair value | $ | 157,837 |
| $ | 135,650 |
| $ | - |
| $ | 293,487 |
The carrying values of accounts receivable and accounts payable approximated their respective fair values due to the short‑term maturities of these instruments. The fair value of Sysco’s total debt is estimated based on the quoted market prices for the same or similar issue or on the current rates offered to the company for debt of the same remaining maturities and is considered a Level 2 measurement. The fair value of total debt approximated $3,286.5 million, $3,207.6 million3.3 billion, $3.0 billion and $3,281.9 million$3.3 billion as of March 29,September 27, 2014, June 29, 201328, 2014 and March 30,September 28, 2013, respectively. The carrying value of total debt was $3,062.1 million, $2,888.9 million$3.0 billion, $2.8 billion and $2,798.2 million$3.1 billion as of March 29,September 27, 2014, June 29, 201328, 2014 and March 30,September 28, 2013, respectively.
4.6. DERIVATIVE FINANCIAL INSTRUMENTS
Sysco manages its debt portfolio to achieve an overall desired position of fixed and floating rates and may employ interest rate swaps from time to time to achieve this position. The company does not use derivative financial instruments for trading or speculative purposes.
In August 2013,fiscal 2014, the company entered into an interest rate swap agreement that effectively converted $500.0$500 million of fixed rate debt maturing in fiscal 2018 to floating rate debt. In addition, in fiscal 2010, theThe company entered into an interest rate swap agreementagreements that effectively converted $200.0$500 million of fixed rate debtthe new senior notes maturing in fiscal 20142018 and $750 million of the new senior notes maturing in fiscal 2020 to floating rate debt; this swap was settled upon maturitydebt. See Note 7, Debt, for further discussion of the senior notes in March 2014.issuance. These transactions were entered into with the goal of reducing overall borrowing cost and increasing floating interest rate exposure. These transactionsexposure and were designated as fair value hedges against the changes in fair value of fixed rate debt resulting from changes in interest rates.
In January 2014, the company entered into two forward starting swap agreements with notional amounts totaling $2.0$2 billion. The company designated these derivatives as cash flow hedges of the variability in the expected cash outflows of interest payments on then forecasted 10-year and 30-year debt due to changes in the benchmark interest rates for debtrates. In September 2014, in conjunction with the pricing of the $1.25 billion senior notes maturing in fiscal 2025 and $1 billion senior notes maturing in fiscal 2045, the company expects to issueterminated these swaps, locking in fiscal 2015. Prior to issuance of the debt, the effective portionyields on the related debt. Cash of gains$58.9 million was paid to settle the 10-year swap in September 2014, and losses on thesecash of $129.9 million was paid to settle the 30-year swap in October 2014 subsequent to quarter-end. The September 2014 cash payment is located within the line Cash paid for settlement of cash flow hedges is recorded to Other comprehensive income (loss). Oncehedge within financing activities in the interest rate swap agreements are settled upon issuance
8
statement of the debt, theconsolidated cash flows. The cumulative gain or losslosses recorded in Accumulated other comprehensive (loss) income related to these swaps will be amortized through interest expense over the term of the issued debt.
The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of March 29,September 27, 2014, June 29, 201328, 2014 and March 30,September 28, 2013 are as follows:
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| Asset Derivatives |
| Liability Derivatives | |||||
| Balance Sheet Location |
| Fair Value |
| Balance Sheet Location |
| Fair Value | |
| (In thousands) | |||||||
Interest rate swap agreements: |
|
|
|
|
|
|
|
|
Mar. 29, 2014 | Other assets |
| $ | 1,673 |
| Accrued expenses | $ | 64,025 |
Jun. 29, 2013 | Prepaid expenses and |
|
| 2,988 |
| N/A |
| N/A |
Mar. 30, 2013 | Prepaid expenses and |
|
| 3,990 |
| N/A |
| N/A |
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|
|
|
|
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|
|
| Asset Derivatives |
| Liability Derivatives | |||||
| Balance Sheet Location |
| Fair Value |
| Balance Sheet Location |
| Fair Value | |
| (In thousands) | |||||||
Interest rate swap agreements: |
|
|
|
|
|
|
|
|
Sep. 27, 2014 | Other assets |
| $ | 264 |
| Other long-term liabilities | $ | 3,496 |
Jun. 28, 2014 | Other assets |
|
| 4,828 |
| Accrued expenses |
| 133,466 |
Sep. 28, 2013 | Prepaid expenses and |
|
| 2,015 |
| N/A |
| N/A |
7
The location and effect of derivative instruments and related hedged items on the consolidated results of operations for the third quarter of fiscal 2014 and fiscal 2013 presented on a pre-tax basis are as follows:
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| Location of (Gain) or Loss |
| Amount of (Gain) or Loss | ||||
|
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|
| 13-Week Period Ended | ||||
|
|
|
| Mar. 29, 2014 |
| Mar. 30, 2013 | ||
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|
|
| (In thousands) | ||||
Fair Value Hedge Relationships: |
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|
|
|
|
|
|
Interest rate swap agreements |
| Interest expense |
| $ | (1,815) |
| $ | 832 |
|
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|
|
Cash Flow Hedge Relationships: |
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|
|
|
|
|
Interest rate swap agreements |
| Other comprehensive income |
|
| 64,025 |
|
| - |
Interest rate contracts |
| Interest expense |
|
| 157 |
|
| 156 |
The location and effect of derivative instruments and related hedged items on the consolidated results of operations for the 39-week periods ended March 29,first quarter of fiscal 2015 and 2014 and March 30, 2013 presented on a pre-tax basis are as follows:
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| Location of (Gain) or Loss |
| Amount of (Gain) or Loss |
| Location of (Gain) or Loss |
| Amount of (Gain) or Loss | ||||||||
|
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|
| 39-Week Period Ended |
|
|
| 13-Week Period Ended | ||||||||
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|
| Mar. 29, 2014 |
| Mar. 30, 2013 |
|
|
| Sep. 27, 2014 |
| Sep. 28, 2013 | ||||
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| (In thousands) |
|
|
| (In thousands) | ||||||||
Fair Value Hedge Relationships: |
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|
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|
|
|
|
Interest rate swap agreements |
| Interest expense |
| $ | (9,065) |
| $ | (3,492) |
| Interest expense |
| $ | (3,269) |
| $ | (3,175) |
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Cash Flow Hedge Relationships: |
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
Interest rate swap agreements |
| Other comprehensive income |
|
| 64,025 |
|
| - |
| Other comprehensive income |
|
| 55,374 |
|
| - |
Interest rate contracts |
| Interest expense |
|
| 469 |
|
| 469 |
| Interest expense |
|
| 205 |
|
| 156 |
Hedge ineffectiveness represents the difference between the changes in the fair value of the derivative instruments and the changes in fair value of the fixed rate debt attributable to changes in the benchmark interest rate.rates. Hedge ineffectiveness is recorded directly in earnings within interest expense and was immaterial for the thirdfirst quarter of fiscal 20142015 and 2013 and the 39-week periods ended March 29, 2014 and March 30, 2013.2014. The interest rate swaps do not contain credit-risk-related contingent features.
Subsequent Event
In October 2014, subsequent to quarter-end, cash of $129.9 million was paid to settle the 30-year forward starting swap discussed above. This swap was terminated in September 2014, but the cash payment did not occur until October 2014.
5.7. DEBT
As of March 29,September 27, 2014, Sysco had an uncommitted bank linesline of credit, which provideprovided for unsecured borrowings for working capital of up to $95.0 million,$20 million. There were no borrowings outstanding under this line of which none was outstanding. Such amounts when outstanding are reflectedcredit as of September 27, 2014.
Sysco has a Board-approved commercial paper program allowing the company to issue short-term unsecured notes in Notes payable on the consolidated balance sheet. an aggregate amount not to exceed $1.3 billion.
Sysco and one of its subsidiaries, Sysco International, ULC, have a revolving credit facility supporting the company’s United States (U.S.)U.S. and Canadian commercial paper programs. The facility provides for borrowings in both U.S. and Canadian dollars. Borrowings by Sysco International, ULC under the agreement are guaranteed by Sysco, and borrowings by Sysco and Sysco International, ULC under the credit agreement are guaranteed by the wholly-owned subsidiaries of Sysco that are guarantors of the company’s senior notes and debentures. In January 2014, Sysco and Sysco International, ULC, extended and increased the size of the revolving credit facility described above that supports the company’s U.S. and Canadian commercial paper programs. The facility was increased toin the amount of $1.5 billion with an expiration date ofexpires December 29, 2018, but is subject to further extension. The other terms and conditions of the extended facility are substantially the same. As of March 29,September 27, 2014, commercial paper issuances outstanding were $441.1$398.6 million and were classified as long-term debt, as the company’s commercial paper programs are supported by the long-term revolving credit facility described above.
9
During the 39-week period ended March 29, 2014,first quarter of 2015, aggregate commercial paper issuances and short-term bank borrowings ranged from zero$123.8 million to approximately $769.5$659.4 million.
The company’s Irish subsidiary, Pallas Foods, has a multicurrency revolving credit facility in the amount of €100 million (Euro), which provides for capital needs for the company’s European subsidiaries. In September 2013, the facility was extended and increased to €100.0 million (Euro). This
8
facility provides for unsecured borrowings and expires September 24, 2014,23, 2015, but is subject to extension. Outstanding borrowings under this facility were €52.0€62.0 million (Euro) as of March 29,September 27, 2014, reflected in Notes payable on the consolidated balance sheet.
In December 2013,As of September 27, 2014, Sysco secured a commitment forhad an unsecured bridge facility in the amount of $3.3865 billion bridge term loan agreement with multiple lenders in connection with its proposed merger with US Foods Inc. (US Foods) (discussed further in Note 12,4, Acquisitions). In January 2014, this bridgeThe facility commitment was replaced with a $3.3865 billion bridge term loan agreement with multiple lenders.provided that Sysco maycould borrow up to $3.386.5$3.3865 billion in term loans on the closing date of the US Foods acquisitionmerger to fund the acquisition, refinance certain indebtedness of US Foods and pay related fees and expenses. The facility expires onhad an expiration date of March 8, 2015, but iswas subject to extension if regulatory approvals havehad not yet been obtained. BorrowingsAny borrowings under the bridge term loan agreement arewould be guaranteed by the same subsidiaries of Sysco that guarantee the company’s revolving credit facility, and in certain circumstances, maywould also be guaranteed by US Foods after closing of the merger.
In MarchSeptember 2014, Sysco repaid the 4.6%priced a six-part senior notes offering totaling $200.0 million$5 billion as long-term financing for the proposed US Foods merger transaction.
Subsequent Event
In October 2014, subsequent to quarter-end, the senior notes described above were funded, and the previously outstanding unsecured bridge facility described above was terminated. The senior notes, issued under the company’s February 2012 registration statement, are unsecured, are not subject to any sinking fund requirement and include a redemption provision that allows Sysco to retire the notes at any time prior to maturity utilizingat the greater of par plus accrued interest or an amount designed to ensure that the note holders are not penalized by early redemption. In addition, if the merger has not closed by October 8, 2015 or if the merger agreement is terminated on or prior to October 8, 2015, Sysco must redeem all of the senior notes at a combinationredemption price equal to 101% of the principal of the senior notes plus accrued interest. The notes will be fully and unconditionally guaranteed initially by the wholly-owned U.S. Broadline subsidiaries that guarantee Sysco’s other senior notes. Proceeds from the notes will be used to pay the cash portion of the consideration for the proposed merger, to refinance certain indebtedness of US Foods, to unwind certain cash flow from operationshedges that Sysco entered into in contemplation of this merger-related debt assumption and refinancing, to repay a portion of Sysco’s outstanding commercial paper issuances.and to pay expected future direct transaction costs related to the merger. Details of the senior notes are below:
6.
|
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|
|
|
|
|
|
Maturity Date |
| Par Value |
| Coupon Rate |
| Pricing | |||
October 2, 2017 |
| $ | 500 |
| 1.45 | % |
| 99.962 | % |
October 2, 2019 |
|
| 750 |
| 2.35 |
|
| 99.864 |
|
October 2, 2021 |
|
| 750 |
| 3.00 |
|
| 99.781 |
|
October 2, 2024 |
|
| 1,250 |
| 3.50 |
|
| 99.616 |
|
October 2, 2034 |
|
| 750 |
| 4.35 |
|
| 99.841 |
|
October 2, 2044 |
|
| 1,000 |
| 4.50 |
|
| 98.992 |
|
10
8. COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS
In the tables below, the caption “Pension Benefits” includes both the company-sponsored qualified pension plan and the Supplemental Executive Retirement Plan. The components of net company-sponsored benefit cost for the thirdfirst quarter of fiscal 20142015 and fiscal 20132014 are as follows:
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|
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|
|
| Pension Benefits |
| Other Postretirement Plans | ||||||||
| Mar. 29, 2014 |
| Mar. 30, 2013 |
| Mar. 29, 2014 |
| Mar. 30, 2013 | ||||
| (In thousands) | ||||||||||
Service cost | $ | 2,414 |
| $ | 17,399 |
| $ | 136 |
| $ | 135 |
Interest cost |
| 40,109 |
|
| 36,805 |
|
| 187 |
|
| 154 |
Expected return on plan assets |
| (48,199) |
|
| (42,801) |
|
| - |
|
| - |
Amortization of prior service cost |
| 2,786 |
|
| 3,083 |
|
| 42 |
|
| 42 |
Amortization of actuarial loss (gain) |
| 4,082 |
|
| 17,637 |
|
| (36) |
|
| (51) |
Amortization of transition obligation |
| - |
|
| - |
|
| - |
|
| 35 |
Net periodic benefit cost | $ | 1,192 |
| $ | 32,123 |
| $ | 329 |
| $ | 315 |
The components of net company-sponsored benefit cost for the 39-week periods ended March 29, 2014 and March 30, 2013 are as follows:
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|
|
|
|
|
|
|
|
| ||||||
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|
|
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|
|
|
|
|
|
| ||||||
| Pension Benefits |
| Other Postretirement Plans | Pension Benefits |
| Other Postretirement Plans | ||||||||||||||||
| Mar. 29, 2014 |
| Mar. 30, 2013 |
| Mar. 29, 2014 |
| Mar. 30, 2013 | Sep. 27, 2014 |
| Sep. 28, 2013 |
| Sep. 27, 2014 |
| Sep. 28, 2013 | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
Service cost | $ | 7,242 |
| $ | 52,768 |
| $ | 409 |
| $ | 406 | $ | 2,815 |
| $ | 2,414 |
| $ | 134 |
| $ | 136 |
Interest cost |
| 120,327 |
| 111,758 |
| 561 |
| 461 |
| 42,779 |
| 40,109 |
| 148 |
| 187 | ||||||
Expected return on plan assets |
| (144,597) |
| (128,402) |
| - |
| - |
| (57,156) |
| (48,199) |
| - |
| - | ||||||
Amortization of prior service cost |
| 8,358 |
| 6,817 |
| 126 |
| 126 |
| 2,777 |
| 2,786 |
| 42 |
| 42 | ||||||
Recognized net actuarial loss (gain) |
| 12,246 |
| 54,987 |
| (108) |
| (152) |
| 4,968 |
|
| 4,082 |
|
| (109) |
|
| (36) | |||
Amortization of transition obligation |
| - |
| - |
| - |
| 106 | ||||||||||||||
Curtailment loss |
| - |
|
| 8,293 |
|
| - |
|
| - | |||||||||||
Net periodic benefit cost | $ | 3,576 |
| $ | 106,221 |
| $ | 988 |
| $ | 947 | $ | (3,817) |
| $ | 1,192 |
| $ | 215 |
| $ | 329 |
Sysco’s contributions to its company-sponsored defined benefit plans were $18.5$56.1 million and $17.5$5.8 million during the 39-week periods ended March 29,first quarter of fiscal 2015 and 2014, and March 30, 2013, respectively.
7.9. MULTIEMPLOYER EMPLOYEE BENEFIT PLANS
Sysco contributes to several multiemployer defined benefit pension plans in the U.S. and Canada based on obligations arising under collective bargaining agreements covering union-represented employees. Sysco does not directly manage these multiemployer plans, which are generally managed by boards of trustees, half of whom are appointed by the unions and the other half appointed by Sysco and the other employers contributing to the plan.
Based upon the information available from plan administrators, management believes that several of these multiemployer plans are underfunded. In addition, pension-related legislation in the U.S. requires underfunded pension plans to improve their funding
9
ratios within prescribed intervals based on the level of their underfunding. As a result, Sysco expects its contributions to these plans to increase in the future. In addition, if a U.S. multiemployer defined benefit plan fails to satisfy certain minimum funding requirements, the Internal Revenue Service may impose a nondeductible excise tax of 5% on the amount of the accumulated funding deficiency for those employers contributing to the fund.
Withdrawal Activity
Sysco has voluntarily withdrawn from various multiemployer pension plans. TotalThere were no withdrawal liability provisions recorded were $1.5 million in the first 39 weeksquarter of fiscal 2015 or the first quarter of fiscal 2014. As of September 27, 2014, June 28, 2014, and $43.2 million in the first 39 weeks of fiscal 2013. As of March 29, 2014, June 29, 2013, and March 30,September 28, 2013, Sysco had approximately $1.5 million, $40.7zero, $1.4 million and $54.8$40.3 million, respectively, in liabilities recorded related to certain multiemployer defined benefit plans for which Sysco’s voluntary withdrawal had already occurred. Recorded withdrawal liabilities are estimated at the time of withdrawal based on the most recently available valuation and participant data for the respective plans; amounts are subsequently adjusted to the period of payment to reflect any changes to these estimates. If any of these plans were to undergo a mass withdrawal, as defined by the Pension Benefit Guaranty Corporation, within the two plan years following the plan year in which we completely withdraw from that plan, Sysco could have additional liability. The company does not currently believe any mass withdrawals are probable to occur in the applicable two-plan year time frame relating to the plans from which Sysco has voluntarily withdrawn.
Potential Withdrawal Liability
Under current law regarding multiemployer defined benefit plans, a plan’s termination, Sysco’s voluntary withdrawal, or the mass withdrawal of all contributing employers from any underfunded multiemployer defined benefit plan would require Sysco to make payments to the plan for Sysco’s proportionate share of the multiemployer plan’s unfunded vested liabilities. Generally, Sysco does not have the greatest share of liability among the participants in any of the plans in which it participates. Sysco believes that one of the above-mentioned events is reasonably possible for certain plans in which it participates and estimates its share of withdrawal liability for these plans could have been as much as $90.0 million as of March 29,September 27, 2014. This estimate excludes plans for which Sysco has recorded withdrawal liabilities or where the likelihood of the above-mentioned events is deemed remote. This estimate is based on the information available from plan administrators, the majority of which had a valuation date of December 31, 2012.2013. As the valuation date for most of these plans was December 31, 2012,2013, the company’s estimate reflects the condition of the financial markets as of that date. Due to the lack of current information, management believes Sysco’s current share of the withdrawal liability could materially differ from this estimate.
8.
11
10. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
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|
|
| 13-Week Period Ended |
| 39-Week Period Ended |
| 13-Week Period Ended | ||||||||||||
|
| Mar. 29, 2014 |
| Mar. 30, 2013 |
| Mar. 29, 2014 |
| Mar. 30, 2013 |
| Sep. 27, 2014 |
| Sep. 28, 2013 | ||||||
|
| (In thousands, except for share and per share data) |
| (In thousands, except for share | ||||||||||||||
|
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|
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|
|
| |||
Numerator: |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 180,937 |
| $ | 201,417 |
| $ | 677,362 |
| $ | 709,384 |
| $ | 278,813 |
| $ | 285,590 |
|
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|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic shares outstanding |
|
| 585,885,137 |
|
| 589,149,731 |
|
| 585,802,651 |
|
| 588,222,833 |
|
| 588,277,056 |
|
| 587,621,529 |
Dilutive effect of share-based awards |
|
| 4,585,146 |
|
| 3,754,068 |
|
| 4,031,670 |
|
| 2,831,673 |
|
| 5,032,694 |
|
| 3,837,419 |
Weighted-average diluted shares outstanding |
|
| 590,470,283 |
|
| 592,903,799 |
|
| 589,834,321 |
|
| 591,054,506 |
|
| 593,309,750 |
|
| 591,458,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
| $ | 0.31 |
| $ | 0.34 |
| $ | 1.16 |
| $ | 1.21 |
| $ | 0.47 |
| $ | 0.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
| $ | 0.31 |
| $ | 0.34 |
| $ | 1.15 |
| $ | 1.20 |
| $ | 0.47 |
| $ | 0.48 |
The number of options that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately 2,800,000 and 10,800,000600,000 for the thirdfirst quarter of fiscal 20142015 and fiscal 2013, respectively. The number of options that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately 2,000,000 and 24,200,000insignificant for the first 39 weeksquarter of fiscal 2014 and 2013, respectively.2014.
10
9.11. COMPREHENSIVE INCOME
Comprehensive income is net earnings plus certain other items that are recorded directly to shareholders’ equity, such as foreign currency translation adjustment, amounts related to cash flow hedging arrangements and certain amounts related to pension and other postretirement plans. Comprehensive income was $110.4$178.3 million and $186.4 million for the third quarter of fiscal 2014 and fiscal 2013, respectively. Comprehensive income was $607.4 million and $751.5$320.7 million for the first 39 weeksquarter of fiscal 20142015 and fiscal 20132014, respectively.
12
A summary of the components of other comprehensive income (loss) and the related tax effects for each of the periods presented is as follows:
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
| 13-Week Period Ended Mar. 29, 2014 | |||||||
| Location of Expense | Before Tax |
| Tax |
| Net of Tax | |||
|
| (In thousands) | |||||||
Pension and other postretirement benefit plans: |
|
|
|
|
|
|
|
|
|
Reclassification adjustments: |
|
|
|
|
|
|
|
|
|
Amortization of prior service cost | Operating expenses | $ | 2,828 |
| $ | 1,086 |
| $ | 1,742 |
Amortization of actuarial loss (gain), net | Operating expenses |
| 4,046 |
|
| 1,554 |
|
| 2,492 |
Total reclassification adjustments |
|
| 6,874 |
|
| 2,640 |
|
| 4,234 |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation: |
|
|
|
|
|
|
|
|
|
Other comprehensive income before |
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment | N/A |
| (35,397) |
|
| - |
|
| (35,397) |
|
|
|
|
|
|
|
|
|
|
Interest rate swaps: |
|
|
|
|
|
|
|
|
|
Reclassification adjustments: |
|
|
|
|
|
|
|
|
|
Amortization of cash flow hedges | Interest expense |
| 157 |
|
| 60 |
|
| 97 |
Other comprehensive income before |
|
|
|
|
|
|
|
|
|
Change in fair value of cash flow hedges | N/A |
| (64,025) |
|
| (24,586) |
|
| (39,439) |
Total other comprehensive (loss) income |
| $ | (92,391) |
| $ | (21,886) |
| $ | (70,505) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13-Week Period Ended Mar. 30, 2013 | |||||||
| Location of Expense | Before Tax |
| Tax |
| Net of Tax | |||
|
| (In thousands) | |||||||
Pension and other postretirement benefit plans: |
|
|
|
|
|
|
|
|
|
Reclassification adjustments: |
|
|
|
|
|
|
|
|
|
Amortization of prior service cost | Operating expenses | $ | 3,125 |
| $ | 1,200 |
| $ | 1,925 |
Amortization of actuarial loss (gain), net | Operating expenses |
| 17,586 |
|
| 6,754 |
|
| 10,832 |
Amortization of transition obligation | Operating expenses |
| 35 |
|
| 13 |
|
| 22 |
Total reclassification adjustments |
|
| 20,746 |
|
| 7,967 |
|
| 12,779 |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation: |
|
|
|
|
|
|
|
|
|
Other comprehensive income before |
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment | N/A |
| (27,886) |
|
| - |
|
| (27,886) |
|
|
|
|
|
|
|
|
|
|
Interest rate swaps: |
|
|
|
|
|
|
|
|
|
Reclassification adjustments: |
|
|
|
|
|
|
|
|
|
Amortization of cash flow hedges | Interest expense |
| 156 |
|
| 60 |
|
| 96 |
Total other comprehensive income (loss) |
| $ | (6,984) |
| $ | 8,027 |
| $ | (15,011) |
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
| 13-Week Period Ended Sep. 27, 2014 | |||||||||
|
| 39-Week Period Ended Mar. 29, 2014 |
| Location of Expense |
| Before Tax |
| Tax |
| Net of Tax | ||||||||||
| Location of Expense | Before Tax |
| Tax |
| Net of Tax |
|
|
|
|
|
|
|
|
|
|
| |||
|
| (In thousands) | ||||||||||||||||||
Pension and other postretirement benefit plans: |
|
|
|
|
|
|
| |||||||||||||
Pension and other postretirement benefit |
|
|
| (In thousands) | ||||||||||||||||
Reclassification adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Amortization of prior service cost | Operating expenses | $ | 8,484 |
| $ | 3,257 |
| $ | 5,227 |
| Operating expenses |
| $ | 2,819 |
| $ | 1,082 |
| $ | 1,737 |
Amortization of actuarial loss (gain), net | Operating expenses |
| 12,138 |
|
| 4,663 |
|
| 7,475 |
| Operating expenses |
|
| 4,859 |
|
| 1,866 |
|
| 2,993 |
Total reclassification adjustments |
|
| 20,622 |
|
| 7,920 |
|
| 12,702 |
|
|
|
| 7,678 |
|
| 2,948 |
|
| 4,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other comprehensive income before |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign currency translation adjustment | N/A |
| (43,537) |
| - |
| (43,537) |
| N/A |
| (71,254) |
| - |
| (71,254) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest rate swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Reclassification adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Amortization of cash flow hedges | Interest expense |
| 469 |
|
| 180 |
|
| 289 |
| Interest expense |
|
| 205 |
|
| 79 |
|
| 126 |
Other comprehensive income before |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of cash flow hedges | N/A |
| (64,025) |
|
| (24,586) |
|
| (39,439) |
| N/A |
|
| (55,374) |
|
| (21,263) |
|
| (34,111) |
Total other comprehensive (loss) income |
| $ | (86,471) |
| $ | (16,486) |
| $ | (69,985) |
|
|
| $ | (118,745) |
| $ | (18,236) |
| $ | (100,509) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
| 13-Week Period Ended Sep. 28, 2013 | |||||||||
|
| 39-Week Period Ended Mar. 30, 2013 |
| Location of Expense |
| Before Tax |
| Tax |
| Net of Tax | ||||||||||
| Location of Expense | Before Tax |
| Tax |
| Net of Tax |
|
|
|
|
|
|
|
|
|
|
| |||
|
| (In thousands) |
|
|
| (In thousands) | ||||||||||||||
Pension and other postretirement benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Reclassification adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Amortization of prior service cost | Operating expenses | $ | 15,236 |
| $ | 5,850 |
| $ | 9,386 |
| Operating expenses |
| $ | 2,828 |
| $ | 1,086 |
| $ | 1,742 |
Amortization of actuarial loss (gain), net | Operating expenses |
| 54,834 |
| 21,058 |
| 33,776 |
| Operating expenses |
|
| 4,046 |
|
| 1,555 |
|
| 2,491 | ||
Amortization of transition obligation | Operating expenses |
| 106 |
|
| 40 |
|
| 66 | |||||||||||
Total reclassification adjustments |
|
| 70,176 |
|
| 26,948 |
|
| 43,228 |
|
|
|
| 6,874 |
|
| 2,641 |
|
| 4,233 |
Other comprehensive income before |
|
|
|
|
|
|
|
|
| |||||||||||
Prior service cost arising in current year |
|
| (40,306) |
| (15,478) |
| (24,828) | |||||||||||||
Net actuarial gain arising in current year |
|
| 38,887 |
|
| 14,933 |
|
| 23,954 | |||||||||||
Total other comprehensive income before |
|
| (1,419) |
|
| (545) |
|
| (874) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Foreign currency translation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Other comprehensive income before |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign currency translation adjustment | N/A |
| (497) |
| - |
| (497) |
| N/A |
| 30,807 |
| - |
| 30,807 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest rate swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Reclassification adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Amortization of cash flow hedges | Interest expense |
| 469 |
|
| 180 |
|
| 289 |
| Interest expense |
|
| 156 |
|
| 60 |
|
| 96 |
Total other comprehensive income (loss) |
| $ | 68,729 |
| $ | 26,583 |
| $ | 42,146 |
|
|
| $ | 37,837 |
| $ | 2,701 |
| $ | 35,136 |
1213
The following tables provide a summary of the changes in accumulated other comprehensive (loss) income for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| 39-Week Period Ended Mar. 29, 2014 |
| 13-Week Period Ended Sep. 27, 2014 | ||||||||||||||||||||
|
| Pension and Other Postretirement Benefit Plans, |
| Foreign Currency Translation |
| Interest Rate Swaps, |
| Total |
| Pension and Other Postretirement Benefit Plans, |
| Foreign Currency Translation |
| Interest Rate Swaps, |
| Total | ||||||||
|
| (In thousands) |
| (In thousands) | ||||||||||||||||||||
Balance as of Jun. 29, 2013 |
| $ | (575,167) |
| $ | 137,558 |
| $ | (9,328) |
| $ | (446,937) | ||||||||||||
Balance as of Jun. 28, 2014 |
| $ | (685,957) |
| $ | 134,452 |
| $ | (91,158) |
| $ | (642,663) | ||||||||||||
Other comprehensive income before |
| - |
| (43,537) |
|
| (39,439) |
| (82,976) |
| - |
| (71,254) |
|
| (34,111) |
| (105,365) | ||||||
Amounts reclassified from accumulated |
|
| 12,702 |
|
| - |
|
| 289 |
|
| 12,991 |
|
| 4,730 |
|
| - |
|
| 126 |
|
| 4,856 |
Balance as of Mar. 29, 2014 |
| $ | (562,465) |
| $ | 94,021 |
| $ | (48,478) |
| $ | (516,922) | ||||||||||||
Balance as of Sep. 27, 2014 |
| $ | (681,227) |
| $ | 63,198 |
| $ | (125,143) |
| $ | (743,172) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| 39-Week Period Ended Mar. 30, 2013 |
| 13-Week Period Ended Sep. 28, 2013 | ||||||||||||||||||||
|
| Pension and Other Postretirement Benefit Plans, |
| Foreign Currency Translation |
| Interest Rate Swaps, |
| Total |
| Pension and Other Postretirement Benefit Plans, |
| Foreign Currency Translation |
| Interest Rate Swaps, |
| Total | ||||||||
|
| (In thousands) |
| (In thousands) | ||||||||||||||||||||
Balance as of Jun. 30, 2012 |
| $ | (823,901) |
| $ | 170,749 |
| $ | (9,714) |
| $ | (662,866) | ||||||||||||
Balance as of Jun. 29, 2013 |
| $ | (575,167) |
| $ | 137,558 |
| $ | (9,328) |
| $ | (446,937) | ||||||||||||
Other comprehensive income before |
| (874) |
| (497) |
|
| - |
| (1,371) |
| - |
| 30,807 |
|
| - |
| 30,807 | ||||||
Amounts reclassified from accumulated |
|
| 43,228 |
|
| - |
|
| 289 |
|
| 43,517 |
|
| 4,233 |
|
| - |
|
| 96 |
|
| 4,329 |
Balance as of Mar. 30, 2013 |
| $ | (781,547) |
| $ | 170,252 |
| $ | (9,425) |
| $ | (620,720) | ||||||||||||
Balance as of Sep. 28, 2013 |
| $ | (570,934) |
| $ | 168,365 |
| $ | (9,232) |
| $ | (411,801) |
10.12. SHARE-BASED COMPENSATION
Sysco provides compensation benefits to employees and non-employee directors under several share-based payment arrangements including various employee stock incentive plans, the Employees’ Stock Purchase Plan, and various non‑employee director plans.
Stock Incentive Plans
Sysco’s 2013 Long-term Incentive Plan (2013 Plan) was adopted in November 2013 and reserved up to 55,600,000 shares of Sysco common stock for share-based awards to employees, non-employee directors and key advisors. Of the 55,600,000 authorized shares, 45,000,000 were new shares approved with the 2013 Plan and 10,600,000 were from remaining shares authorized and available for grant under the amended 2007 Stock Incentive Plan (2007 Plan) as of the date of the approval of the 2013 Plan. No further grants will be made from the 2007 Plan. Of the 55,600,000 authorized shares, the full 55,600,000 shares may be issued as options or stock appreciation rights and up to 17,500,000 shares may be issued as restricted stock, restricted stock units or other types of stock-based awards. The contractual life of options granted under the 2013 Plan will be no greater than ten years, as compared to a maximum contractual life of seven years for options granted under the 2007 Plan.
In the first 39 weeksquarter of fiscal 2014, options to purchase 5,575,645 shares were granted to employees. The fair value of each option award is estimated as of the date of grant using a Black-Scholes option pricing model. The weighted average grant-date fair value per share of options granted during the first 39 weeks of fiscal 2014 was $4.64.
In the first 39 weeks of fiscal 2014, 1,314,8132015, 9,330 restricted stock units were granted to employees. Based on the jurisdiction in which the employee resides, some of these restricted stock units were granted with forfeitable dividend equivalents. The fair value of each restricted stock unit award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For restricted stock unit awards granted without dividend equivalents, the fair value was reduced by the present value of expected dividends during the vesting period. The weighted average grant-date fair value per share of restricted stock units granted during the first 39 weeksquarter of fiscal 20142015 was $33.39.
In the first 39 weeks of fiscal 2014, restricted awards in the amount of 43,119 were granted to non-employee directors from the 2009 Non-Employee Directors Stock Plan. The non-employee directors may elect to receive these awards in restricted stock shares
13
that will vest at the end of the award’s stated vesting period or as deferred units which convert into shares of Sysco common stock upon a date selected by the non-employee director that is subsequent to the award’s stated vesting date. The fair value of the restricted awards is based on the company’s stock price as of the date of grant. The weighted average grant-date fair value per share of restricted awards granted during the first 39 weeks of fiscal 2014 was $33.40.
Under the 2009 Non-Employee Directors Stock Plan, non-employee directors may elect to receive up to 100% of their annual directors’ fees in Sysco common stock on either an annual or deferred basis. Sysco provides a matching grant of 50% of the number of shares received for the stock election subject to certain limitations. In the first 39 weeks of fiscal 2014, 24,565 shares with a weighted average grant date fair value of $34.59 were issued for these elections in the form of fully vested common stock or deferred units.$37.41.
Employees' Stock Purchase Plan
Plan participants purchased 997,017315,856 shares of Sysco common stock under the Sysco Employees’ Stock Purchase Plan during the first 39 weeksquarter of fiscal 2014.2015.
The weighted average fair value per share of employee stock purchase rights issued pursuant to the Employees' Stock Purchase Plan was $5.09$5.62 during the first 39 weeksquarter of fiscal 2014.2015. The fair value of the stock purchase rights is estimated as the difference between the stock price and the employee purchase price.
All Share-Based Payment Arrangements
The total share-based compensation cost that has been recognized in results of operations was $60.9$12.2 million and $56.7$13.5 million for the first 39 weeksquarter of fiscal 20142015 and fiscal 2013,2014, respectively.
As of March 29,September 27, 2014, there was $76.5$58.7 million of total unrecognized compensation cost related to share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of 2.52.3 years.
14
11.13. INCOME TAXES
Uncertain Tax Positions
As of March 29,September 27, 2014, the gross amount of unrecognized tax benefits was $92.3$46.7 million and the gross amount of liability for accrued interest related to unrecognized tax benefits was $33.6$36.7 million. It is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months, either because Sysco prevails on positions that were being challenged upon audit or because the company agrees to their disallowance. Items that may cause changes to unrecognized tax benefits primarily include the consideration of various filing requirements in numerous states and the allocation of income and expense between tax jurisdictions. At this time, an estimate of the range of the reasonably possible change cannot be made.
Effective Tax Rates
The effective tax raterates for the thirdfirst quarter of fiscal 2015 and fiscal 2014 of 39.01% was negatively impacted by the recording of $6.2 million of tax expense related to anon-deductible penalty that the company has estimated within a contingency accrual. This negative impact was partially offset by the recognition of $1.0 million of tax benefit related to disqualifying dispositions of Sysco stock pursuant to share-based compensation arrangements.were 36.18% and 36.84%, respectively. Indefinitely reinvested earnings taxed at foreign statutory rates less than our domestic tax rate also had the impact of reducing the effective tax rate.
The effective tax raterates for the third quarter of fiscal 2013 of 34.26% was favorably impacted by the recording of $4.6 million of domestic tax benefit related to a foreign tax payment and $4.5 million of tax benefit related to disqualifying dispositions of Sysco stock pursuant to share-based compensation arrangements. Indefinitely reinvested earnings taxed at foreign statutory rates less than our domestic tax rate also had the impact of reducing the effective tax rate.
The effective tax rate for the first 39 weeks of fiscal 2014 of 36.99% was negatively impacted by the recording of $6.2 million of tax expense related to anon-deductible penalty that the company has estimated within a contingency accrual. This negative impact was partially offset by the recording of $4.7 million of tax benefit related to disqualifying dispositions of Sysco stock pursuant to share-based compensation arrangements. Indefinitely reinvested earnings taxed at foreign statutory rates less than our domestic tax rate also had the impact of reducing the effective tax rate.
The effective tax rate of 36.03% for the first 39 weeks of fiscal 2013 was favorably impacted by the recording of $7.1 million of tax benefit related to disqualifying dispositions of Sysco stock pursuant to share-based compensation arrangements and the recording
14
of $4.6 million of domestic tax benefit related to a foreign tax payment. Indefinitely reinvested earnings taxed at foreign statutory rates less than our domestic tax rate also had the impact of reducing the effective tax rate.each period.
Other
The determination of the company’s provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. The company’s provision for income taxes reflects a combination of income earned and taxed in the various U.S. federal and state, as well as foreign, jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and the company’s change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.
12. ACQUISITIONS
During the first 39 weeks of fiscal 2014, in the aggregate, the company paid cash of $40.5 million for acquisitions made during fiscal 2014. Acquisitions in the first 39 weeks of fiscal 2014 were immaterial, individually and in the aggregate, to the consolidated financial statements.
Certain acquisitions involve contingent consideration typically payable over periods up to five years only in the event that certain operating results are attained. As of March 29, 2014, aggregate contingent consideration amounts outstanding relating to completed acquisitions were $92.9 million, of which $25.3 million could result in the recording of additional goodwill when paid and $57.1 million was recorded as earnout liabilities as of March 29, 2014.
In the second quarter of fiscal 2014, the company announced an agreement to merge with US Foods. US Foods is a leading foodservice distributor in the U.S. that markets and distributes fresh, frozen and dry food and non-food products to more than 200,000 foodservice customers including independently owned single location restaurants, regional and national chain restaurants, healthcare and educational institutions, hotels and motels, government and military organizations and retail locations. Following completion of the proposed merger, the combined company will continue to be named Sysco and headquartered in Houston, Texas. As of the time the merger agreement was announced in December 2013, Sysco agreed to pay approximately $3.5 billion for the equity of US Foods, comprised of $3 billion of Sysco common stock and $500 million of cash. As part of the transaction, Sysco will also assume or refinance US Foods’ net debt, which was approximately $4.7 billion as of September 28, 2013, bringing the total enterprise value to $8.2 billion at the time of the merger announcement. As of April 26, 2014, the merger consideration is estimated as follows: approximately $3.6 billion for the equity of US Foods, comprised of $3.1 billion of Sysco common stock valued using the seven day average through April 25, 2014, and $500 million of cash. US Foods' net debt to be assumed or refinanced was approximately $4.8 billion as of December 28, 2013, bringing the total enterprise value to $8.4 billion as of April 26, 2014. The value of Sysco’s common stock and the amount of US Foods’ net debt will fluctuate. As such, the components of the transaction and total enterprise value noted above will not be finalized until the merger is consummated. Sysco has secured a fully committed bridge financing that could be used for funding a portion of the purchase price. After completion of the transaction, the equity holders of US Foods will own approximately 87 million shares, or roughly 13% of Sysco. A representative from each of US Foods’ two majority shareholders will join Sysco’s Board of Directors upon closing. This merger is currently pending a regulatory review process by the Federal Trade Commission. The company estimates the merger will close in the first quarter of fiscal 2015. Under certain conditions, including lack of regulatory approval, Sysco would be obligated to pay $300 million to the owners of US Foods if the merger was cancelled.
13.14. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Sysco is engaged in various legal proceedings whichthat have arisen, but have not been fully adjudicated. The likelihood of loss for these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible to probable. When probable, the losses have been accrued. Based on estimates of the range of potential losses associated with these matters, management does not believe that the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect upon the consolidated financial position or results of operations of the company. However, the final results of legal proceedings cannot be predicted with certainty and, if the company failed to prevail in one or more of these legal matters, and the associated realized losses were to exceed the company’s current estimates of the range of potential losses, the company’s consolidated financial position or results of operations could be materially adversely affected in future periods.
During the first quarter of fiscal 2014, Sysco was made aware of certain alleged violations of California law relating to its use of remote storage units in the delivery of products. These are commonly referred to as drop sites. Sysco is cooperating fully with the investigation being conductedby authorities in California, but could be subject to penalties and injunctive relief. In the third quarter of fiscal 2014, Sysco has recorded a contingency accrual of $20 million which represents its current estimate of the potential liability related to this investigation.
15
Fuel Commitments
Sysco routinely enters into forward purchase commitments for a portion of its projected diesel fuel requirements. As of March 29, 2014, outstanding forward diesel fuel purchase commitments totaled approximately $159.1 million at a fixed price through May 2015.
Other Commitments
Sysco has committed to aggregate product purchases for resale in order to benefit from a centralized approach to purchasing. A majority of these agreements expire within one year; however, certain agreements have terms through fiscal 2018. These agreements commit the company to a minimum volume at various pricing terms, including fixed pricing, variable pricing or a combination thereof. Minimum amounts committed to as of March 29, 2014 totaled approximately $2,449.3 million.
14.15. BUSINESS SEGMENT INFORMATION
The company has aggregated its operating companies into a number of segments, of which only Broadline and SYGMA are reportable segments as defined in the accounting literature related to disclosures about segments of an enterprise. The Broadline reportable segment is an aggregation of the company’s U.S., Canadian, Caribbean and EuropeanInternational Broadline segments.segments located in the Bahamas, Canada, Costa Rica, Republic of Ireland and Northern Ireland. Broadline operating companies distribute a full line of food products and a wide variety of non-food products to both traditional and chain restaurant customers, hospitals, schools, hotels, industrial caterers and other venues where foodservice products are served. These companies also provide custom-cut meat operations. SYGMA operating companies distribute a full line of food products and a wide variety of non-food products to certain chain restaurant customer locations. "Other" financial information is attributable to the company's other operating segments, including the company's specialty produce and lodging industry segments, a company that distributes specialty imported products, a company that distributes to international customers and the company’s Sysco Ventures platform, a suite of technology solutions that help support the business needs of Sysco’s customers.
The accounting policies for the segments are the same as those disclosed by Sysco for its consolidated financial statements. Intersegment sales represent specialty produce and imported specialty products distributed by the Broadline and SYGMA operating companies. Management evaluates the performance of each of the operating segments based on its respective operating income results. Corporate expenses and adjustments generally include all expenses of the corporate office and Sysco’s shared service center. These also include all share-based compensation costs and expenses related to the company’s Business Transformation Project.costs.
1615
The following tables set forth certain financial information for Sysco’s business segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13-Week Period Ended |
| 39-Week Period Ended | 13-Week Period Ended | ||||||||||||
| Mar. 29, 2014 |
| Mar. 30, 2013 |
| Mar. 29, 2014 |
| Mar. 30, 2013 | Sep. 27, 2014 |
| Sep. 28, 2013 | ||||||
Sales: |
| (In thousands) |
|
|
|
|
| |||||||||
Broadline | $ | 9,097,113 |
| $ | 8,861,568 |
| $ | 27,725,176 |
| $ | 26,698,301 | $ | 10,223,102 |
| $ | 9,546,388 |
SYGMA |
| 1,522,978 |
|
| 1,425,975 |
|
| 4,582,439 |
|
| 4,258,545 |
| 1,541,612 |
|
| 1,523,190 |
Other |
| 727,199 |
|
| 699,505 |
|
| 2,134,698 |
|
| 2,019,967 |
| 764,482 |
|
| 711,882 |
Intersegment sales |
| (69,806) |
|
| (60,677) |
|
| (212,593) |
|
| (166,636) |
| (84,115) |
|
| (67,193) |
Total | $ | 11,277,484 |
| $ | 10,926,371 |
| $ | 34,229,720 |
| $ | 32,810,177 | $ | 12,445,081 |
| $ | 11,714,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13-Week Period Ended |
| 39-Week Period Ended | 13-Week Period Ended | ||||||||||||
| Mar. 29, 2014 |
| Mar. 30, 2013 |
| Mar. 29, 2014 |
| Mar. 30, 2013 | Sep. 27, 2014 |
| Sep. 28, 2013 | ||||||
Operating income: | (In thousands) |
|
|
|
|
| ||||||||||
Broadline | $ | 586,750 |
| $ | 517,842 |
| $ | 1,803,183 |
| $ | 1,740,935 | $ | 699,436 |
| $ | 654,707 |
SYGMA |
| 8,754 |
|
| 13,823 |
|
| 27,309 |
|
| 39,347 |
| 5,150 |
|
| 8,343 |
Other |
| 26,147 |
|
| 28,691 |
|
| 68,566 |
|
| 71,519 |
| 24,665 |
|
| 22,542 |
Total segments |
| 621,651 |
|
| 560,356 |
|
| 1,899,058 |
|
| 1,851,801 |
| 729,251 |
|
| 685,592 |
Corporate expenses and adjustments |
| (289,026) |
|
| (223,154) |
|
| (736,458) |
|
| (653,166) |
| (263,638) |
|
| (207,394) |
Total operating income |
| 332,625 |
|
| 337,202 |
|
| 1,162,600 |
|
| 1,198,635 |
| 465,613 |
|
| 478,198 |
Interest expense |
| 32,224 |
|
| 34,215 |
|
| 92,536 |
|
| 97,325 |
| 30,934 |
|
| 30,528 |
Other expense (income), net |
| 3,718 |
|
| (3,410) |
|
| (5,027) |
|
| (7,640) |
| (2,188) |
|
| (4,534) |
Earnings before income taxes | $ | 296,683 |
| $ | 306,397 |
| $ | 1,075,091 |
| $ | 1,108,950 | $ | 436,867 |
| $ | 452,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Mar. 29, 2014 |
| Jun. 29, 2013 |
| Mar. 30, 2013 |
|
|
| Sep. 27, 2014 |
| Jun. 28, 2014 |
| Sep. 28, 2013 | ||||||
Assets: |
|
|
| (In thousands) |
|
|
| (In thousands) | ||||||||||||||
Broadline |
|
|
| $ | 9,034,512 |
| $ | 10,228,722 |
| $ | 8,377,694 |
|
|
| $ | 9,472,211 |
| $ | 8,956,911 |
| $ | 8,940,734 |
SYGMA |
|
|
|
| 540,412 |
|
| 485,520 |
|
| 485,703 |
|
|
|
| 519,554 |
|
| 513,587 |
|
| 490,001 |
Other |
|
|
|
| 1,003,626 |
|
| 944,140 |
|
| 940,159 |
|
|
|
| 1,033,526 |
|
| 1,034,775 |
|
| 953,024 |
Total segments |
|
|
|
| 10,578,550 |
|
| 11,658,382 |
|
| 9,803,556 |
|
|
|
| 11,025,291 |
|
| 10,505,273 |
|
| 10,383,759 |
Corporate |
|
|
|
| 2,559,714 |
|
| 1,005,565 |
|
| 2,853,654 |
|
|
|
| 2,592,622 |
|
| 2,662,677 |
|
| 2,655,897 |
Total |
|
|
| $ | 13,138,264 |
| $ | 12,663,947 |
| $ | 12,657,210 |
|
|
| $ | 13,617,913 |
| $ | 13,167,950 |
| $ | 13,039,656 |
1716
15.16. SUPPLEMENTAL GUARANTOR INFORMATION – SUBSIDIARY GUARANTEES
On January 19, 2011, the wholly-owned U.S. Broadline subsidiaries of Sysco Corporation entered into full and unconditional guarantees of all outstanding senior notes and debentures of Sysco Corporation. Borrowings under the company’s revolving credit facility supporting the company’s U.S. and Canadian commercial paper programs and the company’s US Foods acquisition bridge facility are also covered under these guarantees. As of March 29,September 27, 2014, Sysco had a total of $2,966.1 million$2.9 billion in senior notes, debentures and commercial paper outstanding that was covered by these guarantees. In October 2014, subsequent to quarter-end, Sysco funded a six-part senior notes offering totaling $5 billion. The senior notes will be covered by this guarantee. See Note 7, Debt, for further discussion of the senior note issuance.
All subsidiary guarantors are 100%-owned by the parent company, all guarantees are full and unconditional and all guarantees are joint and several, except that the guarantee of any subsidiary guarantor with respect to a series of senior notes or debentures may be released under certain customary circumstances. If we exercise our defeasance option with respect to the senior notes or debentures of any series, then any subsidiary guarantor effectively will be released with respect to that series. Further, each subsidiary guarantee will remain in full force and effect until the earliest to occur of the date, if any, on which (1) the applicable subsidiary guarantor shall consolidate with or merge into Sysco Corporation or any successor of Sysco Corporation and (2) Sysco Corporation or any successor of Sysco Corporation consolidates with or merges into the applicable subsidiary guarantor.
The following condensed consolidating financial statements present separately the financial position, comprehensive income and cash flows of the parent issuer (Sysco Corporation), the guarantors (the majority of the company’s U.S. Broadline subsidiaries), and all other non‑guarantor subsidiaries of Sysco (Other Non-Guarantor Subsidiaries) on a combined basis with eliminating entries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Balance Sheet | Condensed Consolidating Balance Sheet | ||||||||||||||||||||||||||
| Mar. 29, 2014 | Sep. 27, 2014 | ||||||||||||||||||||||||||
| Sysco |
| Certain U.S. |
| Other |
| Eliminations |
| Consolidated | Sysco |
| Certain U.S. |
| Other |
| Eliminations |
| Consolidated | ||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||
Current assets | $ | 219,243 |
| $ | 4,093,866 |
| $ | 2,326,366 |
| $ | - |
| $ | 6,639,475 | $ | 233,010 |
| $ | 4,345,475 |
| $ | 2,529,918 |
| $ | - |
| $ | 7,108,403 |
Investment in subsidiaries |
| 9,129,013 |
|
| - |
|
| - |
|
| (9,129,013) |
|
| - |
| 8,297,396 |
|
| - |
|
| - |
|
| (8,297,396) |
|
| - |
Plant and equipment, net |
| 509,604 |
|
| 1,774,594 |
|
| 1,672,011 |
|
| - |
|
| 3,956,209 |
| 488,618 |
|
| 1,758,530 |
|
| 1,721,565 |
|
| - |
|
| 3,968,713 |
Other assets |
| 355,197 |
|
| 548,376 |
|
| 1,639,007 |
|
| - |
|
| 2,542,580 |
| 355,955 |
|
| 522,013 |
|
| 1,662,829 |
|
| - |
|
| 2,540,797 |
Total assets | $ | 10,213,057 |
| $ | 6,416,836 |
| $ | 5,637,384 |
| $ | (9,129,013) |
| $ | 13,138,264 | $ | 9,374,979 |
| $ | 6,626,018 |
| $ | 5,914,312 |
| $ | (8,297,396) |
| $ | 13,617,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities | $ | 412,735 |
| $ | 1,036,861 |
| $ | 2,494,420 |
| $ | - |
| $ | 3,944,016 | $ | 831,556 |
| $ | 953,078 |
| $ | 2,751,855 |
| $ | - |
| $ | 4,536,489 |
Intercompany payables (receivables) |
| 1,064,729 |
|
| (1,256,887) |
|
| 192,158 |
|
| - |
|
| - |
| 2,292 |
|
| (111,694) |
|
| 109,402 |
|
| - |
|
| - |
Long-term debt |
| 2,955,362 |
|
| 9,533 |
|
| 21,268 |
|
| - |
|
| 2,986,163 |
| 2,584,125 |
|
| 15,232 |
|
| 51,133 |
|
| - |
|
| 2,650,490 |
Other liabilities |
| 548,856 |
|
| 292,135 |
|
| 135,719 |
|
| - |
|
| 976,710 |
| 635,590 |
|
| 318,736 |
|
| 121,094 |
|
| - |
|
| 1,075,420 |
Noncontrolling interest |
| - |
|
| - |
|
| 34,098 |
|
| - |
|
| 34,098 | ||||||||||||||
Shareholders’ equity |
| 5,231,375 |
|
| 6,335,194 |
|
| 2,793,819 |
|
| (9,129,013) |
|
| 5,231,375 |
| 5,321,416 |
|
| 5,450,666 |
|
| 2,846,730 |
|
| (8,297,396) |
|
| 5,321,416 |
Total liabilities and shareholders’ equity | $ | 10,213,057 |
| $ | 6,416,836 |
| $ | 5,637,384 |
| $ | (9,129,013) |
| $ | 13,138,264 | $ | 9,374,979 |
| $ | 6,626,018 |
| $ | 5,914,312 |
| $ | (8,297,396) |
| $ | 13,617,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Balance Sheet | Condensed Consolidating Balance Sheet | ||||||||||||||||||||||||||
| Jun. 29, 2013 | Jun. 28, 2014 | ||||||||||||||||||||||||||
| Sysco |
| Certain U.S. |
| Other |
| Eliminations |
| Consolidated | Sysco |
| Certain U.S. |
| Other |
| Eliminations |
| Consolidated | ||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||
Current assets | $ | 276,713 |
| $ | 3,746,192 |
| $ | 2,184,522 |
| $ | - |
| $ | 6,207,427 | $ | 254,766 |
| $ | 3,928,660 |
| $ | 2,498,546 |
| $ | - |
| $ | 6,681,972 |
Investment in subsidiaries |
| 8,429,887 |
|
| - |
|
| - |
|
| (8,429,887) |
|
| - |
| 8,013,214 |
|
| - |
|
| - |
|
| (8,013,214) |
|
| - |
Plant and equipment, net |
| 540,860 |
|
| 1,885,908 |
|
| 1,551,303 |
|
| - |
|
| 3,978,071 |
| 496,953 |
|
| 1,783,262 |
|
| 1,705,403 |
|
| - |
|
| 3,985,618 |
Other assets |
| 325,045 |
|
| 534,713 |
|
| 1,618,691 |
|
| - |
|
| 2,478,449 |
| 344,045 |
|
| 524,468 |
|
| 1,631,847 |
|
| - |
|
| 2,500,360 |
Total assets | $ | 9,572,505 |
| $ | 6,166,813 |
| $ | 5,354,516 |
| $ | (8,429,887) |
| $ | 12,663,947 | $ | 9,108,978 |
| $ | 6,236,390 |
| $ | 5,835,796 |
| $ | (8,013,214) |
| $ | 13,167,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities | $ | 664,366 |
| $ | 928,824 |
| $ | 2,156,092 |
| $ | - |
| $ | 3,749,282 | $ | 793,240 |
| $ | 1,008,366 |
| $ | 2,566,024 |
| $ | - |
| $ | 4,367,630 |
Intercompany payables (receivables) |
| 594,928 |
|
| (1,003,219) |
|
| 408,291 |
|
| - |
|
| - |
| 20,107 |
|
| (239,539) |
|
| 219,432 |
|
| - |
|
| - |
Long-term debt |
| 2,606,612 |
|
| 10,422 |
|
| 22,952 |
|
| - |
|
| 2,639,986 |
| 2,348,558 |
|
| 14,094 |
|
| 21,515 |
|
| - |
|
| 2,384,167 |
Other liabilities |
| 514,789 |
|
| 414,623 |
|
| 153,457 |
|
| - |
|
| 1,082,869 |
| 680,378 |
|
| 328,185 |
|
| 140,895 |
|
| - |
|
| 1,149,458 |
Shareholders’ equity |
| 5,191,810 |
|
| 5,816,163 |
|
| 2,613,724 |
|
| (8,429,887) |
|
| 5,191,810 |
| 5,266,695 |
|
| 5,125,284 |
|
| 2,887,930 |
|
| (8,013,214) |
|
| 5,266,695 |
Total liabilities and shareholders’ equity | $ | 9,572,505 |
| $ | 6,166,813 |
| $ | 5,354,516 |
| $ | (8,429,887) |
| $ | 12,663,947 | $ | 9,108,978 |
| $ | 6,236,390 |
| $ | 5,835,796 |
| $ | (8,013,214) |
| $ | 13,167,950 |
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Balance Sheet | |||||||||||||
| Sep. 28, 2013 | |||||||||||||
| Sysco |
| Certain U.S. |
| Other |
| Eliminations |
| Consolidated | |||||
| (In thousands) | |||||||||||||
Current assets | $ | 243,289 |
| $ | 4,062,670 |
| $ | 2,242,564 |
| $ | - |
| $ | 6,548,523 |
Investment in subsidiaries |
| 8,867,634 |
|
| - |
|
| - |
|
| (8,867,634) |
|
| - |
Plant and equipment, net |
| 526,608 |
|
| 1,860,215 |
|
| 1,592,528 |
|
| - |
|
| 3,979,351 |
Other assets |
| 337,236 |
|
| 534,804 |
|
| 1,639,742 |
|
| - |
|
| 2,511,782 |
Total assets | $ | 9,974,767 |
| $ | 6,457,689 |
| $ | 5,474,834 |
| $ | (8,867,634) |
| $ | 13,039,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities | $ | 526,018 |
| $ | 994,630 |
| $ | 2,276,769 |
| $ | - |
| $ | 3,797,417 |
Intercompany payables (receivables) |
| 773,170 |
|
| (1,145,339) |
|
| 372,169 |
|
| - |
|
| - |
Long-term debt |
| 2,844,729 |
|
| 10,121 |
|
| 23,541 |
|
| - |
|
| 2,878,391 |
Other liabilities |
| 631,708 |
|
| 391,507 |
|
| 141,491 |
|
| - |
|
| 1,164,706 |
Shareholders’ equity |
| 5,199,142 |
|
| 6,206,770 |
|
| 2,660,864 |
|
| (8,867,634) |
|
| 5,199,142 |
Total liabilities and shareholders’ equity | $ | 9,974,767 |
| $ | 6,457,689 |
| $ | 5,474,834 |
| $ | (8,867,634) |
| $ | 13,039,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Statement of Comprehensive Income | |||||||||||||
| For the 13-Week Period Ended Sep. 27, 2014 | |||||||||||||
| Sysco |
| Certain U.S. |
| Other |
| Eliminations |
| Consolidated | |||||
| (In thousands) | |||||||||||||
Sales | $ | - |
| $ | 8,322,308 |
| $ | 4,464,469 |
| $ | (341,696) |
| $ | 12,445,081 |
Cost of sales |
| - |
|
| 6,774,508 |
|
| 3,823,552 |
|
| (341,696) |
|
| 10,256,364 |
Gross profit |
| - |
|
| 1,547,800 |
|
| 640,917 |
|
| - |
|
| 2,188,717 |
Operating expenses |
| 190,897 |
|
| 932,195 |
|
| 600,012 |
|
| - |
|
| 1,723,104 |
Operating income (loss) |
| (190,897) |
|
| 615,605 |
|
| 40,905 |
|
| - |
|
| 465,613 |
Interest expense (income) |
| 50,166 |
|
| (21,474) |
|
| 2,242 |
|
| - |
|
| 30,934 |
Other expense (income), net |
| (2,402) |
|
| (399) |
|
| 613 |
|
| - |
|
| (2,188) |
Earnings (losses) before income taxes |
| (238,661) |
|
| 637,478 |
|
| 38,050 |
|
| - |
|
| 436,867 |
Income tax (benefit) provision |
| (86,344) |
|
| 230,631 |
|
| 13,767 |
|
| - |
|
| 158,054 |
Equity in earnings of subsidiaries |
| 431,130 |
|
| - |
|
| - |
|
| (431,130) |
|
| - |
Net earnings |
| 278,813 |
|
| 406,847 |
|
| 24,283 |
|
| (431,130) |
|
| 278,813 |
Other comprehensive income (loss) |
| (100,509) |
|
| - |
|
| (71,254) |
|
| 71,254 |
|
| (100,509) |
Comprehensive income | $ | 178,304 |
| $ | 406,847 |
| $ | (46,971) |
| $ | (359,876) |
| $ | 178,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Statement of Comprehensive Income | |||||||||||||
| For the 13-Week Period Ended Sep. 28, 2013 | |||||||||||||
| Sysco |
| Certain U.S. |
| Other |
| Eliminations |
| Consolidated | |||||
| (In thousands) | |||||||||||||
Sales | $ | - |
| $ | 7,746,013 |
| $ | 4,237,699 |
| $ | (269,445) |
| $ | 11,714,267 |
Cost of sales |
| - |
|
| 6,268,866 |
|
| 3,649,359 |
|
| (269,445) |
|
| 9,648,780 |
Gross profit |
| - |
|
| 1,477,147 |
|
| 588,340 |
|
| - |
|
| 2,065,487 |
Operating expenses |
| 145,048 |
|
| 882,950 |
|
| 559,291 |
|
| - |
|
| 1,587,289 |
Operating income (loss) |
| (145,048) |
|
| 594,197 |
|
| 29,049 |
|
| - |
|
| 478,198 |
Interest expense (income) |
| 57,307 |
|
| (23,437) |
|
| (3,342) |
|
| - |
|
| 30,528 |
Other expense (income), net |
| (3,345) |
|
| (857) |
|
| (332) |
|
| - |
|
| (4,534) |
Earnings (losses) before income taxes |
| (199,010) |
|
| 618,491 |
|
| 32,723 |
|
| - |
|
| 452,204 |
Income tax (benefit) provision |
| (73,325) |
|
| 227,882 |
|
| 12,057 |
|
| - |
|
| 166,614 |
Equity in earnings of subsidiaries |
| 411,275 |
|
| - |
|
| - |
|
| (411,275) |
|
| - |
Net earnings |
| 285,590 |
|
| 390,609 |
|
| 20,666 |
|
| (411,275) |
|
| 285,590 |
Other comprehensive income (loss) |
| 35,136 |
|
| - |
|
| 30,807 |
|
| (30,807) |
|
| 35,136 |
Comprehensive income | $ | 320,726 |
| $ | 390,609 |
| $ | 51,473 |
| $ | (442,082) |
| $ | 320,726 |
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Balance Sheet | |||||||||||||
| Mar. 30, 2013 | |||||||||||||
| Sysco |
| Certain U.S. |
| Other |
| Eliminations |
| Consolidated | |||||
| (In thousands) | |||||||||||||
Current assets | $ | 268,550 |
| $ | 4,031,712 |
| $ | 2,075,320 |
| $ | - |
| $ | 6,375,582 |
Investment in subsidiaries |
| 11,220,359 |
|
| - |
|
| - |
|
| (11,220,359) |
|
| - |
Plant and equipment, net |
| 627,156 |
|
| 1,917,407 |
|
| 1,393,714 |
|
| - |
|
| 3,938,277 |
Other assets |
| 333,346 |
|
| 534,960 |
|
| 1,475,045 |
|
| - |
|
| 2,343,351 |
Total assets | $ | 12,449,411 |
| $ | 6,484,079 |
| $ | 4,944,079 |
| $ | (11,220,359) |
| $ | 12,657,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities | $ | 600,803 |
| $ | 973,510 |
| $ | 2,082,591 |
| $ | - |
| $ | 3,656,904 |
Intercompany payables (receivables) |
| 3,370,039 |
|
| (3,497,093) |
|
| 127,054 |
|
| - |
|
| - |
Long-term debt |
| 2,510,621 |
|
| 22,849 |
|
| 23,844 |
|
| - |
|
| 2,557,314 |
Other liabilities |
| 815,587 |
|
| 347,823 |
|
| 127,221 |
|
| - |
|
| 1,290,631 |
Shareholders’ equity |
| 5,152,361 |
|
| 8,636,990 |
|
| 2,583,369 |
|
| (11,220,359) |
|
| 5,152,361 |
Total liabilities and shareholders’ equity | $ | 12,449,411 |
| $ | 6,484,079 |
| $ | 4,944,079 |
| $ | (11,220,359) |
| $ | 12,657,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Statement of Comprehensive Income | |||||||||||||
| For the 13-Week Period Ended Mar. 29, 2014 | |||||||||||||
| Sysco |
| Certain U.S. |
| Other |
| Eliminations |
| Consolidated | |||||
| (In thousands) | |||||||||||||
Sales | $ | - |
| $ | 7,468,264 |
| $ | 4,106,415 |
| $ | (297,195) |
| $ | 11,277,484 |
Cost of sales |
| - |
|
| 6,066,934 |
|
| 3,513,004 |
|
| (297,195) |
|
| 9,282,743 |
Gross profit |
| - |
|
| 1,401,330 |
|
| 593,411 |
|
| - |
|
| 1,994,741 |
Operating expenses |
| 233,495 |
|
| 867,488 |
|
| 561,133 |
|
| - |
|
| 1,662,116 |
Operating income (loss) |
| (233,495) |
|
| 533,842 |
|
| 32,278 |
|
| - |
|
| 332,625 |
Interest expense (income) |
| 60,312 |
|
| (28,495) |
|
| 407 |
|
| - |
|
| 32,224 |
Other expense (income), net |
| (761) |
|
| 2,626 |
|
| 1,853 |
|
| - |
|
| 3,718 |
Earnings (losses) before income taxes |
| (293,046) |
|
| 559,711 |
|
| 30,018 |
|
| - |
|
| 296,683 |
Income tax (benefit) provision |
| (111,880) |
|
| 215,944 |
|
| 11,682 |
|
| - |
|
| 115,746 |
Equity in earnings of subsidiaries |
| 362,103 |
|
| - |
|
| - |
|
| (362,103) |
|
| - |
Net earnings |
| 180,937 |
|
| 343,767 |
|
| 18,336 |
|
| (362,103) |
|
| 180,937 |
Other comprehensive income (loss) |
| (70,505) |
|
| - |
|
| (35,397) |
|
| 35,397 |
|
| (70,505) |
Comprehensive income | $ | 110,432 |
| $ | 343,767 |
| $ | (17,061) |
| $ | (326,706) |
| $ | 110,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Statement of Comprehensive Income | |||||||||||||
| For the 13-Week Period Ended Mar. 30, 2013 | |||||||||||||
| Sysco |
| Certain U.S. |
| Other |
| Eliminations |
| Consolidated | |||||
| (In thousands) | |||||||||||||
Sales | $ | - |
| $ | 7,402,853 |
| $ | 3,791,430 |
| $ | (267,912) |
| $ | 10,926,371 |
Cost of sales |
| - |
|
| 6,004,055 |
|
| 3,247,746 |
|
| (267,912) |
|
| 8,983,889 |
Gross profit |
| - |
|
| 1,398,798 |
|
| 543,684 |
|
| - |
|
| 1,942,482 |
Operating expenses |
| 170,552 |
|
| 923,539 |
|
| 511,189 |
|
| - |
|
| 1,605,280 |
Operating income (loss) |
| (170,552) |
|
| 475,259 |
|
| 32,495 |
|
| - |
|
| 337,202 |
Interest expense (income) |
| 78,811 |
|
| (46,812) |
|
| 2,216 |
|
| - |
|
| 34,215 |
Other expense (income), net |
| (1,167) |
|
| (1,562) |
|
| (681) |
|
| - |
|
| (3,410) |
Earnings (losses) before income taxes |
| (248,196) |
|
| 523,633 |
|
| 30,960 |
|
| - |
|
| 306,397 |
Income tax (benefit) provision |
| (86,139) |
|
| 180,656 |
|
| 10,463 |
|
| - |
|
| 104,980 |
Equity in earnings of subsidiaries |
| 363,474 |
|
| - |
|
| - |
|
| (363,474) |
|
| - |
Net earnings |
| 201,417 |
|
| 342,977 |
|
| 20,497 |
|
| (363,474) |
|
| 201,417 |
Other comprehensive income (loss) |
| (15,011) |
|
| - |
|
| (27,886) |
|
| 27,886 |
|
| (15,011) |
Comprehensive income | $ | 186,406 |
| $ | 342,977 |
| $ | (7,389) |
| $ | (335,588) |
| $ | 186,406 |
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Statement of Comprehensive Income | |||||||||||||
| For the 39-Week Period Ended Mar. 29, 2014 | |||||||||||||
| Sysco |
| Certain U.S. |
| Other |
| Eliminations |
| Consolidated | |||||
| (In thousands) | |||||||||||||
Sales | $ | - |
| $ | 22,578,687 |
| $ | 12,525,535 |
| $ | (874,502) |
| $ | 34,229,720 |
Cost of sales |
| - |
|
| 18,337,015 |
|
| 10,742,028 |
|
| (874,502) |
|
| 28,204,541 |
Gross profit |
| - |
|
| 4,241,672 |
|
| 1,783,507 |
|
| - |
|
| 6,025,179 |
Operating expenses |
| 572,901 |
|
| 2,609,570 |
|
| 1,680,108 |
|
| - |
|
| 4,862,579 |
Operating income (loss) |
| (572,901) |
|
| 1,632,102 |
|
| 103,399 |
|
| - |
|
| 1,162,600 |
Interest expense (income) |
| 175,255 |
|
| (77,913) |
|
| (4,806) |
|
| - |
|
| 92,536 |
Other expense (income), net |
| (4,383) |
|
| 1,170 |
|
| (1,814) |
|
| - |
|
| (5,027) |
Earnings (losses) before income taxes |
| (743,773) |
|
| 1,708,845 |
|
| 110,019 |
|
| - |
|
| 1,075,091 |
Income tax (benefit) provision |
| (275,159) |
|
| 632,226 |
|
| 40,662 |
|
| - |
|
| 397,729 |
Equity in earnings of subsidiaries |
| 1,145,976 |
|
| - |
|
| - |
|
| (1,145,976) |
|
| - |
Net earnings |
| 677,362 |
|
| 1,076,619 |
|
| 69,357 |
|
| (1,145,976) |
|
| 677,362 |
Other comprehensive income (loss) |
| (69,985) |
|
| - |
|
| (43,537) |
|
| 43,537 |
|
| (69,985) |
Comprehensive income | $ | 607,377 |
| $ | 1,076,619 |
| $ | 25,820 |
| $ | (1,102,439) |
| $ | 607,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Cash Flows | ||||||||||
| For the 13-Week Period Ended Sep. 27, 2014 | ||||||||||
| Sysco |
| Certain U.S. |
| Other |
| Consolidated | ||||
|
| (In thousands) | |||||||||
Cash flows provided by (used for): |
|
|
|
|
|
|
|
|
|
|
|
Operating activities | $ | (93,666) |
| $ | (24,502) |
| $ | 180,786 |
| $ | 62,618 |
Investing activities |
| (33,867) |
|
| (33,841) |
|
| (102,086) |
|
| (169,794) |
Financing activities |
| 46,544 |
|
| 605 |
|
| 37,385 |
|
| 84,534 |
Effect of exchange rates on cash |
| - |
|
| - |
|
| (5,506) |
|
| (5,506) |
Intercompany activity |
| 58,326 |
|
| 55,264 |
|
| (113,590) |
|
| - |
Net increase (decrease) in cash and cash equivalents |
| (22,663) |
|
| (2,474) |
|
| (3,011) |
|
| (28,148) |
Cash and cash equivalents at the beginning of period |
| 158,957 |
|
| 27,772 |
|
| 226,317 |
|
| 413,046 |
Cash and cash equivalents at the end of period | $ | 136,294 |
| $ | 25,298 |
| $ | 223,306 |
| $ | 384,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Statement of Comprehensive Income | |||||||||||||
| For the 39-Week Period Ended Mar. 30, 2013 | |||||||||||||
| Sysco |
| Certain U.S. |
| Other |
| Eliminations |
| Consolidated | |||||
| (In thousands) | |||||||||||||
Sales | $ | - |
| $ | 22,400,280 |
| $ | 11,202,672 |
| $ | (792,775) |
| $ | 32,810,177 |
Cost of sales |
| - |
|
| 18,097,750 |
|
| 9,580,815 |
|
| (792,775) |
|
| 26,885,790 |
Gross profit |
| - |
|
| 4,302,530 |
|
| 1,621,857 |
|
| - |
|
| 5,924,387 |
Operating expenses |
| 517,896 |
|
| 2,722,088 |
|
| 1,485,768 |
|
| - |
|
| 4,725,752 |
Operating income (loss) |
| (517,896) |
|
| 1,580,442 |
|
| 136,089 |
|
| - |
|
| 1,198,635 |
Interest expense (income) |
| 220,987 |
|
| (127,253) |
|
| 3,591 |
|
| - |
|
| 97,325 |
Other expense (income), net |
| (3,780) |
|
| (2,803) |
|
| (1,057) |
|
| - |
|
| (7,640) |
Earnings (losses) before income taxes |
| (735,103) |
|
| 1,710,498 |
|
| 133,555 |
|
| - |
|
| 1,108,950 |
Income tax (benefit) provision |
| (264,865) |
|
| 616,309 |
|
| 48,122 |
|
| - |
|
| 399,566 |
Equity in earnings of subsidiaries |
| 1,179,622 |
|
| - |
|
| - |
|
| (1,179,622) |
|
| - |
Net earnings |
| 709,384 |
|
| 1,094,189 |
|
| 85,433 |
|
| (1,179,622) |
|
| 709,384 |
Other comprehensive income (loss) |
| 42,146 |
|
| - |
|
| (497) |
|
| 497 |
|
| 42,146 |
Comprehensive income | $ | 751,530 |
| $ | 1,094,189 |
| $ | 84,936 |
| $ | (1,179,125) |
| $ | 751,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Cash Flows | ||||||||||
| For the 39-Week Period Ended Mar. 29, 2014 | ||||||||||
| Sysco |
| Certain U.S. |
| Other |
| Consolidated | ||||
|
| (In thousands) | |||||||||
Cash flows provided by (used for): |
|
|
|
|
|
|
|
|
|
|
|
Operating activities | $ | (395,328) |
| $ | 884,001 |
| $ | 359,391 |
| $ | 848,064 |
Investing activities |
| (51,260) |
|
| (95,586) |
|
| (269,914) |
|
| (416,760) |
Financing activities |
| (503,105) |
|
| (1,933) |
|
| 2,908 |
|
| (502,130) |
Effect of exchange rates on cash |
| - |
|
| - |
|
| (369) |
|
| (369) |
Intercompany activity |
| 877,869 |
|
| (781,629) |
|
| (96,240) |
|
| - |
Net increase (decrease) in cash and cash equivalents |
| (71,824) |
|
| 4,853 |
|
| (4,224) |
|
| (71,195) |
Cash and cash equivalents at the beginning of period |
| 207,591 |
|
| 24,295 |
|
| 180,399 |
|
| 412,285 |
Cash and cash equivalents at the end of period | $ | 135,767 |
| $ | 29,148 |
| $ | 176,175 |
| $ | 341,090 |
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Cash Flows | Condensed Consolidating Cash Flows | ||||||||||||||||||||
| For the 39-Week Period Ended Mar. 30, 2013 | For the 13-Week Period Ended Sep. 28, 2013 | ||||||||||||||||||||
| Sysco |
| Certain U.S. |
| Other |
| Consolidated | Sysco |
| Certain U.S. |
| Other |
| Consolidated | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
Cash flows provided by (used for): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities | $ | (358,717) |
| $ | 946,302 |
| $ | 171,823 |
| $ | 759,408 | $ | (109,620) |
| $ | 169,932 |
| $ | 108,917 |
| $ | 169,229 |
Investing activities |
| (86,088) |
|
| (114,569) |
|
| (388,354) |
|
| (589,011) |
| (19,931) |
|
| (29,089) |
|
| (90,006) |
|
| (139,026) |
Financing activities |
| (550,593) |
|
| (2,830) |
|
| 23,163 |
|
| (530,260) |
| (81,357) |
|
| (194) |
|
| (3,932) |
|
| (85,483) |
Effect of exchange rates on cash |
| - |
|
| - |
|
| 2,516 |
|
| 2,516 |
| - |
|
| - |
|
| 2,527 |
|
| 2,527 |
Intercompany activity |
| 669,939 |
|
| (819,825) |
|
| 149,886 |
|
| - |
| 181,535 |
|
| (139,626) |
|
| (41,909) |
|
| - |
Net increase (decrease) in cash and cash equivalents |
| (325,459) |
|
| 9,078 |
|
| (40,966) |
|
| (357,347) |
| (29,373) |
|
| 1,023 |
|
| (24,403) |
|
| (52,753) |
Cash and cash equivalents at the beginning of period |
| 471,107 |
|
| 34,478 |
|
| 183,282 |
|
| 688,867 |
| 207,591 |
|
| 24,295 |
|
| 180,399 |
|
| 412,285 |
Cash and cash equivalents at the end of period | $ | 145,648 |
| $ | 43,556 |
| $ | 142,316 |
| $ | 331,520 | $ | 178,218 |
| $ | 25,318 |
| $ | 155,996 |
| $ | 359,532 |
2119
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion should be read in conjunction with our consolidated financial statements as of June 29, 2013,28, 2014, and the fiscal year then ended, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, both contained in our Annual Report on Form 10-K for the fiscal year ended June 29, 2013.28, 2014.
OurThe discussion below of our results includes certain non-GAAP financial measures that we believe provide important perspective with respect to underlying business trends. Other than free cash flow, any non-GAAP financial measuremeasures will be denoted as adjusted measures and exclude the impact from executive retirement plans restructuring, multiemployer pension withdrawals, severance charges, merger and integration costs associated with our pending US Foods, Inc. (US Foods) merger, change in estimate for self-insurance costs, charges from an estimate of a contingency accrual, facility closure charges and amortization of US Foods financing costs, collectively defined as (Certain Items). More information on the rationale of the use of these measures and reconciliations to GAAP numbers can be found under “Non-GAAP Reconciliations.”
Due to the inherent uncertainties concerning the impact of the pending US Foods merger (see discussion in Risk Factors in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 28, 2014), it is impracticable for us to provide projections that fully anticipate all possible impacts of the merger. For that reason, forward-looking disclosures in this MD&A and elsewhere describe anticipated future trends and results of only our current operations, excluding any potential impact from the US Foods merger, unless specifically noted.
Overview
Sysco distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Our primary operations are located throughout the United States (U.S.), Bahamas, Canada, Costa Rica, Republic of Ireland and Northern Ireland and include broadline companies (which include our custom-cut meat operations), SYGMA (our chain restaurant distribution subsidiary), specialty produce companies, hotel supply operations, a company that distributes specialty imported products, a company that distributes to international customers and our Sysco Ventures platform, our suite of technology solutions that help support the business needs of our customers.
Highlights
The market environmentfoodservice industry has experienced higher sales overall in the first 39 weeks of fiscal 2014 was challenging for many of our customers. The third quarter was also impacted by unusually severe winter weather throughout much of the country, particularly in the months of January and February. While our sales growth was modest in the third quarter of fiscal 2014 due2015; however, these increases in sales are largely driven by higher inflation in selling prices, not from improving restaurant traffic. Real disposable income for the consumer has yet to severe weatherincrease meaningfully; however, other labor market metrics continue to strengthen and lower levels of inflation,fuel costs have declined. While a challenging business environment continues to exist for our customers and Sysco, many indicators suggest trends for the industry are improving. Our sales growth in March was more robust than the prior two months and on a year-over-year basis due to improved weather and growth in our locally-managed customers. Competitive pricing pressures and changes in customer mix resulted in lower levels of gross profit growth for the first 39 weeksquarter of fiscal 2014; however, our third quarter gross profit grew at a faster pace2015 as compared to the first half of fiscal 2014. We believe these third quarter gross profit improvements are attributable to more consistent margin management practices, strengthening local trends, and the low level of inflation we experienced during much of the quarter. Our expense management performance was favorable overall despite cost pressures in our delivery and warehouse areas. Our improvements largely resulted from our Business Transformation initiatives, which helped drive our Broadline cost per case lower than in the first 39 weeks of fiscal 2013 and the third quarter of fiscal 2013.2014 improved partially due to inflation and case volume growth, but also as a result of our business transformation initiatives including category management. Our operating expenses for the first quarter of fiscal 2015 increased partially from increased pay-related expenses and Certain Items, primarily from merger and integration planning expenses. Operating income for the first quarter of fiscal 2015 declined by 2.6% as a result; however, excluding Certain Items, adjusted operating income for the first quarter of fiscal 2015 increased 5.9%.
Comparisons of results from the thirdfirst quarter of fiscal 20142015 to the thirdfirst quarter of fiscal 2013:2014:
· | Sales increased |
· | Operating income decreased |
· | Adjusted operating income increased |
· | Net earnings decreased |
· | Adjusted net earnings |
· | Basic |
· | Adjusted diluted earnings per share were |
Comparisons of results from the first 39 weeks of fiscal 2014 to the first 39 weeks of fiscal 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
See “Non-GAAP Reconciliations” for an explanation of these non-GAAP financial measures.
In the second quarter of fiscal 2014, we announced an agreement to merge with US Foods. This merger is currently pending a regulatory review process.
20
Trends and Strategy
Trends
General economic conditions and consumer confidence can affect the frequency of purchases and amounts spent by consumers for food-away-from-home and, in turn, can impact our customers and our sales. Consumers continue to spend their disposable income in an increasinglya disciplined manner. We believe these conditions have contributed to a slow rate of recovery in the foodservice market. While these trends can be cyclical in nature, greater consumer confidence will be required to reverse the trend. According to industry sources, real sales growth for the total foodservice market in the U.S. is expected to be modest over the long-term. We believe these industry trends reinforce the need for us to transform our business to reduce our overall cost structure and provide greater value to our customers.
Our gross margin performance has beencan be influenced by multiple factors. The modest level of growth in the foodservice market has created additional competitive pricing pressures, which is, in turn, negatively impacting gross profits. Sales to our locally-managed customers, including independent restaurant customers, havemay not growngrow at the same rate as sales to our corporate-managed customers. Gross margin from our corporate-managed customers, is generally lower than other types of customers. Our locally-managed customers comprise a significant portion of our overall volumes and an even greater percentage of profitability because of the high level of value added services we typically provide to this customer group. As a result, ourwhich can cause gross margins have declined. We have implemented several short-term action steps and longer term strategic initiatives to accelerate both our locally-managed sales and mitigate ongoing gross margin pressures.decline. Inflation can be a factor that contributes to gross margin pressure; however,pressure. First quarter fiscal 2015 inflation rates have remained relatively stable over the past year. Recently, we havewas seen increasing inflationprimarily in the meat, dairy and dairyseafood categories, which represent approximately 30%more than one-third of our annual sales. There are some indications that inflation may increase in future months particularly with these “center of plate” items. While we cannot predict whether inflation will continue at current levels, periods of high inflation, either overall or in certain product categories, can have a negative impact on us and our customers, as highcustomers. High food costs can be difficult to pass on to our customers, and inflation can reduce consumer spending in the food-away-from-home market, andmarket. As such, periods of high inflation may negatively impact our sales, gross profit, operating income and earnings.
We have experienced higher operating expenses thisin the first quarter of fiscal year2015 as compared to first quarter of fiscal 2013, stemming from higher case volumes, some of which is attributable to our acquired operations, partially offset by lower business transformation expenses and benefits from business transformation initiatives. We have experienced a decrease in pay-related expenses in the selling and information technology areas due to initiatives from our Business Transformation Project. Other areas of pay-related expense have increased2014, primarily from acquired companiesincreased payroll costs and within delivery areas of our business. Our retirement-related expenses consist primarily of costs from our company-sponsored qualified pension plan (Retirement Plan), our Supplemental Executive Retirement Plan (SERP)integration planning and our defined contribution plan. Our Retirement Plan was substantially frozen and the SERP was completely frozen in fiscal 2013, and our defined contribution plan was enhanced with greater benefits. The net impact of these actions is a reduction in retirement-related costs for fiscal 2014 as compared to fiscal 2013. We have incurred additionaltransaction costs in connection with the proposed merger with US Foods announced in the second quarter of fiscal 2014 primarily from integration planning and due diligence costs.2014. We anticipate incurring additional costs as we begincontinue planning for integration of the two companies as well as other financing costs incurred in connection withcompanies.
At the proposed merger. The proposed merger is undergoing regulatory review by the Federal Trade Commission and we estimate the merger will close inend of the first quarter of fiscal 2015, we secured long-term financing for our proposed merger with US Foods; therefore, interest expense will increase from the additional debt incurred in the amount of approximately $125 million over the remainder of fiscal 2015. In addition, the second quarter will be impacted by a write off to interest expense of unamortized debt issuance costs of $12.5 million in connection with the termination of our bridge facility. The write off of the debt issuance costs and additional interest incurred prior to the closing of the merger, will be treated as a Certain Items. The senior notes issued contain mandatory redemption features requiring that, if the merger has not closed by October 8, 2015 or if the merger agreement is terminated on or prior to October 8, 2015, we must redeem all of the senior notes at a redemption price equal to 101% of the principal of the senior notes plus accrued interest. The incremental interest expense estimate provided above assumes these notes will not be redeemed during fiscal 2015.
Strategy
We are focused on optimizing our core broadline business in the U.S., Bahamas, Canada, Costa Rica, Republic of Ireland and Northern Ireland, while continuing to explore appropriate opportunities to profitably grow our market share and create shareholder value by expanding beyond our core business. Day-to-day, our business decisions are driven by our mission to market and deliver great products to our customers with exceptional service, with the aspirational vision of becoming each of our customers’ most valued and trusted business partner.
We have identified five strategiescomponents of our strategy to help us achieve our mission and vision:
· | Profoundly enrich the experience of doing business with Sysco; |
· | Continuously improve productivity in all areas of our business; |
· | Expand our portfolio of products and services by initiating a customer-centric innovation program; |
· | Explore, assess and pursue new businesses and markets; and |
· | Develop and effectively integrate a comprehensive, enterprise-wide talent management process. |
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The five strategiescomponents of our strategy discussed above are designed to drive sustainable profitable growth, increase asset optimization and free cash flow and increase operating margins. Consistent with these three objectives, in the second quarter of fiscal 2014, we announced an agreement to merge with US Foods. US Foods is a leading foodservice distributor in the U.S. that markets and distributes fresh, frozen and dry food and non-food products to more than 200,000 foodservice customers, including independently owned single location restaurants, regional and national chain restaurants, healthcare and educational institutions, hotels and motels, government and military organizations and retail locations. Following the completion of the proposed merger, the combined company will continue to be named Sysco and headquartered in Houston, Texas. At closing, Sysco is expected to have annual sales of approximately $65 billion and, with successful integration, we believe at least $600 million in estimated annual synergies can be obtained inachieved by the combined company over a three to four year time period. Expenses to achieve synergies are estimated to be $700 million to $800 million to occurbe incurred over a three year time frame once the acquisitionmerger has closed. We anticipate some level of capital expenditures primarily for facilities and internal use software and other computer equipment;software; however, amounts have not been estimated at this time.
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As of the time the merger agreement was announced in December 2013, Sysco agreed to pay approximately $3.5 billion for the equity of US Foods, comprised of $3 billion of Sysco common stock and $500 million of cash. As part of the transaction, Sysco will also assume or refinance US Foods’ net debt, which was approximately $4.7 billion as of September 28, 2013, bringing the total enterprise value to $8.2 billion at the time of the merger announcement. As of April 26,October 25, 2014, the merger consideration is estimated as follows: approximately $3.6$3.7 billion for the equity of US Foods, comprised of $3.1$3.2 billion of Sysco common stock valued using the seven day average through AprilOctober 25, 2014 and $500 million of cash. US Foods' net debt to be assumed or refinanced was approximately $4.8 billion as of December 28, 2013,September 27, 2014, bringing the total enterprise value to $8.4$8.5 billion as of April 26,October 25, 2014. The value of Sysco’s common stock and the amount of US Foods’ net debt will fluctuate. As such, the components of the transaction and total enterprise value noted above will not be finalized until the merger is consummated. We have secured a fully committed bridge financing and expect to issue permanent financing prior to closing.
After completion of the transaction, the equity holders of US Foods will own approximately 87 million shares, or roughly 13%, of Sysco. A representative from each of US Foods’ two majority shareholders will join Sysco’s Board of Directors upon closing. This merger is currently pending a regulatory review process by the Federal Trade Commission which will likely take between three(FTC). The company continues to six months. Webe in productive discussions with FTC staff on a solution to permit the FTC to conclude its review. Given the amount of work remaining, and considering the upcoming holidays, the company does not currently expect to complete the transaction to close inbefore the first quarter of fiscal 2015. Under certain conditions, including lack of regulatory approval, Sysco would be obligated to pay $300 million to the owners of US Foods if the merger were cancelled, thatwhich would be recognized as an expense.
In September 2014, we priced a six-part senior notes offering totaling $5 billion as long-term financing for the proposed US Foods merger transaction. In October 2014, subsequent to quarter-end, the senior notes were funded, and the previously outstanding unsecured bridge facility was terminated. Detailed discussion of these transactions is located in the Liquidity and Capital Resources section.
Business Transformation Project
Our multi-year Business Transformation Project consists of several initiatives including:
of:
· | the design and deployment of an enterprise resource planning (ERP) system to implement an integrated software system to support a majority of our business processes and further streamline our operations; |
· | initiatives to lower our operating cost structure; and |
· | initiatives to lower our product cost including a category management initiative to use market data and customer insights to lower product pricing and enhance our product assortment to drive sales growth. |
With respectIn the first quarter of fiscal 2015, we implemented a software version upgrade to our 12 locations currently running our ERP system, we successfully installed a major scheduled update to the system and have deployed the system to eight locations as of March 29, 2014 and two additional locations through April 2014.system. We are continuing to definefinalizing information technology-related US Foods merger integration planning and sequencing decisions with the goal of achieving the most synergies in a larger scale deployment schedule. We have experienced greater capitalizationtimely manner. Initial areas of costs in fiscal 2014 as compared to fiscal 2013 incurred to develop system improvements and believe our capital spending for fiscal 2014focus will be into roll out ERP financial modules that will enhance the rangescalability of $30 million to $40 million.our shared service center’s processes, including general ledger, accounts payable and accounts receivable, as well as components of our human resources module. We believe this will allow future ERP conversions at our total business transformation expenses willlocations to be in the range of $275 million to $300 million for fiscal 2014. Our business transformation expenses are decreasing due to lower employee costs that were attributed to our Business Transformation Project due to a change in allocation for employees that are not dedicated full time to the project. Only full time employee costs are included in fiscal 2014 while fiscal 2013 included all employee costs. Additional contributors to the decreases include an increased level of capitalization on amounts spent for system improvements and reduced level of spend with consultants in fiscal 2014. easier.
We are seeking to lower our operating cost structure through various initiatives. These include efforts to increase our productivity in the warehouse and delivery activities including fleet management and maintenance activities. It also involves improving sales productivity and reducing general and administrative expenses, partially through aligning compensation and benefit plans. EffortsBenefits from our cost transformation initiatives in fiscal 2013 continue to benefit fiscal 2014. Our ongoing initiatives include items in our delivery and warehouse operations such as route optimization, warehouse and delivery scorecards to track performance and enhance accountability, consolidated procurement of parts and forklift equipment and optimizing our fleet.
We also seek to lower our product costs through various initiatives such as our category management initiative. This initiative is designedmeaningfully impacted the comparison of our gross margin for the first quarter of fiscal 2015 to lower our total product costs andthe first quarter of fiscal 2014. We continue to align our product assortment with customer demand. We are usingexpect that all remaining categories will be launched into the market data and customer insights to make changes to our product assortment while building strategic partnerships with our suppliers to grow our sales and our suppliers’ sales. We believe there are opportunities to more effectively provide the products that our customers want, commit to greater volumes with our suppliers and create mutual benefits for all parties. We believe that procuring greater quantities with select vendors will result in reduced prices for our product purchases. Byby the end of this fiscal year 2014,year. The year-over-year impact of these benefits is expected to be relatively steady through the third quarter of fiscal 2015, but will be less impactful in the fourth quarter as we expectbegin to have launched allwrap the most significant portion of the categories in the pilot and wave one categories and the majority of our wave two categories. These represent approximately $5benefits.
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billion to $7 billion in annual spend and approximately one-third of the total addressable spend. We continue to believe this initiative will provide benefits to our customers and savings for us over the next few years.
Results of Operations
The following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated:
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| 13-Week Period Ended |
| 39-Week Period Ended | 13-Week Period Ended | ||||||||||||
| Mar. 29, 2014 |
| Mar. 30, 2013 |
| Mar. 29, 2014 |
| Mar. 30, 2013 | Sep. 27, 2014 |
| Sep. 28, 2013 | ||||||
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Sales | 100.0 | % |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % | 100.0 | % |
| 100.0 | % |
Cost of sales | 82.3 |
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| 82.2 |
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| 82.4 |
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| 81.9 |
| 82.4 |
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| 82.4 |
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Gross margin | 17.7 |
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| 17.8 |
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| 17.6 |
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| 18.1 |
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Gross profit | 17.6 |
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| 17.6 |
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Operating expenses | 14.8 |
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| 14.7 |
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| 14.2 |
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| 14.4 |
| 13.9 |
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| 13.5 |
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Operating income | 2.9 |
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| 3.1 |
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| 3.4 |
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| 3.7 |
| 3.7 |
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| 4.1 |
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Interest expense | 0.3 |
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| 0.3 |
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| 0.3 |
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| 0.3 |
| 0.2 |
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| 0.3 |
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Other expense (income), net | 0.0 |
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Earnings before income taxes | 2.6 |
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| 2.8 |
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| 3.1 |
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| 3.4 |
| 3.5 |
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| 3.8 |
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Income taxes | 1.0 |
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| 1.0 |
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| 1.1 |
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| 1.2 |
| 1.3 |
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| 1.4 |
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Net earnings | 1.6 | % |
| 1.8 | % |
| 2.0 | % |
| 2.2 | % | 2.2 | % |
| 2.4 | % |
The following table sets forth the change in the components of our consolidated results of operations expressed as a percentage increase or decrease over the comparable period in the prior year:
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Sales | 3.2 | % |
| 4.3 | % | 6.2 | % |
Cost of sales | 3.3 |
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| 4.9 |
| 6.3 |
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Gross margin | 2.7 |
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| 1.7 |
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Gross profit | 6.0 |
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Operating expenses | 3.5 |
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| 2.9 |
| 8.6 |
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Operating income | (1.4) |
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| (3.0) |
| (2.6) |
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Interest expense | (5.8) |
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| (4.9) |
| 1.3 |
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Other expense (income), net | (209.0) | (1) |
| (34.2) | (2) | (51.7) | (1) |
Earnings before income taxes | (3.2) |
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| (3.4) |
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Income taxes | 10.3 |
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Net earnings | (10.2) | % |
| (4.5) | % | (2.4) | % |
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Basic earnings per share | (8.8) | % |
| (4.1) | % | (4.1) | % |
Diluted earnings per share | (8.8) |
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Average shares outstanding | (0.6) |
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| 0.1 |
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Diluted shares outstanding | (0.4) |
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| 0.3 |
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(1) | Other expense (income), net was |
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Sales
Sales were 3.2% higher infor the third quarter and 4.3% higher in the first 39 weeks of fiscal 2014 than in the comparable period of the prior year. Sales for third quarter of fiscal 20142015 were 6.2% higher than the first quarter of fiscal 2014. Sales for the first quarter of fiscal 2015 increased as a result of case volume growth, product cost inflation and the resulting increase in selling prices. Sales for the first 39 weeks of fiscal 2014 increased as a result ofprices, case volume growth, and sales from acquisitions that occurred within the last 12 months, case volume growth and product cost inflation and the resulting increase in selling prices. The third quarter was also impacted by unusually severe winter weather throughout much of the country particularly in the months of January and February. However, our sales growth in March was more robust than the prior two months and on a year-over-year basis
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at 5.5% due to improved weather andmonths. Case growth in our locally-managed customers. Our salesbusiness was steady compared to the growth in the fourth quarter, and sales growth for both local and corporate-managed business grew at roughly similar rates in the first 39 weeksquarter. Changes in product costs, an internal measure of inflation or deflation, were estimated as inflation of 4.9% during the first quarter of fiscal 2014 was greater with our corporate-managed customers as compared to sales growth with our locally-managed customers. We believe our locally-managed customer growth has been negatively influenced2015, driven mainly by market conditions including the impact of lower consumer spend; however, our sales growth with our locally-managed customers was slightly less than our corporate-managed customersinflation in the third quarter consistent with the improvements experienced in March.meat, dairy and seafood categories. Case volumes including acquisitions within the last 12 months grew approximately 3.0% in the third quarter and 3.8%improved 2.3% in the first 39 weeksquarter of fiscal 2015 compared to the first quarter of fiscal 2014. Case volumes excluding acquisitions within the last 12 months grew approximately 2.3%improved 2.2% in the thirdfirst quarter and first 39 weeks of fiscal 2014.2015. Our case volumes represent our results from our Broadline and SYGMA segments combined. Sales from acquisitions within the last 12 months favorably impacted sales by 0.8% in the third quarter and 1.6%0.6% in the first 39 weeksquarter of fiscal 2014. Changes2015. The changes in product costs, an internal measure of inflation or deflation, were estimated as inflation of 0.9% during the third quarter and 1.3% for the first 39 weeks of fiscal 2014. Recently, we have seen increasing inflation in the meat and dairy categories which represent approximately 30% of our annual sales. There are some indications that inflation may increase in future months particularly with these “center of plate” items. The exchange rates used to translate our foreign sales into U.S. dollars negatively impacted sales by 0.9%0.5% in the thirdfirst quarter of fiscal 2014 and 0.6% in first 39 weeks of fiscal 2014.2015.
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Operating Income
Cost of sales primarily includes our product costs, net of vendor consideration, and includes in-bound freight. Operating expenses include the costs of facilities, product handling, delivery, selling and general and administrative activities. Fuel surcharges are reflected within sales and gross profit; fuel costs are reflected within operating expenses.
The following table sets forth the change in the components of operating income and adjusted operating income expressed as a percentage increase or decrease over the comparable period in the prior year:
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| 13-Week |
| 13-Week |
| 13-Week Period Change in Dollars |
| 13-Week Period | ||||
| (In thousands) | ||||||||||
Gross profit | $ | 1,994,741 |
| $ | 1,942,482 |
| $ | 52,259 |
| 2.7 | % |
Operating expenses |
| 1,662,116 |
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| 1,605,280 |
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| 56,836 |
| 3.5 |
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Operating income | $ | 332,625 |
| $ | 337,202 |
| $ | (4,577) |
| (1.4) | % |
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Gross profit | $ | 1,994,741 |
| $ | 1,942,482 |
| $ | 52,259 |
| 2.7 | % |
Adjusted operating expenses (Non-GAAP) |
| 1,606,393 |
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| 1,555,212 |
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| 51,181 |
| 3.3 |
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Adjusted operating income (Non-GAAP) | $ | 388,348 |
| $ | 387,270 |
| $ | 1,078 |
| 0.3 | % |
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| 39-Week |
| 39-Week |
| 39-Week Period Change in Dollars |
| 39-Week Period | 13-Week |
| 13-Week |
| 13-Week Period Change in Dollars |
| 13-Week Period | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
Gross profit | $ | 6,025,179 |
| $ | 5,924,387 |
| $ | 100,792 |
| 1.7 | % | $ | 2,188,717 |
| $ | 2,065,487 |
| $ | 123,230 |
| 6.0 | % |
Operating expenses |
| 4,862,579 |
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| 4,725,752 |
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| 136,827 |
| 2.9 |
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| 1,723,104 |
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| 1,587,289 |
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| 135,815 |
| 8.6 |
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Operating income | $ | 1,162,600 |
| $ | 1,198,635 |
| $ | (36,035) |
| (3.0) | % | $ | 465,613 |
| $ | 478,198 |
| $ | (12,585) |
| (2.6) | % |
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Gross profit | $ | 6,025,179 |
| $ | 5,924,387 |
| $ | 100,792 |
| 1.7 | % | $ | 2,188,717 |
| $ | 2,065,487 |
| $ | 123,230 |
| 6.0 | % |
Adjusted operating expenses (Non-GAAP) |
| 4,770,589 |
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| 4,647,628 |
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| 122,961 |
| 2.6 |
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| 1,679,669 |
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| 1,584,968 |
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| 94,701 |
| 6.0 |
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Adjusted operating income (Non-GAAP) | $ | 1,254,590 |
| $ | 1,276,759 |
| $ | (22,169) |
| (1.7) | % | $ | 509,048 |
| $ | 480,519 |
| $ | 28,529 |
| 5.9 | % |
OperatingThe decrease in operating income for the third quarterwas impacted by an increase in pay-related expenses and first 39 weeks of fiscal 2014 was lower than the comparable periods of fiscal 2013 primarily from a lower rate of growth$41.1 million in our gross profit,operating expenses attributable to volume growth, including payroll, expenses from our acquired operations, increased deliveryCertain Items, primarily merger and warehouse costs and higher corporate expenses. These were partially offset by lower sales organization costs, lower retirement-related expenses and decreased Business Transformation Projectintegration planning expenses. Adjusted operating income for the third quarter was slightly higher than the thirdfirst quarter of fiscal 2013. Adjusted operating income for2015 was greater than the first 39 weeksquarter of fiscal 2014 was lower than the first 39 weeks of fiscal 2013 primarily from a lower rate of growth in ourhigher gross profits, expenses attributable to volume growth, including payroll, expenses from our acquired operations, increased delivery and warehouse
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costs and higher corporate expenses. These were partially offset by lower sales organization costs, lower retirement-related expenseshigher pay-related expenses. More information on the rationale for the use of these measures and decreased Business Transformation Project expenses. As a percentage of sales, we experienced favorable expense management partially from benefits from our business transformation initiatives.reconciliations can be found under “Non-GAAP Reconciliations.”
Gross profit dollars increased in the thirdfirst quarter and first 39 weeks of fiscal 20142015 as compared to the thirdfirst quarter and first 39 weeks of fiscal 20132014 primarily due to increased sales volumes. Gross margin, which is gross profit as a percentage of sales, was 17.69%17.59% in the thirdfirst quarter of fiscal 2014,2015, a decline of 94 basis points from the gross margin of 17.78% in the third quarter of fiscal 2013. Gross margin was 17.60% in the first 39 weeks of fiscal 2014, a decline of 46 basis points from the gross margin of 18.06% in the first 39 weeks of fiscal 2013. This decline in gross margin was partially the result of increased competition resulting from a slow-growth market; however, our third quarter gross profit grew at a faster pace compared to the first half of fiscal 2014. We believe these third quarterour category management initiative and efforts to manage margin are helping offset gross profit improvements are attributable to more consistent margin management practices, strengthening local trends,pressure stemming from increased competition in our slow-growth market, customer mix and the low level of inflation we experienced during much of the quarter. Increased sales to lower margin corporate-managed customers also contributed to the declineproduct cost inflation. Inflation in the first 39 weeksquarter of fiscal 2014. Our locally-managed customers comprise a significant portion2015 was experienced primarily in the meat, dairy and seafood categories, which represent more than one-third of our annual sales. While we cannot predict whether inflation will continue at current levels, periods of high inflation, either overall volumesor in certain product categories, can have a negative impact on us and an even greater percentage of profitability because of the high level of value added services we typically provide to this customer group. If sales from our locally-managed customers do not grow at the same rate as sales from these corporate-managed customers, our gross margins may continue to decline. Inflationcustomers. High food costs can be a factor that contributesdifficult to gross margin pressure; however,pass on to our customers, and inflation rates have remained relatively stable overcan reduce consumer spending in the past year. There are some indications thatfood-away-from-home market. As such, periods of high inflation may increase in future months.negatively impact our sales, gross profit, operating income and earnings.
Operating expenses for the thirdfirst quarter and first 39 weeks of fiscal 20142015 increased 3.5%8.6%, or $56.8 million, and 2.9%, or $136.8$135.8 million, over the comparable prior year periods, respectively.first quarter of fiscal 2014. Adjusted operating expenses for the thirdfirst quarter andof fiscal 2015 increased 6.0%, or $94.7 million, as compared to the first 39 weeksquarter of fiscal 20142014. The increase in operating expenses was impacted by an increase in pay-related expenses and $41.1 million in costs attributable to Certain Items, primarily merger and integration planning expenses.
Operating Expenses Impacting Adjusted Operating Income
Pay-related expenses represent a significant portion of our operating costs, and can increase due to volume growth, acquisitions and pay increases, among other factors. These expenses increased 3.3%, or $51.2 million, and 2.6% or $123.0by $67.3 million in the first 39 weeksquarter of fiscal 2015 over the first quarter of fiscal 2014, over the comparable prior year period, respectively. These increases were primarily due to higher sales and delivery costs, as well as the timing of certain management incentive accruals. Sales and gross profit growth partially contributed to an increase in sales pay-related expenses attributabledue to volume growth,increases in sales commissions and bonuses. In addition, we have increased our marketing associate headcount in certain markets in order to invest in future sales growth. Our delivery pay-related expenses are increasing from a continued shortage of drivers, which contributes to higher wages and increased overtime. Our expense related to management incentive accruals has increased primarily from reductions in accruals that occurred in the first quarter of fiscal 2014 that did not recur in the first quarter of fiscal 2015.
Cost per case is an important metric management uses to measure our expense performance. This metric is calculated by dividing the total operating expense of our North American Broadline companies by the number of cases sold. Adjusted cost per case is calculated similarly; however, the operating expense component excludes severance charges. Our corporate expenses are not included in the cost per case metrics because the metric is a measure of efficiency in our operations. We seek to grow our sales and either minimize or reduce our costs on a per case basis. Our cost per case was an increase of $0.12 per case in the first quarter of fiscal 2015
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as compared to the first quarter of fiscal 2014. Adjustments to operating expenses were not large enough in either period to produce a different result on an adjusted cost per case basis. The increase in cost per case is primarily due to pay-related expenses from our acquired operations, increasedgeneral and administrative, sales and delivery and warehouse costs and higher corporate expenses. These were partially offset by lower sales organization costs, lower retirement-related expenses and decreased Business Transformation Project expenses. We also experienced increased depreciation and amortization expense in both periods.areas. We believe favorable expense management, partially from our Business Transformation initiatives, helpedwe have opportunities to keepbetter manage our operating expenseexpenses over the remainder of the year; however the cost increases in the first quarter will pressure our ability to meet our goal of achieving no increase in our cost per case results from being greater. fiscal 2014.
Certain Items within Operating Expenses
Sysco’s results of operating expenses are impacted by Certain Items, which are expenses that can be non-recurring or not a part of our everyday operations. While the nature of these certain itemsdifficult to predict and can vary from period the period, the year over year change in these items was not a significant driver to the results of our third quarter and first 39 weeks. See morebe unanticipated. More information on the rationale offor the use of these measures and reconciliations to GAAP numbers can be found under “Non-GAAP Reconciliations.”
Operating Expenses Impacting Adjusted Operating Income
Pay-related expenses, excluding labor costs associated with our Business Transformation Project, US FoodsCertain Items for the first quarter of fiscal 2015 relate primarily to integration planning and retirement-related expenses, increased by $28.3 million in the third quarter and $8.5 million in the first 39 weeks of fiscal 2014 over the comparable prior year periods. The increases experienced were primarily due totransaction costs from companies acquired in the last 12 months as well as increased delivery and warehouse compensation, partially attributable to case growth. Pay-related costs have also increased at our corporate office as certain employee costs attributed to our Business Transformation Project in fiscal 2013 are no longer attributed to the Business Transformation Project in fiscal 2014 due to a change in allocation methodology. In fiscal 2013, we allocated internal associates based upon estimates of the percentage of time they spent on the project. In fiscal 2014, only associates that that are dedicated full time to the project are included in Business Transformation Project costs. Benefits from our Business Transformation initiatives have helped in lowering the rate of growth in these expenses particularly in our sales area for both the third quarter and first 39 weeks of fiscal 2014. During fiscal 2013, we streamlined our sales management organization and modified marketing associate compensation plans. The first 39 weeks was also impacted by a reduction in pay in the information technology area, resulting from the restructuring of this department in fiscal 2013, which reduced headcount in this area. Lower provisions for management incentive plans also contributed to the decline in pay-related expenses for the first 39 weeks of fiscal 2014.
Depreciation and amortization expense increased by $7.5 million in the third quarter and $29.1 million in the first 39 weeks of fiscal 2014 over the comparable prior year periods. The increase in amortization expenses related to our Business Transformation Project is described below. The remaining increase of $4.4 million in the third quarter and $20.0 million in the first 39 weeks of fiscal 2014 was primarily related to amortization of acquisition-related intangibles and depreciation on assets that were not placed in service in the third quarter and first 39 weeks of fiscal 2013 that were in service in the third quarter and first 39 weeks of fiscal 2014.
Our retirement-related expenses consist primarily of costs from our Retirement Plan, SERP and our defined contribution plan. As a part of our Business Transformation initiatives, our Retirement Plan was substantially frozen and the SERP was completely frozen in fiscal 2013, and our defined contribution plan was enhanced with greater benefits. The net impact in the third quarter of fiscal 2014 of our retirement-related expenses as compared to the third quarter of fiscal 2013 was a decrease of $31.2 million, consisting of a $30.9 million decrease in our net company-sponsored pension costs and approximately $0.3 million for other costs. The net impact in the first 39 weeks of fiscal 2014 of our retirement-related expenses as compared to the first 39 weeks of fiscal 2013 was a decrease of $58.8 million, consisting of a $102.6 million decrease in our net company-sponsored pension costs and approximately $5.1 million for other costs, partially offset by $48.9 million increased costs from the defined contribution plan. We expect our retirement-related
27
expenses in fiscal 2014 as compared to fiscal 2013 will decrease approximately $85 million to $95 million from reduced pension expenses, partially offset by increased defined contribution plan expenses. A greater portion of the decrease will occur in the second half of fiscal 2014 due to operation of our enhanced, defined contribution plan for a one-year period. Excluding $21 million of restructuring charges taken in fiscal 2013 and the charges estimated for fiscal 2014, the decrease in fiscal 2014 is expected to be approximately $65 million to $75 million.
Expenses related to our Business Transformation Project, inclusive of pay-related and software amortization expense, were $70.7 million in the third quarter of fiscal 2014 and $83.2 million in the third quarter of fiscal 2013, representing a decrease of $12.5 million. Expenses related to our Business Transformation Project, inclusive of pay-related and software amortization expense, were $197.6 million in the first 39 weeks of fiscal 2014 and $242.3 million in the first 39 weeks of fiscal 2013, representing a decrease of $44.7 million. The decrease in the third quarter and first 39 weeks of fiscal 2014 resulted from reduction in certain employee costs that were attributed to our Business Transformation Project in fiscal 2013 that are no longer attributed to the Business Transformation Project in fiscal 2014 due to a change in allocation methodology. In fiscal 2013, we allocated internal associates based upon estimates of the percentage of time they spent on the project. In fiscal 2014, only associates that that are dedicated full time to the project are included in Business Transformation Project costs. Additional contributors to the decreases include an increased level of capitalization on amounts spent for system improvements to enhance stability and scalability reduced level of spend with consultants as compared to the comparable period in fiscal 2013. The decrease in the first 39 weeks was partially offset by an increase in depreciation and amortization expense related to the Business Transformation Project of $9.1 million in the first 39 weeks of fiscal 2014 over the first 39 weeks of fiscal 2013. Amortization commenced in August of fiscal 2013; therefore, the first 39 weeks of fiscal 2013 only included eight months of amortization expense. As a result of the lower trend in these expenses, we expect these expenses to be in the range of $275 million to $300 million for fiscal 2014.
Operating expense on a cost per case basis for our Broadline companies decreased $0.03 and $0.07 per case as compared to the third quarter and first 39 weeks of fiscal 2013, respectively, primarily from reduced pay-related expenses from our sales and information technology areas and lower retirement-related expenses, partially offset by increased costs from delivery and warehouse pay-related expenses. We expect to meet or exceed our goal to reduce our Broadline companies cost per case in fiscal 2014 as compared to fiscal 2013 by approximately $0.05 per case.
Certain Items within Operating Expenses
Sysco’s results of operating expenses are impacted by Certain Items which are expenses that can be non-recurring or not a part of our everyday operations. See more information on the rationale of the use of these measures and reconciliations to GAAP numbers can be found under “Non-GAAP Reconciliations.” Our more significant certain items applicable for the third quarter and first 39 weeks of fiscal 2014 include costsincurred in connection with the proposed merger with US Foods and a contingency accrual of $20 million recorded in the third quarter of fiscal 2014. Also impacting the first 39 weeks of fiscal 2014 was a change in the estimate of our self-insurance reserve. Our more significant certain items applicable for the third quarter and first 39 weeks of fiscal 2014 related to withdrawal liabilities from multiemployer pension plans.
We have incurred additional costs in connection with the proposed merger with US Foods announced in the second quarter of fiscal 2014 primarily from integration planning and due diligence costs.Foods. These costs totaled $32.4 million in the third quarter of fiscal 2014 and $36.8$40.5 million in the first 39 weeksquarter of fiscal 2014.2015. We anticipate incurring additional costs as we continue planning for integration of the two companies, as well as other financing costs incurred in connection with the proposed merger.
From time to time, we may voluntarily withdraw from multiemployer pension plans to minimize or limit our future exposure to these plans. InCertain Items were not material for the third quarters of fiscal 2014 and 2013, we recorded provisions of zero and $40.7 million, respectively, related to multiemployer pension plan withdrawals. In the first 39 weeks of fiscal 2014 and fiscal 2013, we recorded provisions of $1.5 million and $43.2 million, respectively, related to multiemployer pension plan withdrawals.
Sysco maintains a self-insurance program covering portions of workers’ compensation, general and vehicle liability and property insurance costs. The amounts in excess of the self-insured levels are fully insured by third party insurers. Liabilities associated with these risks are estimated in part by considering historical claims experience, medical cost trends, demographic factors, severity factors and other actuarial assumptions. In the second quarter of fiscal 2014, based on the historical trends of increased costs primarily attributable to our worker’s compensation claims, we increased our estimates of our self-insurance reserve to a higher point in an estimated range of liability as opposed to our past position at the lower end of the range. This resulted in a charge of $23.8 million in the first 39 weeks of fiscal 2014.
Net Earnings
Net earnings decreased 10.2% in the third quarter and 4.5%2.4% in the first 39 weeksquarter of fiscal 20142015 from the comparable periodsperiod of the prior year due primarily to the changes in operating income discussed above. Adjusted net earnings decreased 5.0% and 2.2%increased 7.6% during the same periods.period.
28
The effective tax raterates for the thirdfirst quarter of fiscal 2015 and fiscal 2014 of 39.01% was negatively impacted by the recording of $6.2 million of tax expense related to anon-deductible penalty that the company has estimated within a contingency accrual. This negative impact was partially offset by the recognition of $1.0 million of tax benefit related to disqualifying dispositions of Sysco stock pursuant to share-based compensation arrangements.were 36.18% and 36.84%, respectively. Indefinitely reinvested earnings taxed at foreign statutory rates less than our domestic tax rate also had the impact of reducing the effective tax rate.
The effective tax raterates for the third quarter of fiscal 2013 of 34.26% was favorably impacted by the recording of $4.6 million of domestic tax benefit related to a foreign tax payment and $4.5 million of tax benefit related to disqualifying dispositions of Sysco stock pursuant to share-based compensation arrangements. Indefinitely reinvested earnings taxed at foreign statutory rates less than our domestic tax rate also had the impact of reducing the effective tax rate.
The effective tax rate for the first 39 weeks of fiscal 2014 of 36.99% was favorably impacted negatively impacted by the recording of $6.2 million of tax expense related to anon-deductible penalty that the company has estimated within a contingency accrual. This negative impact was partially offset by the recording of $4.7 million of tax benefit related to disqualifying dispositions of Sysco stock pursuant to share-based compensation arrangements. Indefinitely reinvested earnings taxed at foreign statutory rates less than our domestic tax rate also had the impact of reducing the effective tax rate.
The effective tax rate of 36.03% for the first 39 weeks of fiscal 2013 was favorably impacted by the recording of $7.1 million of tax benefit related to disqualifying dispositions of Sysco stock pursuant to share-based compensation arrangements and $4.6 million of domestic tax benefit related to a foreign tax payment. Indefinitely reinvested earnings taxed at foreign statutory rates less than our domestic tax rate also had the impact of reducing the effective tax rate.each period.
Earnings Per Share
Basic and diluted earnings per share in the thirdfirst quarter of fiscal 20142015 were $0.31, an 8.8%$0.47, a 4.1% decrease from the comparable prior period amount of $0.34$0.49 per share. Diluted earnings per share in the first quarter of fiscal 2015 were $0.47, a 2.1% decrease from the comparable prior period amount of $0.48 per share. Adjusted diluted earnings per share in the thirdfirst quarter of fiscal 20142015 were $0.38$0.52 a 5.0% decrease from6.1% increase over the comparable prior period amount of $0.40$0.49 per share. These results were primarily from the factors discussed above related to net earnings. We estimate that the impact of the unusually severe weather in January and February in fiscal 2014 reduced our earnings per share results by $0.01 to $0.015 per share.
Basic earnings per share in the first 39 weeks of fiscal 2014 were $1.16, a 4.1% decrease from the comparable prior year period amount of $1.21 per share. Diluted earnings per share in the first 39 weeks of fiscal 2014 were $1.15, a 4.2% decrease from the comparable prior year period amount of $1.20 per share. Adjusted diluted earnings per share were $1.26 in the first 39 weeks of fiscal 2014 and $1.28 in the first 39 weeks of fiscal 2013, or a decrease of 1.6%. These decreases were primarily the result of the factors discussed above related to net earnings.
Non-GAAP Reconciliations
Sysco’s results of operations are impacted by costs from charges from restructuring our executive retirement plans, multiemployer pension charges (MEPP), severance charges, US Foods merger and integration planning costs, change in estimate of self-insurance, charges from an estimate of a contingency accrual, charges from facility closures and amortization of US Foods related financing costs. Management believes that adjusting its operating expenses, operating income, interest expense, net earnings and diluted earnings per share to remove the impact of these charges provides an important perspective of underlying business trends and results and provides meaningful supplemental information to both management and investors that is indicative of the performance of the company’s underlying operations and facilitates comparison on a year-over-year basis.
The company uses these non-GAAP measures when evaluating its financial results, as well as for internal planning and forecasting purposes. These financial measures should not be used as a substitute for GAAP measures in assessing the company’s results of operations for periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. As a result, in the table below, each period presented is adjusted to remove the costs described above. In the tablestable below, individual components of diluted earnings per share may not add to the total presented due to rounding. Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
2925
Set forth below is a reconciliation of actual operating expenses, operating income, interest expense, net earnings and diluted earnings per share to adjusted results for these measures for the periods presented:
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| 13-Week |
| 13-Week |
| 13-Week Period Change in Dollars |
| 13-Week Period | ||||
| (In thousands, except for share and per share data) | ||||||||||
Operating expenses (GAAP) | $ | 1,662,116 |
| $ | 1,605,280 |
| $ | 56,836 |
| 3.5 | % |
Impact of restructuring executive retirement plans |
| (773) |
|
| (5,444) |
|
| 4,671 |
| (85.8) |
|
Impact of MEPP charge |
| - |
|
| (40,744) |
|
| 40,744 |
| (100.0) |
|
Impact of severance charges |
| (1,512) |
|
| (3,595) |
|
| 2,083 |
| (57.9) |
|
Impact of US Foods merger and integration costs |
| (32,416) |
|
| - |
|
| (32,416) |
|
|
|
Impact of contingency accrual |
| (20,000) |
|
| - |
|
| (20,000) |
|
|
|
Impact of facility closure charges |
| (1,022) |
|
| (285) |
|
| (737) |
| 258.6 |
|
Adjusted operating expenses (Non-GAAP) | $ | 1,606,393 |
| $ | 1,555,212 |
| $ | 51,181 |
| 3.3 | % |
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Operating income (GAAP) | $ | 332,625 |
| $ | 337,202 |
| $ | (4,577) |
| (1.4) | % |
Impact of restructuring executive retirement plans |
| 773 |
|
| 5,444 |
|
| (4,671) |
| (85.8) |
|
Impact of MEPP charge |
| - |
|
| 40,744 |
|
| (40,744) |
| (100.0) |
|
Impact of severance charges |
| 1,512 |
|
| 3,595 |
|
| (2,083) |
| (57.9) |
|
Impact of US Foods merger and integration costs |
| 32,416 |
|
| - |
|
| 32,416 |
|
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Impact of contingency accrual |
| 20,000 |
|
| - |
|
| 20,000 |
|
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Impact of facility closure charges |
| 1,022 |
|
| 285 |
|
| 737 |
| 258.6 |
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Adjusted operating income (Non-GAAP) | $ | 388,348 |
| $ | 387,270 |
| $ | 1,078 |
| 0.3 | % |
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Interest expense (GAAP) | $ | 32,224 |
| $ | 34,215 |
| $ | (1,991) |
| (5.8) | % |
Impact of US Foods financing costs |
| (2,925) |
|
| - |
|
| (2,925) |
|
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Adjusted interest expense (Non-GAAP) | $ | 29,299 |
| $ | 34,215 |
| $ | (4,916) |
| (14.4) | % |
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Net earnings (GAAP) | $ | 180,937 |
| $ | 201,417 |
| $ | (20,480) |
| (10.2) | % |
Impact of restructuring executive retirement plans (net of tax) (1) |
| 471 |
|
| 3,579 |
|
| (3,108) |
| (86.8) |
|
Impact of MEPP charge (net of tax) (1) |
| - |
|
| 26,784 |
|
| (26,784) |
| (100.0) |
|
Impact of severance charges (net of tax) (1) |
| 922 |
|
| 2,363 |
|
| (1,441) |
| (61.0) |
|
Impact of US Foods merger and integration costs (net of tax) (1) |
| 19,769 |
|
| - |
|
| 19,769 |
|
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Impact of contingency accrual (net of tax) (1) |
| 18,049 |
|
| - |
|
| 18,049 |
|
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Impact of facility closure charges (net of tax) (1) |
| 623 |
|
| 187 |
|
| 436 |
| 233.2 |
|
Impact of US Foods financing costs (net of tax) (1) |
| 1,784 |
|
| - |
|
| 1,784 |
|
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Adjusted net earnings (Non-GAAP) | $ | 222,555 |
| $ | 234,330 |
| $ | (11,775) |
| (5.0) | % |
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Diluted earnings per share (GAAP) | $ | 0.31 |
| $ | 0.34 |
| $ | (0.03) |
| (8.8) | % |
Impact of restructuring executive retirement plans |
| - |
|
| 0.01 |
|
| (0.01) |
| (100.0) |
|
Impact of MEPP charge |
| - |
|
| 0.05 |
|
| (0.05) |
| (100.0) |
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Impact of severance charges |
| - |
|
| - |
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| - |
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Impact of US Foods merger and integration costs |
| 0.03 |
|
| - |
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| 0.03 |
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Impact of contingency accrual |
| 0.03 |
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| - |
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| 0.03 |
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Impact of facility closure charges |
| - |
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| - |
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| - |
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Impact of US Foods financing costs |
| - |
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| - |
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| - |
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Adjusted diluted earnings per share (Non-GAAP) | $ | 0.38 |
| $ | 0.40 |
| $ | (0.02) |
| (5.0) | % |
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Diluted shares outstanding |
| 590,470,283 |
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| 592,903,799 |
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| 13-Week |
| 13-Week |
| 13-Week Period Change in Dollars |
| 13-Week Period | ||||
| (In thousands, except for share and per share data) | ||||||||||
Operating expenses (GAAP) | $ | 1,723,104 |
| $ | 1,587,289 |
| $ | 135,815 |
| 8.6 | % |
Impact of severance charges |
| (1,804) |
|
| (1,582) |
|
| (222) |
| 14.0 |
|
Impact of US Foods merger and integration costs |
| (40,481) |
|
| - |
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| (40,481) |
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Impact of facility closure charges |
| (1,150) |
|
| (739) |
|
| (411) |
| 55.6 |
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Adjusted operating expenses (Non-GAAP) | $ | 1,679,669 |
| $ | 1,584,968 |
| $ | 94,701 |
| 6.0 | % |
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Operating Income (GAAP) | $ | 465,613 |
| $ | 478,198 |
| $ | (12,585) |
| (2.6) | % |
Impact of severance charges |
| 1,804 |
|
| 1,582 |
|
| 222 |
| 14.0 |
|
Impact of US Foods merger and integration costs |
| 40,481 |
|
| - |
|
| 40,481 |
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Impact of facility closure charges |
| 1,150 |
|
| 739 |
|
| 411 |
| 55.6 |
|
Adjusted operating income (Non-GAAP) | $ | 509,048 |
| $ | 480,519 |
| $ | 28,529 |
| 5.9 | % |
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Interest expense (GAAP) | $ | 30,934 |
| $ | 30,528 |
| $ | 406 |
| 1.3 | % |
Impact of US Foods financing costs |
| (3,703) |
|
| - |
|
| (3,703) |
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Adjusted interest expense (Non-GAAP) | $ | 27,231 |
| $ | 30,528 |
| $ | (3,297) |
| (10.8) | % |
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Net earnings (GAAP) (1) | $ | 278,813 |
| $ | 285,590 |
| $ | (6,777) |
| (2.4) | % |
Impact of severance charges |
| 1,151 |
|
| 1,000 |
|
| 151 |
| 15.1 |
|
Impact of US Foods merger and integration costs |
| 25,835 |
|
| - |
|
| 25,835 |
|
|
|
Impact of facility closure charges |
| 734 |
|
| 467 |
|
| 267 |
| 57.2 |
|
Impact of US Foods financing costs |
| 2,363 |
|
| - |
|
| 2,363 |
|
|
|
Adjusted net earnings (Non-GAAP) (1) | $ | 308,896 |
| $ | 287,057 |
| $ | 21,839 |
| 7.6 | % |
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Diluted earnings per share (GAAP) (1) | $ | 0.47 |
| $ | 0.48 |
| $ | (0.01) |
| (2.1) | % |
Impact of severance charges |
| - |
|
| - |
|
| - |
|
|
|
Impact of US Foods merger and integration costs |
| 0.04 |
|
| - |
|
| 0.04 |
|
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|
Impact of facility closure charges |
| - |
|
| - |
|
| - |
|
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Impact of US Foods financing costs |
| - |
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| - |
|
| - |
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Adjusted diluted earnings per share (Non-GAAP) (1) | $ | 0.52 |
| $ | 0.49 |
| $ | 0.03 |
| 6.1 | % |
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Diluted shares outstanding |
| 593,309,750 |
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| 591,458,948 |
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(1) | The net earnings and diluted earnings per share impacts are shown net of tax. The aggregate tax impact of adjustments for |
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| 39-Week |
| 39-Week |
| 39-Week Period Change in Dollars |
| 39-Week Period | ||||
| (In thousands, except for share and per share data) | ||||||||||
Operating expenses (GAAP) | $ | 4,862,579 |
| $ | 4,725,752 |
| $ | 136,827 |
| 2.9 | % |
Impact of restructuring executive retirement plans |
| (2,323) |
|
| (17,608) |
|
| 15,285 |
| (86.8) |
|
Impact of MEPP charge |
| (1,451) |
|
| (43,201) |
|
| 41,750 |
| (96.6) |
|
Impact of severance charge |
| (5,109) |
|
| (15,341) |
|
| 10,232 |
| (66.7) |
|
Impact of US Foods merger and integration costs |
| (36,769) |
|
| - |
|
| (36,769) |
|
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|
Impact of change in estimate of self insurance |
| (23,841) |
|
| - |
|
| (23,841) |
|
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|
Impact of contingency accrual |
| (20,000) |
|
| - |
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| (20,000) |
|
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Impact of facility closure charges |
| (2,497) |
|
| (1,974) |
|
| (523) |
| 26.5 |
|
Adjusted operating expenses (Non-GAAP) | $ | 4,770,589 |
| $ | 4,647,628 |
| $ | 122,961 |
| 2.6 | % |
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Operating Income (GAAP) | $ | 1,162,600 |
| $ | 1,198,635 |
| $ | (36,035) |
| (3.0) | % |
Impact of restructuring executive retirement plans |
| 2,323 |
|
| 17,608 |
|
| (15,285) |
| (86.8) |
|
Impact of MEPP charge |
| 1,451 |
|
| 43,201 |
|
| (41,750) |
| (96.6) |
|
Impact of severance charge |
| 5,109 |
|
| 15,341 |
|
| (10,232) |
| (66.7) |
|
Impact of US Foods merger and integration costs |
| 36,769 |
|
| - |
|
| 36,769 |
|
|
|
Impact of change in estimate of self insurance |
| 23,841 |
|
| - |
|
| 23,841 |
|
|
|
Impact of contingency accrual |
| 20,000 |
|
| - |
|
| 20,000 |
|
|
|
Impact of facility closure charges |
| 2,497 |
|
| 1,974 |
|
| 523 |
| 26.5 |
|
Adjusted operating income (Non-GAAP) | $ | 1,254,590 |
| $ | 1,276,759 |
| $ | (22,169) |
| (1.7) | % |
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Interest expense (GAAP) | $ | 92,536 |
| $ | 97,325 |
| $ | (4,789) |
| (4.9) | % |
Impact of US Foods financing costs |
| (3,093) |
|
| - |
|
| (3,093) |
|
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Adjusted interest expense (Non-GAAP) | $ | 89,443 |
| $ | 97,325 |
| $ | (7,882) |
| (8.1) | % |
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Net earnings (GAAP) | $ | 677,362 |
| $ | 709,384 |
| $ | (32,022) |
| (4.5) | % |
Impact of restructuring executive retirement plans (net of tax) (1) |
| 1,464 |
|
| 11,264 |
|
| (9,800) |
| (87.0) |
|
Impact of MEPP charge (net of tax) (1) |
| 914 |
|
| 27,635 |
|
| (26,721) |
| (96.7) |
|
Impact of severance charge (net of tax) (1) |
| 3,219 |
|
| 9,813 |
|
| (6,594) |
| (67.2) |
|
Impact of US Foods merger and integration costs (net of tax) (1) |
| 23,166 |
|
| - |
|
| 23,166 |
|
|
|
Impact of change in estimate of self insurance (net of tax) (1) |
| 15,021 |
|
| - |
|
| 15,021 |
|
|
|
Impact of contingency accrual (net of tax) (1) |
| 18,150 |
|
| - |
|
| 18,150 |
|
|
|
Impact of facility closure charges (net of tax) (1) |
| 1,573 |
|
| 1,263 |
|
| 310 |
| 24.5 |
|
Impact of US Foods financing costs (net of tax) (1) |
| 1,949 |
|
| - |
|
| 1,949 |
|
|
|
Adjusted net earnings (Non-GAAP) | $ | 742,818 |
| $ | 759,359 |
| $ | (16,541) |
| (2.2) | % |
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|
Diluted earnings per share (GAAP) | $ | 1.15 |
| $ | 1.20 |
| $ | (0.05) |
| (4.2) | % |
Impact of restructuring executive retirement plans |
| - |
|
| 0.02 |
|
| (0.02) |
| (100.0) |
|
Impact of MEPP charge |
| - |
|
| 0.05 |
|
| (0.05) |
| (100.0) |
|
Impact of severance charge |
| 0.01 |
|
| 0.02 |
|
| (0.01) |
| (50.0) |
|
Impact of US Foods merger and integration costs |
| 0.04 |
|
| - |
|
| 0.04 |
|
|
|
Impact of change in estimate of self insurance |
| 0.03 |
|
| - |
|
| 0.03 |
|
|
|
Impact of contingency accrual |
| 0.03 |
|
| - |
|
| 0.03 |
|
|
|
Impact of facility closure charges |
| - |
|
| - |
|
| - |
|
|
|
Impact of US Foods financing costs |
| - |
|
| - |
|
| - |
|
|
|
Adjusted diluted earnings per share (Non-GAAP) | $ | 1.26 |
| $ | 1.28 |
| $ | (0.02) |
| (1.6) | % |
|
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|
Diluted shares outstanding |
| 589,834,321 |
|
| 591,054,506 |
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31
Segment Results
We have aggregated our operating companies into a number of segments, of which only Broadline and SYGMA are reportable segments as defined in the accounting literature related to disclosures about segments of an enterprise. The accounting policies for the segments are the same as those disclosed by Sysco for its consolidated financial statements. Intersegment sales represent specialty produce and imported specialty products distributed by the Broadline and SYGMA operating companies.
Management evaluates the performance of each of our operating segments based on its respective operating income results. Corporate expenses and adjustments generally include all expenses of the corporate office and Sysco’s shared service center. These also include all share-based compensation costs and expenses related to the company’s Business Transformation Project.costs. While a segment’s operating income may be impacted in the short-term by increases or decreases in gross profits, expenses, or a combination thereof, over the long-term each business segment is expected to increase its operating income at a greater rate than sales growth. This is consistent with our long-term goal of leveraging earnings growth at a greater rate than sales growth.
26
The following table sets forth the operating income of each of our reportable segments and the other segment expressed as a percentage of each segment’s sales for each period reported and should be read in conjunction with Note 14,15, “Business Segment Information”:
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| Operating Income as a |
| Operating Income as a |
| Operating Income as a | ||||||||||||
| 13-Week Period |
| 39-Week Period |
| 13-Week Period | ||||||||||||
| Mar. 29, 2014 |
| Mar. 30, 2013 |
| Mar. 29, 2014 |
| Mar. 30, 2013 |
| Sep. 27, 2014 |
| Sep. 28, 2013 | ||||||
Broadline | 6.4 | % |
| 5.8 | % |
| 6.5 | % |
| 6.5 | % |
| 6.8 | % |
| 6.9 | % |
SYGMA | 0.6 |
|
| 1.0 |
|
| 0.6 |
|
| 0.9 |
|
| 0.3 |
|
| 0.5 |
|
Other | 3.6 |
|
| 4.1 |
|
| 3.2 |
|
| 3.5 |
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| 3.2 |
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| 3.2 |
|
The following table sets forth the change in the selected financial data of each of our reportable segments and the other segment expressed as a percentage increase or decrease over the comparable period in the prior year and should be read in conjunction with Note 14,15, “Business Segment Information”:
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| Increase (Decrease) |
| Increase (Decrease) |
| Increase (Decrease) | ||||||||||||
| 13-Week Period |
| 39-Week Period |
| 13-Week Period | ||||||||||||
| Sales |
| Operating |
| Sales |
| Operating |
| Sales |
| Operating | ||||||
Broadline | 2.7 | % |
| 13.3 | % |
| 3.8 | % |
| 3.6 | % |
| 7.1 | % |
| 6.8 | % |
SYGMA | 6.8 |
|
| (36.7) |
|
| 7.6 |
|
| (30.6) |
|
| 1.2 |
|
| (38.3) |
|
Other | 4.0 |
|
| (8.9) |
|
| 5.7 |
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| (4.1) |
|
| 7.4 |
|
| 9.4 |
|
The following table sets forth sales and operating income of each of our reportable segments, the other segment, and intersegment sales, expressed as a percentage of aggregate segment sales, including intersegment sales, and operating income, respectively. For purposes of this statistical table, operating income of our segments excludes corporate expenses and adjustments of $289.0 million and $736.5$263.6 million in the thirdfirst quarter and first 39 weeks of fiscal 2014,2015, as compared to $223.2 million and $653.2$207.4 million in the thirdfirst quarter and first 39 weeks of fiscal 2013,2014, that is not charged to our segments. This information should be read in conjunction with Note 14,15, “Business Segment Information”:
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| Components of Segment Results | ||||||||||
| 13-Week Period Ended | ||||||||||
| Mar. 29, 2014 |
| Mar. 30, 2013 | ||||||||
| Sales |
| Segment Operating |
| Sales |
| Segment Operating | ||||
Broadline | 80.7 | % |
| 94.4 | % |
| 81.1 | % |
| 92.4 | % |
SYGMA | 13.5 |
|
| 1.4 |
|
| 13.1 |
|
| 2.5 |
|
Other | 6.4 |
|
| 4.2 |
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| 6.4 |
|
| 5.1 |
|
Intersegment sales | (0.6) |
|
| - |
|
| (0.6) |
|
| - |
|
Total | 100.0 | % |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
32
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| Components of Segment Results | Components of Segment Results | ||||||||||||||||||||
| 39-Week Period Ended | 13-Week Period Ended | ||||||||||||||||||||
| Mar. 29, 2014 |
| Mar. 30, 2013 | Sep. 27, 2014 |
| Sep. 28, 2013 | ||||||||||||||||
| Sales |
| Segment Operating |
| Sales |
| Segment Operating | Sales |
| Segment Operating |
| Sales |
| Segment Operating | ||||||||
Broadline | 81.0 | % |
| 95.0 | % |
| 81.4 | % |
| 94.0 | % | 82.1 | % |
| 95.9 | % |
| 81.5 | % |
| 95.5 | % |
SYGMA | 13.4 |
|
| 1.4 |
|
| 13.0 |
|
| 2.1 |
| 12.4 |
|
| 0.7 |
|
| 13.0 |
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| 1.2 |
|
Other | 6.2 |
|
| 3.6 |
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| 6.1 |
|
| 3.9 |
| 6.1 |
|
| 3.4 |
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| 6.1 |
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| 3.3 |
|
Intersegment sales | (0.6) |
|
| - |
|
| (0.5) |
|
| - |
| (0.6) |
|
| - |
|
| (0.6) |
|
| - |
|
Total | 100.0 | % |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % | 100.0 | % |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
Broadline Segment
The Broadline reportable segment is an aggregation of the company’s U.S., Canadian, Caribbean and EuropeanInternational Broadline segments.segments located in the Bahamas, Canada, Costa Rica, Republic of Ireland and Northern Ireland. Broadline operating companies distribute a full line of food products and a wide variety of non-food products to both traditional and chain restaurant customers, hospitals, schools, hotels, industrial caterers and other venues where foodservice products are served. These companies also provide custom-cut meat operations. Broadline operations have significantly higher operating margins than the rest of Sysco’s operations. In the first 39 weeksquarter of fiscal 2014,2015, the Broadline operating results represented approximately 81.0%82.1% of Sysco’s overall sales and 95.0%95.9% of the aggregated operating income of Sysco’s segments, which excludes corporate expenses.expenses and adjustments.
Sales
Sales were 2.7% higher in the third quarter and 3.8% greater infor the first 39 weeksquarter of fiscal 20142015 were 7.1% higher than in the comparable periodfirst quarter of the prior year.fiscal 2014. Sales for the thirdfirst quarter of fiscal 2015 increased as a result of case volume growth and product cost inflation and the resulting increase in selling prices. Sales for the first 39 weeks of fiscal 2014 increased as a result ofprices, case volume growth and sales from acquisitions that occurred within the last 12 months, case volume growth and product cost inflation and the resulting increase in selling prices. The third quarter was also impacted by unusually severe winter weather throughout much of the country particularly in the months of January and February. However, our sales growth in March was more robust than the prior two months and on a year-over-year basis due to improved weather andmonths. Case growth in our locally-managed customers. Our salesbusiness was steady compared to the growth in the first 39 weeks of fiscal 2014 was greater with our corporate-managed customers as compared tofourth quarter, and sales growth with our locally-managed customers. We believe our locally-managed customer sales growth has been negatively influenced by market conditions including the impact of lower consumer spend; however, our sales growth with our locally-managed customersfor both local and corporate-managed business grew at roughly similar rates in the third quarter was slightly less than our corporate-managed customers consistent with the improvements experienced in March.first quarter. Sales from acquisitions within the last 12 months favorably impacted sales by 1.0% for the third quarter and 2.0% for0.7% in the first 39 weeksquarter of fiscal 2014.2015. Changes in
27
product costs, an internal measure of inflation or deflation, were estimated as inflation of 0.9% for the third quarter and 1.1% for5.3% during the first 39 weeksquarter of fiscal 2014. Recently, we have seen increasing2015, driven mainly by inflation in the meat, dairy and dairyseafood categories. The exchange rates used to translate our foreign sales into U.S. dollars negatively impacted sales by 1.1%0.6% in the thirdfirst quarter and 0.8% for the first 39 weeks of fiscal 2014.2015.
Operating Income
Operating income increased by 13.3% in the third quarter and 3.6%6.8% in the first 39 weeksquarter of fiscal 2015 over the first quarter of fiscal 2014 over the comparable prior year periods. Both periods of fiscal 2013 included $40.7 million charge relatedprimarily due to the withdrawal from a multiemployer pension plan. No such significant charge was applicable in the comparable periods of fiscal 2014. We also experienced growth in ourhigher gross profits, increased expenses attributable to volume growth, expenses from our acquired operations, increased delivery and warehouse, partially offset by lower sales organization costs and retirement-relatedhigher pay-related expenses. As a percentage of sales, we experienced favorable expense management partially from benefits from our business transformation initiatives.
Gross profit dollars increased in the thirdfirst quarter andof fiscal 2015 as compared to the first 39 weeksquarter of fiscal 2014 primarily due to increased sales. Gross profit dollars increased at the same rate as sales for the third quarter but at a lower rate than sales for the first 39 weeks of fiscal 2014. This lack of growth involumes. We believe our category management initiative and efforts to manage margin are helping offset gross margin for the third quarter and decline in gross margin for the first 39 weeks of fiscal 2014 was partially the result ofpressure stemming from increased competition resulting fromin our slow-growth market, customer mix and product cost inflation. While we cannot predict whether inflation will continue at current levels, periods of high inflation, either overall or in certain product categories, can have a slow-growth market. Increased salesnegative impact on us and our customers. High food costs can be difficult to lower margin corporate-managedpass on to our customers, also contributed to the declineand inflation can reduce consumer spending in the first 39 weeksfood-away-from-home market. As such, periods of fiscal 2014. Our locally-managed customers comprise a significant portion of our overall volumes and an even greater percentage of profitability because of the high level of valued added services we typically provide to this customer group. If sales from our locally-managed customers do not grow at the same rate as sales from these corporate-managed customers, our gross margins may continue to decline. Inflation can be a factor that contributes to gross margin pressure; however, inflation rates have remained relatively stable over the past year. There are some indications that inflation may increase in future months.negatively impact our sales, gross profit, operating income and earnings.
33
Operating expenses for the Broadline segment decreased in the third quarter and increased in the first 39 weeks of fiscal 2014 as compared to the third quarter and first 39 weeks of fiscal 2013. The decrease in expenses in the third quarter of fiscal 2014 compared to fiscal 2013 is the result of a $40.7 million charge related to the withdrawal from a multiemployer pension plan incurred in the third quarter of fiscal 2013. No such significant charge was applicable in the comparable periods of fiscal 2014. Absent this charge, expenses increased primarily from volume growth and acquired operations. The increase in expenses for the first 39 weeks of fiscal 20142015 as compared to the first 39 weeks of fiscal 2013 were driven largely by expenses from acquired operations, expenses attributable to volume growth and increased depreciation and amortization expense. Pay-related expenses increased primarily from added costs from companies acquired in the last 12 months as well as increased delivery and warehouse compensation, partially attributable to case growth. Depreciation and amortization increased primarily from assets that were not placed in service in the third quarter and first 39 weeks of fiscal 2014 that were in service in the third quarter and first 39 weeks of fiscal 2014. These increases were partially offset by reducedprimarily due to higher sales and information technologydelivery costs. Sales and gross profit growth partially contributed to an increase in sales pay-related expenses. Retirement-related costs decreased primarilyexpenses due to increases in sales commissions and bonuses. In addition, we have increased our marketing associate headcount in certain markets in order to invest in future sales growth. Our delivery pay-related expenses are increasing from the plan freezes that occurreda continued shortage of drivers, which contributes to higher wages and overtime. These resulted in fiscal 2013. Our expensean increase in our expenses on a cost per case basis decreasedfor our North American Broadline companies as compared to the thirdfirst quarter and first 39 weeks of fiscal 2013 primarily from reduced pay-related expenses from our sales and information technology areas and lower retirement-related expenses, partially offset by increased costs from delivery and warehouse pay-related expenses.2014.
SYGMA Segment
SYGMA operating companies distribute a full line of food products and a wide variety of non-food products to certain chain restaurant customer locations.
Sales
Sales were 6.8% greater in the third quarter and 7.6%1.2% greater in the first 39 weeksquarter of fiscal 20142015 than in the thirdfirst quarter and first 39 weeks of fiscal 2013.2014. The increase was primarily due to new customers. Other contributors to the increase were product cost inflation and the resulting increase in selling pricescustomers and case volume increases from existing customers. customers, partially offset by transferred business to our Broadline segment in conjunction with the closing of a SYGMA distribution facility.
Operating Income
Operating income decreased by 36.7% in the third quarter and 30.6%38.3% in the first 39 weeksquarter of fiscal 20142015 from the thirdfirst quarter and first 39 weeks of fiscal 2013.2014. Gross profit dollars increased 3.6%0.9%, while operating expenses increased 9.0%3.9% in the thirdfirst quarter of fiscal 20142015 over the thirdfirst quarter of fiscal 2013. Gross profit dollars increased 2.7% while operating expenses increased 6.9% in the first 39 weeks of fiscal 2014 over the first 39 weeks of fiscal 2013. Gross profit dollar growth was lower than sales growth primarily due to reduced fuel surcharges.2014. Operating expenses increased in the first quarter of fiscal 20142015 largely due to increased warehouse and delivery costs, including pay-related expenses. Also contributingexpenses partially due to the increaseshortages in expense were startuplabor. In addition, SYGMA incurred costs relatedof $1.3 million to new customers and expenses incurred forclose a facility consolidation. distribution facility.
Other Segment
“Other” financial information is attributable to our other operating segments, including our specialty produce and lodging industry products segments, a company that distributes specialty imported products, a company that distributes to international customers and our Sysco Ventures platform, our suite of technology solutions that help support the business needs of our customers. These operating segments are discussed on an aggregate basis as they do not represent reportable segments under segment accounting literature.
Operating income decreased 8.9% in the third quarter and 4.1%increased 9.4%, or $2.1 million, in the first 39 weeksquarter of fiscal 2014 over2015 as compared to the thirdfirst quarter and first 39 weeks of fiscal 2013.2014. The decreaseincrease in operating income was primarily driven by startup costs from our Sysco Ventures operations, partially offset bylargely due to increased earnings from our specialty produce and lodging industry products segments. Additionally, retirement-related expenses were greater for these companies forsegments, partially offset by reduced earnings from the first 39 weeks of fiscal 2014 asremaining segments and startup costs from our enhanced defined contribution plan became effective January 1, 2013, and some of these operations were not a part of prior benefit plans.Sysco Ventures operations.
3428
Liquidity and Capital Resources
Highlights
Comparisons of the cash flows from the first 39 weeksquarter of fiscal 20142015 to the first 39 weeksquarter of fiscal 2013:2014:
· | Cash flows from operations were |
· | Capital expenditures totaled |
· | Free cash flow was |
· | Cash used for acquisition of businesses was |
· | Net bank borrowings were |
· | Proceeds from exercises of share-based compensation awards were |
· | Treasury stock purchases were |
· | Dividends paid were |
Subsequent to quarter-end, we issued $5 billion in senior notes as long-term financing for the proposed US Foods merger transaction.
Sources and Uses of Cash
Sysco’s strategic objectives include continuous investment in our business; these investments are funded by a combination of cash from operations and access to capital from financial markets. Our operations historically have produced significant cash flow. Cash generated from operations is currently generally allocated to:
· | working capital requirements; |
· | investments in facilities, systems, fleet, other equipment and technology; |
· | return of capital to shareholders, including cash dividends and share repurchases; |
· | acquisitions compatible with our overall growth strategy; |
· | contributions to our various retirement plans; and |
· | debt repayments. |
Any remaining cash generated from operations may be invested in high-quality, short-term instruments. As a part of our ongoing strategic analysis, we regularly evaluate business opportunities, including potential acquisitions and sales of assets and businesses, and our overall capital structure. Any transactions resulting from these evaluations may materially impact our liquidity, borrowing capacity, leverage ratios and capital availability.
In the second quarter of fiscal 2014, we announced an agreement to merge with US Foods. As of the time the merger agreement was announced in December 2013, Sysco agreed to pay approximately $3.5 billion for the equity of US Foods, comprised of $3 billion of Sysco common stock and $500 million of cash. As part of the transaction, Sysco will also assume or refinance US Foods’ net debt, which was approximately $4.7 billion as of September 28, 2013, bringing the total enterprise value to $8.2 billion at the time of the merger announcement. As of April 26,October 25, 2014, the merger consideration is estimated as follows: approximately $3.6$3.7 billion for the equity of US Foods, comprised of $3.1$3.2 billion of Sysco common stock valued using the seven day average through AprilOctober 25, 2014 and $500 million of cash. US Foods' net debt to be assumed or refinanced was approximately $4.8 billion as of December 28, 2013,September 27, 2014, bringing the total enterprise value to $8.4$8.5 billion as of April 26,October 25, 2014. The value of Sysco’s common stock and the amount of US Foods’ net debt will fluctuate. As such, the components of the transaction and total enterprise value noted above will not be finalized until the merger is consummated. We have secured a fully committed bridge financing and expect to issue permanent financing prior to closing. After completion of the transaction, the equity holders of US Foods will own approximately 87 million shares, or roughly 13%, of Sysco. This merger is currently pending a regulatory review process by the Federal Trade Commission (FTC). The company continues to be in productive discussions with FTC staff on a solution to permit the FTC to conclude its review. Given the amount of work remaining, and we estimateconsidering the merger will close inupcoming holidays, the company does not currently expect to complete the transaction before the first quarter of fiscal 2015. Under certain conditions, including lack of regulatory approval, Sysco would be obligated to pay $300 million to the owners of US Foods if the merger were cancelled.
At the time of the merger announcement, we secured a fully committed bridge financing with the expectation of issuing longer-term financing prior to closing. In September 2014, we priced a six-part senior notes offering totaling $5 billion as long-term financing for the proposed US Foods merger transaction. In October 2014, subsequent to quarter-end, the senior notes were funded, and the previously outstanding unsecured bridge facility was terminated. Detailed discussion of these transactions is located in the Financing Activities section of the Liquidity and Capital Resources discussion.
29
We continue to generate substantial cash flows from operations and remain in a strong financial position, however our liquidity and capital resources can be influenced by economic trends and conditions that impact our results of operations. Uncertain economic conditions and uneven levels of consumer confidence and the resulting pressure on consumer disposable income have lowered our sales growth and impacted our cash flows from operations. Competitive pressures in a low growth environment have also lowered our gross margins which in turn have causedcan cause our cash flows from operations to decrease. We believe our mechanisms to manage working capital, such as credit monitoring, optimizing inventory levels and maximizing payment terms with vendors, and our mechanisms to manage the items impacting our gross profits have been sufficient to limit a significant unfavorable impact on our cash flows from operations. We believe these mechanisms will continue to prevent a significant unfavorable impact on our cash flows from operations. As of March 29,September 27, 2014, we had $341.1$384.9 million in cash and cash equivalents, approximately 24%35% of which was held by our international subsidiaries generated from our earnings fromof international operations. If these earnings were transferred among countries or repatriated to the U.S., such amounts may be subject to additional tax obligations; however, we do not currently anticipate the need to relocate this cash.
35
We believe the following sources will be sufficient to meet our anticipated cash requirements for the next twelve months, while maintaining sufficient liquidity for normal operating purposes:
· | our cash flows from operations; |
· | the availability of additional capital under our existing commercial paper programs, supported by our revolving credit facility, and bank |
· | our ability to access capital from financial markets, including issuances of debt securities, either privately or under our shelf registration statement filed with the Securities and Exchange |
Due to our strong financial position, we believe that we will continue to be able to effectively access the commercial paper market and long-term capital markets, if necessary. We believe our cash flows from operations will improve over the long-term due to benefits from our Business Transformation Project and initiatives to improve our working capital management and cash flows from the operations of US Foods once acquired.
Cash Flows
Operating Activities
We generated $848.1$62.6 million in cash flow from operations in the first 39 weeksquarter of fiscal 2014,2015, as compared to $759.4$169.2 million in the first 39 weeksquarter of fiscal 2013.2014. This increasedecrease of $88.7$106.6 million, or 11.7%63.0%, was largely attributable to unfavorable comparisons on working capital and the impact of timing for pension contributions, as well as the cash impact of Certain Items. Partially offsetting these unfavorable comparisons was a favorable comparison on working capital. Also contributing to the increase in cash flow from operations were several significant accruals in the first 39 weeks of fiscal 2014 and an increase in non-cash depreciation and amortization. Partially offsetting these favorable comparisons was a negative comparison on pension expense and contributions, a negative comparison on multiemployer pension withdrawal provisions and payments and reduced net earnings.incentive accruals.
Changes in working capital, specifically accounts receivable, inventory and accounts payable, had a favorable comparisonnegative impact of $209.9$85.3 million on the period over period comparison of cash flow from operations for the first 39 weeks of fiscal 2014 to the first 39 weeks of fiscal 2013.operations. Both periods were affected by increases in accounts receivable and inventory resulting from increases in sales, as well as a seasonal change in volume and customer mix. OurThe impact of increases in sales was greater in the first quarter of fiscal 2015 due to inflation. Both accounts receivable and inventory experienced turnover deterioration in both periods resulting primarily from the change in customer mix, but the year-over-year comparison related to turnover was favorable for accounts receivable but unfavorable for inventory. Accounts payable increased in both periods as a result of increases in sales; however, the impact was greater in the first quarter of fiscal 2015 due to a higher sales growth in fiscal 2014 has been greater with our corporate-managed customers and payment terms for these types of customers are traditionally longer than average. Inventory levels can also increase for these types of customers due to the number of proprietary items these customers often require.rate. Due to normal seasonal patterns, sales to our corporate-managedmulti-unit customers and school districts representedrepresent a larger percentage of our sales at the end of each first 39 week periodquarter as compared to the end of each prior fiscal year. The impactyear, yielding an increase in the deterioration in both accounts receivablereceivables outstanding and inventory turnover from the endfor these customers. Payment terms for these types of the prior fiscal year was less pronounced in the first 39 weeks of fiscal 2014customers are traditionally longer than the first 39 weeks of fiscal 2013. The increases in accounts payable in both periods were affected by the normal trend due to the seasonal change in volume and customer mix and partially offset the deterioration in accounts receivable and inventory turnover. However, the year-over-year impact of the change in accounts payable is favorable to cash flow from operations due to working capital improvements in accounts payable such as extending invoice payment days.
Included in the change in accrued expenses were several significant accruals unique to the first 39 weeks of fiscal 2014, which contributed $80.2 million to the favorable comparison on cash flow from operations for the first 39 weeks of fiscal 2014 to the first 39 weeks of fiscal 2013. Partially offsetting the favorable impact of the significant accruals was a negative comparison of $63.3 million on multiemployer withdrawal provisions and payments. The first 39 weeks of fiscal 2014 included a provision for multiemployer pension withdrawal of $1.5 million and a payment of $40.7 million, which resulted in a decrease to accrued expenses. The first 39 weeks of fiscal 2013 included a provision for multiemployer pension withdrawal of $43.2 million and a payment of $19.1 million, which resulted in an increase to accrued expenses.average.
Included in the change in other long-term liabilities was a negative comparison on pension expense and contributions, which contributed $103.6$55.3 million to the unfavorable comparison on cash flow from operations for the first 39 weeksquarter of fiscal 2015 to the first quarter of fiscal 2014. We made a $50 million contribution to our qualified pension plan (Retirement Plan) in the first quarter of fiscal 2015, while there was no contribution to this plan in the first quarter of fiscal 2014 due to its funding in the fourth quarter of fiscal 2013. As a result, there is a timing difference related to the qualified pension plan contributions impacting the comparison of operating cash flows from the first quarter of fiscal 2015 to the first 39 weeksquarter of fiscal 2014. Pension expense
Included in the change in accrued expenses was $3.6a favorable comparison on incentive accruals of $32.5 million, and pension contributions were $18.5 millionwhich partially offset the unfavorable comparison of cash flow from operations from the first quarter of fiscal 2015 to the first quarter of fiscal 2014. Both periods contained a reduction in incentive accruals resulting from payment of incentives related to the prior fiscal year; however, this reduction was less pronounced in the first 39 weeksquarter of fiscal 2014, which resulted in a decrease to other long-term liabilities. Pension expense was $106.2 million and pension contributions were $17.5 million in the first 39 weeks of fiscal 2013, which resulted in an increase to other long-term liabilities. 2015.
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Investing Activities
Our capital expenditures in the first 39 weeksquarter of fiscal 20142015 primarily includedconsisted of facility replacements and expansions, fleet, technology and warehouse equipment and technology.equipment.
During the first 39 weeksquarter of fiscal 2014,2015, in the aggregate, we paid cash of $40.5$32.1 million for acquisitions made during fiscal 2014.the quarter.
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Free Cash Flow
Free cash flow represents net cash provided from operating activities less purchases of plant and equipment plus proceeds from sales of plant and equipment. Sysco considers free cash flow to be a non-GAAP liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases and sales of buildings, fleet, equipment and technology, which may potentially be used to pay for, among other things, strategic uses of cash, including dividend payments, share repurchases and acquisitions. We do not mean to imply that free cash flow is necessarily available for discretionary expenditures, however, as it may be necessary that we use it to make mandatory debt service or other payments. As a result of increaseddecreased cash provided by operating activities and increasedreduced proceeds from sales of plant and equipment, partially offset by increaseddecreased capital spending, free cash flow for the first 39 weeksquarter of fiscal 2014 increased 21.5%2015 decreased 225.0%, or $85.8$99.1 million, to $484.3a negative $55.1 million as compared to the first 39 weeksquarter of fiscal 2013. We expect2014. Our cash requirements for our Certain Items were significantly greater in the levelfirst quarter of increase forfiscal 2015 as compared to first quarter of fiscal 2014. These cash needs, together with our $50 million contribution to our Retirement Plan, represent the full fiscal year to be moderate given the strongmajority of our free cash flow performance we achieved in the fourth quarter of fiscal 2013. decline.
Free cash flow should not be used as a substitute in assessing the company’s liquidity for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities.
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| 39-Week Period Change in Dollars |
| 39-Week Period | 13-Week |
| 13-Week |
| 13-Week Period Change in Dollars |
| 13-Week Period | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
Net cash provided by operating activities (GAAP) | $ | 848,064 |
| $ | 759,408 |
| $ | 88,656 |
| 11.7 | % | $ | 62,618 |
| $ | 169,229 |
| $ | (106,611) |
| (63.0) | % |
Additions to plant and equipment |
| (387,451) |
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| 12.5 |
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Proceeds from sales of plant and equipment |
| 23,695 |
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| 12,115 |
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| 11,580 |
| 95.6 |
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| 1,126 |
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| 10,573 |
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Free Cash Flow (Non-GAAP) | $ | 484,308 |
| $ | 398,475 |
| $ | 85,833 |
| 21.5 | % | $ | (55,077) |
| $ | 44,053 |
| $ | (99,130) |
| (225.0) | % |
Financing Activities
Equity Transactions
Proceeds from exercises of share-based compensation awards were $193.9$35.2 million in the first 39 weeksquarter of fiscal 2014,2015, as compared to $497.7$96.6 million in the first 39 weeksquarter of fiscal 2013.2014. The decrease in proceeds in the first 39 weeksquarter of fiscal 20142015 was due to ana decrease in the number of options exercised in this period, as compared to the first 39 weeksquarter of fiscal 2013, specifically in the third quarter.2014. The level of option exercises, and thus proceeds, will vary from period to period and is largely dependent on movements in our stock price and the time remaining before option grants expire.
SharesThere were no shares repurchased during the first 39 weeksquarter of fiscal 2014 were 10,059,0002015, as compared to 7,725,000 shares at a cost of $332.4 million, as compared to 10,000,000 shares at a cost of $321.0$250.6 million in the first 39 weeksquarter of fiscal 2013. In August 2013, our Board of Directors approved the repurchase of up to 20,000,000 shares for an aggregate purchase price not to exceed $720 million. The authorization expires on August 23, 2015.2014. There were no additional shares repurchased through April 26,October 25, 2014, resulting in a remaining authorization by our Board of Directors to repurchase up to 11,655,197 shares, based on the trades made through that date. Our share repurchase strategy is to purchase enough shares to keep our average shares outstanding relatively constant over time, excluding the impact of the 87 million shares to be issued upon closing of the potentialproposed merger with US Foods. The number of shares we repurchase, if any, in the remainder of fiscal 20142015 will be dependent on many factors, including the level of future stock option exercises, as well as competing uses for available cash.
Dividends paid in the first 39 weeksquarter of fiscal 20142015 were $497.8$170.0 million, or $0.85$0.29 per share, as compared to $482.0$164.1 million, or $0.82$0.28 per share, in the first 39 weeksquarter of fiscal 2013.2014. In FebruaryAugust 2014, we declared our regular quarterly dividend for the fourthsecond quarter of fiscal 20142015 of $0.29 per share, which was paid in AprilOctober 2014.
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Debt Activity and Borrowing Availability
We have an uncommitted bank linesline of credit, which provideprovided for unsecured borrowings for working capital of up to $95.0$20 million, of which none was outstanding as of March 29,September 27, 2014 or October 25, 2014. There
The company’s Irish subsidiary, Pallas Foods, has a multicurrency revolving credit facility in the amount of €100 million (Euro), which provides for capital needs for the company’s European subsidiaries. This facility provides for unsecured borrowings and expires September 23, 2015, but is subject to extension. Outstanding borrowings under this facility were no borrowings outstanding€62.0 million (Euro) as of April 26,September 27, 2014 and October 25, 2014.
We have a Board-approved commercial paper program allowing us to issue short-term unsecured notes in an aggregate amount not to exceed $1.3 billion.
Sysco and one of its subsidiaries, Sysco International, ULC, have a revolving credit facility supporting the company’s U.S. and Canadian commercial paper programs. The facility provides for borrowings in both U.S. and Canadian dollars. Borrowings by Sysco International, ULC under the agreement are guaranteed by Sysco, and borrowings by Sysco and Sysco International, ULC under the credit agreement are guaranteed by the wholly-owned subsidiaries of Sysco that are guarantors of the company’s senior notes and debentures. In January 2014, Sysco and Sysco International, ULC, extended and increasedThe facility in the size of the revolving credit facility
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described above that supports the company’s U.S. and Canadian commercial paper programs. The facility was increased to $1.5 billion with an expiration date ofexpires December 29, 2018, but is subject to further extension. The other terms and conditions of the extended facility are substantially the same. There were $441.1$398.6 million of commercial paper issuances outstanding as of March 29,September 27, 2014. As of April 26,October 25, 2014, there was no commercial paper issuances outstanding were $641.3 million.outstanding. We utilize our commercial paper issuances for normal day-to-day operations which may cause outstanding issuances to vary.
During the 39 week periodfirst quarter ended March 29,September 27, 2014, aggregate commercial paper issuances and short-term bank borrowings ranged from zeroapproximately $123.8 million to approximately $769.5$659.4 million. During the first 39 weeksquarter of fiscal 20142015 and 2013,2014, our aggregate commercial paper issuances and short-term bank borrowings had a weighted average interest raterates of 0.17%0.15% and 0.19%0.12%, respectively.
The company’s Irish subsidiary, Pallas Foods, has a multicurrency revolving credit facility, which provides for capital needs for the company’s European subsidiaries. In September 2013, the facility was extended and increased to €100.0 million (Euro). This facility provides for unsecured borrowings and expires September 24, 2014, but is subject to extension. Outstanding borrowings under this facility were €52.0 million (Euro)Included in current maturities of long-term debt as of March 29,September 27, 2014 and April 26, 2014. are the 0.55% senior notes totaling $300 million, which mature in June 2015. It is our intention to fund the repayment of these notes at maturity through cash on hand, cash flow from operations, issuances of commercial paper and/or senior notes or a combination thereof.
In August 2013,As of September 27, 2014, we entered into an interest rate swaphad a $3.3865 billion bridge term loan agreement that effectively converted $500.0 million of fixed rate debt maturing in fiscal 2018 to floating rate debt. This transaction was entered into with the goal of reducing overall borrowing cost and increasing floating interest rate exposure. This swap was designated as a fair value hedge against the changes in fair value of fixed rate debt resulting from changes in interest rates.
The following transactions were entered in contemplation of securing financing and hedging interest rate risk relating to our assumption or refinancing of US Foods’ net debt that will occur upon the closing of the proposed merger (discussed further under Trends and Strategy).
In December 2013, we secured a commitment for an unsecured bridge facility in the amount of $3.3865 billionmultiple lenders in connection with our proposed merger with US Foods. In January 2014, this bridgeThe facility commitment was replaced with a $3.3865 billion bridge term loan agreement with multiple lenders. We mayprovided that we could borrow up to $3.3865 billion in term loans on the closing date of the US Foods acquisitionmerger to fund the acquisition, refinance certain indebtedness of US Foods and pay related fees and expenses. The facility expires onhad an expiration date of March 8, 2015, but iswas subject to extension if regulatory approvals havehad not yet been obtained. BorrowingsAny borrowings under the bridge term loan agreement arewould be guaranteed by the same subsidiaries of Sysco that are guarantee the company’sour revolving credit facility, and in certain circumstances maywould also be guaranteed by US Foods after closing of the merger. As an alternative to using our bridge facility, we intend to issue permanent financing prior to closing of the transaction.
In JanuarySeptember 2014, we priced a six-part senior notes offering totaling $5 billion as long-term financing for the proposed US Foods merger transaction. The senior notes, issued under our February 2012 registration statement, are unsecured, are not subject to any sinking fund requirement and include a redemption provision that allows us to retire the notes at any time prior to maturity at the greater of par plus accrued interest or an amount designed to ensure that the note holders are not penalized by early redemption. In addition, if the merger has not closed by October 8, 2015 or if the merger agreement is terminated on or prior to October 8, 2015, we must redeem all of the senior notes at a redemption price equal to 101% of the principal of the senior notes plus accrued interest. The notes will be fully and unconditionally guaranteed initially by our wholly-owned U.S. Broadline subsidiaries that guarantee our other senior notes. Proceeds from the notes will be used to pay the cash portion of the consideration for the proposed merger, to refinance certain indebtedness of US Foods to unwind certain cash flow hedges that we entered into in contemplation of this merger-related debt assumption and refinancing, to repay a portion of our outstanding commercial paper and to pay expected future direct transaction costs related to the merger. These senior notes were funded in October 2014, subsequent to quarter-end. Details of the senior notes are below:
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Maturity Date |
| Par Value |
| Coupon Rate |
| Pricing | |||
October 2, 2017 |
| $ | 500 |
| 1.45 | % |
| 99.962 | % |
October 2, 2019 |
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| 750 |
| 2.35 |
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| 99.864 |
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October 2, 2021 |
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| 750 |
| 3.00 |
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| 99.781 |
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October 2, 2024 |
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| 3.50 |
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| 99.616 |
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October 2, 2034 |
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| 750 |
| 4.35 |
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| 99.841 |
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October 2, 2044 |
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| 1,000 |
| 4.50 |
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| 98.992 |
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In fiscal 2014, we entered into two forward starting swap agreements with notional amounts totaling $2.0$2 billion. WeThe company designated these derivatives as cash flow hedges of the variability in the expected cash outflows of interest payments on then
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forecasted 10-year and 30-year debt forecasted to be issued in fiscal 2015 due to changes in benchmark interest rates. In September 2014, in conjunction with the benchmarkpricing of the $1.25 billion senior notes maturing in fiscal 2025 and $1 billion senior notes maturing in fiscal 2045, we terminated these swaps, locking in the effective yields on the related debt. Cash of $58.9 million was paid to settle the 10-year swap in September 2014, and cash of $129.9 million was paid to settle the 30-year swap in October 2014 subsequent to quarter-end.
In conjunction with the new senior notes, we entered into interest rate swap agreements that effectively converted $500 million of the newly priced senior notes maturing in fiscal 2018 and $750 million of the newly priced senior notes maturing in fiscal 2020 to floating rate debt. These transactions were entered into with the goal of reducing overall borrowing cost and increasing floating interest rate exposure and were designated as fair value hedges against the changes in fair value of fixed rate debt resulting from changes in interest rates.
In JanuaryOctober 2014, we extendedsubsequent to quarter-end, the senior notes discussed above were funded, and increased the size ofpreviously outstanding unsecured bridge facility discussed above was terminated. Proceeds from the revolving credit facility described above that supportssenior notes were used to repay our U.S. and Canadianoutstanding commercial paper programs. The facility was increased to $1.5 billion with an expiration date of December 29, 2018, but is subject to further extension. The other terms and conditions ofunwind the extended facility are substantially the same.
In March 2014, we repaid the 4.6% senior notes totaling $200.0 million at maturity utilizing a combination of cash flow from operationshedges discussed above. As of October 25, 2014, the remaining proceeds of $4.1 billion were invested in U.S. Treasuries, government agency obligations and commercial paper issuances.repurchase agreements.
Other Considerations
Multiemployer Plans
As discussed in Note 7,9, “Multiemployer Employee Benefit Plans,” we contribute to several multiemployer defined benefit pension plans based on obligations arising under collective bargaining agreements covering union-represented employees.
Under certain circumstances, including our voluntary withdrawal or a mass withdrawal of all contributing employers from certain underfunded plans, we would be required to make payments to the plans for our proportionate share of the multiemployer plan’s unfunded vested liabilities. We believe that one of the above-mentioned events is reasonably possible with certain plans in which we participate and estimate our share of withdrawal liability for these plans could be as much as $90.0 million as of March 29,September 27, 2014 and April 26,October 25, 2014, based on the latest available information as of each date. These estimates exclude plans for which we have recorded withdrawal liabilities or where the likelihood of the above-mentioned events is deemed remote. Due to the lack of current information, we believe our current share of the withdrawal liability could materially differ from this estimate.
As of March 29,September 27, 2014, June 29, 201328, 2014 and March 30,September 28, 2013, Sysco had approximately $1.5 million, $40.7zero, $1.4 million and $54.8$40.3 million, respectively, in liabilities recorded related to certain multiemployer defined benefit plans for which Sysco’s voluntary withdrawal had already occurred.
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Required contributions to multiemployer plans could increase in the future as these plans strive to improve their funding levels. In addition, pension-related legislation in the U.S. requires underfunded pension plans to improve their funding ratios within prescribed intervals based on the level of their underfunding. We believe that any unforeseen requirements to pay such increased contributions, withdrawal liability and excise taxes would be funded through cash flow from operations, borrowing capacity or a combination of these items.
Potential Contingencies Impacting Liquidity
In the third quarter of fiscal 2014, we recorded a contingency accrual of $20 million which represents our current estimate of a potential liability related to our legal proceedings.
Certain tax jurisdictions require partial to full payment on audit assessments or the posting of letters of credit in order to proceed to the appeals process. Sysco has posted approximately $31.2 million in letters of credit, representing a partial payment of the audit assessments, in order to appeal the Canadian Revenue Authority assessments of transfer pricing adjustments relating to our cross border procurement activities through our former purchasing cooperative on our fiscal 2004 and 2005through fiscal 2009 years. We are protesting these adjustments through appeals and competent authority. If assessed on later years under these same positions, weappeals. We could have to pay cash or post additional letters of credit of as much as $123.1 million, in order to appeal these further assessments.
Contractual Obligations
Our Annual Report on Form 10-K for the fiscal year ended June 29, 2013,28, 2014, contains a table that summarizes our obligations and commitments to make specified contractual future cash payments as of June 29, 2013. Since June 29, 2013,28, 2014. Other than as described in this Form 10-Q, there have been no material changes to our specified contractual obligations other than as described below.through September 27, 2014.
The following table sets forth, as of March 29, 2014, certain information concerning our obligations and commitments to make contractual future payments:
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Unrecorded Contractual Obligations: |
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Purchase obligations (1) | $ | 3,946,811 |
| $ | 2,886,337 |
| $ | 1,039,425 |
| $ | 21,032 |
| $ | 17 |
US Foods merger consideration (2) |
| 5,300,000 |
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| 500,000 |
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| - |
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| - |
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| 4,800,000 |
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Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that are most important to the portrayal of our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. Sysco’s most critical accounting policies and estimates include those that pertain to the allowance for doubtful accounts receivable, self-insurance programs, pension plans, income taxes, vendor consideration, accounting
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for business combinations and share-based compensation, which are described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 29, 2013.
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28, 2014.
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:
· | Sysco’s ability to increase its sales and market share and grow earnings, and our plan to continue to explore appropriate opportunities to profitably grow market share and create shareholder value; |
· | Sysco’s belief regarding the impact of accounting standards updates; |
· | expectations regarding |
· | expectations regarding our future contributions to certain multiemployer pension plans and expectations regarding any mass withdrawals from the |
· | our estimated share of withdrawal liability for certain multiemployer pension plans, and our belief that our current share of the withdrawal liability could materially differ from our estimate; |
· | our plans and expectations related to the proposed merger with US Foods, including our expectations regarding the timing of the closing, expected capital expenditures related to the merger, estimates regarding merger consideration, and our expectations regarding regulatory review by the Federal Trade Commission; |
· | the impact of ongoing legal proceedings and estimates of potential liability; |
· | the impact of |
· | statements regarding inflation and other economic trends; |
· | our plans related to locally-managed sales and ongoing gross margin pressures; |
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· | expectations regarding costs we will incur in connection with the proposed merger, including costs related to pre-merger integration planning efforts; |
· | expectations related to the strategies that we have identified to help us achieve our mission and vision; |
· | our expectations regarding annual sales at closing of the merger with US Foods; |
· | our beliefs and expectations regarding the estimated annual synergies to be obtained by Sysco, as the combined company, and the expenses to achieve such synergies; |
· | our plans and expectations regarding the implementation, timing, costs and benefits of our Business Transformation Project; |
· | expectations related to the deployment of the ERP system; |
· | Sysco’s beliefs regarding capital spending and expenses related to the Business Transformation Project; |
· | our plans related to and the expected benefits of our cost transformation initiatives; |
· | our expectations regarding and the anticipated benefits of our category management initiative; |
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· | expectations regarding category launches in our category management initiative; |
· | expectations related to cost per case for our Broadline companies; |
· | expectations regarding operating income and sales for our business segments over the long-term; |
· | expectations regarding the allocation of cash generated from operations; |
· | the impact of acquisitions and sales of assets and businesses on our liquidity, borrowing capacity, leverage ratios and capital availability; |
· | Sysco’s expectations regarding cash held by international subsidiaries; |
· | the sufficiency of our mechanisms for managing working capital and competitive pressures, and our beliefs regarding the impact of these mechanisms; |
· | Sysco’s ability to meet future cash requirements, including the ability to access debt markets effectively, and remain profitable; |
· | Sysco’s ability to effectively access the commercial paper market and long-term capital markets; |
· | Sysco’s expectations regarding cash flows from operations over the long-term, and the factors impacting such cash flows; |
· | our expectations regarding free cash flow; |
· | our |
· | our |
· | expectations regarding tax expense; |
· | expectations regarding potential future tax assessments; |
· | our strategy regarding share repurchases; |
· | Sysco’s belief regarding the source of funds to pay contributions to multiemployer pension plans, withdrawal liability and excise taxes; and |
· | expectations related to our forward diesel fuel commitments. |
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These statements are based on management’s current expectations and estimates; actual results may differ materially due in part to the risk factors set forth below and those discussed in Part II, Item 1A of this Form 10-Q and our Form 10-Q filed for the second quarter of fiscal 2014, and in Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 29, 2013:28, 2014, and the risk factor discussed in Part II, Item 1A of this Quarterly Report on Form 10-Q:
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· | the closing and consummation of the merger with US Foods is subject to regulatory approval and the satisfaction of certain conditions, and we cannot predict whether the necessary conditions will be satisfied or waived and the requisite regulatory approvals received; |
· | Sysco and US Foods may be required to accept certain remedies in order to obtain regulatory approval for the merger, and any such remedies could reduce the projected benefits of the merger and negatively impact the combined company; |
· | termination of the merger agreement or failure to consummate the merger with US Foods could adversely impact Sysco and, under certain conditions, could require Sysco to make a termination payment of $300 million, which could adversely impact Sysco’s stock price and would adversely impact Sysco’s liquidity and financial condition; |
· | business uncertainties during the pendency of the proposed merger may adversely impact our current business operations and relationships with employees, vendors and customers; |
· | the pending merger and our current pre-merger integration planning efforts may divert resources from Sysco’s day-to-day operations and ongoing efforts related to other strategies and initiatives; |
· | the integration of the businesses of Sysco and US Foods may be more difficult, costly or time consuming than expected, and the merger may not result in any or all of the anticipated benefits, including cost synergies; |
· | we may not be able to retain some of US Foods’ vendors and customers after the proposed merger, which could negatively impact the anticipated benefits of the merger; |
· | in anticipation of the merger, Sysco has incurred significant additional indebtedness, which could adversely impact our financial condition and may hinder our ability to obtain additional financing and pursue other business and investment opportunities; |
· | the merger will dilute the ownership interests of Sysco’s existing stockholders; |
· | periods of significant or prolonged inflation or deflation and their impact on our product costs and profitability; |
· | risks related to volatility in the global economic environment, local market conditions and low consumer confidence, which can adversely affect our sales, margins and net income; |
· | the risk that competition in our industry may adversely impact our margins and our ability to retain |
· | the risk that we may not be able to fully compensate for increases in fuel costs, and forward purchase commitments intended to contain fuel costs could result in above market fuel costs; |
· | our ability to meet our long-term strategic objectives to grow the profitability of our business depends largely on the success of the Business Transformation Project, |
· | the risk that the actual cost of the ERP system may be greater |
· | the risk that we may not realize anticipated benefits from our operating cost |
· | the risk of interruption of supplies due to lack of long-term contracts, severe weather or more prolonged climate change, work stoppages or otherwise; |
· | the potential impact of adverse publicity or lack of confidence in our products; |
· | the potential impact on our operating |
· | the risks related to dependence on large regional or national customers for our sales, including the impact of losing one of these large customers, and potential pressure to lower our |
· | difficulties in successfully entering and operating in international markets and complimentary lines of business; |
· | the risk that we fail to comply with requirements imposed by applicable law or government regulations; |
· | the potential impact of product liability claims; |
· | the successful completion of acquisitions and integration of acquired companies, as well as the risk that acquisitions could require additional debt or equity financing and negatively impact our stock price or operating results; |
· | our access to borrowed funds in order to grow and any default by us under our indebtedness that could have a material adverse impact on cash flow and liquidity; |
· | our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position; |
· | our liquidity can be negatively impacted by payments required to appeal tax assessments with certain tax jurisdictions; |
· | due to our reliance on technology, any technology disruption or delay in implementing new technology could have a material negative impact on our business; |
· | the risk that a cybersecurity incident and other technology disruptions could negatively impact our business and our relationships with customers; |
· | the potential requirement to pay material amounts under our multiemployer defined benefit pension plans; |
· | our funding requirements for our Retirement Plan may increase should financial markets experience future declines; |
· | labor issues, including the renegotiation of union contracts and shortage of qualified labor; |
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· | the risk that the anti-takeover benefits provided by our preferred stock may not be viewed as beneficial to stockholders. |
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For a more detailed discussion of factors that could cause actual results to differ from those contained in the forward-looking statements, see the risk factors discussion contained in Part II, Item 1A of this Form 10-Q and our Form 10-Q filed for the second quarter of fiscal 2014, and in Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 29, 2013.28, 2014 and Part II, Item 1A of this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our market risks consist of interest rate risk, foreign currency exchange rate risk, fuel price risk and investment risk. For a discussion on our exposure to market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risks” in our Annual Report on Form 10-K for the fiscal year ended June 29, 2013.28, 2014. There have been no significant changes to our market risks since June 29, 201328, 2014 except as noted below.
Interest Rate Risk
At March 29,September 27, 2014, there was $441.1$398.6 million of commercial paper issuances outstanding. Total debt as of March 29,September 27, 2014 was $3.1$3.0 billion, of which approximately 67%68% was at fixed rates of interest, including the impact of our interest rate swap agreements.
In August 2013, we entered into an interest rate swap agreement that effectively converted $500.0$500 million of fixed rate debt maturing in fiscalon February 12, 2018 (the fiscal 2018 swap) to floating rate debt. In addition, prior to fiscal 2014, weWe entered into an interest rate
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swap agreementagreements that effectively converted $200$500 million of fixed rate debtthe new senior notes maturing in fiscal 2014 (the fiscal 2014 swap)on October 2, 2017 and $750 million of the new senior notes maturing on October 2, 2019 to floating rate debt.debt (Debt issuance discussed in Note 7, Debt). These transactions were entered into with the goal of reducing overall borrowing cost. The major risks fromcost and increasing floating interest rate derivatives include changes in interest rates affecting the fair value of such instruments, potential increases in interest expense due to market increases in floating interest ratesexposure and the creditworthiness of the counterparties in such transactions. These transactions were designated as fair value hedges since the swaps hedge against the changes in fair value of fixed rate debt resulting from changes in interest rates. Details of our outstanding swap agreements are below:
The fiscal 2014 swap was settled upon maturity of the senior notes in March 2014. As of March 29, 2014, the fiscal 2018 swap was recognized as an asset within the consolidated balance sheet at fair value within other assets of $1.7 million. The fixed interest rate on the hedged debt is 5.25% and the floating interest rate on the swap is six-month LIBOR which resets every six months in arrears.
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Maturity Date of Swap |
| Notional Value |
| Fixed Coupon Rate on Hedged Debt |
| Floating Interest Rate on Swap |
| Floating Rate Reset Terms |
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| Location of Fair Value on Balance Sheet |
| Fair Value | |||
February 12, 2018 |
| $ | 500 |
| 5.25 | % |
| Six-month LIBOR |
| Every six months in arrears |
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| Other assets |
| $ | 264 |
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October 2, 2017 |
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| 500 |
| 1.45 |
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| Three-month LIBOR |
| Every three months in advance |
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| Other long-term liabilities |
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| (2,454) |
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October 2, 2019 |
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| 750 |
| 2.35 |
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| Three-month LIBOR |
| Every three months in advance |
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| Other long-term liabilities |
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| (1,042) |
In January 2014, in contemplation of securing financing and hedging interest rate risk relating to our assumption or refinancing of US Foods Inc.’ net debt that will occur upon closing of the proposed merger (discussed in Note 12,4, “Acquisitions”), we entered into two forward outstanding starting swap agreements with notional amounts totaling $2.0$2 billion. We designated these derivatives as cash flow hedges of the variability in the expected cash outflows of interest payments on then forecasted 10-year and 30-year debt expecteddue to be issuedchanges in fiscal 2015. These forward startingthe benchmark interest rates. In September 2014, in conjunction with the pricing of the $1.25 billion senior notes maturing on October 2, 2024 and $1 billion senior notes maturing October 2, 2044, we terminated these swaps, were recognized aslocking in the effective yields on the related debt. Cash of $58.9 million was paid to settle the 10-year swap in September 2014, and cash of $129.9 million was paid to settle the 30-year swap in October 2014 subsequent to quarter-end. As of September 27, 2014, a liability was recognized within the consolidated balance sheet at fair value within accrued expenses of $64.0 million.$129.9 million relating to the forward starting swap that settled in October 2014.
Fuel Price Risk
Due to the nature of our distribution business, we are exposed to potential volatility in fuel prices. The price and availability of diesel fuel fluctuates due to changes in production, seasonality and other market factors generally outside of our control. During both the first 39 weeksquarter of fiscal 20142015 and fiscal 2013,2014, fuel costs related to outbound deliveries represented approximately 0.6% and 0.7% of sales.sales, respectively.
We routinely enter into forward purchase commitments for a portion of our projected monthly diesel fuel requirements. As of March 29,September 27, 2014, we had forward diesel fuel commitments totaling approximately $159.1$166.7 million through MaySeptember 2015. These contracts will lock in the price of approximately 60% to 65% of our fuel purchase needs for the contracted periodsperiods. Our remaining fuel purchase needs will occur at prices lower than the current market rates unless contracted for a fixed price for diesel for the remainder of fiscal 2014.at a later date.
36
Item 4. Controls and Procedures
Sysco’s management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 29,September 27, 2014. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’sSecurities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding the required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Sysco’s disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives.Based on the evaluation of our disclosure controls and procedures as of March 29,September 27, 2014, our chief executive officer and chief financial officer concluded that, as of such date, Sysco’s disclosure controls and procedures were effective at the reasonable assurance level.
Sysco is currently deploying an enterprise resource planning system to implement an integrated software system to support a majority of its business processes. Through the third quarter of fiscal 2014, this system has been implemented at eight operating locations and within our shared business services center. The results of these operations are material enough to Sysco’s total financial results that the implementation of the new system required us to modifyNo change in our internal controlscontrol over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). There were no other changes in our internal control over financial reporting that occurred during the fiscal quarter ended March 29,September 27, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
4237
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
The information set forth in this report should be read in conjunction with the risk factors set forthfactor discussed below and the risk factors discussed in Item 1A of our Annual Report on Form 10-K for the year ended June 29, 2013.28, 2014.
The closingOur level of indebtedness and consummationthe terms of our indebtedness could adversely affect our business and liquidity position.
As of October 25, 2014, we had approximately $7.6 billion of total indebtedness. We have a Board-approved commercial paper program allowing us to issue short-term unsecured notes in an aggregate amount not to exceed $1.3 billion; a revolving credit facility supporting our United States and Canadian commercial paper programs in the amount of $1.5 billion set to expire on December 29, 2018; an uncommitted bank line of credit providing for unsecured borrowings for working capital of up to $20 million; a €100 million (Euro) multicurrency revolving credit facility for use by our Irish subsidiary set to expire September 23, 2015, which is subject to extension; and $5 billion in aggregate principal amount of unsecured senior notes issued in six series in October 2014, the proceeds from which are intended to be used, among other things, to pay the cash portion of the consideration for the proposed merger with US Foods, Inc. (US Foods) is subjectand to regulatory approval and the satisfactionrefinance certain indebtedness of certain conditions, and we cannot predict whether the necessary conditions will be satisfied or waived and the requisite regulatory approvals received.
The completion of the merger with US Foods is subject to regulatory approvals, including anti-trust approval, and customary conditions, including, without limitation:
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Sysco and US Foods may fail to secure the requisite approvals in a timely manner or on terms desired or anticipated, and the merger with US Foods may not close in the anticipated time frame, if at all. Sysco has no control over certain conditions in the merger agreement, and cannot predict whether such conditions will be satisfied or waived. Regulatory authorities may impose conditions on the completion of the merger or require changes to the terms of the transaction. Such conditions or changes may prevent the closing of the merger or cause the merger to be delayed, and delays may cause Sysco to incur additional, potentially burdensome transaction costs.
Sysco and US Foods may be required to accept certain remedies in order to obtain regulatory approval for the merger, and any such remedies could reduce the projected benefits of the merger and negatively impact the combined company.
The imposition of remedies as a condition to obtaining regulatory approval for the transaction could limit the revenues of the combined company and negatively impact the combined company. The potential remedies may negatively impact the projected benefits of the proposed merger, along with the business, financial condition and competitiveness of Sysco, as the combined company. Even if regulatory approval for the merger is obtained, any remedies could result in the total revenues of the combined post-merger entity being less than the combined historical revenues of Sysco and US Foods.
Termination of the merger agreement or failure to consummate the merger with US Foods could require Sysco to make a termination payment of $300 million, which could adversely impact Sysco’s stock price and would adversely impact Sysco’s liquidity and financial condition.
The merger agreement contains certain termination rights, including the right of either party to terminate the merger agreement if If the merger has not occurredclosed by MarchOctober 8, 2015, subject to extension under certain circumstances. Furthermore,or if the merger agreement is terminated dueon or prior to a failure to obtain required antitrust approvals, in certain circumstances Sysco will be required to pay US Foods a termination fee of $300 million. The payment of such fee could have an adverse impact on our liquidity and financial condition. In addition, if the merger agreement is terminated, we may suffer other negative consequences. Our business may be negatively impacted by our management having focused its attention on acquiring US Foods instead of pursuing other advantageous business opportunities or plans. Furthermore, we will incur substantial expenses and costs related to the merger, whether or not it is consummated, including legal, accounting and advisory fees. Also, failure to consummate the merger may result in negative market reactions, and may have an adverse impact on Sysco’s stock price and future financial results.
43
Business uncertainties during the pendency of the proposed merger may adversely impact our current business operations and relationships with employees, vendors and customers.
Prospective suppliers, customers or other third parties may delay or decline to enter into agreements with us as a result of the uncertainties surrounding the proposed merger, and we may also lose current suppliers and customers as a result of these uncertainties. Furthermore, uncertainties as to the effect of the merger transaction may adversely impact employee morale, and impede our ability to retain key employees. The loss of key employees could impact our ability to successfully integrate the businesses of Sysco and US Foods and fully realize the anticipated benefits of the merger.
The pending merger and our current pre-merger integration planning efforts may divert resources from Sysco’s day-to-day operations and ongoing efforts related to other strategies and initiatives.
The pending merger and our current pre-merger integration planning efforts may divert our management’s attention from day-to-day business operations and the execution and pursuit of strategic plans and initiatives, including the initiatives related to our Business Transformation Project, which has and will continue to require a substantial amount of resources. The diversion of management attention from ongoing business operations and strategic efforts could result in performance shortfalls, which could adversely impact Sysco’s business and operations.
The integration of the businesses of Sysco and US Foods may be more difficult, costly or time consuming than expected, and the merger may not result in any or all of the anticipated benefits, including cost synergies.
The success of the merger between Sysco and US Foods, including the realization of the anticipated benefits, will depend, in part, on the ability of Sysco, as the combined company, to successfully integrate the businesses of Sysco and US Foods. Failure to effectively integrate the businesses could adversely impact the expected benefits of the merger, including cost synergies stemming from supply chain efficiencies, merchandising activities and overlapping general and administrative functions.
The integration of two large independent companies will be complex, andOctober 8, 2015, we will be required to devote significant management attentionredeem these senior notes at 101% of principal plus accrued interest. See “Part II – Item 2. Management’s Discussion and incur substantial costsAnalysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Cash Flows – Financing Activities” for further discussion of our obligation to integrate Sysco’s and US Foods’ business practices, policies, cultures and operations. The integration process could also result inredeem the loss of key employees, and the disruption of each company’s ongoing businesses, which could materially impact the combined company’s future financial results.
Furthermore, during the integration planning process and after the closing of the merger, we may encounter additional challenges and difficulties, including those related to, without limitation, managing a larger combined company; streamlining supply chains, consolidating corporate and administrative infrastructures and eliminating overlapping operations; retaining our existing vendors and customers; unanticipated issues in integrating information technology, communications and other systems; and unforeseen and unexpected liabilities related to the merger or US Foods’ business. Delays encountered in the integration could adversely impact the business, financial condition and operations of the combined company.senior notes under certain conditions.
WeOur indebtedness may not be ablefurther increase from time to retain some of US Foods’ vendorstime for various reasons, including fluctuations in operating results, working capital needs, capital expenditures, potential acquisitions or joint ventures and customers after the proposed merger, which could negatively impact the anticipated benefits of the merger.
US Foods’ vendors or customers may have termination rights that are triggered upon completion of the merger and such vendors or customers may decide to not renew their existing relationshipintegration costs associated with us,our pending merger. Our increased level of indebtedness and may instead select onethe ultimate cost of our competitors. If we are unable to retain and maintain these vendor and customer relationships, then the business, financial condition and operations of Sysco, as the combined company, could be adversely impacted.
Consummation of the merger will require Sysco to incur significant additional indebtedness, which could adversely impact our financial condition and may hinder our ability to obtain additional financing and pursue other business and investment opportunities.
In connection with the merger, Sysco will assume or refinance all of US Foods’ outstanding debt, which was approximately $4.7 billion at the time the merger agreement was signed. The purchase price, as well as any refinancing of US Foods’ indebtedness, is expected to be financed with a combination of new debt and cash on Sysco’s balance sheet. Sysco has secured fully committed bridge financing.
Incurrence of additionalsuch indebtedness could have a negative consequences, including increasingimpact on our vulnerability to adverse economic and industry conditions, and limiting our ability to obtain additionalliquidity, cost of future debt financing and implement and pursue strategic initiatives and opportunities. Additionally, if we do not achieve the expected benefits and cost savings from the merger with US Foods, or if the financial performance of Sysco, as the combined company, does not meet current expectations, then our ability to service the debt may be adversely impacted.results. Our credit ratings may also be adversely impacted as a result of the incurrence of additional acquisition-related indebtedness. Currently, certain credit rating agencies have putIn the future, our cash flow and capital resources may not be sufficient for payments of interest on and principal of our debt, and any alternative financing measures available may not be successful and may not permit us on watch for a potential downgrade.
44
The merger will dilute the ownership interests of Sysco’s existing stockholders.
At the time of the consummation of the proposed merger, Sysco will issue approximately 87 million shares, or roughly 13% of Sysco’s outstanding common stock after the transaction is completed. As a result, the ownership amounts of Sysco’s pre-merger shareholders will be diluted. Generally, dilution will impact a shareholder’s ownership percentage and ability to influence voting results, and will influence earnings per share, which may impact stock price.
Our liquidity can be negatively impacted by payments required to appeal tax assessments with certain tax jurisdictions.
Certain tax jurisdictions require partial to full payment on audit assessments or the posting of letters of credit in order to proceed to the appeals process. Sysco has posted approximately $31.2 million in letters of credit in order to appeal the Canadian Revenue Authority assessments of transfer pricing adjustments relating tomeet our cross border procurement activities through our former purchasing cooperative on our fiscal 2004 and 2005 years. If assessed on later years under these same positions, we could have to pay cash or post additional letters of credit in order to appeal these further assessments. If significant further payments are required, the Company’s financial condition or cash flows could be adversely affected.scheduled debt service obligations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We made the following share repurchases during the thirdfirst quarter of fiscal 2014:2015:
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ISSUER PURCHASES OF EQUITY SECURITIES | ISSUER PURCHASES OF EQUITY SECURITIES | ISSUER PURCHASES OF EQUITY SECURITIES | ||||||||
Period | (a) Total Number of Shares Purchased (1) | (b) Average Price Paid per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | (a) Total Number of Shares Purchased (1) | (b) Average Price Paid per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||
Month #1 |
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December 29 – January 25 | 3,145 | $ | 36.05 | - | 13,489,197 | |||||
June 29 – July 26 | 877 | $ | 37.01 | - | 11,655,197 | |||||
Month #2 |
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January 26 – February 22 | 677,358 |
| 35.42 | 675,000 | 12,814,197 | |||||
July 27 – August 23 | 2,407 |
| 37.44 | - | 11,655,197 | |||||
Month #3 |
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February 23 – March 29 | 1,159,000 |
| 36.10 | 1,159,000 | 11,655,197 | |||||
August 24 – September 27 | 4,605 |
| 38.01 | - | 11,655,197 | |||||
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Total | 1,839,503 | $ | 35.85 | 1,834,000 | 11,655,197 | 7,889 | $ | 37.73 | - | 11,655,197 |
(1) | The total number of shares purchased includes |
On November 16, 2011, the Board approved the repurchase of 20,000,000 shares. In August 2013, our Board of Directors approved the repurchase of up to 20,000,000 shares for an aggregate purchase price not to exceed $720 million. The authorization expires on August 23, 2015. Pursuant to the repurchase programs, shares may be acquired in the open market or in privately negotiated transactions at the company’s discretion, subject to market conditions and other factors.
38
The Board of Directors has authorized us to enter into agreements from time to time to extend our ongoing repurchase program to include repurchases during company announced “blackout periods” of such securities in compliance with Rule 10b5-1 promulgated under the Exchange Act.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None
45
Item 6. Exhibits
The exhibits listed on the Exhibit Index immediately preceding such exhibits, which is incorporated herein by reference, are filed or furnished as a part of this Quarterly Report on Form 10-Q.
4639
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| Sysco Corporation |
| (Registrant) |
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| By | /s/ WILLIAM J. DELANEY |
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| William J. DeLaney |
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| President and Chief Executive Officer |
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Date: |
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| By | /s/ ROBERT C. KREIDLER |
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| Robert C. Kreidler |
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| Executive Vice President and |
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| Chief Financial Officer |
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Date: |
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| By | /s/ JOEL T. GRADE |
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| Joel T. Grade |
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| Senior Vice President-Finance and |
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| Chief Accounting Officer |
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Date: |
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4740
EXHIBIT INDEX
Exhibits.
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2.1 | — | Agreement and Plan of Merger, dated as of December 8, 2013, by and among Sysco Corporation, USF Holding Corp., Scorpion Corporation I, Inc. and Scorpion Company II, LLC, incorporated by reference to Exhibit 2.1 to Form 8-K filed on December 10, 2013 (File No. 1-6544). |
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3.1 | — | Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(a) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). |
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3.2 | — | Certificate of Amendment |
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| — | Form of Amended Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, incorporated by reference to Exhibit 3(c) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). |
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| — | Amended and Restated Bylaws of Sysco Corporation dated November |
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4.4 | — | Nineteenth Supplemental Indenture, including form of Note, dated as of October 2, 2014 among Sysco, the Guarantors and the Trustee relating to the 2024 Notes, incorporated by reference to Exhibit 4.7 to Form 8-K filed on October 2, 2014 (File No. 1-6544). |
4.5 | — | Twentieth Supplemental Indenture, including form of Note, dated as of October 2, 2014 among Sysco, the Guarantors and the Trustee relating to the 2034 Notes, incorporated by reference to Exhibit 4.9 to Form 8-K filed on October 2, 2014 (File No. 1-6544). |
4.6 | — | Twenty-First Supplemental Indenture, including form of Note, dated as of October 2, 2014 among Sysco, the Guarantors and the Trustee relating to the 2044 Notes, incorporated by reference to Exhibit 4.11 to Form 8-K filed on October 2, 2014 (File No. 1-6544). |
10.1#,† | — | Form of Fiscal 2015 Incentive Program For Corporate SBO Positions (including Named Executive Officers) under the 2009 Management Incentive Plan. |
10.2 | — | Underwriting Agreement dated |
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12.1# | — | Statement regarding Computation of Ratio of Earnings to Fixed Charges. |
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15.1# | — | Report from Ernst & Young LLP dated |
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15.2# | — | Acknowledgement letter from Ernst & Young LLP. |
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31.1# | — | CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2# | — | CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1* | — | CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2* | — | CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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101.1# | — | The following financial information from Sysco Corporation’s Quarterly Report on Form 10-Q for the quarter ended |
___________
† Executive Compensation Arrangement pursuant to 601(b)(10)(iii)(A) of Regulation S-K.
# Filed herewith
* Furnished herewith